加载中...
共找到 39,308 条相关资讯
Operator: Greetings. Welcome to the Life Time Group Holdings Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. At this time, I'll turn the conference over to Connor Wienberg, Vice President of Capital Markets and Investor Relations. Thank you, Connor. You may now begin your presentation. Connor Wienberg: Good morning, and thank you for joining us for the third quarter 2025 Life Time Group Holdings Earnings Conference Call. With me today are Bahram Akradi, Founder, Chairman and CEO; and Erik Weaver, Executive Vice President and CFO. During the call, we will make forward-looking statements, which involve a number of risks and uncertainties that may cause actual results to differ materially from those forward-looking statements made today. There is a comprehensive discussion of risk factors in the company's SEC filings which you are encouraged to review. The company will also discuss certain non-GAAP financial measures, including adjusted net income, adjusted EBITDA, adjusted diluted EPS, net debt to adjusted EBITDA or what we refer to as net debt leverage ratio and free cash flow. This information, along with the reconciliations to the most directly comparable GAAP measures are included when applicable, in the company's earnings release and earnings supplement issued this morning, our 8-K filed with the SEC and on the Investor Relations section of our website. With that, I will turn the call over to Erik. Erik Weaver: Thank you, Connor, and good morning, everyone. Starting with our third quarter results. Total revenue increased 12.9% to $783 million. Average monthly dues grew 10.0% year-over-year to $218. Comparable center revenue grew 10.6%. We are proud of the sustained growth in our comparable center revenue, driven by continued strong performance in both dues and our in-center businesses. Particularly in our dynamic personal training. As a result, we have raised our full year comparable center revenue guidance to be between 10.8% and 11.0%. We ended the quarter with nearly 841,000 center memberships, including on-hold memberships, total memberships reached approximately 891,000, in line with our expectations. Net income for the quarter was $102 million, an increase of 147% and includes an approximately $5.7 million tax-effected gain on sale leasebacks. This compares to a $3.5 million tax affected loss in the prior year quarter. This quarter's net income also benefited from $16.2 million in tax-adjusted proceeds from employee retention credits received under the CARES Act. Adjusted net income, which excludes the impacts of gain and losses on sale-leasebacks, share-based compensation, ERC credits and other nonrecurring items was $93 million, up 65.2% year-over-year. Adjusted EBITDA was $220 million, an increase of 22%, and our adjusted EBITDA margin improved by 210 basis points to 28.1%. Net cash provided by operating activities rose approximately 66% to $251 million compared to the prior year quarter. Our consistently strong cash flow from operating activities remains a key driver of our long-term growth strategy. Free cash flow was $63 million for the third quarter. In Q3, we closed on the sale-leaseback of one property, generating net proceeds of approximately $34 million. We expect to complete between $55 million and $65 million of additional sale-leaseback transactions before the end of this year. We delivered another strong quarter and remain encouraged by our continued momentum as we approach the close of a successful year. We look forward to giving everyone a preview of our full year 2025 performance in our initial thoughts on 2026 in the second half of January. With that, I will now pass the call over to Bahram. Bahram? Bahram Akradi: Thank you, Erik. We are pleased with another quarter of strong performance and growth. Thank you, as always, to our 43,000 team members. The core of our success has been our team members and our consistent delivery of the best places, programs and performance to our members. Our growth strategy is clear: first, accelerating new club growth; second, continued our maniacal focus on member experiences growing member engagement and revenue per center membership. With the balance sheet strong and our net leverage ratio below 2x we remain well positioned for our accelerated development and construction of new clubs. We expect to deliver 12 to 14 new clubs in 2026 and beyond. This is our new baseline of new club growth. We're particularly excited for the next year's new club openings. 11 of the 2026 clubs are a large format. 13 clubs scheduled to open in 2026 are currently under construction, which provides great visibility for these openings. For more details on these locations, you can refer to the earnings supplement posted to our website this morning. As it relates to the second part of our strategy, which is growing membership engagement and revenue per center membership. Membership optimization is increasingly important as clubs are busier than ever. As highlighted in our earnings supplement, this includes, one, improving the mix with more couples and families and 2 limiting qualified memberships in certain clubs. Our strategy is working, as evidenced by average monthly visit, per membership reached 12.5% for the quarter, up 5.9% year-over-year. Total visits are up 7% year-over-year for the quarter, revenue per center membership is up 11.3% year-over-year for the quarter, and in-center business revenue was up 14.4% year-over-year for the quarter with the particularly strong growth in dynamic personal training. Our strong performance and increase to our year-end revenue, net income and adjusted EBITDA guidance are direct results of our focused strategy on growing revenue and adjusted EBITDA by delivering the best programs and experiences in every club and optimizing memberships. Given the high club utilization, we expect to further manage our membership mix to continue to increasing revenue per center membership and anticipate an additional seasonal decline in membership units in the fourth quarter. Finally, a couple of updates on our growth accelerators. We now have 2.75 million non-club members, LT Digital accounts and expect to cross 3 million by early 2026. More importantly, we are very excited to release new features and capabilities offered by L•AI•C, our AI health companion for both our club members and our nonmember digital subscribers by end of this year. Our trusted nutritional brand, LTH continues to grow year-over-year, and we are expanding our product lines. And we expect to add 4 to 5 new MIORA locations in various clubs by early 2026 as we continue to see progress in our first 2 locations. With that, we will now open the call for questions. Operator: [Operator Instructions] And our first question comes from the line of John Heinbockel with Guggenheim Partners. John Heinbockel: Bahram, I want to start with the in-center revenue opportunity, where do you think -- because the spend is still a small part of what your customers' wallet is. Where do you see the biggest opportunities? And I think about DPT penetration, how much upside is there to that from where it is today? Bahram Akradi: John, our personal training program is absolutely doing an amazing job under the positioning, branding, DPT, the particular execution of the team all the way from the corporate office under the leadership of Ryan and then everybody who works with him as well as the focus in the clubs from our RVPs and our lead generals, all the way to the PTLs. We are executing a detailed plan and the results are incredible. There are many clubs that are setting new records, month after month. And then there are other clubs that they're basically following -- seeing what's possible and executing. So I think that possibility is right there, and we are very, very, very pleased with what they're doing and my hats off to all of them, but there's still opportunity there. We -- as we have mentioned on the other in-centers, there are our cafes and our spas and both of them showing some strength in the execution of the certain strategies, but look, when we rolled out dynamic personal training, dynamic stretch and all the different new concepts and ideas, they've actually took roughly about 6 to 12 months before you start seeing the momentum change. And so we expect to see this momentum change early next year on the cafes and spas. So I feel like we have plenty of room there. And then as I mentioned in my remarks, we've been working diligently on MIORA and LCH, both of which are -- have been in the early stage testing, development, introducing new products, seeing people, how people like it. And then we're going to really put pressure on growth and marketing of those in 2026 and beyond. So we feel really, really good. about all aspects of the business, John. John Heinbockel: And then as a follow-up, right, now that you're starting to get really good momentum in the club openings. How do you think about prioritizing beyond '26, different channels, ground up, club takeover, et cetera. And what -- do you have sort of a number in mind that you -- in the intermediate term, you would prefer not to exceed in terms of maintaining a healthy level of execution? Bahram Akradi: Yes, so I think the -- as we stated this morning and earlier, the new baseline is 12 to 14 clubs for right now. The pipeline is super strong. The real estate team is again doing an amazing job. And I am super, super excited about what we have on the pipeline. And the management of those, what we -- you've asked and we are providing supplement material for you online, so you can see a little more visibility to club openings where they're coming from. We we will have a variety of facilities. Our urban clubs are doing incredibly well. Everything we have opened up in Brooklyn, in New York and -- they're all doing really well, and our suburban clubs are doing better than ever. These clubs are ramping faster and clean memberships, which just matches the way we like the company being positioned from the get-go. So I don't have any -- we have really -- we have balance sheet restraints last year through the first half of this year because we just really wanted to make sure we deliver the BB credit standards, we've delivered that. The target, as I've always mentioned, for the debt-to-EBITDA is under 2x. And we have now a significant opportunity to grow the business we can do a bunch of round ups and take them to the sale-leaseback market at the right time. So we have all kinds of flexibility on growing the business, and I'm super excited about that. Operator: The next question is from the line of Arpine Kocharyan with UBS. Arpine Kocharyan: You raised comparable center revenue guide and what that implies for Q4 is actually nicely ahead of expectations. But there is this near-term debate among investors about sort of average number per center growth and how that ties to your revenue, same-store growth trajectory. Essentially, we're going back to the question of price and ability to take price as investors are increasingly more worried about macro. Is there any way you could give an update on your current thinking on how you maximize revenue without leaning too much on per center membership, which I think you're sort of trying to control more? And then I have a quick follow-up. Bahram Akradi: Right. Let me take a little bit of that and give it back to Erik, so both of us speak to that. The focus of the company has been brand and member experience, deliver a brand that is unmatched, deliver a brand that the customer wants it and wants to be a part of it and does not want to get away from it. When we went, public a second time, our materials suggested repeatedly, we're focused on memberships from 90 days old to 90 years old and basically trying to provide incredible programming for all of these people. When we came right [ at ] COVID, clubs were at about 40%, all clubs, they were at 40%, 50%, 45% of the membership capacity of the clubs. So we basically took in through all the programs, all the different types of memberships that we bring in to have enough traffic in the club, enough swipes in the club to make sure you run the programs. As the clubs have reached this optimum level of utilization. So many of the clubs are operating at very, very -- parking lots are full. Clubs are busy. So now in all of these clubs, the opportunity is in membership optimization, which basically means you manage to get more revenue per membership. Sometimes that means you focus on getting full-blown members, family memberships, which very, very high average dues and you select to restrict the number of memberships you get from third-party kind of a discounted programs. So we are constantly going to manage the total experience of the customer. We're constantly going to manage the brand, we're constantly going to manage the growth of revenue and EBITDA. And that is really what the company is focused on. It's a little less focused for center membership units, because that is going to fluctuate with depending on club-by-club based on the position that club is at. Erik Weaver: Yes. And just to add to that, Bahram talked about mix and he talked about engagement. If you see in the supplement that we provided, you can see there is that shift happening where we're getting more couples and families. And so that with the increased utilization is requiring fewer memberships for those clubs to reach the desired utilization. In fact, if you look forward to next year's pipeline and the year after, those clubs are actually getting business planned with units somewhere in the range of 3,500 to 4,000. And so again, it's just a testament to the utilization and that improving mix requiring that smaller base. Bahram Akradi: Yes. Many of the new locations are basically positioned in a way that they're ramping so fast with just the full price paying type of memberships that we basically do not open it up for restricted membership -- restricted memberships or qualified memberships or third party paid memberships. So that the really -- what I want to tell you guys, we are going to continue to emphasize revenue growth and EBITDA growth in every single club. Erik Weaver: Yes. And one last comment on that. As we hit those targets, we're still papering those things to do plus 30% cash-on-cash return. So the unit economics are still extremely attractive and in some markets, can be better. So I just wanted to call out that that's all part of our growth algorithm. Arpine Kocharyan: That is very, very helpful. Just a quick follow-up. You mentioned all centers you're targeting to open next year are mostly under construction currently. Whether you're at the lower end versus the high end of that range, what is that a function? Is it just sort of construction time lines making it to next year or kind of more tied to sale-leaseback cadence that you're looking at for next year? Bahram Akradi: Yes. We're pretty comfortable that 13 of the 14 are for sure. And one club may end up a month earlier or a month later. And we're just making sure that what we're telling you is accurate. But the goal has been 12 to 14 clubs. And I again, as I mentioned, 13 of them are pretty firmly in the pipeline, there is going to take some monumental event for them not to come out during the year. Operator: Next question is from the line of Brian Nagel with Oppenheimer Company. Brian Nagel: Great quarter. Congratulations. [ For my first question ], just stepping back, obviously, we're seeing the numbers today and your commentary is extraordinarily positive. But just given all the -- given the concerns out there within -- amongst investors about consumer dislocations. So the question I want to ask, as you look at your business, are you seeing anything, anything geographically income cohort that would suggest some type of weakness or growing weakness in your consumer base? Bahram Akradi: Look, as you can appreciate, what I am proud of with our team. And again, this is really all about our team from the very, very top-level executive team, all the way to the people who run the clubs, it's just an incredible passionate commitment to delivering a place that people want to go to and enjoy. As we look at the company's history over 35 years, we have opened clubs in a variety of markets. And right now, we are largely opening in a more affluent markets. When the memberships were $39, $49, $59 a month, there were markets that were well suited for that. And they're not really well suited for $290 to $350 a month memberships. So the interesting thing, Brian, is that all the clubs are making money. All of our mature clubs collectively are making more money than they were making in the past. So all the execution that we have put in place is working. The consumer that goes to Life Time chooses a Life Time because of all of its differentiation, and that exists in Omaha in Algonquin, in Chicago suburb. It does also in New York and in Florida and in California. So -- but do we manage all of these the same. We have the same strategy to be the best provider, but they take different type of programming and techniques to try to continue to manage each and every one of those locations. And so we are not seeing any new trends. We're not seeing anything different than the past in terms of how the customer is responding to what we are delivering right now. We keep thinking that, that might change, and we keep hedging and embracing what if times get tougher, so we have strategies laid out, but we're not seeing anything at this point. Erik? Erik Weaver: Yes. No, I would reiterate that. I mean we've talked about DPT, new business revenue in September was the highest for that quarter. Same thing in our spas, revenue per technician was up, and our group fitness classes on average were up 7.6%. So by all indications, we're seeing exactly what Bahram was talking about. Brian Nagel: That's very helpful. I appreciate all the detail on that. My second question, just with respect to capital allocation. So it's great to see now you were ramping new center growth. You talked about the 12 to 14 for '26 and most of those now are under construction [indiscernible]. So the question I have is, to what extent, especially with at least some ideas, the stock are underperforming, languishing relative to some very strong fundamentals. To what extent are you thinking about potential using capital potentially to buy back stock here? Bahram Akradi: Yes. So I'm going to respond to that. We -- #1 objective here is to remain extremely strong on the balance sheet so the company has all kinds of options in any kind of environment, okay? When the environment gets tough, we want to be in a win position. Environment gets stronger, we want to be in the win position. And based on where we are today, we are still adding even if we do $350 million, $400 million of sale-leaseback next year. We're still adding net asset value. We're still building more new assets, new club development, more money spent than that, then we are taking to sale-leaseback. So basically, the company continues to get stronger. So at some point, this is a Board discussion to decide, should we be buying some stock back. That's definitely on the table for discussion at the Board level. No decision has been made at this moment. But all options are on the table. The company is super strong. And that's exactly where we like it. We like to have this opportunity to basically go one way or the other if we need to. The main focus right now is to step on growth and make sure we have the ability to keep delivering these clubs. As I mentioned, 11 of these 14 clubs are ground ups. So they're taking a substantial amount of capital to build them. We're going to continue to invest in our programming and remodernizing the clubs to make sure all clubs are adapted to all things people are looking for in total health and wellness today. So we just like the flexibility, but every option is on the table. Operator: Our next question comes from the line of John Baumgartner with Mizuho Securities. John Baumgartner: Thanks for the question. First off, Bahram, I'd like to ask about relative value. As you see it, because fitness industry dues are moving higher across multiple concepts for the first time in years. And I'd imagine that some of these concepts, the boutiques, the studios, their prices are increasing, but the offerings aren't really evolving much to match that. So I'm curious, are you seeing anecdotally anything that's pushing some folks or stimulating more interest from folks to trade up or into Life Time because that value gap. I realize the number of members isn't necessarily your main KPI focused. But have you seen tipping points historically in that relative value versus other concepts where you capture more market share that sort of high-quality engaged consumer that you prioritize? Bahram Akradi: Yes. We're totally seeing that happening in our clubs. I mean when you look at our urban markets where there are many studios offerings, we're really not seeing any impact. Nobody is leaving a Life Time mean to go to studios. But on the reverse, we do see the reverse of that taking place. So the -- overall, despite the transitioning the company to the super high end, which was part of our multifaceted strategy after COVID to completely reposition the company to the highest level and the best programs being delivered under one roof, everything is working. Really, the clubs are -- as evidenced by the utilization of the clubs, the clubs are having more utilization that they've had ever before with significantly, and I mean sometimes literally 50% of membership count of what they used to be at 2019. And so the utilization is the higher. The customers are using the club a lot more. They're seeing the value in the business. They appreciate the brand, and they see the differentiation, so the strategy is working. Life Time is working. Erik Weaver: Yes. You mentioned relative value. I mean if you look at the relative value for -- we're seeing more couples and families. If you look at our pricing model. There's still significant value proposition there when you think of all the amenities that come with a membership. And when you compare that to a studio or what have you, all you need to -- 1 or 2 studios, it's not long before that's going to be in excess of what a couple of membership would be. So, the value proposition is still very, very strong, and that's what we're seeing. John Baumgartner: Great. And then my follow-up, back to LTH Nutrition, I think the strategy there is for more of a phased rollout. But I'm curious, Bahram, your perspective fall in the consumer reports investigation into the contaminants and supplements, especially the protein powders, does that lead you to revisit how you build this business? I mean is there an opportunity to lean a bit harder, especially with non-Life Time households to leverage your third-party purity testing and kind of grow or market this business a bit more aggressively or differently? Bahram Akradi: It's a brilliant question, and that's exactly the strategy for 2026. So here is what we have been doing. We needed to -- we did not own Life Time nutritional brand, some company had this before, we established the name Life Time until last year. So if you look at our materials, you see, we actually were -- had the opportunity to buy that brand and that create the opportunity to make sure that the LTH and Life Time brand can basically be synonymous, which we haven't been able to execute in the past. So that was one strategic move. The second piece is to basically take our product offering and make them look more unified because a lot of the work we did with Life Time started by looking at the nutritional space and seeing how the lack of regulation in nutritional space has created so many products that actually do not have the proper manufacturing, the proper third-party testing, which is expensive. So people just don't do it. And basically, they have either not the stuff that they claim they have in their product or they have contamination. So our strategy in the company is -- has been, will remain forever for 30 years after I'm gone, the strategy will remain to be the best to -- if we're not the best, don't do it. If we're not the best provider, don't do it. So we basically put a significant amount of energy in making sure every product is formulated correctly. We test them -- look, there are -- as an example, when you think about protein powders, the -- there are certain vegetables you eat that they own heavy metal. So basically that heavy metals are going to come in through different foods that you eat. Now the key is to make sure you have incredibly safe minimal amount of that, if there is any in them. And we basically have some of the absolute best cleaners and we test them. So to your point, what we needed to do is we need to kind of get everything lined up, make sure the packaging becomes more consistent. That's all underway throughout the end of this year, early next year and test the success of the product. I mean, our nutritional products like our Dream for sleep, I can tell you personally, it is absolute home run. We launched it. It immediately is doing great. And so there is some level of methodical development and testing and we're feeling out what products are working, repackaging. And then the strategy for 2026, as I mentioned before, is to completely and entirely press on and maybe even spend some -- we're not spending a lot of money on marketing as you guys have know -- known. And then maybe it's time to start spending some dollars on marketing. But we're probably 3, 4, 5 months premature to basically getting there. Right now, we're seeing all the growth, within our facilities, our team members and members are recognizing the superiority of these products, the trust that they can have for the brand and we want to make sure we test and examine that, use Life Time as a beta before we go to the outside world. Operator: Our next question is from the line of Kate McShane with Goldman Sachs. Katharine McShane: These questions kind of verge a little bit into 2026. So I'm not sure how much you can answer at this point that given that you're not giving guidance. But we wondered of the 13 clubs that you have under construction, we know there's a nice list of them in the presentation today. We just wondered what the breakdown was between new and existing markets. And if there was a little bit more in the new markets, what does it mean for marketing spend into 2026. And then just our other question unrelated was just about expenses in general, what you're maybe seeing or expecting on the labor side of things as you go into '26 in newer markets? Bahram Akradi: It's a great -- those are great questions. Let me take the first one for you, Kate. When we build the ground-ups, in any market, new or old, it makes no difference. They work exactly the same. The -- if you think about Life Time's, how long it's been in existence [ and ] 30-some years and the amount of loyal customers who love Life Time. But let's say they move to San Diego, and now we have nothing in San Diego. When we open clubs in new markets, they are just as robust as opening other club in Dallas. So I don't see right now any sort of a difference. We haven't seen. We're seeing great success and similar success in new markets as well as the established markets. And then as far as the expectation of wage growth, look, I believe that as the cost of living increases, wage growth is absolutely a given. So we basically model all of those things into our -- while we're not going to give inter-quarter guidance or 2026 guidance, the team is very, very incredibly thoughtful led by Erik and rest of his financial team, our President of Club Operation, P.J. and all of our analysts we are working diligently on thinking about what are those items that can cost more? What are the things we can do to mitigate if there is opportunities to hedge on the energy or this or that. So the team is doing an amazing job, credit goes to all of our team, like in our insurance -- health care insurance is managed amazingly by our team. None of that credit, 0 goes to me. Everything is going to -- the team is doing a maniacally great job on all aspects of the business. But -- it's given. I mean as you see cost of chicken going up, as you see all the different inflationary cost to the consumer, I think you -- the customer who -- the team member who works in the club also needs to have a pay increase in order to get through the life. And that's all planned for. Erik Weaver: Yes. And I would just add to that, to your point, we'll give 2026 outlook here at the end of January. But as far as labor expenses in our centers, those have been trending roughly around at the level of CPI 2.5%, 3%, and we wouldn't expect that to be any different, Bahram mentioned utilities, of course, utilities with energy demand, there's always going to be a potential for increase there. But we do a number of things to hedge and rate lock in a lot of our markets. So I would say we've managed exposure nicely there. And of course, R&M supplies, COGS, those things will always be subject to regular inflation. But for the most part, I think we've done a nice job of managing a lot of those risks. Bahram Akradi: And I want to add a comment. Look, I talk to investors all the time. Our environment is dynamic, our world is dynamic. Things change, sometimes they change slowly, sometimes they change rapidly and you need to constantly be ready for adaptation. And this team is doing an amazing job of thinking about adapting as necessary. And we're very, very, very proud of what the team has been executing over the last several years. With that, we'll just deal with the future as it comes. Operator: Next question is come from the line of Eric Des Lauriers with Craig-Hallum. Eric Des Lauriers: Congrats on another very impressive quarter here. Wondering if you could expand a bit more on dynamic personal training, certainly been a driver of incentive growth for a few quarters now. Could you just expand a bit on what changes have been driving that growth? And then maybe even more importantly, what kind of -- I guess, how should we think about capacity in terms of continued growth in DPT. I mean do these personal trainers have a lot of capacity to add new clients? Are they pretty much booked throughout the day at this point? Just kind of help us understand a bit more how to think about the capacity for continued growth in DPT? Bahram Akradi: That's a really, really complicated question. The response is not going to be something you like. There are some trainers who are booked solid. They don't have other hours to sell. So their opportunity is to adjust their price up a little higher and charge a little more, sometimes they do and sometimes because of their loyalty to their customer base they have, they don't. It's their call. The -- some trainers are new. They come in. We have a great opportunity right now with the Life Time brand, the DPT, the clubs to attract really, really, really solid people for that business. We have an incredibly robust program for them. The top performers get compensated extremely well taken care of really well, and we're continually adding to the number of productive trainers at a very good pace. Some clubs are doing PT, dynamic personal training revenues that are record-breaking month after month. And some clubs have opportunity to do significantly more than what they're doing based on their particular location and their membership base and their dues base. So it's the managing and is not the simple answer for the whole company as a whole, it's club by club, location by location, trainer by trainer. Eric Des Lauriers: That's helpful. And it certainly sounds like there's room for this to continue to be a growth driver, though. I appreciate that it certainly varies center by center. Next question for me. Just on the decision to expand new more locations. Can you just comment on what you're seeing from the few that you have opened now and just expand a bit more on that decision? Bahram Akradi: Yes. So the decision -- we kind of set the bar a year or 2 ago is about 10 to 12 club openings, balancing that with some acquired clubs that had a great opportunity to kind of convert those. And all of that was to sort of balance 2 things at the same time. The club growth and the balance sheet to the safe, safe BB level credits, we were just kind of delivering on 2 objectives. We achieved our BB credit a year ahead of what would have been expected. And I'm proud of the team for executing that 100%. And then as soon as we did that, the focus was come back, look at our pipeline and see what could be expedited and then take that into the equation. And that was the change. And now, as I mentioned to you, the balance sheet is strong. Our #1 priority is growth. We have a significant amount of -- as we told all the investors over and over in '23, '24, '25. We have significant opportunity to grow the -- all of the clubs, re-ramping a lot of clubs because they had lost. And with a clear understanding at some point, the clubs will get to a high level of [indiscernible] and then you need to sort of get the -- your growth coming in from new center growth. And so that is now part of the plan to grow the new center, as I mentioned, we have been working on our digital strategy as well. I know we didn't spend a lot of time on it, but I am super, super excited about the work our team is doing to deliver an amazing experience for AI to make the life of the member significantly easier with basically a pretty robust unveiling of the features that come in late December, January, February of this year, is about how we can do things so much easier for our customers in the club through AI as well as what AI can do for digital subscribers who are getting all of this for free. And the reason they're doing that is because -- the reason we're doing that is to make sure the Life Time brand is reached to people who are within our club vicinities and the people who are outside of that. And then, of course, we hope to establish opportunities with a much easier way for people to share link on, hey, why you should take Life Time's protein powder versus others and then the people can just click and purchase that. So there's a lot of different works being done that basically is established to help the overall growth of Life Time as a healthy way of life, health and wellness, full service of all aspects of healthy living, healthy aging. Additionally, our MIORA offering, which is the longevity. We are -- we have been at a sort of R&D stage for the last year, that results have been exactly in line with what our expectation is, as we need to establish the relationships, get the doctors, bring them into the facilities and then get the providers, which are the nurse practitioners or physician assistants. Get them fully trained and then take them through our approach of metabolic code and do that program. That program is going really well. It's right on schedule. We're expecting to open 4 to 5 additional locations in different markets in the next 90 days and then roll those out and then it starts rolling that out much more aggressively by the end of '26 into many, many, many more markets. So we're going to continue to look for ways to adapt the business to what the customers are seeking, make the adaptations necessary to provide that, make the adjustments in positioning the company into the market. So it's the highest premium product in the market. And sort of address the customer who wants that quality, and they're not going to subsidize -- sacrifice the quality for anything. And that strategy has been working as evident to your -- our results, and we're going to continue to stay on that strategy until we see a need to come up with something different. Right now, we don't. Operator: Our next question is from the line of Owen Rickert with Northland Securities. Owen Rickert: First, where do Life Time Living and Life Time Work fit into your road map going forward? And maybe how should investors think about their contribution to growth over the next several years? Bahram Akradi: That's a great question. Life Time Work, actually, from the separately unique locations, the specified [ Life Time Work ], they're working. They're working just as good as our clubs are working. They're not really a big factor in the overall number. However, the opportunity there remains asset-light when we can fit them in right next to the club, adjacent, we have similar success, waitlist for them. They work great. The -- what's interesting about that is that we have kind of launched the Life Time Work Club Lounge, which is basically a more expanded opportunity within our existing clubs, just part of the membership and it's really interesting to see how well that works. And we continue to make adaptations in existing clubs that just helps the regular membership. Life Time Living, it is clearly a superior performance in terms of -- we have 6, 7 locations that basically have Life Time Living, every single one ramp faster, every single one of those will have a higher rate per square foot and every single one demonstrate better retention and regular apartment business. So it's truly a disruptive plan, it benefits from the 200 billion of Life Time impressions per year. And so we are working though on either ways to provide the -- CapEx for that, that is more or less off Life Time's balance sheet and using the Life Time's balance sheet and cash flow for building our regular business, which has a massive IRR after sale-leaseback or sort of fully leveraged, as you guys know, it's a great IRR. The apartment business, even if we are 25% superior to the apartment business, which so many times, we demonstrate that, it's still extremely below the IRR of our club operations. Therefore, what we are working very, very diligently on is having a different vehicle that is basically does not use Life Time's money to build it. Now we're talking with that, we're working with a lot of partners who are building the apartment business to name their apartment Life Time Living, and we just got the financing all in place and the location in Paradise Valley is under -- it's a very minimal investment from Life Time. Most of it is outside capital, but it will be right behind and attached to our Paradise Valley location, which will open ahead of the apartments. So it is definitely on a development plan part of Life Time to continue to grow the full campus of the Life Time Living, Life Time Work, Life Time Club. The capital structure, the cap stack of that is very, very different than the cap stack for just the club business. Operator: Our next question is from the line of Molly Baum with Morgan Stanley. Molly Baum: I just wanted to ask 2 quick follow-ups on the new club openings for next year. So the first of which is, I know you highlighted that you're going to be opening larger clubs next year. Are there any important considerations that we should keep in mind from a margin standpoint or maybe from a new club ramp standpoint as we think about 2026 versus 2025? Erik Weaver: Yes. I mean for those clubs, I mean, those are going to have margins that are going to be, I would say, relatively similar. We do expect those clubs with the larger square footage though, on a per average basis will be -- we'll have higher average revenue per club. So that would be one expectation to keep... Bahram Akradi: These are what you should look for. Higher average revenue, lower membership count, as Erik mentioned, our new business model for the new clubs, we don't need more than 3,500 to 4,000 memberships to achieve the best outcome, the best optimal returns. And then you should also expect that we are going to press you guys on not keep calling for more EBITDA margin. We are -- last year, we started at 25%. We told you not to model beyond that. You asked, can you do better? We said, we didn't say we can't do better. But now we've got to consider that as we get into the next year, opening 13 or 14 new clubs, there will be a -- there would be a negative margin from those at the early stage of the opening. So we feel really, really good about where the business is at as strong as we've ever felt. I just want to make sure that we guide you guys correctly with all of that. But those clubs should do really, really well. Erik Weaver: Yes. And you probably saw in the supplement the average size is about 95,000 or 94,000 for next year. So just -- so you guys can model that into your models because look at 2025, it was roughly 66,000. So that's an important point as you're doing your remodel. Molly Baum: Got it. And then just quickly on my follow-up. When you think about the balance of using sale-leasebacks for self-development for new club growth, how are you thinking about the implied interest rate on leases versus using that on the balance sheet? Is there an opportunity to improve your lease terms going forward? Or does it ever make sense for you to keep the stores on the balance sheet with your lower cost of debt? Bahram Akradi: Yes. It's a little bit of both, right? I think the -- when you're looking at these clubs after sale-leaseback, the IRR are significantly better on the capital that has remain in the business. On the other hand, we do have a low financing charge, and I expect that our cap rates will start coming back down and we will be expecting to do sale-leaseback with better cap rates as the interest rate starts coming down. But your answer -- to your question is it's a thoughtful question, and we definitely will analyze those decisions as we go forward, balancing that out. Erik Weaver: Yes. I mean the obvious objective there is the cheapest cost of capital, right, whether that's a sale-leaseback or [indiscernible] debt. Operator: Our final question is from the line of Chris Woronka with Deutsche Bank. Chris Woronka: Thanks for squeezing me in, and I appreciate all the details so far. I just had one question, which is -- Bahram, as you continue to open new clubs, new builds, especially, but maybe the supplies to some conversions. Is there anything you look at with respect to design and maybe not necessarily from an efficiency standpoint only, but also from a customer -- what customers are looking for. I mean do these centers need to have more -- whether it's some of the sport courts or more room for training or whatever it might be? Is there any [ element of ] design and construction process that is going to change over time and what the impact might be? Bahram Akradi: Yes. Look, all large club formats from 30 years ago have been designed with maximum flexibility to offer the programming that is necessary for the time. And we've done those transformations that you guys have seen. And nobody has a crystal ball to know what 10 years or 15 years from now will look like. So whenever we work on a design and I was working for hours last night on design with my team, you have to think about as much flexibility as you can. And we -- that's all you can do. You can basically plan for that, hey, what can we change, what if things change? What do you do with that space? And that's an ongoing work. It is not something for next year or for last year. That's been going on for 30 years is going to go on for the next 30 years. Operator: At this time, this concludes our question-and-answer session. I'd like to turn the floor back to Connor Wienberg for closing comments. Connor Wienberg: Yes. Thank you, everyone, and thank you for joining us this morning. We look forward to having you on the next call. Operator: This will conclude today's conference. Thank you for your participation, ladies and gentlemen. You may have a wonderful day. Please, you may disconnect your lines at this time.
Operator: Greetings, and welcome to the Apple Hospitality REIT's Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Kelly Clarke, Vice President of Investor Relations. Thank you. You may begin. Kelly Clarke: Thank you, and good morning. Welcome to Apple Hospitality REIT's Third Quarter 2025 Earnings Call. Today's call will be based on the earnings release and Form 10-Q, which we distributed and filed yesterday afternoon. Before we begin, please note that today's call may include forward-looking statements as defined by federal securities laws. These forward-looking statements are based on current views and assumptions, and as a result, are subject to numerous risks, uncertainties and the outcome of future events that could cause actual results, performance or achievements to materially differ from those expressed, projected or implied. Any such forward-looking statements are qualified by the risk factors described in our filings with the SEC, including in our 2024 annual report on Form 10-K and speak only as of today. The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. In addition, non-GAAP measures of performance will be discussed during this call. Reconciliations of those measures to GAAP measures and definitions of certain items referred to in our remarks are included in yesterday's earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the company, please visit applehospitalityreit.com. This morning, Justin Knight, our Chief Executive Officer; and Liz Perkins, our Chief Financial Officer, will provide an overview of our results for the third quarter 2025 and an operational outlook for the rest of the year. Following the overview, we will open the call for Q&A. At this time, it is my pleasure to turn the call over to Justin. Justin Knight: Good morning, and thank you for joining us today for our third quarter 2025 earnings call. While the fundamentals of our business remains strong with supply growth continuing to be well below historical norms and overall demand proving resilient, policy uncertainty, expense pressure and a continued pullback in government travel all weighed on operating performance during the quarter for our portfolio and for the industry broadly. With many of these factors outside of our control, we have focused with our management teams on ensuring that we are growing market share and managing expenses to maximize the profitability of our hotels. From a capital allocation standpoint, we continue to see an opportunity to take advantage of the current disconnect between public and private market valuations by selectively selling assets and redeploying proceeds to buy our own stock. At the same time, we are leaning into future investments that we feel will ensure our portfolio's continued relevancy and allow us to achieve strong results for years to come. Together with our management companies, our asset and revenue management teams have done a tremendous job shifting the mix of business at our hotels to strengthen market share and tactically adjust to changing demand trends, driven in part by the pullback in government travel. Transient leisure demand for our portfolio remained resilient during the quarter, and our property teams have successfully targeted group business, which has helped to offset slightly softer midweek business transient. For the quarter, we achieved comparable hotels occupancy of 76%, down 1.2%; ADR of $163, down only 0.6%; and RevPAR of $124, down 1.8%. Impacted by the recent government shutdown, comparable hotels RevPAR was approximately 3% lower in October 2025 versus October 2024 based on preliminary performance data. The hotel teams have also been diligent in their efforts to mitigate cost pressures and operate as efficiently as possible while delivering the high level of service and quality our guests expect. As a result of these efforts, variable expense growth for our portfolio has moderated with a higher growth in fixed costs largely coming as a result of challenging year-over-year comparisons. Though slightly down versus prior year, our portfolio continues to produce industry-leading margins with comparable hotels EBITDA margin of 35.2% for the quarter. In addition to the day-to-day efforts with our management teams to maximize the performance of our hotels through the implementation of systems and effective management practices, we also look for structural ways to drive overall performance. Over the coming months, we will be transitioning our Marriott-managed hotels to franchise and consolidating management in these markets with existing third-party management companies to realize incremental operational synergies. We are confident these transitions, together with a select number of additional market-level management consolidations will help to further drive operating performance at our hotels. In the case of the Marriott managed assets, the transition away from brand management will also provide us with additional flexibility in the future as we consider select dispositions. The Marriott transitions align with Marriott's publicly stated goal to drive incremental efficiencies in their own business, and we appreciate their willingness to work with us in pursuit of a mutually beneficial outcome. We have always been disciplined in our approach to capital allocation, balancing both near- and long-term allocation decisions to capitalize on existing opportunities while securing the long-term relevance, stability and performance of our platform. Through all phases of the economic cycle, we seek transactions that enhance the quality and competitiveness of our existing portfolio, drive earnings per share, create value for our shareholders and ensure we are well positioned for future outperformance. In the current environment, we have strategically executed select dispositions and forward commitments on new development to manage our near-term CapEx needs and to ensure we are exposed to markets with strong growth profiles. At the same time, we have been able to take advantage of near-term opportunities that exist because of the disconnect in public and private market valuations, using proceeds from dispositions and cash from operations to fund share repurchases. We will continue to adjust tactical capital allocation strategy to account for changing market conditions and to act on opportunities at optimal times in the cycle to maximize total returns for our shareholders. Since the beginning of this year, we have completed the sale of 3 hotels for a total combined sales price of $37 million, including our full-service Houston Marriott, which we sold during the third quarter for $16 million. We currently have 4 hotels under contract for sale for a total combined sales price of approximately $36 million, including the previously announced pending sale of our Hampton and Homewood Suites in Clovis, California, as well as the contracted sale of our Hampton and Homewood Suites in Cedar Rapids, Iowa. We anticipate closing on the sale of these hotels during the fourth quarter of this year. While the overall transaction market continues to be challenging, we have successfully executed on select asset sales and ways to continue to optimize our portfolio concentration, manage CapEx and free capital, which we have been able to accretively redeploy at a meaningful spread. Pricing for the individual hotels varies. However, as a group, the 3 hotels we sold this year, together with the 2 Globus hotels and the 2 Cedar Rapids hotels will trade at a 6.2% blended cap rate or a 12.8x EBITDA multiple before CapEx, and a 4.7% cap rate or a 17.1x EBITDA multiple after taking into consideration the estimated $24 million in capital improvements. Proceeds from these well-timed dispositions have been used primarily to fund share repurchases. Since the beginning of the year through October, we have repurchased approximately 3.8 million of our shares at a weighted average market purchase price of approximately $12.73 per share for an aggregate purchase price of approximately $48 million. Shares repurchased year-to-date have been priced around a 3-turn spread to recent dispositions and around a 7-turn EBITDA multiple spread after taking into consideration estimated capital improvements. While our long-term goal is to grow our portfolio, when our stock trades at an implied discount to values we can achieve in private market transactions as it has for the past several months, we will opportunistically sell assets and redeploy proceeds primarily into additional share repurchases, preserving our balance sheet so that at the appropriate time in the cycle, we can act quickly on attractive acquisitions opportunities. Since May of last year, we have invested nearly $83 million in our own shares. In June of this year, we acquired the Homewood Suites Tampa-Brandon for approximately $19 million, and we are on track to acquire the Motto Nashville Downtown, which is nearing completion of construction in December of this year for a total of approximately $98 million. While it is still several months out, we will also be converting our Residence Inn-Seattle Lake Union to a Homewood Suites beginning in the fourth quarter of next year. The transition will happen as the hotel reaches the end of its current franchise term with the determination to change brands being informed by competitive supply within the market and brand incentives. Upon conversion, the hotel will be 1 of only 2 Homewood Suites in the downtown Seattle market. The hotel will continue to operate as Residence Inn through the renovation and conversion, which will be completed during the second quarter of 2027. This hotel sits on incredibly valuable real estate, and we are excited about the opportunity to reintroduce it under a new flag. While our primary near-term focus has been on dispositions and share repurchases, we entered into agreements for the development of 3 hotels during the quarter, each located in a key dynamic market that will further enhance our portfolio positioning in the years to come. We entered into a fixed price forward purchase contract for the purchase of an AC hotel to be developed in Anchorage, Alaska with an anticipated 160 rooms for a total of approximately $66 million. Anchorage has consistently been one of our top-performing markets with both strong leisure and business demand driving overall performance. While early in the development process, the hotel is expected to open in the fourth quarter of 2027. Also during the quarter, we entered into a fixed price forward purchase contract with a third-party developer to develop a dual-branded property that will include an AC Hotel and a Residence Inn in Las Vegas, Nevada on the land we own adjacent to our SpringHill Suites Las Vegas Convention Center for a total of approximately $144 million. It is our expectation that the hotel will be completed and open for business in the second quarter of 2028. The AC Hotel is expected to have 237 guestrooms and the Residence Inn is expected to have 160 guestrooms. The Las Vegas market continues to expand as a top destination for sports, entertainment and conventions. And while recent market performance has been negatively impacted by lower international inbound travel, we have strong conviction in the future growth and long-term viability of this dynamic business-friendly market and are excited to expand our presence there. Since the onset of the pandemic, we have completed approximately $354 million in hotel sales with an additional $36 million under contract and expected to close in the coming months. These sales represent a blended cap rate prior to taking into consideration estimated CapEx of approximately 5% and a 4% cap rate after CapEx and have allowed us to forego significant renovation expenditures in markets where we see limited upside, preserving capital for higher-yielding investments. Over the same period, we have invested more than $1 billion in acquisitions and purchased 6.9 million shares of our own stock while maintaining the strength of our balance sheet. These transactions have further enhanced our already well-positioned portfolio by lowering the average age, lifting overall portfolio performance, helping to manage near-term CapEx needs, increasing exposure to high-growth markets and positioning us to continue to benefit from economic and demographic trends. Consistent reinvestment in our portfolio is a key component of our strategy and ensures that our hotels maintain their strong value proposition for our customers. Our experienced team is focused on leveraging our scale ownership to control costs, maximize impact on reinvested dollars and optimally schedule projects during periods of seasonally lower demand to minimize revenue displacement. Our ability to renovate our hotels efficiently is a meaningful differentiator, which combined with effective portfolio management helps us to achieve consistent strong returns for our investors over time. During the 9 months ended September 30, capital expenditures were approximately $50 million. And for the year, we expect to reinvest between $80 million and $90 million in our hotels with major renovations at approximately 20 of our hotels. Supported by strong cash flow from our portfolio of hotels, we continue to pay an attractive dividend, which is meaningfully additive to total returns for our investors. During the third quarter, we paid distributions totaling approximately $57 million or $0.24 per common share. Based on Friday's closing stock price, our annualized regular monthly cash distribution of $0.96 per share represents an annual yield of approximately 8.6%. Together with our Board of Directors, we will continue to monitor our distribution rate and timing relative to the performance of our hotels and other potential uses of capital. Although macroeconomic uncertainty has continued to weigh on year-over-year growth and fueled capital market volatility, travel demand for our portfolio has remained resilient, further reinforcing the merits of our underlying strategy, and we are confident we remain well positioned to drive profitability and maximize long-term value for our shareholders. 63% of our hotels do not have any new upper upscale, upscale or upper mid-scale product under construction within a 5-mile radius. This historically low rate of supply growth is unique to this cycle, and we believe materially improves the overall risk profile of our portfolio by reducing potential downside while enhancing potential upside as lodging demand strengthens. Our hotels, which are broadly diversified across markets and demand generators, operate efficiently and produce strong cash flow while simultaneously providing guests traveling on both business and leisure with a compelling value proposition. We have historically outperformed during extended periods of economic uncertainty, and we believe we are well positioned for upside should we see reacceleration in broader economic growth. While we are early into our budget process for 2026, we are encouraged by airline and hotel brand commentary related to improvements they are seeing in demand as well as lapping the pullback in government demand we have seen this year. And with hotels in each of the U.S. markets that will host the 2026 FIFA World Cup, we are well positioned to take advantage of additional demand created by the events. Throughout our 25-year history in the lodging industry, we have refined our strategy, intentionally choosing to invest in high-quality hotels that appeal to a broad set of business and leisure customers, diversifying our portfolio across markets and demand generators, maintaining a strong and flexible balance sheet with low leverage, reinvesting in our hotels and closely aligning efforts with associates and management teams who operate our hotels. Our differentiated strategy has been tested and proven across multiple economic cycles. With the strength of our broadly diversified portfolio, the overall resilience of our business, our low leverage and the depth of our team, I am confident we are well positioned to drive profitability and maximize long-term value for our shareholders in any macroeconomic environment. It is now my pleasure to turn the call over to Liz for additional details on our balance sheet, financial performance during the quarter and outlook for the remainder of the year. Liz Perkins: Thank you, Justin, and good morning. While the travel industry has faced macroeconomic headwinds this year, we are generally pleased with the overall performance and resilience of our portfolio. Comparable hotels total revenue was $365 million for the quarter and $1.1 billion year-to-date through September, both down approximately 1% to the same periods of 2024. Comparable hotels adjusted hotel EBITDA was approximately $129 million for the quarter and $375 million year-to-date through September, down approximately 7% and 6% as compared to the same periods of 2024, respectively. Third quarter comparable hotels RevPAR was $124, down 1.8%. ADR was $163, down only 60 basis points, and occupancy was 76%, down 1.2% as compared to the third quarter 2024. For the 9 months ended September 30, comparable hotels RevPAR was $122, down 1.4%. ADR was $161, up 10 basis points, and occupancy was 75%, down 1.4% to the same period of 2024. Our portfolio continues to outperform the industry where STR reports RevPAR of $102, ADR of $160 and average occupancy of 63% for the first 9 months of the year, highlighting the relative strength of our portfolio demand despite year-over-year declines. Our teams have done a tremendous job adjusting strategy to reoptimize the mix of business at our hotels where there were meaningful shifts in government and other demand segments as well as maximizing revenue around special events to strengthen market share and performance for our overall portfolio. July was the strongest month of the quarter with comparable hotels RevPAR growth of 1%, while August and September turned negative as anticipated, with September impacted by the unfavorable calendar shift of Rosh Hashanah from October into September. Even with the pullback in August and September, we are generally pleased with the performance of our portfolio and the resilience of travel broadly despite elevated macroeconomic uncertainty and the pullback in government travel specifically. Market performance varied significantly during the quarter with a mix of strong RevPAR gains in several markets and ongoing headwinds impacting others due to demand shifts and challenging year-over-year comparisons. Our team remains focused on hotel and market-specific strategies as well as operational execution to maximize performance. Top-performing hotels during the quarter included our South Bend Residence Inn and Fairfield Inn & Suites, both with RevPAR gains over 20%; our Richmond Marriott saw RevPAR increase almost 17% year-over-year during the quarter. And other top performers included our Denton Homewood Suites, Lafayette SpringHill Suites, Mettawa Residence Inn, Boca Raton Hilton Garden Inn, Salt Lake City Residence Inn and our Austin Round Rock Homewood Suites. Hotels with significant year-over-year RevPAR declines included our Arlington Hampton Inn & Suites, Houston Park Row Residence Inn, Austin Fairfield Inn & Suites, Tucson Town Place Suites, San Bernardino Residence Inn and our Phoenix Homewood Suites. Based on preliminary results for the month of October, comparable hotels RevPAR declined by approximately 3% as compared to October 2024, which was impacted by incremental pullback in government demand as a result of the government shutdown, which began on October 1. While we expect the shutdown to continue to weigh on demand until the government reopens, we are optimistic that we will benefit from the near-term pent-up demand upon reopening. Turning back to the third quarter. Weekday and occupancy trends softened as the quarter progressed, together driving overall portfolio occupancy declines. For the quarter, weekend occupancy was strong at 81%, but declined 120 basis points, slightly outperforming weekday occupancy, which declined 160 basis points. Weekend ADR was approximately flat for the quarter, turning negative in September after being positive in July and August, while weekday ADR was softer, declining 80 basis points for the quarter and contributing to overall RevPAR declines. Highlighting same-store room night channel mix, brand.com bookings were up 110 basis points year-over-year at 40%; OTA bookings were up 70 basis points to 13%; property direct was down 120 basis points at 23%; and GDS bookings were down 20 basis points to 17%. Looking at third quarter same-store segmentation, bar was up 40 basis points at 33% of our occupancy mix; other discounts grew 30 basis points to 29%; corporate and local negotiated declined 70 basis points to 17% of our mix; and government declined 40 basis points to 5.2% of mix. Group business mix improved 50 basis points to 15% and continues to be a focus area for our property teams in response to demand shifts in other segments. We continue to see growth in other revenues, which were up 4% on a comparable basis during the quarter and up 6% year-to-date, driven primarily by parking revenue and cancellation fees. Turning to expenses. Comparable hotels total hotel expenses increased by 1.7% in the third quarter and 2.2% year-to-date through September as compared to the same periods of last year or 2.9% and 3.6% on a CPOR basis. On a same-store basis, total hotel expenses increased by only 1.5% for both the third quarter and year-to-date through September. Total payroll per occupied room for our same-store hotels was $40 for the quarter, up less than 2% to the third quarter of 2024, an improvement compared to first quarter growth of 4% and second quarter growth of 3%. We continue to achieve reductions in contract labor, which decreased during the quarter to 7% of total wages, down 140 basis points or 16% versus the same period in 2024. Comparable hotels' variable hotel expenses increased by only 0.7% in the third quarter or 2% on a per occupied room basis. Occupancy declines and cost control efforts resulted in rooms expense decline of 1% versus third quarter of 2024, driven by same-store rooms wages decline of 0.8%. Comparable hotel administrative and repair and maintenance costs grew slightly higher at just under 4% and 3%, respectively, while sales and marketing expense as well as utilities were more muted at just 1% growth. Consistent with the first and second quarters, fixed expense growth remained elevated, growing 12% in the third quarter, driven by increases in real estate taxes in several markets as well as general liability insurance premium increases. Despite the softer top line, our comparable hotels adjusted hotel EBITDA margin was strong at 35.2% for the third quarter as well as year-to-date through September, down 200 basis points and 190 basis points as compared to the same period of 2024, respectively. Adjusted EBITDAre was approximately $122 million for the quarter and $350 million year-to-date through September, both down approximately 5% as compared to the same periods of 2024. MFFO for the quarter was approximately $100 million or $0.42 per share, down approximately 7% on a per share basis as compared to the third quarter 2024. Year-to-date through September, MFFO was approximately $288 million or $1.21 per share, down 6% on a per share basis as compared to the same period of 2024. Looking at our balance sheet. As of September 30, 2025, we had approximately $1.5 billion of total outstanding debt, approximately 3.3x our trailing 12 months EBITDA with a weighted average interest rate of 4.8%. At quarter end, our weighted average debt maturities were approximately 3 years. We had cash on hand of approximately $50 million; availability under our revolving credit facility of approximately $648 million; and approximately 68% of our total debt outstanding was fixed or hedged. Subsequent to the end of the third quarter, we repaid in full one secured mortgage loan associated with 2 of our hotels for a total of approximately $29 million, bringing the number of unencumbered hotels in our portfolio as of October 31 to 210. As previously disclosed, in July, we entered into a new unsecured $385 million term loan with a maturity date of July 31, 2030, enabling us to stagger our maturities as we approach our main credit facility in the coming months. Turning to our updated outlook for 2025 provided in yesterday's press release. The adjustments made to full year guidance reflect performance year-to-date as well as the potential negative impact of prolonged economic uncertainty and the government shutdown on the remainder of the year. For the full year, we expect net income to be between $162 million and $175 million, comparable hotels RevPAR change to be between negative 2% and negative 1%, comparable hotels adjusted hotel EBITDA margin to be between 33.9% and 34.5% and adjusted EBITDAre to be between $435 million and $444 million. As compared to the midpoint of previously provided 2025 guidance, we are decreasing comparable hotels RevPAR change by 100 basis points while increasing comparable hotels adjusted hotel EBITDA margin by 20 basis points and increasing adjusted EBITDAre by approximately $300,000 as a result of strong cost control measures year-to-date, a more favorable general liability insurance renewal than anticipated and lower G&A expense. We have assumed for purposes of guidance that total hotel expenses will increase by approximately 2.1% at the midpoint, which is 3.4% on a CPOR basis. We continue to assume these increases are driven primarily by higher growth rates for certain fixed expenses, including real estate taxes and general liability insurance than those experienced last year. This outlook is based on our current view and does not take into account any unanticipated developments in our business or changes in the operating environment, nor does it take into account any unannounced hotel acquisitions or dispositions. While economic uncertainty remains elevated and the ongoing government shutdown continues to weigh on government demand and travel more broadly, we remain confident in our team's ability to successfully navigate shifting market conditions. Our experience, discipline and agility enable us to adapt dynamically, maximize profitability and capture value through opportunistic transactions. The strength of our differentiated strategy has proven resilient across economic cycles, allowing us to preserve equity value in challenging environments and position ourselves to capitalize on emerging opportunities. While we have faced economic headwinds this year, favorable supply-demand dynamics persist. Our recent capital allocation decisions and portfolio adjustments have driven shareholder value and our solid balance sheet continues to provide meaningful flexibility. Importantly, we remain focused on the long term. Despite near-term volatility, we are committed to executing our strategy with discipline and patience, ensuring our portfolio is well positioned to deliver growth and value creation over time. That concludes our prepared remarks, and we'll now open the call for questions. Operator: [Operator Instructions] First question comes from Cooper Clark with Wells Fargo. Cooper Clark: On expense reductions, curious how your full-time employee count has shifted over the quarter and how much of that is driving some of the cost improvements? And then any color on some of the momentum and cost improvements into 2026 would also be great. Liz Perkins: Absolutely. So for wages and payroll overall, in my prepared remarks, I shared some improvement for the quarter, and that is largely driven by managing labor in a way where we are adjusting to the top line from an occupancy decline perspective. And so while we have seen less wage pressure year-over-year in hourly associates, really, it is an improvement from an FTE perspective relative to top line performance. And as we think about that relative to both Q4 and going forward, I think we just want to emphasize the efficiency of our hotels in general. A select service asset can be managed with very few FTEs. And as the top line adjust both up and down, we have some flexibility with FTE counts. And so we were able to materialize some of that benefit in the third quarter and anticipate that whether we're seeing increases or decreases in occupancy that we'll be able to manage overall labor expenses well going forward. Cooper Clark: Great. And then on the acquisition front, it seems like some of the newer additions you're making to the portfolio with the 2 new AC hotels are shifting your portfolio on a relative basis to a higher chain scale. Wondering if this is just where you're seeing the best opportunity or if this represents a slight shift in portfolio strategy longer term? Justin Knight: Technically, from a chain scale standpoint, AC sits squarely in the upscale segment. And from an operating model it is comparable to other hotels that we have within that same space. Our leaning into the AC brand specifically, both from an acquisitions and development standpoint is really driven in large part by the efficiency of the model and our ability to drive incredibly strong margins with that brand. We've found an ability, especially in markets that have higher -- an ability -- where we have an ability to drive higher rates that, that particular hotel brand competes incredibly effectively with higher chain scale product with an operating model that's meaningfully more efficient and that allows us to bring much more of the top line dollars to the bottom line. Operator: Next question, Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: I just was curious, Liz, going back to the guidance change, how much of the change would you attribute to the government shutdown directly or indirectly? And historically, how quickly does that demand typically return once the government reopens and things are operating a little bit more normal course? Liz Perkins: Yes, absolutely. Happy to give some additional color. And I'll first give you some background as to how we're thinking about quantifying the government impact on October specifically relative to what we saw as we rounded out the third quarter. So first, I want to ground everyone in the fact that Q4 was our strongest RevPAR growth quarter of last year. We were up 2.8% on a comparable basis. That was in part benefited by Hurricanes Helene and Milton. So October -- and October specifically was up 4% last year. So we've got some tough comps we have to overcome. As we think about what actualized in September and -- August and September, it's important to remember that some of that is likely due to the comps I mentioned, specifically in September and that non-repeat business. But also as we rounded out August and September, we do see -- we did see some transient pickup sort of soften as we ended the third quarter. So while it's hard to quantify specifically, we do believe there was some softening in transient pickup before we even entered the government shutdown. Had -- we had assumed in guidance for August and September that we would be down about 2%. We actualized down a little over 3% on deteriorating transient pickup. And so that was roughly 120 basis points of deterioration from our prior expectations for August and September relative to where we finished. And if you apply that to the 330 basis point adjustment we made to the fourth quarter at the midpoint, about 1/3 of that change to expectations is driven by fundamentals coming into the fourth quarter and 2/3 of that change is related to the government shutdown. But again, when we talk about the fundamental -- the fundamentals or even the government shutdown, there is just a backdrop of tough comps year-over-year as we're comparing what we're seeing real time. Justin Knight: And then the second part of your question, historically, so going back and fortunately or unfortunately, we do have a comparison time period. As we look at the last government shutdown, we did see a meaningful pickup in business following the shutdown, implying, we think that there was some business pent-up during that period of time that didn't materialize upon coming out of the shutdown. Austin Wurschmidt: That's helpful. I guess where is the government segment as a percent of your business over the last month or so when you saw the disruption versus, I think you were in the 5% to 7% range historically? And any changes in terms of your exposure or strategy around government business, just given the volatility that you've seen over the past year? Liz Perkins: That's an interesting question. When you think about government over the long term and over as long as we've been in the space, it's historically been stabilizing to the portfolio. This is unique, what we've been experiencing this year. So the latter part of your question, I think, goes to one of the reasons that we believe in diversification broadly, both from a geographic perspective, but within individual markets, making sure that there's a broad range of demand so that we don't see meaningful fluctuations with one segment of demand falling off. I -- when you mentioned the 5% to 7% historic range, last year for government, we were 5.5% of our occupancy mix. We have been trending, and I said in my prepared remarks for the third quarter, we were still at 5.2% of our occupancy mix for last quarter. It did drop in October to slightly under 4%. So you definitely saw the impact of the shutdown. Operator: Next question, Aryeh Klein with BMO Capital Markets. Aryeh Klein: Justin, I was hoping you could talk a little bit more about the strategy of doing more of these development deals versus maybe acquisitions where there's a bit more of a track record. And what type of returns are you targeting? And maybe how you're balancing the acquisitions with share repurchases, which were maybe a little lighter in the quarter? Justin Knight: Absolutely. And there's a lot to unpack there. So have a little bit of patience with me. But as I highlighted in my prepared remarks, we have been working to balance a desire to take advantage of the short-term arbitrage between where we can sell assets and where we're able to buy our stock with a desire to maintain the long-term relevance of our portfolio, which includes factors such as age, market positioning and product type. What we -- and part of your question spoke to experience that we have with development deals. Historically, development has represented roughly 25% to 30% of our total acquisitions. And so we do have extensive experience with that particular type of acquisition. As we think about capital allocation and target yields for future development deals, we use an average weighted cost of capital, which takes into consideration a longer period of time. And certainly, our expectation is between now and delivery of those assets, which would be 2 to 3 years from now, that we will be in a better position from a cost of capital standpoint. Those acquisitions, again, because they're some time off, do not preclude us from being active in acquiring our own stock. From a balance sheet preservation standpoint, I've highlighted on past calls that it is our intent to fund share repurchases largely with proceeds from sale. To date, our share repurchases have exceeded closed sale transactions. And we do, as I highlighted, have 4 more assets under contract. They have not yet sold. And our expectation would be as those transactions close to use proceeds, especially to the extent we're trading at values at or around where we're currently trading to make additional share repurchases. So to clarify, it is our intent to be active in both spaces, both to take advantage of the near-term opportunity to drive incremental value for our shareholders through these selective sales and share repurchases and to use forward commitments on development deals to ensure that the long term -- that over a longer period of time, our portfolio remains relevant and positioned to drive strong returns for investors. Aryeh Klein: And maybe if I could just follow up. Is there a limit to how many of these deals you're willing to take on at any given time? You're nearing the completion of the Motto. Now you'll have these 3. Is -- should we expect more over the next year or 2 ahead of these deliveries? Or is this kind of it, I suppose, for the near term? Justin Knight: Given the scale of these developments, it's generally been our intent to have no more than 1 or 2 close in any given year. I think from our perspective, that gives us the maximum amount of flexibility from an ability to close on those assets. And barring a really exceptional deal, I would anticipate that as we look at out years with '27 and '28, this would represent the entirety of the forward commitments we were likely to make. Any additional commitments would likely be for assets anticipated to be delivered further out. Operator: Next question, Ken Billingsley with Compass Point. Ken, your line is live. We'll move on to Jay Kornreich with Cantor Fitzgerald. Jay Kornreich: I guess just first, I wanted to follow up on one of the previous government-related questions. As we look towards 2026, if government demand does remain soft, are there any, I guess, initiatives or maybe new strategies you can employ to fill some of the gap in the government and related travel should it continue to be slow, just having this past year of experience and more maybe visibility into what could transpire next year? Liz Perkins: I think the team has done an exceptional job pivoting very quickly to build additional base business through group, which is both represented by leisure and corporate group business. I think the team will continue to lean into that as well as exploring other demand opportunities within those respective markets. The team, again, we felt the incremental burden of the pullback in March and April. And certainly, from a market share perspective, realized that. And very, very quickly, the team has been able to pivot and maximize based on what's available in market to regain share and be back in a market share growth position. So I think we'll continue to lean into that. And each market is different, but the team is certainly mobilized and working very hard to maximize in the current environment. Jay Kornreich: Okay. And then just as a follow-up, any [ curious ] -- or what are, I guess, the updated thoughts as to how we should think about the mix shift going forward with some of the corporate occupancy potential lift and some potential deceleration on the leisure side? Justin Knight: So we're actually seeing the opposite in our portfolio. So when we look at recent performance, in part driven by the pullback in government. We've seen greater strength in leisure for our portfolio than we have in midweek corporate, where we saw some weakness, partially offset, as I highlighted in my earlier comments by improvement in group. I think to the comments that Liz just made, every market is a little bit different, and we will work in each market to maximize on the opportunities that are available to us. And I think continue in many markets to see potential, especially as the government shutdown resolves, which has impact both on government travel directly, but also adjacent businesses to begin to build back some of the corporate demand that has softened for us. Liz Perkins: Which we were asked earlier about -- Jay, just as a follow-up, we were asked earlier about the rebound when the government reopens and what we've seen in the past. We believe that part of the negotiated pullback from a corporate standpoint is related to just general uncertainty or potential travel implications with the government shutdown. And that if we saw the government reopen and we did see a return of some of that pent-up demand, but that would not only benefit us from a government perspective, but also from a corporate transient perspective. Operator: Ken Billingsley with Compass Point. Kenneth Billingsley: All right. Hopefully, I got the mute button working this time. Can you hear me? Liz Perkins: We can hear you. Kenneth Billingsley: Excellent. Two questions. One on the expense side, and it was a clarification of something you said earlier. So G&A expense savings has been pretty significant in '25. Is some of this temporary due to management decisions and we'll see this tick back up? Or is this something we can expect to continue? And with that, on the expense side, can you talk about the -- maybe I didn't quite understand. You're talking about the Marriott shift plan and expected expense savings? Or did I hear that incorrectly? Liz Perkins: Okay. I'll start with G&A, and then we can pivot to the Marriott transitions. So from a G&A expense perspective, that is really tied primarily to the executive compensation incentive plan. And as such, it's really correlated to how we're performing from an operating metrics perspective, but largely relative and total shareholder return driven. So it resets every year. So it will fluctuate every year. This year, the way we've been trending year-to-date, that's what's providing the decline as we look to the revised guidance and as you look year-over-year. Kenneth Billingsley: So it's all aligned with shareholders? Liz Perkins: Yes, very aligned with shareholders. Justin Knight: And then from a Marriott managed transition standpoint, as I highlighted in my prepared remarks, it is our intent over the coming months to transition our Marriott managed hotels to franchise, entering into long-term franchise agreements with Marriott for those hotels and consolidating management with existing third-party management partners that we're working with already in those same markets. That consolidation is anticipated to unlock incremental value, both in terms of near-term cash flow from the individual assets and over the longer term, to the extent we pursue a sales transaction with any of those assets. As I highlighted, that the transition aligns with Marriott's strategy to improve and enhance the efficiency of their organization, and we think provides us with an excellent opportunity to further drive operating performance for those hotels. Kenneth Billingsley: And then lastly, on the Las Vegas market, I mean I know this is a few years out, but I mean, some talk about it being weaker. Can you discuss the decision to put 2 more there at this time? Justin Knight: Certainly. I think important to highlight in the beginning that despite the pullback in that market, we're currently yielding 10% on a trailing 12-month basis on the SpringHill Suites that we purchased in market. Our hotel has outperformed the market more broadly in part because we target a slightly different piece of business. We have historically owned hotels in the Vegas market and understand that because of the demand drivers in that market, it tends to be slightly more volatile than other markets where we have ownership in our portfolio. That said, we believe, as I highlighted in my prepared remarks, in the long-term trajectory of the market based on continued investment in meaningful demand drivers, which are more diverse than they have been historically. And given our location in market immediately adjacent to the recently expanded convention center, we see that being a meaningful driver for long-term value in this complex of hotels. I think when we purchased the SpringHill Suites, we acquired with it adjacent land, which is where these hotels will be built. They will be connected to the SpringHill Suites. And so when we think about operating efficiencies, we will have an ability using the same manager for all 3 hotels to drive really strong bottom line numbers for the hotels. And again, I think as we think about both additions and subtractions from our portfolio and look to prune and plan, we're taking a long-term view and see our presence in Vegas as a meaningful differentiator from our publicly traded peers and a potential driver for -- of long-term value. Operator: Next question, Michael Bellisario with Baird. Michael Bellisario: Just a -- first question for you, just in terms of CapEx and disruption, sort of 2 parts here. Just on the Seattle Lake Union project, any outsized cost there? And then how should we think about earnings disruption next year? I think that hotel is pretty large and significant in terms of earnings contribution. And then the 13 Marriott-managed hotels, just help us understand what's sort of the typical disruption like when you do transition a management company? Justin Knight: Both very good questions. When we think about the Residence Inn, because it was coming up on end of franchise, we anticipated that we would be renovating the hotel regardless of whether or not we transition brand. And so the renovation-related disruption, I think, would have been the same regardless of whether or not we had kept it within that same brand family. I think as we looked at options in that market, and I highlighted this in my prepared remarks, we looked at competitive supply and recognized quickly that Marriott had significantly greater presence in the market than Hilton, more than double. And given the strength of both reward systems, we saw value in repositioning the hotel to another flag. Certainly, there should not be a read-through as to our feelings related to the Residence Inn brand or other Marriott brands as indicated by the recently signed development deals. We continue to feel very strongly that those are incredibly powerful brands. Our decision in this market was driven largely by the competitive supply picture and facilitated, frankly, by brand incentives, which helped to sweeten the deal. As we think about disruption for that particular property, we anticipate some outsized disruption as we transition from one reservation system to another, because it's an extended state property with a higher percentage of direct sales than a typical hotel, we hope to mitigate a portion of that. And I think certainly, we'll be in a position to report back as we work through that process, remembering again that we've given a lot of advance notice to this group and that, that transaction still happens sometime in the future. Speaking to the other properties, the transition we anticipate there will be much less disruptive. And in fact, we have, from time to time, as you know, transitioned assets from one management company to another in an effort to drive incremental performance from those hotels, especially to the extent we're able to consolidate management within individual markets and leverage that combined presence to reduce staff and to combine sales efforts in a way that -- that really drive incremental profitability. Because we have a lot of experience with that, I think we feel good about our ability to drive incremental value in the short term. That, combined with the fact that we will be transitioning the hotels during -- for most of the hotels, the slowest period of the year from an overall occupancy standpoint, we see those transitions as going smoothly and positioning us to drive near-term incremental efficiencies from an operational standpoint. Beyond that, the transition to franchise unlocks incremental flexibility as we think about potential transactions down the road. And so we saw it as a win-win-win with Marriott being able to achieve some incremental efficiencies from an operational standpoint on their side, us gaining operational efficiencies near term as we combine management in individual markets and then long term, unlocking incremental value to the extent we pursue a sale of the assets. Michael Bellisario: Good. Understood. And then a follow-up for Liz. I think you mentioned 3.4% cost per occupied room this year at the midpoint. Just early look into next year, how should we think about cost per occupied room, at least the growth rate relative to this year? Any puts or takes to consider? That's it for me. Liz Perkins: So I think it's a little bit early for us to give definitive guidance from an expense growth perspective given where we are in the budgeting process. And as Justin mentioned, we have several things we're working through, which we ultimately believe will go smoothly and will put us in a better position, but could have some short-term impact. So if we remove that from the equation, I think we have seen in many areas, expenses moderate as we've moved through the year and feel like the team has done a very, very good job given the top line flexing and maximizing cost savings and maximizing profitability as we think about the bottom line. We've outperformed our expectations, and we certainly hope that we'll be able to carry some of that through as we think about next year. Operator: [Operator Instructions] Next question comes from Chris Darling with Green Street. Chris Darling: So just a quick follow-up on the Las Vegas development deal. Would you expect any revenue synergies just being next to the convention center with a larger footprint over time? Justin Knight: Absolutely. And especially, I think our team was incredibly thoughtful in the selection of brands such that we could, from a sales perspective, present a very versatile total product with an ability to house larger groups spread among the 3 brands in ways that drive their overall stay experience. But certainly believe that having the combined assets there meaningfully better positions us from a sales standpoint as well as providing us with incremental ability to drive operational efficiencies on brands that, quite frankly, are already leading brands from a margin production standpoint. Chris Darling: All right. Understood. That's helpful. And then maybe more broadly, just taking a step back, as you think about the past few years of transaction activity, hoping you can discuss how you think about market selection. When you're buying into new markets, maybe selling out of others, just curious what are the driving factors behind those decisions? Is it supply? Is it the ability to densify with the same operators? What are the main factors you think about? Justin Knight: A good question. I think zooming out, we're mindful to start with the portfolio profile we're looking to create overall with an emphasis on creating exposure to a broad variety of demand segments and balancing that exposure in a way that creates overall stability from a performance standpoint in the portfolio overall. And then as we zoom in and look at individual markets, and hopefully, this is apparent as you look at our recent acquisition and disposition activity. Generally, we're looking to lean into markets that are business-friendly where the overall demand trends are expected to be positive and are supported by demographic trends, both in terms of the movement of people and in most cases, large businesses to those [ same ] markets. And so if we look at pending transactions and start with Nashville, which we anticipate closing on later this year, certainly, Nashville from a hotel performance standpoint has been negatively impacted near term by supply growth and the absorption of that supply. When you zoom out and look at the overarching trends from a demand standpoint in that market, they continue to be very strong, both from a leisure standpoint and as we look at continued movement of large and small businesses into that market and thinking specifically of the announced movement of Oracle's headquarters to the market as one example, but also expansion of electric vehicle battery plant facility as a joint venture in that same market, combining with expansion of sporting venues, which will have an ability to drive incremental concert-related business, all with the overarching kind of demand for that market continuing to be very strong leisure filling in the gaps. Moving to Vegas, similar, as we think about overall demographic trends, a largely growing market, they continue to see meaningful investment in additional demand drivers. And then Anchorage for some time has been one-off and for the past quarter and year-to-date, our top RevPAR producing market, benefiting again from a strong mix of leisure and business demand. I think certainly, as we think about the makeup of our portfolio and our ability to drive long-term profitability, we're mindful of the margins that we're able to drive in those markets, which come from a combination of ability to drive top line performance with appropriate cost structure for that top line performance. And then we're looking at the overall age of our portfolio and our ability to efficiently maintain our assets. And all of those things combine to drive both our acquisitions and our dispositions activity. We've been fortunate in the current market to be able to transact at very attractive cap rates on the types of assets that we see as being less strategic for us long term, which has created really an incredible environment where we are able to achieve our strategic objectives in an environment where doing so also immediately enhances our performance from a fundamental standpoint. And I think as I highlighted in my prepared remarks, we will continue to lean into that. And in the near term, because of where we're trading, look to redeploy proceeds into our stock, in an effort to further improve our cost of capital to fund future acquisitions. Operator: I would like to turn the floor over to Justin for closing remarks. Justin Knight: Thank you for joining us today. We continue to be excited about near- and long-term opportunities for our portfolio and hope, as always, that as you have an opportunity to travel, you'll take the opportunity to stay with us in one of our hotels. I know over the coming weeks and months, we'll have an opportunity to meet with many of you, and we look forward to seeing you in person and answering any further questions you might have. Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the Ferrari Q3 2025 Results Conference Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Nicoletta Russo, Head of Investor Relations. Please go ahead. Nicoletta Russo: Thank you, Rezia, and welcome to everyone who's joining us. Today, we plan to cover the group third quarter 2025 operating results, and the duration of the call is expected to be around 45 minutes. Today's call will be hosted by the Group CEO, Mr. Benedetto Vigna; and Group CFO, Mr. Antonio Piccon. All relevant materials are available in the Investors section of the Ferrari corporate website. And at the end of the presentation, we will be available to answer your questions. Before we begin, let me remind you that any forward-looking statements we might make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included on Page 2 of today's presentation, and the call will be covered by this language. With that said, I'd like to turn the call over to Benedetto. Benedetto Vigna: Gracias Nicoletta. Thank you, everyone, for joining us today. The past few months have been reach of important milestones for our company, among which the launch of the Ferrari Amalfi, the 849 Testarossa family, the first step of the reveal of the Ferrari Elettrica and the Capital Markets Day. Let's start from the Capital Market Day. On October 9, in Maranello, we gathered together and we shared our ambitions and plans for the future with investors, journalists and the entire world. In this current uncertain world, we shared an ambitious financial floor for the end of this decade, EUR 9 billion of revenues, 40% EBITDA margin and 30% EBIT margin. What did we say? What did we say at Capital Market Day exactly? Two things. We highlighted that Ferrari is a unique company, which combines 3 dimensions: heritage, technology and racing. It has a dual identity, both inclusive and exclusive capable to engage with tifosi, royalty and brand values across generations and geographies. We have set ambitions for each soul with unwavering goal to keep our brands strong for the longer term, well beyond 2030. In racing, we aim to win, we want to continue to be successful in Endurance and come back to victory Formula 1. We owe this to our P4 to fuel the passion and inclusive side of our brand. In sports cars, we continue to focus on managing and crafting the exclusivity of our product through an horizontal product diversification strategy, which ensures custody for each single model. We confirm our innovation pace. We will continue to offer our clients an average of 4 new models per year between '26 and 2030 across the 3 different powertrains: ICE, hybrid and electric to address different clients and different clients' needs. In 2022, we told you that the 2030 breakdown of powertrain offering would have been 20% ICE, 40% hybrid and 40% electric. Our plans were based on the environment in 2022 and our expectation about its evolution. Today, in 2025, we have deliberately recalibrated our powertrain offer to be 40% ICE, 40% hybrid and 20% electric. Why did we decide this? Two are the main reasons. One, market dynamics. We have always believed in electrification as an addition, not as a transition. Overall market adoption of electric technology has been more gradual than anticipated in 2022. At the same time, demand for thermal and hybrid models has been more sustained. Two, client centricity. We put our clients always at the center of what we do. We are very flexible and agile to adapt our product plans to the evolving environment, developing and offering models that best address our client needs and meet their preferences. Regardless of the powertrain, we will keep on harnessing each technology in a unique and distinctive way, enhancing the driving emotions and staying true to our belief that we have to be innovative, adapting to the changing times. That is what our founder did since 1947, when he dared to develop our first, first cylinder engine, although nobody believed in it. It's our responsibility. It's our responsibility to keep alive this will to progress. This technology neutrality approach is something we have chosen. We have planned for and invested in also from an infrastructure point of view. The e-building, our new facility in Maranello capable to manufacture the 3 powertrains is the perfect examples of this flexible approach. Our research and development efforts will not only focus on powertrain performance, but also on vehicle dynamics, experience on board and the new materials, all of which make our product unique. Moving to clients. We will continue to grow our Ferrari families, which today counts 90,000 active clients and to foster their sense of belonging in community through an ecosystem of unique experiences from track to road to brand. Lastly, lifestyle. This is the soul that is instrumental to enrich the client experience and to widen our audience beyond our tifosi and Ferrari. I personally believe the team did a great job in bringing brand consistency. We then cultivated everything I just said with the help of Antonio, and let me underline and -- let me highlight a couple of elements. One, we continue to grow our business to new heights in an organic and consistent way. We look at the 2030 target as a floor of our ambitions, always acting in the long-term interest of our brand, safeguarding exclusivity above all. The macroeconomic environment remains uncertain and extremely volatile. However, the visibility and solidity of our business model allowed us to commit to an ambitious plan of 6 years of growth, which we will execute with focus and discipline as we did for the previous one. We will continue to deliver on our promises. And then we concluded the Capital Market Day with our renewed decarbonization commitment. We have already achieved approximately 30% reduction in our Scope 1 and Scope 2 emissions and approximately 10% reduction per car in Scope 3 emission in 2024 versus 2021. We will capitalize on this achievement with a clear target to reduce our Scope 1 and Scope 2 emission by 10x in 2030 versus '21 and to decrease by 25% the absolute Scope 3 emission in 2030 versus the past year 2024. Moreover, the day before the Capital Markets Day, we unveiled the technology of our Ferrari Elettrica. This represents the first step of the wheel, which will be followed by the look and feel of the interior design concept in Q1 '26 and the complete car in Q2 2026. As a leaders, Ferrari as a leader takes its innovation responsibility very seriously. The Ferrari Elettrica is a new opportunity to reaffirm our will to progress as it has happened many times in the past with the introduction of innovative concepts such as with turbo engines, hybrid powertrain and most recently with the Purosangue, there is great anticipation to experience the driving emotion of the Elettrica. After the Capital Market Day, I met several clients in U.S.A., in Korea, in China and in Italy. And all of them appreciated the way we present the model. This is what they told me. The electric cars are generally heavy as elephants and not fun to drive. You did well to invest in active electronic system to transform the elephant in a horse and to engage the drivers with pedro shift like in all Ferrari. We are looking forward to driving it. We can continue to be innovative if we keep the pace of change and having the 3 powertrains in our portfolio is a clear advantage, especially in front of younger generations. With the first step of the reveal of the Ferrari Elettrica and unveiling in September of the 849 Testarossa, coupe inspired, we have concluded the 6 launches we had announced 1 year ago for the entire '25. I met many clients in Europe, in the U.S.A. and in China, who are in love with Testarossa. Last week in China, I met a young female client, younger than 40 years old, and she told me, Testarossa is the perfect harmonious blend of design and engineering, elegant and craftsmanship. I'm eager to own one and drive it. In the past few months, almost all range model in production were substantially sold out. The launches of the Testarossa family and Amalfi and the great traction in clients are initially contributing to the order intake. Indeed, the order book extends well into 2027. Over the next few quarters, we will have a significant change over of models. Indeed, in January '25, only 15% of our lineup was in ramp-up phase of production, while we will close the year with 35% of the lineup in ramp-up phase, and this is the result of all the activities of development that we did in the past years. Moving to the quarters, Q3 '25 saw continued growth. Just a few key numbers to highlight. One, total revenues reached approximately EUR 1.8 billion, a 7.4% growth year-over-year with flat deliveries. Two, strong profitability with EBIT of over EUR 500 million. And last but not least, industrial free cash flow at EUR 365 million. These are solid business performance. This solid business performance allowed us to revise upward the '25 guidance during the Capital Market Day in October. Our revised guidance exceeds the profitability target we had originally set for '26 in the previous business plan 1 year in advance. Moreover, the decision to complete the current share repurchase program within this year, once again 1 year earlier than planned, also reflects such progress and strong confidence that we have in the future. And now I will leave the stage to Antonio to explain the quarter in more depth. Antonio Piccon: Gracias Benedetto, and good morning or afternoon to everyone joining us today. Starting on Page 4, we provide the highlights of the third quarter, which once again delivered consistent growth and demonstrates solid progress. Product mix and personalization, along with rising revenues were the main drivers of revenue and profitability growth with shipments in line with the previous year. This resulted in a strong industrial free cash flow generation in the period. Let me underline that such results were accomplished notwithstanding the impact of the incremental U.S. import tariffs, which became visible in Q3, a greater foreign exchange rate headwinds and lower deliveries of the Daytona SP3, which was phased out in the quarter. On Page 5, we deep dive into our shipments. They were driven by the 296 GTS, the Purosangue, the 12Cilindri family, which continued its ramp-up phase and Roma Spider. The SF90 XX family increased its contribution. The 296 GTB decreased approaching the end of its lifecycle and the SF90 Spider phase out. Deliveries of the Daytona SP3 were lower than the prior year and concluded their limited series run. As anticipated by Benedetto, in the quarter, we started a significant changeover of models, which will be also visible in the next quarter. The SF90 family and the Roma were already phased out and the 296 family is approaching the end of its lifecycle. Indeed, those models will be progressively replaced starting from next year by the 849 Testarossa family, the Amalfi and the 296 special series, respectively, a record number of new models introduced at the same time. On Page 6, the net revenue bridge shows a 9.3% growth versus the prior year at constant currency. This translates into a 7.4% growth, including the headwind from currency, mainly related to the U.S. dollar dynamics. The increase in cars and spare parts was driven by the richer product mix as well as higher personalizations despite the lower delivery to Daytona SP3, which followed our plan. Personalizations accounted for approximately 20% of total revenues from cars and spare parts and were particularly relevant for the SF90 XX family and the Purosangue, also supported by the adoption of carbon and special paint. Sponsorship, commercial and brand also increased, thanks to higher sponsorships and the improved performance of the lifestyle activities as well as higher commercial revenues linked to the better prior year Formula 1 ranking. Moving to Page 7. The change in EBIT is explained by the following variances: Mix and price was positive, thanks to the enriched product mix. Indeed, despite the phaseout of the Daytona SP3, the product mix was sustained by the higher end of our product offering, namely the SF90 XX and the 12Cilindri families. The mix was also supported by the increased contribution from personalization. Please note that the impact from incremental U.S. import tariffs as well as from the update of our commercial policy in response are included in the mix and price variance. This resulted in a margin dilution at constant currency, particularly visible in the third quarter since the majority of our shipments in the United States was represented by model good price were protected under the updated policy. Industrial costs and R&D were lower year-over-year, in line with model life cycles, partially offset by higher development costs for racing. SG&A were also higher, reflecting racing expenses and brand investments. Other was positive, mainly thanks to racing and lifestyle activities. Percentage margins continued to be strong in the quarter despite the dilution from increased import duties with EBITDA margin at 37.9% and EBIT margin at 28.4%. Turning to Page 8. Our industrial free cash flow generation for the quarter was strong at EUR 365 million and reflected the increase in profitability, partially offset by capital expenditures, which were mainly focused on product development and the progress in the new paint of construction and the negative change in working capital provisions and others, mainly due to the reversal of the advances collected in previous quarters. Net industrial debt was EUR 116 million at the end of September, also reflecting the share repurchase program executed in the quarter, which is approaching its completion by year-end, as reminded by Benedetto, 1 year in advance compared to our plan as announced in June 2022. Moving to Page 9. We confirm our 2025 guidance, which was revised upwards during the Capital Markets Day on October 9 on the back of the solid business performance and reflecting improved sports car revenues, including personalization, a lighter-than-expected cost base despite a greater headwind from foreign exchange rate and increased U.S. tariffs. And with this in mind, for Q4, we project lower deliveries year-over-year, as we already told you in the second quarter call, and this is in connection with the changeover of models, as I mentioned earlier on, a positive product mix, although sequentially tighter, in line with the phaseout of Daytona and the first unit of F80, higher SG&A and a seasonal step-up in racing R&D expenses as well as higher SG&A dictated by the start of production of new models. Looking at 2026 and beyond, let me remind you that the introduction of the F80 will be gradual. As usual, it will take a couple of quarters to ramp up the production and the life cycle is expected to be around 3 years. The guidance of the F80 and the model changeover will imply a more back-end loaded 2026 and will shape the product and country mix throughout the year. Such developments are consistent with our plans to deliver in the year to come as smooth and as linear as possible expansion of our profitability in absolute terms. Be assured that we continue to execute on this plan with discipline and focus and today's strong results provide once again the evidence of our continued commitment. Thanks for your attention, and I turn the call over to Nicoletta. Nicoletta Russo: Thank you, Antonio. Rezia, we are now ready to take the questions. Please go ahead. Operator: [Operator Instructions] We are now going to proceed with our first question. And the questions come from the line of Michael Binetti from Evercore ISI. Michael Binetti: Just a couple for me. Antonio, I think you're saying that the mix impact in the second half will be a little bit better than what you anticipated. I saw that mix added about EUR 25 million in the quarter. I think last call, you said mix would be neutral for the second half. So can you just help us think what's driving a little bit of that upside? And maybe how much we can think about in fourth quarter from mix relative to the third quarter? And then I guess just as we think about the personalization comments you made about 20% now. You guided to personalization being closer to 19% longer term. It's like it's a little counterintuitive to us with the new tailor-made studios and the paint shop coming online next year. Maybe just walk us through what drives the moderation there? Antonio Piccon: Yes, Antonio. Thank you, Michael. On the first question, yes, the mix in the... Benedetto Vigna: Can you hear well, Michael? Michael Binetti: I'm sorry, what was that... Benedetto Vigna: I was saying, can you hear well? Michael Binetti: Not very well, no. Benedetto Vigna: That's why I asked you because we understood that someone was not able to listen that we hear well. I don't know if this is... Antonio Piccon: Okay. I'll try and answer. I hope you can hear me. Yes, the mix impact in the second half of the year has been slightly better than anticipated. So I remember I answered you in the second quarter call that we would have expected the mix more neutral in the second half. Now this is a slightly improved at least based on the third quarter results. And this is mainly due to personalization that remains very, very strong. With respect to your second quarter -- second question, we said we have prepared the plan on the basis of a 19% longer-term penetration of personalization. In this respect, the contribution of tailor-made and in particularly the tailor-made center, bear in mind that have been taken into consideration mostly to come closer to our clients. So the overall consideration on the penetration of personalization takes that into account with a view to be close to our clients also in countries where such tailor-made personalization are particularly relevant, such as Japan and the Western Coast of U.S.A. Michael Binetti: Okay. And can I just ask you one clarifying comment. You said the F80 will roll out over 3 years. Is that -- am I wrong or is that a little longer than the normal cadence for one of the strictly limited or supercar models like this? Is that -- and is there a strategy behind stretching that out a little longer? I would think normally would -- you'd see the bulk of those shipments in maybe 8 or 10 quarters? Antonio Piccon: [indiscernible] line with what we've been doing on the ICONA as recently, considering the overall number of cars involved and the start-up phase that is entailed by in order to get to run rate of production. Operator: We are now going to proceed with our next question. And the next questions come from the line of Stephen Reitman from Bernstein. It looks like the person just disconnected. We are now going to proceed with our next question. And the next questions come from the line of Flavio Cereda from GAM. Flavio Cereda: So my question is, I'm taking you back to the Capital Markets Day and your projections of top line growth to 2030. So a very simple question, volume price mix, volume, you got control it, mix to a point. And I was just wondering on price, your pricing power, given all that's been done and the great results that we've seen in recent years, Benedetto, where do you think you stand on this? Do you think you're coming to an end here? Or do you think there's more to come? Benedetto Vigna: Thank you, Flavio, for the question. It's not at all an end. Actually, we feel confident that with all the innovation that we have to delight our clients, we do not see any weakening in our pricing power. We will continue to offer Flavio, car with a different positioning. All of them will benefit of the pricing power because this pricing power, just to be clear, is not coming because we will just increase the price for the same, let me say, product as it is. No, we will make richer and richer innovative, more and more innovative with the product so that by delighting the client, we are confident that we will keep our pricing power. And this is what we are working on. And this is the goal of all the money that we invest in R&D, in innovation with all the team here. Flavio Cereda: So aligned to more models, fewer volumes? Benedetto Vigna: Yes. Operator: And the questions come from the line of Thomas Besson from Kepler Cheuvreux. Thomas Besson: I have 2 questions, please. First, on hybrids, I think the share was lowest in a couple of years. Is it linked with the changeover of product? Or is it driven by willingness to reduce overall hybrid share to eventually address excess deliveries in certain markets and residual values? That's for the first question. And the second, could you give us the delivery figures, please, for the Q3 data on us and what -- how many F80 you're already going to launch in Q4, please? Benedetto Vigna: Okay. So the first one, Thomas, is just depends on the offer that we have on the lineup we are offering to our clients. The number of hybrid cars that we are offering is reducing because there is a change in the model. So there is no if you want, there is no surprise over there. It's a consequence of the way we launched the car. No, that's it. There is -- don't extrapolate any trend over there, okay? And it's not related to the propulsion. The second is how many F80 -- we are planning to launch to sell? Antonio Piccon: Just the initial few units, Thomas, not its number. And I [indiscernible] 40 in the third quarter. Operator: We are now going to proceed with our next question. And the next questions come from the line of Stephen Reitman from Bernstein. Stephen Reitman: Apologies I had a problem with connection. And I apologize also if this question has been asked before because I was cut off, so I had to redial in again. So thank you for your comments about the contribution of 849 extending the coverage of your order book into 2027. I'd like to know if demand is similar for both the Coupe and for the Spider. And I know you don't comment on the order intake on a model-by-model basis. But could you talk about the level of interest you're seeing in the Amalfi? Is demand strong for the entry products as it is for your higher-end products? And my second question is regarding also on the hybrids. You've given us some detail in the past about the penetration rates you're seeing for your extended warranty program for the battery program and the like. And I think the last figure we had was running at about 15% to 20%. Obviously, that's a very good way of improving the residual values of these vehicles and making these Ferrari last being cars lost forever as your intention. So could you update us on where you are with that program? How well is it's understood? Benedetto Vigna: Thank you, Stephen, and I understand that electronics is not always working well before. That is why we manage carefully electronics in our cars. Having said that, how it's going Amalfi? I think Amalfi is proceeding better than the previous model. So this is very encouraging. The second point I can tell you is that I saw -- I was in China the 21st of October, and I saw the first 2 Amalfi sold over there to new client younger than 40 years old. I can also share with you that in order book, more than 50% of the new clients -- of the -- sorry, 40% of the people that want to buy the Amalfi are coming new to the brand. And this is, let's say, we are pleased because one of the objectives of this car was to bring on board, new to the brand. So that's the comment on Amalfi. The story of hybrid, that hybrid warranty, I think that -- I mean, it's picking up, continues to pick up. It's more than 20%. But we see one simple things. we have dealers that are able to explain it well, while we still see some dealers that have not yet explained properly. So we are in the process to retrain some of our dealers because some of them are not able to explain properly the advantage of this warranty scheme. So we see improvement, but I think there is more if all the dealers are able to explain properly. So that's on the hybrid -- side. Thank you Stephen. Operator: And the questions come from the line of Thomas Besson from Kepler Cheuvreux. Thomas Besson: I think I've already asked my question. So I think you can pass on to the next speaker. Benedetto Vigna: In fact, I was surprised. Thomas Besson: Yes, me too with. Operator: And the next questions come from the line of Robert Krankowski from UBS. Robert Krankowski: Just 2 questions from me, please. And just maybe starting with the Q3. Like I think we are expecting that it's going to be the weakest quarter in the year. So obviously, something went better and maybe we heard that it was personalization. But maybe if you could talk specifically about the U.S. Back in Q2, you mentioned that there is some change in consumer behavior because of the tariffs. Have you seen it normalizing right now after we have more clarity on tariffs? And maybe the second one also related to the U.S. Obviously, there is a lot of conversation about residuals and there is some kind of concern about potential increasing order cancellations. Have you seen any unusual or any pickup in orders cancellation in the U.S. as consumers are a bit worried about potential change in residual values in the market? Benedetto Vigna: I'll take this question, Robert. So one, in U.S., the business proceeds as usual, number one. Number two, the only difference we see in U.S. that if you compare today versus the previous call, at that time, the tariff were still at 25%. Now they are at 15%. Now it's carved out in the stone, it's 15%. So that's the only difference we see. And we have been -- you remember last time, we told you when it will become, how can I say, blessed by papers, then we will update the commercial policy, and that's what we did. That's what we did before we said the price increase up to 10% when the tariffs were 25%. And now we say price increase up to 5%. That's the only difference in U.S. Then the business proceeds as usual. Antonio Piccon: And with respect to Q3 being originally thought as the weakest quarter in the year, I think the reason is simple. We were -- the level of personalization was higher than we were expecting. So that has on the top line. And in terms of the cost basis, a point that I highlighted when we revised the guidance upward, the cost base actually ended up being lower compared to our initial expectations. Operator: And the questions come from the line of Tom Narayan from RBC. Gautam Narayan: My first one, Antonio, I think I didn't hear it, and you said it, but could you please review the bridge again from Q3 to Q4? I know the Daytona's are zeroed out, but then maybe review the -- maybe the R&D and SG&A. And then I have a follow-up. Antonio Piccon: Yes. With respect to Q4, Tom, I said that there will be lower deliveries year-over-year. That's a point that we already in the Q2 call. This is to be read in connection with the changeover models that we discussed. Then I said there will be a positive product mix, although we expect it sequentially lighter in line with the phaseout of the Daytona and the first unit of the F80. And the last point is that we expect higher SG&A and a seasonal step-up in racing expenses for development of the applications for the car as well as higher SG&A that are dictated by the start of production of the new models. Gautam Narayan: Got it. Okay. That's very helpful. And then I have a kind of high-level question. I think in the past, you said that when there's a new kind of form factor, like Purosangue was a very different vehicle than you had ever made in the past that initially, obviously, there is a -- I don't know, like a margin headwind relative to -- if it was a standard product that you've done before at the same price point. How do we think about the Elettrica from this standpoint, given that it's a completely different form factor, is it safe to say that there's a similar kind of margin headwind relative to models that you make at a much larger volume requiring less incremental new spend? Is that a safe assumption to make? Benedetto Vigna: I think, Tom, you have a good memory. That's what we said about Purosangue, but we said it when everything was announced and everything was clarified. So I don't want to look like unpolite but if you are patient a little bit, then we will be more precise on that. But before I said, like you remember, we told you everything when the shape was visible and not only the shape... Operator: We are now going to proceed with our next question. And the questions come from the line of James Grzinic from Jefferies International. James Grzinic: I guess I have really a philosophical question for Benedetto just to follow up on Flavio's. I think Benedetto, you've made it very clear that you expect a higher rate of innovation to continue to really support your pricing power for the brand -- when I consider your 2030 plan, you seem to assume that, that lever, that price/mix lever is going to be much less important than in the past. Is that -- should we be thinking that the rate of innovation in the next 5 years reduces to go hand-in-hand with that price/mix lever being less important than in the past 4 years? Benedetto Vigna: No, I think that innovation rate does not slow down, honestly. I think we have several innovation in the pocket that we plan to apply to the different cars, each one for its own positioning. And I mean if we would sit on the innovation, I don't think we would be call it Ferrari. So the reason why I was very clear with the question -- the answer to the question of Flavio Cereda is because we have several levers of innovation that go beyond the traction. There is the vehicle dynamics, there is user interface, there is architecture that is the driving trails that we feel confident that once we apply this to the different model, we will be able to delight the client and thus to use properly the pricing power because we are not -- I would like to maybe underline one point. We are not a company that is increasing the price of the same object just because time goes on. No. We increased the price of what we do because we put something more innovative in it and because this innovation is going to delight our clients. I think this is important. If you see also the way we increased the price in the past years, well, Ferrari has been unique in the sense that we have not increased the price of the same object, but we have put the innovation in the product and that because of a high degree of innovation, high degree of delightment of the client, we exerted properly the pricing power. That has been and that's going to be in this way, James. Operator: And the questions come from the line of José Asumendi from JPMorgan. Jose Asumendi: Just one question, please. I guess frequently asked the question after the Capital Markets Day with regards to, I think, very exciting future, I think right products that you're launching into the market, but they also require some investments such as the launch of Elettrica. I think some lesser investments like the paint shop and I think all the credit facilities we saw during the Capital Markets Day. The question is to create a stability of margins in the business model, how can we think about the offsetting elements, the positive contributions you're going to have in the medium term to create that margin stability? And there might be some doubts in the market about the margin stability of the business model. How can we think about that balance between investments and then the opportunities you have to maintain and create that margin stability that you've shown, I think, in the past years? Benedetto Vigna: Let me see because there was some noise just to make sure that I understood properly, José. I think that if you want this question for me, the answer is very close to the previous one. The only way -- first of all, we are living in uncertain time. Yes. There is no difference also if you want to many other cases in the history. Now the only things we can do is to make sure that we keep innovating so to offer something that is unique to our clients, unique in the performance in engineering, unique in the design, unique in the way we do it because why are we doing the paint shop? Why are we doing -- why did we do the e-building? Because we want to be unique in the way we manufacture our cars, whatever they are ICE, hybrid and green electric. Why we are showing in a multistep way the innovation of Elettrica because we want to make sure that all the work done by the engineers -- well, it's not going to be lost because there are so many new things in this car as well as in other cars that we will make sure that innovation is properly, is properly, let's say, explained to our clients. We noticed it -- let's put it this way, we noticed that for some cars in the past, there was a lot of innovation content or there were several innovation content that were not properly explained. And this is an area of improvement we have. When we do something new, even on technology, on design, on engineering, we have the responsibility to explain well to the world because behind that -- beyond that, there is the work of many people, blue collar and white collar. So this is the philosophical question or the goal of this question of this company is to make sure that on the innovation side, whatever we do is unique. And this is, if you want, the best guarantee of the long-term sustainability of what we do. That's it. I only if you are unique, we can do something that guarantees the long-term sustainability. That's the reason why we gave you a floor for the end of this decade, and we feel confident about that because of the uniqueness of what we do. Operator: And the questions come from the line of Michael Tyndall from HSBC. Michael Tyndall: Two questions, if I can. One for Antonio. Can we talk about the F1 budget for next year? So headline number, if I'm not wrong, is USD 215 million from current USD 135 million. From where you're sitting, is that just an incremental $80 million of cost or does the scope change mean that actually the impact on your P&L is considerably lower than that headline number? And then the second one is just around can you talk a bit about FX on the order backlog? What scope do you have? And how much do you really want to push in terms of trying to offset what's going on with currencies on a backlog that now runs into 2027? Antonio Piccon: Thanks, Michael. The first one really the fuel cost increase. That's an element we need to take into account. So if the F1 budget grows, this flows into our cost, and this is to be taken as a cost increase. On FX on the order backlog, based on the agreement that we have with dealers is in principle, we could change pricing with a 90 days anticipation, I guess. So that's something that in principle is possible. We decided on a country-by-country basis and depending also on the move in terms of the exchange rate on the size of the move. Operator: Thank you. Given the time constraint, this concludes the question-and-answer session. I will now hand back to Benedetto Vigna, CEO, for closing remarks. Benedetto Vigna: Thanks for your time today and also for all your interesting questions. Thanks a lot. We remain focused on executing our plans throughout the rest of this year. And also with confidence, we'll begin to build the next phase of our new business plan. It's a business plan that is ambitious, and we are highly confident that this is going to happen. We'll deliver on our promises as we already did so far. And this -- after this, I wish you a good morning or afternoon. And I thank you again for your attention and your questions. Gracias. Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a good rest of your day.
Operator: Good morning, and welcome to Franco-Nevada Corporation's Third Quarter 2025 Results Conference Call. This call is being recorded on November 4, 2025. [Operator Instructions] I would now like to turn the conference over to your host, Candida Hayden, Senior Analyst, Investor Relations. Thank you. Please go ahead. Candida Hayden: Thank you, Ina. Good morning, everyone. Thank you for joining us today to discuss Franco-Nevada's Third Quarter 2025 Results. Accompanying this call is a presentation, which is available on our website at franco-nevada.com, where you will also find our full financial results. During our call this morning, Paul Brink, President and CEO of Franco-Nevada, will provide introductory remarks followed by Sandip Rana, Chief Financial Officer, who will provide a brief review of our results. This will be followed by a Q&A period. Our full executive team is available to answer any questions. We would like to remind participants that some of today's commentary may contain forward-looking information, and we refer you to our detailed cautionary note on Slide 2 of this presentation. I will now turn over the call to Paul Brink, President and CEO of Franco-Nevada. Paul Brink: Thank you, Candida, and good day to all. For the third time this year, we're announcing record quarterly results. The new benchmark set this quarter were driven by high gold prices, strong operations, new acquisitions and the sale of Cobre Panama stockpiles. Over the last 18 months, we've made 6 acquisitions of meaningful new gold interests. Yanacocha, Cascabel, Sibanye's Western Limb, Porcupine, Côté and Arthur, all large ore bodies that will contribute to our growth for many decades. Of the 6 Porcupine, Yanacocha and Western Limb are also producing. That will impact our 5-year growth and have boosted our gold price exposure. 85% of our revenue was from precious metals in the quarter. The last of the acquisitions in July this year was a royalty on the Arthur Gold project in Nevada, operated by AngloGold. We did draw on our corporate revolver to fund the acquisition with our strong cash flow generation and the proceeds from equity sales, the company was once again debt-free by quarter end. During the quarter, we saw progress on the ground at Cobre Panama, completion of the concentrate shipments, pre-commissioning of the power plant for restart with the aim to provide power to the Panamanian grid, and formal notice to SGS to commence the environmental audit work. Perhaps just as important, we're encouraged by the recent constructive comments by the President of Panama towards resolution of the Cobre mine closure. If Cobre does come back online and with the contributions from our recent acquisitions, we're positioned for roughly 50% growth in GEOs over 5 years compared to last year. For the long-term assets we've added, we can then maintain that level of production for many years thereafter. Our deal pipeline remains very active. Although with this run-up in gold prices, we're also expecting good organic growth. With roughly half our revenue coming from principal gold assets, we expect this to be a powerful driver. Operators have strong cash flow for mine expansions, some ongoing by Detour and others now planned at Côté, Magino and Valentine. Developers have been able to raise capital for new builds, in particular, Skeena and Perpetua were both successful tapping the equity markets to ensure that they can advance Eskay Creek and Stibnite Gold. And the drills are turning on our large portfolio of exploration stage royalties. Recognition of the importance of critical minerals has also unlocked a number of permitting processes, giving the green light to construction to Copper World and Stibnite Gold. Castle Mountain is also now included in the U.S. FAST-41 permitting process. On that same note, I've been impressed to see the profile that the Ring of Fire is getting in the Ontario government's Critical Mineral Strategy. In the last few years, we've added new avenue to grow our company. That is finding good teams and good projects and not just providing royalty or stream financing, but being their financial banker. The first was G Mining Ventures with Tocantinzinho and the second, the discovery team with Porcupine. Both are best-in-class and are proving to be highly successful. We are delighted to have played a role in their success. We're looking forward to supporting them going forward and to find other strong teams to bank. With that, I'll hand the call over to Sandip to discuss the quarter. Sandip Rana: Thanks, Paul. Good day, everyone. As Paul mentioned, Franco-Nevada reported record financial results for the third quarter ended September 30, 2025. Our diverse portfolio of royalty and stream assets performed ahead of recent expectations, and we continue to benefit from higher precious metal prices. Precious metal prices with gold in particular, continue to be strong. On Slide 4, you will see the comparison of commodity prices for Q3 2025 and Q3 2024. Gold and silver prices increased significantly year-over-year with the average gold price higher by 40% in the quarter and average silver price higher by 34%. We also saw a rebound in prices for platinum and palladium, while prices for iron ore remained flat year-over-year, lower for oil, but we saw a significant increase in natural gas prices year-over-year. On Slide 5, we highlight some of the key financial metrics used to measure performance, total GEOs sold, net GEOs sold, revenue and adjusted EBITDA. Total GEOs sold increased 26% to 138,772 in the quarter compared to 110,110 in third quarter 2024. Precious metal GEOs sold in the quarter were 119,109, higher by 41% compared to prior year. Also, just under 50% of total GEOs sold were sourced directly from mines where precious metals are the primary commodity. For the quarter, we received strong contributions from a number of our key assets, Cobre Panama, Guadalupe and Candelaria, and we also benefited from our recent acquisitions, Western Limb, Yanacocha, Porcupine and Côté. This quarter, we recorded our first full quarter of revenue for both Porcupine and Côté. Approximately 11,000 GEOs were delivered and sold from Cobre Panama as we received GEOs related to the concentrate that had been stored on site since November 2023. In addition to better performance from Guadalupe and Candelaria and receiving GEOs from recent acquisitions, we also benefited from the continued ramp-up of operations at new mines, Tocantinzinho, Greenstone and Salares Norte. With respect to the Hemlo NPI, the NPI was not as strong this quarter compared to earlier quarters this year due to lower production on Franco's Interlake claims on the property. Barrick is in the process of selling Hemlo, and we look forward to seeing what improvements the new team has planned for the mine. Diversified GEOs sold were 19,663 for the quarter compared to 25,733 for prior year despite diversified revenue being higher year-over-year, $67.1 million versus $61.2 million. The GEO sold reduction is due to the impact of higher gold prices when converting revenue to GEOs. For Q3 2025, net GEOs were 125,115 for Franco compared to 97,232 in Q3 2024. Net GEOs removes the cost of sales component for all GEOs so that GEOs sold are represented after cost. As you know, royalty GEOs are higher margin than stream GEOs. As you can see from the chart, total revenue increased by 77% for the quarter to $487.7 million, which is a record for Franco-Nevada. Precious metals accounted for 85% of revenue. Adjusted EBITDA, also a record, was 81% higher for the quarter at $427.3 million compared to $236.2 million in third quarter of 2024. Slide 6 details the key financial metrics reported by the company. As mentioned, total GEOs sold were 138,772, generating $487.7 million in revenue in the third quarter. With respect to costs, we did have an increase in cost of sales compared to prior year due to higher stream ounces sold, particularly Cobre Panama. Cost of sales was $47.2 million versus $31.9 million last year. Depletion increased to $87 million versus $54.2 million as we received more GEOs from Candelaria, Cobre Panama and began depleting our recent transactions. This impacted depletion as those assets are currently higher per ounce depletion assets. Adjusted net income was $275 million or $1.43 per share for the quarter, both up 79% versus prior year. One other transaction that did occur during the quarter was the sale of some equity investments. We sold a portion of our equity investment in Discovery Silver and received total proceeds of $84.4 million with a gain of $67.4 million recorded on the sale. Under our accounting policies, these gains are reported in other comprehensive income and not reflected in our earnings per share. However, the gain would have generated an additional earnings per share of $0.30. Slide 7 highlights the continued diversification of the portfolio. As mentioned, 85% of our revenue was generated by precious metals, with revenue being sourced 88% from the Americas. No asset contributed more than 10% of our revenue. Slide 8 illustrates the strength of our business model to continue to generate high margins. For third quarter 2025, the cash cost per GEO is $340 per GEO. This compares to $290 per GEO last year. As the gold price has risen, Franco has seen a significant increase in our margin per GEO. Margin was $3,116 per GEO in the quarter, an increase of 42% year-over-year. Slide 9 summarizes our updated guidance. We have benefited from an increase in GEOs from Cobre Panama and Côté during the first 9 months of 2025. That along with record gold prices has resulted in record financial results for the first 9 months. Based on GEOs sold to date and what our expectations are for Q4 2025, we expect to be at the higher end of our initial guidance range, which was 465,000 to 525,000. We've narrowed this range to the higher end and now expect total GEOs sold to be between 495,000 to 525,000. With respect to precious metals GEO sold guidance, our original guidance range was 385,000 to 425,000. With asset performance to date and precious metal GEOs received from Cobre Panama and Côté, we now expect to exceed the top end of the original guidance range. As a result, our updated guidance range for precious metal GEOs is 420,000 to 440,000. Slide 10 summarizes the financial resources available to the company. The company had $236.7 million in cash and cash equivalents on hand at the end of the quarter. When including our credit facility of approximately $1 billion and our equity investments, total available capital at September 30, 2025, is in excess of $1.8 billion. As well, we continue to be debt free. And before I turn it over to the operator, I would just like to summarize the recent CRA Settlement that we achieved. On September 11, 2025, we reached a settlement with the Canada Revenue Agency, which provided for a final resolution of Franco-Nevada's tax dispute in connection with the reassessments under transfer pricing rules for the years 2013 to 2019 for our Mexican and Barbadian subsidiaries. Under the terms of the settlement, no payment of any tax in Canada is required on these foreign earnings for the subsidiaries for this period. We're glad to have this matter behind us and are very pleased with the settlement reached. And with that, I will pass it over to the operator, and we're happy to answer any questions. Operator: [Operator Instructions] And your first question comes from the line of Fahad Tariq from Jefferies. Fahad Tariq: On the deal pipeline, can you talk a little bit more about the commodity focus? There were some articles recently talking about maybe expanding the gold business in Australia specifically. But at the same time, I know historically, Franco's strategy has been to try to be as countercyclical as possible. So just curious what the commodity focus is given where gold prices are today? Paul Brink: Fahad, it's Paul. Thanks for the question. It's a good one. As usual, our #1 commodity focus is on precious metals here. The pipeline is good. So I think there's some good prospects of adding more gold deals. That said, gold prices are high. I think we are better positioned than most, 2 reasons. The one that I spoke a bit about in my comments there is in this environment, we expect strong organic growth. The second is we always have a bit of our business open to diversify it. And so we always have the discipline in this environment, if there are better deals to do on the diversified side, we've got some room to do that. But as I say, most of the pipeline is currently gold. On Australia, I was down there visiting recently. We and speaking to the number of Australian investors and the press about our plans there, we have added a new person to our team in Australia, Matt Selby out of Perth, who's driving our business development there. We would like to grow our business in Australia. As you know, we have a ton of royalties that cover a huge amount of land in Australia, but it's not yet a big part of our revenue. I think they are particularly good prospects and very keen to find good teams in Australia that we can back and potentially do something similar to what we've done with G Mining or Discovery in the country. Fahad Tariq: Okay. Great. And maybe just as a follow-up, there were some comments probably now 2 months ago about looking at natural gas, given where natural gas prices were, maybe lithium brine transactions, given where lithium prices are and maybe oil, although the last time, I think Franco-Nevada did the oil royalty was when oil was below $50 a barrel, so we're not quite there yet. Just maybe comments on those 3 commodities specifically. Paul Brink: We're open to all 3. The -- as I said, right now, as we look at what is ahead of us in the pipeline, the most actionable is on the gold side. But we're -- on the other commodities, it's less driven by the commodities. It's more driven by asset quality and being able to get good value. So if there is good value in either of those areas, we'd be open to it. Operator: And your next question comes from the line of Sathish Kasinathan from Bank of America. Sathish Kasinathan: This is Sathish on Lawson Winder's team. Just a follow-up on the pipeline. So you highlighted that you have a strong growth potential on the organic side with all the projects that you have under your portfolio. Does that mean that going forward, the focus is going to be more on the organic side instead of deals? Or how should we look at it? Paul Brink: No. As I just said on my last comment, there's a good pipeline. We're always focused on getting new deals done. I make the comment on organic growth really just in respect of discipline. You don't -- the market is bullish. We don't need to overpay for assets in this environment because we know that we're going to have good organic growth. So we know we've got a baseline there. The acquisitions on top of that are incremental. But the confidence that we'll have good organic growth allows us to keep our discipline. Sathish Kasinathan: Okay. That is clear. Just one follow-up on Palmarejo. So it had a huge quarter this quarter. It seems it is driven by a higher proportion of ore from the region that is covered by the stream. How should we look at Q4? Sandip Rana: It's Sandip here. Yes, I would expect similar levels to what we've averaged for the first 9 months of the year. Our projection for the year is anywhere between 40,000 to 50,000 GEOs from Palmarejo. So that's the guidance at this stage. Operator: And your next question comes from the line of Heiko Ihle from H.C. Wainwright. Case Bongirne: This is Case calling in for Heiko as he's on another call. Just on our end, we're thinking out loud here, 3 months ago, gold was just below $3,400. Today, we're just below $4,000. Obviously, a pretty huge change in price, not really expected by most. You guys have been a huge benefactor of this, probably have more cash flows now than you budgeted for in recent past. So the question is, has the recent gold price environment maybe changed your mind a bit in regard to shareholder returns as it relates to the higher dividend, potential share buyback or continued M&A given the pricing environment? Sandip Rana: Sure. Really, no, it's business as usual. As Paul highlighted, our priority is to continue to add good quality assets to the portfolio, focus on precious metals and then adding diversified if there's very good opportunities available to us. So that is the #1 priority for capital deployment. With respect to the dividend, it's a decision we sit down with our Board at the beginning of every year and go through what's in the pipeline, what our cash flow projections are and make a recommendation on how much we should increase that dividend. Our philosophy on the dividend is sustainable and progressive, raise it every year, never be in a position where you cut it regardless of what's happening with commodity prices. So we will be increasing it next year. The quantum is still yet to be determined, but there will definitely be an increase. As for buybacks, that it comes down to what's the best use of a dollar. And for us, we think the best use of a dollar is still adding good quality assets to the portfolio. So share buybacks is not something that we're considering at this time. Operator: [Operator Instructions] And your next question comes from the line of Cosmos Chiu from CIBC. Cosmos Chiu: This is Cosmos from Cosmos' team at CIBC. Maybe my first question is on the NPIs. Paul and Sandip, as you know, I'd like to ask about these NPIs during periods of more robust precious metal prices. But as you mentioned, Hemlo did not have the best quarter in Q3, in part due to less ore being mined at Interlake. I guess my question is, I'm just wondering how much visibility do you have in terms of what's being mined from the different areas into Q4 and potentially into 2026 as well? And how is the potential change in ownership going to potentially change that thinking? Sandip Rana: Cosmos, so in terms of visibility, it's limited. Obviously, there's a mine plan put in place at the beginning of each year and a budget that the operator does. So in this case, Barrick you can move away from that and sometimes based on timing, and that was what's happened in Q3. In this environment at these gold prices, we do expect the NPI to do quite well, and it did in the first part of this year. I think part of the impact of Q3 was also with the sale going through and just probably some impact to efficiency with the mining on site. With respect to the new ownership group and that transaction has not closed yet, obviously, they're seeing something there to be spending over $1 billion to acquire that asset. So that is encouraging. We -- it's a wait-and-see approach at this time as to what changes or improvements they will make. But we're excited to see what their plan is and what they envision, and I think we'll have more information over the next few months. Cosmos Chiu: And how about the Musselwhite 5% NPI. Again, I'm seeing Q3, it didn't really increase that much from previous quarters in 2025. Like when does that one kick in? How should we look at that one at Musselwhite? Sandip Rana: Yes. So Musselwhite is a -- again, it's a profit calculation. We have limited visibility at this time. We get paid once a year, which is after year-end. So right now, what you're seeing from our numbers is just an estimate. We haven't seen what capital is being spent. We'll get the calculation, as I said, post year-end, and there'll be a true-up there. We're a conservative group. So our numbers are conservative. So I'm hopeful that the actual number that comes out at the end of the year is much higher. But at this stage, it's our best estimate. Paul Brink: It's early days on both of those assets, Cosmos. But I got to say, delighted with the change in ownership in both. Bob Quartermain and their team. Bob, as you probably know, started his career at Hemlo, drilled some of the original discovery holes there. So having that team in place led by Bob, there's no doubt in my mind that they are going to drill and expand that ore body, which I think is going to do terrifically well for us over time. Similarly, on Musselwhite, delighted that it's the older team led by Jason Simpson, very capable group, also very aggressive, having great success in drilling out the strike extension of that deposit. So all these things take a little bit of time before it starts showing up as cash flow. But I think very positive that you've got both those teams focused on expanding those assets. Cosmos Chiu: Great. I do agree as well. Maybe switching gears a little bit. I noticed that and as Sandip you mentioned, you sold some -- or the company sold some Discovery shares in the quarter. How much of that was kind of related to your desire to be debt-free by the end of the quarter, especially since you had drawn $175 million on your credit facilities to pay for the Expanded Silicon acquisition. So how much of that was due to you wanting to be debt-free and number one? And number two, what's kind of like the plan now for the remaining Discovery shares or for that matter, your G Mining shares? Paul Brink: Cosmos, it's Paul. The -- so first of all, with G Mining and Discovery, the -- our plan is to be their financial bankers, not just with stream and royalties, but also to be in the equity. So we will be long-term holders. That said, the equity side of our business, as we all know, it's not the core side. So we do plan to take profits over time. With Discovery, there were a couple of things there. The one is we had very good share price performance. And you're absolutely right. The other part of it was we had some debt outstanding. And so those 2 things together, we sold a small part of our position. We're able to realize a good gain and repay the debt. But we -- but longer term, we will continue to be holders of their stock and supporters of the company. Cosmos Chiu: And then one last question, Western Limb, I saw that it had good results in Q3. And you had mentioned that platinum prices -- PGM prices -- sorry, PGM prices have actually outperformed gold since the acquisition, which is good. But I just want to understand because I know this is a bit of a complicated transaction. And so I know that gold is actually based on PGM production. The delivery is actually pegged to the 4E PGM production. So -- and then you also mentioned in the MD&A that right now, it's 82% and 18% gold versus PGM. And I think the press release that came out earlier this year during the acquisition was 70 and 30. That was a split. So I guess I'm trying to confirm PGM prices have outperformed gold. Does that benefit your stream? And if so, how does it benefit? Eaun Gray: Cosmos, it's Eaun speaking. Thank you for the question. I think it's a very good question. I would say, first of all, delighted with the performance of platinum. It has outpaced gold to a certain degree. And we do benefit from that both directly and indirectly. So you'll note that there is a portion of the stream that is platinum. So we do enjoy the appreciation in those platinum revenues immediately. And then secondarily, you're quite right that what we've done is we've linked the gold deliveries to the 4E PGM production. So as the basket improves, as Sibanye looks at options for the assets, we would benefit indirectly from that as well. And -- as you'll probably know, there are 2 distinct ore bodies in these deposits, the UG2 and the Merensky. And this structure mitigates any risk of volatility for mining from one versus the other for us and provides a more stable stream of gold revenues to Franco. So that's why that was done. Cosmos Chiu: Congrats on a very strong Q3. Operator: And your next question comes from the line of Tanya Jakusconek from Scotia Bank. Tanya Jakusconek: I just wanted to come back to the transaction environment in a little more detail. I guess it's divided into 3 sections. I'm going to start on the precious metals opportunities that you're seeing out there. When we last spoke because lots of things have happened with this rapid rise in the gold price, the opportunities were in the $100 million to $500 million range. I'm trying to understand if that's still what you're seeing out there. And is it still for funding of asset sales or still funding for asset builds? I'm just wondering if that has changed at all? And are you seeing more competition now in the market with Zijin coming in and other players? And are you finding it's taking longer to get deals done? That's my first question on the precious metals. Eaun Gray: Okay. Thank you, Tanya. It's Eaun speaking again. It's a very good question. When we last spoke, I indicated a similar environment to what we had seen in prior quarters. And I would reiterate that, that continues to be the case. In terms of deal size, certainly, and also in terms of the type of transaction. So we do see good opportunities in asset sales as likely over the coming quarters. Likewise, good potential project financings as well. And I think those are 2 kind of legs of the stool, and we look to back teams in both of those types of financings, utilizing similar structures to what we would have done with Discovery or G Mining. So we're quite optimistic about more of those transactions as we move forward. There are also some high-quality third-party royalties that are out there, and we continue to look at those and selectively execute on transactions like that when they come available. Hopefully, that's helpful. Tanya Jakusconek: And are you finding that there is more competition and taking longer to complete deals with this higher gold price? I'm just trying to understand on how tight that market is? Eaun Gray: Sure. I would say not a noticeable change in the competitive landscape really from my perspective. What has defined recent period is volatility, volatility in prices and volatility in terms of a number of other factors at play in the market. And as things kind of settle down and find more of a base, I think we'll see more transactions happen. And when you have significant moves in metal prices, of course, for any type of transaction on the short term, it makes it a bit more difficult to execute. But I think we'll see hopefully some more stability as we move forward. Tanya Jakusconek: Okay. Thank you Eaun for that on the precious metal side. On the nonprecious metal side, I know we talked about lithium and natural gas and oil. So I wanted to ask whether that extends to also iron ore, if that's still something you're looking at? And also what's the size in a nonprecious metals deal are you seeing transactions similarly in that $100 million to $500 million range? And does iron ore or maybe potash also fit within that at this point? Paul Brink: So Tanya, Paul, the -- as my comments were earlier on, what we're looking at that's immediately actionable in the pipeline is precious metal focused. We -- but all those commodities that you mentioned there lithium, oil and gas, iron ore, we're open to those if there are transactions with good value. On the potash side, you do know we did it. We were able to acquire an option on the Autazes potash project down in Brazil. So that is -- if and when that project reaches a project financing, we've got the option to buy a royalty on that one. So all of those are our future prospects. Tanya Jakusconek: And size-wise, Paul, what are we looking at in those types of transactions? Paul Brink: As I say, they were open in concept to transactions. The -- nothing that I can say is immediate in the pipeline. And -- but you know what our guidance is on diversified. It's a limited part of our portfolio. So I don't expect anything large. Tanya Jakusconek: Okay. So under $500 million. Okay. And then maybe just on my third portion of this is, are you -- as you look at the landscape out there, how do you assess corporate transaction vis-a-vis some of these other opportunities? Paul Brink: We always run our pencil over the other companies, Tanya, to see if there is good value. And the -- nothing has changed from what we've said in the past. It comes down to you've got $1 to spend and where are you going to get the best return for your dollar. We typically find that, that is in doing private deals. And I'd say that's where we currently are again. Tanya Jakusconek: Okay. And then just maybe if I could ask on the equity interest, I think $625 million of equity investments. Just with the sale of the Discovery Silver, and I don't know what else may have been sold. Can you just kind of remind me, Sandip, what are the biggest portion of that $625 million, Discovery Silver, G Mining, is there anything else that's public? Sandip Rana: Sorry, Tanya, Labrador Iron Ore Royalty, LIF. Those are the 3 largest positions. Tanya Jakusconek: Okay. So the Labrador is in there as well. Okay. No, that's very good. And congrats on a good quarter. Operator: And your next question comes from the line of John Tumazos from John Tumazos Independent Research. John Tumazos: Could you elaborate on the extra royalty on Gold Quarry buy-in? It's famously discovered over 40 years ago. Is the coverage the underground mining from the feeder zone with the open pit oxide all used up? Or are there more oxides that are economic because gold is $4,000. I'm wondering what the sizzle is there. Eaun Gray: John, it's Eaun speaking. Thanks for the question. I'd say, first of all, we're very happy to add to our position on Gold Quarry. This is incremental to what we already have there. And so in reality, this royalty is structured with a minimum, which is based on a number of factors, one of which is the amount of reserves. So as those change based on a number of assumptions, one of which often would, of course, be gold price, that can trigger a change in the minimums. So in terms of what makes it attractive to us, there's that potential for sure. And I think as well, based on the current level of payments, it provides a very healthy rate of return. So very pleased to add that and the coverage is the same as set out for the existing royalty in the asset handbook, which I would have you referred to. Paul Brink: And John, there's a pushback of the pit wall to the north and the east that's been contemplated over time, not something that's currently on the books, but the hopes and dreams are with high gold prices that, that is something that would go ahead and that we could get a lot more from that royalty. John Tumazos: If I could ask one more. On Discovery, the quick calculation I made was that you sold 27.8 million shares and had 52.2 million left and that you received USD 3.04 per share. Is that about right? Sandip Rana: So John, we sold 26 million shares. John Tumazos: So you got a little more for it. Operator: And your next question comes from the line of Daniel Major from UBS. Daniel Major: Can you hear me okay? Paul Brink: Yes, loud and clear. Daniel Major: Yes, my first one, apologies, I was slightly late joining the call if it's already been asked. But just the first one on Cobre Panama and from a, I guess, significantly involved party, but not directly at the table. I mean when you look at the catalysts that need to occur to trigger a restart the environmental audit, the renegotiation of fiscal terms, remobilizing the workforce, et cetera, what do you think kind of feels most likely to be the bottleneck in the process? And I heard the -- some commentary out of Argentina that there's still a belief that the environmental audit and the fiscal terms can be negotiated by the end of the year. Do you think that's realistic? Paul Brink: That is -- Daniel, that's the time line that President Mulino had put out there as his objective. These things can always take longer, but they've been consistent on saying that is what they're aiming for. The audit is underway. There are no formal negotiations at this stage, although I know the company and the government have engaged in getting set for that. So it is -- I think it's still possible that, that kind of time line gets met. We're encouraged by -- you probably would have seen the recent press comments by President Mulino, also comments by Tristan Pascall on acknowledging that the state would remain the owner of the minerals. And agreement on trying to negotiate on that basis. So I take that as a strong positive. The government comments is that, that has been received well. So I think that news is positive. The other positive news has been coming out of country is just the shift in sentiments where you saw 70%, 80% of folks post protest were anti-mining in any form, and that has shifted to a slight majority now that are open and also a good amount that I think would be supportive under the right terms, the right participation for the government of Panama, the right amount of transparency. So I think things are definitely trending in the right direction. As we mentioned, there is movement on the ground with the government approving the various aspects of preservation and safe maintenance, the shipping of the concentrate, the power plant. The company has been rehiring folks so that they can start some of those activities. They've had a very strong response, a lot of folks looking to acquire those jobs. And I think that has also helped shift sentiment as people realize the value of the mine to the economy. Daniel Major: Okay. The second one on the Arthur Gold project. I mean, how do you see the initial scope of the project? And obviously, we've seen some initial kind of projections, et cetera. But I mean, yes, from your perspective, how do you envisage the time line and the initial scope of the project if you have to kind of hazard a range of expectations? Eaun Gray: Thank you, Daniel. It's Eaun Gray speaking here. First of all, we're thrilled to be involved in this project with AngloGold. We think the geological upside on the royalty grounds over time is phenomenal. In terms of first steps in permitting, I understand that they need to start somewhere, even though the full deposit, in our view, likely hasn't emerged. So they -- I think AngloGold's disclosure is around Merlin-focused plan to start and then exploration, hopefully continuing from there. We have also been very happy to see the U.S. permitting environment has evolved quite positively over the last little while and projects such as Stibnite where we're involved have moved along quite well. So in terms of permitting, we're hopeful on the time frame as to when that when that can happen. I think there's got to be a significant over-under in exactly when that happens with any regulatory process, but we're hopeful that the mine would start in the early portion of the 2030s. Operator: And your next question comes from the line of Derick Ma from TD Cowen. Derick Ma: At current gold prices, is there more leverage in royalties and streams on primary gold mines versus byproduct gold streams? And does that factor into the way you look at your portfolio, or your decision-making when assessing new opportunities? Paul Brink: Good question, Derick. And yes, is the short answer. Obviously, when the gold price is running on a primary gold deposit, the -- it allows operators when they look at their reserves, and that's kind of -- I think a lot of operators are looking at the reserves right now to figure out what price are they going to use at year-end. I think at the end of last year, the average for the industry was about $1,800 an ounce. I'm guessing at this, but I think the industry will be over $2,000 an ounce for the gold reserves. It means lower cutoff grades, and it means a lot of material that's going to move into the mine plan. Put that forward just a couple of years, let's just assume we're at $4,000 gold in 3 years' time. You could easily see the industry at [ '26, '28 ], $3,000 gold for reserves. So even if the gold price stayed flat in that scenario, our stock price would be worth a lot more because you get a huge amount of ounces that get moved into reserves. And so that's -- on our portfolio, about half the assets are gold streams on copper mines. Half the assets are royalties on principal gold assets. So I think that's a big driver. On the other side, copper prices are doing great, too. So the same thing applies for a copper asset, higher copper prices, you'll get a lot more material moved into those mine plans. So on both sides, I think we should see great organic growth. Derick Ma: Okay. Great. And maybe a question on Argentina. Two of your longer-term growth assets that you've listed, Taca Taca and San Jorge are in Argentina, midterm elections are behind us now. What are your current views on Argentina as a mining jurisdiction and as an investment destination for Franco-Nevada going forward? And then maybe a follow-up on top of that is how many GEOs for Taca Taca and San Jorge are in your 2029 outlook? Paul Brink: Yes. Maybe I'll just speak about the assets and then Sandip can comment on the guidance. The San Jorge is a, I'd call it, a midsized but good grade copper gold asset in Mendoza. The company tried to get a permit probably more than a decade ago, didn't quite get there at the time. Things have changed materially. In meetings early this year, I met with the Governor for Natural Resources in Mendoza, and she was very encouraging saying, San Jorge could be the very first of the assets to move ahead under the new RIGI program. So we're very encouraged by that. No, the company is working on raising financing to move that forward. Next up, Taca Taca. We're very hopeful that, that is the next big copper asset that First Quantum will build. I think as we all know, RIGI is a 2-year window to get your applications in, and we're a year into that. So there's another 12 months to get that application in and then companies need to start spending and their minimum spends over the next 2 years. So I think this is highly likely that you'll see spending going ahead on Taca Taca in the short term. For Argentina, we don't need to invest anything on those assets. We already own those interests. So that will happen regardless. For Argentina, it is the big question. Huge amount of assets there that are going to attract a lot of investment dollars. So we will consider Argentina. The -- what has been put forward in RIGI is very positive. It addresses the 2 big issues you have. The one is currency convertibility. That does get guaranteed if you enter into the RIGI program. And then the second thing is to make sure that it has teeth that survives through multiple regimes, you do need rights to international arbitration and RIGI does afford that, too. So both those things go a long way to making Argentina an attractive destination. Sandip Rana: And Derick, just in terms of the 2029 guidance for those 2 assets, obviously, they still have to be built. So we were conservative in our estimates, but on a combined basis, it's about 5,000 GEOs. Operator: [Operator Instructions] There are no further questions on the phone line. I will now turn the conference over to Candida Hayden for any closing remarks. Candida Hayden: This concludes our third quarter 2025 results conference call. We expect to release our year-end 2025 results after market close on March 10. Thank you for your interest in Franco-Nevada. Goodbye. Operator: And this concludes today's call. Thank you for participating. You may all disconnect.
Operator: Good day, everyone, and welcome to Pfizer's Third Quarter 2025 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Francesca DeMartino, Chief Investor Relations Officer and Senior Vice President. Please go ahead, ma'am. Francesca DeMartino: Good morning, and welcome to Pfizer's earnings call. I'm Francesca DeMartino, Chief Investor Relations Officer. On behalf of the Pfizer team, thank you for joining us. This call is being made available via audio webcast at pfizer.com. Earlier this morning, we released our results for the third quarter of 2025 via a press release that is available on our website at pfizer.com. I'm joined today by Dr. Albert Bourla, our Chairman and CEO; and David Denton, our CFO. Albert and Dave have some prepared remarks, and we will then open the call for questions. Members of our leadership team will be available for the Q&A session. Before we get started, I want to remind you that we will be making forward-looking statements and discussing certain non-GAAP financial measures. I encourage you to read the disclaimers in our slide presentation, the press release we issued this morning and the disclosures in our SEC filings, which are all available on the IR website on pfizer.com. Forward-looking statements on the call are subject to substantial risks and uncertainties, speak only as of the call's original date, and we undertake no obligation to update or revise any of the statements. With that, I will turn the call over to Albert. Albert Bourla: Thank you, Francesca. Good morning, everyone, and thank you for joining our call. The past few months have been pivotal for Pfizer. We are really excited about our future and confident that we are in a strong position to continue delivering value for patients and our shareholders. Our third quarter performance shows how we continue to execute with discipline and focus even while taking on major strategic efforts. I will discuss highlights, including our agreement with the U.S. government, which has provided greater clarity of our strategic investment in future innovation and growth. Additionally, with our proposed acquisition of Metsera and the progress we have made since closing our licensing agreement with 3SBio and key upcoming catalysts, the strength of our R&D pipeline continues to grow. Our landmark agreement with the U.S. government was an important milestone because it removed uncertainty on 2 critical policy fronts. We successfully addressed the administration's call to lower prescription drug costs and align prices with those in other developed countries, and we will have a 3-year grace period from certain U.S. tariffs with our commitment to further invest in manufacturing in the U.S. Now I want to address our proposed acquisition of Metsera. We believe that Novo Nordisk offer is illusory and cannot constitute superior proposal under the terms of our merger agreement with Metsera because it violates antitrust law and there is a high risk it will never be consummated. We are encouraged by the U.S. Federal Trade Commission's decision to grant early termination of the HSR waiting period, which is unprecedented during a government shutdown and clears the path to completing this transaction following the Metsera shareholder vote on November 13. With the pending legal action we have taken to enforce and preserve Pfizer's rights under the merger agreement, you understand that we will be limited in the details we can address further during today's call. What I can say it is that, our belief in the promise of the Pfizer and Metsera combination is strong and unwavering. We are confident it will create substantial value for shareholders and advance innovation to bring important medicines to patients in the high-growth therapeutic area of obesity. Plus, we believe Pfizer will have distinct advantages in developing and delivering new potential treatments because of our proven scientific and commercial strength. Our R&D infrastructure has global reach and extensive experience running clinical trials in large population. Our commercial teams have well-established capabilities in bringing primary care therapies to patients. We have proven we can drive leading clinical commercial and strategic momentum with key cardiovascular brands such as Eliquis, Lipitor, Norvasc and the Vyndaqel family, and we plan to execute in a similar way with Metsera as we reinvigorate Pfizer's cardiometabolic presence. The licensing agreement with 3SBio is another way we have strategically enhanced our pipeline. Encouraging Phase II first-line metastatic colorectal cancer efficacy and safety data for SSGJ-707, the PD-1 VEGF bispecific was shared last month at the European Society for Medical Oncology meeting. Looking ahead, we are excited to present additional clinical data at the upcoming Society for Immunotherapy of Cancer Meeting. We are also encouraged by our discussions with regulators about our plans to unlock the potential of 707 with a robust clinical development program. As we look forward to executing with 707, Pfizer has distinct advantages. We have deep experience in the development of multi-specific antibody therapeutics and the ability to leverage unique combination regimens that make this promising cancer immunotherapy candidate, a strong complement to our oncology portfolio. We've also made progress in advancing other key programs in our late-stage R&D pipeline. This was reinforced by our presence at ESMO last month with over 45 abstracts, 5 late-breaking presentations and recognition in Presidential Symposium. Starting with the Presidential Symposium, new Phase III data demonstrated that Padcev in combination with pembrolizumab reduced the risk of recurrence and death by at least half for patients with cisplatin ineligible muscle invasive cancer when given before and after surgery. This is the first and only regimen to improve survival when used before and after standard of care in this patient population. With this unprecedented data in hand, we see the potential to substantially increase the U.S. addressable population with approximately 18,000 patients under the current label in metastatic urothelial cancer. And if there are further positive data and it is approved up to approximately 22,500 additional patients across both cisplatin-eligible and cisplatin-ineligible muscle invasive bladder cancer. We also presented follow-up results from the PHAROS single-arm Phase II clinical trial supporting Braftovi and Mektovi as a standard of care for patients with metastatic non-small cell lung cancer harboring a BRAF V600A mutation -- V600E mutation. This updated analysis showed a substantial median overall survival benefit of 70 -- 47.6 months in treatment-naive patients with metastatic non-small cell lung cancer with a BRAF V600E 00E mutation. We are pleased with the continued strong year-over-year growth of Braftovi and Mektovi with a 30 percentage point increase in new patient starts since the October '23 launch. We believe the results from the PHAROS trial could establish a new benchmark with targeted combination therapies for its population of patients. These results fortify the strength of our growing lung cancer portfolio that includes small molecules, ADCs and our 707 bispecific. We are confident in our potential to deliver treatments across the lung cancer spectrum, a large and growing market expected to reach approximately $70 billion by year 2030. We also presented final overall survival results from the Phase III EMBARK trial evaluating XTANDI in combination with leuprolide and as a monotherapy in non-metastatic hormone-sensitive prostate cancer with high-risk biochemical recurrence. As the first and only ARI-based regimen to demonstrate overall survival benefit in this population, these results highlight the potential benefit of XTANDI in this earlier line treatment setting. This strengthens our position for a product that is experiencing strong demand growth in hormone-sensitive prostate cancer and rapid uptake in the approximate 16,000 U.S. patient population with non-metastatic hormone-sensitive prostate cancer with high-risk biochemical recurrence. I want to mention another update about our program in sickle cell disease. We are very pleased that last month, the FDA concluded that Pfizer may resume enrollment of osivelotor studies outside of Sub-Saharan Africa and in individuals who have not relocated from Sub-Saharan Africa. We are still engaging with regulatory authorities to determine possible next steps for Oxbryta. We will look forward to sharing more details in the months ahead about our key pipeline catalysts for 2026 in the coming years. With disciplined execution and our continued focus on key products, both in the U.S. and key international markets, we continue to build on our leadership position within our commercial portfolio. Our Vyndaqel family of products achieved 7% year-over-year global operational growth in the quarter. Strong demand reinforced that this is the foundation of treatment for patients with a heart condition of ATTR cardiomyopathy, helping them live longer and avoid hospitalization. We are encouraged by our continued strong market leadership. In international, we achieved 40% growth in the quarter in total patients on treatment. In the U.S., our continued double-digit demand growth reflects strong diagnostic efforts, broad access and favorable affordability dynamics. Nurtec continues to lead with the oral -- to lead the oral CGRP class in primary care penetration in the U.S. In international, we achieved growth with continued strong uptake in key markets. Globally, we achieved 22% year-over-year operational growth in the quarter. We are pleased that our new consumer campaigns continue to perform well, and our team has been effective in sharing new compelling clinical data with health care professionals. Padcev, another market leader in our portfolio, achieved 13% year-over-year global operational growth in the quarter. Padcev in combination with pembro continues to expand utilization and has been established as a standard of care first-line treatment for patients with locally advanced metastatic urothelial cancer. Our vaccines portfolio is a key area of focus in international markets. We are pleased with the strong performance of the Prevnar family, driven by [indiscernible] and launches in several key markets. We achieved 17% year-over-year international additional growth in the quarter. Pfizer is the pediatric pneumococcal vaccination leader with public funding secured in about 140 national immunization programs around the world. After launching in the majority of key international markets, Prevnar Adult is the established leader among adult pneumococcal conjugate vaccines. In the U.S., where we did experience a year-over-year decline in the quarter, we are pleased with the overall performance of Prevnar 20. For adults, Prevnar held a market-leading position and grew with the expanded recommendation for adults over 50. In the pediatric market, accounting for about 60% of Prevnar revenues in the U.S., we experienced a delayed timing of government bulk order, which we have seen from time to time. So it's a question of time. I want to provide an update about the next-generation PCV programs. While we previously guided to a Phase III start of our adult 25-valent program in 2025, we are planning to start the study next year if the FDA aligns with our approach. For our pediatric program, we expect fourth dose data from our ongoing Phase I/II study early next year. And pending positive data and regulatory feedback, we have the potential to start both Phase III programs in 2026, streamlining our development approach and aligning with our strategy to provide a single vaccine across age groups. We are committed to maintaining leadership in the PCV space. And as a reminder, our 25-valent vaccine candidate has the potential for improved immunogenicity for serotype 3, which is one of the largest remaining contributors of pneumococcal disease. Serotype 3 alone is estimated to cause approximately 20% of invasive disease in the 65-plus population in the U.S. and EU. Abrysvo also achieved significant international momentum with 75% year-over-year operational growth in the quarter due to expanded access in key markets. In the U.S., we are experiencing the headwind of a more difficult to activate population as we enter the third season of RSV. Still, we are continuing to strengthen our position with a 59% market share in the U.S. in shipped-dose volume in this quarter. From the significant strategic milestones we have achieved in recent months to our solid financial performance during this quarter, we are demonstrating how we are building for long-term value with near-term execution of our 2025 strategic priorities. By committing to focus simplification and leveraging technology across our business, we are accelerating progress and improving productivity. In the quarter, we achieved another strong gross margin performance. Additionally, we were able to deliver adjusted diluted EPS that was ahead of expectations significantly, even with lower infection rates contributing to a revenue decline in our COVID-19 portfolio. Our business is performing well, and we are raising the range of our adjusted diluted EPS guidance for full year 2025, while also remaining committed to our dividend. And with that, I'll turn it over to Dave. David Denton: Thank you, Albert, and good morning, everyone. To begin this morning, I'd like to highlight that our solid financial performance directly reflects our continued disciplined execution of our key strategic priorities. We continue to prioritize enhanced patient outcomes as well as the achievement of our financial objectives. Furthermore, our recent agreement with the U.S. government demonstrates our ability to navigate in a complex external environment. Our cost improvement measures have driven greater operational efficiency and streamlined decision-making, which is evident in the solid operating margins for this quarter. Year-to-date, margins expanded despite the unfavorable impact of the acquired in-process R&D from the 3SBio transaction. Going forward, we expect to improve our cash flow and increase flexibility across our 3 capital allocation pillars. Our focus remains on creating long-term shareholder value. We will continue to invest in our business for the long term, evidenced by our recent business development activity while prudently returning capital to our shareholders. Now with that, let me start with our third quarter results, then I'll touch on our cost improvement initiatives as well as our capital allocation priorities. I'll finish with a few comments on our 2025 guidance, which continues to improve as we move throughout this year. For the third quarter of 2025, we recorded revenues of $16.7 billion, a decrease of 7% operationally versus the same period of last year. That's largely driven by a decline in our COVID products. The decline was primarily due to Paxlovid, which experienced reduced demand from lower levels of disease incidents as well as last year's onetime Paxlovid government stockpiling recorded in Q3 of '24 and to a lesser extent, Comirnaty. With that said, our non-COVID products performance was solid, growing 4% operationally versus the same period of LY. On the bottom line, third quarter 2025 reported diluted earnings per share was $0.62 and adjusted diluted earnings per share was $0.87, ahead of our expectations due to our overall gross margin and cost management performance. I'll point out that this profit performance includes a headwind of approximately $0.20 of acquired in-process R&D from the 3SBio transaction. Our results demonstrate the effectiveness of our refined commercial strategy. We remain committed to prioritizing key products and markets, optimizing the global allocation of our commercial field resources and concentrating our market efforts on high priority areas. We saw solid contribution across our product portfolios, primarily driven by Eliquis, the Vyndaqel family and Nurtec, but it was more than offset by declines in Paxlovid and Comirnaty. Through the first 9 months of '25, Pfizer's recently launched and acquired products delivered $7.3 billion in revenue while growing approximately 9% operationally versus last year. This lower growth rate in the third quarter as compared to Q2 was primarily driven by the timing of pediatric CDC shipments of Prevnar and a onetime favorable impact in Q2 for Seagen products transitioning to a wholesale distribution model in the U.S. We plan to continue to invest behind these 2 product groups to drive the future performance and help enable the company to largely offset our LOEs over the next several years. Adjusted gross margin for the third quarter was approximately 76%, primarily reflecting the product mix in the quarter and continued strong cost management within our manufacturing footprint. As a reminder, over the past 2 years, our adjusted gross margins have generally remained in the mid- to upper 70s, excluding Comirnaty, which has a 50-50 profit split with our partner, BioNTech. We expect $1.5 billion in savings from Phase 1 of the manufacturing optimization program by the end of '27 to support our long-term operating margin expansion goal. Going forward, cost management across our manufacturing network remains a top priority. Total adjusted operating expense were $7 billion for the third quarter of '25, an increase of 21% operationally versus LY, driven in large part by the acquired in-process R&D expense for 3SBio. Excluding the 3SBio deal, adjusted operating expenses contracted by approximately $150 million versus last year. And looking at the components, adjusted SI&A expenses decreased 3% operationally, primarily driven by focused investments and ongoing productivity improvements that drove a decrease in marketing and promotional spend for various products. Adjusted R&D expense decreased 3% operationally as well, driven by a net decrease in spending due to pipeline focus and optimization, including the expansion of our digital capabilities. And finally, acquired in-process R&D expenses increased $1.4 billion, largely resulting from the 3SBio deal. As our adjusted S&A and R&D expenses demonstrate, we continue to be disciplined with our operational expense management. Q3 reported diluted earnings per share was $0.62, and our adjusted diluted earnings per share was $0.87, which benefited from our efficient operating structure. Additionally, EPS was aided by our effective tax rate, primarily driven by favorable changes in jurisdictional mix of earnings and tax benefits related to global income tax resolutions in multiple jurisdictions spanning multiple years, partially offset by the aforementioned 3SBio acquired in-process R&D charge. We continue to be disciplined with expense management, progressing multiple cost improvement programs as we remained focused on driving operating margin expansion over the coming years. Phase 1 of the manufacturing optimization program contributed savings in the third quarter. In addition, we remain on track to deliver on our goal of at least $4.5 billion in cumulative net cost savings from our ongoing cost realignment program by the end of this year. As a reminder, in total for these programs, we expect approximately $7.7 billion in savings by the end of '27 to drive operational efficiencies, strengthening our business with the potential of contributing significantly to our bottom line over this period. Of these savings, approximately $500 million identified in R&D will be reinvested in the pipeline, which we expect by the end of 2026. With that, now let me quickly touch upon our capital allocation, which is designed to enhance long-term shareholder value. Our strategy consists of maintaining and growing our dividend over time, reinvesting in our business at the appropriate level of financial returns and making value-enhancing share repurchases. In the first 9 months of this year, we returned $7.3 billion to shareholders via our quarterly dividend, invested $7.2 billion in internal R&D and invested approximately $1.6 billion in business development transactions, primarily reflecting the 3SBio licensing deal. As a reminder, our business development capacity after the 3SBio deal is approximately $13 billion. In the third quarter, we announced the planned acquisition of Metsera for approximately $4.9 billion with additional contingent value rights tied to the successful pipeline progression. The transaction is expected to be funded through a mix of available cash as well as debt. We expect the deal to be dilutive through 2030 as we continue to invest to enable further promising late-stage pipeline assets. Specifically, we currently expect the Metsera transaction to be approximately $0.16 dilutive to 2026 adjusted EPS. Additionally, we expect another $0.05 of dilution in '26 from the 3SBio deal, which closed in the third quarter. With that said, we believe the 2 deals set up a strong potential revenue growth trajectory in 2030 and beyond. And lastly, through the first 9 months of '25, operating cash flow was approximately $6.4 billion, which includes the $1.35 billion upfront payment for the 3SBio transaction. Our gross leverage at the end of the third quarter was approximately 2.7x. That said, upon the close of the Metsera transaction, our leverage is expected to be above the 2.7x target. We expect to bring our leverage back down to the target levels over time to continue to support a balanced allocation of capital between reinvestments and direct return to shareholders. Now let me turn to our full year 2025 guidance. As Albert noted in September, we reached a new voluntary agreement with the U.S. government that will help ensure U.S. patients pay lower prices for prescription medications while providing the clarity we need to focus on our business and our investments in future innovation. The agreement has no impact on our 2025 guidance, but we expect a dilutive impact to our 2026 financial outlook. We continue to expect full year 2025 revenues to be in the range of $61 billion to $64 billion. Non-COVID products continue to perform very well operationally and ahead of our plan. However, we note there is softness in our COVID products due to lower vaccination rates and COVID infection rates. In addition, our guidance assumes a favorable impact to revenues from foreign exchange rates. Furthermore, we now expect adjusted R&D to be in the range of $10 billion to $11 billion and our effective tax rate to be approximately 11%. Additionally, adjusted S&A remains unchanged. Now given our strong performance to date and our fourth quarter outlook, including our more efficient cost structure, we are raising and narrowing our full year 2025 adjusted diluted earnings per share guidance by approximately $0.08 at the midpoint to $3 a share to $3.15 a share. I'd like to emphasize our adjusted diluted earnings per share guidance substantially derisked the current lower-than-anticipated COVID trends. In closing, we remain committed to enhancing the value of our product portfolio and advancing innovation to further strengthen our pipeline. With a stronger balance sheet, we plan to continue deploying capital effectively. We aim to boost R&D productivity with digital tools, including AI, prioritize investments in key R&D programs and to deliver new growth through business development. Furthermore, our performance continues to exceed expectations and deliver strong results even as the incidence of COVID remains low. This consistent performance highlights our resilience and commitment to excellence. Regardless of the challenging external environment, our efforts to enhance cost efficiency and generate improvements in operating margins by driving productivity and optimizing processes. Lastly, with the recent agreement with the U.S. government, we can now focus on executing our strategy and our strategic priorities across our business to deliver new medicines for patients and enhance long-term shareholder value. I'd like to just close by noting that it is our expectation that we'll provide guidance for 2026, most likely by the end of this year. So with that, I'll turn it back over to Albert, and we'll begin our question-and-answer session. Albert Bourla: Thank you, Dave. So operator, please assemble the queue. Operator: [Operator Instructions] Our first question comes from Vamil Divan with Guggenheim Securities. Vamil Divan: I'm going to have to defer the Metsera questions to other analysts, but curious to hear what you say there. I'll just ask a couple more on the commercial side. So one, Vyndamax, obviously you're facing more competition there. Surprised to see the performance, there was a little bit of sequential decline. So maybe you can just comment on the pricing and sort of market share dynamics you're seeing in that space, obviously, with the new competitors. And then similar question on Padcev. Obviously, great data that you shared at ESMO. The commercial uptake for the quarter at least was a little bit less than we thought. So maybe just how you expect the muscle invasive indication, assuming you get that here soon to impact uptake of that program and kind of drive upside to where the numbers are right now? Albert Bourla: Thank you, Vamil. Aamir? Aamir Malik: Sure. Vamil, thanks for the question. So let me start with your question on Vynda. And I'll just -- I want to level set a couple of things about Vynda, and then I'll talk about the performance in the quarter. So there's obviously new competition in the category, and it's important to note that Vynda is still the only ATTR-CM product that has statistically significant reductions in both mortality and CV-related hospitalizations together and as a stand-alone. And it's also the only product where there is a once-daily capsule, placebo-like safety and near complete TTR stabilization. And we've got 90% access for Vyndamax across the U.S. Now with regards to the quarter, there are a couple of different dynamics that are happening. First of all, we saw very strong demand growth, and that's reinforced by our continued market share leadership, both on a TRx basis, clearly, but also in terms of first-line share. Now that volume growth was offset by 2 gross to net headwinds. One is the IRA manufacturer rebates, which we've talked about before. And the second is what we alluded to last quarter, which is payer contracting that took place in the third quarter. So Vyndamax is performing exactly where we thought it would and consistent with what we guided and performance continues to reflect strong diagnosis, broad access, improving affordability dynamics, and that's going to continue to grow our volume. We are seeing competition that [indiscernible] is taking some first-line share from treatment-naive patients and [indiscernible] has driven minimal switching to date. And as we kind of look forward on Vynda, we'll see some of these dynamics continue into Q4 as well, where we expect continued volume growth, but the 2 GTN drivers that I described will certainly impact our net sales, but Vynda is performing in the way that we expected. On your question with regards to Padcev, we're, again, very encouraged by how Padcev is doing. For us, we look at this through 2 lenses. First is the a/mUC population, where we currently have about 55% share among cisplatin-ineligible patients and 45% to 50% share among cisplatin-eligible patients. So there is headroom for us to continue to focus on that segment of the market. I think your question with regards to how Padcev performed on consensus is related to the comment that Dave made, which is as part of integrating the Seagen products into the Pfizer portfolio in Q2, we moved from a drop ship model to a wholesaler model. So that resulted in a onetime growth in our Q2 sales. So you have to grow products off of that adjusted for 2 to 3 weeks of inventory. So as we cycle into Q4, we expect the whole Seagen portfolio, including Padcev to return to growth. And then finally, on MIBC, we're excited about the possibility as a result of both the 303 and also 304 trials that are ongoing, and that will open up a patient population of close to 22,000 patients to help with the next rise of Padcev growth. Operator: We'll go next to Dave Risinger with Leerink Partners. David Risinger: Congrats on the performance in the quarter. So my question is on Metsera. Could you just comment on the legal process ahead? I know that Pfizer is arguing that Novo's acquisition of Metsera would be anticompetitive. And even if the FTC doesn't allow it, it could be anticompetitive. So could you just talk us through the clock and the process for courts to hear Pfizer's arguments? Albert Bourla: Thank you, Dave. As I said in my opening comments, it is very difficult for us to start commenting when we have all these legal issues pending, right, as we speak. But I will repeat what I did say, which is kind of an answer to your question, not on the timing, but we don't see how Novo's deal can be superior. It is an illegal attempt by a foreign company to do an end run around antitrust laws, taking advantage of the government shutdown. What they want to achieve, not to get the products, to destroy them. What they want is to catch and kill an emerging competitor, which is a significant antitrust concern given Novo's dominant market position. So all I can say to this that we are continuing to pursue all legal resources. Thank you. Next question, please. Operator: We'll go next to Asad Haider with Goldman Sachs. Asad Haider: I guess just for Albert and Dave, just a quick high-level question on BD. What's the plan if Metsera doesn't work out for some reason? And then second, on 2026, any early framing on guidance pushes and pulls, specifically on how we should think about OpEx with and without Metsera? And then any additional color on how to think about the dilution you mentioned from your recent MFN deal with the administration? Albert Bourla: I will send the question to Dave because there are a lot of financial also elements. And then if Andrew wants to add something on the BD. David Denton: Yes. So maybe we'll start with business development. Obviously, the company has still significant resources to understand and how to deploy successfully transactions to bring science in-house, and we will continue to work aggressively to do so across all of our 4 therapeutic areas, and we continue to work across the globe to identify potential candidates for acquisition to help bring new and innovative medicines to patients. So that's still a very ongoing focused activity for the company. I think it's probably a little early to talk exactly about 2026. You heard me give a little color in the sense that clearly, we're making investments today and those investments carry over into '26 and beyond with either Metsera or 3SBio to bring these innovative medicines to market. Those will have a slightly dilutive effect to our operating performance next year. We will then wrap all that together with the puts and takes of '26 when we give guidance by the end of this year. Albert Bourla: Anything to add on BD, Andrew? Andrew Baum: Yes. I mean I'd echo what Dave said that we are very active in all geographies, especially in China. You saw the 3SBio, which has a foundational asset to become the backbone across multiple indications. And the same is true in China and beyond across all the main therapeutic areas. We've increased the size of our team in China, in particular, and we have very active efforts. And when we have something to inform you, you'll certainly be the first to know. Operator: We'll go next to Geoff Meacham with Citibank. Geoffrey Meacham: I guess one for Albert or Dave. When you look at the manufacturing investments you're making as part of the MFN agreement relative to the operational cost efficiencies, how would you rank those as priorities? I guess, both seem to have 3-year time frames. I'm just trying to get a sense of the incremental dollar and the strategy there. Albert Bourla: Dave? David Denton: Yes. Clearly, there are important elements of our strategy. We're going to clearly invest in the U.S. from a production perspective. We're working now to work through our plans with the new agreement with the U.S. government on how to effectively deploy our capacity here in the U.S. and further build it out. So more to come. We will also provide some color to that when we give guidance for 2026. But we will be able to improve our operating -- manufacturing operating infrastructure and at the same time, invest in manufacturing here in the U.S. And those 2 are not necessarily completely in conflict with one another. We'll be able to do both. Albert Bourla: Next question please. Operator: We'll go next to Courtney Breen with Bernstein. Courtney Breen: Thank you so much for answering our questions today. I really wanted to understand and perhaps another question on net zero, but from a different angle. I wanted to understand, in your mind, what factors supported Pfizer in garnering that unprecedented early termination of the waiting period from the U.S. Federal Trade Commission. That would be really helpful. Albert Bourla: I'm not sure I understood the question. Francesca DeMartino: The FTC clearance. Albert Bourla: Why the FTC clearance? Francesca DeMartino: If there are any factors that drove the early... Albert Bourla: If there are any -- no, I think the FTC made their own decision. Of course, they were aware of this question. So I don't want to speak for them, but they decided that it is appropriate in the middle of a foreign attempt to supervening to just release our deal, which is now clear. So that's all. David Denton: I think it does further demonstrate the strength of our deal and the pathway to clearance and the pathway for us to be able to further develop these products and take them to the marketplace in a very rapid fashion. This is helpful to patients long term, is helpful to prices long term under our management and our direction with these assets. Albert Bourla: Yes, and should not be surprised, right, because we all understand that's the epitome of antitrust conflict. For the entire pipeline of Metsera it is the entire pipeline of Novo plus they have a dominant position with the current products that they have. Of course, FTC would worry about that. I don't want to speak for themselves, but it is something that it is -- everybody understands. All right. Next question, please. Operator: We'll go next to Terence Flynn with Morgan Stanley. Terence Flynn: Maybe 2 for me. You've previously talked about Elrexfio being a key driver for you over the long term. We noticed that MagnetisMM-5 trial was pushed out data into 2026. We know J&J had a similar trial in a similar patient population that just read out. So maybe you could just remind us of any potential differences here in terms of your trial versus their trial and why there might be a difference in timing given they started around the same time? And the second question is just a clarification on Paxlovid dynamics for the quarter. It looks like by our math, price per script went up over last quarter. So just wondering if there's any onetime items that we need to think about here as we think about the trends in the fourth quarter. Albert Bourla: All right. Chris? Chris Boshoff: Yes, thanks for the question. So MagnetisMM-5, as you know, double class exposed. Possibly later this year, beginning next year, it's an event-driven study. So timing could shift due to events not happening, which we cannot speculate. But as you can imagine, that's often positive if events are not happening in the study. So we'll just continue to follow the events and hopefully report early next year. David Denton: Yes. And on the Paxlovid question, I don't think there's any material change in price. We have -- maybe there's different channels mix and things of that nature, but nothing significant from that standpoint. Albert Bourla: Thank you for clarifying, Dave. Let's go to the next question please. Operator: We'll go next to Akash Tewari with Jefferies. Akash Tewari: I had a question on your upcoming Phase III EZH2 readout in CRPC. I'm surprised the study is more prominently flagged given the potential to extend the XTANDI franchise. What drives your confidence that you're getting adequate target exposure after examining some of your food effect studies? And also, what's your expectations around overall survival? Could we see a 20% to 30% benefit here? Albert Bourla: Chris, that's for you. Chris Boshoff: Thank you very much for the question. This is another first-in-class internally discovered program, EZH2 program. We've previously shared randomized data, which showed significant PFS benefit in all comers in late-line metastatic castration-resistant prostate cancer. And we now have three Phase III studies ongoing. The first one will read out, to your point, is post abiraterone metastatic hormone-resistant prostate cancer, and that we expect in the coming months. We recently also presented data at ASCO, randomized data on the food effect to your question, which was 875 milligrams twice a day with food and show that the data are comparable with the dose we now use in Phase III with reduced GI AE. So we are confident in the dose that was selected. Operator: We'll go next to Kerry Holford with Berenberg. Kerry Holford: Just on the guidance for this year, you've clearly reiterated the total revenue range of $61 to $64, but when you first set that guidance, you spoke of total COVID-19 sales of around $9 billion for the year, seeing that you booked only around just over $4 billion year-to-date. Just interested in your comments on whether that $9 billion is still achievable for the full year? And if not, what other assets would you call out as likely to fill that gap and give you confidence to reiterate the total sales guidance? Albert Bourla: Thank you. Dave, please? David Denton: Yes. On the -- you're absolutely right, Kerry, as you pointed out, I would say that to the low end of our guidance range from a revenue perspective would assume that the COVID franchise continues a very modest uptake for the balance of this year, particularly in the U.S. However, as you know, the COVID franchise is subject to peaks and valleys. If there happens to be a wave of COVID in the next several months, you can see utilization spike up. So that's why the range is so large. I'll just point out that what we have done with an earnings per share guidance range is we've derisked the COVID franchise with the guidance that we provided, given that if the trends continue, we'll be closer to the low end of that range, and we will still be able to deliver on our earnings commitment. Albert Bourla: Thank you, very clear, Dave. Let's move to the next question please. Operator: We'll go next to Mohit Bansal with Wells Fargo. Mohit Bansal: Just wanted to understand the thought process around the pricing of the GLP-1 and this class of medicines, given that -- I mean, even today, there's a news article out there suggesting the price could be $150 or so. So it seems like the price is only going in one direction. In that case, I mean, how do you justify the price that you're paying to Metsera and, in general, the obesity landscape over time, how do you think about that with this pricing decline for the class? Albert Bourla: Yes. Thank you. This is also competition that brings prices down. And of course, they try not to restrict competition. But anyway, the -- yes, we -- in our calculations, we have taken into consideration that the prices of GLP-1s probably will start going down. So I don't know what will be announced now. But in our calculations, we took already that into consideration. Thank you, Mohit. Let's go to the next question. Operator: We'll go next to Alex Hammond with Wolfe Research. Alexandria Hammond: Can you elaborate more on the reason for the delay to the initiation of the pivotal trial for the adult 25-valent pneumococcal program? You had mentioned the caveat of if the FDA aligns with your approach. So the tenor of the dialogue change with the FDA? Is there a chance that surrogate endpoints may no longer be approvable? Albert Bourla: Thank you very much. Chris? Chris Boshoff: Yes. Thank you for the question. Across all our vaccine programs, we're obviously working very closely with the FDA and other regulators on the designs of the study and also the endpoint. PCV25, pending positive data and FDA feedback, we -- as mentioned, we intend to start that study as well as the pediatric 25-valent program next year. So it means we will align the pediatric and the adult study. We expect the fourth dose data from the pediatric study early next year. So that helps us to coordinate the 2 studies. So it will just make it easier. The 25 vaccine candidate covers 25 serotypes, particularly I need to point out serotype 3, which we did before because the vaccine is designed with significantly enhanced immunogenicity against serotype 3, which currently constitutes up to 20% of infections in the U.S. and the EU. And to continue our leadership, we also continue to study our fifth generation with 30-plus serotypes, which we'll update you on more in 2026. Albert Bourla: Thank you, Chris. Operator the next question please. Operator: We'll go next to Chris Schott with JPMorgan. Christopher Schott: Just maybe 2 MFN questions. First one is kind of bigger picture. As you think about MFN on new launches over time, what do you think about this suggesting for international revenues? Is this, I guess, I could read this as a net positive that you can get higher price? I can read as net negative because reimbursement hurdle is going to be tougher at these higher prices, it could be neutral. Just how you kind of envisioned what plays out with international as you signed that deal? And then the second one is just trying to get a little bit more color on the MFN impact for 2026. I think you mentioned some dilution there, but just any more quantitative metrics you could provide of just like how much of a headwind is that for next year? Albert Bourla: Yes. I'm sorry if I ask Dave to tell you, which he will tell you. We will provide guidance at the end of the year, and that will incorporate everything, including that and the other things that he was talking. So I don't think you will get more words out of our mouth no matter how much you talk to us. But on the new launches in international, of course, we are waiting to see how things may play. The price differential is not sustainable. We are speaking about the smaller basket of countries in international that are affected by that. And with these countries, we are hoping that they will understand that they need to change the way that they price their products going forward. Of course, a little bit help from the U.S. government and USTR through trade negotiations also can make that happen. And my assessment is that [indiscernible] and the U.S. trade representatives are highly, highly committed to make this go away. So we will see how that plays. But in theoretical, if the prices over there are -- they are -- we are not agreeing a decent way of pricing our products, clearly, we will not get reimbursement there, and we will price them to the price that will not affect the U.S. price. Thank you. And now let's go to the next question, please. Operator: We'll go next to Umer Raffat with Evercore ISI. Umer Raffat: First, on Metsera, I realize this is perhaps in the hands of your M&A lawyers and antitrust lawyers. But from an R&D perspective, can we make sure you'll be evaluating all the new data that's imminent, for example, the monthly transition and how the GI tolerability holds as well as even more importantly, the amylin plus GLP early combo data? And then separately, I was very intrigued by a Phase IIb trial you guys initiated on an oral drug in atopic derm. Could you confirm if it's a STAT6 inhibitor? And were you able to gauge the magnitude of STAT6 inhibition Phase I? Albert Bourla: Look, on the Metsera, it's easy if they provide us data or if they publicize data, of course, we will -- we are eager to see them. And we believe it will be positive. On the second question, I will ask Chris to comment. Chris Boshoff: Thank you, Umer, to ask a question regarding our I&I portfolio. I just want to check, are you referring to PF9820? Albert Bourla: I don't think he can come back in. Chris Boshoff: It is, okay. So you are correct. That is a STAT inhibitor. I want to point out that we currently have a very differentiated I&I portfolio with at least 5 molecules in-house discovered and developed, most of these at a significantly accelerated speed, including obviously p40/TL1a, which we co-developed or which is being co-developed with Roche, which covers IL-12 and IL-23 by p40. Our 2 tri-specifics covering IL-4, IL-13, TSLP or IL-33, both of those now entering Phase II for atopic dermatitis and for other Th2-related diseases. Litfulo with the ongoing and Phase III trial in nonsegmental vitiligo, which is a JAK3/TEC inhibitor, also differentiated in-house. And then the STAT6 early, just entering Phase II could be potentially first-in-class oral. We're currently further optimizing dose and formulation and hope to update you on that program in 2026. Albert Bourla: Thank you very much, next question please. Operator: We'll go next to Steve Scala with TD Cowen. Steve Scala: Two questions. What does the drug pricing deal with Trump allow Pfizer to do that other companies will not be able to do other than, of course, AstraZeneca? And secondly, on Metsera, so the data looks more similar than different than competitors and Metsera disclosures haven't been completely transparent, raising serious questions. Many other big cap pharmas have passed over Metsera when pursuing other products, validating the me-too point. Nothing in all this justifies a bidding war or even a protracted legal battle. Is Pfizer's determination to persist underpinned by substantial confidentiality data -- confidential data or simply the desire to be a player in obesity? Or does Pfizer agree with the points that I just said and could it just walk away? Albert Bourla: Thank you, on the first one on the drug prices and what we have that other companies may not have. I can't answer because I don't know what the other companies are having. As you know, the discussions are between the administration and individual companies, which also ensure that there is no antitrust issues. And also, of course, if they are confidential because that's also what the administration and the agreements portray that we should keep confidentiality of those assets. So I know what we are getting. Some of that has been public and some of that is part of the overall very lengthy deal, but I don't know what others I will take. On the Metsera, look, we have seen the data. We did extensive due diligence, and we priced -- the asset into a price that we thought offers tremendous value to the shareholders of Metsera and to shareholders of Pfizer because those assets that we like in our hands, of course, will provide significant competitive edge. What you see now, it is a repeat an effort to cut and kill this emerging competitor, which is Pfizer, and to do that by evading the antitrust scrutiny and virtually get control, de facto control of the company as they will become the major shareholder and the major creditor without any regulatory scrutiny. So that's all I have to say. And I'm -- we will see how things go. Operator: Our next question comes from Evan Seigerman with BMO. Evan Seigerman: Assuming Metsera closes, what near-term factors must you consider to continue growing the dividend and then delevering, Dave, as you had said, when do you think you may be able to also start to repurchase shares? Or is that less of a priority with all this BD? David Denton: Evan, very good question. Obviously, you've seen us over the last 1.5 years or 2 years really lean into productivity across our platform. That productivity has allowed us to delever from roughly 4x to 2.7x. That's given us increased flexibility to do both business development as well as maintain and grow our dividend over time. That cycle of improvement in productivity is something that we've now embedded in the company. We will continue to do that. We will continue to do that across the enterprise. We will continue to prioritize ourselves from an R&D perspective. Clearly, we have several assets that we think are key to the growth of this company by the end of the decade. We are going to invest behind those assets from a pipeline perspective, and we're going to invest behind the categories of products that we've either acquired and/or recently launched because those will ultimately allow us to offset the LOEs over the next several years. So we'll be able to do all of that. Share repurchases is an important lever for us. In the near term, it's not a tool that we're going to use. We have to get the balance sheet back to where we need to be. And we -- again, we have business priorities that come in the forefront of that at this point. Great question. Thank you. Albert Bourla: Okay. So now I think let's get the last question. Operator: Our last question comes from Rajesh Kumar with HSBC. Rajesh Kumar: Two questions, if I may. I appreciate you cannot say a lot about Metsera at this junction. Just from a modeling perspective, if we are thinking of additional balance sheet capacity for dealmaking, how much capacity would you assume -- assuming that you are keeping some capacity away from Metsera at the moment in 2026 on your own internal budgeting, that would be really helpful. And just on the 3SBio, I appreciate the deal has just closed and some of the trials have just started. When can we expect to see data news flow come out of that deal? Is it more a 2027 event? Or do we have any interim readouts or updates in '26? Albert Bourla: Thank you. I think Dave can answer the Metsera modeling? David Denton: Yes. So as you think about BD capacity, as I said in my prepared remarks, we have approximately $13 billion of capacity as we enter here into the third quarter, so with that... Albert Bourla: Chris, let's understand the [indiscernible]. Chris Boshoff: Yes, the data flow. So just a reminder, at ASCO 2025, we shared Phase II monotherapy or -- shared Phase II monotherapy data in first-line non-small cell lung cancer showing the overall response -- objective response of 65%. At ESMO, Phase II combo data plus chemotherapy [indiscernible] mFOLFOX6 was shown for first-line metastatic castration -- sorry, metastatic colorectal cancer, and that was showing a response rate of close to 60%. At SITC, we'll provide additional data, combination data in lung cancer and you've just seen we posted two Phase III programs starting now this year in first-line non-small cell lung cancer and in first-line colorectal cancer. And in the coming weeks, we'll also provide the full development plan to you at event, and that will be -- show the broad -- the breadth and the depth of our clinical development program for 707. Albert Bourla: Thank you, Chris. So thank you very much all for your attention. We have been successful in achieving a series of significant strategic milestones. We delivered a solid performance during the quarter, and we are confident in our business, and that's why we are raising the rates of our adjusted diluted EPS. And of course, we maintain our revenue despite the lowest COVID right now trends. So thank you for your interest in Pfizer, and I hope you have a wonderful week. Operator: This does conclude today's program. Thank you for your participation. You may disconnect at any time.
Jonathan Cohen: Good morning, everyone, and welcome to the Oxford Square Capital Corp. Third Quarter 2025 Earnings Conference Call. This is Jonathan Cohen, and I'm joined today by Saul Rosenthal, our President; Bruce Rubin, our CFO; and Kevin Yonon, our Managing Director and Portfolio Manager. Bruce, could you open the call with the disclosure regarding forward-looking statements? Bruce Rubin: Sure, Jonathan. Today's conference call is being recorded. An audio replay of the conference call will be available for 30 days. Replay information is included in our press release that was issued this morning. Please note that this call is the property of Oxford Square Capital Corp. Any unauthorized rebroadcast of this call in any form is strictly prohibited. At this point, please direct your attention to the customary disclosure in this morning's press release regarding forward-looking information. Today's conference call includes forward-looking statements and projections that reflect the company's current views with respect to, among other things, future events and financial performance. We ask that you refer to our most recent filings with the SEC for important factors that can cause actual results to differ materially from those indicated in these projections. We do not undertake to update our forward-looking statements unless required to do so by law. To obtain copies of our latest SEC filings, please visit our website at www.oxfordsquarecapital.com. With that, I'll turn the presentation back to Jonathan. Jonathan Cohen: Thank you, Bruce. For the quarter ended September, Oxford Square's net investment income was approximately $5.6 million or $0.07 per share compared with approximately $5.5 million or $0.08 per share in the prior quarter. Our net asset value per share stood at $1.95 compared to a net asset value per share of $2.06 for the prior quarter. During the quarter, we distributed $0.105 per share to our common stock shareholders. For the third quarter, we recorded total investment income of approximately $10.2 million as compared to approximately $9.5 million in the prior quarter. In the third quarter, we recorded combined net unrealized and realized losses on investments of approximately $7.5 million or $0.09 per share compared to combined net unrealized and realized losses on investments of approximately $1.1 million or $0.01 per share for the prior quarter. During the third quarter, our investment activity consisted of purchases of approximately $58.1 million and repayments of approximately $31.3 million. During the quarter ended September, we issued a total of approximately 5.4 million shares of our common stock, pursuant to an at-the-market offering, resulting in net proceeds of approximately $11.8 million. During the quarter, we issued $74.8 million of 7.75% unsecured notes due July of 2030, and we fully repaid the remaining balance of $34.8 million of our 6.25% unsecured notes due April of 2026. On October 30, our Board of Directors declared monthly distributions of $0.035 per share for each of the months ending January, February and March of 2026. Additional details regarding record and payment date information can be found in our press release that was issued this morning. With that, I'll turn the call over to our Portfolio Manager, Kevin Yonon. Kevin? Kevin P. Yonon: Thank you, Jonathan. During the quarter ended September 30, U.S. loan market performance was stable versus the prior quarter. U.S. loan prices, as defined by the Morningstar LSTA U.S. Leveraged Loan Index, decreased slightly from 97.07% of par as of June 30 to 97.06% of par as of September 30. According to LCD, during the quarter, there was some pricing dispersion with BB-rated loan prices decreasing 11 basis points, B-rated loan prices increasing 37 basis points and CCC-rated loan prices decreasing 227 basis points on average. According to PitchBook LCD, the 12-month trailing default rate for the loan index increased to 1.47% by principal amount at the end of the quarter from 1.11% at the end of June. Additionally, the default rate, including various forms of liability management exercises, which are not captured in the cited default rate; remained at an elevated level of 4.32%. The distress ratio, defined as a percentage of loans with prices below 80% of par, ended the quarter at 2.88% compared to 3.06% at the end of June. During the quarter ended September 30, 2025, U.S. leveraged loan primary market issuance, excluding amendments and repricing transactions, was $133.7 billion, representing a 22% increase versus the quarter ended September 30, 2024. This was driven by higher refinancing activity, partly offset by lower non-refinancing issuance, including lower M&A and LBO activity versus the prior year comparable quarter. At the same time, U.S. loan fund outflows, as measured by Lipper, were approximately $540 million for the quarter ended September 30. We continue to focus on portfolio management strategies designed to maximize our long-term total return. And as a permanent capital vehicle, we historically have been able to take a longer-term view towards our investment strategy. With that, I will turn the call back over to Jonathan. Jonathan Cohen: Thank you, Kevin. Additional information about our third quarter performance has been posted to our website at www.oxfordsquarecapital.com. With that, operator, we're happy to open the call for any questions. Operator: [Operator Instructions] Your first question comes from Erik Zwick from Lucid Capital Markets. Erik Zwick: Jonathan, I wanted to start with maybe a question. You noted the nice net portfolio growth in the quarter and I think one of the stronger quarters of purchase activities you had in a while. So wondering if you could just talk maybe a little bit about what types of investments you found attractive during the quarter, maybe a little bit of kind of color into what you added to the portfolio. Jonathan Cohen: Sure. We'll present the answer to that question, Erik, in essentially two parts. The first with Joe Kupka on the CLO side of the book and the second on the leveraged loan side. Joe? Joseph Kupka: Erik, yes, so we were able to purchase a couple of CLO equity pieces. They were both long-dated, top-tier managers that we felt good about. So steady, predictable cash flow that we expect to hold for quite a while, just similar to what we've done in the past, just good relative value long-dated CLO equity. Jonathan Cohen: And as you know, Erik, from our perspective, the best hedge in this asset class really is duration that the longer the reinvestment period, the greater we think everything else held constant should be the level of protection against economic dislocation or financial markets disruption. Kevin? Kevin P. Yonon: Sure. And on the loan side, we had a fairly active quarter focused sort of in two parts. First is mostly on sort of relatively higher-quality credits with lower spreads in the market, but that generate decent yield to maturities as well as some opportunistic trades, which are somewhat less liquid names, where you're able to capture a bit more spread at prices below par. Erik Zwick: I appreciate the color from all three of you there. Maybe kind of turning that question and looking forward a little bit now as you look at your pipeline for potential new additions here in 4Q, what is that split looking at maybe between CLO and loans and then yield activity? Or kind of what does the yield look like in the portfolio relative to maybe kind of current average portfolio yield? Jonathan Cohen: Sure, Erik. So as of our reporting date, we are -- we have hit the maximum in terms of our ability to add additional CLO equity without rotating the portfolio. So from a portfolio management perspective, I think you could reasonably assume that any additional purchases on the CLO equity or junior debt tranche side of the book are going to be accompanied by appropriate levels of sales. In terms of what we're seeing in the new issue and secondary market on the leveraged loan book, Kevin? Kevin P. Yonon: Sure. So we will continue to focus both on the primary and secondary market for leveraged loans. On the primary side, from our perspective, in terms of what's interesting, it's been a bit of a slower market, more sort of higher-quality, much lower spread credits are out there participating in the primary. So I would anticipate just as kind of has happened over the last many quarters that we focus more on the secondary market and more on situations where it's less sort of liquid credits in the secondary market that -- where we can capture a bit more spread. And just given the way the sort of loan market has been trading, we can capture a lot of these at par or below at this point, which presents a decent opportunity for us going forward. Erik Zwick: And then switching gears a little bit, I noticed the cash and equivalents balance at the end of the quarter moved up to $51 million. It looks like it's a little bit higher than it's been in the past. Anything to take note of there? Is that more just kind of a timing issue? Jonathan Cohen: I think it's principally timing as a result, Erik, of the ATM issuances. Erik Zwick: Got it. That makes sense. And kind of curious, given that the level at which the stock is trading today and there are some preferences for institutional investors to have stock may invest and have higher prices, curious, have you given any thought to a reverse stock split similar to what we did at Oxford Lane? Jonathan Cohen: We like to think, Erik, that we're giving thought to any viable idea on a continuous basis. Erik Zwick: Makes sense. And last one for me, and then I'll step aside. It's been a couple of quarters now since the NII has covered the dividend. Just curious from your seat, what levers do you have at your disposal on either the income or expense side to improve the run rate of NII in the near to midterm? Jonathan Cohen: Well, we're running a relatively lightly levered portfolio at the moment relative to our statutory limitation. That's certainly one element that's probably worthy of consideration, but there are certainly others. Operator: There are no further questions at this time. I will now turn the call over to Jonathan Cohen. Please continue. Jonathan Cohen: We'd like to thank everybody on the call and listening on the replay for their interest and for their participation. We look forward to speaking to you again soon. Thanks very much. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Amicus Therapeutics Third Quarter 2025 Financial Results Conference Call and webcast. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Andrew Faughnan, Vice President of Investor Relations. You may begin. Andrew Faughnan: Good morning. Thank you for joining our conference call to discuss Amicus Therapeutics' Third Quarter 2025 Financial Results and Corporate Highlights. Leading today's call, we have Bradley Campbell, President and Chief Executive Officer; Sebastien Martel, Chief Business Officer; Dr. Jeff Castelli, Chief Development Officer; and Simon Harford, Chief Financial Officer. Joining for Q&A, we have Ellen Rosenberg, Chief Legal Officer. As referenced on Slide 2 of the presentation, I would like to remind you that we will be making forward-looking statements on today's call. I encourage you to read the disclaimers in our slide presentation, the press release we issued this morning and the disclosures in our SEC filings, which are all available on the IR portion of our corporate website. Forward-looking statements are subject to substantial risks and uncertainties, speak only as of the call's original date, and we undertake no obligation to update or revise any of the statements. Additionally, you are cautioned not to place undue reliance on any forward-looking statements. At this time, it's my pleasure to turn the call over to Bradley Campbell, President and Chief Executive Officer. Bradley? Bradley Campbell: Great. Thank you, Andrew, and welcome, everyone, to our third quarter conference call. I'm very pleased to report another great quarter for Amicus, highlighted by strong revenue growth, GAAP profitability and continued confidence in our positive outlook going forward. Let me go through a few highlights before I turn it over to the team to go through in more detail. First, we delivered another quarter of double-digit revenue growth in our Fabry and Pompe core business, a trend we expect to sustain into the years ahead. Second, we remain firmly confident in our growth trajectory as we approach year-end. Galafold delivered 13% year-over-year patient growth this quarter, driven by record demand and robust new patient starts. For Pombiliti and Opfolda, Q3 represented another strong quarter marked by significant momentum in both our established and newly launched markets, underpinned by growing commercial demand and increasing new patient starts. In fact, this was the strongest quarter ever for new commercial demand for both Galafold and Pombiliti and Opfolda. Both products are on track to meet current consensus sales estimates for the full year. Third, we continue to emphasize the growing body of evidence and differentiation of Pombiliti and Opfolda through scientific publications and congress presentations. In fact, recently at ICIEM in September, we shared new 4-year data from the PROPEL ongoing extension study, demonstrating stability or improvement in key endpoints of muscle function and strength in ERT-experienced patients, which Jeff will review in more detail later in the call, along with some exciting new real-world evidence supporting Pombiliti and Opfolda. Fourth, we reaffirm our confidence that our 2 commercial products, each with blockbuster potential, are on track to deliver combined sales of $1 billion in 2028. Galafold's strong growth trajectory supported by improving diagnostic rates and patient access, coupled with meaningful contribution we expect from Pombiliti and Opfolda to our long-term performance reinforces our confidence in this milestone. Fifth, alongside our partners at Dimerix, we continue to advance the development of DMX-200, a first-in-class therapy in late-stage Phase III development for FSGS, a rare life-threatening kidney disease. The ACTION3 pivotal study is over 90% enrolled and remains on track to complete enrollment by the end of the year. And our work with DMX-200 and the potential to address the considerable unmet need in FSGS represents an important and growing part of the Amicus story. And finally, as we continue to maintain our financial discipline, we are pleased to deliver GAAP profitability and a growing cash position in the third quarter and remain very confident in achieving GAAP net income for the second half of the year. Altogether, we are proud of our achievements this quarter and believe Amicus is well positioned to continue to create significant shareholder value while fulfilling our mission for patients in the years ahead. With that, let me now hand the call over to Sebastien to review the commercial business in more detail. Sebastien? Sebastien Martel: Thank you, Bradley, and good morning to everyone. So let's start with Galafold on Slide 5. You see that revenue reached $138.3 million, up 12% at constant exchange rates and up 15% in reported terms. The underlying growth of this product remains very positive and is driven by the number of new patient starts globally. Year-over-year, the underlying growth in patient demand increased by 13%. We ended the quarter with approximately 69% of the global market share of treated Fabry patients with amenable mutations. Galafold is clearly positioned as the treatment of choice for amenable patients among prescribers, and there are still many more patients eligible for our therapy. Turning to Slide 6. Our leading market continue to be the biggest driver of the strong patient demand for Galafold. We saw record high demand in Q3, as Bradley just mentioned. And on a year-to-date basis, new patient starts have reached their highest level since launch. The global mix of patients on Galafold today is about 65% naive and 35% switch. This compares with 60% and 40%, respectively, in 2024. So clearly, we're seeing stronger uptake in naive populations. And while we continue to achieve high market shares in countries where we've been approved the longest, there's still plenty of opportunity to switch patients over to Galafold and to keep growing the market as we penetrate the diagnosed, untreated and newly diagnosed segments. Given the sustained growth in patient demand and our projection of a record level of new patient starts this year, we remain highly confident in our full year 2025 growth guidance for Galafold, trending in line with current full year consensus estimates. Key drivers behind the robust demand for Galafold, which we expect to continue well beyond 2025 are: first, finding new patients and penetrating into the diagnosed and treated population, including shortening the pathway to diagnosis; second, expanding Galafold into new markets and extending the label; third, driving Galafold's share of treated amenable patients. We're actually seeing that in most mature markets, we can reach 85%, 90% share, so we know that there's the potential to reach those levels globally. And fourth, sustaining compliance and adherence rates above 90% so that patients who go on Galafold predominantly stay on Galafold. On Slide 5, you can see the significant unmet need in Fabry disease today. So over 12,000 people receive Fabry treatment worldwide, while about 6,000 diagnosed patients remain untreated. The literature suggests actual prevalence may exceed 100,000 patients, indicating meaningfully larger undiagnosed populations and substantial market opportunity for Galafold. We're highly confident that a small molecule is a compelling treatment option for the untreated and undiagnosed populations as indicated by the increase in naive new patient starts. Late onset Fabry makes up a growing percentage of the newly diagnosed and treated population, which is enriched for amenability to Galafold. On Slide 8, we just provide a great example of our ongoing efforts to enhance Fabry disease awareness and support improved diagnosis. The diagnosis of Fabry disease is unfortunately often delayed for up to a decade or more due to the rarity of the disease, high variability of presentation and symptoms that are quite often nonspecific and resemble those of other diseases. So the new Finding Fabry campaign in the U.S. aims to help health care professionals recognize these diverse symptoms and prevent misdiagnosis. So to wrap up on our Fabry section, with excellent momentum, the sizable untreated population and our strong IP protection, Galafold has a long runway well into the next decade and a clear path to surpassing $1 billion in revenue. Turning on now to Pompe disease on Slide 10. We outline our global launch progress with Pombiliti and Opfolda. Third quarter revenue reached $30.7 million, up 42% at constant exchange rates and up 45% in reporting terms. Year-to-date, Pombiliti and Opfolda has grown 59% at CER and 61% in reported revenue. The majority of sales came from our initial 5 launch countries, the U.S., U.K., Germany, Spain, Austria, although as I'll highlight in a moment, we've actually secured reimbursement in additional 10 countries thus far in 2025 with 4 new markets since the end of Q2, namely Japan, Belgium, Ireland and Luxembourg. For the quarter, the U.S. represented approximately 43% of revenue, while ex-U.S. represented 57% of sales. Q3 showed strong sales growth and a high level of patient demand. We continue to see patients switching proportionately based on market share as well as a broadening and deepening of prescriptions with more sites coming online and multiple new prescriptions from physicians. We're also seeing a growing number of patients exploring alternative treatment options and actually advocating for their own decisions to switch, especially in the U.S. In 2025, we have observed many positive lead indicators that support the growing launch momentum. Globally, the number of avalglucosidase alfa patients that have switched to PomOp have actually doubled in the first 9 months of 2025 as compared to the entirety of 2024. Similarly, naive prescriptions ex-U.S. have also doubled in the first 9 months as compared to the total of 2024. Given these indicators, we're reiterating our full year 2025 revenue growth guidance for Pombiliti and Opfolda of 50% to 65% at constant exchange rates, trending in line with the current full year consensus sales estimates. We expect Pombiliti and Opfolda to be a major contributor to multiyear growth for Amicus based on key growth drivers, namely: first, continuing to increase the number of net new patients; second, increasing the depth and breadth of prescribers; third, launching in up to 10 new countries in 2025; fourth, differentiating our therapy through evidence generation and real-world evidence; and five, maintaining over 90% compliance and adherence rates. Moving to Slide 11, looking at the geographic expansion of Pombiliti and Opfolda. As I mentioned, today, we're now reimbursed in 15 countries and continue to observe strong execution in the newer launch markets. Notably, 5 of the countries launched during the second quarter generated revenue in Q3, Switzerland, Italy, the Czech Republic, Portugal and the Netherlands. As mentioned, we recently reached pricing and reimbursement agreements in Japan, Belgium, Ireland and Luxembourg. We also continue our work to secure broad access to patients through the EU. A little more color on Japan as it's a bit of a unique market. At the end of Q3, we saw the first commercial patients in Japan. Majority of patients in Japan have actually been on Nexviazyme for 2 to 3 years, and that represents a strong market opportunity for us. I hope that commercial overview provides a strong sense of the continued execution and growth in Galafold and the building momentum in the launch of Pombiliti and Opfolda. With that, I'll now hand the call over to Jeff to highlight the work we do to further differentiate Pombiliti and Opfolda. Jeff? Jeffrey Castelli: Thank you, Sebastien, and good morning, everyone. Moving on to Slide 12. We highlight a few examples of our rapidly expanding and diverse body of evidence supporting the differentiation of Pombiliti and Opfolda in Pompe disease across clinical trials, mechanistic studies, real-world data and case studies. In September, we presented new 4-year data from the PROPEL open-label extension. This new analysis presented at the International Congress of Inborn Errors of Metabolism showed patients within the ERT experience group demonstrated durable improvements or stability on measures of muscle function, muscle strength and biomarkers out to 4 years. On Slide 13 and also presented at ICIEM, we'd like to highlight a presentation by an independent group in the U.K. that followed 28 patients switched from Myozyme to PomOp, which was an n of 13 or Myozyme to Nexviazyme, which was an n of 15. And that analysis reported improvements in motor function for the patients that switched from Myozyme to Pombiliti Opfolda. We expect this body of evidence to continue expanding over time, strengthening the case for Pombiliti and Opfolda as a compelling treatment option in Pompe disease. Now moving to Slide 15 and DMX-200. As previously announced, we took a major step forward in our strategy to strengthen our portfolio through a successful U.S. licensing agreement with Dimerix to commercialize DMX-200, a first-in-class treatment in late-stage development for FSGS, a rare and potentially fatal kidney disease. With blockbuster market potential, we remain highly encouraged by the data seen to date and believe this asset brings immediate strategic value to Amicus today and will create value for patients and shareholders moving forward. Moving on to Slide 16. We are impressed by the strong momentum Dimerix has built and the growing body of evidence supporting this transformative potential of DMX-200. The pivotal Phase III ACTION trial -- sorry, ACTION3 trial is progressing well with more than 90% of patients now enrolled and remains on track for full enrollment by year-end. This study is robustly designed and strongly powered with several successful interim analyses already completed. Importantly, there is FDA alignment on proteinuria as the primary endpoint for approval. In October, Dimerix provided an update on PARASOL data analysis that showed a consistent result in line with the prior analyses, supporting, again, proteinuria as an endpoint for standard approval. We anticipate requesting an additional meeting with the FDA in the first quarter to further discuss the next interim analysis from the ACTION3 study and the next steps for DMX-200 development. With that, let me now hand the call over to Simon to review our financial results and outlook. Simon? Simon Nicolas Harford: Thank you, Jeff. Our financial summary begins on Slide 18 with our income statement for the third quarter ending September 30, 2025. For Q3, we achieved total revenue of $169.1 million, which is a 19% increase over the same period in 2024. At constant exchange rates, revenue grew 17%. The global geographic breakdown of total revenue in the quarter consisted of $98.8 million or 58% of revenue generated outside the United States and the remaining $70.3 million or 42% coming from within the U.S. Cost of goods sold as a percentage of net sales was 12% for Q3 compared to 9% in the same period last year. The total GAAP operating expenses increased to $115.3 million for the third quarter of 2025 as compared to $106.6 million in the third quarter of 2024, an increase of 8%. On a non-GAAP basis, total operating expenses increased to $95.4 million for the third quarter of 2025 as compared to $82.6 million in the third quarter of 2024, an increase of 15%. We define non-GAAP operating expense as research and development and SG&A expenses, excluding stock-based compensation expense, loss on impairment of assets, changes in fair value of contingent consideration, restructuring charges and finally, depreciation and amortization. On a GAAP basis, net income in the third quarter 2025 was $17.3 million or $0.06 per share compared to a net loss of $6.7 million or $0.02 per share for the third quarter of 2024. This was the first quarter of 2025 that Amicus delivered positive GAAP net income, consistent with our guidance to have positive GAAP net income during the second half of 2025. While we are pleased with the positive Q3 GAAP net income results, let me remind you that in the early stages of turning profitable, GAAP profitability may not be linear quarter-to-quarter. We do, however, anticipate having positive GAAP net income for the second half of 2025. In Q3 2025, non-GAAP net income was $54.2 million or $0.18 per share compared to non-GAAP net income of $30.8 million or $0.10 per share in the third quarter of last year. Cash, cash equivalents and marketable securities were $263.8 million as of September 30, 2025, compared to $249.9 million as of December 31, 2024. This is a $32.8 million increase during the third quarter versus the prior quarter. So we are importantly generating cash also this quarter. On Slide 19, we are reiterating our full year financial guidance for 2025 as follows: total revenue growth of 15% to 22%. Galafold revenue growth of 10% to 15%. Pombiliti and Opfolda revenue growth of 50% to 65%, all growth rates are at constant exchange rates. Based on our performance for the 9 months and our clearer line of sight for the fourth quarter, including the anticipated FX impact, we are confident that total and product revenues for the full year are trending in line with full year consensus numbers, which you can find via the Investors portion of our website. Gross margin is expected to be in the mid-80s, which we define as 83% to 87% approximately and will likely be at the top end of that range. As a reminder, 2025 is a hybrid year for Pombiliti Opfolda COGS as we have worked through previously expensed inventory during the first 3 quarters of 2025. As a result, Pombiliti Opfolda COGS will be expensed through Q4 '25. Non-GAAP operating expense guidance remains $380 million to $400 million. However, we anticipate being at the high end of the guidance range. And finally, we anticipate positive GAAP net income for the second half of 2025. And with that, let me turn the call back over to Bradley for our closing remarks. Bradley Campbell: Great. Thank you, Simon, Jeff, Sebastien. As we come to the end of our presentation, let me just remind you of our strategic priorities for the year. And in closing, I just want to reiterate how encouraged we are by the growing impact of our therapies plus the very promising Phase III asset that we've added to our pipeline for FSGS. Our expertise in rare diseases and proven track record of commercial execution support our ongoing commitment to our mission and sustaining long-term growth in 2025 and beyond. I'm confident we can continue to develop and deliver transformative treatments and create enduring value for patients and shareholders alike. With that, operator, we can now open the call to questions. Operator: [Operator Instructions] Our first question comes from Joe Schwartz of Leerink Partners. Joseph Schwartz: Congrats on the strong performance. Now that we're into the second full year of the Pom-Op launch, I was wondering if you could talk a little bit about the overall reception to both the label for Pom-Op, especially in the U.S. and the real-world evidence that you seem to be layering in now and how that's driving prescription patterns and whether the conversations vary across treatment centers? Do any certain types of physicians or patients seem to appreciate one set of data more than others? What are you finding is encouraging the most patients to switch to Pom-Op nowadays? Bradley Campbell: Joe, thanks a lot for the question. I like the multipart question there, but we'll do our best to get to all of those pieces. I heard some labeling questions as well as real-world evidence and how that's influencing or impacting the prescriber base. And then finally, is there a particular data set that is more compelling or not. So from a label perspective, I think it's largely been well received, although clearly, in the United States, we hope to continue to look for ways to expand that label, in particular, down to pediatric patients with late-onset Pompe disease and infantile onset patients as well. As Jeff highlighted, we have ongoing studies there. So -- and those should support label expansion globally. So I think we continue to look for ways to expand that population, and we should start seeing the benefit of that sometime next year. In terms of real-world evidence, for sure, that is a growing and important part of the conversation with physicians. I can tell you, I've had the privilege of attending a number of launch meetings around the world. And as that body of evidence grows, Jeff highlighted one, we've talked about some case studies previously, we will continue to support those publications. That will only be more and more supportive, we think, of the use of Pombiliti and Opfolda. So please look out for continued highlights there in the medical congresses throughout this year and into next year. And then maybe, Jeff, from your perspective, just talk a little bit about some of the different types of data that we think are so important for physicians and maybe also about quickly the importance of finding the right endpoints for patients as well as physicians. Jeffrey Castelli: Yes. Thanks, Brad, and thanks, Joe, for the question. From our -- like the 4-year data we just reported at ICIEM, I think the long-term data is of particular interest really across the populations. That's always been one of the challenges with early Pompe treatments is sort of a lack of the durability. And we've been quite pleased and physicians and stakeholders have been quite pleased with the durability we've seen across trials. In terms of the real-world data, the switch experience was something in our trials that was very strong, and we continue to see that in various real-world settings. What is lacking, of course, is indirect comparisons of PomOp and Nexviazyme, and we were very pleased to see one of the most robust indirect comparisons come out at ICIEM, which we highlighted in the slides from a large group in the U.K. that switched from either Myozyme to PomOp or Myozyme to Nex. And lastly, I would just say, individual case studies are always very important. You can always learn a ton even from individual patients who might have a unique background. We've seen some really interesting case studies of people on 4x the dose of Myozyme and not doing well and switching to PomOp and having quite good experiences. And of course, pediatrics is important. We've had some really compelling pediatric case studies. We continue to really invest in our pediatric trials and look forward to actually expanding the labeling here in the U.S., hopefully mid next year for adolescent patients. And in terms of endpoints, of course, it's always critical what do you look in trials versus in following patients in the real world. And usually, you don't do quite the same comparisons, and we're really helping work with key stakeholders about what is the right sort of cadence of monitoring patients, what are the key endpoints to look at, especially as physicians try to make decisions on switching. Operator: Our next question comes from Dennis Ding of Jefferies. Yuchen Ding: We have 2 on Pompe, if we may. Number one, congrats on the progress, but talk about the U.S. new patient starts in Q3 as they continue to go up relative to some of the commentary you made earlier this year for April and May? And then number two, as we think about 2026, consensus seems to expect a big inflection in Pompe revenue. Can you talk about things that you can actively do to accelerate that revenue trajectory relative to 2025? And expanding your sales force is something you're considering, particularly in the U.S.? Bradley Campbell: Thanks, Dennis, for the questions. I think you were talking about kind of further color on progress in the U.S. and our other markets in Q3 and then also kind of looking forward to the future, how can we continue to drive that building momentum. So yes, Q3, as I said on the call, was the largest ever net commercial demand for Pombiliti and Opfolda, which is really exciting. And that -- the U.S. was a huge contributor to that growth. We are seeing significant increases in breadth and depth of prescriptions in the United States. We've actually improved our time to reimbursement and everyday helps. So that -- I think that helps with the margins as well. And we're seeing very strong adherence and compliance rates as well. So really excited about the U.S., but that's not just here in the States, as Sebastien highlighted on the call, all of our launch markets, we think, are progressing really well. As we head into next year, of course, it's a little bit too soon to give guidance, but I think the momentum we're building in Q4 gives us confidence to see continued momentum going into 2026. What do we do to continue to support that momentum growth? Part of it for sure is just experience, and I think Jeff's point around that real-world evidence. I've literally been in meetings where some of those data points are presented for the first time and the excitement as people are seeing new data and new populations I think, is a key part of seeing that translate then into wanting to use the product in a new or different way. So I think that's part of it for sure. As Sebastien mentioned, we have a whole host of new countries contributing to the demand. This quarter, those new markets like Japan, as an example, will be modest in contribution from a revenue perspective. But of course, going into next year, the countries that we're launching in Q4 will have a significant contribution. Another one that we didn't highlight on the call, but is definitely going on in the background is the experience in the Netherlands. We talked before about the expectation there that we'll see 70% of patients switch over to late -- or excuse me, switch over to PomOp. That will continue to be a significant contributor as well. We've made great progress over Q3 and into Q4 in switching those patients. So I hope that gives you some flavor for the places that we're focused. But again, I think as more than anything, as more and more people have experience, as more and more real-world evidence comes out, that fuels the momentum that we're seeing. Operator: Our next question comes from Anupam Rama of JPMorgan. Anupam Rama: Single question, single part from me. For Galafold, in particular, you talked about the strongest patient adds since launch on a year-to-date basis. Can you expand a little bit on if that's coming from core countries? Or is that being more driven by emerging countries? Bradley Campbell: Yes. Thanks, Anupam. Sebastien, do you want to take that one? Sebastien Martel: Yes. So Anupam, as I mentioned, the key countries continue to grow, and this is, for the most part, driven by naive patients being diagnosed and us having over time established Galafold in those markets now as the standard of care for newly diagnosed naive patients with amenable mutations. We continue to see some degree of switches in those markets where we've launched in the more recent past, if you want. But as I highlighted, there is a significant underlying growth potential simply because we continue to see that Fabry is unfortunately really underdiagnosed. And so we've talked in the past about the fact that today, the number of diagnosed patients has far exceeded what we had projected right before we launched. And we continue to see, again, demand that is stronger than what we anticipated right before launch. Operator: Maxwell Skor from Morgan Stanley. Maxwell Skor: Just one on DMX-200. Is there a defined threshold for MCP-1 levels or other inflammatory markers that would make patients particularly good candidates for DMX-200? And any thoughts on FILSPARI, the FDA no longer requiring an advisory committee meeting for FILSPARI. Bradley Campbell: Maybe I'll take the second one, and then, Jeff, you can talk about the MCP-1 levels, which we do believe are correlated with the potential for that product. So it's a great question. As it relates to the AdCom for FILSPARI, what I'll just say is we are eagerly anticipating the progress there. We're hopeful for them, and we think it's a good sign, in fact, that they are no longer requiring an AdCom, and we're wishing them well. As it relates to the relationship of MCP-1 and proteinuria, Jeff, maybe you can respond there. Jeffrey Castelli: Yes. Thanks for the question. So briefly, MCP-1 is the monocyte chemoattractant protein. That is the chemokine that binds the CCL2 receptor and leads to the monocyte-driven inflammation. So DMX-200 is interrupting that signaling. In Phase II, we did see a nice effect on MCP-1 levels from DMX-200. And we actually saw the patients with the highest MCP-1 and the highest proteinuria showed the most robust responses on proteinuria in that Phase II. For the Phase III study, we did not have any sort of entry criteria in MCP-1. We are measuring MCP-1 throughout the study, and we do intend to sort of analyze the results based on different MCP-1 levels. We do anticipate, again, like we saw in the Phase II that people with higher MCP-1 are likely to have more inflammation and therefore, are likely to show even more of an impact of DMX-200. So we certainly will continue to learn more, and that is one of the key biomarker endpoints in the Phase III. Operator: Our next question comes from Ritu Baral of TD Cowen. Joshua Fleishman: This is Joshua Fleishman on the line for Ritu. Congrats on the quarter. So what impact may BIOSECURE 2.0 have on the usability of Ireland plant PomOp product in the U.S.? And how has physician feedback changed over the last quarter on the competitive dynamic in Pompe? Are the goalposts changing from when docs feel comfortable to switch patients to PomOp? Bradley Campbell: Thanks, Joshua, for the questions. We had one on BIOSECURE 2.0 and one on the continued sentiment around experience with Pombiliti Opfolda. So on the first one with BIOSECURE, look, we've continued to believe that we do think highlighting the importance of U.S. biotech manufacturing is critical for our economy going forward. However, the move to Dundalk and you might have seen on the call, the approval now from Europe of that facility, and we're eagerly anticipating the approval of the United States as well, I think, is a great way to ensure that we have supply coming from a friend-shored location in Ireland. We are confident that we will be able to maintain security of supply and at least the way that BIOSECURE has been evolving from last year into this year, I think, gives us even more confidence that we'll have a stable supply coming out of Ireland for the long time to come. And so we're not concerned about the evolution of that legislation. As it relates to the experience, I think everybody, I think, is eagerly anticipating or eagerly asking those questions and is exactly the right question. You may remember that when we launched, we said that part of our goal is to continue to provide experience and evidence to the physician and patient population so they can understand the opportunity with Pombiliti Opfolda. And as that evidence mounts, we are convinced that we will demonstrate that Pombiliti Opfolda is the right therapy for patients. And so I think I would encourage folks to continue to look at the posters and presentations as well as the publications that have come out. I think that evidence will only grow. And as Jeff said, part of it also is with now the availability of multiple therapies, what should physicians use in a real-world setting to understand that better. And I think we're helping the community answer that question as well. Yes, it's going to be mobility and breathing, but I think there'll be a number of other subtle -- more subtle endpoints or more patient-driven endpoints that will drive that as well. And so we'll continue to highlight those as we're able to support the community in developing them. Operator: Our next question comes from Kristen Kluska of Cantor Fitzgerald. Rick Miller: This is Rick Miller on for Kristen. Just one for us on Pompe. How should we be thinking about when you could potentially receive infantile onset Pompe disease label expansion? And will this be solely contingent on the ROSELLA, trial? Bradley Campbell: Great question. Maybe I'll frame, but then, Jeff, you can answer the specifics. So clearly, the biggest unmet need, the most fragile population within Pompe disease is the infantile onset Pompe patients, and it's critical for us to be able to serve those patients. Jeff can talk about the timing there. I would say, though, the largest portion of remaining patients who don't have access to PomOp today are the pediatric late-onset Pompe patients, so 12 to 17 and then 1 to 12. And so those are also a priority for us, and we've made great progress there. And in fact, those would probably become earlier label expansion opportunities than infantile onset. So maybe, Jeff, just remind us the rough timing on the pediatric late onset Pompe and then to the specific question from Rick, the infantile onset timing. Jeffrey Castelli: Yes. Thanks for the questions. So in terms of the first cohort of the 12- to 17-year-old late-onset patients as adolescent patients, we anticipate having a submission shortly and would look to an expansion of the label sort of mid next year. That will be the first pediatric expansion. We're completing enrollment in that younger LOPD group below the age of 12. So with enrollment completing here probably by the end of the year, you're looking at a year or so of follow-up and then time for submission. So a couple of years probably until that group gets added to the label. And then similarly for IOPD, we have 2 cohorts of patients, those that are switch patients and those that are naive patients. We're making great progress on the switch patient enrollment. That's nearly completed, starting to make good progress in the naives and again, that will be a year-plus study and the time for submission. So that would be probably even coming shortly after that younger LOPD group. But as Brad said, with the newborn screening in the U.S. and how much more patients are followed earlier, in particular, LOPD, we're very excited to hopefully have an updated labeling into that adolescent group mid next year. Operator: Our last question comes from Salveen Richter of Goldman Sachs. Salveen Richter: As we look to 2026 here with the switches from Nexviazyme expected in the U.S. and more ex-U.S. countries coming along, how should we think about the commercial trajectory of PomOp versus what we've seen this year? And I guess as you think forward to kind of a steady state, how are you thinking about market share for this asset? Bradley Campbell: Yes. Thanks, Salveen. As I said earlier, we're very confident in the growth as we come to the end of the year here, expect continued momentum into next year. A little early to give specifics on guidance, but we are confident it will be a strong growth year next year as well. In terms of market share, look, -- what we've seen in countries like the U.K. as an example, where we were available through that EAMS program for a number of years prior to launch, we're now getting to market shares in the 40-plus percent after, call it, 3 or 4 years on the market, probably 4 years in the market there. Our strong belief is that we can establish this product as the leading product for treating Pompe patients. And so for me, that means over a 50% market share at peak. And I think if you look at where the market is headed from a growth perspective, that's how we get to $1 billion plus at peak potential. So we're very confident in the end, this will be the leading prescribed product for people living with Pompe disease. We're still on that journey, of course, but we're starting to see signs that we can get to those shares after a period of time. So more to come. Operator: That was our last question. This does conclude today's conference call. We hope you have a great day, and you may now disconnect. Bradley Campbell: Great. Thank you all.
Operator: Good afternoon. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Astera Labs Q3 '25 Earnings Conference Call. [Operator Instructions] I'll now turn the call over to Leslie Green, Investor Relations for Astera Labs. Leslie, you may begin. Leslie Green: Good afternoon, everyone, and thank you, Eric. Welcome to Astera Labs Third Quarter 2025 Earnings Conference Call. Joining us on the call today are Jitendra Mohan, Chief Executive Officer and Co-Founder; Sanjay Gajendra, President and Chief Operating Officer and Co-Founder; and Mike Tate, Chief Financial Officer. Before we get started, I would like to remind everyone that certain comments made in this call today may include forward-looking statements regarding, among other things, expected future financial results strategies and plans, future operations and the markets in which we operate. These forward-looking statements reflect management's current beliefs, expectations and assumptions about future events, which are inherently subject to risks and uncertainties that are discussed in detail in today's earnings release and the periodic reports filed and filings we filed from time to time with the SEC, including the risks set forth in our most recent annual report on Form 10-K and our upcoming filing on Form 10-Q. It is not possible for the company's management to predict all risks and uncertainties that could have an impact on these forward-looking statements or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statement. In light of these risks, uncertainties and assumptions, the results, events or circumstances reflected in the forward-looking statements discussed during this call may not occur, and actual results could differ materially from those anticipated or implied. All of our statements are made based on information available to management as of today, and the company undertakes no obligation to update such statements after the date of this conference call, except as required by law. Also during this call, we will refer to certain non-GAAP financial measures, which we consider to be an important measure of the company's performance. These non-GAAP financial measures are provided in addition to and not as a substitute for financial results prepared in accordance with U.S. GAAP. The discussion of why we use non-GAAP financial measures and reconciliations between our GAAP and non-GAAP financial measures is available in the earnings release we issued today, which can be accessed through the Investor Relations portion of our website. With that, I would like to turn the call over to Jitendra Mohan, CEO of Astera Labs. Jitendra? Jitendra Mohan: Thank you, Leslie. Good afternoon, everyone, and thanks for joining our third quarter conference call for fiscal year 2025. Today, I'll provide an overview of our Q3 results, followed by a discussion around the current trends within AI Infrastructure 2.0. I will then turn the call over to Sanjay to walk through Astera Labs near- and long-term growth profile. Finally, Mike will give an overview of our Q3 2025 financial results and provide details regarding our financial guidance for Q4. Astera Labs delivered strong results in Q3 with our revenue and profitability metrics coming in above our outlook. Quarterly revenue of $230.6 million was up 20% from the prior quarter and up 104% versus Q3 of last year. Growth within the quarter was broad-based across our signal conditioning, smart cable module, and switch fabric products. Scorpio P-Series continued its initial volume ramp at our lead customer, and we are excited that our P-Series revenue will further broaden with recent new design wins across a variety of AI platforms at multiple hyperscaler customers. Scorpio X-Series is shipping in preproduction quantities with a volume ramp expected throughout 2026. Our Aries portfolio continues to perform well with PCIe 6 solutions contributing robust growth during the quarter. Our Aries 6 products are the industry's first and only PCIe 6 retimer solutions ramping in high volume today. Taurus drove strong growth during the quarter as incremental opportunities began shipping in volume across both AI and general purpose systems, and we expect further growth in 2026 as we expand to 800-gig switching platforms. For Leo CXL memory expansion products, customers are exploring AI inference use cases, especially to offload memory from expensive on-package HPM to large pools of DDR5 memory. This will broaden Leo opportunities beyond the current general purpose compute applications that we continue to support. On the organizational front, we have grown aggressively and plan to exit 2025 with a global team of more than 700 employees, up 60% compared with the beginning of the year. Lastly, we are happy to report that our non-GAAP operating margin of 41.7% marked a new record level for the company. In addition to our strong financial performance and new design wins, we continue to lay the foundation for future growth with the advancement of our technology roadmap and scaling of our team and capabilities. In October, we announced that Astera Labs had entered into a definitive agreement to acquire Xscale Photonics, a provider of leading-edge fiber chip coupling technologies. This acquisition will help enable us to develop photonic scale-up solutions by combining Xscale's fiber chip coupling capabilities with Astera Labs connectivity and signal conditioning expertise. We envision future Scorpio scale-up switches to be enabled with photonic solutions to optically expand rack scale cluster sizes containing hundreds of connected AI accelerators. This acquisition represents an important step within our long-term optical journey to intercept a large additive market opportunity associated with scale-up photonics. The industry continues to see strong momentum with major announcements pointing to ongoing rapid growth in large-scale AI infrastructure deployments. Increasing AI use cases are driving higher monetization and surging demand for compute as evidenced by token generation doubling every 2 months and significant year-over-year increases in LLM user activity. To meet this demand, the industry is rapidly adopting rack-scale infrastructure, which analysts forecasting CapEx at the top 4 U.S. hyperscalers to surpass $500 billion in 2026. This shift to AI Infrastructure 2.0 will require ultra-low latency all-to-all connectivity for large workloads, and Astera Labs is advancing its intelligent connectivity platform to deliver high-performance, energy-efficient fabric switching solutions that maximize AI platform efficiency and productivity. To achieve the goal of providing our customers with a wide choice of innovative, flexible and efficient connectivity solutions, we are building our portfolio based on open standards. Our full portfolio of standard-based solutions was in display at the 2025 Open Compute Project Global Summit with the support of 15 industry partners, all highlighting the importance of an open ecosystem for AI rack-scale infrastructure. We believe the proliferation of open standards-based AI rack-scale platforms will allow the industry to leverage broad innovation and enable interoperability while providing a diverse multi-vendor supply chain. We are particularly enthusiastic about the continued momentum behind the UALink scale-up connectivity standard, which exemplifies the open ecosystem approach by combining the low latency of PCIe and the fast data rates of Ethernet to deliver best-in-class end-to-end latency and bandwidth. UALink was built from the ground up with broad contributions from market-leading AI infrastructure participants to specifically solve the mounting challenges of scale-up networking. We believe UALink delivers the bandwidth efficiency and the ultra-low latency needed to unlock full accelerator performance and enable effective scaling as AI clusters expand. Customer activity around UALink continues to be strong. We are engaged with several leading hyperscalers and AI platform providers in the RFP and RFQ stages to align on the designs and applications that fit best with their technology and business requirements. We continue to expect a portfolio of UALink solutions to be available to customers in the second half of 2026 with early revenues generated in 2027. With that, let me turn the call over to our President and COO, Sanjay Gajendra, to outline our vision for growth over the next several years. Sanjay Gajendra: Thanks, Jitendra, and good afternoon, everyone. Today, I want to provide an update on our recent execution, followed by an overview of the meaningful market opportunities that will fuel Astera Labs growth over the next several years. Astera Labs has a singular goal to deliver a purpose-built intelligent connectivity platform, including silicon, hardware and software solutions to customers for rack-scale AI deployments. The forthcoming evolution to AI Infrastructure 2.0 will not only be defined by faster silicon and larger AI clusters, but also by open connectivity standards and software that promote innovation at scale. In short, standardized high-speed interconnect technologies will be essential to deliver AI open racks that are highly performant while operating as one cohesive unit. During Q3 of 2025, Astera Labs continued its high-growth trajectory and further diversified our overall business to deliver another record quarter. We are excited to report several new design wins at multiple hyperscalers during the quarter for Scorpio P-Series fabric switches across a variety of AI platforms supported by both merchant GPUs, including NVIDIA's GB300 and B300 as well as designs based on custom AI accelerators. Additionally, our Aries PCIe 6 smart retimer business and customer opportunities are now expanding as AI racks built around custom AI accelerators and new merchant accelerators begin to adopt PCIe 6. This dynamic is poised to further accelerate the broader adoption of PCIe 6 across the ecosystem and further drive our dollar content opportunity. Overall, our PCIe 6 solutions contributed in excess of 20% of our Q3 revenues, illustrating our market-leading position. We see a similar dynamic taking shape within the Ethernet market with the transition to 800-gig links putting additional strain on signal integrity. Given faster speeds and larger AI cluster sizes, system architects are turning to Ethernet AEC applications to solve the reach challenges of passive cabling. This transition is expected to drive market growth with increasing overall volumes and a generation over generation ASP lift. While we expect strong continued demand for our 400-gig solutions throughout 2026, we also believe our customer base will diversify with 800-gig solutions, driving a new layer of growth for our Ethernet smart cable modules. We believe our approach to enable multiple cable partners with our smart cable modules, supports the scale and flexibility that is preferred by hyperscalers. Looking ahead, we are gearing up for Scorpio X-Series to shift to high-volume production over the course of 2026. With this ramp of Scorpio X-Series for scale-up connectivity topologies next year, we expect our overall dollar content opportunity per AI accelerator to significantly increase, representing another step-up from a baseline revenue standpoint. Overall, given the extreme importance of scale-up connectivity to AI infrastructure performance and productivity, we see Scorpio X-Series solutions as the anchor socket within next-generation AI racks. Our early engagements are providing us valuable insights in terms of both hardware and software requirements to deploy scale-up switching networks for a diverse set of GPUs and AI accelerators. Beyond the connectivity protocol like PCIe, UALink or Ethernet, there are additional functions, both in the data part and management of scale-up networks that can make or break the performance and deployment of scale-up networks. We are learning this every day, building a competitive moat and ensuring our solutions are ready for real-world deployments at scale. From an implementation perspective, the architecture of our Scorpio X family was built to support multiple platform-specific scale-up protocols and customizations. We are actively expanding our PCIe-based scale-up fabric solutions. And in parallel, we are working on future UALink products for applications that need higher bandwidth. For PCIe, we are engaged with over 10 AI platform providers with opportunities that are expected to drive revenue growth across multiple generations of AI platforms over the next several years. We view UALink opportunities to be meaningfully additive to our PCIe scale-up revenues. Our flexible fabric architecture, hands-on experience with scale-up networks, support for diverse workloads that run on training and inference clusters of various scale and complexity and open approach puts us in an excellent position to win next-generation designs. As we look to 2026 and beyond, our playbook remains the same: one, stay closely aligned with the multigenerational technology roadmaps of our customers and partners; two, innovate exponentially in everything we do; and three, separate the noise from reality and continue to be laser-focused on execution needed for a thriving, durable business. In conclusion, we are motivated by the meaningful opportunity that lies before us, and we will continue to passionately support our customers by strengthening our technology capabilities and investing in the future. With that, I will turn the call over to our CFO, Mike Tate, who will discuss our Q3 financial results and our Q4 outlook. Michael Tate: Thanks, Sanjay, and thanks to everyone for joining the call. This overview of our Q3 financial results and Q4 guidance will be on a non-GAAP basis. The primary difference in Astera Labs non-GAAP metrics is stock-based compensation and its related income tax effects. Please refer to today's press release available on the Investor Relations section of our website for more details on both our GAAP and non-GAAP Q4 financial outlook as well as a reconciliation of our GAAP to non-GAAP financial measures presented on this call. For Q3 of 2025, Astera Labs delivered quarterly revenue of $230.6 million, which was up 20% versus the previous quarter and 104% higher than the revenue in Q3 of 2024. During the quarter, we enjoyed revenue growth from our Scorpio, Aries and Taurus product lines supporting both scale-up and scale-out PCIe and Ethernet connectivity for AI rack-level configurations. Scorpio P-Series demand for PCIe Gen 6 scale-out applications was robust during the quarter. Aries demonstrated solid growth during the quarter for both Gen 5 and Gen 6 solutions. With the transition to PCIe Gen 6, we gained increased dollar opportunities with both our Scorpio and Aries Gen 6 products as demonstrated with our Gen 6 revenues exceeding 20% of our Q3 revenues. Taurus growth during the quarter was driven by increasing shipments for 400-gig scale-out connectivity and AI systems. Q3 non-GAAP gross margin was 76.4% and was up 40 basis points from the June quarter levels with product mix remaining largely constant across higher volumes. Non-GAAP operating expenses for Q3 of $80 million were up $9.4 million from the previous quarters due to higher payroll taxes and the continued expansion of our R&D organization. Within Q3 non-GAAP operating expenses, R&D expenses were $57.2 million. Sales and marketing expenses were $10 million, and general and administrative expenses were $12.8 million. Non-GAAP operating margins for Q3 reached a new record level of 41.7%, up 250 basis points from the previous quarter. Interest income in Q3 was $11.5 million. Our non-GAAP tax rate for Q3 was 18%. Non-GAAP fully diluted share count for Q3 was 180.6 million shares, and our non-GAAP diluted earnings per share for the quarter was $0.49. Cash flow from operating activities for Q3 was $78.2 million, and we ended the quarter with cash, cash equivalents and marketable securities of $1.13 billion. Now turning to our guidance for Q4 of fiscal 2025. We expect Q4 revenues to increase within a range of $245 million and $253 million, up roughly 6% to 10% from third quarter levels. For Q4, we expect growth across our Aries, Taurus and Scorpio product families with particular strength from our Taurus smart cable modules. We expect Aries growth to be driven by a number of end customer platforms where we support scale-up and scale-out connectivity. Strong Taurus growth is expected to be driven by increased volumes on 400-gig designs for AI scale-out connectivity. Scorpio growth will be primarily driven by the continued deployment of our P-Series solutions for scale-out applications on third-party GPU platforms, while we expect Scorpio X-Series to ship initial volumes. We expect Q4 non-GAAP gross margins to be approximately 75% with the increased mix of our Taurus hardware modules in the quarter. We expect fourth quarter non-GAAP operating expenses to be in the range of approximately $85 million to $90 million. Anticipated operating expense growth in Q4 is driven by the expectation of continued investment in research and development functions and also the incremental operating expenses from the Xscale acquisition anticipated to close during the quarter. Interest income is expected to be approximately $11 million. Our non-GAAP tax rate should be approximately 15%. Our non-GAAP fully diluted share count is expected to be approximately 183 million shares. Adding this all up, we are expecting non-GAAP fully diluted earnings per share to be approximately $0.51. This concludes our prepared remarks. And once again, we appreciate everyone joining the call. And now we will open the line for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Harlan Sur with JPMorgan. Harlan Sur: Again, great execution by the team. Post the announcement of UALink 1.0 specification in April, this is the industry's first standard scale-up networking architecture. There have been a plethora of new scale-up announcements, mostly Ethernet-based scale-up architectures. I think the market has been concerned about these competitive architectures, but we know that GPU and XPU chip design cycle times are anywhere from 18 to 24 months and the scale-up architecture associated with these designs have been spec out like way in advance. So in other words, I assume that your design win pipeline and engagements, XPUs or GPUs that either have decided to use Scorpio X or UALink has not changed at all since the last earnings, maybe even expanded, but wanted to get the team's view. Sanjay Gajendra: Yes, absolutely, Harlan. We continue to see our market opportunity grow for our scale-up products, particularly Scorpio X product like you noted. Scale up, as you can imagine, it's a very large market. We estimate it to be in tens of billions of dollars. And like you correctly noted, some of these design wins take last over multiple generations simply because of the investment that goes into developing the software and the hardware required for scale-up topologies. For us, if you think about our business, today, we are getting ready to ramp into production with our PCIe-based scale-up solutions. It's been extremely popular. There are several customers that are using PCIe like protocols for scale-up. A new entrant was Qualcomm that publicly announced their new AI 200 inference racks that feature PCIe-based scale-up. For Astera, we have engaged with over 10 AI platform providers, and we expect that these design wins and engagements that we have will continue to ramp. In fact, we expect this to go 2029 just based on some of the multi-generation nature of these design wins. For us, UALink is also a very meaningfully additive opportunity as customers start adopting it just based on the higher data rate support. The spec has been around, like you noted, for over a year now in terms of the consortium being formed. The spec is stable. The ecosystem is forming. Silicon development is in full gear. And many of these customers, we have currently engaged with RFPs and RFQs. So the momentum is really built up very nicely and continues to grow. So we do expect meaningful revenue from UALink to start coming in, in 2027. There are, of course, other standards being defined, and that is to be expected. This is a market that will have multiple standards that will coexist. But for us, the bottom line is that we are in a good position to address all of the emerging scale-up market opportunities with the engagements we have, the learnings that we have had by being in the trenches over the last, let's say, 9 to 12 months, developing scale-up solutions, understanding what is needed and what is not needed, and with production ramps happening in 2026. So overall, we feel very confident that this is going to present multiple opportunities for us, resulting in a multi business -- multibillion-dollar business on the scale-up side based on all the opportunities that we see in the market. Harlan Sur: No, I appreciate that. And the team has talked about the Scorpio X as an anchor product, right? In other words, customers design your switch fabric solution. This creates the opportunity for additional content pull in, right, whether that's your signal conditioning products, your AEC, optical cable modules. Is this strategy playing out? In other words, if you look at, let's say, all of your Scorpio X engagements, what percentage of these engagements are also using your retimers, your AEC or optical cable module solutions? And do you have a sense of the average content uplift per XPU on these incremental attach? Sanjay Gajendra: Yes. So like you correctly noted, if you are a system designer at a hyperscaler, on day 1, when you decide on building a new platform, you generally think of 2 things. One is the accelerator and other one is the scale-up switch and the topology for it. So fortunately, we get invited to the conversation very early. And some of these conversations are multigenerational. So it gives us a good outlook for not just on requirements that we have in the near term, but also on the long term. We announced the acquisition that we are working towards for Xscale. And that was driven based on similar insights that we've been able to gather in terms of what is needed for us. In terms of content itself, once that we are in the sockets for our scale-up solution, it naturally opens up conversations around other products that we have, whether it's retimers, gearbox devices, controllers and things like that, which we have been able to maximize in terms of how we can service. In terms of dollar content, what I would say is that overall, if you look at some of these future design wins that will ramp up, they scale up to multiple thousands of dollars if you look at it from an accelerator and a rack level. So in general, we do see that having a strong presence in the scale-up network allows us to pull in several other products and technology that we currently have and also working on in terms of future product lines that we intend to offer to our customers. Operator: Your next question comes from the line of Ross Seymore with Deutsche Bank. Ross Seymore: The first one I wanted to follow on to the switch fabric side of things with Scorpio. You talked about more design wins across several platforms and more customers. I guess where I really want to get some more color is on the diversification theme. How are you seeing that business diversify? And when Scorpio X launches, does that naturally come back to some concentration? Or does that further diversify the business? And what I appreciate is a naturally concentrated market. But within that framework, how do you see that business diversifying over time? Sanjay Gajendra: Yes. So in general, the theme that we have been working towards is to ensure that there is a good diversity, both with our product lines and customer base that we have. Like you correctly noted, the hyperscaler market is fairly concentrated. I mean that's the occupational hazard that we all have to deal with. But to your point, today, like we have noted for things like PCIe-based scale-up and in the future, UALink and other protocols. Today, we have over 10 customer platforms that we are engaged with. We have made tremendous progress in the last quarter, making progress in terms of not just design wins, but also for some of the opportunities moving them forward from a technical POC software development and other aspects that are needed to deploy this technology at scale. So at this point, given our presence with the fabric devices, that's truly allowing us to be very broad-based. And this not only includes third-party GPU-based platforms, but also custom accelerator-based products. And that's been an exciting momentum for us right now as we seek to add many more design wins to the customers that we have on Scorpio Series. Ross Seymore: And I guess one for Mike on the gross margin side of things. It's very, very impressive. I understand the mix dynamic and why it might be going down a bit in the fourth quarter, but it's still well above your 70% long-term target. So I think investors are just wondering what would be the puts and takes that would drive it down from kind of the mid-70s to 70% over time, especially if the scale-up architectures and different products are going to become so important to you and as Sanjay said, are relatively accretive on the dollar amount, and I assume even on the gross margin side. Michael Tate: Yes. So on the first order effect, generally, when we sell hardware products and modules versus silicon, that's margin dilutive. So we do see an uptick in tours in Q4. So that's the guidance to 75%. As we look longer term, we are going to greatly broaden our product portfolio and the design cycles are moving very fast. So in doing that, we will have a wider range of margins for our products generally because the market is moving so fast, we can't have very pointed products for every opportunity. So some will have a cost structure which is a little more overburdened for the opportunity set, and that will be part of the mix. So we still encourage people to think about us going to our long-term model. But with that, we do see operating leverage as we grow our revenue dollars at a very good pace. Operator: Your next question comes from the line of Blayne Curtis with Jefferies. Blayne Curtis: Great results. Maybe I just want to start off on just level set. Obviously, you beat by a wide amount. I think you mentioned kind of the first 2 you mentioned was single conditioning and these SCM modules. I'm just trying to figure out if you can kind of -- I know you don't want to break out certain segments, but can you give us a little bit more color as to what drove the beat and what changed during the quarter? Michael Tate: Yes. We saw breadth through all the 3 product lines. We generally want to be conservative because a lot of the revenue growth that we have are from new programs, and these programs are very complex. So we just want to give a little cushion in case there's any delays in the product launches by our customers, but it was a very successful quarter for our customers in their deployments. So that enables us to deliver the upside. Blayne Curtis: And I want to ask you, I mean, obviously, the -- what NVIDIA has done with retimers was a lot of the talking points throughout the year, but you're starting to see these ASIC platforms going to be more material next year. Is there a way to think about that Aries family as these ASICs ramp on a relative basis versus kind of the retimer content you're seeing today? Sanjay Gajendra: Yes. So just to kind of level set, right? So we do expect a significant growth in Aries revenue this year, and we do expect the revenue growth for Aries family to continue to next year as well. So in general, obviously, the ASP of the retimer business is different compared to the Scorpio or the switch fabric business that we have. And we do expect that Scorpio to be our largest product line from a revenue standpoint. And there are obviously several different design wins that we have that -- that are expected to ramp to production volume in 2026. So in general, what I want to say is that the business has transitioned to some of these larger sockets and the higher ASP business that we have, and that trend will continue with the inflection point happening sometime in 2026, when Scorpio will overtake Aries and other product lines from a revenue standpoint. Operator: Your next question comes from the line of Tore Svanberg with Stifel. Tore Svanberg: Congrats on the strong results. So I had a question on the acquisition and you now penetration into the optical scale-up market. Just curious, material revenue time lines. I assume this is potentially the beginning of more to come. And maybe you could also discuss a little bit why you decided to intersect optical now versus perhaps prior or later. Jitendra Mohan: Yes. Thanks, Tore. Maybe I'll begin and then Mike can add on. Look, our vision has always been to deliver complete connectivity infrastructure at the rack scale. We have stated this many times, we call it AI Infrastructure 2.0, and we are laser-focused on building solutions for that. Today, we are focused on copper-based solutions, mainly because this is what our customers ask us to do. However, as data rates increase and scale-up domains go beyond 1 rack, clearly, at some point, you will need optical interconnects for scale-up. And there is already a big market for optical interconnects at a data center scale. So we view our kind of entry into optical as a big additive opportunity, and we will intercept the market with unique solutions that are aligned with our customers' roadmaps in the sense of when they want to transition from copper to optical. So as far as the timing is concerned, why now and why not earlier or why not later? It is part of the plan that we have with our customers on when we want to intercept with an optical solution. It is also important to note that with this acquisition of Xscale, we are adding capabilities to the company that we did not have before. Xscale allows us to get the glass components that are required to deliver a successful optical product, whether it is a CPO or an LPO or an NPO. But this is a technology, that's very complementary to the signal conditioning and switching expertise that we have. So our vision would be to deliver a product line where our Scorpio family is optically enabled with photonic solutions to allow for higher data rates and longer reach in scale-up domains. With the Xscale acquisition, we get a phenomenal team that we can kickstart this development and this acquisition is just again our commitment to enter this market and intercept at the right time. Michael Tate: I'm sorry, Tore, you had a question on the timing of... Tore Svanberg: Yes. As part of my first question, when can we start to expect material revenue coming from optical products from Astera? Is that '27, '28, '29? Michael Tate: More likely, the earliest for scale-up optical connections will be in the '28, 2029 time frame. Tore Svanberg: Very good. And just as my follow-up, you talked about Taurus driving strong growth here in Q4. I think you mentioned 400 gig. Is that also diversified growth? Is this with more than one customer? And when do you see the inflection happening for Taurus for 800-gig in 2026? Sanjay Gajendra: Yes. So the 800-gig deployments, I want to say, are just starting in terms of the market need. So for us, we are engaged with several customers. Our business model for AEC is to offer the smart cable modules that then gets enabled through multiple cable vendors. And generally speaking, there is a little bit of lag between when customers start their initial POC or initial deployment to when they start scaling. So overall, we believe that from an 800-gig standpoint, our business -- our revenue impact would start in 2026. I want to say, early part of '26 as the qualifications complete and start ramping to production. Operator: Your next question comes from the line of Mehdi Hosseini with SFG. Mehdi Hosseini: A couple of follow-ups. I just want to go back to the target that Scorpio would be about 10% of your revenue. And if that's the case, then does it imply that Scorpio would be like closer to 20% of the revenue in the December quarter? Michael Tate: Yes. The 10% was for the full year. It started to launch materially in Q2. So the exit rate would be closer to the 20%. That's correct. Mehdi Hosseini: Okay. And then with the X ramping, let's say, spring of next year, that's when the contribution is going to actually accelerate. Am I thinking about this right? Michael Tate: Yes. P will continue to grow given that we have new designs that will be ramping throughout the year. So P and itself is a nice growing piece of revenue for Scorpio. The X-Series is in kind of low initial volumes right now, but then it starts to ramp materially next year. What we said before is the X is ultimately a bigger opportunity, the scale-up opportunity. So at some point, and we're not saying exactly when, it will be bigger than P, and we're very excited about that potential. Mehdi Hosseini: Sure. And then I have a rather clarification question. I'm new to the name, maybe just me, but when you say you have 10 AI platforms involved with your Scorpio product, what does that mean? Does that mean 10 different CSPs, 10 different customers? The AI platform, if you could just elaborate on it, it would be great. Sanjay Gajendra: Yes. So we refer to the customer base that we have that includes the folks that are developing their own accelerators. It also includes the hyperscalers that are buying some of the third-party accelerators and integrating it into their AI servers. So those are the 2 broad categories to think of in terms of the 10 customers that we noted. Mehdi Hosseini: Okay. So that basically implies the diverse set of customers that are adopting the UALink, the open-source, right? Is that -- would that be fair? Sanjay Gajendra: Yes. So that comment itself is correct. We do believe that there's quite a bit of momentum around UALink based on the fact that it's developed grounds up. But the 10-plus customer comment we made was in reference to folks that are using PCIe-like protocols for scale-up. However, we do believe that the folks that are using PCIe-like protocols would also be looking at UALink as an option to service platforms that require higher data rate, meaning from a physical layer standpoint. So to that standpoint, UALink would be additive to our PCIe customer base. At the same time, it will also provide an upgrade path for folks that want higher speed on specific AI platforms. Operator: Your next question comes from the line of Quinn Bolton with Needham & Company. Quinn Bolton: Let me offer my congratulations as well. I just wanted to come back to the Xscale Photonics acquisition as it's your first entry into the optical side of things. I think this technology looks like it's fiber chip coupling. It seems like you probably need some kind of silicon photonics capability to complete a scale-up CPO type solution. So just wondering, is that something you look to develop in-house? Would that be sort of an acquisition that you would look to pursue in the future? Just how do you complete that full scale-up CPO solution? Jitendra Mohan: Quinn, good question. Yes. So as you have correctly pointed out, in order to build a full optical solution, you need 3 pieces. You need an electrical IC that takes the signals from, let's say, a switch chip or an XPU chip, converts it into a format that's applicable for a photonic chip. So that's the second component that you need, a photonic chip that will now convert these electrical signals into light. And then you need a packaging technology that will couple this light into fibers and so on. And there are very specific requirements for each one of them. With the acquisition of Xscale, we solved 2 of the 3. So they are working on some very cutting-edge technology on package development. Once the acquisition closes, we will be able to reveal more about what that means to us and how we will intend to use it. But they are, as you correctly pointed out, working on packaging technologies that is a very critical part of the equation. We also get a lot of photonics expertise as part of this acquisition as well. So we will look to put a team together internally to work on photonics. But at the same time, photonics is a very complex equation wherein customers also have a lot of say into what photonics to use. So we are open to not only work on our solution, but also use third-party photonics solutions to enable an overall optical solution that is suitable for our customers' requirements. And then when it comes to electrical, we've been doing electrical chips for many years as part of Astera Labs and a long time before that. So we feel pretty confident in building the electrical components. But all 3 of them put together is what makes a compelling optical solution. And we have some great ideas on how to build a unique solution as we enter -- as we contemplate entering this space. Quinn Bolton: And then I guess just wanted to come back to the comment about initial Scorpio X shipments in the fourth quarter. Is that kind of preproduction more sample units? Or are you starting to see the initial Scorpio X design win going to production? Is this the initial build of a production system? Sanjay Gajendra: Yes. So this is the initial build. So we've gone through the qualification stage and all the intermediate stages. So we start shipping into production volumes -- production systems end of the year, but the big ramp will happen in '26. Operator: Your next question comes from the line of Sean O'Loughlin with TD Cowen. Sean O'Loughlin: Congrats again on the results. I wanted to ask maybe a bit of a technical one on the PCIe switch transition to a UALink native switch as we look towards that product's launch next year. How much of a step change is that in terms of silicon complexity and design? Or is it much more on the, call it, firmware or SDK side and the silicon is largely similar since they're both based on memory semantics rather than networking semantics? And then sort of related to that, you talked about your customers taking a look at the UALink protocol, even though they're on PCIe today, how much of a lift is on their side when they're looking at the scale-up communication kernel and what can you do to sort of derisk that transition for them? Jitendra Mohan: Yes. It's a great question. And you are very correct in pointing out that there are similarities between both PCI Express and UALink from a protocol standpoint and also that customers have made good investments into their software stack that is tuned to a particular type of protocol. So let me answer them one by one. So to begin with our Scorpio X family today supports PCI Express and PCI Express like protocol. And when we transition from PCI Express to UALink, it will indeed be a new chip that addresses the future generation of these AI systems. However, when we designed Scorpio X, we took into account future generations of this product where the line rates will go up. So the switching architecture and many of the features that go into the switching product, which are beyond the protocol are already ready for the next generation. So while it is going to be a new development for us to go to a UALink switch, we will certainly leverage the development that we have done for the current Scorpio X generation very heavily, including all of the software features that are part of our COSMOS software stack that are responsible for optimizing, customizing and delivering a lot of diagnostics and telemetry to our end customers. In terms of the similarities between PCI Express and UALink, they are both load store-based protocols. PCI Express has been around for many, many years. It is a memory semantic-based protocol. So from an XPU perspective, the ASIC can simply say, I want to access this memory location, and it doesn't matter whether that memory location is in the same GPU or the same XPU or a remote XPU. This is the beauty of memory semantic-based protocol. And UALink carries forward the same thing. It carries forward the memory semantic-based protocol. It carries forward the lossless nature of the network and the software lift for an end customer is much easier. So we do see UALink as an evolutionary step for our PCI Express customers, as Sanjay mentioned before. At the same time, UALink does a few things that are very much customized for AI scale-up. The data rates are much faster. Obviously, we go from 64 and 128 gig to 200 and then beyond in the future. But more importantly, the protocol was built ground up for AI scale-up. It takes into account the AI workloads, the AI traffic patterns and simultaneously delivers low latency as well as increased throughput. And most importantly, UALink is also an open standard. So it's been around for 1 year now, 1 year officially, which in AI terms is probably a decade. And during this time, the IP ecosystem has become mature. The spec is very solid. And a lot of vendors are working on new silicon to deploy UAL-based switches in the 2026 time frame with revenues coming in, in 2027. Sean O'Loughlin: I really appreciate the color there. And I'll follow up with a quick clarification on the 20% PCIe Gen 6. I believe that was inclusive of both Scorpio P and Aries or was that an Aries-specific comment? Jitendra Mohan: That's inclusive of Scorpio, which is all Gen 6 product -- in our Aries Gen 6 products. Operator: Your next question comes from the line of Suji Desilva with ROTH Capital. Sujeeva De Silva: Hi Jitendra, Sanjay Mike, congrats on the progress here. I know the optical revenue is down the line here. But just wondering in comparing pain points of bandwidth versus XPU density, which one kind of pushes customers faster to scale up using optical? Or is there a way to kind of handicap one versus the other? Jitendra Mohan: Yes. I think what our customers have told us, and you can see this in the product announcements that various AI platform providers and hyperscalers have made is they prefer to stick with copper for as long as possible. And the reason for that is multifold. Clearly, copper is so far proven to be more reliable. It's lower power. It offers better TCO. And so as part of the focus that we have on copper, we'll continue to push copper for as long as possible. And that is copper is not going away anytime soon. However, as the topologies of scale-up networks evolve, you will end up with a practical limitation of trying to provide megawatts of power into one rack. And so as a result, at some point in time, we will have to disaggregate the rack into multiple racks, which will then be beyond the reach of copper. So that is what we are planning for. And in the outer years, as Mike mentioned, in the 2028, 2029 time frame, we expect to see these optical deployments from POC and eventually turning into revenues. Sujeeva De Silva: Okay. Great. So rack to rack. And then just a clarification on the 10 POC customers for PCIe, UALink for scale up. Are any of the customers pursuing anything Ethernet related with you? And are you working on any Ethernet stack efforts in-house yet? Or is it all PCIe to UALink roadmap today? Sanjay Gajendra: Yes. So again, we can't comment on what customers are looking at. But let me talk about what we are doing. Like we have highlighted many times, we are heavily engaged right now on scale up. Today, most of the deployments are PCIe like. And these are engagements that obviously will have -- will live for multiple generations, and that's probably something that perhaps is a little underappreciated. We do expect the revenues to go into 2029. And in terms of like other protocols, what I would say is that think about it this way, we believe in open standards. We believe in doing what's right for the customers. Our Scorpio X-Series is developed today to support PCIe and it can easily upgrade to UALink, especially on the non-protocol-related functions. So overall, what I would say is that if a time comes when customers require alternate implementations, we are well setup for it because one key thing to highlight is that although there is so much a focus on like the physical layer protocol, PCIe or Ethernet or other things, what we are learning is that the most important or some of the most important functionality is required in the data part, in the management side because these clusters are giant and having a link that is nonperforming or a subsystem on the data part not delivering the right performance could significantly impact the overall performance of the cluster. So to that standpoint, what we are seeing is that there are several things that needs to be done at the upper levels, and those are things that will remain constant for us irrespective of the physical layer that we end up supporting based on market and customer requirements. Operator: Your next question comes from the line of Sebastien Naji with William Blair. Sebastien Cyrus Naji: I wanted to ask about the opportunity for Astera in China and in particular, the willingness for Chinese hyperscalers to maybe use more open technologies like PCIe or UALink. Jitendra Mohan: Yes. So there is a difference in the hyperscaler opportunities in the U.S. relative to the hyperscaler opportunities in China. Because of the constraints that are placed on the availability of IP and technology, we actually see a lot of demand in China for PCI Express-based scale-up. And the reason that has to do with that is the IP availability there is limited in terms of the data rate, 200 gig is not readily available. PCI Express Gen 5 and add-in card formats are most common in China. And in order to build a larger scale-up network so that they can address the same problems that you might be able to solve with an 8 GPU cluster here in the U.S. might require 16 or 24 clusters of GPU to address the same problem. So when you have more GPUs, our revenues are typically indexed by the number of GPUs. So when you have more GPUs and more accelerators, it is a bigger opportunity for us to sell both our switching solutions as well as solve our retiming solutions from both chip-down opportunities as well as active cable opportunities. Sebastien Cyrus Naji: Got it. Okay. That's really helpful. And maybe if I could do just one follow-up. Just I'd love to get your thoughts on NVIDIA's shift to more of a cable-less design with their Rubin servers or Rubin rack. Does that design shift change Astera's opportunity with Aries or Taurus at all? Jitendra Mohan: So as we have said before, the opportunity for us for NVIDIA-based designs is when hyperscaler customers customize their design to deploy in their own infrastructure. That has been true of the Blackwell platform, and we believe that something like this will happen for the Vera Rubin platform as well. The choice of using a cable backplane versus a PC board-based backplane has to do with the number of GPUs that are present in the design. And certainly, we should let NVIDIA explain the rationale from going from one to the other. But the opportunity for Astera comes when hyperscaler customers take the very performant high-performance GPU platform and customize it for their use cases. Operator: There are no further questions at this time. I would like to turn the call back over to Leslie Green for closing remarks. Leslie Green: Thank you, everyone, for your participation and questions. And please refer to our Investor Relations website for ongoing information regarding upcoming financial conferences and events. Talk to you soon. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good afternoon. My name is Joe, and I will be your conference operator today. At this time, I would like to welcome everyone to Live Nation's Third Quarter 2025 Earnings Call. I would now like to turn the call over to Ms. Amy Yong. Thank you, Ms. Yong. You may begin. Amy Yong: Good afternoon, and welcome to the Live Nation Third Quarter 2025 Earnings Conference Call. Joining us today is our President and CEO, Michael Rapino; and our President and CFO, Joe Berchtold. We would like to remind you that this afternoon's call will contain certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ, including statements related to the company's anticipated financial performance, business prospects, new developments and similar matters. Please refer to Live Nation's SEC filings, including the risk factors and cautionary statements included in the company's most recent filings on Forms 10-K, 10-Q and 8-K for a description of risks and uncertainties that could impact the actual results. Live Nation will also refer to some non-GAAP measures on this call. In accordance with the SEC Regulation G, Live Nation has provided definitions of these measures and a full reconciliation to the most comparable GAAP measures in our earnings release. The release reconciliation can be found under the Financial Information section on Live Nation's website. With that, we will now take your questions. Operator? Operator: [Operator Instructions] And the first question comes from the line of Brandon Ross with LightShed Partners. Brandon Ross: First, going into 2025, it seemed like it was one where the sun, the moon, the stars were all going to align with stadiums and arenas and amphitheaters all coming together. It's turned out, it seems to be a great stadium year, but there's definitely been underperformance in the other venue sizes. Can you explain what happened with amps and arenas this year? And what can give us confidence that they will rebound strongly in 2026? And I have a follow-up. Michael Rapino: Thanks, Brandon. I'll take it. Just to be clear, we had an incredible quarter, an incredible year so far. We had revenue up 11%, operating up 24%, AOI 14%. These are numbers you pray for every quarter. So we've had an incredible year. One of the things we've always said about Live Nation is the great strength you have in investing in us is we are a global diversified business and both geographically and venue type. And sometimes Europe overdelivers and America underdelivers. Sometimes the amps are having a record year, sometimes the stadiums are having a record year. And that's always been the pattern here. And what's great is at the end of the day, we're going to deliver our AOI 10% growth and had an incredible growth internationally, Mexico, Latin America, a lot of our European businesses and stadiums, up 60%. Now again, we would hope we have this problem every year where stadiums are dominating the business. It just continues to show the strength of the consumer and the buyer. This year, we had a few less amphitheater shows. We're looking towards '26. It looks like it's going to be a great pipeline. We look like amphitheaters, arenas and stadiums are going to have a very strong year next year, and on both International and American basis. Probably be sitting here in a year from now telling you one of those markets overdelivered and that's the strength of our diversified platform. So we don't think there's anything structural. We think there is a lot of content out there. A lot of artists decided not to play or not to play arenas and amphitheaters and go for stadiums. We support that on a global basis, and that helped deliver our global revenue growth of over 11%. We think next year, we'll have the same great combination on a global basis and deliver what we've been delivering for many years. Record attendance, record revenue and record AOI will be in the books again for next year with the combination of international amps and arenas. Brandon Ross: Great. And then on the Ticketmaster side, following the FTC suit, it seems like you've really begun to crack down a lot on ticket scalpers. Can you remind us of the actions that you've taken so far? And what impact you expect each to have on both LYV financials and the broader ticketing industry? And it seems like most of the work that you're doing, most of the changes you're making are concerts only as opposed to both concerts and sports. Any color on why that's the case? Joe Berchtold: Sure, Brandon. I'll get going and Michael can jump in. First, again, as always, just to set the context, secondary is a low single-digit percentage of our revenue. It's a feature to us as we've long talked. We focused on primary and helping content get the tickets priced and sold how they want. First, just to answer sports versus concerts, it's very different. Sports, the teams and leagues use secondary as a distribution platform for disaggregation of season tickets. So the secondary I would think about is being -- it's really heavily a liquidity market in sports. In concerts because they're all sold one-off, there is no liquidity market. It's all a price arbitrage market. So as we look at it, it's a matter of how much are the scalpers taking? How much arbitrage are they getting? And the actions that we're taking, I think, are heavily driven by the fact when we look hard at it, it's just too much. So the pieces first, even though it gets pressed is less important is Trade Desk. It's a tool that brokers use to manage their tickets and simultaneously place them on multiple marketplaces. It started because of sports. It's often confused that somehow it's a tool that the brokers could use to get tickets in some advantaged form relative to fans. It's not this. It's never been this. But just to eliminate the noise, we're shutting it down. We don't expect it to have any financial impact on us or on the market. We expect most of these folks will either do it manually or go to one of the other multitude of platforms that offer this service. More impactful to the industry is the identity verification tools we've started to deploy. So now when our system identifies high-risk accounts based on 100 different signals, we can require validation that the account holder is a person and their government ID matches the account. This is a key tool we've used in canceling over 1 million accounts over the past month. And on a recent high-demand on sale that got some press, we used it after the fact looking at the signals and putting fans through to determine whether they were real fans or it was bought purchase. So that's been helpful. We're optimistic in the short term, this can help rein in some of the excessive abuse that's developed. But frankly, we're also realistic that without legislative and enforcement changes, the scalpers will continue to invest in new tools to fool our systems and mask the fact that they're bots. So it's hard to fully translate into financial impacts. But I think given the low percentage of revenue that secondary accounts for, what we've seen so far in terms of the activity and the volume, we don't have any reason to think it would be more than a low to mid-single-digit impact to Ticketmaster's AOI next year. But I think even more importantly, we don't see this fundamentally impacting our growth strategy given our focus on the primary side. So as we lay out our multiyear strategy tomorrow, this is not going to have an impact on that strategy or on the numbers that we would show you in terms of where we think we can get to. Operator: The next question comes from the line of Stephen Laszczyk with Goldman Sachs. Stephen Laszczyk: Joe, maybe on the concert segment for the quarter. I was wondering if you could help us break down some of the puts and takes to concert segment AOI growth izn 3Q. I think there's a number of factors that investors are trying to better understand. You have growth in Venue Nation attendance and the profitability that might be coming on as you layer on some new capacity there. You have more stadium activity as you called out earlier and then some pressure on amp and arena attendance. I think any color to help us better understand the sizing of some of these drivers would be helpful as we look into next year. I would appreciate any of that. And then I have a follow-up. Joe Berchtold: Sure. I'll give you the detail on the quarter. Overall, for the concert segment we grew AOI by about $40 million with roughly 1 million or just over 1 million fans. So pretty good per fan incremental profitability. It's 120 more stadium shows that really drove the growth, which was pretty well balanced between the U.S. and international. And it was also heavily driven by stadiums that we operate. So [indiscernible] GMP reopening and building back up, the Rogers Stadium in Toronto. So it was a lot of fans that we operate at, which is what drove some of the high profitability per fan. We had about 250 fewer amp shows, as Michael alluded to, just from a cyclical standpoint, fewer shows. And arenas are about flat, but we did grow our activity in our operated arenas with the new Portugal arena coming online and some of our other European arenas. So a big shift to stadiums and overall, in some of the large venues outside of the amps, we had more activity in our operated venues that helped in the context of the few amp shows. Stephen Laszczyk: Great. And then maybe secondly, just as a follow-up on regulatory and some of the commitments you made on the FTC side. Just would love any other color you could provide about where we stand in your dialogue with the FTC? And then maybe related to that, where we stand in the DOJ's process? And to what extent you feel like maybe some of the more recent dialogue you've had, maybe perhaps both agencies has created a framework or common ground with these agencies or lawmakers. Joe Berchtold: Sure. I'll start with the FTC. I think the government shut down pretty much immediately after that came out. So no real action there. What I would say, and we've said this before, when this happened, we feel very good about our case with the FTC. We think it's an extremely expansions view of the BOTS Act. The fact that they would file the suit when we do more to stop bots and to counter a lot of this activity than the rest of the industry combined, we find the very far afield. And from a legal standpoint, we don't believe that they have a strong case. A lot of the changes that we just talked about are friendly things that have been in motion for a while. Obviously, you don't roll out identity verification in 2 weeks. That's a tool we've been building and we're just ready to deploy it. So we have done so. On the DOJ, that case is advanced procedurally. Generally speaking, discovery is complete. Everybody has exchanged expert reports, and we're in the middle of some of the expert depositions. All that's left is a few straggler depositions. So that process continues. The judge reaffirmed the March 6 date for the trial. So we'll continue on that process for now. But the other development that I think is of real note is that we think the remedies decision in the Google search case has very much validated our view that the claims in our case, can't lead to a breakup of Live Nation and Ticketmaster even if the DOJ prevails on one claim or another. So we expected that, but certainly welcome news in that side. Operator: The next question comes from the line of Cameron Mansson-Perrone with Morgan Stanley. Cameron Mansson-Perrone: First, on the ticketing side of the business. You've talked about the competitiveness in the ticketing industry in the past, particularly in the U.S. I was wondering if you could just kind of describe how that landscape has been evolving and how you've been responding to that level of competitiveness? And particularly whether it raises your appetite or the attractiveness of capturing international growth within that segment of your business? Joe Berchtold: Yes. Cameron, I don't think we think of it as an either/or. We look at it as a global business. We're a global platform. We're global in concerts. We're global in ticketing. Were underdeveloped in international markets in Ticketmaster, particularly if you look at Latin America, you look at Asia, even parts of Europe. So there's a heavy focus on building out our presence in those markets. We think we have the best ticketing platform and enterprise tools out there. And that's clearly been helping us win a lot of business as we've given you those numbers over the past several years in international markets. North America is competitive, but that's fine. Most businesses in life are competitive. And I think we continue to win a lot because we can compete effectively on all dimensions, and we've continued to add clients and tickets in North America as well. We'll continue to fight that fight. But we certainly see international over the next several years as a great growth opportunity. Cameron Mansson-Perrone: Got it. And then on the numbers in the release around deferred revenue, some pretty healthy growth both in event-related deferred revs and ticketing revs. Any color you can provide in terms of how we should think about that as indicative of 4Q activity relative to indicative of 2026 activity? Joe Berchtold: Yes. I think most of that will be getting into next year at this point, given the size of those numbers and the fact that Q4 is cyclically one of the smaller quarters. And it goes hand-in-hand with the other things we've given you on the strength of the pipeline for '26 in terms of large venues and the fact that our ticket sales for shows next year are up double digits. Ticketmaster, you'll continue to see some growth in the deferred also as we're adding more venues and the tickets for those venues get deferred. Operator: The next question comes from the line of David Karnovsky with JPMorgan. David Karnovsky: I wanted to see if you could refresh on the venue pipeline that will impact in 2026 in terms of the buildings opening in the second half of this year and those planned for the coming year. And when we look at your fan count growth at Venue Nation, I think you had previously guided this to around 7 million fans. Any reason to think you wouldn't be able to sustain a pace comparable to that next year? Michael Rapino: I was just going to jump. The good news, David, is we're going to take this through our Investor Day tomorrow and get into more detail on the venue stuff. So that's probably the best place for it. But no, we continue to see the same pipeline of growth as we've outlined previously, and we've made great progress this year in getting these buildings either started or opened up this year. And tomorrow, we'll take you through kind of the longer-term vision of it. David Karnovsky: Okay. And then just on the stadium outlook, just wanted to see if you could check in on the pipeline for next year. I know there had been some hope expressed in September that you could get to a comparable year in the U.S. with the growth internationally despite the FIFA factor. I just want to get an update there. Michael Rapino: Yes. I would say the World Cup FIFA, some of those fears that everyone had earlier haven't seem to come to life. We are looking right now at this time of the year, which is early still, but good for stadiums to have a very strong year next year. International, which already had a spectacular year, looks very strong on a global basis. So we look at next year being a very, very strong stadium year again. And going to Brandon's concern, add a few extra shows in amphitheaters and arenas and you're back to your annual higher double-digit fan growth that we've been able to do for the last 15 years or so. So we see that consistency will continue onward for the next few years. Operator: The next question comes from the line of Robert Fishman with Moffett Nathanson. Robert Fishman: I have 2 for either Michael or Joe. Maybe just following up on where you just went. The earnings release calls out the international fan count is on track to surpass the U.S. for the first time. So I'm just wondering if you can shed some additional light on where you see that mix shift going with international fan growth over time? And how much of that factors into your confidence of delivering another year of double-digit AOI growth in '26? I'll start there. Michael Rapino: I'm not sure I got the question right, but I think if you're asking about international, we believe this will be a continued global international business. And most of our growth, both in Ticketmaster sponsorship, venues, concerts will continue to be on a global basis, given there's so many markets that were not very high in market share or haven't entered yet. So that mix will continue to grow and continue to be an international story for many years to come. Robert Fishman: Got it. And then just secondly, can you discuss your recent hire of a new Global President for Ticketmaster and maybe how that -- you expect that to help in the AI transformation of your overall business or at least with Ticketmaster? Michael Rapino: Yes. I think we thought it was time. Mark has done an incredible job growing the business dramatically. Our focus under Mark based out of London originally was to really focus Ticketmaster to be a much more international business, away from being just solely U.S. focused and think about a global platform. We had many different technologies at the time. And Carlos and Mark have done a fabulous job standardizing our global business, launching in many markets. And Mark will continue as Chairman, and that will be his focus to keep running hard on international. But we absolutely wanted to find somebody that had a very strong technical background, engineering AI-based that could look at the platform overall and not just how do we make the enterprise marketplace better. But of course, how do we make sure we are leading the charge on AI from an agent perspective at the front door to all the places that we're adding on the enterprise level. Operator: The next question comes from the line of Peter Supino with Wolfe Research. Logan Angress: This is Logan Angress on for Peter. Just a quick question for me. Your release reiterates your expectations for long-term AOI compounding, but doesn't discuss 2026 specifically. I'm curious given all the strong leading indicators that you've called out, is it fair to assume that you can continue to grow AOI double digits next year? Or are there mitigating factors that we should keep in mind? Joe Berchtold: This is Joe. I think what I would say is no mitigating factors. We've just never sitting in November before the year has started, made that call. I think that's traditionally a conversation that we have in February. I think what we try to give you now, which is what we're looking at is the leading indicators that have to do with our show pipeline, tickets sold, our sponsorship committed, our deferred revenue, a lot of factors that are pointing extremely positively. But I think we all view we'll get to -- and nothing -- no mitigating, no concerns. But we generally want to wait and get to February and have the full data set to make that call. Michael Rapino: But your point is what we've been saying for year after year, the last few is we think this business on a global basis has incredible growth ahead of it that would mirror the history we've been able to deliver. Operator: And the next question comes from the line of Jason Bazinet with Citi. Jason Bazinet: I know you guys have long held that your business is not particularly economically sensitive. But there seems to be growing press reports about maybe the low-end consumer sort of running out of gas. And I just wonder, underneath the hood, are you seeing any sort of signs of sort of maybe sort of bimodal behavior whre the high-end consumer spending more, but you are seeing a little bit of pressure at the low end to offset some of the strength at the high end? Or is that not what you're observing? Michael Rapino: No. We have not seen any of that. We have -- our business is very diverse. It's powered from clubs to arenas, to festival, stadiums, small town to big on a global basis. So we see it all. And we need all levels of consumers consuming to make the show sell out. And we're already on sale for next year for many shows and festivals of certain sizes, and they are selling as fast as ever. So the appetite, the consumption going to that show still seems to be #1 priority for them, and we saw no pullback anywhere yet. Operator: The next question comes from the line of Eric Handler with ROTH Capital. Eric Handler: Just wondering if you could talk about corporate appetite for sponsorships now in terms of what they're willing to do and sort of how much they're willing to spend? Michael Rapino: Yes. Again, our sponsorship numbers, you saw the 14%. They've been growing for double digits for years. And as we grow our business, we provide more inventory. The more arenas, the more international, the more cities we add, the more inventory our team has to sell. So we think that live show continually right now to a marketer is a really good return on investment. They may not have all the other media channels solved, while they're figuring out where to put their dollars. But if you want to absolutely touch consumers on a live location like sports or music, these 2 places are where marketers tend to be spending more money today. So we're matching that with them. We have the best inventory in the world and we see continued growth for a long time in sponsorship and brands that want to be part of that exciting 2 hours of magic. Operator: The next question comes from the line of Ian Moore with Bernstein Research. Ian Moore: I just wanted to zoom in a little bit, hone in on food and beverage spend. I was just wondering if you could stratify the growth that you're seeing a little bit across different venue types and then front of the house, back of the house, VIP, if possible. Michael Rapino: Yes. We've had a strong year again in food and beverage in our amphitheaters, our festivals, owned and operated clubs. We delivered on our growth targets this year again. Continue to be better at diversifying our portfolio, increasing our hospitality, increasing our kind of our offerings across all platforms. So had a strong year. We continue to see year-over-year growth on-site, food and beverage, VIP, hospitality, premium, all of the ancillary revenues. When they come to that show, they still want to find that place to have fun and spend some dollars to enjoy it. Operator: There are no further questions at this time. I'd like to hand the call back to Michael Rapino for closing remarks. Michael Rapino: Thank you, everyone, for your participation, and we'll talk to you tomorrow afternoon at our Investor Day. Look forward to it. Thank you. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings. Welcome to the NGL Energy Partners 2Q ' 26 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Brad Cooper, CFO. You may begin. Brad Cooper: Good afternoon, and thank you to everyone for joining us on the call today. Our comments today will include plans, forecasts and estimates that are forward-looking statements under the U.S. securities law. These comments are subject to assumptions, risks and uncertainties that could cause actual results to differ from the forward-looking statements. Please take note of the cautionary language and risk factors provided in our presentation materials and our other public disclosure materials. NGL had another solid quarter with record water volumes and 30% growth in Grand Mesa volumes. Consolidated adjusted EBITDA from continuing operations came in at $167.3 million in the second quarter versus $149.4 million the prior year second quarter or approximately 12% higher. The increase was primarily driven by the performance of our Water Solutions business segment. On the heels of this strong performance in Water Solutions and additional growth opportunities in Water Solutions that Mike will speak to later, we are increasing our full year adjusted EBITDA guidance range from $615 million to $625 million, to $650 million to $660 million. With this increased guidance and operating cash flow associated with this increase, we project a zero ABL balance at the end of the fiscal year and approximately 4x leverage. Also in the month of October, our Water Solutions segment has averaged over 3 million barrels per day of physical disposal volume. Doug White, EVP of our Water Solutions segment, will be providing a Water Solutions update following my comments. We continue to be focused on our capital structure and remain opportunistic with how we are addressing it. Since April, we have purchased 88,506 units of the Class D preferred, which represents approximately 15% of the outstanding units. Based on the last Class D distribution, the Class Ds purchased represent $10.4 million in annual distribution savings going forward. We have opportunistically taken advantage of the ability to reprice our Term Loan B as permitted in the documents. In September, we launched a repricing and reduced the SOFR margin from 375 basis points to 350 basis points. This was the second repricing of the Term Loan B since February 2024. When you consider the 2 repricings and Fed rate cuts, we have achieved annual interest savings of $15 million on the Term Loan B. Under the Board-authorized unit repurchase plan, we have purchased an additional 4.4 million units in the quarter for a total of approximately 6.8 million units, which equates to about 5% of the outstanding units. The average price for the units repurchased since the inception of the plan is $4.57. With the additional water growth capital projects and the Class D preferred and common unit repurchases, we are demonstrating the optionality we have with our capital allocation. All three of these provide attractive returns to the partnership and our investors. Water Solutions adjusted EBITDA was $151.9 million in the second quarter versus $128.9 million in the prior second quarter, an 18% increase. Physical water disposal volumes were 2.8 million barrels per day in the second quarter versus 2.68 million barrels per day in the prior year second quarter, a 4% increase. Total volumes we were paid to dispose that includes deficiency volumes were 3.15 million barrels per day in the second quarter versus 2.77 million barrels per day in the prior year second quarter. So total volumes we were paid to dispose were up approximately 14%, second quarter of fiscal '26 over second quarter of fiscal 2025. The increase in EBITDA was primarily driven by higher disposal revenues due to an increase in produced water volumes, processed from contracted customers as well as higher water pipeline revenue due to the LEX II pipeline commencing operations during the quarter ending December 31, 2024, as well as higher revenues for skim oil. The increase in skim oil revenue was due to an increase in skim oil barrels sold due to more skim oil recovered from receiving more produced water. Operating expenses for the quarter were $0.22 per barrel, in line with previous quarters. Crude Oil Logistics adjusted EBITDA was $16.6 million in the second quarter of fiscal 2026. During the quarter, physical volumes on the Grand Mesa pipeline averaged approximately 72,000 barrels per day compared to approximately 63,000 barrels per day for the quarter ended September 30, 2024. When compared to our previous fiscal quarter, Grand Mesa volumes are up 17,000 barrels or approximately 30% higher fiscal Q2 over fiscal Q1. Volumes for the fiscal third quarter were strong with October over 80,000 barrels per day for the month. It's early in the fiscal year for the butane blending business, a bulk of their EBITDA generated for the fiscal year is occurring right now. We will have a better read on the fiscal year for this group at our next earnings call. With that, I would like to turn the call over to our EVP of our Water Solutions segment, Doug White. Douglas White: Thank you, Brad. This has been a year of excellent growth, both volumetrically and on an adjusted EBITDA basis. With respect to water disposal volumes during this year, we have recently surpassed 3 million barrels per day of physical volumes for an entire month and over 3 million barrels per day, including deficiency barrels related to volume commitments. We have underwritten new growth capital projects for approximately 750,000 barrels per day of newly contracted volume commitments. These projects are scheduled to be placed into service by the end of this calendar year. As a result of these contracts, we now have 1.5 million barrels per day of total volume commitments going into fiscal 2027. These commitments have an average remaining term of almost 9 years. Regarding our Delaware Basin asset position, we now have over 5 million barrels per day of permitted injection capacity at 131 injection wells and 57 water processing facilities. We have the largest capacity pipeline system in the Delaware Basin with more than 800 miles of pipe, including approximately 700 miles of 12- to 30-inch diameter pipelines. This is a key metric as it determines the volume of water that is able to be transported directly affecting physical volumes and reliable takeaway. With respect to permits and pore space, we have maintained a large inventory of legacy injection well permits in Texas. And this year, we have increased our inventory by almost 1 million barrels per day in Andrews County, Texas, where over a year ago, we secured approximately 4 million barrels per day of pore space that is unburdened by legacy injection, legacy vertical production or seismicity. This sets us apart from our competitors, creating a moat for future growth to more than double our current Delaware Basin volumes. In addition to strategically increasing our pore space portfolio, NGL has been pioneering the effort to bring the Delaware Basin, its first large-scale produced water treatment plant through the Texas Commission on Environmental Quality, TPDES permitting process. We began this effort for a treated produced water discharge permit in 2023. And as of last month, received the first draft permit issued in the state of Texas. Our permit application is for influent volumes of approximately 800,000 barrels per day, which is a material amount of produced water that can be diverted to treatment for beneficial reuse and recharging the Pecos River Basin. This shows our commitment to sustaining our pore space inventory, and adding an alternative disposal option for our producer customers. H. Krimbill: Thank you, Doug. This is Mike. As you've heard from Brad and Doug, NGL is firing on all cylinders, both operationally and financially. First, some of this may be a repeat, but I think it's important. So first, let's discuss the operations. Last 60 to 90 days, we've contracted the 500,000 barrels per day of volume commitments that require in-service dates no later than December 31. Our Water Solutions employees have also exceeded our adjusted EBITDA guidance on the base business in addition to the new business. These two business developments have allowed us to increase our fiscal year 2025 adjusted EBITDA to a range of $650 million to $660 million with potential further increases in subsequent quarters. We began the fiscal year with modest growth expectations as reflected in our initial growth CapEx guidance of about $60 million. The increase in contract volume requires an additional $100 million of growth CapEx, which we are pleased to spend. The majority of adjusted EBITDA will be generated in fiscal 2027 from these new projects. So we are providing initial fiscal 2027 adjusted EBITDA guidance of at least $700 million. So there'll be more to come to that as we progress through this year. I would like to congratulate the entire Water Solutions team, led by Doug White and Christian Holcomb on their strong operational performance and positioning the business to capture new incremental business driven by the confidence producers have in NGL Water Solutions as the most reliable operator with the largest integrated water disposal network in the Delaware Basin. Next, I believe there's been some misinformation and literature published recently. So I would like our unitholders to know that your NGL, a, generates the most adjusted EBITDA annually of any water company, transports the greatest volume of water for disposal of any water company, has the largest volume of water under volume commitments of any water company, operates its water business with the lowest cost per barrel of any water company, provides the most capacity to move water predominantly through the pipes, 12 to 30 inches that Doug mentioned of any water company, and has millions of barrels of pore space, as Doug stated. We are not waiting until calendar '26, '27 or later to grow. Our growth is here today, approximately 10% in fiscal '26, and another 10% estimated next year. So let's jump to our long-term corporate strategy and where we came from and where we sit today. So several years ago, we were settled with leverage above 4.75x and a dividend arrearage obligation that we needed to repay. So our first initiative was to remedy the situation. So we began identifying excess and idle assets that we sold. Next, we sold our crude oil trucking and marine divisions at very attractive multiples. These were not businesses that provide a real competitive advantage or we could grow. Then we sold the majority of our Liquids Logistics business, that was the most volatile business in terms of adjusted EBITDA that fluctuated quite a bit from year-to-year. Not a great asset for an MLP. Finally, we sold our New Mexico Ranches. All of this cash allowed us to eliminate the dividend arrearage and reduce leverage. So our next target were the Class D preferred units. As you've heard, we've redeemed 88,000 shares of them at this time with more anticipated in the coming quarters. Under the terms of the pref, we must redeem them in $50 million tranches unless offered to us in small amounts. Each redemption or purchase should be accretive to our common unitholders. With the increase in adjusted EBITDA, we are deleveraging, which provides greater flexibility to finance our growth capital to attack the capital structure and purchase common units simultaneously. We believe our common unit purchases thus far have been an excellent investment by the partnership. In terms of valuation, we are seeing the market reward pure-play water companies. We have been simplifying our business and focusing on the water business and providing substantial growth capital to this division. We anticipate becoming more and more a pure-play water company as our adjusted EBITDA from water operations continues to grow. Our finance group led by Brad Cooper has done an outstanding job financing NGL and managing these equity purchases, while reducing interest expense when the opportunity presents itself. They are also reducing corporate overhead, not taking their eye off the ball even in the good times. So finally, barring a negative macro event, I believe we're in the final leg of our journey to finish strengthening balance sheet by limiting Class Ds and decreasing leverage to less than 4x. After that, anything is possible. Thank you. Questions. Operator: [Operator Instructions] First question comes from Derrick Whitfield with Texas Capital. Derrick Whitfield: Congrats on a solid quarter and update, guys. Starting with the growth opportunities you're highlighting. As you guys know, [Technical Difficulty] we are focused in the Delaware water kind of backdrop, if you will. Having said that, I would love if you could maybe just offer some color to the macro, micro events that's leading to this increase in activity from a customer acquisition perspective since your last update? Is it fair to assume that you guys are picking up some opportunities now that Aris has been acquired by WES? H. Krimbill: Doug? Douglas White: I'll take that. Yes, this is Doug. Yes. Thanks, Derrick. Where we see a lot of our growth is in our base customer mix. As many of you know, the larger producers have really been segmented mostly between the few different larger water midstream groups. Some of us have split, some of the business between the super majors, but we also have large -- very large customers that are mostly dedicated to our system. We are really seeing from a macro perspective, the immense growth and commitment to growth from our larger customers. I think that speaks a lot to the maturation of the all infrastructure, including pipeline type takeaway, gas takeaway, but also infield processing, power availability, et cetera. The efficiencies that have been created within the basin have really shown to make them more economic. And we're just seeing a greater dependence on focus on economics that's creating lower econs on the cost side that really lend to more development. Derrick Whitfield: Perfect. And then maybe shifting over to pore space. To your point, 4 million barrels of pore space in Andrews County is a tremendous amount of growth opportunity for you guys and not suggesting you're going to spend all the capital at once. But if you were to think about the amount of capital required to access that pore space, can you help frame that? Douglas White: Sure. Much like the LEX system, we see continued growth on the pipeline side out of New Mexico to our pore space in Andrews County. Those projects -- those range in the $50 million to $150 million project, much of that includes infrastructure development on the power side, also anything around just the general development of disposal facilities and the injection wells themselves. So as we access that, we expect to pace that over several years' time, of course. I think the important item to note on that topic is we have secured the pore space and is excellent pore space, as I mentioned, unburdened by seismicity, existing injection, legacy vertical production. That's really important. And then as we continue to grow along with our customers, we'll layer in the capital side of things in order to respond to new deals. Derrick Whitfield: Perfect. And one last, if I could. Just with the increase in growth capital this year, is that largely just for drilling SWD wells? Douglas White: Brad, do you want to answer that? Brad Cooper: Go ahead, Doug. Douglas White: Okay. So with our growth projects that we mentioned, you'll notice that we increased the capital spend from $50 million to $150 million or $160 million. I'm not sure the exact number there. But that addition of the $100 million of capital is all growth related to the water side of the business. Derrick Whitfield: Doug, how many SWDs just give us -- because you have saved these permits for many years, which is why competitors don't necessarily see us applying for permits because we have so many. But is it 10, 15... Douglas White: We have 35 to 45 legacy permits. We're in the process of drilling 15 to 20 new drills this fiscal year. Operator: We have reached the end of the question-and-answer session. And I will now turn the call over to Brad Cooper for closing remarks. Brad Cooper: Yes. Thank you, everyone, for joining us today. Have a safe end of the year, and we'll talk to you guys early next year. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings, and welcome to the Astronics Corporation Third Quarter Fiscal Year 2025 Financial Results. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Craig Mychajluk. Thank you. You may begin. Craig Mychajluk: Yes. Thank you, and good afternoon, everyone. We appreciate your time today and your interest in Astronics. Joining me here are Pete Gundermann, our Chairman, President and CEO; and Nancy Hedges, our Chief Financial Officer. Our third quarter results crossed the wires after the market closed today, and you can find that release on our website at astronics.com. As you are aware, we may make forward-looking statements during the formal discussion and the Q&A session of this conference call. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed with the Securities and Exchange Commission. You can find those documents on our website or at sec.gov. During today's call, we'll also discuss some non-GAAP measures, which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the table that accompany today's release. So with that, I'll turn it over to Pete to begin. Peter Gundermann: Thanks, Craig. Hello, everybody, and welcome to our third quarter call. We feel it was a very positive quarter, and we are pleased to share the results. As is our practice, I'll start off with a summary of the headlines for the quarter, then Nancy will go through the financial fine points, then we will discuss expectations for the future for both the fourth quarter and also we'll take an early look at 2026. Finally, we'll open up the lines for questions. The first headline for the quarter is that we had solid volume with revenue of $211.4 million. This is our second highest quarterly level ever and just marginally below our record. That sales level is a tick up from the first couple of quarters of 2025 and is the result of broad-based demand across our product lines, markets and customers as well as improved performance in our supply chain and better efficiencies in our production system. Our Aerospace segment led the way with sales of $192.7 million, a level consistent with recent periods. Our Test business had sales of $18.7 million, which is down from the third quarter of 2024, but higher than the earlier 2 quarters of this year. The second headline has to do with margins. As one would expect, higher revenue together with efficiency improvements have led to higher margins. Operating margin of 10.9% in the quarter was higher than last year's 4.1%. Adjusted operating margin, taking into account expenses related to restructuring, litigation and acquisitions was 12.3% for the quarter. Our Aerospace segment specifically had operating margin of 16.2%, generating all of our operating income for the quarter. Test operating margin was essentially breakeven at negative 0.1% while no one is happy with 0% operating margin, this actually represents progress and is a testament to the cost reduction initiatives we have put in place in recent periods. To break even on a modest revenue level of $19 million in the quarter promises good things in the future since we expect test sales to increase. Adjusted EBITDA was at 15.5% of sales, our highest since the pandemic struck in 2020. Our third headline has to do with bookings. Even though third quarter shipments were on the strong side, bookings kept right up. Total bookings of $210 million yielded a book-to-bill of 1.0. We ended the quarter with backlog of $647 million, a very high level by historical norms, which sets us up well for the coming periods. Our fourth headline has to do with acquisitions. We have made a couple of smaller acquisitions recently, one early in the third quarter and one just recently early in the fourth. The first one was Envoy Aerospace, which we previously discussed in our second quarter call in August. Envoy Aerospace is an ODA, which stands for Organizational Designation Authority. ODA is a program in which the FAA grants certification approval authority to outside organizations by which the FAA extends its capacity and reach. We believe having an ODA is a competitive differentiator as we are often involved in aircraft retrofit programs and FAA certification is becoming a more important capability in the eyes of our customers. Having certification authority lessens program and schedule risk, both for us and for our customers. Envoy has external sales of about $4 million annually. Prior to the acquisition, we were consistently one of their largest customers. The second acquisition is that of Bühler Motor Aviation or BMA. Located in Southern Germany, BMA is an established manufacturer of aircraft Seat Actuation Systems with a broad product portfolio that includes actuators, control electronics, pneumatics and lighting. BMA competed with our PGA operation in France in the seat actuation market, and now they will work cooperatively with each other to better serve the needs and opportunities of that market. We expect BMA to have sales of $20 million to $25 million in 2026, and we paid less than onetime sales for the acquisition. Much of the costs related to the acquisition, legal and diligence and the like were included in our third quarter expenses. The acquisition's operating contributions will be captured in the fourth quarter and onward. Finally, our last headline, we completed a couple of important refinancing actions in recent weeks, one in the third quarter and one just after its close. These financings lowered our cost of debt, improved our financial flexibility and importantly, reduced future dilution potential. Nancy will cover the accounting treatment, which is a little bit complex, but basically, in the third quarter, we issued a new $225 million 0% convertible bond to buy back a majority of an earlier convertible bond that was significantly in the money, meaning it was already fairly expensive to settle. And if our stock continued to rise as we expect it to do, it would get even more expensive. Using proceeds of the new convert plus some borrowings under our existing revolver and available cash, we successfully repurchased 80% of the previous 5.5% convertible note, effectively lowering our cost of debt while also eliminating 5.8 million shares of potential dilution. As part of the transaction, we also bought a capped call on the new 0% notes that effectively raises the equity conversion price to $83, meaning that there will be no dilution on the new bond unless and until the market price of our stock exceeds $83. So this transaction significantly reduced the potential dilution we would otherwise be facing. The earlier convert had a face value of $165 million. Since we bought in 80% of it, there is now 20% still outstanding or $33 million. We can pay the smaller bond off when it comes due in about 4 years in either cash or stock. We intend to use cash. But even if we use stock, the dilution will be a maximum of 1.4 million shares or about 4% based on our existing share count. This is a significant reduction in the potential dilution risk that existed before the buyback. We also benefit in terms of interest, obviously. The new bond has a 0% coupon, while the older bond is at 5.5%. So we replaced some more expensive debt with much cheaper debt. Our second refinancing step completed just a couple of weeks ago was a transition from the ABL facility we had in place to a cash flow revolver. The size of the ABL was $220 million and the cash flow revolver is sized at $300 million. The interest expense is comparable, but the new facility offers less administrative burden and increased financial liquidity for the future. The financial implications of the new convertible bond and the repurchase of the majority of the previous bond is fully reflected in our third quarter financials. The ABL to RCF transition will be reflected in our fourth quarter financials. Now I'll turn it over to Nancy. Nancy Hedges: Thanks Pete. I'll review profitability and various accounting and other events related to our Q3 2025 financials. We had gross profit of $64.5 million, up nearly 17% compared with the prior year period as the benefits of higher volume, pricing actions and productivity improvements helped to offset the $4 million impact of tariffs in the quarter. Last year's third quarter also had a $3.5 million impact from an atypical warranty reserve. Gross margin of 30.5% reflects the 31.4% gross margin realized by the Aerospace business, which was muted somewhat by the Test segment gross profit of 21.6%. R&D expense declined $2.3 million to $10.2 million or 4.8% of sales based on the timing of projects. We believe we're at a more normalized run rate currently at about 5% of sales. Of course, this can vary based on the timing and opportunity of new projects. The $3.1 million decline in SG&A expense was primarily the result of a $4.3 million decline in litigation expense. While it's been quite a while since we can claim any form of normalcy, historically, we've operated the business with SG&A at about 14% to 15% of sales. Operating income was up over 2.5x to $23 million. We recorded a loss on debt settlement of $32.6 million. I'll cover the details of the accounting treatment for the new 0% convertible bond in the cap call here in a bit. We had a $1.2 million tax benefit as we reversed the valuation allowance for R&D expenses that can now be deducted in the current year for tax purposes as a result of recent tax reform. Notably, we generated $34 million of cash in the quarter and had free cash flow of $21 million, driven by strong cash earnings combined with lower working capital requirements. I should point out that $3 million of the cash from operations was from a tenant improvement allowance reimbursement. This is offset by the CapEx investments in the build-out and consolidation for our new Redmond, Washington facility. We expect an additional approximately $5 million in reimbursement for the project in the fourth quarter. This project is what's driving our fourth quarter CapEx to be around $20 million to $30. Year-to-date, we've generated $47 million in cash from operations and have had $20 million in capital expenditures for free cash flow of $27 million. We would expect to be free cash flow positive for the year. Our fourth quarter cash flows will reflect the purchase of BMA, both in terms of the purchase price and the operating activity from the acquisition date forward. Turning to our balance sheet and refinancing actions. Let me talk a bit about the convoluted accounting treatment for the new 0% convertible notes that Pete discussed. First, I'll point the impact to the income statement. We recognized a noncash loss on the settlement of debt of $32.6 million, which represents the inducement charge for bondholders to redeem the $132 million in principal of the 5.5% convertible notes. Second, let me talk to the source and use of funds related to the new convertible note as well as the implications to the balance sheet. Proceeds from the new convertible bond were $217 million after payment of $8 million in fees and expenses. That $217 million, coupled with an $85 million draw on our ABL revolver plus $11 million in cash on hand were used to repurchase 80% of the old convertible note for approximately $286 million and to purchase the capped call for $27 million. Debt increased about $175 million from the end of the second quarter to $334 million. That's a function of 3 factors. First, we incurred new debt of that $217 million related to the new convertible bond, which is the $225 million netted down by $8 million in issuance fees and expenses, which are required under GAAP to be presented as an offset to the debt on the face of the balance sheet. Second, as I mentioned, we borrowed $85 million on our ABL to fund part of the repurchase transaction. And third, debt was reduced by $128 million, representing the $132 million in principal paid off on the previous convertible, net of $4 million in associated issuance fees that also needed to be written off. Shareholders' equity declined as a result of the transaction. The premium paid of $121 million plus the cost of the capped call of $27 million, plus $4 million write-off of the unamortized debt issuance costs related to the repurchased 5.5% notes resulted in a $152 million reduction in shareholders' equity. The net result is, as Pete discussed, lower cost debt, significantly reduced potential dilution and combined with the refinancing of our revolver to being cash flow based, meaningfully greater financial flexibility. I should point out that we currently have $95 million outstanding on the $300 million cash flow revolver and liquidity of $169 million. And let me hand it back to Pete. Peter Gundermann: Thank you, Nancy. I'll now turn the discussion to the future and what we expect for both the fourth quarter and our initial expectations for 2026. We expect the fourth quarter to be a step change for the company. We have generated average revenue of $207 million over the first 3 quarters of 2025. In the fourth quarter, however, we are expecting revenue to climb to a range of $225 million to $235 million, which is a significant step-up. The increase is due in part to our recent German acquisition, but mostly to the various market forces that are driving our business. The higher volume should mean good things for our income statement as we typically see 40% to 50% marginal contribution on incremental revenue dollars. Further, we think the higher volume expected in the fourth quarter will provide a baseline for 2026. We are not ready yet to issue formal revenue guidance for next year, but we are well along in our budgeting process, and it appears 2026 will be a year of solid growth. Our belief at this point is that we will see 10% growth or better. We are working to refine the range and expect to release initial revenue guidance closer to year-end 2025. You may ask what is driving the growth? Our company has been and continues to benefit from a wide range of industry trends. I'll cover the major ones briefly, and I'll try to be concise. First and most obviously, increasing OEM build rates are a big positive for us. Narrow-body and wide-body production rates are trending up at both Airbus and Boeing and to a lesser extent, across private aviation OEMs also. Our typical content for major aircraft programs is spelled out on our investor presentation, which is available on our website. And quite simply, when OEMs make more planes, we ship more product. Second, we are heavily involved, as you all surely know, in passenger connectivity and entertainment in aircraft, and it is a well-established secular trend in our world today that people want to be connected and entertained at all times, including when they are riding in airplanes. This reality, combined with the fact that the consumer electronics industry is characterized by high levels of innovation and short life cycles, means that adoption rates on new aircraft are increasing and retrofit and upgrade opportunities across the existing fleet are regularly present. We work with more than 200 airlines around the world, along with the broad set of in-flight entertainment and connectivity providers to help ensure that the expectations of airline passengers around the world are met. These expectations are high and getting higher, which provides an excellent field of opportunity for us. Third, we are specialists in developing technically advanced flight critical electrical power distribution systems for smaller aircraft in particular. And our electrical power franchise is gaining acceptance on a wide range of new and innovative aircraft types that are in development today. We started with business jets and turboprops, but today, we are also involved with a wide range of emerging types, including eVTOLs, electric vertical takeoff and landing aircraft, unmanned drones and smaller military aircraft, both rotary and fixed wing. A high-profile example, which is getting lots of attention these days is Bell's V-280 aircraft, now known as the MV-75, which is the U.S. Army's replacement for the Sikorsky Black Hawk. This program is in development currently, and Bell has chosen Astronics to supply the electrical power distribution system. There's a lot I could say about this program, but suffice it now to say it has the potential one day soon to be a very significant aircraft production program for our company and to run for a very long time. Finally, there are some other important new programs, which we expect to come online in short order, particularly for our Test business. One of the most significant is the radio test program that we've talked about before on this call for the U.S. Army called 4549/T. We have been in development on this one for some time and expect production turn on at year-end or shortly thereafter. It's a $215 million IDIQ contract to start that will run for the next 4 to 5 years. Our Test business with all the cost reductions that we've implemented is running at breakeven currently. But when the 4549/T program gets layered on top, the financial profile in that segment will be much improved. We believe these industry trends and opportunities have legs. We've been benefiting from some of them for a while, but others will only begin to positively impact our business in coming quarters. Collectively, we feel they provide an excellent opportunity set as we move into 2026 and beyond. So again, the growth from these drivers should have a positive impact on our earnings as we ramp. And as such, we expect to turn in a strong finish to 2025 and believe 2026 will be a very good year for Astronics. That ends our prepared remarks, so we can open up the lines now for questions. Operator: [Operator Instructions] First question comes from Greg Palm with Craig-Hallum. Greg Palm: Congrats on the results, the execution and probably most impressively, the profitability or operating leverage in the quarter. I wanted to maybe first maybe bridge Q3 to Q4 in terms of the expectation, what is built in for Test relative to the revenue that you achieved in Q3? Peter Gundermann: We expect Test to take a little step up. I don't have that in front of me. I guess it's in the $20 million, $21 million range. They were at $18 million in the third quarter. So that will be a little bit of a step-up, but it will be their strongest revenue quarter for 2025. So it hopefully lays a good foundation as we round the corner to 2026 also. Greg Palm: Okay. So that implies that aerospace should see a bigger step-up even excluding the impact of acquisitions. So I guess it begs the question, what are you seeing there, whether it's increased build rates, whether it's higher retrofit activity, anything in military with the FLRAA program? Just a little bit more color on maybe the step-up there expected in Q4. Peter Gundermann: Yes. I'd say a couple of things. First of all, we are expecting a general ramp between where we were in Q3 and where we will be in the first quarter. I'm getting a little bit ahead of myself because we're still in the budgeting process, but the early look at 2026 is that we'll run a sustained rate that's above what we're forecasting for the fourth quarter. So the fourth quarter we will see, to a large extent, a general ramp across the business, but there are a few kind of significant programs that are in play, hence, the wide range of the revenue forecast for the fourth quarter. We're not sure if a lot of them are going to fall in the fourth quarter and therefore, be 2025 revenue or you always run the risk at the end of the year that things can slip into the new year. So it's a little bit of a wider range than we prefer to have at this point. But basically, it's just scheduling of major point in time -- that's not true. The revenue overtime programs for the most part. Nancy Hedges: It's a mix. Peter Gundermann: It's a mix. Greg Palm: Yes. Understood. Okay. Well, and then I was going to maybe dovetails into my question on fiscal '26, just in terms of the confidence level at this time to provide not guidance, but expectations of that low double-digit growth. And specifically, what is baked in, in terms of the Army test program at this point? And just given the shutdown, I mean, I wouldn't have expected your visibility levels to be all that good. But what -- it still sounds like you expect that ramp-up to begin sort of end of this year, maybe early next. Peter Gundermann: Yes. It's a very good question, and we are guessing a little bit, and that's a little bit why we're hedging. But long story short, we were -- when the government shut down, hoping for production turn on towards the end of the year, it might be this year, it might slip into the next year, but basically either late fourth quarter or early first quarter. At this point, we don't have reason to think that, that's going to slide a whole lot. It's probably reasonable to think it's going to slide day per day with the shutdown. And obviously, the longer the shutdown goes on, the more at-risk year-end turn on becomes. But we've had some unofficial contact with program managers and executives who have reiterated that the funding is secure. The user community really wants to have the product get going. And so it's just not obvious at this point if there's going to be a big delay there or not. So we will have to make a decision there as to what we include or what we don't include. But in general, we're still on a track where we think it's going to be a pretty significant contributor over the course of 2026. Greg Palm: And just to be clear, in terms of that full year '26 expectation, there's some, I guess, presumably significant level of contribution that's baked in or not necessarily? Peter Gundermann: No, there will be, absolutely. It's a -- we expect that program to be an important contributor, both top line and bottom. Operator: Next question, John Tanwanteng with CJS Securities. Jeremy Routh: This is actually Jeremy on for John. Kind of working off of what we were just talking about, how should we think about the FLRAA program revenue and margin over the medium to longer term as it transitions out of development and into production? Peter Gundermann: Well, into production is a little bit early to say because we don't know the ramp, and we don't have pricing ready to go on that one. We don't have pricing agreement with the customer, I should say. And also, I don't know if you're aware, but there is an active debate going on in the industry about when production is actually going to start. The Army is interested in trying to accelerate that program, which would mean production -- the production ramp would start a couple of years earlier than it otherwise would. But closer to home and from what we can tell right now, we had revenue of about $28 million in 2025 we're planning. And we're thinking that 2026 will be closer to 38% to 40%, something in that range. From a margin standpoint, it's worth pointing out that we basically have been doing development work at 0 margin thus far because we're still negotiating a development program. Once that program is developed, we will catch up on margin that we would otherwise have recognized earlier. And so it should be a pretty significant contributor as we turn the corner and go through 2026. Would you say anything? Nancy Hedges: Okay. That's right. Jeremy Routh: Very helpful. And then switching gears a little. Could you just talk more about the Bühler and the capability it brings to the table and the accretion you're expecting over the next year? Peter Gundermann: Well, it's a smaller company. We expect revenue of $20 million to $25 million. At that level, we do expect it to be profitable. So I think it's a reasonable assumption that its margin profile will be consistent with the rest of our company. It's going to report through our PGA operations. So you're basically going to take 2 competitors and have them act as one. And there are certain efficiencies that you might expect there. There's market knowledge and reach that can be beneficial. Their products basically do what a lot of our products do. We're talking about seat motion here, high-end aircraft seats, first-class seats, business class seats where you have a lot of moving surfaces, think lie flat and things like that, reclining seats. So the product lines are complementary, but they are not really interchangeable. So their products are sold to seat companies that are designed around their type of system, and our products are designed into seats and seat customers that use our system. But we'll be able to get some efficiencies. We might have some -- the market concentration might yield some pricing efficiencies. Those are things that will play out over the next few years. It's a smaller market. We don't talk a whole lot about it. But combined, we should be somewhere in the $80 million a year range. Operator: [Operator Instructions]Next question comes from Alexandra Mandery with Truist. Alexandra Eleni Mandery: This is Alexandra Mandery on for Michael Ciarmoli, Truist Securities. Great results, guys. Can you talk about the integration of these 2 recent acquisitions and any additional capabilities you may look for in the future? Peter Gundermann: Sure. Well, the integration of BMA or Bühler will be reporting through our PGA operation in France. So that will -- that's already underway, and we intend to maintain both operations. We think moving and consolidating, it's often easier, in my opinion, to calculate savings than it is to actually achieve them. So that is not our objective. Our objective is to work efficiently from a 2 operation setup, both in Germany and in France. We're early on in that. This thing just closed 2 weeks ago, 3 weeks ago. So we've got a long ways to go, but it's a smaller operation, and so we should be able to get our hands around it pretty quickly. We don't think it represents any systemic risk necessarily whatsoever. Envoy, I think of Envoy as a consulting company. It's basically a bunch of engineers who are well versed in FAA rules and regulations. And we have it reporting through our CSC operation, which is where we do most of our connectivity and in-flight entertainment electronics out of Waukegan, Illinois. So Envoy is essentially part of CSC. The exercise that we're going to go through from an integration standpoint is figure out how we can take the Envoy expertise and apply it more broadly across our company to our other operations. And again, the real advantage of Envoy is it gives us the ability basically if we can maintain the ODA, which is our full intent to certify our own development programs, which is where we get into a competitive advantage with other companies because we can more realistically guarantee program and schedule success to our customers when they know that we can self-certify with the blessing of the FAA. That's the whole idea. And we'll report back on that as time goes by, but we do a fair amount of retrofit work. And to the extent that a company does retrofit work, having an ODA just makes it -- it's like reaching the wheels. It just makes everything go a little bit easier. Alexandra Eleni Mandery: Okay. Great. And then I just had one follow-up. I might have missed it, but can you add more color on 4Q guide for interest expense, CapEx and depreciation and amortization? Nancy Hedges: So in terms of interest expense, like Pete said, the interest rate on the ABL is -- and the RCF are very similar. We are going to have a pretty heavy CapEx quarter in the fourth quarter. So a tick up in the debt is not unexpected under the revolver. We're still carrying $33 million of debt on the convertible -- on the 5.5% convertible bond. So that will contribute as well. But then the remainder of the debt, that $225 million is at 0%. And then in terms of depreciation and amortization, that's -- I don't have those numbers, unfortunately, in front of me. I would expect a slight tick up there as well as the -- we're working through the valuation of the 2 acquisitions, but it's fair to assume that some portion of that is going to be allocated to intangibles, and there will be a life assigned to those as well, and those will start to amortize during the quarter as well. I mean I don't anticipate a material change from what our quarterly run rate has been. Operator: Thank you. This does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines at this time.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic Second Quarter Fiscal Year 2026 Financial Results Q&A Session. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the conference call over to Ms. Chelsea Heffernan, Vice President of Investor Relations. Ms. Heffernan, you may begin. Chelsea Heffernan: Thank you, and good afternoon. Joining me on today's call is John Forsyth, Cirrus Logic's Chief Executive Officer; and Jeff Woolard, our Chief Financial Officer. Today, at approximately 4:00 p.m. Eastern Time, we announced our financial results for the second quarter of fiscal '26. The shareholder letter discussing our financial results, the earnings press release and the webcast of this Q&A session are all available at the company's Investor Relations website. This call will feature questions from the analysts covering our company. Additionally, the results and guidance we will discuss on this call will include non-GAAP financial measures that exclude certain items. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in our earnings release and are all available on the company's Investor Relations website. Please note that during this session, we may make projections and other forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from projections. By providing this information, the company expressly disclaims any obligation to update or revise any projections or forward-looking statements, whether as a result of new developments or otherwise. Please refer to the press release and shareholder letter issued today, which are available on the Cirrus Logic website and the latest Form 10-K as well as other corporate filings registered with the Securities and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from current expectations. Now I'd like to turn the call over to John. John Forsyth: Thank you, Chelsea, and welcome to everyone joining today's call. As you've seen in the press release, Cirrus Logic delivered record September quarter revenue of $561 million, towards the top end of our guidance range driven by demand for components shipping into smartphones. In a few moments, I'll hand the call over to Jeff to discuss the financial results for the September quarter in detail, along with our outlook for the December quarter. Before we get to that, I'd like to make a few comments about the recent progress we have been making across key areas of our business. As we have outlined previously, our long-term strategy for growth at Cirrus is based around 3 principles. First, we seek to maintain a strong leadership position in our core flagship smartphone audio business. Second, we aim to expand the value and range of high-performance mixed-signal solutions with which we serve our customers in smartphones and similar products. And third, we aim to leverage our world-class expertise and IP in both audio and high-performance mixed signal to grow and broaden our business in new markets. I want to say a few words now about the progress we've made in the past quarter in each of these areas. In our flagship smartphone audio business, during the quarter, we experienced strong demand for our latest generation custom-boosted amplifier and first 22-nanometer smart codec. These products introduced in the fall last year, represent years of engineering effort and a deep and collaborative relationship with our customer. We are proud of the crucial role they play in enhancing the power efficiency and exceptional audio quality of our customers' latest products. I think it is also worth highlighting a characteristic of this area of our business that isn't always apparent to those outside of the company. While we ship custom products into many consumer end devices, much of our custom silicon business offers returns over a significantly longer period than is typical of consumer products. For example, these latest generation audio components that I've referred to superseded a codec and amplifiers that have been shipping in high-volume flagship phones for 5 and 6 years, respectively. We consider this longevity a significant strength of our business as it provides solid long-term visibility and sustained revenue contribution, along with the ability to leverage our R&D resources in new areas that can drive further innovation and growth. Outside of our custom audio solutions, we also continue to serve a number of customers in the Android ecosystem. This past quarter, a leading Android OEM introduced its latest flagship smartphone featuring 2 Cirrus Logic boosted amplifiers and a haptic driver. While the majority of our general market R&D investments are focused on developing products for new markets beyond smartphones, we continue to engage with customers on next-generation flagship smartphone products and expect additional designs from various customers to come to market in the future. Looking beyond audio, we continue to diversify our revenue and expand our smartphone content with high-performance mixed-signal solutions. Customer engagement around our camera controllers remains strong, and we were excited to see this technology stand out as a key differentiator in the latest generation of devices. Today, we are engaged on a number of projects that we believe will bring even more feature and performance enhancements to this area in the future. Moreover, we also have several R&D programs that are focused on battery performance and health, and we continue to believe these areas represent an excellent opportunity for our mixed-signal expertise to bring innovation and value to our customers. Our third strategic priority is to leverage our audio and high-performance mixed-signal expertise into new applications and markets outside of smartphones. We're making excellent progress here, especially in the PC market, where we are focused on continuing to grow our share across customers and product tiers. During the quarter, we saw strong design activity across our PC portfolio and expect a range of consumer and commercial laptops featuring our components to come to market over the next year as the adoption of SoundWire device class audio accelerates. After establishing early success in high-end laptops, we are now expanding into mainstream programs to reach higher volume opportunities and capture a larger share of the addressable market. Building on our recent wins in mainstream commercial laptops, this quarter, we were particularly excited to secure our first mainstream consumer design, which is expected to ship next year. This success demonstrates the excellent progress we are making in our long-term strategy to grow beyond smartphones and positions us well for the continued momentum in the broader PC space. Additionally, we are excited about the long-term opportunity that voice represents as a natural way to interact with AI-enabled PCs, and we increasingly see PC OEMs turning to voice as a means to enhance their products. In this area, we are able to leverage our audio and voice expertise, which has been developed and refined in the smartphone market over many years to develop PC-specific products that deliver enhanced voice capabilities and performance, enabling features such as voice wake for AI applications even while the device is in an ultra-low power standby state. Our first product featuring this technology is expected to sample to customers in the December quarter. Finally, in the PC space, we have in the last quarter, deepened and expanded our engagement across multiple PC platform vendors in order to accelerate our customers' time to market. We believe that our ability to provide consistent audio architectures and advanced features across multiple PC platforms is a great benefit to OEMs. Overall, we are very encouraged by the traction we are seeing in PCs and believe there is a meaningful opportunity ahead for us to grow in this market. Beyond PCs, we are also seeing strong interest in our general market products, which serve a wide range of customers across professional audio, automotive, industrial and imaging end markets. These products typically have long life cycles and gross margins well above our corporate average and moreover, can frequently leverage the world-class low-power IP that we have developed in other areas of our business. Our progress in this space was exemplified during the quarter in several areas. First, we gained design momentum with prosumer and automotive customers on all 14 variants of our latest generation ADCs, DACs and ultra-high performance audio codecs and expect new end products utilizing these components to come to market over the next 12 months. Second, we had increased engagement with automotive and professional audio customers on our latest timing product family, which began shipping last quarter. And third, we are now sampling a family of high-performance analog front-end components targeting imaging applications, and the initial response has been positive. We are proud of our execution to date in these areas, and we'll continue to expand our product portfolios in order to drive profitable growth opportunities in these segments. And that concludes the latest progress update on our long-term growth strategy. So let me now turn the call over to Jeff to provide an overview of our financial results as well as the outlook. Jeffrey Woolard: Thank you, John. Good afternoon, everyone. I'll now walk through our Q2 financial performance and provide guidance for Q3, including tax updates. In Q2 fiscal 2026, we delivered revenue of $561 million, which was toward the top end of our guidance range, driven by demand for components shipping into smartphones. On a sequential basis, revenue was up 38% due to higher smartphone unit volumes. On a year-over-year basis, sales were up 4%, primarily driven by higher smartphone unit volumes and sales associated with our latest generation products. Turning to gross profit and gross margin. Non-GAAP gross profit in the September quarter was $294.7 million and non-GAAP gross margin was 52.5%. On a year-over-year basis, the increase in gross margin was largely due to a more favorable product mix. This was partially offset by higher inventory reserves. Now I'll turn to operating expenses. Our non-GAAP operating expense for the second quarter was $127.7 million, coming in below the low end of our guidance range. This was due to lower product development costs, mostly driven by shifts in project time lines. Employee-related expenses were also lower than expected. On a sequential basis, OpEx was up $8.2 million, primarily due to higher variable compensation, product development costs, mostly due to tape-outs and facilities-related costs. This was partially offset by a reduction in employee-related expenses. On a year-over-year basis, operating expense was up $0.9 million, primarily due to an increase in employee-related expenses, which are mostly related to annual merit increases. This was partially offset by lower product development costs. Non-GAAP operating income for the quarter was $167 million or 29.8% of revenue. Turning now to taxes. During Q2, we recorded the favorable tax impact of the One Big Beautiful Bill Act, which reinstated immediate expensing of domestic R&D. This change was retroactive to the start of fiscal year '26 and contributed to our lower non-GAAP tax rate of 14.6% for the quarter. And lastly, on the P&L, non-GAAP net income was $150 million, resulting in an earnings per share for the September quarter of $2.83. Let me now turn to the balance sheet. Our balance sheet continues to be strong, and we ended the September quarter with $896 million in cash and investments. Our ending cash and investments balance was up $48.3 million from the prior quarter as cash generated from operations was partially offset by share repurchases. We continue to have no debt outstanding. Inventory at the end of the second quarter was $236.4 million, down from $279 million in the prior quarter. Days of inventory were down sequentially, and we ended the quarter with approximately 81 days of inventory. Looking ahead, in Q3 fiscal 2026, we expect inventory to decrease slightly quarter-over-quarter. Turning to cash flow. Cash flow from operations was $92.2 million in the September quarter and CapEx was $4.5 million, resulting in non-GAAP free cash flow margin of 16%. For the trailing 12-month period, cash flow from operations was $557.3 million and CapEx was $23.1 million. This resulted in a non-GAAP free cash flow margin of 27%. On the share buybacks, in Q2, we utilized $40 million to repurchase approximately 362,000 shares of our common stock at an average price of $110.55. At the end of Q2 fiscal 2026, the company had $414.1 million remaining on its share repurchase authorization. Now on to guidance. For Q3 fiscal 2026, we expect revenue in the range of $500 million to $560 million. Gross margin is expected to range from 51% to 53%. Non-GAAP operating expense is expected to range from $128 million to $134 million. The fiscal year non-GAAP effective tax rate is expected to range from approximately 16% to 18%. In closing, we delivered strong results for the September quarter. We remain focused on executing to our strategy and delivering long-term value to shareholders. Before we begin Q&A, I would like to note that while we understand there is intense interest related to our largest customer in accordance with Cirrus Logic company policy, we will not discuss specifics about our business relationship. With that, let me turn the call to Chelsea to start the Q&A session. Chelsea Heffernan: Thanks, Jeff. We will now start the Q&A portion of the call. Operator, we are now ready to take questions. Operator: [Operator Instructions] Your first question comes from the line of Tore Svanberg with Stifel. Tore Svanberg: Congratulations on the results. I know you can't obviously talk specifically about your largest customers' business. But this year has been quite unusual from a seasonality perspective. So I was just wondering if you could share any thoughts with us on seasonality going forward. I mean, 2026 potentially be sort of back to normal? Again, anything you could share with us would be really helpful. Jeffrey Woolard: Yes, Tore, this is Jeff. I think if you recall, we talked about last quarter, a change in the seasonality shape of our business, primarily driven by the camera content becoming a bigger portion of the total revenue, which shifts a little earlier as well as, as we talked about some pull-ins at the last quarter call. I think if you look at our results this quarter and our guidance for next quarter, that story remains the same that the shape is a little bit pushed into the first half versus what has been traditionally, and that's driven by just camera content being a greater piece. While we did give some insight last quarter, our view for the year because we thought it was important for everyone to understand that change. That has played out between our results and our guidance. And at this point, we are only giving guidance for the next quarter, but we don't see anything from here out that would change historically what that seasonality looks like for the rest of the fiscal year. Tore Svanberg: Great. That's very helpful. And as my follow-up for you, John, in the shareholder letter, you stated again, there's potential opportunities on the power/battery side in the smartphone market. Any updates there? Again, I know you can't talk about specific design wins, but clearly, battery management is becoming quite crucial for next-generation smartphones. So any updates there would be helpful. John Forsyth: Yes, that continues to be an area that we're excited about. And as you know, we've been investing in for some time. We do think that we have some really compelling IP in that space. And I think we've seen some validation of that from the comments reflected back to us from customers when we've been sharing silicon with them and details on what we've been developing. We've got a number of irons in the fire there. And as you alluded to, the majority of those are related to those areas around the battery where we think we can make a difference to power efficiency as a whole to system performance as batteries go through their life cycle, both on a daily basis and a long-term basis and to battery health, long term as well. So we don't have anything to say today concretely about design wins and how that's going to get commercialized, but we continue to believe that we've got some very valuable IP, and we are obviously itching to get that out into the market. Operator: The next question comes from David Williams with The Benchmark Company. David Williams: Maybe first just on the OpEx side, you kind of mentioned that it was lower in this quarter for some pushouts. And it looks like some of that's kind of coming into the third quarter. Is it fair to assume that all of the OpEx expected in the second quarter is pushed into that third quarter? Or is there anything else maybe funny going on that we should be thinking about there? Jeffrey Woolard: No, I think that's a reasonable take. We are pretty disciplined in our OpEx. And what we saw, we did obviously come in below the guide and some of that was just delays in our spending, not necessarily delays in execution. So that product development cost can be a little lumpy. It's not a miss because it wasn't low because of execution. Some expenses that we had planned, we were just actually able to avoid. And so that came also drove our results, OpEx results being below guide. So a lot of that is just a timing issue. So we will continue to stay disciplined on that. But that being said, it was a push. But if we see other opportunities that we think have. We have high confidence in to create value, we will be comfortable increasing that in the future. David Williams: Okay. Good. And then maybe just on the non-flagship customer, your largest customer revenue, that contribution in the quarter was maybe a little bit lower than we had anticipated. But just trying to get a sense of the progress in the general markets and in that computing space, how we should think about that revenue trending maybe through this year? And just generally, what that growth trajectory should look like outside of your largest customer? John Forsyth: Yes. I think on the picture for this quarter, in particular, there are a number of things going on there. And I think the softness in the Android space is certainly part of it, and that's been widely reported. We don't invest a huge amount in Android as a strategic business area for us, but it still remains a valuable contributor. So to some extent, we saw some impact from that. And then when we look to the rest of our general market business, certainly, the biggest kind of growth area that we see there right now is the PC, as you alluded to. And we're continuing to track the way we expected there or broadly in line with that. We're still kind of early in the ramp for that as regards the business it can become for us in the future. But we've passed a number of really, really excellent milestones this year and then in this past quarter as well, which kind of indicate the great progress we're making there, and we continue to be very excited about what's going on in the PC space. I think one of the things we called out in the shareholder letter that's a particular highlight is the win in mainstream consumer laptop because those mainstream devices, as I've highlighted previously, they really deliver so many more units than the devices in the flagship and premium tiers. And so a big part of our objective is to penetrate down through the tiers and be well penetrated in both the commercial and the consumer mainstream segment and then obviously expand to as much content in those devices as we can get. This year, earlier in the year, we reported that we won our first mainstream commercial laptop and then we've now added to that with success in the consumer space. So I think that proves we can do it, and that's going to be one of multiple drivers that help us continue to accelerate in the PC space. Operator: Your next question comes from Christopher Rolland with Susquehanna. Dylan Ollivier: This is Dylan Ollivier on for Chris Rolland. So for my first question, so last quarter, you said that you didn't have any material changes to your smartphone unit outlook for the year despite your better results. Would you now have any changes to your unit outlook? Or are units still tracking in line? Jeffrey Woolard: Yes. I'm going to stick with sort of that previous answer of -- we obviously had a good quarter here driven by smartphone units, and we explained the shape between the last quarter -- last 2 quarters. And we're only guiding for the next quarter, but we see -- at this point, we think seasonality looks like it historically has. We don't see anything to change our view on the upcoming seasonality. Dylan Ollivier: Great. So secondly, I'd love to hear more about these new products that you talked about that you're developing for AI PCs. So does this expand your SAM? And when can we expect revenue here? Are you getting a lot of initial interest from customers? John Forsyth: Yes. Actually, that's an area which I think has become much more significant in our modeling of our PC SAM more recently rather than -- or at least compared to when we set off down the road of getting into the PC market. The interest across our customer base in voice-related features is really pretty significant as a major enabler for AI. So I mean, I think if you step back just for a second to look at all the drivers, which are currently kind of accelerating our momentum in the PC space. There's one I alluded to in the previous answer, which is just our penetration down through product tiers to get into higher volume segments. There's another factor which we alluded to in the shareholder letter, which is the propagation of the SoundWire device class audio interface and standard. So we're seeing that increasingly propagate across designs that generally is something that's favorable to us, and that's something that we've designed to and that we can deliver a lot of features around. Then as we also mentioned in the prepared remarks, we've also been expanding our support across multiple PC platform vendors. So again, that's kind of expanding our reach and the number of devices that our products can get into and the number of reference designs that enable our customers to pick up our silicon and create products around very rapidly. And then the fourth of these drivers would really be the voice features that we see coming over the horizon. And that's been a more recent topic of conversation with OEMs, but it's a significant one, and it's one where our IP is really best-in-class. We're able to provide significantly better voice and audio capture, noise reduction, voice cleanup, voice detection, speaker detection and so on. And then you combine that with our low-power codec technologies, we can enable features like waking up the entire system, being able to speak to the system even when it's in an ultra-low power standby state and so on. So this is -- I mean, this is all part of the SAM that we model out in the investor presentation out into the future that we think can continue to be really significant for us in the PC space. But I think given where we're at and the IP we have in the voice area, in particular, I would expect us to really benefit from that. Specifically in the last quarter, we started sampling the first device specifically focused on enabling those features to customers. So it will be a while before those start showing up in end products, but we have a great road map around those features in particular. Chelsea Heffernan: Thanks, Dylan. And with that, we will end the Q&A session. I will now turn the call back to John for his final remarks. John Forsyth: Thank you, Chelsea. In summary, Cirrus Logic delivered record revenue for the September quarter while also continuing to make excellent progress on each pillar of our long-term strategy. I'd like to extend my appreciation to all of our employees worldwide for the hard work and commitment to excellence that has delivered these results. And I'd like to thank our customers for their trust and support. We're excited about the opportunities ahead for Cirrus, and we thank you for your continued interest in the company. Before we close, I'd also like to note that we will be participating in the Barclays Global Technology Conference on December 11. Please check our investor website for the details. Thank you, everyone, for participating in our call today. Goodbye. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to today's Coterra Energy Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Dan Guffey, Vice President of Finance, Investor Relations and Treasurer. Dan? Daniel Guffey: Thank you, Greg. Good morning, and thank you for joining Coterra Energy's Third Quarter 2025 Earnings Conference Call. Today's prepared remarks will include an overview from Tom Jorden, Chairman, CEO and President; Shane Young, Executive Vice President and CFO; and Michael Deshazer, Executive Vice President of Operations. Blake Sirgo, Executive Vice President of Business Units, is also in the room to answer questions. Following our prepared remarks, we will take your questions during our Q&A session. As a reminder, on today's call, we will make forward-looking statements based on our current expectations. Additionally, some of our comments will reference non-GAAP financial measures. Forward-looking statements and other disclaimers as well as reconciliations to the most directly comparable GAAP financial measures were provided in our earnings release and updated investor presentation, both of which can be found on our website. With that, I'll turn the call over to Tom. Thomas Jorden: Thank you, Dan, and thank you to all who are listening this morning. Coterra had a strong third quarter and is on track to deliver on the ambitious annual goals that we set for ourselves for the full year 2025. Furthermore, we released a soft guide to our coming 3-year plan update that shows that we remain committed to a long-term path of consistency, profitable growth and value creation for shareholders. I want to give a shout out to our field and office personnel who have worked valiantly to deliver results as promised and to do so safely with environmental integrity and with a relentless focus on maximizing full-cycle returns. We could not be prouder of our organization and their commitment to excellence. We delivered on all fronts during the third quarter. Our volumes on gas, oil and barrel of oil equivalent came in above the midpoint of our guidance. We delivered outstanding returns on invested capital with great capital efficiency. The integration of the Lea County assets that we acquired early in the year has gone well, and we are realizing significant uplifts in asset performance, cost reductions and future inventory. Michael Deshazer will provide further details here. We plan to deliver a comprehensive updated 3-year outlook with our fourth quarter release in February. Last night, however, we provided an early look into 2026, which demonstrates our multiyear commitment to growing revenue, cash flow, free cash flow and profitability. As we see it today, we expect capital to be modestly down year-over-year while still achieving consistent profitable growth. Our low breakevens and deep inventory, coupled with our balanced revenue between gas and oil assets provides the opportunity to deliver through the cycles and maintain a degree of consistency that differentiates us. We view our future entirely through a lens of increasing shareholder value, and we best achieve this by consistently making smart full-cycle investments through the commodity swings. I do want to emphasize that we are providing a soft guide for 2026, and final decisions are a work in progress. We are watching markets carefully. Oil markets have a lot of moving pieces. These include the timing and impact of Russian sanctions, the situation in Venezuela, Chinese and Indian behavior and global economic robustness. While we have the projects and wherewithal to further increase our oil growth, if warranted, we are remaining disciplined and not chasing growth in the current environment. Although capital may modestly flex up or down each year, our sole goal is to consistently grow our profitability and maximize our free cash flow. We are living in rapidly changing times. The increase in LNG exports and growing electricity demand is constructive for the medium- and long-term outlook for natural gas. We are prepared to be patient and not front-run demand increases. Our marketing group is heavily engaged in discussions with counterparties seeking new natural gas supply arrangements to further diversify our portfolio, which already has committed 200 million cubic feet a day to recently announced LNG deals, 350 million cubic feet per day to Cove Point LNG, 50 million cubic feet per day power -- Permian power deal with CPV and our 320 million cubic feet per day of natural gas supply deals to local power plants within the Marcellus. While these deals total approximately 30% of Coterra's gas production, the team continues to bring fresh ideas to the table to further improve and diversify our portfolio. Our marketing team has a mandate to generate value, not press releases. We are confident that patience is prudent and that the future of natural gas will provide tremendous opportunities for Coterra. There is a lot happening under the hood. We are also watching all markets carefully, as I said, the swing between optimism and pessimism here is remarkable. A tiny change in facts can drive huge swings in emotion. Coterra has a deep inventory of oil assets with one of the lowest breakeven portfolios in our sector. Our bias is steady as she goes without wild reactive swings. Before I turn the call over to Shane, you will note that Michael Deshazer will be delivering the operational summary today. Blake Sirgo is with us and will undoubtedly have the opportunity for comments. We recently switched the portfolios of Blake and Michael, with Blake assuming oversight over our business units and Michael taking on our operational and marketing portfolios. This change was entirely driven by a desire to build redundancy in our skill sets and build broader depth of expertise on the executive team. We have a highly collaborative executive team that, by design, is broadly familiar with all aspects of our business. This change will further increase our flexibility, bring fresh eyes on critical issues and provide an ability for both Michael and Blake to enlarge their impact. Every now and then, it is good to repot the plant. Finally, we know that many of you have seen the letter that Kimmeridge released this morning. Although we think that it contains some factual errors, we have great respect for many of the thought pieces that the Kimmeridge team has produced over the years and have had constructive engagement with them in the past. We are disappointed that they have chosen to release a public letter without reaching out to us. Nonetheless, we are open to suggestions that can improve Coterra. And as always, we will listen, carefully consider ideas and be thoughtful in our response. With that, I will turn the call over to Shane for a financial summary. Shannon Young: Thank you, Tom, and thank you, everyone, for joining us on this morning's call. Today, I'd like to cover 3 topics. First, I will quickly summarize a few key takeaways from our strong third quarter financial results. Then I'll provide our fourth quarter guidance and update to our full year 2025 guidance. Finally, I'll provide comments on our balance sheet and cash flow priorities for the remainder of the year. Turning to our performance during the quarter. Performance in all 3 business units exceeded expectations during the third quarter. Coterra's oil, natural gas and BOE production each came in approximately 2.5% above the midpoint of our guidance. Additionally, NGL production was strong, posting an all-time high for Coterra at around 136 MBoe per day. In the Permian, we had 38 net turn-in-lines during the quarter, just below the low end of our guidance range, while the Anadarko and Marcellus had net turn-in-lines of 6 and 4, respectively, in line with expectations. We continue to expect TILs in all areas to be within our annual guidance ranges with the Permian being near the high end of the range. Pre-hedge oil and gas revenues came in at $1.7 billion with 57% of revenues coming from oil production. This is up sequentially from 52% in the prior quarter and was driven by a substantial uptick in oil volumes of 11,300 barrels per day, an increase of above 7% above our second quarter levels. The Permian team continues to drive outstanding incremental production results. Cash operating costs totaled $9.81 per BOE, up 5% quarter-over-quarter due to production mix and higher workover activity, which we expect to moderate during the fourth quarter. Incurred capital in the third quarter were near the midpoint at $658 million. Discretionary cash flow for the quarter was $1.15 billion and free cash flow was $533 million after cash capital expenditures. Both of these figures benefited from negative current taxes for the quarter related to recent changes in U.S. tax law. In summary, our strong third quarter results show continued improvement in capital efficiency as production exceeded expectations and capital remains on track. We continue to run a consistent and highly efficient activity cadence, which we expect will continue to generate strong full-cycle returns in the current price environment. Looking ahead to the fourth quarter and the full year 2025. During the fourth quarter of 2025, oil production is expected to be 175 MBoe per day at the midpoint, an increase of over 8,000 barrels per day or another 5% increase quarter-over-quarter. We expect total production to average between 770 and 810 MBoe per day and natural gas to be between 2.78 and 2.93 Bcf per day. We expect capital for the quarter to be around $530 million, significantly below the third quarter results as we wrapped up frac activity in the Anadarko late in the third quarter. For full year 2025, we are increasing annual MBoe per day production guidance to 777 at the midpoint, a 5% increase from our initial guidance in February. We are maintaining the oil guidance midpoint at 160 MBoe per day while tightening the guidance range. Oil volumes from our acquired assets have been in line to slightly better than expected. Our legacy assets oil volumes are expected to deliver a high single-digit percentage growth rate year-over-year. This is similar to the rate of growth we have delivered during the prior 3 years. On natural gas, we are increasing the midpoint of our volume range to 2.95 Bcf per day, an increase of over 6% from our initial full year guidance in February. As previously indicated, we expect capital for the year to be approximately $2.3 billion, just above the midpoint of our initial guidance range in February as we have maintained the second Marcellus rig into the second half of the year. Our annual expense guidance ranges remain unchanged, and we expect to be near the midpoint of the aggregate expense range for the full year. With regard to our 3-year outlook provided in February, we remain highly confident in our ability to deliver results within those ranges from 2025 through 2027. This outlook is underpinned with a low reinvestment rate and improving capital efficiency and delivers attractive long-term value creation for our shareholders. While we are not prepared to provide specific 2026 guidance, a current snapshot suggests that capital should be down modestly year-over-year while still maintaining production parameters laid out in our 3-year guide we released in February. At the same time, our low breakevens, low leverage and operational flexibility, coupled with our hedge book, have Coterra well positioned in the event of high commodity price volatility in 2026. Turning to shareholder returns and the balance sheet. For the third quarter, we announced a dividend of $0.22 per share. This is one of the highest-yielding dividends in the industry at over 3.5% and demonstrates our confidence in the long-term durability, depth and quality of our future inventory and free cash flow. Additionally, during the third quarter, we repaid $250 million of outstanding term loans that were used as part of the financing of our acquisitions earlier this year, bringing our total term loan pay down to $600 million through the third quarter of 2025. In October, based on the progress we have made in retiring our term loans and the trading levels of our shares, we reinitiated our share buyback program. While we continue to make progress on our debt retirement goals during the fourth quarter, we'll be opportunistic in purchasing our shares. We ended the quarter with an undrawn $2 billion credit facility and a cash balance of $98 million for total liquidity of $2.1 billion. As of September 30, we had total debt outstanding of $3.9 billion, down from $4.5 billion at the closing of the acquisitions in January. We're making meaningful progress in executing on our priority of getting our leverage back to around 0.5x net debt to EBITDA. Coterra remains committed to maintaining a top-tier fortress balance sheet that is strong in all phases of the commodity cycle. We believe this enables us to take advantage of market opportunities while protecting our shareholder return goals. In summary, Coterra's team delivered another quarter of high-quality results across all 3 business units. We continue to enhance capital efficiency through higher productivity and lower cost per foot completed. Our consistent activity has continued to deliver meaningful oil production growth throughout the year while raising the bar on both natural gas and BOE production. In 2025, we expect to generate substantial free cash flow of around $2 billion, an approximately 60% increase over 2024, benefiting from both higher natural gas realizations and higher oil volumes from our acquired assets. While we continue to prioritize deleveraging, we see significant value in Coterra at current share prices and are approaching buybacks opportunistically. In summary, Coterra has never been stronger or better positioned. With that, I will hand the call over to Michael to provide additional color and detail on our operations. Michael Deshazer: Thank you, Shane. Today, I will talk about our third quarter operational results and outlook. We'll provide a business unit update, including the successful integration and upside to our Franklin Mountain and Avant acquisitions, and I will briefly touch on our marketing efforts. The third quarter was another well-executed quarter, and we carried this operational momentum into the fourth quarter. On the activity front, we have a consistent 9-rig, 3-crew program working in the Permian, 1 rig and 1 crew in the Marcellus and 1 rig in the Anadarko. We expect to maintain this activity level during the fourth quarter. To reiterate what Shane touched on earlier, looking ahead to 2026, we expect 2026 capital to be down modestly year-over-year, while still achieving the production ranges laid out in our 2025 through 2027 3-year outlook. While we are focused on consistent operations through the commodity cycles, we are maintaining maximum operational flexibility with no rigs or frac crews on long-term contracts. We expect to provide a comprehensive 2026 guidance and an updated 3-year outlook in February. The integration of our Franklin Mountain and Avant assets is complete, and our teams continue to outperform our expectations for synergies on these assets. I would like to spend a few minutes discussing our progress. When we announced the acquisition, there were many wells that were in various stages of development, and we made estimates of their productivity for our evaluation and for our full year production guidance. In November 2024, we announced a 2025 production estimate for the assets of 40,000 to 50,000 barrels of oil per day, assuming a full year contribution. When we updated our production guidance on our February call after the actual close dates in late January of the assets were known, we maintained our annual production guidance because we liked how the assets were performing. I am pleased to report that we continue to perform in line to above our production expectation for the acquired assets, giving us further confidence that there is upside relative to what was underpinned -- what underpinned the acquisition. On the capital side of the acquisition, we have realized a 10% reduction in our total well costs as measured in dollars per foot by applying our Coterra best practices at scale across the assets. A few of the efficiencies I would like to point out are our optimized and standardized hole size and casing designs, which have reduced our drilling times from 15 to 13 days for a standard 2-mile lateral. And on the completion front, we have seen that implementing our proven stimulation designs that have been evaluated across the basin and tailored for each landing zone as well as our scale in the Permian has allowed us to reduce service costs. In addition to capital savings, we now have line of sight to significant operating cost synergies. We have already reduced the inherited lease operating expense by approximately 5% or $8 million per year. These savings have been seen across most services, but the biggest savings are related to on-pad sour gas treating and electric generation. For example, at our Eagle central tank battery, we acquired a facility that treated sour gas to then be burned in gas turbines to generate power for our field. Working with our marketing team, we accelerated a residue gas connection to the site that allowed us to remove the gas-treating equipment and allow the turbines to burn clean low Btu gas, increasing reliability and saving over $2.5 million per year in expenses. There are many more projects like this one, and we are currently projecting an additional $20 million per year in net operating cost savings related to on-pad sour treatment, taking our projected total LOE savings on the acquired assets to 15% as a go-forward run rate. In addition, we believe that the biggest future savings could come from using microgrids instead of well-site generators to power our assets. We are in the final stages of planning for up to 3 microgrids across our Northern Delaware Basin assets. We think that these projects will have the potential to reduce our current power costs by 50%, saving an additional $25 million a year. But as the asset and our power demand in the area grows, the projected savings will grow as well to nearly $50 million per year. This is all while we continue to work with our utility power providers to bring more grid power into the Permian Basin. Now that we have integrated the assets, we expect not only to demonstrate capital and expense reduction, but also productivity enhancements as we pursue a development plan focused on maximizing capital efficiency. Our subsurface teams have continued to delineate multiple landing zones, and this work has given us confidence that we have 10% more inventory as measured by net lateral footage than we estimated when acquiring the assets. Furthermore, our increased scale in the Northern Delaware Basin has enabled us to make many value-added trades and small-scale acquisitions. We expect our team to prudently add valuable inventory as we continue to develop our highly profitable and low-cost resources in the Permian Basin. Moving on to the Marcellus business unit. This quarter, we drilled a new 4-mile lateral from spud to rig release in under 9 days, averaging 2,400 feet per day. This sets a new high watermark for Coterra. In fact, it's becoming common for many of our recent wells to eclipse 2,000 feet per day. This type of performance and longer laterals reaching over 20,000 feet have driven drilling costs down 24% year-over-year. With these efficiencies, we no longer need 2 rigs to maintain production in our Marcellus asset. Our maintenance activity level over the next few years would require 1 to 2 rigs, so we will manage our rig count to not build excessive DUC backlog. While we hold the option to grow our Marcellus natural gas volumes, we are committed to being patient and expect to hold our production volumes relatively flat until additional demand materializes and the strip solidifies. Should we have a cold winter and prices increased into '26, we will fully participate from our approximately 2 Bcf a day of production in the Northeast and expect to generate substantial free cash flow from our Marcellus region. In the Anadarko business unit, we brought online our last project of the year during the third quarter, the 5 3-mile Hufnagel wells. These new wells, combined with our Roberts project from Q2, continue to drive strong region performance that has exceeded our expectations. Turning to marketing. Our team continues to be active in the hunt for more deals and partnerships that can deliver flow assurance and price uplift for our products across our diverse portfolio. As Blake mentioned last quarter, the long-term gas sales to CPV's new Basin Ranch power plant in Reeves County, Texas was the latest in a line of deals that our company has a history of delivering. As Tom mentioned, our Moxie and Lackawanna power deals in the Marcellus were put in place 10 years ago and have provided value well and above an in-basin price. We will continue to find opportunities to improve the netback of our product and increase the value to our shareholders. A strength of our sales portfolio is a significant diversification, but we are not satisfied and we'll continue to optimize. The teams in all 3 of our regions are firing on all cylinders and have remained focused on solid execution, making decisions to maximize full-cycle returns and creating value for shareholders. With that, I'll turn the call back over to the operator for Q&A. Operator: [Operator Instructions] It looks like our first question today comes from the line of Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: Tom, as always, you're very gracious to hit the 800-pound gorilla right in the head with the comments around the Kimmeridge letter. So I wonder if I could just ask you to elaborate on your perspective this morning. The -- I guess the way I would phrase it is that when you look at the gas-levered E&Ps, particularly your larger peers, EQT and Expand and compare your relative performance, it almost seems like you've been kind of orphaned by the mix of your portfolio. And I guess the basis of the Kimmeridge letter is you're better as a stand-alone pure play in the Delaware and let someone else take care of the gas. That would go 180 degrees against what you tried to build. How would you respond to that? Thomas Jorden: Well, first off, Doug, I don't want to get into a lot of discussion about the Kimmeridge letter. That's for another time. But we've spoken openly. We really believe Coterra is a premier outfit, and we like to see us trade at a premium multiple. But if you look at the trading over the last year, you'll find [ we're ] at the top of the stack of oil companies and at lower level of gas companies. And we think we're seeing benefits of it being a multi-basin, multi-commodity company. But I just think it would be inappropriate for me to get into any more than that, Doug. Douglas George Blyth Leggate: Okay. I understand, and I appreciate you taking a stab at it. My follow-up is an operational question, and it's really related to what you saw in your LOE this quarter. Obviously, it's still elevated, but you also beat on your oil guidance. So my question is, is this related to the workovers in the Harkey? Should we continue to expect your oil production to move up and then ultimately your LOE to move down as those workovers flow through the system? Michael Deshazer: Yes, Doug, this is Michael. Yes, the LOE for the quarter was up a little bit. We have transitioned out of the Harkey remediation program that we talked about last quarter, and we have moved workover rigs into Lea County, where we do have some higher working interest. But overall, we do expect our LOE costs, especially the workover costs to decrease as we head into Q4. Shannon Young: Yes. And Doug, Shane here. Just -- we do expect that number to settle for the year within range on the LOE and expect to be probably in the middle in terms of total cash cost of where we are as well. But Michael hit on really well sort of the reason why it looked a [ touch up ] in the third quarter. Operator: And our next questions come from the line of Betty Jiang with Barclays. Wei Jiang: I want to ask about the cash return strategy just because we would agree that the stock, it does look discounted in our view as well. Shane, last quarter, you talked about really focusing on debt reduction. And then this quarter, Coterra is starting the buyback program again. How do you think about the allocation of your excess free cash flow between debt reduction and buyback going forward? Is there a reason not to think we can get back to that 100% return level into next year? Shannon Young: Yes, Betty, Shane here. Thanks for the question. And as you noted, year-to-date, we prioritized deleveraging or paying off the term loans. And so that's why we leaned in really hard in the third quarter on that. It's interesting. When you're at sort of the last bit of the repayment, your feeling is a little different than when you're at the first bit of the repayment and the ability to sort of feather in both some buyback activity and continued deleveraging is just much more palatable at these states. So as we talked about, we reinitiated the program in this month and -- sorry, last month and expect that we'll continue to be opportunistic, particularly where prices have been over the course of the last 4 to 6 weeks. In terms of the future levels that we get to, look, I would only say, look at our past. And in 2024, we returned roughly 94% of free cash flow through the mix of dividend and buybacks. And the year before that, I think we're around 75% in 2023. And look, that's a place we strive to get back to and think we're well on our way to being there. Is that exactly what it looks like in 2026? We're not going to pin ourselves in. But I think we'll have a robust return of capital program in 2026. Wei Jiang: That's great. And my follow-up is on the overall activity in the Permian. If we look at the Delaware versus your initial expectations, production is -- the guidance is unchanged, while you are now completing wells toward the upper end of the guidance range. I'm just wondering relative to your internal expectations, how is the production profile on the wells tracked versus your initial guide. And with activity now towards the high end, does that change your views on how the shape of 2026 shake out? Shannon Young: Betty, Shane here. I'll take a stab at that. I mean we don't comment specifically on TIL timing within quarters, but we do give how many TILs we expect for the quarters. And you'll note the third quarter and second quarter, we were below -- kind of at the low end of where we thought we'd be to maybe slightly below there. And so that pushed some activity into the fourth quarter. But yes, I think productivity from the TILs that have come online have been as expected or in some cases, maybe a touch better. But yes, as we get into next year, I think Tom was -- noted on the last call that, look, we'll exit the year at 175 MBoe in the fourth quarter. And the expectation shouldn't be that we sort of maintain at that level throughout. That's quite possible, as you've seen in the past, based on the timing of TILs that we end up with a little leg lower and then begin to build from there. Thomas Jorden: Yes, Betty, I would just add to that, that so much of this is timing, as Shane said, and working interest changes. So there's just a lot of moving parts. But we're seeing very, very solid really returns and performance out of all of our assets and particularly in the new assets we acquired earlier this year, they're coming on strong. There's just no question in our mind as we reflect back on the last year, we'll exit the year a much stronger company than we entered the year. And we were able to do that because of our balanced portfolio, our multi-revenue contribution to that balance and our strong and fortress balance sheet. So we're absolutely exiting the year a stronger, better company. Operator: And our next question comes from the line of Arun Jayaram with JPMorgan. Arun Jayaram: Yes. Team, I wanted to see if you could provide any kind of overall commentary on your thoughts on CapEx reduction next year. You mentioned that you think it will be down moderately, but maybe help us fill in the pieces of the drivers of that, perhaps relative to your soft guide of delivering 5% year-over-year oil growth. Thomas Jorden: Yes, Arun, I'll start that, and somebody else may want to comment. We're seeing good asset performance. And as we look ahead to the oil markets, we're kind of watching what happens. I mean I think that one can make a constructive observation about the strip, but some of that is underpinned by cartel discipline, if you will, and geopolitical factors. I think in balance, if you lean back, you say the world is fairly oversupplied if everybody supplied at their full capacity. And so we want to be prudent. I mean part of our ability to lower our capital is driven by our asset performance. We can deliver on our 3-year plan guide handily. We do have the option to increase capital, as I said in my opening remarks, and step that oil growth up. But we really do think about it in terms of cash flow and profitability rather than volumes. And one of the best ways -- if you have price support in your commodity, the best way to grow your cash flow and free cash flow is to see some volume growth. But we're watching the markets thoughtfully. Shannon Young: Yes. Arun, I mean the only thing I would say is, in addition to that is, look, nothing's set in 2026 yet. We've got a lot of flexibility as we see it today. We'd be modestly down. But I think you're going to see us when we come out in February, deliver a highly capital-efficient plan that generates a substantial amount of free cash flow. As I noted in my earlier comments, cash flow this year was up 60% over 2023 on the back of higher oil volumes from the acquired assets as well as higher natural gas price realizations. The 2 of those contributed, and it's a really powerful combination. Arun Jayaram: Got it. And then maybe my follow-up, you highlighted some parts of the Franklin, Avant acquisitions that closed in 1Q, maybe exceeding your expectations. Can you talk about some of the things that you're seeing post your review of those acquisition economics and maybe a little bit more insights on the ground game that you've done. I think you're investing about $86 million in leasehold, which is driving a little bit more of an inventory improvement there. Blake Sirgo: Yes, Arun, this is Blake. Happy to take that one. Frankly, our teams have done what we hope they do. They've taken this asset, and they've made it a lot better. Our subsurface teams are delineating. So we're finding new zones that we didn't account for when we underwrote it, and we're adding net footage across the asset base. Our D&C teams are attacking the program with all of our large efficiencies we built over the years. We're driving down dollar per foot and our production and midstream teams are attacking OpEx, and they're dropping that as well. So we're really just seeing those efficiencies across the board. They're really starting to add up, and this is a great add to our portfolio. Operator: And our next question comes from the line of Neil Mehta with Goldman Sachs. Neil Mehta: I have a couple of gas questions here, Tom. But first, just to expand on your initial comments. I guess one of the questions we get from investors even beyond the letter this morning is what's the value of operating as a multi-basin portfolio versus being a pure play? And so just maybe you could spend some time now that's been a couple of years you've had Cabot under your portfolio. What are some examples of the tangible upsides or synergies that you get from diversification? Obviously, the commodity is one of it -- but -- one of them, but I'm sure there's others. Thomas Jorden: Yes. We're going to need a longer call for that question. One of the advantages, odd as it may seem, even though we're a broad industry, there tend to be regional pockets. And a lot of companies are single basin. And so techniques and operational efficiencies tend to be clustered until they get understood and widely spread. And you saw that in our history over and over. One example is the industry had gone to plug-and-perf completions, while there were still basins that were doing slotted liners way after other areas had abandoned that. You saw that with many completion techniques. And we're actually -- I'll just say, speaking for Coterra, there's a reason why we're recognized as a great operator in every basin we're in. And that's because we're a multi-basin company. We can take best practices from play to play and make our programs better. A particular example I'll give you, and you'll see this, hopefully, in this upcoming winter because we always light a candle and hope for a bitter cold winter, we have made massive advances in winterization in the Permian Basin. We get insights to a lot of our competitors because we have interest in their wells. So when these winter storms pass through, we see the degree to which our competitor's production is knocked offline and decreased, while Coterra tends to sail through with only a wobble. And that's because of the collaboration we've had with our Marcellus team for whom cold, bitter winters are a regular event and our Permian team, and it has made us such a better operator and really strengthened our ability to sell product into winter pricing. The list goes on and on, but I will just tell you that having collaboration among different play types really enlarges technical thinking around problem solving and has made this a better company. Neil Mehta: And then the follow-up is just on scale. I mean, I think in the Permian, Franklin Mountain continued to give you the scale that you need to be competitive against the largest players in places like the Permian. In the Marcellus, we've seen a lot of consolidation here. Do you feel like you have sufficient scale to be first quartile in the Northeast? Shannon Young: Yes. I'll make a quick comment on that. Look, I do think we have the scale there. We produce about 2 Bs a day in a market up in the Northeast itself that's probably closer to 11. But -- and really, one of the things, just kind of building on what Tom said up there, when we negotiate with service providers when Blake and Michael sit down with them, it's not like we're just negotiating a frac crew for that area. So we have one active crew. We're having a one-off negotiation because we have a broader portfolio, we're actually able to drive down costs, get better equipment and better focus from the service providers. And so in a lot of ways, we have plenty of scale up in the Northeast. But frankly, the Northeast benefits from the larger scale of Coterra. Operator: And our next question comes from the line of Scott Gruber at Citigroup. Scott Gruber: I want to come back to your active ground game here. Can you talk about your thoughts around running room to block up your positions in Lea and Eddy counties and the timing of doing so in a competitive market? And just how important is that in terms of compressing your cost structure in the Northern Delaware down towards Culberson? Or do you think you have kind of a good running room to further compress costs on your current acreage position? Blake Sirgo: Yes, Scott, this is Blake. I'll take that. The Franklin Mountain, Avant assets really gave us a great footprint in the Northern Delaware. And what that's allowed us to do is now have a foothold in certain areas where we can start doing trades and additional small acquisitions. And really, what we're just chasing are the biggest DSUs we can get our hands on, more wells per section, longer lateral lengths, that's how we drive efficiencies. And so really just building that footprint up there has kind of turbocharged our land efforts. And I couldn't be happier with the deals the team has brought in over the year. They're very, very busy. We look at all those with a firm economic lens. But like I said, those capital efficiencies we can bring to bear, they make a lot of them really attractive to us. Scott Gruber: And what is your color on the '26 budget reflects the trend in well costs in the Northern Delaware as you gain more experience on the acreage and expand the position? Does that continue to step down? Would that be incremental benefit to the spend in '26? And does the well mix in the Delaware stay broadly the same in '26 kind of as you see it today? Michael Deshazer: Scott, this is Michael. Yes, we -- as I mentioned in my prepared remarks, we continue to drive down the capital costs of all the wells in the Northern Delaware Basin. And so we expect our teams to continue to work hard every day to try to drive that cost down. We don't have a projection that we're ready to discuss here, but I did mention a lot of the same efficiencies that we see across our assets around consistent drilling rigs and frac fleets and being able to drill longer laterals. All of those benefits would be available to us in that Northern Delaware Basin and all the trades and blocking of acreage that Blake talked about really helps. The bigger these pads are and our ability to put more wells into the same facilities really helps us drive down costs on both the production side, the capital side and on our midstream side. Operator: And our next question comes from the line of David Deckelbaum with TD Bank. David Deckelbaum: I wanted to ask perhaps for a little bit more color just on the '26 high-level guide of spending kind of sub $2.3 billion. How the sort of large projects impact that going into next year? Or as we think about this, is it being driven more by reallocation between basins or the inclusion of more Wolfcamp relative to what we saw in '25? Could you add a little bit more color there just on what's contributing to that trajectory the most? Or is it just general optimization? Michael Deshazer: Thanks, David. This is Michael. Yes, as I -- as we discussed earlier, we currently have our operations very steady across the business units, and we expect that to extend into 2026. We don't see a lot of dramatic changes from where we're at right now in Q4 in terms of the way we see the program into '26. I did mention that our Marcellus would be between 1 and 2 rigs. So we'll be making those decisions as we look at frac efficiency and drilling efficiency. And we're really excited to see the recent results of drilling these longer laterals in the Marcellus has allowed us to reduce that rig count. So we're not exactly focused on the resources around rig and frac as much as we are a consistent program within each of these business units from a capital perspective. Thomas Jorden: Yes, David, I want to just add there that I'll be a broken record, but it is a soft guide, not an announced plan. We're still looking at some of our options. I think depending on what happens with commodity markets, though, as we look at that soft guide, probably our bias would be to maybe slightly increase over what we're telegraphing than decrease. But we have the wherewithal, we have the projects, and we have the willingness to step in. We're just watching carefully, and we want to be prudent in how we approach 2026. David Deckelbaum: I appreciate that color, Tom. And maybe just following up a bit on just the cadence of the program into the '26. You talked about sort of this 5% oil growth next year. And maybe, Michael, this one is for you, but the -- can you just kind of refresh us on how you kind of see the shape of the Delaware progressing throughout the year after some pretty aggressive growth what we've seen in the back half of '25? Michael Deshazer: Yes, we're not prepared to discuss any kind of TIL timing or that kind of granularity at this point in time. Operator: And our next question comes from the line of Matt Portillo with TPH. Matthew Portillo: I wanted to start out on the power opportunity in the Permian. You mentioned the microgrids. That seems like a great opportunity for you all to cut costs moving forward. I was curious if you might be able to provide a little bit more color around the timing of when those microgrids might come into service and how many megawatts you're planning on deploying. Michael Deshazer: Yes, Matt, this is Michael. We currently have some smaller scale microgrids that we inherited with the Franklin Mountain, Avant acquisition. I discussed in the prepared remarks that Eagle's central tank battery has turbines located on it that are powering adjacent leaseholds. So we're already in this business, and we're really just looking for opportunities to expand it. As you know, the Northern Delaware Basin and really the Permian on the New Mexico side has been very constrained for power for some time. And many operators are using small reciprocal engines to generate power on a well site-by-well site basis. And where we see value is when we can connect multiple leases to a single permanent station that's run off turbines, we see a dramatic decrease in that electrical cost. So we're going to continue to expand the current microgrids that we have. And like I mentioned in the remarks, we see opportunities for about 3 expanded microgrids across our asset. Matthew Portillo: Great. And then maybe a follow-up on the Northeast. It sounds like the soft guide as it stands today at strip is for relatively flat volumes around that 2 Bcf a day. I just want to make sure I heard that correctly. But maybe over the medium term, I was hoping you might be able to comment on your updated thoughts around power demand growth regionally for Northeast PA? And then any updated thoughts on maybe some of the longer-haul infrastructure opportunities such as Constitution that had been discussed earlier in the year. Shannon Young: Yes. So I'll start with the second one first, which is Constitution and some of the other projects that are up there. And look, that project historically has originated out of our acreage and heads up towards the Iroquois line about 124, 125 miles. And so were something to happen there, obviously, we would be a logical partner in some regard in that. But frankly, until we have better clarity on the other end of that line in terms of markets and buyers and commitments, that's probably one that is going to remain a little bit challenged. Obviously, there's other projects in that part of the world, [ NeSSIE ], for example, that appear to have a little bit more momentum at this point. And we -- while we wouldn't have the same direct linkage to it, we would expect that we would benefit from development in that area as well. I'm sorry, the first question -- the second question [ is something about ] the first part of... Matthew Portillo: Just around the regional power demand growth opportunity specific to Northeast PA, just how you see that market emerging and what that might mean maybe for the opportunity to add some volumes at some point in the future from a production standpoint? Shannon Young: Yes. That's great. So a lot of activity in PA, a lot of announced activity, that's preliminary, not necessarily all with definitive agreements, but with intention, which is a good first step. I think as well, there's a lot of unannounced activity that is up there right now in terms of dialogues that are going on. I think Michael and Tom sort of alluded to our team and being a part of those conversations. And so we're very excited about the potential up there, and we'll continue to work it hard. Some of these projects, whether we're involved or not, take a long period of time to develop and get announced. For example, again, not in the PA, but in West Texas, those are discussions that we have been in with CPV for the better part of 2 years. And so these are just long lead time discussions and negotiations that are ongoing, and we have a history of involvement in all of our business units, frankly, and I would expect we'll continue to be active in those dialogues. Thomas Jorden: Matt, we have a lot of flexibility in our marketing in the Northeast. We're watching carefully the development of these markets. We've talked about a couple of these pipelines that may offer opportunity for us. But our marketing team has done a really nice job of developing a weighted average sales price through a whole host of different arrangements. As we've discussed, some of that's LNG, some of that's direct power and some of it's direct to industrial users. But what we really look at when we ask ourselves about growth is that incremental molecule against the incremental price. And although we study hard what some of our competitors have done, we just don't see that now is the right time to bring on a lot of incremental volumes on that incremental price. We're going to be patient. We think opportunities will come, and we'll be prepared to strike, and we have the opportunity to grow those volumes, both through increased activity, but through some of our existing commitments that roll off give us more marketing flexibility as we go forward. So we're in a pretty nice position. And we're -- as I said in my opening remarks, we think patience and prudence is the right position right now. Operator: And our next question comes from the line of Kalei Akamine with Bank of America. Kaleinoheaokealaula Akamine: I want to start on the Marcellus. The deal with Cabot closed about 4 years ago, and you've made that position better through your operating efficiencies. So maybe you can start by calling out some key operating wins. And then when you look at the Marcellus landscape, do you think that the application of your best practices could create value through M&A? Blake Sirgo: Yes, Kalei, I'll take that -- the first part. I'll let Shane talk M&A. Really, how we have attacked the Marcellus, it was really fun when we got our hands around the asset because we kind of had a greenfield Upper Marcellus bench to go prosecute. And we had over a decade of developing shale basins in Oklahoma, Texas, New Mexico, and we just brought those same skills to bear. And so one of my favorite maps to look at is the inventory at the time of the acquisition and the inventory now. It is dramatically in lateral length across the asset. We've optimized well spacing to increase productivity. And then we've just attacked the entire cost value chain. When we started that asset 4 years ago, we were still trucking the majority of our frac water. I'm really happy to say we pipe all our frac water now. And we've just been able to crush cost across the board. And so it's really a lot of those best practices Tom talked about earlier. We learn all these things through a lot of grit. And once we learn them, they become institutionalized, and we spread them like wildfire. Kaleinoheaokealaula Akamine: The follow-up question just on Marcellus inventory. I think you guys are still calling out 12 years of drilling in the slide deck. And this year, you're doing about 11 wells. Is the inventory math as simple as [ A times B ]? And would that include any of the delineation work that you guys have done in the... Michael Deshazer: So no, the math isn't just the current 2025 TIL count versus that multiple of years. What we're looking at is our 3-year average for how many wells we've drilled and then using that as the main proxy. We're also converting this into dollars and trying to keep the capital spend that we've had over the last 3 years as the metric. As we drive down costs, we are able to drill more wells in a given period of time and keep that production at a given level, so -- for the same amount of capital. So 2 things that are not as simple as what you described. One is we're looking at 3-year average. Two, we are looking at the capital spend and adjusting for our new go-forward costs. Operator: And our next question comes from the line of Derrick Whitfield with Texas Capital. Derrick Whitfield: With respect to the shareholder letter, Tom, I'd like to go a different direction with it and ask for your perspective on how your PVIs compare across the basins, while we all have inverse incremental assessments, our data quality and look-back assessments are less accurate than yours, particularly on a leading-edge basis. Thomas Jorden: Well, I think we've said publicly that in 2025, the highest PVIs in our portfolio coming from our Marcellus project, and we're very happy to say that. And I just want to kind of reinforce comment Blake made in one of the earlier questions. We have made that project. Our team in Pittsburgh has made that project so much better. We've lowered our costs dramatically. We've gone to longer and longer laterals. And in many cases, that's 4-mile laterals that involve fewer pads, fewer intrusion into the community there. And we're seeing historically high well performance. So very pleased to say that the highest return in our portfolio this year is the Marcellus. Derrick Whitfield: Great. And then maybe for my follow-up, I wanted to focus on gas marketing in the Permian. In light of all the recent pipeline announcements that have achieved FID and the flurry of power announcements we're seeing, how are you guys thinking about managing your Waha exposure? And could this amount of incremental egress lead to favorable in-basin exposure if oil prices remain depressed? Michael Deshazer: This is Michael. I'll take that question. We have struggled in the third quarter with low Waha gas prices. I think everyone sees that. And so the long-haul pipes are important to reduce the basis between Waha and NYMEX. And we're a part of all the conversations with the new pipes that are being announced. So we're looking at opportunities to put some of our gas that we can take in kind on those pipes and provide ourselves not only the flow assurance that we want, but also that increase in price at that NYMEX market. Operator: And our next question comes from the line of Phillip Jungwirth with BMO Capital Markets. Phillip Jungwirth: I wanted to come back to some of the major projects in Culberson this year, the Barba-Row Phase 1 and the Bowler Row, see if you had any updates or takeaways as far as cost efficiencies, early time productivity. I think Barba-Row is expecting second half wells online. And I know it's early, but Bowler starting up in the fourth quarter. Blake Sirgo: Yes, Phillip, this is Blake. I'll take that. Everything is coming on as expected, performing well, contributing [ mightily ] to the oil beat we just announced for Q3. Those projects are ramping up throughout the year. And we continue to enjoy the wonderful cost efficiencies in Culberson County, all the things we've highlighted in many previous decks. It is still the crown jewel of capital efficiency. So performing very well. Phillip Jungwirth: Okay. Great. And then we always think of Coterra's kind of cutting edge, willing to implement new technologies. Curious if you've looked at lightweight proppant, something -- is this something you'd consider implementing within your Delaware development? I understand you won't be producing this in your own refineries, but using it more -- buying it more through third parties. Michael Deshazer: Yes. We have a trial ongoing, as a matter of fact, on new lightweight proppant. So we don't have any results to share today, but that's a technology that we're investigating, and we have a lot of hope to see improved productivity as other operators have discussed. Operator: And that concludes our Q&A session. So I will now turn the call back over to Tom Jorden for closing remarks. Tom? Thomas Jorden: Yes. I just want to again thank everybody for joining us. We had a great quarter. We've got a bright future, and we really intend to demonstrate the marketplace that the Coterra model is resilient through the commodity price swings, and we're going to continue to deliver excellence as I hope we're known for. So thank you all very much. Operator: Thanks, Tom. And this concludes today's conference call. You may now disconnect. Have a great day, everyone.
Operator: Greetings, and welcome to the Rigel Pharmaceuticals Financial Conference Call for the Third Quarter 2025. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce our first speaker, Ray Furey, Rigel's Executive Vice President, General Counsel and Corporate Secretary. Thank you, Mr. Furey, you may begin. Raymond Furey: Welcome to our third quarter 2025 financial results and business update conference call. The financial press release for the third quarter of 2025 was issued a short while ago and can be viewed along with the slides for this presentation in the News and Events section of our Investor Relations site on rigel.com. As a reminder, during today's call, we may make forward-looking statements regarding our financial outlook and our plans and timing for regulatory and product development. These statements are subject to risks and uncertainties that may cause actual results to differ from those forecasted. A description of these risks can be found in our most recent annual report on Form 10-K for the year ended December 31, 2024, and subsequent filings with the SEC, including our Q3 quarterly report on Form 10-Q on file with the SEC. Any forward-looking statements are made only as of today's date, and we undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances. At this time, I'd like to turn the call over to our President and CEO, Raul Rodriguez. Raul? Raul Rodriguez: Thank you, Ray, and thank you all for joining us today. Also with me today are Dave Santos, our Chief Commercial Officer; Lisa Rojkjaer, our Chief Medical Officer; and Dean Schorno, our Chief Financial Officer. On today's call, I will provide an overview of Rigel's business, along with our accomplishments and financial results for the third quarter of 2025. Starting on Slide 4, you will see an outline of Rigel's corporate strategy. Our strategic objectives are to grow our hematology and oncology business through commercial performance, pipeline expansion, coupled with financial discipline. Our continued execution of this strategy has led to another outstanding quarter for Rigel. For the third quarter, we reported total revenue of $69.5 million, including record net product sales of $64.1 million, a 65% year-over-year increase. Later in the call, Dave will provide more detailed information on our commercial performance for this quarter. Moving to our development pipeline. We continue to fund and advance our programs during the quarter. This includes our ongoing Phase Ib study of R289, Rigel's potent and selective dual IRAK1 and IRAK4 inhibitor that is being studied in patients with relapsed or refractory lower-risk MDS. We have completed enrollment of the dose escalation phase of the study, and we will present data from this phase in an oral presentation at the ASH Annual Meeting in December. In addition, we recently announced the first patient was enrolled in the dose expansion phase of the study, where we will compare 2 doses of R289 to determine the recommended dose for future registrational and other clinical studies. Moving on to olutasidenib. We will have 4 posters with data in patients with mutant IDH1 AML at the ASH meeting, supporting the use of olutasidenib in a range of difficult-to-treat mutant IDH1 AML patient populations. We continue to evaluate olutasidenib in other areas where IDH1 plays a role through various strategic collaborations. A fifth study with MD Anderson opened for enrollment in September. And in October, the first patient enrolled in the CONNECT Phase II TarGeT-D study, evaluating olutasidenib in patients with high-grade glioma. In addition, we are planning a collaboration with MyeloMATCH to evaluate olutasidenib in first-line AML and MDS. Lisa will provide the latest updates on our development pipeline later in the call. In terms of Rigel's own study in glioma, we are continuing to evaluate our options. Along with our commercial and development execution, we continue to pursue additional in-licensing deals or asset acquisitions that are synergistic with our capabilities, strategy and focus, allowing us to add additional avenues to achieve significant growth. Underpinning all our efforts is a continued emphasis on financial discipline, which allowed us to generate $27.9 million of net income in the third quarter and to increase our cash balance to $137.1 million. Now on to Slide 5, which illustrates the growth of our net product sales year-over-year. We have consistently delivered strong top line growth. We are accelerating this trend in 2025, already having generated $166.6 million in net product sales year-to-date, already surpassing net product sales for all of 2024. As a result of our outstanding commercial performance year-to-date, we are raising our 2025 revenue guidance. We now expect total revenue of $285 million to $290 million, an increase from the prior range of $270 million to $280 million. Our new guidance includes net product sales of $225 million to $230 million. This new 2025 outlook reflects anticipated growth of 55% to 59% compared to 2024, exceeding the growth rate that we have delivered over the last 4 years. Rigel has made tremendous progress in our unique approach that combines strong commercial execution, adding additional products through in-license or acquisition and financial discipline, all resulting in our ability to fund a potentially transformative internal development pipeline. We continue to focus on executing on our strategy to achieve significant long-term growth. Now with that, I will turn the call to Dave to discuss our commercial business in more detail. Dave? David Santos: Thank you, Raul. On Slide 7, you'll see our 3 commercial products, TAVALISSE, GAVRETO and REZLIDHIA. Moving to Slide 8. We are thrilled to report another excellent quarter from our commercial portfolio, marked by strong year-over-year growth and an all-time high in revenues in the third quarter of 2025. The slide shows how our quarterly and annual net product sales have increased since 2021. We've grown each quarter's sales over the previous year, and that growth continues. In the third quarter of 2024, we reported $38.9 million. And now for the third quarter of 2025, we generated a record $64.1 million, an increase of 65%. Our third quarter commercial portfolio net sales reflect increased demand through carryover from both improved patient affordability that we started to experience earlier in the year and new patients, which was also augmented by favorable gross to net dynamics. As Raul mentioned, our year-to-date 2025 revenue has surpassed our 2024 full year revenue. And on a trailing 12-month basis, we've exceeded $200 million in net product sales, illustrating that our focus on growing our commercial portfolio is being executed in line with our strategy, a remarkable achievement by the team. Our commercial team has been dedicated to execution and driving momentum for our commercial portfolio, and I thank them for their continued efforts. Slide 9 shows a summary of our commercial performance by product. First on TAVALISSE, the cornerstone of our business, I'm pleased to report a record quarter in which we generated $44.7 million in net product sales, an increase of 70% compared to the third quarter of 2024. This growth was driven by increased demand and favorable gross to net dynamics. For GAVRETO, we delivered $11.1 million in net product sales in Q3, an increase of 56% compared to the third quarter of 2024, the first full quarter GAVRETO was commercially available from Rigel. The year-over-year growth was driven by an increase in new patients and carryover demand. GAVRETO is now a stable business that is consistently generating more than $11 million per quarter. And lastly, for REZLIDHIA, we reported $8.3 million in net product sales, an increase of 50% compared to the prior year period, reflecting record demand. During the quarter, we saw an increase in both breadth and depth of prescribers. We continue to believe there is a significant opportunity for growth because our data in the post-venetoclax patient population is a clear differentiator. Moving to Slide 10. We continue to work on expanding access to our products in markets outside the U.S. TAVALISSE is commercially available in Japan, in Europe under the brand name TAVLESSE, and in Canada and Israel via partners, Kissei, Grifols and Medison. In addition, Kissei’s licensing partner, JW Pharmaceutical Corporation, launched TAVALISSE in South Korea in early July as our partners continue to pursue regulatory approvals for TAVALISSE in new markets. For REZLIDHIA, in 2024, we expanded our relationship with Kissei to include several countries in Asia for all potential indications, and we entered into an exclusive license agreement with Dr. Reddy's for all potential indications throughout Dr. Reddy's territory. We are pleased that access to our products is expanding outside the U.S., and we continue to explore other opportunities for partnerships to bring our products to other markets around the globe. I'll now pass the call over to Lisa to provide an update on our development pipeline. Lisa? Lisa Rojkjaer: Thanks, Dave. I will now provide an overview of our pipeline progress and plans for the remainder of the year. I'm on Slide 12. Our hematology and oncology pipeline strategy is focused on the clinical development of R289, our potent and selective dual IRAK1 and IRAK4 inhibitor in lower-risk myelodysplastic syndrome, or MDS, and the expansion of olutasidenib beyond relapsed or refractory IDH1 mutated AML. Beginning with R289, our Phase Ib study in patients with relapsed or refractory lower-risk MDS is progressing well. Yesterday, we announced that we'll be providing updated data from the dose escalation portion of the R289 study in an oral presentation at the upcoming ASH Annual Meeting. I'll provide an update on the study shortly. As Raul mentioned, we're proud of our strategic collaborations to advance olutasidenib into additional therapeutic areas. With MD Anderson, olutasidenib is now being evaluated in 5 clinical studies in IDH1 mutation-positive AML and MDS and this maintenance therapy in IDH1 mutation-positive glioma by the CONNECT Cancer Consortium. We're also partnering with MyeloMATCH for a planned study in first-line AML and MDS. We're also considering additional Rigel-led studies, and we'll provide further updates on that as we have them. Rigel also remains focused on evaluating potential acquisition and in-licensing opportunities that strategically fit our hematology and oncology portfolio and infrastructure. We're focused on evaluating differentiated late-stage assets in hematology, oncology or related areas that are synergistic with our existing commercial portfolio. Now, we will spend a few moments on R289, our novel dual IRAK1 and IRAK4 inhibitor. First, on Slide 14, I'd like to talk about the treatment landscape for lower-risk MDS. MDS is a clonal disorder of hematopoietic stem cells leading to dysplasia and ineffective hematopoiesis. The main consequences for patients are anemia and transfusion dependence, which adversely impact their quality of life. In addition, infections, iron overload from transfusions and subsequent organ dysfunction all negatively impact the patient. Therapies used in the upfront setting include erythropoiesis-stimulating agents, or ESAs, if patients are eligible or luspatercept. Luspatercept and more recently, imetelstat are also approved for ESA failure transfusion-dependent lower-risk MDS patients. Finally, hypomethylating agents or HMAs are also approved. However, the percentage of patients achieving transfusion independence is low. With 8-week transfusion independence rates approaching 40% with luspatercept and imetelstat, there is still a need for safe, effective therapies for transfusion-dependent lower-risk MDS patients that are relapsed, refractory to or ineligible for ESAs. Now I'll shift focus to the R289 program. On Slide 15, you can see the value proposition of R289 in lower-risk MDS. There are about 12,000 previously treated lower-risk MDS patients in the U.S. As mentioned on the previous slide, there's a high unmet need for therapies in this disease area, particularly for transfusion-dependent patients. Dysregulation of inflammatory signaling is key to the pathogenesis of lower-risk MDS and IRAK1 and 4 mediate this process. Blocking both IRAK1 and 4 may suppress marrow inflammation and leukemic stem and progenitor cell function and restore normal hematopoiesis. R835, the active moiety of R289, blocks toll-like receptor and IL-1 receptor signaling in vitro and was active in various preclinical models of inflammation. Clinical proof of concept of this anti-inflammatory effect came from a healthy volunteer study in which R835 markedly suppressed LPS-induced cytokine release compared to placebo. As a reminder, R289, which is currently being evaluated in the clinic, is the oral prodrug that is rapidly converted to R835 in the gut. From the FDA, R289 has Fast Track designation for the treatment of patients with previously treated transfusion-dependent lower-risk MDS and orphan drug designation for MDS, giving the molecule an expedited regulatory pathway, potential priority review and 7 years of market exclusivity upon approval. Both of these designations underscore the agency's interest in this rare disease, the unmet need of the patient population and the FDA's willingness to collaborate with Rigel in the development of R289. In addition, R289 has thus far demonstrated a promising clinical profile in our Phase Ib study. At ASH in 2024, we presented promising preliminary safety and efficacy data from the Phase Ib study in elderly heavily pretreated patients. And we look forward to sharing updated data from the dose escalation part of the study soon in an oral presentation at this year's ASH meeting. On Slide 16, you'll see the design of our multicenter open-label Phase Ib study in patients with relapsed/refractory lower-risk MDS that are either transfusion-dependent or have symptomatic anemia. The study aims to evaluate the safety, PK and preliminary activity of R289 in this patient population as well as select a dose for future studies. We completed enrollment in the dose escalation part of the study in July, and the first patient in the dose expansion phase was enrolled last month. In this part of the study, up to 40 transfusion-dependent relapsed/refractory lower-risk MDS patients will be randomized to receive R289 doses of either 500 milligrams once or twice daily in order to select the recommended Phase II dose for future clinical studies. Once this occurs, we will evaluate R289 in a cohort of less heavily pretreated patients who are relapsed/refractory to or ineligible for ESAs. We anticipate that we will have sufficient data to make a decision on the recommended Phase II dose in the second half of next year, after which we would plan to have a follow-up discussion with the FDA about a potential pivotal study design. For now, updated dose escalation data using an October 28 data cutoff date will be shared in an oral presentation at the ASH meeting on Sunday, December 7. We're very pleased with the progress we've made this year with our R289 clinical program. Now, I'll transition to our strategic collaborations to evaluate olutasidenib in other cancers harboring IDH1 mutations. On Slide 18, we summarize our strategic alliance with the MD Anderson Cancer Center to advance olutasidenib more broadly into AML, MDS and beyond. A fifth study under the strategic alliance opened for enrollment in September. This study will evaluate olutasidenib in combination with co-targeted therapies in patients with relapsed/refractory IDH1 mutated myeloid malignancies harboring activated signaling pathway mutations. Enrollment also continues in the other 4 studies. On Slide 19, we're also proud of our collaboration with CONNECT, a global pediatric Neuro-Oncology Consortium, which is evaluating olutasidenib in adolescents and young adults with high-grade glioma, an area of high unmet medical need. In CONNECT’s TarGeT trial, a molecularly guided Phase II umbrella clinical trial for high-grade glioma, the Rigel-sponsored arm of the study, TarGeT-D, will evaluate a post-radiotherapy maintenance regimen of olutasidenib in combination with temozolomide, followed by olutasidenib monotherapy in newly diagnosed patients between 12 and 39 years of age with IDH mutation positive high-grade glioma. I'm pleased to report that this study enrolled its first patient in October. We, along with CONNECT, are excited about olutasidenib's potential to provide a much needed new treatment option to this underserved patient population. On Slide 20, I want to share with you our new partnership with MyeloMATCH, which will also evaluate olutasidenib in IDH1 mutated AML and MDS. MyeloMATCH is a group of precision medicine clinical trials for patients with MDS or AML led by the NIH and National Cancer Institute. This initiative is very compelling. Patients with newly diagnosed MDS or AML will go through an initial screening process before being assigned to a clinical trial evaluating targeted therapy for their specific disease mutational profile. Based on the promising data for olutasidenib in relapsed/refractory IDH1 mutated AML, the NCI was interested in studying olutasidenib in combination with other agents in patients with newly diagnosed IDH1 mutated AML and MDS. We're pleased to be participating in this important program and look forward to providing you with updates as the trial advances. Before I wrap up my remarks, I'd like to highlight Rigel's presentations at the upcoming ASH Annual Meeting in December, which you can see on Slide 21. For R289, we're pleased to share updated data from the dose escalation part of our Phase Ib study in lower-risk MDS. In the abstract published yesterday with data as of July 15, you'll see R289 continues to be generally well tolerated in a heavily pretreated patient population, the majority of whom were high transfusion burden at baseline. Preliminary signs of efficacy were observed with R289 doses of at least 500 milligrams once daily and higher. At the meeting, there will be an oral presentation of updated data using an October 28 data cut on Sunday, December 7. Additionally, 4 poster presentations for olutasidenib in patients with IDH1 mutated AML are planned. These presentations contribute to the growing body of data supporting the use of olutasidenib in patients with relapsed or refractory IDH1 mutated AML, including those who have previously been treated with a venetoclax-based regimen. Now, I'll pass the call to Dean to discuss our partnered program with Eli Lilly and our financial results for the quarter. Dean? Dean Schorno: Thank you, Lisa. I'm on Slide 23. I'd like to provide a brief update on our collaboration with Lilly. Ocadusertib, the non-CNS penetrant RIPK1 inhibitor, previously referred to as R552, is currently being studied in an adaptive Phase IIa/IIb clinical trial in up to 380 patients with active moderate to severe rheumatoid arthritis. Enrollment in the Phase IIa study is ongoing. As most of you know, we also have a CNS penetrant program with Lilly, whereby Lilly was considering for preclinical development, a variety of RIPK1 inhibitor candidates pass the blood-brain barrier. In October, Lilly notified us that it will terminate the CNS disease program, which will become effective after 60 days. We continue to be very excited about our collaboration with Lilly as they are an ideal partner to explore the key role the RIPK1 inhibitors play in TNF signaling and pro-inflammatory necroptosis, which could support broad potential in RA, psoriasis and IBD. We also note that we are entitled to receive milestones and tiered royalty payments on future net sales of ocadusertib. Moving on to Slide 25. We reported net product sales of $64.1 million for the third quarter, a growth of 65% year-over-year, including TAVALISSE net product sales of $44.7 million, a growth of 70% year-over-year. GAVRETO net product sales of $11.1 million, a growth of 56% year-over-year. Lastly, we reported REZLIDHIA net product sales of $8.3 million, a growth of 50% year-over-year. Our net product sales were recorded net of estimated discounts, chargebacks, rebates, returns, co-pay assistance and other allowances of $21.6 million. We also reported $5.4 million in contract revenues from our collaborations for the third quarter. primarily consisting of $3.1 million of revenue from Grifols, $1.8 million of revenue from Kissei and $200,000 of revenue from Medison related to delivery of drug supplies and earned royalties. This brings our total revenue for the third quarter to $69.5 million. Moving to the next Slide 26. Our cost of product sales was approximately $4.8 million for the third quarter of 2025. Total cost and expenses were $41 million compared to $41.3 million for the same period of 2024. The decrease in costs and expenses was mainly due to lower cost of product sales as the prior period included a sublicensing fee, partially offset by increased research and development costs driven by the timing of clinical activities related to olutasidenib and R289 and higher personnel-related costs. We reported net income of $27.9 million for the third quarter compared to $12.4 million for the same period of 2024. We ended the third quarter with cash, cash equivalents and short-term investments of $137.1 million compared to $77.3 million as of the end of 2024. Now for our financial outlook for 2025. Based on our strong performance to date, we're raising our total revenue guidance to approximately $285 million to $290 million, an increase from the prior range of $270 million to $280 million. This includes updated net product sales expectations of approximately $225 million to $230 million, an increase from the prior range of $210 million to $220 million, and contract revenues from collaborations of approximately $60 million. We continue to anticipate reporting positive net income for the full year 2025 while funding existing and new clinical development opportunities. With that, I'd like to turn the call back over to Raul. Raul? Raul Rodriguez: Thank you, Dean. Moving on to Slide 27. Our 2025 results year-to-date are a culmination of the successful execution of the corporate strategy that we put in place several years ago, one aspect of which is to grow our commercial business. As you can see, we've reported strong year-to-date sales and the results -- because of this strong performance, we have raised our net product sales expectation for 2025 and now expect to generate growth of 55% to 59% year-over-year as compared to the 32% average growth that we have seen over the last 4 years. Moving on to Slide 28. For the remainder of 2025, we will continue our focus on driving our corporate strategy. We aim to increase sales of our commercial products and deliver on our updated revenue and profit guidance and also allowing -- and so allowing us to fund key development programs in our internal pipeline, and we are advancing these development programs. Enrollment in our dose escalation phase of our Phase Ib study of R289 in patients with lower-risk MDS is complete, and we look forward to presenting updated data at the -- of that study at the ASH meeting in December. Enrollment in the dose expansion phase of the study is now ongoing. For olutasidenib, our strategic collaborations are advancing with enrollment of the 5 MD Anderson studies and the CONNECT studies all ongoing. We continue to support the advancement of these strategic collaborations while working on the initiation of a new study with MyeloMATCH. And we're evaluating our options for a Rigel-led study in glioma. As we've done in the past, we are also evaluating new in-licensing and product acquisition opportunities to expand our product portfolio with synergistic late-stage assets, which could be funded through a combination of internal and external funds. In closing, Rigel has continued to demonstrate the strength of our business in the third quarter of 2025, and we aim to finish the year with a strong fourth quarter, supported by sustained financial discipline. I also want to reiterate our proven strategy has built Rigel into a profitable, growing, sustainable business that is well positioned for growth as we head into 2026. So with that, I'd like to thank you for your interest, and we will now open the call to your questions. Operator? Operator: [Operator Instructions] Our first question today is coming from Yigal Nochomovitz from Citigroup. Unknown Analyst: This is [ Caroline ] on for Yigal. We were wondering how you see the competitive positioning of R289 in lower-risk MDS versus RYTELO. And maybe it's too early to say, but for the potential registrational study, would you do something similar to RYTELO's placebo-controlled study? And would you exclude patients who received RYTELO from your study? Raul Rodriguez: I'll let Lisa to comment. I also have a comment on that. Lisa Rojkjaer: Yes. I think that it might be a little bit too early. Thanks for the question, Caroline. Really good question. I think it might be a little early to speculate on that one. I mean we're -- first of all, now we're in a different patient population than imetelstat was. We're in patients that are much more heavily pretreated and have received HMAs. You'll recall that the patients in the Phase III randomized study for RYTELO had not received prior HMAs. So I would say that we're very pleased with the preliminary activity and safety profile that we're seeing thus far. It's definitely a bit too early to talk about our plans for a registration study, but we will -- I think our plan will be to get through dose expansion, fix the dose. As I mentioned, we will also then be opening a cohort of less heavily pretreated patients that are more akin to the recent luspatercept and imetelstat studies. So we'll have a look at the activity there, and then we'll decide on what our next plans will be. Raul Rodriguez: Suffice it to say, we think that there's a broad range of opportunities for this product in lower-risk MDS after ESAs. And even after ESAs is an area where, as you may have seen in the slide, we tend to explore a bit more once we know the dose because that opens up an even larger opportunity set. So it's exciting to have that range of opportunity with this product, including before and after luspatercept potentially. Operator: Next question today is coming from Joe Pantginis from H.C. Wainwright. Joseph Pantginis: Great to see the launches continuing to be strong. So 2 questions first. So for 289, you mentioned the potential for looking at priority review. So I want to get maybe some profile views out of you guys with regard to maybe the level of data that you feel might be needed, the parameters for the profile of the drug, say, the importance for reducing transfusions. So I wanted to get your views there. Lisa Rojkjaer: Yes. I think I'll take that. Thanks for the question, Joe. I think that given that we have the Fast Track designation, that really opens up potential for priority review, and that kind of underpins the comment there. So again, I think that we're going to have to see how the data continues to evolve in the dose expansion part of the study. Joseph Pantginis: Got it. And then just quickly, this is a very important unmet medical need with oluta for the CONNECT study in glioma. Would you be able to provide some of the benchmarks we'd be looking to be with IDH1 mutations in this patient population? Lisa Rojkjaer: Well, I think that's an interesting question as well. As far as I'm aware, this is a novel approach to taking patients that are post-chemo radiation, and this is more of a maintenance approach. So combined with temozolomide for 12 months initially followed by maintenance therapy. And there will be -- the comparison is versus a historical control. So I don't think there's specific data for -- in this maintenance setting. Joseph Pantginis: So that's helpful in the sense that there might be a -- or considering a low bar of success there. So I appreciate the comments. Operator: [Operator Instructions] Our next question is coming from Farzin Haque from Jefferies. Mohamad Amin Makarem: This is Amin on for Farzin. A couple of questions from us. First, you mentioned improvements in Q3 gross to net. What was the rate by brand and the expected Q1 and Q4 rates, especially for oral products under the Medicaid Part D redesign that has been improving access and affordability. And I have a follow-up. Raul Rodriguez: Yes. I can start and then Dave can layer on top of this. We haven't provided specific guidance with respect to product by product or gross to net. We have said that we've had favorable gross to net dynamics with the patient, patient affordability. And therefore, as we think about our gross to net, there's a variety of factors that factor into it. We've got the mix, the type of patient and payer. We've got the different legislation like the IRA. And so all of those factor into the overall gross to net. It's been favorable the last several quarters now, and that's the level of detail we've given and again, not product by product. I don't know, Dave, do you have anything? David Santos: Yes. The only thing I would add is that our gross to net has a number of different factors like Dean said. But one of the things that we try to do is provide access to patients through patient services. And of course, we want to distribute our products to patients. And we have made significant strides in improving the efficiency of our -- both our patient services and distribution network, and that has also helped to improve our gross to net, which I think goes to what Raul is saying is our strategy is grow our sales and improve our efficiency, and that's exactly what we're doing. So I think all of these things are adding up to just a marvelous year for us. Mohamad Amin Makarem: Okay. Great. Helpful. And how are you setting expectations for the updated data at ASH for R289 in lower-risk MDS patients? How much data beyond the abstract do you plan to present? Lisa Rojkjaer: Yes, I can take that one. Thanks for the question. So we're going to be -- with the October 28 data cutoff date that I mentioned, we will have 16 weeks of follow-up on all of the patients. So all of the patients -- that includes all the patients in the 500-milligram BID dose level. So that's all I'm going to say on that one. Yes. Raul Rodriguez: So really, it's a good data set with that final dose group, having data from that final dose group, which we're eager to share. Operator: We reached the end of our question-and-answer session. I'd like to turn the call back over to Mr. Raul Rodriguez for any further closing comments. Raul Rodriguez: Well, thank you. I appreciate your questions. And thank you, everyone, for joining us on the call today and your continued interest in Rigel. So far, 2025 has been a tremendous year for both our commercial portfolio and advancing our development pipeline. And we look forward to sharing that data at the ASH meeting that we mentioned on R289 in December. To our employees, I'd like to thank you for your continued dedication to the company. It is through your innovation, integrity and your commitment to patients that we've reached this successful place. So I look forward to updating you on our future progress and all have a good afternoon, evening. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
Operator: " Raul Vazquez: " Dorian Hare: " Paul Appleton: " Brendan Michael McCarthy: " Sidoti & Company, LLC John Hecht: " Jefferies LLC, Research Division Richard Shane: " JPMorgan Chase & Co, Research Division Operator: Greetings, and welcome to the Oportun Financial Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dorian Hair of Investor Relations. Thank you. You may begin. Dorian Hare: Thanks, and hello, everyone. With me to discuss Oportun's third quarter 2025 results are Raul Vazquez, Chief Executive Officer; and Paul Appleton, our Treasurer, Head of Capital Markets and Interim Chief Financial Officer. I'll remind everyone on the call or webcast that some of the remarks made today will include forward-looking statements related to our business, future results of operations and financial position, included projections, adjusted ROE attainment and expected originations growth, planned products and services, business strategy, expense savings measures and plans and objectives of management for future operations. Actual results may differ materially from those contemplated or implied by these forward-looking statements, and we caution you not to place undue reliance on these forward-looking statements. A more detailed discussion of the risk factors that could cause these results to differ materially are set forth in our earnings press release and in our filings with the Securities and Exchange Commission under the caption Risk Factors, including our upcoming Form 10-Q filing for the quarter ending September 30, 2025. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events other than as required by law. Also on today's call, we will present both GAAP and non-GAAP financial measures, which we believe can be useful measures for the period-to-period comparisons of our core business and which will provide useful information to investors regarding our future financial condition and results of operations. A full list of definitions can be found in our earnings materials available at the Investor Relations section on our website. Non-GAAP financial measures are presented in addition to and not as a substitute for financial measures calculated in accordance with GAAP. A reconciliation of non-GAAP to GAAP financial measures is included in our earnings press release, our third quarter 2025 financial supplement and the appendix section of the third quarter 2025 earnings presentation, all of which are available at the Investor Relations section of our website at investor.oportun.com. In addition, this call is being webcast and an archived version will be available after the call, along with a copy of our prepared remarks. With that, I will now turn the call over to Raul. Raul Vazquez: Thanks, Dorian, and good afternoon, everyone. Thank you for joining us. Our third quarter results were strong, marking our fourth consecutive quarter of GAAP profitability. We met or exceeded all of our guidance metrics, reflecting continued operational discipline and strong execution across the business. The 4 key headlines from the quarter are: continued GAAP profitability, improved credit performance, ongoing expense discipline and an enhanced capital structure. Let's start with profitability. We were GAAP profitable once again in Q3 with net income of $5.2 million, reflecting $35 million of year-over-year improvement. Our ROE was 5%, up 40 percentage points year-over-year. We achieved these results through continued disciplined expense management, improved credit performance and growth in originations. Based on our performance through the first 3 quarters, we remain confident that we'll deliver on our promise of full year 2025 GAAP profitability as we committed to at the start of the year. This includes our expectation to be GAAP profitable in the fourth quarter. Turning to credit performance. Our annualized net charge-off rate was 11.8%, a modest improvement from 11.9% in the prior year period. Our 30-plus day delinquency rate also improved year-over-year by 44 basis points to 4.7%. On the expense side, we reported $91 million in operating expenses, down 11% year-over-year. That represents our second lowest quarterly expense level since becoming a public company in 2019 and our lowest ever on an adjusted basis. Thanks to our planned reduction of second half 2025 marketing and other expenses, we now expect full year 2025 GAAP operating expenses of approximately $370 million, a $10 million improvement from our prior outlook and a $40 million improvement from 2024. Finally, we took meaningful steps during and after the quarter to further strengthen our capital structure. We executed ABS financings at weighted average yields below 6% in August and October and proactively repaid higher cost corporate debt. Additionally, we expanded our warehouse financing capacity in October by adding a new facility and modifying an existing one, extending average maturity and reducing our average cost of capital. Our debt-to-equity ratio was 7.1x at the end of Q3, down significantly from the 8.7x peak level in the prior year quarter, and we remain on track toward our target of 6x. With our Q3 highlights covered, I'll now review how we're executing against our 3 strategic priorities. improving credit outcomes, strengthening business economics and identifying high-quality originations. Starting with credit outcomes. On our last earnings call, we shared that the first half of the year saw a higher mix of new members than expected and that we were recalibrating originations more toward returning members. Our efforts were effective. 70% of Q3 originations went to returning members, up from 64% in the first half. Although our third quarter 30-plus day delinquency rate of 4.7% came down by 44 basis points year-over-year, it was at the higher end of our internal expectations. Observing this trend, we took additional credit tightening actions during the quarter, which are ongoing. This included leveraging a new early default model to enhance predictiveness in using our bank transaction model to lower loan amounts and enact hard declines where needed. While these actions help protect portfolio quality, they led to slightly lower originations in Q3, and we expect continued impact in Q4 origination levels. Accordingly, we now expect full year 2025 originations growth in the high single-digits percentage range, slightly down from our prior expectation for growth of approximately 10%. Turning to business economics. We continue to make strong progress on efficiency and operating leverage. Our risk-adjusted net interest margin ratio improved 231 basis points year-over-year to 16.4% -- as a reminder, that metric includes portfolio yield, net charge-offs, cost of capital and loan-related fair value impacts. Our adjusted OpEx ratio improved 133 basis points year-over-year to 12.6% of our own portfolio. That's a new record for cost efficiency and within 8 basis points of our 12.5% target. Together, these improvements drove strong operating leverage, lifting ROE by 40 percentage points year-over-year and sharply increasing adjusted EPS from $0.02 to $0.39. Finally, on identifying high-quality originations, even as we maintain a conservative credit posture, we grew originations by focusing on members with higher free cash flow and on channels that deliver the strongest results. Q3 originations were $512 million, up 7% year-over-year, marking our fourth consecutive quarter of growth under a disciplined credit approach. Our referral program continues to perform well, driving 25% growth in referral-based originations to $31 million in the quarter. And expanding our secured personal loans portfolio remains a key pillar of our responsible growth strategy. SPL originations increased 22% year-over-year, and our secured portfolio grew 48% year-over-year to $209 million, now 8% of our own portfolio, up from 5% a year ago. Through the first three quarters of this year, secured personal loan losses have run over 500 basis points lower compared to unsecured personal loans. Altogether, these actions reflect our commitment to balancing growth, credit quality and efficiency, an approach that's driving consistent improvement in Oportun's profitability and overall momentum. With that, I'd like to now preview our updated 2025 outlook. We continue to closely monitor key indicators such as inflation, unemployment, fuel prices and evolving government policies alongside our internal performance metrics. Our members have remained remarkably resilient despite ongoing macro uncertainty and our third quarter results reflect that resilience. With that being the case, our 30-plus day delinquency rate did come in at the high end of our internal expectations, as I mentioned earlier. While we tighten credit accordingly, we do anticipate these trends to result in a slight increase at the midpoint of our full year 2025 annualized net charge-off rate by 20 basis points to 12.1%, reflecting approximately $5 million in higher anticipated losses. This includes a 12.45% annualized net charge-off rate expectation at the midpoint of our guidance for the fourth quarter. We expect this elevated loss rate to be temporary, impacting early 2026 before easing by next year's second quarter as recent tightening actions take hold. Finally, we've raised our full year adjusted EPS guidance to a range of $1.30 to $1.40 per share, up 4% at the midpoint, reflecting strong year-over-year growth of 81% to 94% -- this increase is driven by continued expense discipline and a lower cost of capital, which together strengthen our profitability outlook for 2025. Oportun itself has become far more resilient with sustained GAAP profitability, improved operating efficiency and a clear path toward our 20% to 28% target ROEs. Looking ahead to 2026, we plan to stay focused on our 3 strategic priorities, which gives us confidence that we'll continue to grow adjusted EPS next year. With that, I will turn it over to Paul for additional details on our financial and credit performance as well as our guidance. Paul Appleton: Thanks, Raul, and good afternoon, everyone. Turning to Slide 5. We delivered a strong third quarter, coming in $2 million or 6% above the top end of our adjusted EBITDA guidance, driven by lower operating expense and lower interest expense. In addition, we met guidance for total revenue and net charge-offs and delivered another quarter of strong GAAP and adjusted EPS performance. Turning now to Slide 6. We continued our momentum with our fourth consecutive quarter of GAAP profitability, generating $5.2 million in net income and diluted EPS of $0.11 per share. This marks our seventh straight quarter of adjusted profitability with adjusted net income of $19 million and adjusted EPS of $0.39 per share. While maintaining credit discipline, originations of $512 million were up 7% year-over-year, slightly below our prior expectations due to the credit tightening actions Raul mentioned a moment ago. Total revenue of $239 million declined by $11 million or 5% year-over-year. This decline was primarily due to the absence of $9 million of credit card revenue in the prior year quarter. As a reminder, we completed the sale of our credit card portfolio in November of last year, a transaction that has been accretive to our bottom line. Net decrease in fair value was $77 million this quarter, primarily due to $80 million in net charge-offs, which declined 3% from the prior year quarter. In addition, sustained lower ABS funding costs drove a favorable $7 million mark-to-market adjustment on our portfolio. Third quarter interest expense was $57 million, up $1 million year-over-year as sub -3% pandemic era ABS issuances continue to pay down. However, cost of debt was lower sequentially, decreasing from 8.6% in the second quarter to 8.1% in the third quarter, closely aligning with our 8% unit economics target. This improvement reflects the positive impact of recent lower cost ABS issuance, the refinancing of higher cost ABS debt as well as the repayment of corporate debt, which I'll cover more in detail shortly. Net revenue was $105 million, up 68% year-over-year, driven by improved fair value marks and lower net charge-offs more than offsetting lower total revenue. Operating expenses were $91 million, down 11% from the prior year, reflecting our ongoing cost discipline. Year-to-date, we've reduced operating expenses by $43 million. As Raul mentioned, with additional cost-saving measures identified, we now expect full year 2025 operating expenses to be approximately $370 million, including approximately $92 million in the fourth quarter for a 10% full year reduction from 2024. Adjusted EBITDA, which excludes the impact of fair value mark-to-market adjustments on our loan portfolio and notes was $41 million in the third quarter. This reflected a year-over-year increase of $10 million, driven by cost reductions and credit performance improvement. Adjusted net income was $19 million, up $8 million year-over-year, driven by our reduced operating expenses along with improved credit performance. Adjusted EPS increased sharply year-over-year from $0.02 per share to $0.39 per share, while our adjusted ROE improved 19 percentage points to 20%, which I will discuss further when I review our unit economics progress. GAAP income before taxes of $14 million increased $54 million year-over-year. This was our highest level of pretax income since the first quarter of 2022. I'll note that while our GAAP net income of $5 million increased sharply by $35 million, it was approximately half of what it would have been due to a $5 million unfavorable revision to tax expense from an annual R&D tax credit study. The revision primarily drove our effective tax rate up to 64% compared with 24% in the prior year period. Despite the higher rate, diluted EPS of $0.11 per share also impacted by the tax revision still increased by $0.86 per share year-over-year. Next, I'd like to provide some additional color on our credit performance in Q3. Our front book of loans originated since July 2022 continues to perform quite well, while our back book of pre-July 2022 loans continues to roll off. As you can see on Slide 7, our more recent credit vintages have generally outperformed their predecessors. And as a result, the losses on our front book 12 months after disbursement are now running approximately 700 basis points or more lower than our back book. Furthermore, you can see our annualized net charge-off rate for the quarter by front book versus back book on Slide 8. In Q3, the front book had an annualized net charge-off rate of 11.7%, near the 9% to 11% net charge-off range that we target in our unit economics model. The back book continues to decline, representing just 2% of the loan portfolio at quarter end, but accounting for 7% of gross charge-offs. We still expect the back book to further diminish to just 1% of our portfolio by the end of 2025. Finally, as you can see on Slide 9, our net charge-off rate was 11.8% in the third quarter, which was 7 basis points better than last year's rate. Our Q3 net charge-off dollars declined by 3% year-over-year. While we reduced our 30-plus day delinquency rate year-over-year for the seventh consecutive quarter, it was at the higher end of our internal expectations, as Raul talked about. Turning now to capital and liquidity. As shown on Slide 11, we've taken significant recent steps to enhance our debt capital structure by reducing debt outstanding and lowering our cost of capital while bolstering our liquidity. We deleveraged during Q3 by reducing our debt-to-equity ratio from 7.3x to 7.1x quarter-over-quarter, supported by GAAP profitability and $99 million in operating cash flow, of which $31 million was used to pay down debt. Our leverage is down markedly from the 8.7x peak level a year ago. Much of our focus on reducing debt outstanding has been on repaying higher cost corporate debt, which carries a 15% interest rate. We proactively repaid $20 million of corporate loan principal during the third quarter and another $17.5 million following the quarter end. We've now repaid a total of $50 million since the facility's inception in October 2024, reducing the original $235 million balance to $185 million, resulting in an annualized run rate reduction in interest expense of $7.5 million. Since the end of the second quarter, we have continued to demonstrate our ability to consistently access the capital markets at favorable terms. In August, we issued $538 million in ABS notes at a 5.29% weighted average yield, which was our lowest cost ABS issuance since October 2021. Following the quarter end, we completed another ABS issuing $441 million in notes at a 5.77% weighted average yield. Both transactions achieved a sub -6% funding cost, a AAA rating on their senior notes and freed up warehouse capacity for future originations. Also, following the quarter, we increased our total committed warehouse capacity from $954 million to $1.14 billion, increased the weighted average remaining term of our combined warehouse facilities from 17 months to 25 months and reduced the aggregate weighted average margin across our warehouse facilities by 43 basis points. We did so by closing a new $247 million 3-year revolving term committed warehouse facility and improving the terms of existing facilities. Following the end of the quarter, we purchased $115 million of the Opportune service loan portfolio held by our bank sponsorship partner, Pathward. We expect some profitability benefit from the acquisition, driven by the lower funding cost of owning the portfolio in comparison to the prior agreement with Pathward. Finally, as of September 30, total cash was $224 million, of which $105 million was unrestricted and $119 million was restricted. Turning now to our guidance, as shown on Slide 12, our outlook for the fourth quarter is total revenue of $241 million to $246 million, annualized net charge-off rate of 12.45%, plus or minus 15 basis points and adjusted EBITDA of $31 million to $37 -- our Q4 total revenue guidance reflects a $7 million year-over-year decline at the midpoint, largely due to the absence of the prior year period $4 million in credit card revenue. Our Q4 adjusted EBITDA guidance of $34 million at the midpoint also reflects a $7 million year-over-year decline, driven by lower total revenue and higher net charge-offs, partially offset by lower interest expense. Our Q4 annualized net charge-off midpoint guidance at 12.45% reflects 3Q's 30-plus delinquency rate being at the higher end of our expectations. We tightened our credit standards during Q3 and expect this uptick in our net charge-off rate to be temporary. Our revised full year 2025 guidance includes total revenue of $950 million to $955 million, annualized net charge-off rate of 12.1%, plus or minus 10 basis points, adjusted EBITDA of $137 million to $143 million and adjusted EPS of $1.30 to $1.40. I'll note that our recent credit tightening actions imply a high single-digit year-over-year decline in originations for the fourth quarter. For context, 4Q '24 originations of $522 million were our highest level since 2022. We've maintained the midpoint of our full year revenue guidance at $952.5 million while narrowing the range by $10 million. We've also maintained the midpoint of our adjusted EBITDA guidance at $140 million, reflecting 34% year-over-year growth while narrowing that range by $4 million. We've increased our adjusted EPS midpoint by $0.05 per share or 4%, supported by lower operating expenses and reduced cost of capital. Together, these actions more than offset the impact of slightly higher charge-offs and reinforce the continued strength of our profitability trajectory. Before I turn it back to Raul, let me conclude with a brief summary of our unit economics progress. While our long-term targets are GAAP targets, I'll use adjusted metrics because they remove nonrecurring items and provide a better sense of our future run rate. It's clear on Slide 14 that we continue to make significant progress in Q3. Adjusted ROE was 20%, which was a 19 percentage point year-over-year improvement, driven principally by cost reductions and improved credit performance. Our North Star continues to be delivering GAAP ROE of 20% to 28% annually, driven by reduced annualized net charge-offs to 9% to 11%, lowering operating expenses to 12.5% of our own portfolio and attaining annual growth of 10% to 15% in our own loan portfolio. We also intend to return to our 6:1 debt-to-equity leverage ratio by reducing our debt outstanding and continuing to grow GAAP profitability. With that, Raul, back over to you. Raul Vazquez: Thanks, Paul. To close, I'd like to emphasize 3 key points. First, we're pleased with our third quarter results, achieving GAAP profitability for the fourth consecutive quarter, a GAAP ROE of 5% and adjusted ROE of 20%, both significantly improved from a year ago. Second, we made important progress in strengthening our capital structure, lowering leverage and reducing our cost of capital, improvements that position us well for the years ahead. And third, we're raising our full year adjusted EPS guidance expectations again to a range of $1.30 to $1.40, reflecting strong year-over-year growth of 81% to 94%. We expect to grow our adjusted EPS further in 2026. Our disciplined execution across credit, efficiency and quality growth has delivered consistent progress over the past 2 years. Oportun is now a more resilient business even amidst ongoing macro uncertainty, supported by our dedicated team and loyal members. We look forward to speaking with you early next year to share our Q4 results and provide our full set of 2026 expectations. With that, operator, let's open up the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Rick Shane with JPMorgan. Richard Shane: Look, the delinquency trends and charge-off trends are apparent and the credit tightening is having the impact as intended. I am curious, you guys have a lot more insight into the behavior of your consumers, whether it's frequency of payment, size of payment, loans that they're taking. Can you share some insights that you're seeing behaviorally beyond just sort of delinquencies and net charge-offs to help us understand what is going on at the consumer level for pluses and minuses? Raul Vazquez: Yes, Rick, thanks for the question. As you can imagine, people's financial lives are quite complex. I've enjoyed the conversations we've had over the years about things that can go well. For example, there have been years where wage growth has been positive and then certainly the things that are challenging. I think right now, I'll start with kind of what we're doing to try to generate this improvement that we've seen in our trends, right? One of the things that you've heard us talk about over the last few quarters is really focusing on average loan size. So for example, in Q3, average loan size for our owned portfolio, on the unsecured personal loans, we took average loan size down 5% year-over-year. Even for the secured personal loan portfolio, where we're very pleased with performance. You heard in our comments state that losses year-to-date for secured are 500 basis points better than for unsecured. We're still taking loan sizes down there as well. So loan size was down for the secured personal loans 7% year-over-year, right? So we think that right now in this economy, it's important to try to decrease loan size and really focus on making payments affordable. And that's because though we think that the consumer today continues to be very resilient, there are certainly pressure points, right? The latest inflation rate at 3% year-over-year was the highest year-over-year increase since January. As you know, we recently found out that for the first time in over a decade, wage growth for the lowest quartile, right, is now below wage growth for the highest quartile of earners in the country. And fuel prices here in California are higher than they were -- modestly higher than they were a month ago, but they are higher than a year ago, right? So right now, we think there's still resilience in the consumer, but there are these points of pressure. There's also the potential impact of the government shutdown, if that continues. So right now, we continue to be focused on having a conservative credit box, decreasing average loan size and really trying to keep our loans as affordable as possible. Richard Shane: Got it. That makes a lot of sense and I think it's pretty consistent with our world view as well. Operator: Our next question comes from the line of Brendan McCarthy with Sidoti. Brendan Michael McCarthy: I just wanted to circle back to the consumer behavior point. I know in Q2 this past quarter, repayments were elevated. Just curious as to how repayments trended in the third quarter. Raul Vazquez: We're still seeing similar trends of slight repayment rates. Again, we think that really has to do with the fact that we've made our loans smaller, so they're just easier to pay off, Brendan. It's not an area of concern for us right now. And in fact, as you know, right, we're always happy to have loans paid off. Brendan Michael McCarthy: Great. That makes sense. And pivoting to OpEx, I think it's solid to see another -- the expectation for $10 million in OpEx to come out for the rest of the year. Just curious as to what line items you're taking OpEx out of the business. Raul Vazquez: Yes, there have been several. I'm really pleased with the focus throughout the organization on staying lean and reducing OpEx. So for example, we saw sales and marketing go down about $1 million in the quarter relative to last year. Personnel expenses were down $2 million year-over-year. G&A was also down about $2 million year-over-year. The tech team continues to find efficiencies, continues to find ways to use technology and innovation to lower OpEx. So really across the board, nice efforts throughout the organization. Brendan Michael McCarthy: Understood there. And last question here from me on the net charge-off rate. I know you're looking for a temporary increase. I think you mentioned into the first quarter of 2026, but you're expecting it to kind of come back down perhaps in the second quarter of 2026. What's ultimately backing that expectation there? Raul Vazquez: Yes, that's a great question. So we talked about some of the tightening that we did in the quarter. And I would point to 2 things that really give us confidence when we think about the shape of the curve. Number one, when we think about the tightening we did in the quarter, the first payment default rates that we saw in Q3, right, those right now look quite good, and they make us feel that the tightening that we did was effective. Second thing was, as we shared during the call, in the first half of the year, we had about 64% of originations going to our returning members. That meant that we had that higher percent of originations in the first half going to new members. We were able to focus more on returning members. So we saw 70% of Q3 originations going to returning members, right? So that makes us feel like the originations are at a better balance. And then finally, to add one more, when we look at the early delinquency trends right now in the business, those also indicate that the impact that we're seeing right now should be in Q4 and Q1, and then we should start to see it come back down in Q2 through Q4 of 2026. Operator: Our next question comes from the line of John Hecht with Jefferies. John Hecht: Apologize if this -- there's some redundancy. I've been bouncing back and forth between different calls. I'm talking about the -- I'm interested in the characteristics of the secured personal loan customers. Maybe discuss the resell or maybe graduation of this from a different product versus where you're identifying these opportunities in new channels and how that mix looks going into 2026. Raul Vazquez: Yes. So secured is certainly one of the areas where we've been quite pleased with the growth that we've seen, John. So the secured portfolio now is $209 million. It's up 48% year-over-year. and it represents 8% of our portfolio, and that was 5% last year. One of the things that the team has been able to do is, number one, really focus on how do we present the product during the application flow, how do we make it just a much more efficient experience so that, that way we can increase conversion. So the product teams, the engineering teams and the risk teams have done really good work there. The marketing team also for the first time this year, started to focus on campaigns that were specific to trying to attract people that would be interested in secured personal loans. Historically, it's been just kind of a side-by-side offer with unsecured. So we were focused on getting unsecured customers and then presenting the opportunity for a larger loan if they owned their car. But now we have dedicated marketing campaigns that really are focused on trying to acquire someone that does own their car -- and those are the types of campaigns that we're really focused on in 2026 as we think about secured personal lending as one of the pillars of growth that we really want to lean into next year and in coming years. John Hecht: Second question is just the -- you've talked about the delinquencies in the quarter. I'm wondering if you're seeing any changes in roll rates. Is there anything, whether it's at the product level or income cohorts that you're seeing roll rates change in any direction that gives us a perspective on what we should expect going into 2026? Raul Vazquez: Well, I mean, throughout the year, there are certainly puts and takes in terms of roll rates among different parts of the portfolio, John. But when we think about a very modest increase in this case of just 20 basis points at the midyear for full year guidance, -- it's the sort of thing that we think we've absolutely made adjustments for in the business by looking for reductions in OpEx, right, looking for reductions in marketing spend. So nothing that's really concerning to me at this time. John Hecht: Okay. And then you guys have done a good job in delevering the balance sheet. I think it was closer to 9. It's now almost back to 7. I know I think your goal is 6. Maybe can -- based on the trajectory of the business and your outlook, when do you hit 6? And when you hit 6, I'm sure you're going to be focused on maintaining a good balance sheet. I guess what -- does that increase any optionality for you at that point in time? Paul Appleton: Yes, John, thanks for the question. Yes, we're really pleased with the trajectory in leverage coming down, as you pointed out, from a high of 8.7x third quarter last year to now 7.1x. And even quarter-over-quarter, right, we saw the decrease from 7.3x to 7.1x. And so we expect that trajectory to continue. We haven't guided anyone yet to a number time line as it were for the 6x. But clearly, we're on a good path towards that. So that's kind of the outlook. Operator: And we have reached the end of the question-and-answer session. I would like to turn the floor back to CEO, Raul Vazquez for closing remarks. Raul Vazquez: We want to thank everyone once again for joining today's call. We appreciate your continued interest in Oportun, and we look forward to speaking to you again at the beginning of next year. Thank you. Operator: Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings, and welcome to the DMC's Global Third Quarter Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Geoff High, VP of Investor Relations. Thank you, Geoff. You may begin. Geoff High: Hello, and welcome to DMC's third quarter conference call. Presenting today are President and CEO, Jim O'Leary; and Chief Financial Officer, Eric Walter. I'd like to remind everyone that matters discussed during this call may include forward-looking statements that are based on our estimates, projections and assumptions as of today's date and are subject to risks and uncertainties that are disclosed in our filings with the SEC. Our business is subject to certain risks that could cause actual results to differ materially from those anticipated in our forward-looking statements. DMC assumes no obligation to update forward-looking statements that become untrue because of subsequent events. Today's earnings release and a related presentation on our third quarter performance are available on the Investors page of our website located at dmcglobal.com. A webcast replay of today's presentation will be available at our website shortly after the conclusion of this call. And with that, I'll now turn the call over to Jim O'Leary. Jim? James O'Leary: Thank you, Geoff, and thank you to everyone joining us for today's call. While challenging market conditions continue to impact each of DMC's businesses during the third quarter, we made significant progress on the most important strategic objective within our control, the continued deleveraging of our balance sheet. By the end of the third quarter, our net debt had been reduced to $30.1 million, down 47% since the start of the year and the lowest level since we purchased the controlling interest in Arcadia at the end of 2021. DMC's consolidated third quarter sales were $151.5 million, down 1% versus the third quarter a year ago, while adjusted EBITDA attributable to DMC was $8.6 million, up 51% year-over-year. At Arcadia, our Building Products business, third quarter sales totaled $61.7 million, a 7% year-over-year increase, but down 1% from the second quarter. Adjusted EBITDA attributable to DMC more than doubled to $5.1 million from the year ago quarter, reflecting improved operating performance and better absorption of fixed manufacturing overhead due to the sales increase. Adjusted EBITDA was up 27% sequentially. The efforts to stabilize Arcadia's business during the past year have helped mitigate the impact of stubbornly high interest rates and generally soft commercial construction activity in Arcadia's core Western region, where architectural billings have declined every month since May according to the Architectural Billing Index. At DynaEnergetics, our Energy Products business, third quarter sales were $68.9 million, down 1% year-over-year and up 3% sequentially. The third quarter was marked by declining activity in DynaEnergetics core U.S. onshore market, where well completions were down 8% year-over-year and 6% sequentially. At the end of the quarter, active frac crews, a key indicator of demand, were down nearly 20% from the 2025 peak in March. DynaEnergetics reported third quarter adjusted EBITDA of $4.9 million, up from breakeven in the year ago quarter, but down 46% sequentially. The sequential decline reflects lower product pricing and higher costs due to tariffs as well as certain receivable and inventory charges. At NobelClad, our composite metal business, third quarter sales were $20.9 million, down 16% year-over-year and down 21% sequentially. The declines reflect the delayed impact of lower U.S. bookings during the first and second quarters when customers move to the sidelines as they monitor fluctuating U.S. and reciprocal tariff policies. Adjusted EBITDA was $2.1 million, down 64% from the prior year and 53% sequentially, reflecting lower absorption of fixed manufacturing overhead on reduced sales and a less favorable product mix. During the third quarter, NobelClad booked a $20 million order associated with a large international petrochemical project. After quarter end, we received an additional $5 million order related to that same project. Together, these bookings, which ship at the beginning of next year, reflect the largest order in the 60-year history of NobelClad. NobelClad's backlog at the end of the third quarter was $57 million, up 53% from the second quarter, not including the $5 million follow-on. I'll now turn the call over to Eric for a closer look at our third quarter results and our outlook for the fourth quarter. Eric Walter: Thank you, Jim. I'll start off with a closer look at third quarter profitability. As Jim mentioned, consolidated adjusted EBITDA attributable to DMC was $8.6 million. Inclusive of the Arcadia noncontrolling interest, adjusted EBITDA was $12 million or 7.9% of sales, up from 4.6% in the third quarter last year and down from 10.4% in the second quarter. The year-over-year increase in EBITDA margin principally reflects improved results at DynaEnergetics, which was impacted by $5 million in inventory and bad debt charges in last year's third quarter as well as price-driven top line growth at Arcadia, leading to improved absorption of fixed manufacturing overhead. The sequential decline in adjusted EBITDA margin was primarily due to lower pricing and higher costs at DynaEnergetics as well as reduced activity levels at NobelClad. Arcadia's third quarter adjusted EBITDA margin before noncontrolling interest allocation improved to 13.8% from 5.8% in the year ago quarter and 10.9% in the second quarter. Dyna's adjusted EBITDA margin improved to 7.1% in the third quarter compared to less than 1% in last year's third quarter. EBITDA margin was down from 13.4% in the second quarter for the reasons previously mentioned. NobelClad's third quarter adjusted EBITDA margin was approximately 10% and was impacted by the tariff-related bookings slowdown earlier in the year. Adjusted EBITDA margin was down from 23.2% in the third quarter last year and 16.5% in the second quarter. Third quarter SG&A expense was $26 million or 17.1% of sales versus $28.2 million or 18.5% of sales in the third quarter last year. Third quarter adjusted net loss attributable to DMC was $1.6 million, while adjusted loss per share attributable to DMC was $0.08. With respect to liquidity, we ended the third quarter with cash and cash equivalents of approximately $26.4 million. Total debt was $56.5 million, down 20% from the end of 2024. And as Jim mentioned, net debt was $30.1 million, down 47% from the end of last year. And now on to guidance. We expect fourth quarter sales to be in a range of $140 million to $150 million, while adjusted EBITDA attributable to DMC is expected in a range of $5 million to $8 million. Our guidance reflects the lag of converting recent record bookings at NobelClad into sales, which are expected in 2026. Our guidance range also anticipates continued headwinds in DynaEnergetics core North American market, which has been significantly impacted by both tariffs and declining well completion activity and may experience a seasonal slowdown late in the quarter as has been the case in recent years. Although Arcadia is expected to experience a normal seasonal fourth quarter slowdown, it expects continued year-over-year improvement in profitability due to better operational execution. Our guidance is heavily influenced by macroeconomic concerns, volatility and visibility issues created by the current state of energy markets and tariff policies and is subject to change either upward or downward as market conditions evolve. With that, I'll turn it back to Jim for some additional comments. James O'Leary: Thanks, Eric. In an environment marked by volatile and declining energy prices, elevated interest rates and shifting tariff policies, we continue to focus on what's in our control. DynaEnergetics is containing its costs while pursuing international opportunities and navigating an extremely challenging North American oil and gas market. As discussed and based on direct customer feedback, we expect the oilfield services market to face continued headwinds during the fourth quarter. Accordingly, we remain focused on the self-help measures within our control. As mentioned earlier, NobleClad secured a record order that its commercial team worked nearly 5 years to win while it rebuilds its order book and looks globally for new business opportunities. And finally, at Arcadia, we've stabilized operations after a challenging 2024 and are positioning the business for an eventual recovery in its commercial and residential markets. Arcadia has now had several quarters of stability since we brought Jim Shladen back, and we believe we've successfully reset the business while we wait for market conditions to improve. Collectively, we've made substantial progress on our most important initiative, deleveraging our business. This remains our principal corporate objective as we work through generally challenging markets for each one of our operating companies. Our progress would not be possible without the hard work of our DMC associates, and I want to thank them for their continued contributions. And with that, we're ready to take any questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Gerry Sweeney with ROTH Capital Partners. Gerard Sweeney: Start off with Arcadia. I know you -- Jim, I know you mentioned the ABI was down, I think, out in the West, et cetera. But 2 questions on that front. One, are you seeing any green shoots? And then two, are there opportunities for additional operational improvements at Arcadia? Or is that level set for now? James O'Leary: Okay. So we're seeing green shoots, but remember, that's very specific to us. We had, when I think the industry was still doing okay, and I would say just okay, both residential and commercial. We would turnover and some self-inflicted issues, we had a challenging 2 or 3 years after the acquisition. So a lot of our year-over-year improvement, our month-over-month improvement, a lot of the things we're seeing are just introducing stability with Jim Bact, bringing back some employees who might have looked for green pastures, repairing some of the relationships that might have gotten a bit fray, both on the supplier side and the customer side. So we're seeing some Arcadia-specific green shoots, but I wouldn't read too much into that. And from everything you can see, it's observable and anecdotal, whether it's our public peers, even one like JELD-WEN today, which is far more residential than us. But it's a data point. If you subscribe to any of the credit agencies, you can see companies like Oldcastle and Pan Air. We're all struggling with exactly the same issues, persistently high interest rates, overall cost and affordability, and that applies to commercial as well. And I think that's starting to -- that should start getting better, but I wouldn't say you see the green shoots industry-wide. A Board of a company I'm on, I mean, we're in every MSA in the country. If you put a gun to my head, I couldn't tell you what MSA in the country is really doing well, maybe 1 or 2 in the Carolinas. So all of our year-over-year improvement and green shoots that you categorize that, all very Arcadia specific and all because we brought back stability and some self-help measures. Now on what we can do specifically, stabilized things, brought back some key players, repaired relationships, really soft -- the soft skills, which Jim is fantastic at. Jim would have a longer list of things that we can do next than I would. And a lot of it is we can still do better in terms of professionalization, maybe bringing some new skills in, maybe looking at -- we've been underspending CapEx for a while on things that we're going to have some decisions to make as to whether or not -- where and when we want to put it in. There's capital we might have put in, in 2021 that we've -- we have to do, but whether or not you do it now, if you think you're still going to be bouncing along the bottom is a really important question. But we both have a very long list of things we can do that would be -- and I wouldn't say it's -- I would say it's past self-help. It would be, okay, now we're at the point where professionalization, bringing some new skills. We're getting there now on the ERP implementation, some of the improvement to data quality for the first time in a while. So there's a long list of things we work on, including on capacitization. The question is when is the right time? You don't want to add it early if the market just doesn't doesn't fill up a paint line or fill up an anodizing line, right? Gerard Sweeney: Yes. Understood. Yes. Got it. Switching gears, NobleClad large order. It sounded like it was going to ship in my words, first quarter, but I'm not sure how you exactly characterized it. But what would be the cadence of the shipping of that order? And over how many quarters, if more than one would this sort of take place? James O'Leary: Yes. So I said 2026, but Eric will give you the particulars. It's more back-end loaded than first quarter. Eric Walter: I don't have... James O'Leary: I misspoke. Eric Walter: No, I don't have much to add to that other than, like Jim said, it will be second half of 2026 is where you're going to see the bulk of the revenue from that order. Gerard Sweeney: Got it. And just sticking with NobelClad, obviously, that's a large international order. U.S. is facing some headwinds, but I think there's a lot of opportunity in the Gulf at some point for some of this petrochemical stuff, but I'm just curious if you're seeing any additional orders unlock? Or are they still tied up because of tariffs and other issues and just uncertainties? James O'Leary: Well, we agree, and we hope you're right about further petrochemical orders. But right now, if you asked the division President there, how he categorize the state of things, and we've went through his budget a couple of times in the last few months. If you have the choice of order or wait, people wait. And it's -- the tariffs were a big issue that impacted us early, particularly on 1 or 2 really big ones that we know we probably didn't get because of tariffs. Right now, I think it's just a general level of economic uncertainty. Outside of tech and a couple of really fare haired favored sectors, if you're very capital intensive, if you're very consumer-driven, if you're very -- in consumer, meaning the ultimate end markets, it can include automotives in there. I mean nobody is rushing to do capital projects unless you're bringing stuff back under some of the Trump policies, factory building, major CapEx, you're going to wait before you order until you start to be a little bit more comfortable with the overall economy. Operator: Our next question comes from the line of Katie Fleischer with KeyBanc Capital Markets. Katie Fleischer: I wanted to dig into the tariff impacts in Dyna a little bit. How should we think about that impact in coming quarters? And is there any opportunity to push price within that market? James O'Leary: Yes. So the impact to Dyna in the quarter was roughly $3 million. And to answer your question, to try to push price in the market, that's extremely challenging right now. All of the players in the market are pretty much going through the same type of issues with importing steel and some other components that are used in their perforating systems. So what we're doing right now is trying to figure out ways we can be more efficient with how we manufacture our products and being smart about the automation that we put into our manufacturing line. But to increase price is very difficult in the market right now. Katie Fleischer: Yes, makes sense. Just any other details that you could give around the margin progression within Dyna and NobelClad for next quarter? Like does the midpoint of guidance assume that both of those are going to see a sequential decline? James O'Leary: Well, I think for -- just taking them one at a time. With Dyna, they're going to continue to have the pressures that we talked about from a pricing standpoint. There may be some seasonal slowdown. And to the extent that there is, that puts additional pressure on margins because there's less sales and less volume to absorb their fixed manufacturing overhead. And the same would be true of NobelClad. The large order that we talked about will ship in 2026. So we're probably not going to get much of a benefit for the next good few quarters. And there, same thing. It's going to be -- to the extent that the sales are a little soft in the quarter, it's going to put pressure on them because they're not going to be able to absorb that overhead. So you can take that into your modeling, and it should show you that the margins will be pressured quarter-over-quarter. Eric Walter: I'd add to that. I would add, if your assumption -- whatever your assumptions are on end markets, will probably be right ahead, whether it's lead by a couple of months, lead by a quarter, it will be right ahead of our margin progression because everything at NobelClad for the most part, has been absorption driven. A fair amount outside of the tariffs, which Eric just went through, there's a little bit of mix, but it's the pricing issue and the fact that the Permian is so challenging right now. When you think both of those end markets get better, you'll see our margins pick up maybe disproportionately. I'd like to think we have some operating leverage, but it will be very end market dependent because I think we did the self-help things early, but you're still -- in NobelClad is the best example. You're down $5 million of sales. That's all throughput and that all comes through as overhead absorption. Katie Fleischer: Got it. And then just one last question here. I know visibility is very limited. But just looking ahead, when you think about the recovery of these end markets, how much more downside is there from here? And what would you really need to see to give you some confidence that some of these demand trends are starting to pick up? James O'Leary: Well, look, I mean, the first thing you need is stability. I am encouraged, and I would think the stability in the order book at NobelClad is a precursor. We won't see that for a quarter or 2 or 2 or more as it's mostly back-end weighted. But the fact that the order book picked up, we got a major biggest in our history order is a real positive. In the building industry, I think we have more self-help and more benefits just from being stable, but it's still a really, really tough market. And the fact that the Fed has started cutting interest rates, some appropriate consternation as to whether or not the next move will be up or flat after Powell's last couple of comments. You got a Fed that seems more favorably disposed, particularly with the recent appointees. But it's not clear that you're going to see 3 or 4 cuts the way people might have been thinking a month or 2 ago or that will be dragged out over a longer period. And that is absolutely critical to get things going. I'd like to think we could see some green shoots sooner but I still think you got a grand total of 20 permits issued in some of the parts of Southern California that we're most long-term excited for, but there's just not a lot of activity. They're continuing to keep a lid on permits. The activity is not there the way -- honestly, the way some of these poor homeowners would like to see. But when that starts to loosen up, that will be a little bit divorced from interest rates. But building, if we get 2 or 3 cuts, building could start picking up in the back half of next year. But I would say, if you listen to homebuilder calls, some of the larger distributors like Builders FirstSource, Beacon, anybody that's out there, I wouldn't say they've written off next year, but they're very, very conservative about it because we've been burned a few too many times. So that's -- I think middle end of next year would be optimistic on housing, but I think we have some specific things that are Arcadia and Arcadia dependent. And honestly, the market I'm least knowledgeable about is obviously Dyna just from past history. But that's the one where the volumes have held up, but a couple of industry prognosticators out there, they do comment on how consolidated our customers and our customers' customers have gotten. We're still at the point where we probably had the brunt of the tariffs that we've had to eat. Once the markets take off and we get the opportunity to be selling the value that we bring, I think we'll get some of the margin and price back, but that's probably quarters away. But if you wake up and the Saudis decide they're not going to keep the spigots open, that could change tomorrow. Operator: Our next question comes from the line of Jawad Bhuiyan with Stifel. Jawad Bhuiyan: I guess just based on what we've been hearing around a lot of these U.S. pressure pumping companies, it seems like activity levels are kind of bottoming and that's kind of where we're -- I guess, the direction that we're heading. And I guess more specifically, can you talk about or elaborate expectations for 2026, specifically within the perforating gun business and maybe also what current pricing looks like in that business? And then I just have a quick follow-up. James O'Leary: Too early to talk about 2026. We're one quarter at a time for good reason. The visibility is terrible. And we don't comment on pricing other than if the market picks up and it's a little less competitive, we should see some relief, but we're nowhere near there right now. Jawad Bhuiyan: Got it. And I guess just more specifically for oriented perforating guns. We've kind of heard that it's been having a positive impact on production levels. I guess, could you maybe talk about what you're seeing in the field? James O'Leary: That's true. We have a product. Yes, we have a product out there that's self perforating gun as well. Yes. Technology is what's driven a lot of the incredible production increases in the Permian for -- in the last 10 years. We've been a leader there and continue to be. Operator: There are no further questions at this time. I'd like to pass the call back over to James O'Leary for any closing remarks. James O'Leary: We appreciate your patience. We are doing everything we can under the category of self-help and positioning ourselves for the eventual recovery. We didn't get a chance to talk about except in the prepared remarks, but getting the balance sheet in shape, having your cost structure in shape, being ready for whether it's opportunities or just the things we got to deal with next year and having a clean balance sheet, plenty of cash flow and a cost structure that will accommodate us are the things we're working on. So we appreciate your patience. And for any employees listening, we appreciate your hard work and dedication. So thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, everyone, and welcome to the A10 Networks Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Tom Baumann. Sir, the floor is yours. Unknown Executive: Thank you all for joining us today. This call is being recorded and webcast live and may be accessed for at least 90 days via the A10 Networks website at a10networks.com. Hosting the call today are Dhrupad Trivedi, A10's President and CEO; and CFO, Michelle Caron. Before we begin, I would like to remind you that shortly after the market closed today, A10 Networks issued a press release announcing its third quarter 2025 financial results. Additionally, A10 published a presentation and supplemental trended financial statements. You may access the press release, presentation and trended financial statements on the Investor Relations section of the company's website. During the course of today's call, management will make forward-looking statements, including statements regarding projections for future operating results, demand, industry and customer trends, macroeconomic factors, strategy, potential new products and solutions, our capital allocation strategy, profitability, expenses and investments, positioning and our dividend program. These statements are based on current expectations and beliefs as of today, November 4, 2025. These forward-looking statements involve a number of risks and uncertainties, some of which are beyond our control, that could cause actual results to differ materially, and you should not rely on them as predictions of future events. A10 does not intend to update information contained in these forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law. For a more detailed description of these risks and uncertainties, please refer to our most recent 10-K and quarterly report on Form 10-Q. Please note that with the exception of revenue, financial measures discussed today are on a non-GAAP basis, unless otherwise noted and have been adjusted to exclude certain charges. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP, and may be different from non-GAAP financial measures presented by other companies. A reconciliation between GAAP and non-GAAP measures can be found in the press release issued today and on the trended quarterly financial statements posted on the company's website at a10networks.com. Now I would like to turn the call over to Dhrupad Trivedi, President and CEO of A10 Networks. Dhrupad Trivedi: Thank you, Tom and thank you all for joining us today. A10's strategic position, aligning our solutions and technology road map with the persistent needs of our customers around trusted infrastructure, cybersecurity and AI capabilities continues to enable growth that outpaces our market peers. Our solutions emphasize high throughput, low latency, and integrated security, which our customers and the broader market increasingly view as Essential. A10 is well positioned alongside the durable catalyst that are driving spending across our markets. In the third quarter, revenue grew nearly 12% year-over-year. On a trailing 12-month basis, growth from enterprise customers in North America continues to outpace our overall company-wide growth. Revenue from the Americas has increased 25% on a trailing 12-month basis, driven primarily by investment in AI infrastructure. This performance helped offset macro-related headwinds in other regions. Our global diversification continues to enable consistent performance despite macro variability. AI-related deployments were a key driver for growth, where security and performance at scale are critical. These applications are power hungry and our solutions deliver efficient throughput and low latency with integrated best-in-class security capabilities. This allows customers to achieve target performance with fewer devices, improving total cost of ownership, while maintaining the highest levels of network performance. We continue to leverage this advantage in large data center opportunities globally. Our operating model continues to focus on discipline and leverage, converting growth into profitability and cash, while reinvesting in strategic priorities. EBITDA margins expanded year-over-year from 26.7% to 29.3%, while non-GAAP operating margin expanded from 22.6% to 24.7%. This demonstrates the inherent leverage in our model even as we continue to invest more in R&D. A10 is well positioned to serve both enterprise and service customers alike, while we navigate macro uncertainty. In the world of AI, these will be harder to demarket as customers redefine their architectures. Our increasingly strong alignment with AI infrastructure build-out and adoption gives us confidence in our strategic positioning as we align investment with structural tailwinds of AI and cybersecurity. As our investments in innovation and product enhancements have taken shape, we have established ourselves as a stronger, more differentiated technology solution provider. On a trailing 12-month basis, growth stands at just over 10%. Based on momentum in key strategic initiatives, we expect full year growth rate of 10%. With that, I'd like to formally welcome Michelle Caron, our new Chief Financial Officer to the call. I also want to take a moment to thank Brian Becker. Brian had been an important part of the leadership team during A10's progress and had instituted strong processes that will continue to serve us well into the future. Michelle brings deep operational and financial expertise from complex global organizations and a proven ability to align financial strategy with growth opportunities. Her background complements A10's disciplined culture and long-term transformation agenda. We expect continued disciplined execution and an increased focus on capital deployment to play a role in our overall growth. Michelle's experience positions us well to help drive that next phase of the company. Michelle? Michelle Caron: Thank you, Dhrupad. I'm excited to join A10 at this important inflection point. What drew me here is the combination of a strong foundation, coupled with an even stronger opportunity ahead. With a proven business model, solutions that are ideally aligned with global spending trends and a Tier 1 customer base, A10 is positioned for consistent success. I shared Dhrupad's belief that we can continue to grow both organically and inorganically, and I look forward to contributing to both sides of that growth equation. My near-term focus involves building on our solid base and driving greater consistency, predictability and profitability as we grow. I'll be concentrating on a few key areas. First, maintaining financial discipline and transparency, better aligning our performance and market expectations. Second, driving profitable growth. balancing top-line expansion with healthy margins and cash flow; and third, maintaining disciplined capital allocation. Investing where we can create the most value, while continuing to return capital to our shareholders. Supporting our pipeline of M&A activities and effectively putting our cash to work will be part of this initiative. Now let me turn to the results. As Dhrupad noted, we delivered a strong Q3, growing revenue almost 12% to $74.7 million, reflecting a mix of 58% product revenue and 42% service revenue. Global service revenue of $31.6 million grew 6% while product revenue of $43.1 million grew 17% year-over-year. Product revenue, which has been strong for the last 2 quarters represents a leading indicator of future revenue. Our third quarter performance gives us confidence we're on the right track to deliver on our strategic priorities, while continuing to drive rigor building on our culture of excellence. Within our product revenue category, the third quarter reflected a greater contribution of security-led revenue exceeding our long-term target of generating 65% of our total revenue from security-led solutions. This performance reflects customer demand and our alignment with customer needs, particularly within North America for both service providers and enterprises. Now looking at our major verticals, enterprise customers represented 36% of Q3 revenues. As previously stated, America is our priority region, and we continue to see growth in excess of overall revenue on a trailing 12-month basis. Service provider revenue, which was 64% of total revenue, was weighted towards cloud providers, further indication of our success in strategically aligning our offerings with AI infrastructure build-out. From a geo perspective, our Americas region represented 65% of global revenue, reflecting the benefits of A10's investments in our enterprise segment and strength of AI infrastructure build-out. As Dhrupad mentioned, macro-related headwinds in Rest of World were made up for in the Americas region. Now with the exception of revenue, all of the metrics discussed on this call are on a non-GAAP basis, unless otherwise stated. A full reconciliation of GAAP to non-GAAP results is provided in our press release and on our website. Our continued operating discipline contributed to our strong Q3 results. Non-GAAP gross margin was 80.7%, in line with our stated goals of 80% to 82%. Operating expenses were $41.8 million, reflecting an operating margin of 24.7%, an improvement of about 215 basis points year-over-year. GAAP net income for the quarter was $12.2 million or $0.17 per diluted share. Non-GAAP net income for the quarter was $16.7 million or $0.23 per diluted share, reflecting a 7.4% EPS growth from the year ago period. Diluted weighted shares used for computing non-GAAP EPS for the third quarter were approximately 73 million shares, down 1.7 million shares year-over-year, driven by our continued share buyback. Adjusted EBITDA was $21.9 million, 29.3% of revenue, which is aligned with our long-term strategic goals. Turning to the year-to-date results. Revenue for the first 9 months of 2025 was $210.2 million compared to $187.5 million, an increase of 12.1%. Non-GAAP gross margin was 80.5% year-to-date. Adjusted EBITDA was $61.1 million year-to-date, reflecting 29% of revenue. Non-GAAP net income on a year-to-date basis was $47.2 million or $0.64 per diluted share compared to $41.9 million or $0.56 per diluted share last year. On a GAAP basis, net income for the first 9 months was $32.3 million or $0.44 per diluted share compared to net income of $31.8 million or $0.42 per diluted share in the first 9 months last year. I'll now turn to the cash flow and balance sheet, both of which are very strong. We generated $22.8 million in cash flow from operations in Q3. CapEx was $4.7 million with cash and investments totaling $371 million at the end of the quarter. Deferred revenue was $143.5 million. During the quarter, we paid $4.3 million in cash dividends and repurchased $11 million worth of shares. The Board has approved a quarterly cash dividend of $0.06 per share to be paid on December 1, 2025, to shareholders of record on November 17, 2025. The company still has over $60 million remaining of its $75 million share repurchase authorization. I look forward to speaking with many of you in the coming weeks, gathering your feedback on our strategy and operations. I'll now turn the call back to Dhrupad for closing comments. Dhrupad Trivedi: Thank you, Michelle. We are encouraged by continued business execution and remain confident that A10 is strategically well positioned in the market, especially as we see acceleration in AI infrastructure build-out. A10 is positioned squarely in front of multiple durable secular catalyst. In fact, our strength in high-performance hardware and software is more relevant than ever before. We are investing to enhance our position in the enterprise space and remain aligned with key leaders in the service provider sector around the world. We believe our business model enables us to dynamically allocate resources to address changing market conditions, while preserving profitability and shareholder returns. Operator, you can now open the call up for questions. Operator: [Operator Instructions] Your first question is coming from Gary Powell (sic) [ Gray Powell ] from BTIG. Gray Powell: It's actually Gray up again for Gary. Gary is traveling today. But just want to say congratulations on the good results. I just had a couple of questions. Yes, absolutely. I think last year, security-led revenue was around 63% of the business, growing 9%. You called out 65% in the prepared remarks in the slide deck. Just how is it tracking this year? And where do you think it can go longer term? Dhrupad Trivedi: Yes. Good question. I think -- so we had said long term, our goal was 65% because -- we see the connection between security and infrastructure as something that actually is a strength for us in the sense, we want those things to work together and make it even better. So if you look at where we actually ended up in Q3, the number was higher than 65%. And so we feel pretty good continuing to maintain that goal of about 65%. And if we do better, that's great. But at the same time, we are not looking to lose infrastructure revenue in its place, right? So, I feel pretty good that we have been able to improve that mix to -- from somewhere less than 30% to 65%. And obviously, our goal is to lead with that because that tends to expose us to higher growth markets and applications. Gray Powell: Understood. Okay. That's really helpful. And then just a separate topic and this 1 might be a little bit early. But F5 had a pretty bad data breach a few weeks ago. Again, like, I'm sure it's a little bit early from your side, but is that something that can potentially help your customer discussions on the enterprise side of the business? Is that something that's come up at all in conversations yet? Or is there any -- I don't know, is there any directional commentary you could make about that? Dhrupad Trivedi: Sure. Yes. No, I think good question. And I think, first of all, I would say that all of us in the cybersecurity industry, right, face the same kinds of attacks and challenges that we are all resolving, right? So obviously, we cannot specifically comment on anything, but I would say as we navigate that market environment and you look at some of the key players in that space, right, including F5, of course. I think we have seen certainly an increased level of interest from customers, not necessarily wanting to change, but wanting to understand what else is in the market and what alternatives there might be towards making sure that their own infrastructure is more resilient in the future, right? So of course, I think we'll continue to work with our customers just as we'll continue to work with the industry overall to find better ways to manage and handle cybersecurity challenges. Operator: Your next question is coming from Simon Leopold from Raymond James. W. Chiu: This is Victor Chiu for Simon. You noted strength in North American AI infrastructure investments in your prepared remarks. But can you elaborate on some of the specific factors contributing to the upside this quarter, were there a handful of specific customers or deals? Or was it more -- was the strength more broad-based? Dhrupad Trivedi: Sure, Victor. I think -- so as, of course, you know well too, the market today in AI is pretty concentrated with several large players. And then in the longer term, we are also engaged with multitude of players who, in 2 to 3 years' time will be doing a lot more things on their own, right? So right now, it's in the phase of initial big build-out and then it becomes more realistic in terms of business goals, local models and so forth. So in this phase of the evolution, certainly right, the benefit to us was from a few large customers, who are investing aggressively into building the AI infrastructure. But we are equally engaged with customers around the world on the enterprise side as well, who will be the beneficiaries long term as they build out their own solutions and decide how to take advantage of AI. W. Chiu: Great. That's very helpful. And just a quick follow-up, just to elaborate on the previous question. Have you observed any -- on the flip side, have you observed any negative collateral impact from the high profile security breach from 1 of your key competitors that customers express specific concerns or hesitations moving forward with planned deployments? Dhrupad Trivedi: No, we are certainly not seeing any negative impact from that. I think people are used to kind of having to deal with public as well as private incidents in that space for many, many years to come. So, it is certainly not a negative thing for us at all. And it's -- I would say, it has certainly increased conversations we are having with customers. But at the same time, it's hard to say it's positive. But certainly, there's no hesitation on customer side in terms of spending on A10's products, right, and holding off on that in any way. Operator: Your next question is coming from Julio Romero from Sidoti & Company. Julio Romero: This is Julio on for Anja. So my first question would be just it seems like the efforts you've done on the enterprise sales push have been working. Are there any more initiatives you can do there? And then secondly, where are you in the innings of expanding within this market? Dhrupad Trivedi: Yes. Good question. And I think we have been talking about that for a few periods now, right? So I think our initial thesis was around building up our capability on the product solution side as well as on the commercial execution side to get more stability with enterprise customers than growing our share. I think in the last 2 to 3 years, we have continued to see that kind of maturation process, if you will. And we believe, certainly with our sales leadership currently in place, there is a lot of focus around that while we continue to support our service provider customers as well. So I would say, if I had to characterize it in that sense, I would say probably we are in the third or fourth innings as we continue to build kind of our own maturation of the team, but also engagement with customers. Julio Romero: Excellent. Very helpful. And then just any preliminary thoughts you could share on how you would view 2026 shaping up for you from a top line and bottom line perspective just at a high level at this point? Dhrupad Trivedi: Yes. No, good question. And I think I would say you can see, obviously, last year was a little bit unusual year in terms of seasonality. And this year, as we talked about, we expect on a full year basis to get back to 10% growth and obviously, the EBITDA results as well. As we look into the future, I would say the challenge like everybody else is we are dealing with uncertainties that we cannot control, such as interest rates and tariffs and everything else. But given the momentum in the business, particularly around secular tailwinds that we are aligning more and more to. We feel that going into next year, we should be able to sustain the growth level that we are seeing now. And we obviously will continue to provide more clarity as we see it as well. But our goal is obviously to be in that high single-digit range. And if the market aligns do better than that, but at the same time, focused on -- our business model goals on 26% to 28% EBITDA as well as EPS growth faster than top line. Operator: Your next question is coming from Hamed Khorsand from EWS Financial. Hamed Khorsand: I was just wanted to see what kind of progress you've been making as far as expanding your service provider customer base? Dhrupad Trivedi: Yes. No, good question. So I think, Hamed, I would probably differentiate it in 2 ways. So 1 is we -- during this year, with our existing large Tier 1 service provider, I think that has been, like most companies have seen a lot of pressure on CapEx. And so our efforts there have been more around improving share of wallet and cross-selling, whether it's in U.S. or Europe or Asia, right? Where we are seeing a little bit more traction is on the Tier 2 service provider side, where it's not necessarily related to things like BEAD funding, but we are certainly seeing a little more activity and rollout. So our progress there is, I would say, gaining new customers that are in that category of independent or Tier 2 type service providers. With Tier 1 in addition to waiting for CapEx, really trying to expand our footprint to sell into different business units or selling them multiple products. Hamed Khorsand: Okay. And then just looking out to the clarity you're seeing as far as your service prices are concerned, do you have that clarity at all? Is it better? Dhrupad Trivedi: Yes. So good question, Hamed. So I would say on the service provider customer side, it probably varies, so on the ones that are exposed to more building out things like cloud infrastructure, the clarity is decent, I would say. And we have a 6- to 9-month kind of cycle. So we generally have a reasonably good idea. On the Tier 1 telcos in Europe, I think we have reasonably good clarity, a little slower than normal, but moving along. Japan is pretty slow, but their economy is still in a difficult spot, right? So that we -- it's in line with what we expect. In the U.S. Tier 1 service provider, I would say, where they are exposed to cloud and infrastructure like that is good. But on the pure classic telco side, it's still a little bit choppy in the sense -- they may still spend the same amount for the full year, but projecting it by quarter is still harder than it normally used to be. Hamed Khorsand: Okay. And could you just talk about what drove that big outperformance this quarter in the EMEA region for you? Dhrupad Trivedi: Sorry, Hamed. I think you broke up for 1 second. Can you please repeat that? Hamed Khorsand: In the EMEA region, it seems like on your presentation slides, that was a big revenue portion. What drove that? Dhrupad Trivedi: I think so the -- in Q3, the EMEA portion, the step-up that you saw was 1 big project that culminated in the period. So it's probably fair to look at that 3 quarter and average it to be more indicative of it. And it's not like a new step level that you should expect to continue seeing there. Operator: Your next question is coming from Christian Schwab from Craig-Hallum. Christian Schwab: Great quarter. Can you give us an idea yet of the percentage of product revenue that's tied to AI-related security products? Dhrupad Trivedi: Yes. No, good question, Christian. And I think you have mentioned that last time as well. So we are working internally on how to create a view that does that. And the complication for us is -- for many of our customers, they were, let's say, going to build 10 data centers. Now they are still building 10, but 6 are designed for AI and 4 were what they used to do before. And I think we are trying to get a better handle on that through our customers so that we are more specific and clear in how we represent that. So that's the tougher part of it. Now when you look at our service provider growth improvement, I would say majority of it is related to because they are doing AI build-out. But it's hard for me to say from the 10 data centers they build 4 were AI and 6 were not AI, right? Because they don't market that way either. So -- but that's something that's on our docket Christian and that we are working towards in our Q1 comments to start figuring out a way to show some kind of a proxy for that. Christian Schwab: Great. And then when you talked about the momentum in the business sustaining itself in '26, we kind of did 10%, then you went back to high single digits. So should we just kind of assume sustaining the momentum in the business, next year's top-line growth objective would be 8% to 10%. Is that -- did I hear that right? Dhrupad Trivedi: Yes, I think that's a fair way to look at it. So I think that's sort of the line of sight we have, right, is in that range for next year as well? And as we navigate things up and down, right, it's hard to kind of nail it down by quarter at this point. But on a full year basis, certainly, we feel good with that ZIP code, yes. Christian Schwab: Great. And then my last question. Seeing the increased customer interest as an alternative given F5's recent issues when would be a logical time for those indications of interest to potentially turn to orders? Is that 3 months, 9 months, how should we be thinking about that opportunity? Dhrupad Trivedi: Good question. So I think, yes, as I said before, certainly, we are having customer conversations and certainly, right, we wish all those customers and F5 to resolve those problems swiftly for themselves because a good thing for the industry. Typical sales cycle for us in that kind of an enterprise market is 6 to 9 months. And we are engaged or talking to customers, but roughly speaking, that's the window in which you would see it translate into incremental bookings if that were going to be the case. Operator: Your next question is coming from Michael Romanelli from Mizuho Securities. Michael Romanelli: Yes. Maybe to start off, I was wondering -- I was wondering if you can comment on linearity in the quarter and how activity has been through the month of October? Dhrupad Trivedi: Yes. No. Good question. And I think, Michael, that it varies a little bit by regions as well. So I would say that linearity for us outside of Americas has been not atypical or in line with what we expect to get to. Within Americas, I think there is a little bit of jitter around kind of political things and tariff and interest rate. But overall, we don't see a dramatic change in linearity relative to what we were expecting. Michael Romanelli: Got it. Okay. That's helpful. And then as my follow-up, it's nice to see the services revenue return to growth following consecutive quarters of decline. As part of revenue algo. How should we be thinking about your services revenue growth going forward? Dhrupad Trivedi: Yes. Good question. So you are right. I think there's a little bit of timing element to the service revenue because it's related to 1-year, 2-year, 3-year kind of support contracts and so forth. The way you should think about it is if our product is growing at a certain rate, typically, that is sold with 1-year service or support contract. So 1 year from that date, we would have a larger eligible pool of renewals and support contract and revenue. So in that sense, product revenue growing faster means that a year from now, it should naturally lead itself to service revenue growing faster as well. Operator: Your next question is coming from Hendi Susanto from Gabelli Funds. Hendi Susanto: Dhrupad and Michelle. Dhrupad, would you talk about opportunity in AI, like we are somewhat familiar with A10 like core application, but perhaps you can go deeper into use cases for AI for service providers, data centers, Tier 1 service providers, like where you foresee A10 in influencing. For example, whether it is -- like what are the growth drivers in AI, whether it is traffic or security and whether there are things that are somewhat presenting new use cases for A10? Dhrupad Trivedi: Sure. Yes, Hendi. Good question. So I think I'll do that briefly here. But for us, really, the like we have done in the last several years, right? We connect everything back to our differentiation. So on the foundation level, we have hardware platforms and software that now also support higher throughput, lower latency and GPU-based architecture. So those feed into people building out data centers, whether it's enterprise or service provider or telco or cloud, right? So that's the first foundation level. Second level is in our cybersecurity product, we have expanded coverage to where our products are able to detect and remediate threats that occur now because of AI traffic, and that will be things like prompt injection and loss of PII data and so forth, right? So that's an expansion of our networking know-how to now handle new kinds of threats that happen because of AI. Third is, obviously, we are working with our customers on a longer-term basis to understand how we can look at traffic data from a long period of time in complex networks and use AI tools to drive predictive analytics, which ultimately, for them, helps do better things around network planning, resource management and which is ultimately their cost of running -- like building and running a network, right? So that's the range of things we do. So we don't come into it thinking we are a new AI startup. What we do is we know 20 years of networking, we know cybersecurity, we have a large team of people, a lot of young graduates as well who are AI engineers. And what we are doing is we are taking our know-how in networking and security. And using that as a foundation to create AI solutions that are value creating for our customers. Hendi Susanto: Got it. And then Dhrupad, I think when you talk about U.S. service providers, you refer like Tier 1. What does the opportunity in Tier 2 service provider look like at A10 now? Dhrupad Trivedi: So I think broadly. So this is not AI, right? But broadly speaking, I think in the Tier 2 service provider side, a few years ago, right there was a lot of discussion of government spending, rural broadband, things like that. Obviously, that has changed quite a bit, particularly with the government actually in shutdown now. So it's not that, but it's more that for those kind of carriers, our solution does not require them to fully rip and replace everything they do and then figure out how to monetize it or pay for it, right? Our solutions are more aligned on getting more out of those networks, doing more virtualization, things like CGNAT, which allows them to reuse addresses cheaper and so progress there is more on an economic value proposition based on our technology. It is not a substitute for a Tier 1 who might spend 5x as much, right? But it is something where we continue to see good resonance with our technology and solutions. Operator: Thank you. That concludes our Q&A session. I will now hand the conference back to Dhrupad Trivedi for closing remarks. Please go ahead. Dhrupad Trivedi: Thank you and thank you to all of our employees, customers and shareholders for joining us today and for your continued support. I am increasingly confident in our strategy and about our future. Thank you for your time and attention. Operator: Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Operator: Greetings, and welcome to the RideNow Group, Inc. Third Quarter 2025 Earnings Call. [Operator Instructions] And as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jerene Makia, VP of Finance. Please go ahead. Jerene Makia: Thank you, operator. Good afternoon, everyone, and thank you for joining us for RideNow's Third Quarter 2025 Earnings Conference Call. Joining me on the call today are Michael Quartieri, RideNow's Chairman, Chief Executive Officer and President; and Joshua Barsetti, RideNow's Chief Financial Officer. Our Q3 results are detailed in the press release issued this afternoon and supplemental information will be available in our third quarter Form 10-Q once filed. Before we begin, I would like to remind you that comments made by management during this conference call may contain forward-looking statements, including, but not limited to, RideNow's market opportunities and future financial results. All forward-looking statements involve risks and uncertainties, which could affect RideNow's actual results and cause actual results to differ materially from forward-looking statements made by or on behalf of RideNow. A discussion of material risks and important factors that could affect our actual results can be found in our filings with the SEC, which are also available on our Investor Relations website and at sec.gov. This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Tuesday, November 4, 2025. RideNow assumes no obligation to revise or update any forward-looking statement, whether written or oral, to reflect events or circumstances after the date of this conference call, except as required by law. Also, the following discussion contains non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures, please refer to our earnings release issued earlier today. Now I'll turn the call over to Michael Quartieri. Michael Quartieri: Good afternoon, everyone, and thank you for joining us for RideNow's Third Quarter 2025 Earnings Call. Before I provide an update on our key initiatives, I'd like to welcome Josh Barsetti, our new CFO, to the team. After my remarks, Josh will take you through our Q3 results in detail. At RideNow, we remain laser-focused on improving what we control, approaching our operations with fresh thinking, discipline and a commitment to serving our customers. I remind our teams every day to stay focused on what we can control within the 4 walls of our business. When you get the right people in the right place at the right time, taking the right actions, good things happen. And while it's still early in our turnaround, that's exactly what we are beginning to see in our results. We are confident that we are taking the right actions, which allow us to harness the true earnings power of this company as the sales cycles return positive. Importantly, the momentum we saw in Q2 continued throughout Q3 and now into Q4. We increased gross profit year-over-year despite the challenges facing our transportation services segment and delivered improved year-over-year adjusted EBITDA results for the second consecutive quarter. Q3 marked the first quarter in our core powersports segment, where we achieved year-over-year improvement in revenue, new and pre-owned unit sales and gross profit dollars post-COVID. This combination, coupled with maniacal focus on driving waste out of the operation led to $12.3 million of adjusted EBITDA for Q3, which is a $5.5 million improvement year-over-year. As I stated during the Q2 call, we enacted a tactical plan that balance on near-term initiatives to improve financial performance and structural changes to reset the strategic direction of the company to drive long-term value creation for our shareholders. The near-term initiatives of getting the right leadership in place, reevaluating the cost structure and reinstalling a disciplined approach to store performance have progressed nicely to date. By focusing on the highest and most impactful priorities in the near term, we have seen tangible benefits in our operating results as demonstrated by the year-over-year improvement in unit volumes, gross profit and adjusted EBITDA despite the loss of business volumes at Wholesale Express. Rest assured, these near-term initiatives are not short-lived or temporary in nature. They are the building blocks of long-term structural changes that will provide lasting benefits and will drive long-term value creation for our shareholders well into the future. Since our last earnings call, we completed our name change to RideNow Group, Inc. with our new ticker symbol RDNW on the NASDAQ Exchange. This was done in conjunction with the relocation of our corporate headquarters back to Chandler, Arizona, the original and true home of RideNow. We completed the amendment and extension of the term loan agreement, which extended our maturity to September 2027 and lowered our interest rate. We raised $10 million in subordinated debt from related parties. The proceeds, combined with cash on hand, were used to repay $20 million of outstanding principal owed on the term loan. The combination of the lower interest rate and principal paydown has lowered our annual cash interest by approximately $3.4 million. This reduction, now coupled with the Fed's subsequent 2 interest rate cuts will increase this annual cash savings to $4.4 million. One of our key initiatives as a new management team taking a clean sheet of paper approach to the business has centered around a 360-degree assessment of our existing store portfolio to identify areas of operational improvement, consolidation and potential dispositions. Our primary opportunity is around exiting or consolidating consistently unprofitable or smaller locations into larger existing locations. These larger multi-brand stores are true destinations for our customers, which we refer to internally as our aircraft carriers. They are our best-performing locations and we are excited to have opened our 15th aircraft carrier in Fort Worth, Texas during the third quarter, which was the result of the consolidation of two smaller locations in the surrounding area. We've also initiated shutdown procedures of our pre-owned only store in Houston, Texas. Our team is aligned with clear goals, performance metrics and a culture of accountability. My conviction in our ability to execute and deliver improved results continues to grow each day. Looking forward, we are poised to deliver even more adjusted EBITDA and increased free cash flow, which we intend to deploy with a discipline of an owner-oriented company. And with that, I'll turn the call over to Josh for a more detailed discussion of the Q3 results. Joshua Barsetti: Thanks, Mike and good afternoon, everyone. I'll start by reviewing our financial results for the third quarter of 2025, followed by an overview of our balance sheet. During the quarter, we generated revenue of $281 million and adjusted EBITDA of $12.3 million. Adjusted EBITDA increased $5.5 million or over 80% when compared to the same quarter last year despite revenue being down 4.7%, which was driven solely by the reduction in revenue in our vehicle transportation business. Consolidated adjusted SG&A expenses were $61.5 million or 80.9% of gross profit compared to $64.3 million or 86.5% of gross profit in the same quarter last year. This is a reduction of $2.8 million or 4.4% compared to the same quarter last year. Moving on to our segment performance. The powersports group sold 15,949 total major units during the quarter, up 601 units or 3.9% from the same quarter last year. Total powersports major unit sales were 9,904, 164 units or 1.7% higher compared to Q3 of last year, while pre-owned unit sales totaled 4,701, up 152 units or 3.3%. The increase in total unit volume, coupled with an increase in gross profit per major unit contributed to a $4.9 million improvement in gross profit dollars, which totaled $75.7 million during the third quarter of 2025. New unit gross margins improved to 12.6% for the quarter compared to 11.3% for the same quarter last year. And pre-owned gross margins also improved from 14.6% in last year's third quarter to 16.1% in the third quarter of the current year. Our fixed operations business consisting of parts, service and accessories delivered $50.8 million in revenue and $23.9 million in gross profit. GPU for our fixed operations business was $1,636, up $47 or 3% from the third quarter of last year. Our finance and insurance teams delivered $24.9 million in revenue or GPU of $1,705, relatively consistent with the prior year's quarter. In total, revenue from our powersports group was $280 million, up slightly from the same quarter last year, which marks the first quarter of year-over-year improvement since the second quarter of 2023. Turning to our asset-light vehicle transportation services operating group. As you'll recall from our second quarter conference call, we addressed the departures of brokers within Wholesale Express and the expected impact on our results for the remainder of 2025. For the third quarter, Wholesale Express revenue was $1 million, down $14.1 million compared to the same quarter in the prior year. Gross profit decreased to $300,000 from $3.5 million in the prior year's third quarter. Turning to the balance sheet. We ended the quarter with $51.8 million in total cash, inclusive of restricted cash. Non-vehicle net debt was $184.9 million and availability under our short-term revolving floor plan credit facilities totaled approximately $131.1 million. Total available liquidity, defined as unrestricted cash plus availability under the floorplan credit facilities at September 30 totaled $182.9 million. Cash inflows from operating activities were $15.5 million for the 9 months ended September 30, and free cash flow was $10.5 million as compared to $68.6 million in cash flows from operating activities and $67 million in free cash flow for the same period last year. Last year's cash from operating activities and free cash flow were impacted by proceeds from the sale of a finance receivable portfolio and the reduction of excess major unit inventory during the period. With that, we'd like to begin the question-and-answer session. I'll turn the call back over to the operator now to open the lines. Operator: [Operator Instructions] And your first question comes from Eric Wold with Texas Capital Securities. Eric Wold: A couple of questions. I guess, one, give us an update on -- I know it's probably still -- I don't want to put words in your mouth but maybe give us an update on kind of the mindset of buyers that you're seeing coming into the dealerships after a couple of Fed rate cuts. Any change in sentiment? Or is it still a little early for that payment buyer to really shift their sentiment? Michael Quartieri: Yes. Look, I think it's probably a little bit earlier since the second cut just really was within the -- less than a week ago. But we do see it as obviously positive momentum for us. We usually see somewhere about 65% to 70% on average on a quarter of customers that are buying using financing as their option. So any rate cut, not only does it benefit us from a flooring perspective but also on the term loan, but the bigger benefit we see also comes from consumers and getting more money in their pocket to spend. So... Eric Wold: Got it. So kind of a little bit on that sense, I guess you continue to see positive momentum from the start of the year with pricing and margins on the preowned vehicle side of the business. How much of that is the quality of the product that you're bringing into inventory kind of versus obviously what happened last year versus reduced need to discount in the environment that we're kind of moving through this year? Michael Quartieri: Yes. Look, I think we got a really good opportunity in front of us because not only with the cash offer tool, we're able to get bikes from an online and using the technology accordingly. But also as customers are coming in for service, we've got plans in place that allow us to execute on offering that customer the opportunity to trade in, trade up to a better bike, get them into a new side-by-side. So we're taking advantage of any opportunity we have where we have interaction with the customer to look at providing them with a value of their unit to see if they want to use that as a trade-in. But an overall view, the health of the inventory is better than it's been in quite some time. And we obviously will see that in the quality of what you're getting from a GPU perspective and sale price. Eric Wold: And that's actually dovetails into my last question is now that we're kind of getting into the typical kind of buying period in the fall, can you talk about the quality of product that you're seeing out there in the used market and kind of how aggressive do you want to be now you've got a little bit better balance sheet, you got a better cost structure? How aggressive do you want to be out there in taking in inventory in the pre-owned side of the business ahead of the spring selling season next year? Michael Quartieri: Yes. Look, great point because we were looking at that as we go through because this is about the time when we start getting ourselves ramped up for the buying season. We have more availability and dry powder on our balance sheet today than we had before when it comes to the used product. So we do have the flexibility to flex up and buy more inventory. But rest assured, we're going to take a very kind of disciplined approach to it. We just don't want to go buy inventory for the sake of buying inventory. We want to buy the right inventory that we know we can make a profit on, and that's the most important aspect of it. Operator: Your next question comes from Craig Kennison with Baird. Craig Kennison: I wanted to ask about your, I guess, aircraft carrier strategy. As you consolidate locations, do you work with your OEM partners to make sure you preserve sort of the market share and the brand that you want in those markets? Michael Quartieri: Absolutely. Any time we move any one of our dealer points, we have to get permission and approval from the OEM. So we work with them hand-in-hand on consolidating the 2 smaller stores, which were basically 2 stores that had 3 brands each. So if you just think about the economy of scale that you can get by putting 6 brands under one roof, it's one management team. It's one less facility to maintain and that creates even more of a just a buying power opportunity for customers to come in, see 6 different OEMs under one roof, and we just see that as a great path forward and that's the success we've seen when we're sitting here in the Chandler location. We see it in Peoria and the other 14 plus that we have outside of the new one in Fort Worth. Craig Kennison: Got it. And with respect to the promotional environment, we know that many OEMs have been pretty aggressive trying to clear excess inventory, and it sounds like that has been successful. But I'm curious, from your standpoint, do you expect sort of a heavy promotional environment to continue? Michael Quartieri: No, I think it's going to be -- it will ebb and flow just based on demand. So what we're seeing right now is we view it as the OEMs are healthier today than they were before from an inventory level perspective. Our inventory is healthier than it's been before. And so that seems to be a great opportunity with consumers coming in as new products are coming available. We're not carrying a bunch of excess stuff where we get into next year where we're selling a bunch of model year '25 stuff rather than having the fresh new '26 models on the floor. Craig Kennison: And as you consider orders, I guess, for the next year, are you replenishing inventory sort of on a one-to-one basis in each store? Or do you feel like there's still room to destock what you have? Michael Quartieri: Yes. Look, it's going to be seasonal in nature. So where we're at right now is we feel very good about the overall age of the inventory with a more healthier portion of it being less than 120 days old, which really is a key to when you're coming up to the end of the year where you've got '25 models starting to wrap up and write down and you're starting to ramp up on some of the '26 models that will be coming. We feel really good on where we are. Cam and the team with Ross in general have done a great job in getting that inventory right and getting us to the point where we want to see it. Operator: [Operator Instructions] As there are no further questions at this time, this concludes today's conference call. We thank you so much for your participation. You may now disconnect.
Operator: Ladies and gentlemen, good afternoon, and welcome to the Corsair Gaming's Third Quarter 2025 Earnings Conference Call. As a reminder, today's call is being recorded, and your participation implies consent to such recording. [Operator Instructions] With that, I would now like to turn the call over to David Pasquale with Corsair Investor Relations. Thank you. Sir, please begin. David Pasquale: Thank you, operator. Good afternoon, everyone, and thank you for joining us for Corsair's Financial Results Conference Call for the Third Quarter ended September 30, 2025. On the call today, we have Corsair's CEO, Thi La; and CFO, Michael Potter. Thi will review highlights from the quarter. Michael will then review the financials and our outlook. We will then have time for any questions. Before we begin, allow me to provide a disclaimer regarding forward-looking statements. This call, including the Q&A portion, may include forward-looking statements related to the expected future results for our company and are, therefore, forward-looking statements. Our actual results may differ materially from our projections due to a number of risks and uncertainties. The risks and uncertainties that forward-looking statements are subject to are described in our earnings release and other SEC filings. Note that until our 10-Q has been filed, these numbers are preliminary. Today's remarks will also include references to non-GAAP financial measures. Additional information, including reconciliation between non-GAAP financial information to the GAAP financial information is provided in the press release we issued after the market closed today. With that, I'll now turn the call over to Corsair's CEO, Thi La. Please go ahead, Thi. Thi La: Thank you, David, and thank you all for joining us today. Q3 was another strong quarter for Corsair. We delivered double-digit year-over-year revenue growth and even stronger profit expansion, demonstrating disciplined execution and operational focus. These results reinforce that we are delivering on our promise, bringing more innovative products to market with a faster cadence and benefiting from strong consumer acceptance. We are seeing excellent traction across our latest product launches, such as the Vanguard 96 gaming keyboard, Saber Pro FPS ultra-lightweight mouse and Valor Pro Premium customizable controller. All of these were praised by the gaming community as offering great value with the right features for competitive and enthusiast players. The feedback and early sales performance confirm that our recent product road map is solid and will position us well into 2026. In our Components and Systems segment, revenue grew over 15% year-over-year, fueled by demand for high-performance PC builds and upgrades around the NVIDIA 5000 series GPUs. Customers continue to invest in high-wattage PSUs, 360-millimeter water cooling and high-capacity DDR5 memory. The launch of our award-winning Air 5400 chassis further strengthens our position as a leader in DIY solutions, giving builders a major step-up in both cooling performance and aesthetics. Our DDR5 memory lineup also broke multiple overclocking world records this quarter, a testament to our strength in performance DRAM engineering. We are also pleased with our Elgato brand, which continues to drive the broader creator ecosystem through the success of its marketplace flywheel. Growing adoption of Stream Deck, supported by an active creator community and increasing integration with leading applications and content creation platforms is creating meaningful long-term momentum. As our network of industry partners expands, we are unlocking new use cases and software opportunities that strengthen the ecosystem and reinforce Elgato's position as the go-to platform for creators. We have also made great progress on M&A integration, where we are expanding both our product road map and global reach. Fanatec's partnerships with leading motorsport brands, including BMW, Porsche, Red Bull and Sparco highlight our position as a trusted innovator in sim racing. Together, we are delivering authentic, high-performance experiences that bridge real-world racing and simulation. Fanatec's strong presence at the SimRacing Expo in Dortmund, Germany underscored the accelerating demand we see in Europe and the U.S. We received very positive community response and strong engagement for our latest Podium DD Direct Drive wheelbase and podium pedals precision pedal set. We developed these in collaboration with professional drivers to design in the most realistic experience possible for SIM drivers. We see Sim Sports as a multiyear growth driver and have more exciting products in development heading into 2026 and beyond. With a strong racing brand and global expansion opportunities, we feel good about our position in the market. Looking ahead, we remain focused on executing every key element of our business strategy and building smarter products faster for our community of gamers, creators and professionals. We continue to manage operating expenses with discipline to improve our bottom line, while still supporting the strategic investments that drive future growth. Lastly, our AI road map opens exciting opportunities for Corsair to participate at multiple levels from computing, content creation, usability to performance tuning, all of which position us for long-term growth. With that, I will turn it over to Michael to walk through the financials. Michael Potter: Thanks, Thi, and good afternoon, everyone. As Thi noted, this was another strong quarter for us. We grew profitability faster than revenue in the quarter, underscoring the significant operating leverage within our business model. Our balance sheet remains strong, and we are in a great position to support enthusiast demand across our entire ecosystem, while continuing to invest in the long-term initiatives that will drive our growth. In terms of the specifics, Q3 2025 net revenue increased 14% to $345.8 million compared to $304.2 million in Q3 2024. For the first 9 months of 2025, net revenue increased 15% to $1.04 billion from $902.8 million in the year ago period. European markets contributed 40% of our Q3 2025 revenues compared to 34% in Q2 2025, while the APAC region was 13% of our Q3 2025 revenues compared to 14% in Q2 2025. Turning now to our segments. The Gamer and Creator Peripherals Segment contributed $112.7 million of net revenue during the third quarter compared to $102 million in Q3 2024. For the first 9 months of 2025, Gamer and Creator Peripherals Segment revenue increased to $327.3 million compared to $303.2 million in the first 9 months of 2024. The Gaming Components and Systems Segment contributed $233.1 million of net revenue during the third quarter compared to $202.2 million in Q3 2024. Memory products contributed $117.2 million in Q3 2025 compared to $97 million in 3Q 2024. For the first 9 months of 2025, Gaming Components and Systems segment revenue increased to $708.4 million from $599.6 million in the first 9 months of 2024, with revenue from memory products increasing to $363.2 million from $303.6 million. Overall gross profit in the third quarter increased 33.6% to $93.1 million compared to $69.7 million in Q3 2024, reflecting our continued execution and increased contribution from higher growth products and channels. Gross margin increased 400 basis points to 26.9% compared to 22.9% in Q3 2024. This reflects the positive uplift from our improved product mix. Overall gross profit increased to $281.3 million for the first 9 months of 2025 compared to $219.4 million in the first 9 months of 2024. Gross profit in the Gamer and Creator Peripherals segment increased to $44.3 million compared to $39 million in Q3 2024. Gross margin increased to 39.3% compared to 38.3% in Q3 2024. The Gaming Components and Systems segment gross profit increased to $48.8 million compared to $30.6 million in Q3 2024. Gross margin increased to 20.9% compared to 15.1% in Q3 2024. Our memory products gross margins in this segment were 16.8% for the third quarter compared to 10.7% in Q3 2024. Third quarter SG&A expenses were $82 million compared to $74.1 million in Q3 2024, but down from $85.3 million in Q2 2025 as we support our higher revenue, but remain diligent in our cost controls. Third quarter R&D expenses were $16.7 million compared to $16.5 million in Q3 2024. This was down from $17.5 million in Q2 2025. We remain committed to the controlling operating expenses, while supporting the company's long-term growth opportunities. GAAP operating loss improved to $5.6 million in the third quarter of 2025 compared to a GAAP operating loss of $20.9 million in Q3 2024. Third quarter adjusted operating income was $13.5 million compared to adjusted operating income of $2.4 million in Q3 2024. Adjusted operating income was $40.8 million for the first 9 months of 2025 compared to $14 million in the first 9 of 2024. Third quarter net loss attributable to common shareholders was $9.5 million or $0.09 per diluted share as compared to a net loss of $58.4 million or $0.56 per diluted share in Q3 2024. On an adjusted basis, third quarter net income was $6.8 million or $0.06 per diluted share compared to an adjusted net loss of $30.3 million or $0.29 per share in Q3 2024. For the first 9 months of 2025, adjusted net income was $20.4 million or $0.19 per diluted share compared to adjusted net loss of $27.6 million or $0.27 per share in the first 9 months of 2024. Finally, the third quarter adjusted EBITDA increased 236% to $16.2 million compared to $4.8 million in Q3 2024. For the first 9 months of 2025, adjusted EBITDA increased 117% to $47 million compared to $21.6 million in the year ago period. Turning now to our balance sheet. We ended Q3 with a cash balance, including restricted cash of $65.8 million. We built inventory ahead of the seasonally strong Q4. Overall, we continue to maintain a healthy balance sheet with sufficient cash to fund the development of our expanding product portfolio and growth plan. We ended Q3 with $123.4 million of debt at face value, and our $100 million working capital revolver remains available. Our outlook. In terms of the full year 2025, we are updating our guidance to reflect greater clarity around the market dynamics and ongoing changes in the global trade policy developments. Net revenue is expected to be in the range of $1.425 billion to $1.475 billion. Adjusted operating income to be in the range of $76 million to $81 million. Adjusted EBITDA is projected between $85 million and $90 million. This adjustment gives a conservative outlook for Q4, primarily to account for a tight DDR5 memory market and reflects customers' latest spending patterns. While Corsair has a strong mitigation plan in place for memory availability, we believe it's prudent to temper expectations on the upside in this category. Gaming and Creator Peripherals continue to grow year-over-year, tracking in the high single digits for 2025. As gamers focus on high-end PC builds, particularly with the adoption of NVIDIA 5000 series GPUs starting in late Q2, we expect peripheral upgrades to follow as new builds normalize, supporting continued momentum into 2026. As a reminder, when we model income taxes, we do not take a benefit for losses in our GAAP results. In Q3 2024, we took a $32.5 million noncash valuation allowance. Since then, we have been not booking a credit that would create further tax assets related to a loss carryforward, which is usual for this type of accounting. Typically, we would not start recognizing this benefit until you return to profitability. In addition, despite $12 million in unforeseen tariff costs since May, Corsair delivered meaningful margin progress through agile supply chain management, proactive sourcing, pricing actions and disciplined spending. Corsair expects to exit 2025 with a solid year-over-year improvement in EBITDA margin. We believe this positions Corsair for sustained profitable growth in 2026. With that, we're now happy to open the call for questions. Operator, will you please open the call for Q&A. Operator: [Operator Instructions] The first question comes from the line of Aaron Lee from Macquarie Asset Management. Aaron Lee: As it relates to guidance, you referenced estimated consumer spending patterns in the release. Any more color you can put behind that just in terms of your expectations? And can you comment on how trends looked as you progressed through the quarter and into October, please? Thi La: Yes. Good to hear from you, Aaron. So with regards to that particular comment, what we see is the availability of the NVIDIA GPU is really only hitting us towards the end of Q2 and Q3 is when the consumer spending was starting to come for the DIY components categories as well as system. And the spending pattern is more on the component and systems segment first. That's where you see the nice growth year-on-year, double digit. And basically, where we see is that the delay in increased spending for Gaming Peripherals and Creator segment into Q4 and 2026. It still show a nice number year-on-year for us, but we see that as just a priority in terms of investment. Now I do have to say that we do see that when we start at the beginning of the year, we were looking at double-digit growth for gaming, but for the North American market, it's more like a single digit versus a double digit at this point. Aaron Lee: Got it. Great. That's helpful color. And then on the memory market, do you have any visibility into how long the tightness there could last? And at what point do you decide it's appropriate to start mitigating? And how quickly can you implement the mitigation plans? Thi La: Yes, that's a great question. And probably late Q3, we are starting to see signs, and I'm sure you have heard it from other industry partners as well that the DDR5 memory is going to be tight towards the end of this year and probably first half of next year. We have already taken action probably at the beginning of Q3 at this point. You can see that from our cash position where we definitely are investing in inventory to help drive the rest of the year as well as, well into next year. And we feel pretty good about our position at this point in terms of memory supply as well as our ability to just drive growth year-on-year, but we're being conservative because seeing that where the market is a bit tight, we don't want to be overly ambitious in terms of our numbers. Operator: We take the next question from the line of Alicia Reese from Wedbush Securities. Alicia Reese: If we could double-click a little bit more on the memory, the guidance with regard to the DDR5. Now can you give us a little bit more color on the conservatism? I suppose what you are looking at in terms of worst case/best case scenario and how that plays out through the fourth quarter? Thi La: Yes. So actually, memory contributed meaningfully to Q3 in the last -- you know, memory is actually kind of like 1/3 of our revenue in some quarters. And right now, the -- we're seeing some benefit from margin expansion, especially due to the fact that we have decent inventory positions and the pricing has been going up. In general, when the memory market started to move upward in terms of pricing, we usually see some margin benefits from that. And in terms of inventory, we're feeling pretty good about our position. And as I mentioned before. So our conservatism is, as I mentioned, just stem from the fact that if we look at the situation, if it's going to be a couple of quarters out with a lot of people jumping in to mitigate it, we don't want to assume any potential upside just yet, right, at this point. But the demand is actually quite healthy at this point. I would say that we cannot fulfill all of the upside coming in. But on the other hand, we're not worried about the number that we have committed to. Operator: We take the next question from the line of Drew Crum from B. Riley Securities. Andrew Crum: Michael, your commentary on tariff costs, $12 million, I just want to clarify that's an unmitigated number. Also, what are you anticipating through the balance of the year? And any preliminary thoughts as to where your tariff exposure or costs will be in '26? And then I have a follow-up. Michael Potter: Well, thanks for the question, Drew, and welcome back to the call. It's good to hear your voice again. Andrew Crum: Good to be back. Michael Potter: Yes, that's the unmitigated and that's our number for this year, what our expectations are. We mitigated almost all of it, as we've indicated before, just to give an indication of some of the headwinds we fought against. And I don't know if Thi has anything else you'd like to add to that. Thi La: Yes. Drew, very nice to meet you under any capacity. I think what we wanted to kind of start out the year -- I mean, I wanted to kind of relate back to when we start out the year, and we didn't plan for any tariff when we set the 2025 numbers. And since then, lots of changes in the policies, and we were happy to say that we were able to mitigate pretty much most, if not all, of the tariff impact. And as the company is really focusing on building up our margin portfolio and really trying to kind of increase our efficiencies in product launch cadence as well as operational efficiencies and M&A synergies, we feel pretty good about 2025 overall. And our latest signal for the rest of the year basically is a testimony to the effort that we have in terms of supply chain mitigation as well as product pricing mitigation. So I just wanted to kind of share that with you, but you can see the accomplishment here. Andrew Crum: Got it. Okay. Very helpful. And then, Thi, it looks like I peaked at your 10-Q, it looks like your U.S. business lagged other regions during 3Q. And I know one of your competitors last week flagged weaker consumer demand in the domestic market during their 3Q. I'm curious if your comments concerning the North American market being up single digits versus double digits earlier in the year, what that contemplates as far as the holiday quarter is concerned? Thi La: Yes. So for Q3 for us, we see that both Europe as well as Asia market is growing double digit and North America specifically grew single digit. That was the comment that I made earlier on, and we see that this region is growing a little bit slower than the other region. We are still seeing Corsair performing better than market, especially with the 15% and the 10% segment growth. So we're feeling good about our ability to gain market share during this time. But my comment is basically reflecting that North America, in particular, is slower than the other 2 regions. Operator: We take the next question from the line of Rian Bisson from Craig-Hallum Capital Group. Rian Bisson: It's Rian on for Tony Stoss. I'm just curious kind of on the Elgato side. I mean now that it's been kind of a full quarter with the Nintendo Switch 2 selling and it's selling very well. If there's anything you could speak to about maybe Streamdeck or Capture Cards that could be trending better than expectations just with an expansion into the Nintendo Switch 2 market? Thi La: Yes. Very nice to meet you, Rian, and welcome on board. I wanted to speak to the Elgato Capture Cards, in particular, the 4K Capture Card that we launched in around June time frame, right in line with the Switch 2, and since then, we definitely have seen double-digit growth, if not triple-digit growth for the categories in terms of people liking to be able to stream with the new platform. And same thing, Streamdeck alongside with that is doing fairly well. We see point of sales growing double digit year-on-year. We're making great progress with the platform. Also, the marketplace is growing in terms of contents and plug-ins. And we see that creators is definitely using the platform to either post their plug-ins or to even monetize for their plug-ins and the number of daily average users is growing very nicely for us. Operator: [Operator Instructions] We take the next question from the line of Doug Creutz from TD Cowen. Douglas Creutz: It's kind of a big picture question. I read a story the other day that Steam's active user base had roughly doubled over the last 5 or 6 years. And I remember several years ago, you guys had an Analyst Day where you talked about your expectations for growth in the PC gaming market. And they were sort of consistent with that, maybe a low double-digit growth rate. When I look at your Components and Systems segment revenue, where it's likely going to come out this year relative to where it was in 2019, it's only up about 15%, which -- there seems like there's -- somewhere there's a lot of leakage between the overall growth rate of the industry and what you guys are seeing on the system side. Obviously, your peripherals performance has been higher, but there's also been a lot of M&A in that segment. So maybe could you talk about why the divergence in the growth you've seen versus the growth the industry has seen and what you can do to get the 2 back into sort of parity? Thi La: Thank you and good to hear from you. So the way that we see the market is actually 2 very different segments, right? So you've got the publishers, the software revenue through game titles. And then you also have the hardware revenue through either people buying gaming PC from manufacturer like HP, Dell. And then they can build PCs through us. So these are like the DIY folks, and that's the Gaming Components and Systems segment. So we, in general, forecast our business alongside with hot game releases to be about a single-digit growth with the exception of when you have an NVIDIA graphic cards launch, then that's when we started to see the big pop in terms of double-digit growth. So this year, because of the 5000 series launches, we were predicting that a lot of people will be rebuilding their PC, and that's where we see the spike. To play some of these titles, you don't really need to have a new PC every single time. So we see the growth of game titles, unless you have a very exciting titles like Fortnite, for example, that requires a very good headset, for example, to play. It's basically just pretty much track more like a single-digit growth. And the next title for us that's going to be driving a lot of hardware sales, we believe, is the GTA VI when that is becoming available for PC because to play that game, the graphics content requires extremely high resolutions, and there will be a lot of CGI content being created at that time. So this is where we can see another double-digit acceleration. Operator: [Operator Instructions] We take the next question from the line of Colin Sebastian from Baird. Unknown Analyst: This is [indiscernible] on for Colin Sebastian. Now that Fanatec is integrated into the core business and gaining traction with partners and consumers, are you thinking about the SimRacing opportunity any differently than at the initial acquisition? Thi La: Yes. Thank you for coming in. We actually are very excited about the Fanatec opportunity from a number of different fronts. So the first one is just expanding the current product road maps. When we acquired Fanatec, some of the solution that they have on their portfolio has been quite old, and we just started to unlock all of that solution we'll be releasing, starting from now until the next number of quarters, just refreshing all those products would drive incremental revenue for us. The other opportunity for us for Fanatec would be to enter new category, for example, coaching and performance tracking with some of the partners. For example, you can use AI to guide and monitor your driving style and then giving you advice so that you can gain that extra second, right? But that has been a pretty popular features for community. The second thing is entering additional categories such as the Flight sim and also farm sim. There are a number of verticals that we have not really tapped into, and these are all going to be incremental revenue source for us. Operator: [Operator Instructions] As there are no further questions, I would now hand the conference over to Corsair CEO, Thi La, for her closing comments. Thi La: Thank you, everyone, for joining us on the call today and for your continued support. If you have any follow-up questions, please contact our Investor Relations department. We look forward to updating you next quarter. Thank you, and have a good evening. Operator: Thank you. Ladies and gentlemen, the conference of Corsair Gaming has now concluded. Thank you for joining us, and you may now disconnect your lines.
Operator: Good day, and welcome to the Match Group's Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Tanny Shelburne, SVP of Investor Relations. Please go ahead. Tanny Shelburne: Thank you, operator, and good afternoon, everyone. Today's call will be led by CEO, Spencer Rascoff; and CFO, Steven Bailey. They'll make a few brief remarks, and then we'll open it up to questions. Before we start, I need to remind everyone that during this call, we may discuss our outlook and future performance. These forward-looking statements may be preceded by words such as we expect, we believe, we anticipate or similar statements. These statements are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. Some of these risks have been set forth in our earnings release and our periodic reports with the SEC. Also, during this call, we will discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the published materials on our IR website. These non-GAAP measures are not intended to be substitutes for our GAAP results. With that, I'd like to turn the call over to Spencer. Spencer Rascoff: Good afternoon, everyone, and thank you for joining us. Since joining Match Group in February, my focus has been clear: Confront challenges directly, move with urgency and rebuild the company around product, excellence and long-term growth. The work on our three-part turnaround is well underway and focused on reset, revitalize and resurgence. We've successfully completed the reset phase, instilling a culture of speed, accountability and outcomes, and this shift has come to life across our products, teams and users. That progress is reflected in this quarter's results. We delivered on our revenue expectations and exceeded our adjusted EBITDA goals, excluding a legal settlement. At Tinder and Hinge, momentum continues to build as we make progress in our revitalization phase. We're starting to see green shoots and believe continued progress will come from delivering experiences that solve user pain points, deepen engagement and improve user outcomes. We believe our business model thrives when user outcomes improve. Better outcomes, driven by higher quality experiences, better matches and more meaningful connections, build confidence in our product and drive new users through positive word of mouth. User success builds trust in the category and in Match Group's apps. By getting the user experience right, we will further deliver real success stories, which we use in marketing to amplify growth by driving new user acquisition and reactivations. Our marketing strategy, especially at Tinder and Hinge, is focused on fueling category consideration bringing in new and lapsed users through product-led storytelling that reflects real experiences happening across our brands. We estimate there are roughly 250 million actively dating singles worldwide, not currently on dating apps. Reengaging the 30 million lapsed users and attracting the 220 million potential first-time entrants expands our user base, building a healthier, more efficient growth engine that compounds over time, and we are investing to capture this large addressable market. Hinge continues to prove that with the right product experience and brand positioning, we can win with Gen Z and drive real growth at scale. Soon, we believe Tinder will too. We'll walk through 3 proof points today: First, our product progress, where our obsession with outcomes is showing up across our brands, especially at Tinder and Hinge; second, the essential work we're doing to strengthen trust and authenticity across the ecosystem; and third, the financial discipline and operational rigor that are now showing up in how we execute. Starting with product. Across Match Group, our brands share one goal, delivering better user outcomes. I want to highlight the progress at our 2 flagship brands, Tinder and Hinge, and how each is building affinity with users in different segments. At Tinder, our focus this year has been to accelerate innovation, to rebuild trust and to ship great products so we can reintroduce Tinder in 2026 to our core audience of Gen Z. Our new mission statement, Tinder is the most fun way to spark something new with someone new, captures the energy and the sense of possibilities we want every user to feel. Guided by new personas, prototypical user archetypes, that reflect real people and their motivations, we're creating experiences that feel more personal and more aligned with what users want. We've clarified what Tender stands for and who we're building it for, and that focus is already paying off. Users are seeing and feeling the difference through updates that are reshaping the Tinder experience in the following ways: First, we're building a product and design-led culture. Our new liquid glass refresh planned on iOS this quarter will make the app more modern, fluid and visually appealing, further bringing our mission to life every time you open the app. Second, Chemistry is redefining how people connect. Powered by AI, this interactive matching feature, now known as Chemistry, is a major pillar of Tinder's upcoming 2026 product experience. It gets to know users through interactive questions and with permission, learns from their camera roll to better understand their interests and personality. Using deep learning, Chemistry combats swipe fatigue by surfacing a few highly relevant profiles each day, driving more compatible matches and engaging conversations. Chemistry is now live in New Zealand and Australia with plans to expand to additional countries in the coming months. Third, Modes are powering a new social energy on Tinder. Our new Modes navigation gives users more choice in how they use Tinder, from meeting new people with a friend to connecting with their college community. Since launching Modes in September, Double Date adoption is up 30% in the U.S., while College Mode is gaining traction with 1 in 4 eligible students using it and over 8% engaging daily as of October. Modes makes the fun part of our mission real, giving new ways to spark something together and redefining Tinder as a fun, social and low-pressure way to meet new people. We're also seeing this momentum reflected in our marketing. The Double Date Island campaign across Europe drove the highest brand consideration lift of the year, boosted downloads and particularly resonated with Gen Z. It proved that when we connect product innovation with authentic social-first storytelling, we can reignite excitement and bring new energy back to Tinder. Fourth, evaluating profiles is becoming more meaningful and holistic. We've started testing several new features resonating with Gen Z by giving users more information to evaluate and connect with potential matches. Bio information now appears on the first photo card, and prompts content is integrated into the photo carousel. These improvements let users learn more about a potential match before deciding to Swipe Right. We've also started testing features like contextual likes and open messaging, and we fully rolled out prompts on photos to let users share why they swiped right, making interactions more intentional and authentic. Finally, app performance is a major focus and a key driver of user experience. On Android, Tinder startup times are now 38% faster and crash rates are reduced by more than 32%. On iOS, app stability is up more than 57%. We're also removing long running tests and unused features to make the app leaner. As we bring load times closer to one second on iOS and Android, Tinder already feels faster and smoother. Our app performance work on iOS and Android is in service of the fun part of our mission because no one enjoys a slow buggy app. You can feel the energy across Tinder. During our Hack Week last week, teams brought incredible innovation and creativity, building some of the most exciting products and prototypes we've seen in years. The company feels electric. Meanwhile, Hinge continues to be one of the best and most undiscovered stories in consumer tech, powered by a clear mission, a motivated team, a leading product experience and sustained momentum. Hinge's Designed to be Deleted philosophy drives a focus on user outcomes, specifically helping people go out on great dates, our North Star. This clarity of purpose has resulted in category-leading growth in both users and revenue. Hinge is leading the way on AI innovation in dating with category-first AI features that drive better connections and more real-world outcomes. This quarter brought both wins and learnings. Conversation starters, which offers personalized prompts for first messages, was a clear win, driving approximately 10% more likes with comments and stronger engagement overall during the test, particularly with women. Updates to our recommendation system improved matching quality through rigorous testing and provided valuable insights that are already refining our approach. Warm intros, designed to surface compatibility cues, didn't resonate, and we won't move forward with it. While understanding compatibility remains a key focus, Hinge continues to prioritize user outcomes over simply launching new tools, reflecting our principled approach to innovation. As we look ahead to the next few quarters, Hinge has an exciting slate of category-first features that showcase our leadership in product innovation and user experience. First impressions help daters lead with personality. This new feature introduces prompts above photos, giving users more ways to express who they are and add depth to their profiles. A similar experience in the standouts section earlier this year was well received, and we're eager to see how users respond as we continue making Hinge more personal and expressive. Preferences will also become more meaningful at Hinge. Reimagined preferences will take a new look at how daters express what they're looking for, capturing compatibility with greater nuance and intentionality. This update addresses key user pain points, helping people share what truly matters and find better matches faster. These are just a few of the ways that Hinge continues to drive innovation in service of user outcomes. The next pillar of our strategy is centered on deepening trust in the category. So turning now to trust and authenticity and the ways in which it strengthens the foundation of our ecosystem. In dating apps, everything depends on the integrity of the ecosystem. No matter how many new features we launch, people use our apps to meet other new people, and that only works when they feel safe, respected and confident in being themselves. Building and maintaining that trust is core to our long-term success, which is why we're doubling down on trust and safety across our platforms. Nowhere is that more evident than at Tinder, where we're integrating safety directly into the product experience like never before. The centerpiece of this effort is Face Check, our new facial verification feature that helps confirm users are real and match their profile photos. It's now required for all new users in California, Colombia, Canada, India, Australia and Southeast Asia, and will roll out to additional U.S. states and countries in the coming months. Face Check sets a new standard for authenticity. Using only a short video selfie, it helps confirm a user is real and matches their profile photos. We built this technology with care, ensuring it delivers meaningful improvements to trust and safety, while keeping the user experience seamless. Early results are strong and reinforce our confidence in the long-term benefits to the broader ecosystem. We have seen a 60% reduction in user views of profiles later identified as bad actors, and a 40% decrease in reports of bad actor activity. Our ongoing optimization efforts have resulted in only low-single-digits impact to monthly active users and revenue in test markets, which lessens over time. Early Net Promoter Score results show a clear and sustained improvement in user trust and satisfaction in test markets, with scores up roughly 10 points for men and 5 points for women in key markets where Face Check has launched. This is just the beginning. We plan to expand Face Check across the portfolio, with testing on Hinge beginning in the next few months. We're also expanding safety beyond verification into everyday user interactions. Tinder and Hinge have introduced new fairer enforcement tools to educate users and promote better behavior through faster and more consistent moderation. This approach calibrates responses based on severity, helping create a safer and more respectful community. We are also enhancing our Are You Sure? feature, which prompts users to pause before sending potentially offensive or disengaging messages with large language models to make it smarter and more effective at encouraging better conversations in real time. Originally developed at Tinder and later enhanced by Hinge, this LLM-powered version improves accuracy and tone. Now Tinder is incorporating those learnings back into its own experience, a great example of how our portfolio of brands innovate together, share insights and make each other stronger. Within Hinge, these principles come together through our product design and user experience. Beyond moderation, Hinge continues to refine the onboarding experience to build confidence and trust early in the user journey. Recent updates include clear guidance during setup, refreshed community guidelines at help center and the introduction of an AI-powered chatbot that quickly answers commonly asked questions. Together, these updates reinforce Hinge's position as a dating app grounded in authenticity and safety, where people can show up as their true selves and form meaningful relationships. Let's now turn to our financial and operational rigor and how it translates into results. The same discipline driving product innovation is also reflected in how we execute day-to-day. We are operating with sharper focus and accountability across the company, hitting deadlines, shipping Match Group-wide features such as alternative payments faster and acting like a more nimble and decisive company. These improvements are creating operational momentum and financial optionality as we plan for 2026. You can see this strategy in action through Project Aurora, our large-scale test in Australia that brings together many of Tinder's biggest advancements into a faster, safer and more personal experience. As part of this work, we're overhauling the recommendations engine to better align with user outcomes, improving both Match quality and overall satisfaction. We're being thoughtful with our tests prioritizing user trust, outcomes and long-term impact over quick wins. We may see some short-term revenue and adjusted EBITDA impacts from these tests, which we've included in our guidance, as we trade short-term monetization for a better user experience and improve user outcomes. These tests will help us refine our strategy and further validate that improved user outcomes will drive more sustainable user and revenue growth over the long term, which in turn will drive increased shareholder value. We'll share more of these results next quarter. At Hinge, momentum continues to build as the product delivers meaningful outcomes for users. Revenue, adjusted EBITDA and user growth remain strong, supported by continued innovation and disciplined execution. Hinge's international expansion remains on track with the successful Mexico launch in September and with Brazil planned for Q4. The team is actively working on plans for new expansion markets in 2026 as well. Hinge launched alternative payments testing ahead of schedule in Q3 with strong early results. We plan to fully roll out alternative payments across our major apps, including Tinder and Hinge in the U.S. in Q4. Strong initial performance at Hinge and ongoing optimizations at Tinder and E&E have increased adoption of web payments, and we now expect to generate approximately $14 million of savings in Q4 2025 and approximately $90 million in 2026. We have seen some impact to gross revenue in some of our tests at Tinder and Hinge, which we're continuing to optimize for. We're also seeing early success from our recent acquisition of HER, which expands our reach among queer women and gender-diverse communities. The team has already delivered strong results with algorithmic improvements and monetization optimizations driving over 20% revenue increase in test markets. This success highlights the opportunity to scale high-potential brands across our portfolio and deepen our presence in key segments of the dating market. That same disciplined approach to growth is reflected in how we manage the business. Our financial discipline earlier this year generated approximately $100 million of annualized savings, allowing us to reinvest approximately $50 million across the portfolio to test user-first features, strengthening marketing and expanding our international footprint. The early results from our Q3 investments are instilling confidence in our strategy, and we're executing well against our Q4 plans. The learnings from these investments and the ongoing benefits of the cost-savings efforts will help inform how we prioritize and deploy capital in 2026. Together, these steps are setting the foundation for the next phase of the turnaround and the resurgence that we expect to take hold in 2026 and 2027. We're entering this next chapter with real progress and a clear path forward. At Tinder, our new measure of success, Sparks, tracks 6-way conversations, meaning at least 6 total messages exchanged between 2 users. This has become one of the clearest indicators that a genuine connection is forming. While the total number of Sparks is lower year-over-year due to a smaller monthly active user base, Sparks coverage or the proportion of users in the ecosystem having these deeper conversations continues to improve and is up year-over-year. This shows that more users are having better experiences on the platform, an early but encouraging sign that our focus on improving product quality and user outcomes is taking hold. Match Group holds a unique position in solving one of the most important challenges of our time, helping people connect in a world that increasingly feels disconnected. Our focus is on fostering genuine human connection, while ensuring technology strengthens relationships and is the social fabric that brings people together. And with that, I'll turn it over to Steve to walk through more on the financials. Steven Bailey: Thanks, Spencer. We're pleased with our Q3 results, as Match Group total revenue was in line with expectations for the quarter and adjusted EBITDA meaningfully exceeded our expectations excluding a $61 million charge to settle the Candelore v. Tinder, Inc. case on a class-wide basis. Candelore is a 10-year-old case involving Tinder's former age-based pricing. The parties are preparing a long-form agreement reflecting the settlement terms and will then seek approval of the settlement by the court. In Q3, Match Group's total revenue was $914 million, up 2% year-over-year, up 1% year-over-year on a foreign exchange neutral basis. FX was $4 million better than expected at the time of our last earnings call. Payers declined 5% year-over-year to 14.5 million, while RPP increased 7% year-over-year to $20.58. Indirect revenue of $18 million was up 8% year-over-year, driven primarily by strength in our third-party advertising business. Moving to total company profitability. In Q3, Match Group's adjusted EBITDA was $301 million, down 12% year-over-year, representing an adjusted EBITDA margin of 33%. Excluding the $61 million settlement charge and $2 million of restructuring costs, included in the $25 million of restructuring costs announced in May, adjusted EBITDA would have been $364 million, up 6% year-over-year, representing adjusted EBITDA margin of 40%. Tinder direct revenue in Q3 was $491 million, down 3% year-over-year and down 4% year-over-year FXN. Q3 direct revenue includes an approximately $3 million negative impact from user experience testing in the quarter. Payers declined 7% year-over-year to 9.3 million and RPP increased 5% year-over-year to $17.66. Adjusted EBITDA in the quarter was $204 million, down 23% year-over-year, representing an adjusted EBITDA margin of 40%. Excluding the legal settlement charge, adjusted EBITDA would have been $264 million, representing an adjusted EBITDA margin of 52%. Hinge continued its strong momentum in Q3 with direct revenue of $185 million, up 27% year-over-year and up 26% year-over-year FXN. Payers increased 17% year-over-year to 1.9 million and RPP increased 9% to $32.87. Adjusted EBITDA was $63 million, up 22% year-over-year, representing an adjusted EBITDA margin of 34%. E&E direct revenue in Q3 was $152 million, down 4% year-over-year and down 5% year-over-year FXN. Payers decreased 13% year-over-year to 2.3 million, while RPP increased 10% year-over-year to $22.22. Adjusted EBITDA was $47 million, up 14% year-over-year, representing an adjusted EBITDA margin of 30%. Match Group Asia delivered direct revenue in Q3 of $69 million, down 4% year-over-year on both an as-reported and FXN basis. Excluding the exit of our live streaming businesses, Match Group Asia direct revenue in Q3 was flat year-over-year on both an as-reported and an FXN basis. Azar direct revenue was flat year-over-year and up 2% year-over-year FXN. Azar direct revenue was negatively impacted by an estimated $3 million after Azar was blocked in Turkey by Turkish regulators in late August. We're pursuing all available legal remedies and working with Turkish regulators to get Azar unblocked. However, it is unclear at this time when that may happen. Pairs direct revenue was down 1% year-over-year and down 2% year-over-year FXN. Across Match Group Asia, payers increased 6% year-over-year to 1.1 million, while RPP declined 10% year-over-year to $20.73, partially due to the exit of Hakuna mid-last year. Adjusted EBITDA was $15 million, down 14% year-over-year, representing an adjusted EBITDA margin of 22%. Looking at costs, including stock-based compensation expense, total expenses were up 1% year-over-year in Q3. Cost of revenue decreased 2% year-over-year and represented 27% of total revenue, down 1 point year-over-year, driven by reduced variable expenses from the shutdown of our live streaming services mid-last year, lower web services costs and lower employee compensation expense from our restructuring efforts. Selling and marketing costs increased $12 million or 8% year-over-year and represented 19% of total revenue, up 1 point year-over-year, primarily due to increased marketing spend at Tinder, Hinge and Match Group Asia, partially offset by lower employee compensation expense from our restructuring efforts. General and administrative costs increased 42% year-over-year, up 5 points year-over-year as a percentage of total revenue to 16%, driven primarily by the legal settlement charge, partially offset by lower employee compensation expense from our restructuring efforts. Product development costs increased 1% year-over-year and were flat year-over-year as a percentage of total revenue at 11%. Depreciation and amortization decreased by $44 million year-over-year to $24 million due to impairments of intangible assets at E&E and Match Group Asia in the prior year quarter and lower internally developed capitalized software costs, primarily at Tinder and Match Group Asia. Turning to the balance sheet. Our trailing 12-month gross leverage was 3.4x and net leverage was 2.5x at the end of Q3. We ended the quarter with $1.1 billion of cash, cash equivalents and short-term investments on hand. In August, we issued $700 million of 6.125% senior notes due 2033. The proceeds from these notes will be used to repay all of the exchangeable senior notes coming due in 2026 on or before maturity and for general corporate purposes. In September, we repurchased $76 million of the 2026 exchangeable senior notes at a discount to par. Year-to-date through Q3, we delivered operating cash flow of $758 million and free cash flow of $716 million. We repurchased 17.4 million shares at an average price of $32 per share on a trade date basis for a total of $550 million and paid $141 million in dividends, deploying nearly 100% of free cash flow for capital return to shareholders. In October, we repurchased an additional 3 million shares of our common stock for $100 million on a trade date basis and at an average price of $33 per share. As of October 31, 2025, we reduced diluted shares outstanding by 8% year-over-year. We maintain our commitment to target returning 100% of free cash flow to shareholders through buybacks and the dividend. Now turning to guidance. We expect Q4 total revenue for Match Group of $865 million to $875 million, up 1% to 2% year-over-year. This range assumes a nearly 2.5 point year-over-year tailwind from FX. FXN, we expect total revenue to be down 1% to 2% year-over-year. We expect Match Group adjusted EBITDA of $350 million to $355 million in Q4, representing a year-over-year increase of 9% and an adjusted EBITDA margin of 41% at the midpoint of the ranges. Q4 total revenue guidance reflects continued strong performance at Hinge and Tinder performance that is in line with the expectations we had at our last earnings in August, including an expected $14 million negative impact to Tinder direct revenue from user experience testing. It also reflects weaker-than-expected performance at E&E and assumes the continuation of Azar's block in Turkey. E&E saw weaker trends in Q3, which we are working quickly to address, and we no longer expect Emerging brands' direct revenue growth to offset Evergreen brands' declines in 2025. We expect an estimated $9 million negative impact to Match Group Asia direct revenue from Azar's block in Turkey. We expect indirect revenue to be approximately $15 million in the quarter. Our Q4 adjusted EBITDA guidance includes $4 million of restructuring-related costs, included in the $25 million of restructuring-related costs announced in May, and an $8 million positive impact from an expected sale of one of our 2 office buildings in L.A. that was not fully utilized. We are increasing our 2025 full year free cash flow guidance to $1.11 billion to $1.14 billion, which assumes the Candelore settlement will not be paid until Q1 2026. We now expect our 2025 full year tax rate to be in the high-teens. Now let's open it up to Q&A. Operator: [Operator Instructions] Our first question comes from Cory Carpenter with JPMorgan. Cory Carpenter: Spencer, you mentioned in your prepared remarks that the early investments -- sorry, the early reinvestments are giving you confidence in your strategy. Could you expand a bit on the green shoots you're seeing across the broader company and then also at Tinder specifically? Spencer Rascoff: Yes. Thanks, Cory. Let me start with Tinder and then if we want to expand from there, we will. At Tinder, we now have a clear mission statement, which we understand. So we know why we're building what we're building. We have clear consumer personas, so we know who we're building them for. And now we have a clear metric, 6-way conversations or what we call Sparks so that we know how to measure whether we're driving good user outcomes. And Sparks, we think, are a good measure of product efficacy. Globally, they're down in the low single-digit range year-over-year, but they're improving and close to flat. And it's actually quite a bit better than now, which has kind of stabilized in the 9%, 10% kind of high single-digit year-over-year range. Sparks coverage. As I said just a moment ago, Sparks coverage is actually up year-over-year, but it's up the most among U.S. Gen Z. So all this by way of saying the product is working better today to help Sparks something new with someone new than it was a year ago. That's encouraging. There are a couple of reasons why that the product is having -- has improved efficacy. The first is a lot of our recommendations tests are bearing fruit. So at any point in time, we have dozens, sometimes hundreds of different recommendation algorithms in the market. And we ended up finding one of them, it actually improves women matches by 4% and improves Sparks and improves retention, with no revenue trade-off, which is really uncommon. Usually, when we have recommendation improvements that improve user outcomes, it comes at some revenue hit. And in this case, it did not. So we've rolled this out globally. Our work is not done on [ REX ]. We are always continuing to improve them, but I'm encouraged by where we're headed. The second -- so moving from REX is #1. Number two, I'll turn to Double Date. So Double Date continues to resonate really well with our target users. As I think I mentioned just a moment ago, adoption for Double Date is up quite a bit. The stat I don't think I shared yet is that about 17% of U.S. users age 18 to 22 now have a Double Date pair. And that's a big deal. If you think about that, think about a Gen Z 18- to 22-year-old American user of Tinder, almost 1 in 5 of them are now using Tinder with a friend to swipe on Pairs of people. So that's changing perception of what Tinder is and how they use it, and that's critical for us to drive reconsideration and ultimately, MAU growth. Finally, I will just hit on a basket of features at Tinder, which, in the aggregate, help people assess the whole person rather than just quickly assessing the attractiveness of the photo. These are features like contextual likes, which Hinge pioneered, features like putting biographical information on the first photo. And the good news here is those types of features have improved user outcomes like Sparks without impacting revenue. So we were prepared to accept the small revenue hit for these types of features, but many of them actually just improved user outcomes and have not impacted revenue. Let me sort of pause there. I'm happy to elaborate on the road map and kind of where it's going, but that brings you pretty current with what we've shipped on Tinder over the last couple of months and the early positive results that we're seeing on user outcomes. Operator: And the next question comes from Nathan Feather with Morgan Stanley. Nathaniel Feather: Really encouraging to see the faster product velocity at Tinder. I guess any way to get a sense if that's also accelerating the curve as you think of user outcomes and underlying metrics? And connected to that, as you start prioritizing user outcomes, you mentioned a negative Tinder revenue headwind in 4Q. I guess to what extent should we expect that to continue into next year as you continue to make these product improvements? Spencer Rascoff: Thanks, Nathan. It's probably a little too early for us to know the answer to your question about 2026. What we're in the midst of right now is evaluating all these tests in key markets, including in Australia, where we're kind of throwing the kitchen sink in terms of user outcomes and marketing efficiencies in order to see what it takes to turn around user outcomes and audience in a couple of key markets so that we can decide how we want to run the company in 2026 with respect to profitability. What we -- what Steve, I think, highlighted in his prepared remarks were a potential $14-ish million impact on Tinder revenue, which is baked into guidance for Q4. This comes from features like different recommendation algorithms that we're testing still to try to improve user outcomes even further, rolling out new Modes. So of course, today, we have College Mode and Double Date Mode, but there are several more Modes on the way, and those might come at small cost to revenue. Building out open messaging and giving more free user outcomes like letting users see a couple free see who likes you pairs and redesigning certain aspects of Tinder, building out chemistry into the main card stack and rolling that out into more geographies, rolling face checkout across the whole United States by end of year, which I don't think I mentioned that in the prepared remarks, but now we're targeting face check through the whole U.S. by end of year and globally with the possible exception of the EU and the U.K. by spring. All of this is taking us towards a product event in spring 2026 for the media, for influencers, for investors and hopefully, we'll see many of you there, where we'll show the world what we've been building at Tinder over the last -- I guess, by that point, it will be around 6 months-or-so and also what's coming. And that's a real catalyzing event, which has the Tinder team rallying with urgency around building product as much as products as we can to improve user outcomes by that spring 2026 event. Operator: And the next question comes from Jason Helfstein with Oppenheimer. Jason Helfstein: So just maybe follow up a little bit. I mean you did elaborate in the letter that you plan to unlock $40 million of payment savings. Is the idea that like if you do decide to lean in more into these, I guess, kind of cleanup initiatives or however you want to describe them, that $90 million could help potentially offset that revenue headwind next year? And I guess, like to that point on Project Aurora and like if you did go kind of fully roll this out, like, I guess, should investors assume like how dramatically would you be willing to let like revenue come down to kind of end up with like the right place from a user experience standpoint? Steven Bailey: Why don't I take the first part of that question. Here's the way I think about the $90 million. The $90 million gives us clear flexibility, right, and optionality. And as Spencer just said, the $14 million Q4 impact from Tinder user outcome testing is an estimate, right? These are tests. So it's probably premature to speculate on whether we'll need the $90 million to offset the revenue declines or whether there will be revenue declines at all until we see how these tests play out. And so the plan is to continue testing throughout the rest of the quarter, to go through our annual planning process like we always do and then we'll give clear guidance on 2026 in a lot more detail on our investment strategy and the outcome of these tests and all the learnings we've gathered at that time. That's the plan. Operator: And the next question comes from Ben Black with Deutsche Bank. Kunal Madhukar: This is Kunal for Ben. A couple on Hinge. And right from the beginning, Hinge was designed to be deleted or meant to be deleted. Has the engagement profile of the users kind of changed since the beginning? And then you talked about how Hinge is expanding into Mexico and Brazil in the coming months. How does that change the addressable market? Spencer Rascoff: Yes. Thanks, Kunal, good questions. Yes, Hinge is really meant to be the last dating app that you'll ever use and Tinder is meant to be the first dating app that you'll ever use. So that positioning is clear in terms of how we think about marketing the 2 apps and in terms of the product road map and focus of the teams at Hinge and Tinder. That positioning for Hinge hasn't changed since Match Group purchased it. It's been very consistent. And I think that consistency is one of the reasons for Hinge's continued success. Hinge just launched in Mexico a couple of weeks ago. It's off to a faster start in Mexico than when Hinge launched in Europe several years ago. So that's extremely encouraging. Brazil will launch in the next few weeks. And when you look at Hinge's success in the markets that it's in or even this recent fast start in Mexico, it gives me a lot of optimism that the total addressable market for Hinge is massive, that this customer segmentation or psychographic segmentation between Tinder opening a world of possibilities at the kind of fun spontaneous side of dating and Hinge being for more serious and intentional daters, that duality should be true globally. And I don't -- it's hard for me to imagine there would be a country where there wouldn't be an opportunity for an intentional dating app like Hinge to be a category or a leader in that segment. As we go through the annual planning process that Steve mentioned over the next couple of weeks, we'll be thinking through which markets to expand Hinge to in 2026. We already have integrated certain areas of our go-to-market such as Asia, where Match Group now provides shared services for all of our brands as we expand to new markets in Asia and that allows us to even more efficiently and effectively and intelligently expand to new markets in a coordinated manner, so that's the type of thing that only our multi-brand scaled portfolio as the category leader can provide and I think should be an even greater tailwind as Hinge launches into new markets in 2026. Operator: The next question comes from Eric Sheridan with Goldman Sachs. Eric Sheridan: I think based on the early learnings in Australia, how do you think about the philosophically going to market with a wider array of offerings and changes to Tinder all at once relative to looking out towards next year and thinking about being more strategic and sort of directed in the way certain enhancements go global, either by country by country or by geo? Just curious how you think about that. Spencer Rascoff: Yes. It's a good question, Eric. The interesting thing about this category, which can easily be forgotten by people that aren't in it day to day, is that the company and the brands build products and then we market them. But ultimately, we're in the service of introducing strangers to strangers. And so the success of the products really rely on the quality and behavior of those in our community. So one of the reasons that we're doing Project Aurora is to try to not just improve the actual feature set, but increase the marketing, focus on trust and safety there, kind of turn that whole market around with vigor in the aggregate, so -- because the ecosystem hangs together in these products in a way that e-commerce really doesn't have that experience. So in terms of how we roll this out, these types of changes in 2026, I do want to be clear that we're not standing still. So for example, the REX algorithm that I mentioned that's in Australia, we've also rolled that out in other markets. Face Check, which we've rolled out in Australia, we've also rolled out in a handful of other markets. So we're certainly not waiting for a clean read from a single market, but it is helpful for us as we decide what the answer is to, I think it was Jason's question, about 2026 and profitability for next year. We will benefit from having greater insight into how the product investments and the marketing hang together to improve the whole ecosystem, and that will help us articulate what the plan is for 2026. Operator: The next question comes from Ygal Arounian with Citi. Ygal Arounian: Spencer, you mentioned MAU is kind of stabilizing in this down 9%, 10% range. And as we think about the initiatives you're rolling out all the way from kind of the single stuff in certain markets, the whole kitchen sink like you said in Project Aurora, how do you think about the time line for -- you're seeing some of these KPIs and green shoots, like what's the time line to when you think MAUs can start to turn around and start to move in the other direction? And then on the in-app payment, the upside to the savings that you're seeing now versus what you called out last quarter, can you talk about what's driving that? What you've seen that's driving more savings? Spencer Rascoff: Yes, I'll take the first question. So a number of the product initiatives that we've been doing to improve user outcomes actually have the effect of hurting monthly active users. For example, Face Check hurts monthly active users by a little bit, at least initially, a couple of percentage points. And the recommendation algorithm also can have the effect of hurting male monthly active users. It improves female retention, the female experience, but that can have the effect of pulling female attention away from certain male users and then we sometimes lose their visits. And that's okay. So the fact that MAU is hanging in there in the high single-digit year-over-year, even while we're improving user outcomes is a good sign, just as the fact that we're able to improve user outcomes at minimal impact to revenue with a couple of the examples I cited, that's also a good sign. I'll let you talk to the IP. Steven Bailey: Yes, I can take the IP, sure. Yes, we've made a lot of progress over the last few months on alternative payments. And you're right, the expected savings in 2026 has gone up quite a bit. So let me just give you a little bit more detail. Basically, back in August, Hinge had yet to start testing. We said it was going to start testing in September. That happened, and we were sort of extrapolating Tinder and E&E results and seeing about a 30% shift to web payments, of course, in the U.S., and we extrapolated that out to about a 10-point increase in net revenue, which equates to about $65 million in savings in 2026. Now as of October, actually Tinder, Hinge and most of the E&E apps are now fully rolled out. So we've rolled these apps out faster than we sort of originally planned, which is good and Hinge saw really strong results out the gate better than E&E and Tinder we're seeing. And since August, Tinder has also done a really great job, as has E&E in continuing to optimize. So now with all -- with most of our apps, including Tinder and Hinge, rolled out 100% in the U.S., fully optimized, we're seeing a 40% to 60% shift to web depending on the app, which translates into a 15-point increase in net revenue and $90 million of savings. So the net of it is strong results at Hinge out the gate and continued optimization at Tinder and E&E has resulted in more of those payments going to web, which is resulting in more savings. And the other thing I'll just mention, I don't know if you caught this, but Google mid-last week updated it to Play Store policy, allowing for web payments as well in the U.S. without fees similar to the Apple situation, and so we plan to test there, too. That's a smaller opportunity. We have less Android users in the U.S., and we have Apple users and also the fee we pay Google for in-app purchases is more like 18% versus the 27% we pay Apple. So there's less savings to be had from shifting to web. But if you sort of pencil it out, our early estimate is about a $10 million to $15 million additional savings through Google on an annualized basis. So we're excited about that opportunity, too. We'll start testing and confirm those initial estimates. Operator: And the next question comes from John Blackledge with TD Cowen. Logan Whalley: It's Logan Whalley on for John. Could you talk about any traction or the traction that you cited from recent marketing efforts? And then kind of maybe how you approach the opportunity with last daters versus those that have never used the app before? And then sticking to marketing on the cost side, maybe how you're thinking about marketing spend and the traditionally more expensive 4Q advertising season? Spencer Rascoff: Yes. So I'll take the very first -- the very last part of that first, which is we do go lighter on advertising in Q4. Our seasonal peak tends to be after Christmas, kind of people make a New Year's resolution about starting to date a new, and we benefit from that and we spend into it. But between Thanksgiving and Christmas, the media market is more expensive and -- because of e-commerce and other consumables, and we tend to pull our marketing spend back. In terms of overall marketing, we just completed Project Prism, which was Match Group's first ever attempt to put marketing spend on an apples-to-apples basis across all of our brands to create a shared framework to assess the efficacy of marketing spend so that we'll have a point of view now about going into 2026, if we were going to put $5 million or $10 million against brand X, what is the likely number of downloads that it would acquire? What's the user and gender mix? What's the user retention? What's the cost to generate a Spark or contact exchange or other KPIs that we track across our different brands? So we now have a rubric that puts every -- all our brands on the same footing. This is something that we worked with an outside resource on a marketing, an executive, a person that used to run marketing for me at Zillow Group; and before that, we worked together at Expedia Group. So she has created shared marketing frameworks in several multi-brand Internet companies before. And that project has been really illuminating in order to inform our 2026 decisions. So if you take all these different things together that we've mentioned, the Tinder user tests, the Tinder testing in Australia, a shared understanding of what marketing efficacy is across all of our brands, the IAP savings that Steve just talked about, and now you have a little window into what the next couple of weeks are going to be for us as we go through business unit by business unit, creating our annual plans for 2026, rolling them up, discussing them with the Board, making final decisions about how we're going to operate the company by the end of the year and then communicating it with all of you in early February at earnings. But it's great to be going into that process with the work done on Project Prism, so we understand marketing efficacy by brand. And with the work kind of still in flight on the Tinder front in terms of the different testing that we've been doing, but much more well informed than we were even a couple of weeks ago now that we have a lot of these features in flight, and we're starting to see the impact on user outcomes as well as revenue and expenses. Operator: The next question comes from Shweta Khajuria with Wolfe Research. Shweta Khajuria: Spencer, you mentioned you'll assess next year's growth and investment opportunities as you think about how your product and marketing is trending. I guess my question is, what are -- what will you be looking at? Is it predominantly the inflection in top of the funnel that will give you more confidence in your product road map working and/or marketing initiatives working? And if it is somewhat slower than expected, is it fair to assume you'll reinvest to the degree that it makes sense? How should we think about that as we think of next year? Spencer Rascoff: Yes. I'm solving for or maximizing against what I think will make the stock price higher 3 years from now. And -- so I mean, there are hundreds of puts and takes that go into that from user outcomes to revenue to audience on Tinder market expansion on Hinge. I mean there are so many different variables that impact that. But if there's a single North Star to try to explain how I'm bringing it all together and the way the leadership team is bringing it all together, that's the one. I think with -- I think the big question marks going into 2026, of course, are going to be what level of profitability do we choose to run Tinder at? I mean to date, Match Group has chosen to run Tinder at a much higher level of profitability than Hinge. And the 2 components of that are how much benefit users get? In other words, if we decide to give more value to users and what type of cost of acquisition we choose to deploy against Tinder? So those are some of the key questions that we'll face going into planning. And now you understand how I'm making the decision is what do I think the stock price will be a couple of years from now. Of course, the key components of the stock price are -- I mean, you know this better than anyone, stock prices at net present value of stream of future cash flows ultimately divided by the shares outstanding, which, of course, we've -- as Steve mentioned, we bought back 8% of our shares year-over-year, which is pretty extraordinary and is worth highlighting. Operator: And the next question comes from Youssef Squali with Truist. Youssef Squali: Spencer, can you please talk about the state of the broader dating market in the U.S., how it's performing, given the macro environment, competitive intensity and any early read or impacts from Facebook Dating? And then Steve, just quickly, what does the Q4 revenue guide imply in terms of payers growth and RPP? Spencer Rascoff: Yes. We've always had competitors. I'm sure we'll always continue to have competitors, whether they be big tech companies or startups. I like our brands. I like the network effects that the brands provide. Our biggest challenge as a company is growing category acceptance. I think there was a prior question, which I only answered partially about bringing new people into the category. There are 250 million people globally that are single and dating in countries that we serve that are not on dating apps, 250 million; and only 30 million of those have used dating apps and they're not currently using data apps. 220 million of them have never been in the category. So to the extent that Meta and Facebook or any competitor educates people that they can use a dating app, they can use the power of technology to safely meet people and get up off the couch and go out on dates and form human connections that benefits Match Group as the category leader, especially because this is a category with multi-app usage. So we welcome any and all initiatives, whether they've come from Match Group, such as our Face Check initiative, which we think brings new people into the category as we improve trust and safety in the apps or others such as Meta to raise attention and awareness to the power of technology to drive human connections. That's what we're here for. Steve, you can do the second one? Steven Bailey: Yes. Let me touch on macro first. The way I would describe it is we continue to see the same trend that we've seen. Earlier this year, we've talked about the last couple of calls, where it's some -- a little bit of weakness, not a lot, but a little bit of weakness on ALC amongst younger users on Tinder, that trend hasn't gotten any worse, but it also hasn't gotten any better either. So a little bit more of the same. We're not seeing it on any other part of the Tender business. We're not seeing it on the subscription revenue and we're also not seeing it across any of our other brands or at Hinge. So we'll keep looking at it closely, but that's what we're seeing today. And then on payers and RPP, we don't typically guide to payers and RPP. Specifically, we're focused on revenue and user growth. But those metrics have been -- the trend of those metrics has been relatively stable, just like MAU trends have been relatively stable and I expect something similar in Q4. Operator: The next question comes from Chris Kuntarich with UBS. Christopher Kuntarich: Maybe just one on Face Check. You mentioned it being fully rolled out in the U.S. by the end of the year. I just want to clarify, does that include existing users? And if it doesn't, could you just give us a bit of an update on your thinking about rolling out to that cohort of users for Tinder? And then maybe just one follow-up. Any early read on the level of inefficient marketing spend that you've been able to identify with Project Prism? Spencer Rascoff: Yes. Face Check only applies to newly created accounts because that's the vector that bad actors use to attack us. So spam accounts from bad actors create brand-new accounts, and therefore, if we can stop those with Face check and that's exactly what's happening. So as I've mentioned, 60% reduction in interactions with spam accounts. And I don't remember if I mentioned -- I think I mentioned it vaguely, but to give a little more detail on the perceived improvement in trust and safety from Face Check, we survey users and we say, do you believe the profiles that you see on Tinder are real? And in Face Check markets, 5% to 10% more folks are saying, yes, they believe that the profiles they see on Tinder are real. So it's not just improving safety and authenticity, it's actually improving perceived authenticity, which is so critical to driving category reconsideration. Marketing. Yes, I guess what I would say there is, unsurprisingly, Hinge's marketing drives new registrants, new downloads or Sparks at a lower cost per than Tinder's does and that makes sense for a couple of reasons. First of all, Hinge is a newer brand. Hinge's product is better at taking users and kind of moving it down the funnel in that way. And more of Tinder spend is focused on brand marketing than direct response user acquisition. The reason for that is Tinder is trying to drive reconsideration and change user perception, whereas Hinge has a pristine user perception. And so therefore, most of their spend can be focused on user acquisition. And user acquisition spend is always going to be more effective on paper than brand spend will be. So that's not surprising. And as we go into 2026, and we think about the marketing levels that we want to run the company at and the allocations between the brands, we'll have to weigh that, of course. But boy, it feels good to be going to that decision actually having some levers to look at. And previously, we were kind of flying this plane without an altimeter and now we actually can see some metrics across different brands and start making informed decisions based on that. Operator: And the last question comes from Robert Coolbrith with Evercore ISI. Georgia Anderson: This is Georgia on for Rob. Thanks for the color on Sparks and MAUs. I guess, last quarter, you noted some encouraging movement at the top of the funnel. Can you provide an update on that so far? Spencer Rascoff: Yes, we're -- thanks for the question, Georgia. We -- our Tinder monthly active users at the top of the funnel is basically down high single digits, similar to where it's been for the last couple of months. It moves around a little bit based on different tests that we're running, as I already mentioned, initiatives like Face Check and recommendations can improve user outcomes, but can and sometimes do hurt mostly active users. But it basically stabilized kind of in that range. And it's worth noting Tinder revenue is down 3% year-over-year this quarter and last quarter, it was down 4%. So revenue also has stabilized. Obviously, we don't want it to stabilize down year-over-year, but it's nice to see that we're starting to see some stabilization for some of those metrics. And of course, as I think I said last call, the first way to -- the first thing you have to do if you're trying to turn around the line that's slipping down is you've got to get that line to flat. So it's nice to see some of those lines starting to flatten. Thank you very much, and we look forward to talking to you next quarter. Thanks, everyone. Have a great day. Operator: This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.