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Operator: Good afternoon, and thank you for joining the Third Quarter 2025 Earnings Conference Call for LPL Financial Holdings Inc. Joining the call today are Chief Executive Officer, Rich Steinmeier; and President and Chief Financial Officer, Matt Audette. Rich and Matt will offer introductory remarks, and then the call will be open for questions. [Operator Instructions] The company has posted its earnings press release and supplementary information on the Investor Relations section of the company's website, investor.lpl.com. Today's call will include forward-looking statements, including statements about LPL Financial's future financial and operating results, outlook, business strategies and plans as well as other opportunities and potential risks that management foresees. Such forward-looking statements reflect management's current estimates or beliefs and are subject to known and unknown risks and uncertainties that may cause actual results or the timing of events to differ materially from those expressed or implied in such forward-looking statements. For more information about such risks and uncertainties, the company refers listeners to the disclosures set forth under the caption Forward-Looking Statements in the earnings press release as well as the risk factors and other disclosures contained in the company's recent filings with the Securities and Exchange Commission. During the call, the company will also discuss certain non-GAAP financial measures. For a reconciliation of such non-GAAP financial measures to the comparable GAAP figures, please refer to the company's earnings release, which can be found at investor.lpl.com. With that, I will now turn the call over to Mr. Steinmeier. Richard Steinmeier: Thanks, operator, and thank you to everyone for joining our call. It's a pleasure to speak with you again. It is hard to believe, but it's been a little over a year since I became the CEO of LPL Financial. In that time, we've advanced the firm, extending our privileged competitive position in the adviser-mediated marketplace while driving efficiency in the business. So I'd like to spend some time today sharing an update on the progress against the key initiatives I outlined on my first earnings call. But first, let's hit our Q3 results. In the quarter, total assets increased to a record $2.3 trillion, driven by our acquisition of Commonwealth and complemented by solid organic growth and higher equity markets. We attracted organic net new assets of $33 billion, representing a 7% annualized growth rate. Our third quarter business results led to strong financial performance with record adjusted EPS of $5.20, an increase of 25% from a year ago. With that as context, let's review a few highlights of our business growth. In the third quarter, recruited assets were $33 billion, bringing our total for the trailing 12 months to a record $168 billion. In our traditional independent market, we added approximately $12 billion in assets during Q3, where despite depressed industry-wide adviser movement, we maintained our industry-leading capture rates of advisers in motion while also expanding the breadth and depth of our pipeline. With respect to our expanded affiliation models, strategic wealth, independent employee and our enhanced RIA offering, we delivered another solid quarter, recruiting roughly $3 billion in assets. Our third quarter adviser recruiting underscores the evolution of our business and the appeal of our flexible affiliation models. During the quarter, we attracted 4 separate $1 billion-plus practices, which joined us from a range of firms, including regional broker-dealers, insurance companies and wirehouses. Our recruiting results this quarter underscore the extensibility of our offering across the entire adviser-mediated marketplace, where we have created the flexibility to serve any adviser where they are in the evolution of their practice. This breadth of affiliation models is key to the sustainability of our growth as we look ahead. We also continue to make progress with large institutions, onboarding the wealth management business of First Horizon. It's only been a couple of months, but there are already signs that the integrated experience and enhanced capabilities we are delivering are improving the efficiency of their adviser practices. Turning to overall asset retention. Prior to previously disclosed misaligned OSJ assets that offboarded during the quarter, it was 98% for Q3 and over the last 12 months. This is a testament to our continued efforts to enhance the adviser experience through the delivery of new capabilities and technology and the evolution of our service and operations functions. As a complement to our organic growth, we closed our acquisition of Commonwealth Financial Network, welcoming their approximately 3,000 advisers and home office staff to the LPL family. The transaction is progressing well, and we continue to track towards our 90% retention target. Thus far, advisers representing nearly 80% of assets have signed to stay with Commonwealth and LPL. From an operational standpoint, following the close, we commenced work on the capability build and onboarding planning. To give you a sense of the scope of this work, we are ushering in a foundational shift in our adviser workstation ClientWorks, establishing a householding-based architecture compared to our historically account-based orientation further bolstering this relationship-based logic with a single relationship agreement to vastly improve the client onboarding experience and simplify ease of movement between account types and launching a mobile version of our ClientWorks workstation for ease of access for advisers on the go. These are key capabilities that not only enable commonwealth conversion, but also accelerate the delivery of core functionality for the benefit of all LPL advisers. Next, let's turn to our strategic plan. Our vision is clear. We aspire to be the best firm in wealth management. To connect this back to my first earnings call a year ago, in service of this goal, we've amplified our focus in 3 key areas: one, maintaining the client centricity the firm was built on; two, empowering our employees to deliver exceptionally for our advisers and their clients; and three, delivering improved operating leverage. Effectively executing on these focus areas will help us sustain our industry-leading growth while advancing the efficiency and effectiveness of our model. In terms of our clients, we have been laser-focused on preparing for a seamless onboarding of Commonwealth, including the delivery of capabilities and implementation of systems and practices, which will benefit all LPL advisers, new and existing. Separately, we continue to look for opportunities to strengthen our value proposition in the market while ensuring that we are pricing our services aligned with the value that we deliver. Earlier this year, we made adjustments to our production bonus as well as within our Business Solutions group. And looking ahead, we plan to make additional adjustments as we evolve our offering streamlining our services portfolio to focus on high-demand, high-impact services that deliver the greatest value to advisers while simplifying pricing across our advisory platforms. And to ensure we maintain our competitive position, we're making a few targeted offsetting fee adjustments where we've been priced below the market. As for our employees, we've been focused on elevating our benefits and better distributing decision-making authority to the teammates closest to our advisers. During the quarter, we also welcomed Emily Field, our new Chief People Officer, to help guide this critical work. And just last week, she kicked off our revamped manager learning program aimed at giving managers the necessary skills to build empowered teams and deliver exceptional employee and client experiences. Finally, regarding our efforts to drive improved operating leverage, we've made meaningful progress reducing our cost to serve, and Matt will share some additional detail on that in a moment. To summarize, we are pleased with the third quarter results, and we feel great about our position as a critical partner to our advisers and institutions while we continue to create long-term value for our shareholders. With that, I'll turn the call over to Matt. But before I do, I just wanted to preempt that first question that we're hearing from so many of you. You wanted an update on our favorite Halloween candy. Well, mine is 100 Grand Bar and Matt's is actually Muscle Milk. So with that, Matt, take it away. Matthew Audette: It's not on the script, Rich, you're very funny. I do like me a good protein shake. That's not my favorite candy like I do have a favorite candy. And I didn't want to tell you, I figured it would be too triggering given your high school football nickname, butter fingers. I loved it. Now, I can eat them. All right. Well, thank you for that intro. And I'm glad to speak with everyone on today's call. It was another productive quarter as we advanced several strategic priorities, including another quarter of industry-leading organic growth, the onboarding of the wealth management business of First Horizon, closing of our acquisition of Commonwealth and the continued advancement of our cost efficiency work, which is driving sustainable improvement in our margin. Now turning to a few highlights from our Q3 business results. Total advisory and brokerage assets were $2.3 trillion, up 21% from Q2 as continued organic growth and higher equity markets were complemented by our acquisition of Commonwealth, which added $275 billion of assets in Q3. Total organic net new assets were $33 billion, an approximately 7% annualized growth rate, a strong result both on an absolute and relative basis. On the recruiting front, Q3 recruited assets were $33 billion, contributing to a record $168 billion over the trailing 12 months. With respect to large institutions, we successfully onboarded First Horizon with $18 billion of AUM, of which $17 billion transitioned onto our platform in Q3. Looking at Q3 financial results. The combination of organic growth and expense discipline led to an adjusted pretax margin of approximately 38% and record adjusted EPS of $5.20. Gross profit was $1.479 billion, up $175 million sequentially. As for the key drivers, commission and advisory fees net of payout were $426 million, up $77 million from Q2. Our payout rate was 87.5%, up approximately 14 basis points from Q2, driven by the typical seasonal build in the production as well as our acquisition of Commonwealth. With respect to client cash revenue, it was $442 million, up $28 million from Q2. Overall client cash balances ended the quarter at $56 billion, up $5 billion, which included approximately $4 billion from Commonwealth. The remaining $1 billion of cash balance growth was a result of the organic growth of our business. Within our ICA portfolio, the mix of fixed rate balances ended the quarter at roughly 60%, near the midpoint of our target range of 50% to 75%. Looking more closely at our ICA yield was 351 basis points in Q3, up 9 basis points from Q2, driven by benefits from the Atria conversion and our acquisition of Commonwealth. As we look ahead to Q4, based on where client cash balances and interest rates are today, we expect our ICA yield to decrease to roughly 345 basis points, driven by the impact of recent rate cuts. As for service and fee revenue, it was $175 million in Q3, up $23 million from Q2, primarily driven by revenues from our annual focus comps as well as our acquisition of Commonwealth. Looking ahead to Q4, we expect service and fee revenue to be roughly flat sequentially as a full quarter of revenue from Commonwealth is offset by lower conference revenue and seasonally lower IRA fees. Moving on to Q3 transaction revenue. It was $67 million, up $7 million sequentially, primarily driven by Commonwealth. As we look ahead to Q4, based on activity levels to date, we expect transaction revenue to be roughly $70 million. With respect to the monetization initiatives Rich mentioned earlier, we regularly evaluate how effectively we're delivering services, pricing and an overall experience that aligns with adviser needs. Starting next year, we will streamline our business solutions portfolio to focus on those that deliver the greatest value to advisers, further reduce pricing across our advisory platforms and make targeted offsetting fee increases where we've been priced below the market. These actions are designed to strengthen our competitive position while ensuring we have the resources to continue investing in platforms, tools and services that enable advisers to grow and succeed. To help frame the financial impact to our 2026 results, we estimate that these changes would increase our trailing 12-month adjusted pretax margin by approximately 1 percentage point. Now let's move on to our recent acquisitions, starting with Commonwealth. Overall, the transaction is progressing well, and we are on track to onboard Commonwealth in the fourth quarter of 2026. We continue to track towards our 90% retention target with advisers representing nearly 80% of assets already signed. In addition, factoring in current asset levels, our run rate EBITDA expectation has increased to approximately $425 million once fully integrated. As for Atria, the onboarding is complete. And considering current assets, we are increasing our expected run rate EBITDA to approximately $155 million. Now let's turn to expenses, starting with core G&A. It was $477 million in Q3, below our outlook range for the quarter as we continue to make progress driving incremental operating leverage in the business. To give you a sense of the work, we're automating manual processes in our operations and services, increasing straight-through processing and reducing friction in our services. In addition, these initiatives have the added benefit of improving the client experience. With that as context, looking at the full year 2025, given our cost initiatives are tracking ahead of schedule, we are lowering our 2025 outlook to a range of $1.86 billion to $1.88 billion. Moving on to Q3 promotional expense. It was $202 million, up $38 million from Q2, primarily driven by conference spend as we hosted our annual Focus conference in August as well as transition assistance related to comp. Turning to depreciation and amortization. It was $100 million in Q3, up $3 million sequentially. Looking ahead to Q4, we expect depreciation and amortization to increase by roughly $5 million. As for interest expense, it was $106 million in Q3, up $4 million sequentially, driven by increased usage of our revolver following the close of the Commonwealth transaction. Looking ahead to Q4, given current debt balances and interest rates, we expect interest expense to increase by approximately $5 million from Q3. Turning to capital management. We ended Q3 with corporate cash of $568 million, down $3 billion from Q2 as we deployed the proceeds from our capital raises to fund the acquisition of Commonwealth. While the majority of transition assistance was deployed in Q3, we expect a couple of hundred million of additional payments in the fourth quarter, which will return corporate cash to more normalized levels. As a result, we anticipate Q4 interest income to decline to approximately $30 million. As for our leverage ratio, it was 2.04x at the end of Q3, below our initial expectations for roughly 2.25x following the close of Commonwealth. Moving on to capital deployment. Our framework remains focused on allocating capital aligned with the returns we generate, investing in organic growth first and foremost, pursuing M&A where appropriate and returning excess capital to shareholders. In Q3, the majority of our capital deployment was focused on supporting organic growth and M&A, where we closed Commonwealth and continue to allocate capital to our liquidity and succession solution. To uphold our commitment to maintaining a strong and flexible capital position, share repurchases remain paused, which we will revisit once we onboard Commonwealth. In closing, we delivered another quarter of strong business and financial results. As we look forward, we remain excited about the opportunities we have to continue to drive growth, deliver operating leverage and create long-term shareholder value. With that, operator, please open the call for questions. Operator: [Operator Instructions] Our first question coming from the line of Alex Blostein with Goldman Sachs. Alexander Blostein: Thank you for all the detail, including the snack preferences. Just maybe starting with Commonwealth. Obviously, it's a big topic, helpful update with the 80%. Maybe help us frame how that's tracking at this point of integration relative to your original plan? And given that 80% is already quite sizable number, at what point do you find that your recruiting teams could start to focus more externally again to reaccelerate the pace of net organic growth? Richard Steinmeier: Good question, Alex. I appreciate you asking. So let me start out. So it's been around 6 months since we signed the deal and 3 months since we closed. And as we mentioned, the transaction continues to progress as planned. It's really been an ongoing engagement with Commonwealth Advisers and home office staff, and it is incredibly productive as we jointly chart this course ahead together. And as we've said previously, the Commonwealth advisers are really thoughtful, and they are a very diligent community, which really doesn't surprise us given that they include many of the best advisers in the industry. And so it stands for reason that they have been extremely thorough in their diligence. And we have been dedicated to making sure that we can give them all the information they need to make their very best decision. And that includes thousands of interactions since the announcement to ensure the advisers understand the benefits of the combination. Most recently, last week, there were over 1,000 CFN advisers at their national conference in Washington, D.C. We had sessions from main stage breakouts as well as a number of individual sessions across both the Commonwealth leadership as well as the LPL leadership. And as well, we know that we have scheduled many more in-person home office visits and virtual meetings for the next coming months. And so as we said earlier, we're at that kind of nearly percent -- nearly 80% of assets having signed their agreements to stay with Commonwealth on track for the 90% and putting all of that retention aside, we feel over the moon with this transaction. The cultural alignment and complementary capabilities are creating a combined firm that is far stronger than the sum of the parts. We feel great about the value that this will deliver to Commonwealth advisers, existing LPL advisers and shareholders. And the work that we're doing here significantly advances our progress on creating the best firm in wealth management. One last thing you did mention, as we begin to continue to progress towards higher and higher percentages of the advisers who have decisioned to stay with Commonwealth, that does present us the opportunity to bring back some of the recruiting and retention specialists that we had ring-fenced and allocated into educating Commonwealth advisers. And that's beginning throughout the second half of this year and will continue. But Matt, is there more you'd like to add? Matthew Audette: Sure. I mean I think maybe just to underscore what you said, I mean, I think we feel great about the transaction. We feel great about Commonwealth as a firm, high-quality advisers they have, high-quality leadership team, home office team, culture. So just all around from an acquisition standpoint before we even get to the economics, which I'll give a little more color on, we feel really great about. I think since there's been, let's just say, a little bit of focus on the retention targets and how those have been progressing, I think, Alex, to your question, it's always hard to predict exactly how things will trend. But I think as a general point, we are on track to where we thought we would be. But if you just look at where we are right now at nearly 80% retention and the economics that come with that where we are right now, I mean, you're just under a 9x multiple, right? So I think for a property of the quality that Commonwealth is, I think we'd be very happy with that. And to Rich's point, as we progress to 90% retention, just to give a little bit of the sensitivities. Every incremental percentage of retention that we have is about a reduction of 1/10 of a turn on the multiple or an increase of $5 million in run rate EBITDA. Just so you have kind of the sensitivities on how that would work. But I think as you pull back up, I mean, we're incredibly excited to have the opportunity to engage with them, sign the transaction, to close the transaction. And now that we're much, much closer and involved with the teams, as Rich said, we're over the moon. We're really, really happy. Operator: Our next question coming from the line of Steven Chubak with Wolfe Research. Steven Chubak: Rich and Matt, so maybe to start, I was hoping to dive a bit deeper into the pricing changes you mentioned in the prepared remarks. It's certainly encouraging to hear the net impact will be 100 bps benefit to the margin. But I wanted to clarify whether the 100 bps net benefit contemplates both efficiency in addition to pricing changes and how these pricing adjustments could enhance the value prop, maybe drive some better organic growth outcomes going forward? Matthew Audette: Sure, Steven. So I think the 100 bps improvement was solely from the pricing changes. So any additional improvements on the cost side would be in addition to that. I think to your second part of your question, I think when you look at the areas where the pricing changes are being made in the core area where our advisers are bringing in assets on the advisory side. And I think our pricing there has been competitive, and we're lowering the pricing there as to make it even more competitive. So if you think about where advice is being delivered and where the flows are, I think that helps enhance our opportunity to grow. And on the other side, on the brokerage side, as we looked at the market, we were priced below the market. So I think what you see us doing on the brokerage side is bringing fees up into line where the market is currently. So broadly, brokerage in line, and I think we positioned advisory to be a place that can grow even further. Operator: Our next question coming from the line of Craig Siegenthaler with Bank of America. Craig Siegenthaler: So I have another follow-up on Commonwealth, and congrats on getting to the 80% retention. That fell faster than expected. But on the 90% target, is the time line there the 4Q '26 onboarding target? Or could that actually be sooner? Matthew Audette: Well, I'd say, Craig, I mean maybe it's -- the answer could be yes to both. I think when you look at when we will finalize where -- what the retention is, is when they're onboarded. So that's when you snap the chalk. But whether we get from 80% to 90% before that certainly can occur. But ultimately, it's when they are onboarded is when we'll measure that. And our estimate is that, that's the estimate of $425 million when we'll start to begin to recognize synergies and building up to that $425 million is when onboarding happens as well. So all a little bit over a year from now. Operator: Our next question coming from the line of Brennan Hawken with BMO Capital Markets. Brennan Hawken: Rich and Matt, so I know Commonwealth brings new capabilities to you. You've also been steadily investing in building out the service offering, particularly for high net worth investors, really with the goal of pursuing larger teams and targeting some more wirehouse advisers. Could you speak to how that's progressing and what your updated expectations are on that front? Richard Steinmeier: Yes. Thanks, Brennan. And I would thank you for painting within the lines on that question. So I appreciate your sticking to the knitting there. So let me try to hit it. So first off, you're right. I mean we have been pursuing a multiyear journey to become increasingly more relevant to wirehouse advisers. I think Commonwealth adds a tremendous amount, not only of capabilities, of brand credibility, capabilities and a service orientation that is second to none in the independent channel that is very attractive to wirehouse breakaways as well. But when you take a couple of steps back and think about the way we've built towards methodically serving this market more expansively, it started with expanding our affiliation models several years ago, specifically as you think about our independent adviser channel around our W-2 channel we call Linsco, as well as our strategic wealth supported independent channel and progress with our introduction of a private wealth channel. The 3 of those offerings plus a continued investment in capabilities around degrading the difference between ourselves and the wires, certainly now on alternative investments, high net worth capabilities, specifically advanced tax planning, long-term planning, investment solutions as well and our ability to upgrade our service experience with the introduction of our field management organization oriented towards the success of those larger advisers. Taken together with our pool of existing high net worth oriented advisers, you have a community that is building in capabilities. And kind of the capstone to those investments for us over the last year has been the introduction of an enhancement of the LPL brand in the marketplace. All of those things taken together have expanded consideration for us in that wirehouse W-2 market. And I believe now have begun to expand our consideration for those high net worth wirehouse advisers that represent an additional $5 trillion market opportunity. So we continue to run into that space. We continue to build capabilities. We continue to build credible capabilities, and we've enhanced consideration. Taken together, I would expect that, that would continue to advance our capture of flow and movement out of the wires and the regionals across our affiliation models in a way that we have methodically seen, I would expect it to continue at pace. Operator: Our next question coming from the line of Devin Ryan with Citizens Bank. Devin Ryan: I want to ask a question just on expenses. Obviously, good to see the improvement on the 2025 G&A guide. So just trying to think about bigger picture, there's been a lot of moving parts on expenses just with a couple of big acquisitions coming into the system here in recent quarters. At the same time, you guys are taking actions to become more efficient. So I love to just think about, I guess, first off, some of the drivers that improved the guidance for the year. How much of that is structural carries into 2026? And then just more broadly, how you're feeling about the expense trajectory of the firm as you're probably finding more efficiencies with these transactions at the same time, still plenty of growth investment to do and some business inflation. So just trying to think about the guidance, but then also the trajectory. Matthew Audette: Yes, Devin. So I think when you look at the things that we're doing that are driving the savings, I mean, they are -- to the point of your question, there are things that are ongoing, right? There are things where we're making investments to automate things in our service areas and our operations groups. There are process improvements, capability deployments. We're starting to use AI in a way that is practical and delivering. And you think about where and how that shows up as you're able to improve those things, you start to have lower NIGO rates, which are things that have to be reworked back and forth between us and our clients, which is a frustration from a client standpoint and it also incurs costs on our side. Our advisers and their staff have to call us less, right, because there's less to call about. And we have less folks that spend time answering those calls. We have increased use of our digital tools, right? It just -- it goes on and on. And I think those are the things that really led to the improvements this year. And those are the things that I think we're going to continue to focus on from here going forward. Now I think we do get into some things, even if you just look at next year, we'll give some -- we'll give our guidance for next year on the next call like we normally do. But to your point on some of the other deals coming on board, I just -- maybe there are 2 things I would highlight that are in addition to the efficiencies that we are driving. One is maybe obvious, but just keeping in mind, you're going to have a full year impact of Commonwealth's expenses next year. And as they onboard towards the end of the year, the synergies on the expense side largely won't show up until 2027. So I just want to keep that in mind. And then second is a little bit building on what Rich was talking about earlier with respect to recruiting capacity. Another big driver of our expenses is the level of organic growth, right? So as recruiting frees up from Commonwealth, pivots back to the marketplace in general, to the extent that drives up organic growth, you would naturally have some incremental expenses coming on the core G&A side. Now at a more efficient level, given all the automation that we've done, but that's something that could drive it as well, which I think we'd all put in the category of a high-class problem on an expense side. So I hope that helps frame it. But I think I just -- the headline I'd hit is I think we feel really good about what we're able to drive on the automation side, how that's dropping to the bottom line, but also how it improves our client experience and improves our employee experience. I mean the things that we are removing are rote monotonous things that allow people to focus on things that are more interesting. So I think it's exciting. The entire management team is aligned on it. And hopefully, the results show that we're able to deliver here. Operator: Our next question coming from the line of Jeff Schmitt with William Blair. Jeffrey Schmitt: You had talked about how adviser movements are still depressed for the industry, I believe. And I was curious, how is your share of those movements trending? And do you still expect that to be kind of a temporary phenomenon and ultimately lead to higher organic growth in future quarters? Richard Steinmeier: Yes. Thanks for the question. We have seen that, that movement continues to stay a little bit artificially low. The truth is that when you look at movement in the industry, you see overall movement, but then you often see times where there are events in the marketplace that drive adviser churn. And those two events that we're seeing right now in the marketplace that would drive churn are: one, the adviser compensation changes at the wirehouse. They just continue to get further and further away from market competitive. And so you see more and more advisers in increasing numbers picking up their heads to consider their alternatives. And so I think that actually is a good trend for the independent segment where you could see continued movement and may move us back towards historical norms. The other side of that is actually our Commonwealth acquisition as well, which drove activity in the marketplace, certainly from competitors and drove more, I would say, even elevated TA rates that have extended more broadly, not only just at Commonwealth opportunities, but I think more broadly across the industry. How do we think about that extending in time, I think we would be hopeful that we would return to historical norms as well as for how our capture has been trending, our capture has stayed consistent. We are the #1 capturer of advisers in movement and in motion in the marketplace. That has persisted at historical levels. And in time, over the last 5 years, we have seen that we have continued to grow share capture of advisers in motion, and we would hope to believe that, that would continue in time as well. So as we head back towards more stable times, I think we would expect to see ourselves continue to participate in the way that we have in the marketplace. We feel as convicted, if not more convicted that our relative value proposition is absolutely the strongest in the marketplace in support of advisers. And so I think we feel good at the forward-looking outlook. Operator: Our next question coming from the line of Michael Cyprys with Morgan Stanley. Michael Cyprys: I wanted to ask about alternatives. I was hoping you could update us on the progress in building out your alternative investment capabilities, how that stands today, steps you're looking to take over the next 12, 24 months? And if you could also touch upon digital assets, speaking of alts generally, what sort of access do your customers have today? How is that evolving? What sort of demand are you seeing? And how might both of these enhance your appeal to advisers in the marketplace as you build this out? And how might it also support revenue ROCA monetization? Richard Steinmeier: Yes. I'll hit the developments of the -- that's like a quadruple embedded question, which is pretty awesome. Thanks, Michael. So on alternative investments, we have -- and we've shared a couple of times on earnings, we've been on a multiyear journey to delivering a very compelling alternative investment offering. And I would tell you, by the end of this calendar year, I think we're on par with any player in the marketplace around the breadth and quality of our offerings. And so that journey was for us, one, building a core technology platform, which we have largely implemented. Two was expanding the offering. And so those selling agreements across a broad set of alts that we've done diligence on, and we're making really good progress there and expect to be -- our alternatives improved for sale have more than doubled to 80 by the end of -- that was from the end of 2024, and we're moving towards 120 alts available for sale by the end of this year, which I think puts us toe to toe with anybody in the industry. And then the third thing for us is beginning to educate advisers and assisting them in how alternatives can help the needs of their clients. And so we've done a couple of things there, not only introduced an alts Connect last year, which is our e-signature and digital sign and simplifying the subscription process, but we also launched the Learning Hub in Q1, which is a one-stop shopping for educational resources designed to empower advisers with the knowledge and tools necessary to incorporate alts into their investment -- into their practices. And so I think on alts, I think I can reflect and say we have made tremendous progress over the last 18 months. I'm incredibly proud of the team and the work that they've done. And I think we feel really good about not only the technology platform because in addition to those for which we have selling agreements, we've actually enhanced our custodial and operational capabilities so that we can actually convert over 2,500 products that are held away to be brought onto our custodial platform. And so the ability to move advisers, move those holdings, sell forward, give them a really good operating environment with technology, I think we feel strong about our position to compete in the marketplace. You asked about digital assets. As for crypto, we'll always prioritize solutions that align with our advisers' needs. Today, we have 5 cryptocurrency ETFs on the platform, and we're hearing from advisers and making available the products they need to manage their business in a control environment that is responsible, not only for the advisers and the risk, but also for end investors. And so while we don't currently facilitate crypto trading, we are closely monitoring the competitive landscape, and so we'll keep you updated on that continued progress. All in all, I think we feel good about continuing to extend those offerings. They make us more competitive in the marketplace. They make us an available landing spot for more sophisticated advisers, and they allow our advisers to have a range of offerings that are second to none in the industry. Operator: Our next question coming from the line of Ben Budish with Barclays. Benjamin Budish: Matt, a few questions ago, you were talking about how the slowdown in advisers in Motion has resulted in some elevated TA rates, not just that are impacting Commonwealth but across the industry more broadly. I'm curious, you guys have talked in the past about these sort of slowdowns being temporary. Given where rates are, I think you've explained in the past that TA rates rose as this is somewhat reflecting a reinvestment of higher rates on cash balances. What would your expectation be? Or how do you think about the progression of TA rates from here as rates come down? Would it be natural to expect that if advisers in motion or the turnover picks up that rates come back down? Or what would your expectation be there? How should we be thinking about that over, say, the next 12 months? Matthew Audette: Yes. I mean I think if history is a guide, right, the overall returns are going to guide where TA rates go, right? So as interest rates have gone up, you saw TA rates go up. And as it comes down, you would expect them to come down. I think the other dynamic you have or a couple of dynamics to your point of less advisers moving, so there's more demand for that. And when you have transactions in the marketplace like we are currently engaging with Commonwealth, folks will bring more money to the table from a TA standpoint. And I think that's what we're seeing right now. I think for us, which you've heard us talk about before, I mean, we always underwrite to returns with a consistent framework and return hurdle, which for us is usually deploying capital in the 3 to 4x EBITDA range. And I think when you have an environment like this, we'll just hedge towards the upper end of that, right? So being closer to 4x than 3x, but still going back to what really, really matters, which is really the environment that an adviser is going to land on, meaning the capabilities, technology, service and their ongoing economics. So that's really what's going to carry the day. TA, of course, is important. I think where it trends over time it's hard to predict, but it's going to be driven by the factors that you highlighted, the number of advisers moving, what's happening in the marketplace and where rates are going. But I think from our standpoint, we've operated in all those environments. And ultimately, what matters is the value that we're bringing to the table is going to carry the day. And I think that's why to what Rich was just talking about, when advisers do decide to change firms, we're the #1 place they come. Operator: And we have a follow-up question from Steven Chubak from Wolfe Research. Steven Chubak: Given the NNA trajectory has been impacted by the repurposing of resources to support better or higher Commonwealth retention, has anything changed about your long-term NNA expectations? And I was also hoping you can give an update, Matt, on October cash and NNA trends as well. Matthew Audette: Sure. I'll start with October, and then I think Richard can jump in on the NNA. So I think October has been a good month, similar to September. So if you look at client cash balances, reminders that you know well, Steven, but I'll hit in many ways, advisory fees primarily hit in the first month of the quarter. And now just given our size, right, including with Commonwealth at $2.3 trillion of AUM, those fees get bigger and bigger. So for October, they were at $2.4 billion. Outside of that, though, client cash balances continue to grow. And they're up so far $700 million in the month. So you kind of net that out, down at $1.7 billion or just over $54 billion of cash. So I think a good month on the cash. On the organic growth side, those advisory fees hit there as well. So the first month of the quarter is typically lower. And then factoring in that adviser movement still remains low. When you factor in those two factors, I think October has looked good. We're -- where we sit today, we're around 4% organic growth for the month. Keeping in mind that's prior to the around $1 billion of AUM left to go on those large OSAs that are offboarding that we would expect to come out sometime in the fourth quarter. So overall, I think it's a good start to the quarter. Richard Steinmeier: Steven, it's Rich. So on that NNA trajectory, I think what we've seen would say that you should not think that our NNA trajectory is changing because of this. This is a temporary really ring-fencing of many of our most sophisticated recruiting and/or retention resources to move them over to help educate Commonwealth advisers, some of which they've already been in discussions with. And as such, our feeling has been quite good. It's the progression in the pipeline that was going to be most impacted as that team only has so many hours in the day. So as they begin to move back in to having -- enhancing the share of their time that's spent on external advisers to this firm, I think you would expect to see that we would continue to have the successes we've had in the past. Operator: Our next question coming from the line of Bill Katz with TD Cowen. William Katz: Congrats on the 1 year, Rich, can't believe how quick it's been. Maybe a 2-part question, just embedded, a little bit disparate in nature, so I apologize for that. Can you give us a sense of where you might stand on the enterprise side now that you're getting -- working your way through CFN and how you might be able to sort of multitask maybe some larger platforms to the extent that, that pipeline is building? And then on the net new money that's coming in the door, can you tell us what kind of cash allocation that is relative to roughly 2.5% that's the legacy book right now? Matthew Audette: Do you want to take institutional first? Richard Steinmeier: Well, I was going to say thank you to Bill first because he said something really nice to me. Why don't you hit the last part and then I'll come back on institutional. Matthew Audette: Yes, sure. So Bill, make sure I just jump in. When you say the cash sweep that's coming in, when you say allocation, are you talking about the percent per account on the incremental versus the overall? I want to make sure about the question. William Katz: Yes. I apologize for coughing on the call. Yes, like the cash allocation as a percentage of net new assets compared to roughly a 2.5% that's the average for the quarter or at the end of the quarter. Matthew Audette: Yes, I think the cash that's coming in, it's around -- it's not a material difference than where things are overall, if that's where you're getting. So pretty similar. Richard Steinmeier: Okay. So then on that institutional side, Bill, maybe I should acknowledge for us, getting Commonwealth right is the singular #1 job right now. And so we're focusing a lot of our resources on delivering a seamless experience for the new advisers joining the platform while ensuring to continue -- we deliver a great experience for our existing advisers. So we framed this a couple of times, but I'd just reiterate, I wouldn't expect too much by the way of other large announcements for the time being. But that being said, maybe in some broader context, we have been targeting historically large banks. And I think especially as you think about this market environment for large banks, we see the ability for the banks that we work with to be winners and net consolidators in the consolidation of that retail banking industry. And so feel really good about our ability to be a counterparty to large banks as they acquire in that market. And historically, we've had some fantastic partners like M&T, BMO and where we've seen them be net acquirers and us help them with their wealth management business on some of those transactions. As well, we continue to be in conversations around insurance broker-dealers and product manufacturers and as an aside, those markets are similar size, bank outsourced model opportunity sits around $1.5 trillion in the market. And in that insurance broker-dealers and product manufacturers, there's another $1.5 trillion in market opportunity. And post that onboarding of Prudential that we feel really good about, and we've seen great successes with -- in partnership with them. I think that is a very validating event in the marketplace. But as we've said before, those are some long lead time conversations. And just to reiterate, at this moment in time, we are focusing all of our resources on ensuring that we get Commonwealth right and landed and still progressing conversations, but I would expect less in the way of announcements to come in that large institutional segment. Operator: I'm showing there are no further questions in the queue at this time. I will now turn the call back over to Mr. Steinmeier for any closing remarks. Richard Steinmeier: Well, thank you, operator, and thank you to everyone for joining us tonight. We look forward to speaking -- we look forward to speaking with you all again in January. Have a great evening. Thanks. Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.
Anil Gupta: Good afternoon, and welcome to the Coinbase Third Quarter 2025 Earnings Call. My name is Anil Gupta, and I'm Vice President of Investor Relations at Coinbase. Joining me on today's call are Brian Armstrong, Co-Founder and CEO; Emilie Choi, President and COO; Alesia Haas, CFO; and Paul Grewal, Chief Legal Officer. During today's call, we may make forward-looking statements, which may vary materially from actual results. Information concerning risks, uncertainties and other factors that could cause these results to differ is included in our SEC filings. Our discussion today will also include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter on our Investor Relations website. Non-GAAP financial measures should be considered in addition to, not as a substitute for GAAP measures. We'll start today's call with opening comments from Brian and Alesia and then take calls -- take questions from our retail shareholders and our research analysts. With that, I'll turn it over to Brian for opening comments. Brian Armstrong: Thanks, Anil. It was another great quarter for Coinbase. We continue to drive strong financial performance and build the Everything Exchange that we had announced last quarter. Financially, Coinbase's core business is incredibly strong, and we're very well positioned for the opportunities ahead of us. Our strong financial performance in Q3 was driven by continued product execution. Total revenue was $1.9 billion, adjusted EBITDA was $801 million. We ended Q3 with $11.9 billion in USD resources and another $2.6 billion in long-term crypto investments. So just a quick refresher. Our mission is to increase economic freedom in the world at Coinbase and crypto is the technology that we're going to harness to get there. Crypto rails will power more and more of financial services over time because they're faster, cheaper and more global. With just a smartphone, for instance, anyone in the world can access trading and payments, raise money to start a business or get access to credit. Coinbase is the most trusted brand in crypto with deep technical expertise. And as finance moves to these rails with increasing regulatory clarity, we're uniquely positioned to lead and capture the upside of this paradigm shift. In Q2, we introduced the Everything Exchange, a one-stop shop to trade every asset class. Customers want one venue to trade spot crypto assets, derivatives and options, but also equities, prediction markets, commodities and more. In Q3, we executed on that vision by expanding spot coverage, growing our derivatives offering and laying the groundwork for new asset classes on our platform. In terms of spot coverage, we turbocharged our trading platform in Q3 by adding decentralized exchange or DEX integrations, which expanded access to tradable assets from about 300 to over 40,000 assets in the U.S. With DEX integrated under the hood, customers get day 1 access to new tokens as they are created, and we capture the upside when one of those takes off. We've also made strong progress in growing our derivatives product. As a reminder, derivatives account for about 80% of all crypto trading volume. And in Q3, we were the first to launch CFTC-regulated 24/7 perpetual style futures in the U.S. Early traction is strong for our U.S. style perps product, which helps drive all-time highs in U.S. derivatives volumes and market share. We closed the Deribit acquisition, bringing the #1 crypto options venue into Coinbase and Deribit plus Coinbase saw over $840 billion in total derivatives volume in Q3, driven by stronger participation from institutions and advanced traders. Next, let's touch on how we're accelerating stablecoin adoption by improving payments. The majority of global payments will shift to stablecoins over time because they allow you to send money anywhere in the world in under 1 second for less than $0.01. No other payment rail can match this. Adoption is already well underway as stablecoin market cap hit $300 billion driven by companies and financial institutions using them for payments and treasury, and we expect policy tailwinds like the GENIUS Act to continue to accelerate this. In Q3, Coinbase customers held on average, $15 billion of USDC on platform, making us the largest contributor to USCC's all-time high $74 billion market cap. USDC continues to be the top-performing major stablecoin in the crypto ecosystem, growing more than 2x as much as the largest competitor. In closing, with regulatory clarity accelerating, crypto rails are set to power more and more of global GDP for trading, payments in every financial service. Coinbase is well positioned to be the partner of choice for companies and financial institutions, including Citi, which we just announced last week, who are looking to come on chain. Through the end of the year, we're heads down building the Everything Exchange and scaling stablecoin payments with USDC. Speaking of which, I'm super excited to share that on December 17, we're hosting our H2 product event, but we'll go through everything we've built in the second half of this year. Tune into the live stream for a closer look at the next phase of the Everything Exchange. I'll now turn it over to Alesia. Alesia Haas: Thanks, Brian, and good afternoon, everyone. As Brian shared, it was a strong quarter for Coinbase. We had total revenue of $1.9 billion, net income of $433 million, adjusted EBITDA was $801 million, and adjusted net income was $421 million. So let's dive deeper into our Q3 results. As always, any comparison I'll share is going to be on a quarter-over-quarter basis unless I note otherwise. In the third quarter, our U.S. and global spot -- sorry, global spot market trading volume increased 29% and 38%, respectively. This is a global market. Against that, our Coinbase's Q3 consumer spot trading volume grew 37% to $59 billion. And consumer transaction revenue grew 30% to $844 million. The main difference between the growth rate in volume and revenue was due to a higher mix of advanced trading volume, which has a lower fee rate. A couple of callouts on what drove this growth. First, as Brian mentioned, we made progress on growing the number of assets available to our customers, both in terms of spot and derivatives assets. Second, our advanced trading volumes were supported by price increases in the long tail of assets as well as our concerted effort to attract and retain high priority traders through a new white glove service offering. Our institutional business had strong results across the board. Total institutional transaction revenue was $135 million, up 122%. The primary growth driver was derivatives. We closed Deribit on August 14, which contributed $52 million to revenue, driven by continued growth of options trading, which led to all-time high notional volumes. Additionally, we saw revenue growth in both our exchange and Coinbase prime businesses in the third quarter. Now turning to S&S revenue, which grew 14% quarter-over-quarter to $747 million. We saw strong native unit inflows across USDC balances in Coinbase products, average loan balances across our institutional financing products and assets under custody. We ended the third quarter with $516 billion in assets on platform. Total operating expenses decreased 9% to $1.4 billion. Technology & Development, general and administrative and sales and marketing expenses collectively increased 14% to $1.1 billion, largely driven by headcount and USDC rewards growth. I note that Deribit contributed $30 million to total operating expenses in the third quarter, including $16 million in deal-related amortization, the majority of which was recorded in sales and marketing. We ended the third quarter with 4,795 full-time employees, up 12%. I want to turn your attention to 2 below-the-line items that affected our GAAP profitability. First, we had a $424 million gain from the ongoing fair value remeasurement of our crypto investment portfolio. Second, we had a $381 million expense in other expenses, largely driven by unrealized losses related to our investment in Circle as their stock price was lower as of the end of third quarter as it compared to the end of second quarter. Including both of these items, net income was $433 million. Excluding both of these items, adjusted net income was $421 million. Now let's turn to our Q4 outlook. The fourth quarter is off to a strong start, and we expect October transaction revenue to be approximately $385 million. We expect subscription and services revenue to be in the range of $710 million to $790 million, driven by higher average crypto prices and continued growth of the Coinbase One subscriber base. On the expense side, our expense range is higher quarter-over-quarter for tech and dev and G&A in the range of $925 million to $975 million, up approximately $100 million at the midpoint. Approximately half of this increase is due to the recent acquisitions of Deribit and Echo. The remainder of the quarter-over-quarter increase is largely due to headcount growth, which we expect to grow at a slower rate in the fourth quarter as compared to the third quarter. Sales and marketing is expected to be in the range of $215 million to $315 million. Where we land in this range will largely be determined by performance marketing spend opportunities and USDC balances and Coinbase products, which drive USDC rewards. Included within the above outlook ranges is approximately $70 million of total depreciation and amortization for Q4. This is an increase from historical averages, which has been driven higher due to amortization of intangibles from our recent acquisitions. Over the course of 2025, we've made a significant investment in headcount to capitalize on the many opportunities we see and accelerate our vision on the Everything Exchange. As we look to early 2026, we plan to absorb the employees we brought into the company and focus on execution and anticipate that our sequential rate of operating expense growth will slow as compared to our Q4 rate. With that, let's go to questions. Anil Gupta: Thanks. So let's begin with pre-submitted questions from retail shareholders. Many of the top questions touch on similar topics, so for efficiency we'll group by theme. The first topic is about competition. What's the plan to improve product innovation and velocity and increase market share? How are you thinking about listing stocks in prediction markets given the success of others. Brian? Brian Armstrong: Yes. So on this question, I'd say that we've spent a lot of time investing in policy and getting regulatory clarity both in the U.S. and a number of countries around the world. And that's starting to bear fruit, which is great. It's growing the TAM of crypto. It's making it trusted and regulated. Even as more and more people come into the space, we're able to power a lot of the -- that with our infrastructure services. But it does mean that lots of new competition is coming in. And so we need to make sure we're executing well. And we've talked since Q2 about this Everything Exchange vision. We've made really substantial progress toward that already areas where I think we're best in class, like I mentioned, the DEX integrations where we went from 300 tradable assets to 40,000 tradable assets in Q3. And we were the first to launch the CFTC-regulated U.S. perpetual style futures contracts, which has been growing really well. So there's a lot to like that there. Now we've been heads down working on the next pieces of that because we think that every asset class is going to come on chain. And our customers are asking for this, too, prediction markets and tokenized stocks and every on-chain asset you can imagine. So the Everything Exchange is really central to the next chapter of what we're building and I'm really excited that we'll have more to share on that on December 17 at our product showcase, so please tune into the live stream for that. And I'd say that Everything Exchange is really a perfect complement to all the other features that we've built into Coinbase including DeFi borrow lend, USDC, global payments, Coinbase card, people really love that product Base is having really strong momentum. And so I think these are all going to come together to be -- and our goal long term is to be the #1 financial app, and that's what we're working on. Anil Gupta: Thanks, Brian. So the second topic is Base. Brian, can you elaborate on how you're thinking about a Base network token and in particular, how shareholders could be beneficiaries of the distribution? And Alesia, can you talk about the monetization of the Base network and how that might evolve over time? Brian Armstrong: Yes. So I'll start it off. We're still early on exploring a Base network token. But the high-level goal is to help bring 1 billion people on chain and just to really grow the developer and create our ecosystem around Base. So there's not any specifics that we're going to announce today on the governance or distribution model or the timing of it exactly. But we are going to build this in the open and just continue talking with our customers, investors, regulators to make sure that we get it right. So Alesia, anything you want to add? Alesia Haas: I'll just speak about monetization. So on the Base chain, we monetize through sequencer fees. And we've talked historically about how we have direct monetization through sequencer fees, but we also monetize indirectly as those who are building apps on Base, often, will then incorporate USDC. They will often need to be able to buy other crypto. They may need custody solutions. And so we do monetize the other products and services by the growth of the overall ecosystem and the growth of on chain developers. What I would share, though, is the Base app that we are building that on Base we'll have other monetization opportunities. The Base app is monetizing through trading fees, it is monetizing through advertising. And while it's early days, we see opportunities to have revenue profiles that look similar, honestly, to the Coinbase main app in terms of transaction fees, maybe some subscription fees, maybe advertising fees, some various different ways that we can monetize in that app. But we'll talk more about that as that grows over time. Anil Gupta: All right. Thank you, both. So we'll now take questions from the research analysts. [Operator Instructions] Our first question comes from Craig Siegenthaler of Bank of America. Craig Siegenthaler: Our question is on Echo. So how will Echo help expand your network by making it more easy for crypto companies to raise and invest via private sales or public sales with Sonar. Brian Armstrong: Yes. I can start off and then Emilie, if you want to add anything, that would be great. Yes. I mean, one of our -- as I mentioned, we believe that every type of financial service is going to come on chain and crypto is this technology to update the financial system. And so capital formation is certainly a big piece of that, right? We think that it can be much more efficient, the fees can be reduced, people more around the world can have better access to it. This will just accelerate the economy. So Echo was a really innovative, I think, in a company that we decided to go acquire to get a foothold here. And we're trying to make it easy for anyone to raise money. And then the beauty of combining it with Coinbase is that, we have now over $500 billion of assets. We have a large number of retail institutional customers or credit investors that want to invest in unique assets. And so you can just see like the double -- the 2-sided marketplace coming together here in a really powerful way as we think more and more about capital formation and how crypto can update that. Emilie Choi: Yes, agreed. We're really excited about it. The management team for Echo has a great nose for what the most compelling companies will be to launch. And so if Echo launches these great companies and tokens and those are successful, it helps us deeply because we're moving up the stack. And where coins are issued before they graduate to the exchange. So it's kind of vertical integration that we think is quite powerful for the whole ecosystem of Coinbase products. Anil Gupta: Let's take our next question from Ken Worthington at JPMorgan. Kenneth Worthington: The pace of announced M&A seems to be rising for Coinbase versus what we may have seen in recent years. How is the more regulatory and political certainty in the U.S. impacting the pace of innovation? And would you expect this pace of innovation to drive Coinbase to be more active in M&A as we look forward? And then in terms of the innovation that we're seeing, are there certain themes that you are focused on trying to capture as we look forward? Emilie Choi: Thanks for the question. I'll start and then Brian, Alesia feel free to jump in. So to take a step back, we worked really, really hard to get to this place of regulatory clarity and we think that, that just generally provides more opportunities and key bets and more predictability with this type of M&A and these types of investments. So these companies just have more certainty than they did in an environment where there was regulation by enforcement. When we look to the spectrum of opportunities, we do look a lot to some of the best tech companies of all time and how they were able to use M&A to massively accelerate adoption and so we're very excited about some of the opportunities on the horizon. In terms of the areas that we're interested in, we're always kind of keying in on the priorities that the company has outlined whether those include trading and payments and these other areas that are very interesting to Coinbase. And then we also try to look ahead as there might be strategic opportunities that present themselves. So we're always on a lookout and when we think -- we always look at buy, build partner invest and then determine which is the right vehicle for us at that moment. Brian Armstrong: Yes. I'd just say, you're right. The pace has picked up. The political environment definitely helps with that. And all of this M&A is really in service of our core focus around trading and payments. So it's been great. Anil Gupta: Our next question is from Pete Christiansen at Citi. Peter Christiansen: And nice execution on a bunch of partnership deals signed in the quarter. I do want to ask about Coinbase's operational infrastructure. I mean we've had some really busy trading days in the last quarter. There's been cloud service providers, multiple have had issues this year. I know that Coinbase has spent a lot this year bulking up customer service. How would you assess where Coinbase is in terms of its operating infrastructure today? Redundancy? And how are you thinking about investments there going forward? That would be helpful. Brian Armstrong: Yes. I mean I can start off. Like many companies, we were impacted by AWS outages. I think it always raises this question of, should we be pursuing a more robust multi-cloud approach. We already do use multi-clouds in a variety of ways, but we haven't made what would be a substantial investment to make every service in the company redundant to a certain cloud outage. So it's always a trade-off. Now these clouds are also kind of working hard to build their own redundancy. And so you always have to factor that into other priorities and investments that you could make and look at the cost benefit analysis. Emilie Choi: And I would just say in terms of like some of the things we're really excited about as well, we're very invested in automation. Currently, 65% of our customer support interactions are fully automated. We're trying to push that number up rapidly. And then we're also rolling out deep reasoning LLM agents to automate the majority of compliance investigations in 2026. So there's a lot of really interesting areas for automation over the next several years as well. Brian Armstrong: Yes. And I guess your question maybe think of actually on October 10, there was also a record level of activity across crypto exchanges. And in that case, we actually operated very well without disruption. And we didn't have any downtime or degraded latency around market data or anything like that. So that was a result of a lot of investments we've made over the last year or 2 in doing load testing and making sure we didn't have any reversions as new software is being developed. Several major exchanges experienced extended outages during that time, and we didn't have any. And so I was really proud of how that part came to be? Anil Gupta: Next question is from Ben Budish at Barclays. Benjamin Budish: In your shareholder letter, I believe you talked about a new sort of white glove service for the advanced retail trader. Just curious if you could talk about that a little bit more. And is there anything to read in there regarding the state of competition among retail trading? It seems like there are newly listed crypto exchange competitors, other -- I guess you could say legacy competitors try to expand their offering and be more competitive. So is there anything to read into there? How would you describe the state of competition there? And can you talk a little bit about this service? Alesia Haas: Maybe I'll start and then feel free to add on, Brian. Our white glove service has been made available to some of our high-value advanced traders. So this is not a service available to all of our retail traders, but to our very specific high-value advanced traders. And it provides some concierge-level support, the personal account manager and really makes commitments around time to resolve the issues, making sure they can trade seamlessly that they don't run into any hiccups with our services. With regards to our broader retail program there, we are really pleased to have our trading volume exceed overall U.S. spot volume in the quarter. So we're really seeing strong adoption of our products and services. There's more to do there, as Brian said, which is why we are building towards the Everything Exchange to continue to meet our customers where they are and provide broader access to all assets they would like to trade. Brian Armstrong: Yes, not much to add. I would just say that, in trading, I mean, there are whales that are out there that drive a disproportionate amount of volume. And so it's important for them to have a dedicated relationship manager that can help them resolve any issue, but also it has partially a sales function. So I think it's just a good example of us maturing as a company and recording the best customers. Anil Gupta: Let's go now to Owen Lau from Clear Street. Owen Lau: Could you please talk about innovation in Coinbase business. It has global payout, I think it enables business to send and receive USDC with lower fees. You're also making an announcement with Citi to develop digital asset payment capabilities. I know it's still early here, but I'm wondering what you have heard from the banks and merchants so far about these deal capabilities? And have you started to see more merchants moving into blockchain or even considering moving into blockchain? Brian Armstrong: Yes. Well, I'll start off. So obviously, we have our first-party business with retail and businesses and institutions, which is growing really well. But I'm also really proud that Coinbase has built out infrastructure that can power other companies. And -- we call that product Coinbase developer platform or CDP. It's -- sometimes people think of it as crypto-as-a-service. And what's great is that we've been able to close 264 institutions now that are using that product, including large companies like JPMorgan, BlackRock, Citi, PNC, fintechs like Stripe, PayPal, Revolut, Webull. So I think that this is going to increasingly be an important part of our business. It just allows us to have different revenue streams and participate in the value creation as more and more companies come in to integrate with crypto. That's going to be all banks, all fintechs, all payment service providers, but it's also going to be nonfinancial services related companies. I mean we're also working with, for instance, Shopify on powering payments for them. So I think it's similar to what Amazon did with AWS. I think this third-party infrastructure can be a powerful business for us over time. Alesia Haas: Owen, maybe I could add on here for you, though. We've really been building the various infrastructure layers and are pleased to have a more vertically integrated payments product that we're bringing to market. It starts with Base, which is our Layer 2 solution, USDC and other stablecoins. We've now built out payments APIs. And we're now bringing those forward to our customers via Coinbase the Base app and then directly to businesses. So what we're seeing here is, one, we are a partner of choice. We continue to win mandates from large financial players, fintechs, as Brian shared. But we're also seeing small and medium-sized businesses really come to our platform as we enable them to more efficiently manage their capital and their liquidity through instant settlement via stablecoins, while we're earning rewards now on any idle funds that they hold in USDC. So we've seen great early traction with over 1,000 businesses onboarded, and we have a growing wait list. Anil Gupta: Let's go next to Devin Ryan at Citizens. Devin Ryan: Great. Just want to ask a question about Deribit. Obviously, you haven't had it on the platform for too long, but seems like it's doing well here out of the gate for Coinbase. So just love to kind of think about kind of the integration thus far, what that informs around potential future product development and cross-sell opportunities for Coinbase? And just more broadly, if you can just touch on kind of the scaling plan now that it's fully integrated or part of Coinbase. Alesia Haas: So it officially just closed in August, and we onboarded 100 employees in September. So they had record volume in the month of August. Their revenue has been growing. And where we are right now is we're really working to integrate their products seamlessly with our products. So we can bring together spot derivatives and derivatives meaning both perpetual futures, futures and options, all under one roof. We, in the quarter, had brought forward for our U.S. customers, spot and derivatives cross-margining, and it enables capital efficiency where our customers really value the ability to get better leverage, better margin on their trading products. And so we think that, that is a future that we can bring forward to options as well. So the goal is going to be integrated for the next few quarters, so we can bring everything under one roof and enable side-by-side trading of these products and services to our institutional clients. Anil Gupta: We'll take our next question from Patrick Moley at Piper Sandler. Patrick Moley: I just had one on the Everything Exchange. I was wondering if you could update us on the time line or some of the milestones we should be looking out for as you introduce new asset classes to that platform. Brian Armstrong: Yes. Well, some of them are already live, right? I mentioned the DEX integration, the U.S. style perps. And December 17 is going to be another milestone for us. We're hosting that H2 product event, where we'll be giving an update on everything we've been working on in the second half of this year. So that will be a good one to tune into on the live stream. Anil Gupta: Let's go next to James Yaro from Goldman Sachs. James Yaro: Could you help us think through the impacts of the crypto liquidations on October 10 on markets as well as on the various market participants? Do you see any medium-term ramifications? And are there any lessons learned that you think could improve market function going forward? Alesia Haas: I'll start and others can add on. So obviously, the events of October 10 led to some liquidation as folks had to delever to address the sharp sell-off in certain assets. We are really pleased that we did not see significant liquidations on our platform. And as Brian shared earlier, our platforms really withstood the volatility quite well during that window. In part, that's due to the design of our products and the approach that we've taken to leverage with our products. One of the observations that I would have broadly in the market is today, there's very few of us that are publicly traded that have as much transparency into our operations, our risk management, our balance sheets. And so we do have these risks and throughout the overall ecosystem of operational errors that then lead to deleveraging events. I think over time, you'll see more and more companies come into a regulatory framework, more and more companies go public. And so this risk will reduce over time because transparency then helps all risk, and the more sunlight the better in some of these areas. But I would say that the market rebounded quite nicely from this, and I don't see any systemic losses or any kind of continued fallout from that sell-off. Anil Gupta: We'll take our next question from Andrew Jeffrey at William Blair. Andrew Jeffrey: I appreciate the question. Brian, I definitely agree with your vision on stablecoins. I wonder if you can sort of dimensionalize for us sort of timing in your mind for more commercial adoption outside of crypto? And the role you think Coinbase plays in that cross-border commerce. And whether or not it changes -- whether or not your economics change with volume as USDC takes off. Brian Armstrong: Yes. Well, interesting. I mean, I think taking that last part first, I'm not seeing a change in economics yet. I think we're still super early in this, and it's growing really fast. And so it will be interesting to see how that plays out. I mean we have different ways to monetize it like with Base sequencer fees and with USDC, you could, of course, charge directly for the payments themselves. But I think just zooming out, I mean, payments are just very clearly the next big use case for crypto. I think it started with trading, payments are really -- are growing enormously now. And I would say just in general, it's a massive market, right? Like cross-border payments are something like $40 trillion in volume annually. B2B is 75% of that, which is an early use case for stablecoins. And we're now seeing about $100 billion in annual stablecoin volume, which is growing rapidly. So and we're going to keep participating in this space across a number of different areas. We're building payments for businesses. Coinbase businesses are account for small, medium-sized businesses. We're adding various products and services in there around invoices and how to pay contractors and vendors. A lot of it's cross border, but even within country, it's powerful. We had -- since we announced that product just recently, we've had about 1,000 businesses onboarded already. There's another 1,000 on the wait list. We're also integrating payments into our retail app for Coinbase and into the new Base app. So I think that will be powerful. And then we can be one of the -- I think we're really one of the only companies that can start to connect these businesses and consumers together, right, in the 2-sided market and Shopify is an example of that, where we're powering USDC checkout for their merchants. And when you're -- these merchants, it's a big deal because they're used to paying 2% to 3% in fees, for people to move money over the Internet. There's no reason that, that needs to exist, I don't think. I mean -- and when you can do it in less than a second, less than $0.01, flat fee regardless of the amount it just has a lot more of the value. You can give some of that back to the consumer. Like in Shopify's case, they're giving 1% back to the people who pay with USDC, but the merchant also saves money. So it's just kind of a win for everyone. And I think that when you lower friction in the economy like that, you see an order of magnitude more activity happening, it can really have a dramatic effect. So I guess -- just one other item to touch on in the payment space, which I think is really innovative that we're doing is there's a protocol we came out which is called x402. And what this is, it's a way to attach a stablecoin payment to any web request. You may be familiar with 404, which is on the Internet, like it's file not found, right, if you go to a page that doesn't exist. There's actually another code called 402 in the HTTP spec, which was originally put in there for payment required. Now it was never really implemented in most web browsers because the web browser never became a place where you put in your credit card, you put it into the website itself, not the browser. But anyway, we decided to go ahead and ship this, and it's attracted a lot of attention in the last month or so, partners like Cloudflare and Vercel and Google have started working with this. It's caused a lot of people to go sign up for Coinbase developer platform to start building these integrations. So it's still early days, but for payments happening over the Internet for AI agent payments, that's another big emerging area. We shipped an open source tool kit called AgentKit that lets any AI agent put a stablecoin wallet inside it. So we're starting to see a lot of things happen with payments on the frontier now. And yes, I think this is going to be a big area for crypto and for Coinbase. Anil Gupta: Our next question comes from Bo Pei at US Tiger. Bo Pei: In the shareholder letter, you mentioned scaling back rebates and incentives in derivatives. Could you quantify how that's affecting take rate and whether you expect this to help margin expansion in Q4 and 2026? Alesia Haas: Bo it's a great question. So we are -- we have scaled back those incentives, and you can see that in the overall institutional growth. We did not attribute out any change in take rate. And it's very difficult to look at take rate for the institutional business given the acquisition of Deribit, given the growth of the derivatives platform, which is not reported in underlying trading volume. So there's been no change to the overall pricing of any of the products and services in any material way quarter-over-quarter, but there has been a lot of mix shift and just change in the drivers of the total institutional platform. We are pleased to be able to change the incentives in derivatives because we've seen more liquidity and just more solid sticky organic open interest growth in that platform, which has enabled more profitable growth for our international derivatives business. Anil Gupta: Our next question is from Alex Markgraff at KeyBanc Capital Markets. Alexander Markgraff: Alesia, maybe one for you. Just as we think about the many new products and elements of the Coinbase platform, just hoping we could just sort of step back and maybe you could remind us how you're thinking about managing margins across these various products and platform elements? Any way to sort of frame the vision for contribution margin across these new items? Alesia Haas: So we do have a big mix of products and they do all monetize separately. And in some cases, we have launched products with the sole growth of retention and acquisition. In the case, for example, of the Coinbase card. So what we look to do is monetize the overall customer relationship. For example, on the institutional side, we have many of our customers who are now engaged with 3-plus products and services, and we look to the overall customer relationship and the customer economics versus single product economics. So we're focused on growing overall profits. We're focused on how do we drive total adjusted EBITDA growth at the company level. And that is how we think about it versus targeting a specific margin by product at this time. Anil Gupta: We'll take our next question from Dan Dolev at Mizuho. Dan Dolev: Guys, great results here. I got, I guess 2 quick questions. On the take rates, I appreciate you answering on the institutional take rates. Is there any way you can help us think about sort of how this looks a couple of quarters out? And then I have a very, very quick follow-up, if you don't mind. Alesia Haas: As we shared before, we don't focus on outlook that far in our public comments. We are focusing on meeting our customers where they are, engaging them with products and services. And we are constantly experimenting with our pricing on the retail side to understand how best our customers engage. Right now, we're really pleased to see the growth of the Coinbase One subscribers. We introduced the new basic tier last quarter and the basic tier along with Coinbase Card is showing a lot of traction. So over time, we anticipate more and more customers will monetize through many products and services, and we're reducing the overall reliance on trading fees as a single monetization as it was many years ago. But we will adjust fees as needed by the market, and that has been our long-standing approach. Anil Gupta: We'll go now to Ed Engel from Compass Point. Edward Engel: Alesia, in the past, you've talked about how 2025 was a bit of a reinvestment year just as you capitalize on the better political environment. I guess with the step-up in fourth quarter OpEx, I'm just kind of thinking, are you still ramping up hiring through the end of the year? Or is most of that headcount growth behind us? I guess I'm just trying to gauge whether this kind of 4Q guidance is a fully baked-in number for some of the reinvestment you made this year? Alesia Haas: Great question. So as we shared in my opening comments, the outlook for Q4 on our tech and dev and G&A combined is up roughly $100 million quarter-over-quarter. About half of that step-up in cost is due to the 2 acquisitions we made, one being Deribit, the second being Echo. And then the other half is due to headcount growth. So we are still growing headcount in the fourth quarter, although at a much slower rate than we did in the third quarter. Anil Gupta: Let's go now to Zach Gunn at FT Partners. Zachary Gunn: I just also wanted to ask on the payment side of things. Historically, when we think about driving adoption of the new payment modality or platform, it takes anywhere from 3% to 5% of overall transaction value incentivize either consumer or merchant or business switching. So can you just talk about what Coinbase is doing to incentivize adoption of its payments platform? Brian Armstrong: Yes. I mean, you're right. There are a lot of powerful network effects in payments. So we don't want to be flippant about the challenge of coming into these new markets. Luckily, it's not just one Coinbase -- or one company like Coinbase going up against the powers that be here. I think the beauty of crypto is that these are decentralized, open networks, with thousands of companies participating all over the world. So it's a little bit like the Internet going up against some kind of proprietary system, not just one company. Now that being said -- so lots of people -- I mean there's something like $500 billion of assets that we have on platform. There's a huge number of people around the world now who use crypto, that are holding crypto. So we're starting to get into those categories where it can be meaningful. Now it won't be for every type of merchant, right? I mean if you go to like a Starbucks on the corner, maybe that doesn't hit the threshold, but for a certain type of e-commerce category, it could be that a large enough number of people actually -- the only way they want to pay us was crypto. It opens up micro transactions or new international markets where credit card penetration is low. So we'll see it first take off in areas where people's unmet need is the highest. And then eventually, it will eat into more and more of it just because it's faster and cheaper and more global. But yes, this will take time for sure. And I guess I mentioned this earlier as well, but a lot of times when people think about payments, they think about buying the proverbial cup of coffee on the corner store. But like the majority of cross-border payments are really like B2B transactions, and that's the area where we're seeing higher adoption for crypto right now. I mean that's just it's growing like gangbusters frankly, because that's just a very underserved part of the market where businesses want to get their money faster, they want to not have -- be exposed to these FX risks. So those are some of the areas that will take off in first and I think eventually get to the majority of all payments. Anil Gupta: Let's go next to Joseph Vafi from Canaccord. Joseph Vafi: Just as a quick side note, just finishing lunch here on the West Coast that I bought with my Coinbase One card. So thanks for a great product. But just maybe double-click on Deribit here a little bit more. And Alesia, I appreciate the commentary on cross-product margin capability and efficiency there. But as you look forward, the distribution of the Coinbase platform is so big. Do you see this as a big share gain or share creator in option transactions? And then can you just remind us on margin structure on a transaction margin basis, how your options and derivatives compare to spot? Alesia Haas: All right. So Deribit is already the market leader in options. They had over 75% market share for options. Notably, this is all non-U.S. And so there is path to grow the market for options in the U.S.. That is going to be a multi-quarter road map of bringing both the regulatory licenses and product to bear in the U.S., but we think that's a huge opportunity for us. But more importantly, we believe that bringing these products to trade all under one umbrella will be able to grow overall trading volume on all of our products on our platform. And we've already seen, just by having Deribit closed for a few weeks on our platform, that existing clients have more confidence in the combined balance sheet and now bringing options to the Coinbase balance sheet, they are trading at higher volumes and trading and holding more assets on our platform. So the brand strength, the balance sheet strength that we're able to now put behind Deribit and their strong product and risk management is having outsized benefits to both of us. And we can follow up with you about the margin differential. Obviously, there's no margin on spot trading. We do offer leverage on those assets, but they're very customized by product. So the -- they look different in each market, and they look different to different customer groups. I don't have a simple way of answering that question for you. Anil Gupta: We'll take our final question from Gus Gala at Monness, Crespi and Hardt. Gustavo Gala: I wanted to talk a little bit about the competitive environment between September and October. September was a fantastic month in terms of outgrowing the market at spot in October seemed to reverse that. Just trying to parse out, is this competitive pressure, like present in the system, maybe seeing more aggressive pricing competition from peers in terms of promos, incentives stealing away? Or is it just a mix issue? Just trying to understand what's going on there. Alesia Haas: We've always faced competition. We are a platform that has multiple customer types, multiple products. And so we all have faced competition since we've been founded on different products, different customer groups within our portfolio. Our focus and our goal is always to deliver the most trusted and easiest to use products to our customers. And we've been really proud of our continued growth in market share, trading volumes, size, and scaling up these various product offerings. So when you think about the competitive pressures in the month of October, there's nothing specific to talk about generally, we are always looking for ways to continue to build and delight our customers. Brian Armstrong: Yes. I hope we answered your question on that. I was a little distracted because I was tracking the prediction market about what Coinbase will say on their next earnings call. And I just want to add here the words Bitcoin, Ethereum, blockchain, staking and Web3 to make sure we get those in before the end of the call. Anil Gupta: All right well, we've taken all of our questions. That's it for today. Thanks for joining us, and we'll talk to you again next quarter. Alesia Haas: Before we end, I just want to invite anybody to join us on our X Spaces call next week. And so please follow us on X. And Brian and I will be taking additional questions on Monday.
Operator: Good day, and thank you for standing by. Welcome to the Option Care Health Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Nicole Maggio, Senior Vice President, Finance. Please go ahead. Nicole Maggio: Good morning. Please note that today's discussion will include certain forward-looking statements that reflect our current assumptions and expectations, including those related to our future financial performance and industry and market conditions. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. We encourage you to review the information in today's press release as well as in our Form 10-K filed with the SEC regarding the specific risks and uncertainties. We do not undertake any duty to update any forward-looking statements, except as required by law. During this call, we will use non-GAAP financial measures when talking about the company's performance and financial condition. You can find additional information on these non-GAAP measures in this morning's press release posted on the Investor Relations portion of our website. And with that, I will turn the call over to John Rademacher, President and Chief Executive Officer. John Rademacher: Thanks, Nicole, and good morning, everyone. Before I begin my prepared remarks, I'd like to welcome and introduce some new members of the team. As we announced several weeks back, Mike Shapiro stepped down as CFO, and Meenal Sethna joined us as CFO on October 1. I want to thank Mike for his leadership and contributions over the past 10 years. He has been a great partner to me and our leadership team, and we appreciate his support during this transition period as he steps into his new role as strategic adviser. I'm also excited to welcome Meenal to the Option Care Health team. She brings a wealth of experience leading business imperatives and finance teams across a number of public companies and industries, including health care. Her early career and formative years were spent with a global health care products and services company, and her recent roles in technology, industrials and electronic manufacturing will bring fresh perspectives and best practices from across her breadth of experience. I'm looking forward to partnering with Meenal as we shape the next chapter of Option Care Health and continue our mission to transform health care by providing innovative services and improve outcomes, reduce costs and deliver hope to our patients and their families. I'm also pleased to welcome Stephen Shulstein as Vice President of Investor Relations, reporting to Meenal. Stephen is a seasoned Investor Relations executive with experience across health care and other industries, and his primary focus will be on fostering strong relationships across the investment community as we continue to drive shareholder value. With that, let's move on to the third quarter results. The Option Care Health team delivered another strong quarter with balanced growth across the portfolio of therapies. I'd like to recognize our team for their strong execution and continued dedication to providing broad access to quality of care to more patients. As a leading independent provider of home and alternate site infusion services, we are well positioned to leverage our significant scale, diverse portfolio of therapies and resilient operating model to win in the marketplace, and we demonstrated this again in the third quarter. We continue to benefit from favorable market trends, including ongoing shift of care to the home and ambulatory setting. Providing high-quality care at an appropriate cost in a setting in which patients want to receive it makes us an important part of the solution to reduce the total cost of care. We continue to capitalize on changes in the competitive landscape and further enhance our partnership with payers and pharma manufacturers. Our relationships with health plans remain strong. Our ability to provide both acute and chronic therapies on a national scale with local responsiveness uniquely positions us as a partner of choice. The strength of our platform provides a meaningful opportunity to broaden access to their members and provide better, more cost-effective care to help reduce the medical loss ratio and improve clinical outcomes. During the quarter, we expanded the utilization of our bed day management programs and site of care initiatives to deliver value to our payer partners. The robust and resilient operating model we have created enables us to deliver consistent results in any operating environment. We have demonstrated we are well positioned for success as we continue to navigate changes in regulation, competition and our portfolio of therapy. Meenal will go deeper into the financials in a few minutes, but to highlight some key takeaways. Our revenue momentum continued in the third quarter as we delivered revenue growth of 12% over last year. Acute therapy growth was in the mid-teens, and our team has been able to take advantage of shifting competitive landscape, allowing us to grow above assumed industry growth rates. Our national scale and local responsiveness are differentiators as we continue to partner with referral sources to safely transition patients out of the hospital setting to the home. As we have mentioned previously, coordinating care for acute patients requires tight collaboration with our referral sources, nurses and exceptional responsiveness by our pharmacies. This is done thousands of times a day by our teams at the local level, and we believe the investments we have made in our unique platform allow us to be the reliable partner of choice for hospitals and health systems. Our chronic therapies grew in the low double digits. We continue to see solid performance in both our core therapies as well as our rare and limited distribution products. We added new therapies and enhanced services to our platform in this quarter, taking advantage of our focus on providing enhanced clinical programs and data service expansion. We have partnered with specific pharma manufacturers to develop programmatic support for unique patient cohorts. The demonstration of our clinical capabilities, including our nursing network, payer access and national pharmacy infrastructure are differentiators as we partner with pharma to gain share in these new-to-world therapies, and we are encouraged by the pipeline of new therapies that are clinically complex and would benefit from our capability set. Part of our differentiation is our ability to have the right clinical resources available to support the breadth and complexity of our patient community and allow for growth. Nursing is at the forefront of our value proposition and the efficient and effective use of these resources is a key enabler. To this end, we conducted over 175,000 nursing visits with 34% of those in one of our infusion suites in this quarter. Additionally, Naven Health conducted over 55,000 nursing visits in the quarter across their entire customer base, allowing us to capitalize on the positive impact that we can provide at the point of care. We also continued our focus on expanding our advanced practitioner model, which represents an attractive complement to our current home infusion services and provides an opportunity to enhance our clinical competencies to serve higher acuity patients under the oversight of an advanced practitioner. Our investments in our infusion suite platform allow us to leverage our infrastructure more effectively by serving specific patients that benefit from this care model. We believe this will expand our market reach and provide broader access to new patient cohorts. As we near the close of 2025, we have raised the midpoints of our full year revenue, adjusted EBITDA and adjusted EPS guidance, which reflects our continued confidence in our platform and the execution by our team. With that, I'll hand the call over to Meenal to provide more details. Meenal? Meenal Sethna: Thanks, John, and good morning, everyone. I'm excited to join the team here at Option Care Health. I'm looking forward to continuing our strong track record of growth, resiliency and disciplined capital deployment. As John mentioned, the third quarter was strong, building off the solid momentum from the first half of the year. Revenue growth of 12% was balanced with mid-teens growth in acute and low double-digit growth in the chronic portfolio. Both the acute and chronic portfolios performed well across the board. However, growth in the chronic portfolio was negatively impacted 380 basis points from the additional adoption of Stelara biosimilars, which carry a lower reference price and reimbursement. Gross profit of $273 million grew 6.3% versus last year. This reflects the benefit from therapy mix with outsized acute and the core chronic therapies growth. Gross margin rate was also negatively impacted by the shifting Stelara dynamics as well as the impact from lower margin, limited distribution and rare and orphan therapies. Adjusted EBITDA of $119.5 million grew 3.4% over the prior year with the strength of the top line performance and spend management, partially offsetting year-over-year headwinds previously noted. Adjusted EBITDA margin was 8.3%. Adjusted earnings per share of $0.45 grew 9.8% over last year, benefiting from our share repurchases and a lower tax rate versus last year. Turning to our balance sheet and capital allocation. We had another strong quarter of cash generation. Year-to-date, we've generated $223 million in cash flow from operations. We also refinanced our term loan, reducing our borrowing costs and extended the maturity, while adding an additional $50 million in liquidity. Our net debt to adjusted EBITDA leverage stands at 1.9x at the end of the third quarter. As we identify strategic opportunities to deploy capital, our first priority for deployment is internal investments for profitable growth opportunities. In the quarter, we made investments to strengthen our platform. We added new infusion clinics and expanded our advanced practitioner footprint. We continue to look for opportunities to increase both our pharmacy capacity and our presence in key geographies. We also continue to invest in technology, artificial intelligence and advanced analytics to continue driving operating efficiency. In the quarter, we launched 3 new enhanced applications that we expect to drive efficiencies in our patient onboarding process, along with efficiencies in our staffing utilization and deliveries. Strategic acquisitions and related investments are our next priority. We've been working through the integration of the Intramed Plus acquisition from earlier in the year. The business continues to perform extremely well, and the team has met or exceeded our expectations as we close out our integration efforts. We remain active in assessing M&A opportunities, focusing on strategic tuck-ins and near adjacency opportunities. We continue to return capital to shareholders via our periodic share repurchases. In the quarter, we bought back over $62 million in shares. The strength of our balance sheet gives us flexibility to execute our growth strategy while balancing return of capital to shareholders. Finally, I want to provide an update on our expectations for the full year 2025. We now expect to generate revenue of $5.6 billion to $5.65 billion, adjusted EBITDA of $468 million to $473 million and adjusted earnings per share of $1.68 to $1.72. We continue to expect to generate more than $320 million in cash flow from operations. Consistent with our previous comments, our guidance incorporates our current expectations on the impact of potential tariffs, most favored nation pricing and similar policy changes, which we continue to believe will not have a material financial impact in 2025. Overall, we're excited about our performance and look forward to continuing our growth trajectory through 2025 and beyond. And with that, I'll turn it back to John. John Rademacher: Thanks, Meenal. In closing, I want to highlight our success that's ultimately driven by our responsiveness and strong execution. We have demonstrated our ability to take advantage of market opportunities through our day in and day out focus and consistency. And we continue to grow the business, overcoming challenges and headwinds within the marketplace. I am proud of our accomplishments this quarter, and I'm excited about the momentum we are building to deliver on our promise to expand access to the extraordinary care we can provide and to serve more patients and their families. With that, we'll open up the call for questions. Operator? Operator: [Operator Instructions] our first question comes from the line of Pito Chickering with Deutsche Bank. Pito Chickering: I guess what is the uptake of the Stelara biosimilar at this point? How do you think that evolves in the next 12 months? And is it fair to think about the economics of Stelara biosimilars following the same path as REMICADE? John Rademacher: Pito, it's John. A couple of things that I want to bring up first. First and foremost, love the progress that the team made in the quarter and really the balance of the portfolio across that. As we had said and Meenal commented in the prepared remarks, we are starting to see the uptake of the biosimilar. And knowing that, that has a lower reference price, it's going to have a revenue impact as well as gross profit as we had called out. So I think it's patterning. We kind of called out at the end of the second quarter, we started to see the uptick. That continued through the third quarter, which we put out there. Our expectations as we move forward are -- and we contemplated within the guidance that we provided for 2025 is that continued slow uptake that we would feel through that process. We know that with the January 1 roll of the calendar and the IRA impact, we will expect further step down in the price of the Stelara and the biosimilars will continue to gain momentum there. So we're not prepared to give '26 guidance. We're not in a position really to size up what we think the impact is going to be for Stelara. But I will say, given the balance of the portfolio and the momentum we're building, we expect growth, and we're going to continue to focus the organization around minimizing the impact that we can as we move forward and continue to support the broad spectrum of formulary that we have available and deepening the relationships that we have with the prescribers, with our payers and with our pharma partners. Pito Chickering: Okay. And then a quick follow-up here. I mean just we talked about the Stelara impact for '25. It was like $5 million in the first quarter and then $20 million sort of 2Q, 3Q and 4Q. As you're moving into the Stelara biosimilars and talking about sort of the gross profit sort of impact there, what would be the Stelara year-over-year headwind in the fourth quarter now that you're moving into the biosimilars? John Rademacher: Yes. As we had put out the original guidance of the $60 million to $70 million and then as we affirmed at the end of the second quarter that it was going to be at the high end of that range. That is just on the Stelara portion of it. That does not include what we see as the biosim conversion rate. As we came out with those original numbers, Pito, as we called out, the only view we had was around the discount that we were able to enjoy on that product changing and that, that was going to be moving more -- and it was hard to anticipate what the uptake of the biosims was going to be. So we've talked about it being a revenue event, and it's going to have a drag at that point. And as I said, we've contemplated that within the guidance in the remainder of the year, and we're working diligently right now in the budget process. And as we start to look and try to size everything with all the variables for the 2026, be able to be in a position to provide that when we're ready to do so. Operator: Our next question comes from the line of Joanna Gajuk with Bank of America. Joanna Gajuk: So I guess the 380 basis points -- sorry, just staying on Stelara for a second, a follow up. The 380 basis points in this quarter, so it sounds like there is expectation for additional like incremental, I guess, headwind as the conversion continues, right? Is the way to read that comment about next year? John Rademacher: That is correct, Joanna. As we have been calling out that we would expect to feel the headwinds. Again, it's -- revenue is going to have that impact. We have been talking about that since really the IRA and the announcement of that, knowing that there's going to be a step down in the reference price associated with that as we move ahead. And as I said, that was contemplated in the way that we have put the guidance forward for the remainder of the year and our confidence in continuing to tighten and raise the midpoint across that. So we're continuing to work through that, but that was contemplated in the way that we have articulated the view of the guidance of the company. Joanna Gajuk: And then as we think about the gross margin because like you said the biosimilar is a revenue event, there's a headwind to revenue, but the gross margin, I guess, so you had a step down on the Stelara on the brand and because of J&J actions. But now I guess, with the biosimilars coming in, is that also working the other way on the gross margin percentage? Or it's too early to talk about that? Or I guess... John Rademacher: It's too early to talk about, yes... Joanna Gajuk: How should we think about that gross margin, yes... John Rademacher: Yes. It's too early to talk about that, Joanna. And as you would expect, there's a range of outcomes. Each of the biosimilars have a different profile on that. So too soon. Joanna Gajuk: Okay. And so another, I guess, topic. So you mentioned dynamic regulatory environment. So are there any areas you focus on the most? And I guess, kind of how is your thinking about high-level changes that might be coming that would impact that business? John Rademacher: Yes. I mean we're continuing to keep an eye on what's going on in Washington, very dynamic environment from that standpoint. And as we said, we think we've been able to navigate pretty well some of the uncertainty that exists within the rhetoric that's coming out of Washington. There certainly are competitive dynamics in which we're seizing on opportunities within that. We continue to expand our portfolio of products, both from a limited distribution as well as deepening our partnerships with pharma. So all of those things are within the realm of the things that we're dealing with on a daily basis. But we've demonstrated time and time again our ability to have a resilient platform and a resilient operating model that can take on and seize on opportunities that are presented as well as minimize and mitigate wherever we can when it's a headwind against us. So I feel really good about the execution of the team. I feel good about the strength and the momentum in the quarter and carrying that into the fourth quarter, knowing that we've got some of these other dynamic environments that we're going to have to continue to work through and capitalize on where possible. Operator: Our next question comes from the line of David MacDonald with Truist. David MacDonald: A couple of quick questions. So John, look, we've seen the impact this year of a sizable competitor exit on the acute side. And we do hear from time to time reports of select provider exits in other markets. I'm just curious, do you expect to see an ongoing opportunity on the acute side, maybe obviously, maybe not to the same degree you saw this year, but just what you're seeing on that front? And then a follow-up question to that is, is it having any impact on pricing or conversations with payers in terms of just that business line, either the growth rate or the profitability of that business line? John Rademacher: Yes, David. So first and foremost, we do really feel strongly about the platform that we have put in place and the investments that we've made and the capacity that, that provides us to capture market demand. And the team has executed extremely well, as you said, given the sizable exits that we saw this year. Our expectations are we're going to continue to capitalize on the strength of our national network, but our local responsiveness and expectations are that we're going to continue to move that, albeit at probably a lower pace than this year and carry that momentum into 2026. We've talked about the 3 legs of the stool of our reimbursement and how we have been focusing around certainly making certain that we're paid fair value for the value that we deliver. But the opportunities to engage with our payer partners to articulate the value of the balance of our portfolio and how we can help with programs like I highlighted in bed day management and site of care initiatives are one that continues to deepen our partnership and the value that we can bring to them. With that, we're always looking to make certain that we're extracting fair value for the value that we're giving. And I think that puts us in a position to remain in network to continue to be part of the overall solution as they're thinking about management of medical loss ratio and the total cost of care. And we're going to continue to emphasize really the strength of the breadth of our portfolio in the way that we're engaging with them and we're negotiating to make certain that we're in network and we're in a preferred position. David MacDonald: And then, John, just one other quick -- actually a couple of other quick questions. Just on the advanced practitioner model, can you frame that up a little bit for us just how many locations currently in? I mean -- and when we think about 12 months from now or over the next 24 months or can you just give us some sense in terms of how aggressively you expect to roll that model out over the next, again, 12 to 24 months? And just any observations since the acquisition that have been either better or worse or a little different than you had expected? John Rademacher: Yes. So our growth of our infusion suite opportunity, we're going to continue to go at that pace. As we had called out, we're at 175 facilities today. 24 of those are advanced practitioner or infusion center capable at this point in time. And we're going to continue to look to expand that as we move that forward. Part of that will be operating and utilizing the infrastructure that we have. Some of it will be greenfield as we're looking to expand into different markets. I think as we called out before, Dave, there are corporate practice of medicine and other things that have influence on the path and the pace in which we're going to be executing around that. But we look at this as being extremely complementary to our pharmacy capabilities, both in the home and the infusion suite. We think it expands access to a broader set of patients. And we think for more clinically complex therapies and clinically complex patients, that ability to have that advanced practitioner oversee higher acuity patients, we think, is part of a comprehensive strategy and part of our growth as we're thinking about moving forward. So excited about where we are, learned a lot through the Intramed Plus acquisition as well as the Wasatch acquisition of years ago, and we're taking the best practices and applying that as we're looking to expand across our network and continue to advance this as part of our comprehensive strategy. David MacDonald: Okay. And then just last one. You mentioned in the prepared remarks, the bed day management program. Just in terms of some of these programs that you're working with payers on, are you seeing more impact around some of those programs in terms of share gain? Is it helping kind of grease the skids in terms of pricing conversations and profitability? Just any additional detail in terms of kind of further integrating yourself with the payers around some of these initiatives? John Rademacher: Yes, Dave, it's a little hard to tell the immediate impact just because of some of the market -- the competitive dynamics and some of the growth that we're seeing there. But to your question, we see it across all of those dimensions. We think that it is a value driver to the payers. For hospitals and health systems that are on DRG for some of their patients, it's a benefit to them as well to help to safely and effectively transition patients out of the hospital into the home for that lower-cost setting. So we see benefit across both the payer and the hospital and health system aspect. And we think it deepens the partnership. It allows us to have more confidence in the position that we hold. And we think that it's truly part of the solution as payers and health systems are trying to manage the total cost of care and bring the best clinical outcomes to their patients and their members. Operator: Our next question comes from the line of Matt Larew with William Blair. Matthew Larew: The first question, just on the cost side. G&A is up about 10% on a TTM basis. Could you break out what core G&A has been tracking at? Because I assume Intramed is a piece of that. And then absent other M&A, I guess, when would you expect to kind of get back to that longer-term target of kind of inflation plus for G&A? Meenal Sethna: Sure. Thanks, Matt. Let me give you just some color on the G&A. So in the quarter and as part of the prepared remarks, I mentioned that we did some debt refinancing. So there's some noise in there with that, take a percentage point out of that. The remaining drivers are really, a, as we think about the Intramed acquisition, right, that was a '25 acquisition. So you've got additional cost, additional growth there that wasn't in the prior year. I say that's one. Secondly, from a variable comp perspective, we were under target and paid out under target last year. So just getting us back to a more normal rate, you end up having to have an adder in the current year. I'd say that's second. And then the third piece is really just the investments that we're making in ourselves as we think about investing in our growth. John just talked about the advanced practitioner model, as we think about new therapy launches. And then also just from an efficiency standpoint, as we think about operating efficiency, we're making a number of technology investments. I know we've talked about it on past calls, but with some of the relationships that we have with Palantir and some of the investments we've been making in RPA, machine learning, that's also driving some higher cost. Over time, and we are seeing this from a leverage perspective and that our leverage is down as we think about it sequentially and year-over-year. Some of that you're going to see in G&A. But the other thing I would point out is some of the benefits we're getting are really coming through our cash flow, right? I mean cash flow and our -- the strength of our cash flow generation is really a part of the DNA of the company. So yes, while the P&L may look like costs are a little higher, we're seeing benefits in other places, and I feel really good about what we've been doing around better efficiency on our operations that honestly gives us much more optionality when we think about capital allocation. Matthew Larew: Okay. And then just another one on Stelara. And again, I appreciate given the moving pieces with biosims and heading into pricing changes next year that you're not going to put guardrails around it at this point. But I guess just at a high level, do you view '26 as another year where the size of the impact or the ranges of the impact will be of the magnitude that you need to call out like you did this year, some range because it is so disruptive to what investors view as the Option Care growth algorithm? Or is it a year where, yes, there's some uncertainty, but you still think you can track to kind of your stated long-term algorithm without having to box around what the impact is going to be? John Rademacher: Matt, let me take this and certainly look for Meenal to add any color on it. We're not in a position to give '26 guidance, and I appreciate the question and the form of it. I guess the way I would answer and continue to help to shape the way people are thinking about it is as we're looking forward and kind of understanding, there are a lot of dimensions that we're trying to -- and variables that we're working through. Number one is, we really need to understand what is the census that we have at the end of the year and the exit rate of that census. The second is the uptake of the next-generation products that are available to support chronic inflammatory disease. TREMFYA, Skyrizi, and ENTYVIO are all part of that equation as that moves ahead. The third is the uptake of the biosims and then which biosim the patients are transitioning on to that all have some level of impact on the chronic inflammatory disease therapeutic category group. And we're working through all of the components of that at this point in time. We, again, to reiterate, love the momentum of the business and the breadth of the growth that you saw in the third quarter that overcame even the Stelara impact that we highlighted of 380 basis points. So I think that demonstrates the breadth of the portfolio and our ability to execute on all of the other therapies around that as we continue to move forward. We expect that momentum to continue. We expect that, that will continue into 2026. And we're always going to continue to push our team around how we're thinking about reach and frequency, how we capture market demand, how we are a better partner of choice for referral sources and continuing the depth of the relationship with payers with site of care initiatives and other things. So again, I feel really good about the strength of the quarter and the momentum that we will carry into it. And at this point in time, it's just too soon to give anything that's guidance for '26. But I think this organization has demonstrated the ability to take momentum and to build around where we're going to see some changes or shifts in a specific therapy or therapeutic category and find other ways to grow through that. So Meenal? Meenal Sethna: Yes. Let me just add a couple of comments. As you can imagine, first 30 days, finding a lot of things. But in my top priorities is really looking ahead, understanding the business and looking ahead to '26 and understanding these dynamics. Echoing what John said, I feel very comfortable with the momentum of the business, the foundation that we've built. We have overcome headwinds over various points in time. And I fully expect we'll be able to do that in 2026. So just reiterating what John has been talking about. We do expect to grow going into 2026, no doubt about that. And so we're working through all the different mechanics and the different drivers that are going on. And as soon as we have better clarity, we'll continue to share that with you and be -- as we have always been, be really transparent about what we're seeing and what we know when we know it. Operator: Our next question comes from the line of Charles Rhyee with TD Cowen. Lucas Romanski: This is Lucas on for Charles. And actually, my question was answered on the last question there. So I guess, I don't know if you guys have sized it for this quarter, you might have -- I might have missed it. But should we think about the Stelara impact to gross profit being similar to the size that you gave at 2Q, i.e., being a nudge higher than $20 million? Meenal Sethna: So maybe I'll take that one. We had been talking about a range started at the $60 million to $70 million last quarter, we talked about the impact in 2025 being about $65 million to $70 million at the -- probably at the higher end of that range. Our guidance includes now just as we thought it is going to be closer to $70 million for the year. That's baked into our guidance. You see the impact of that in Q3 and the last of the impact in Q4 as well. So that works out to be math-wise, a little bit over $20 million in Q3 as well as in Q4. Lucas Romanski: Okay. I appreciate it. And then I guess at this point in the year, do you guys have a good sense on the moving parts as to what would drive that to maybe to above the $65 million to $70 million range that we're now looking at or below? And I guess what could be the moving pieces within that? John Rademacher: Yes. So I think we feel pretty strongly about it being at the upper end of the range on the impact of the Stelara. We know from what the discounts that we were able to negotiate on that, which is why we've been able to have a firm view around that range. And as Meenal said, we now expect that it will be at the upper end of that range for the full year of 2025. The variables that we don't have a line of sight into, and again, trying to answer, I'm not providing '26 guidance, but the view as we move forward is there are just a lot of variables that will go into not only the patient census that we have under management, the products that they actually transition over to and then some of the economics associated with the discounts in which we're able to buy the various therapies at that are all kind of at this point in time, under negotiation or moving around from that standpoint. So again, as Meenal said, I think we feel very confident in the upper end of the $65 million to $70 million as being what we'll see on the Stelara impact for this year, and that's been built into the full year guidance. And now what is still kind of moving forward, but we have included in our thinking is that transition over to the biosimilar and some of the impact that, that will have on the revenue and then more importantly, the drop-through on the gross profit. Operator: Our next question comes from the line of Constantine Davides with Citizens. Constantine Davides: John, can you just talk about the M&A opportunities you're exploring, whether they remain close to the core, if there are some adjacencies that you're increasingly contemplating? And I guess I ask this not only for -- to get a sense of what the pipeline looks like. But John, when you look at private transaction multiples occurring at twice the value of where you're trading, how is that impacting your thinking on where you choose to deploy your capital? And I guess, what is your perspective around this increasing disconnect? John Rademacher: Yes. So we are continuing to have a fulsome list of opportunities that we're assessing, as Meenal had called out in her prepared remarks. And we feel as if there are ample opportunities for us to continue to pursue. We're going to be disciplined in our approach as we move forward with those. But again, we think these are tuck-ins. They truly are ones that will be able to leverage the scale and the infrastructure that we have. Our first goal always is how do we select the assets that we have and the installed base to its fullest. So we're always going to look for those types of opportunities. As we've called out, there certainly are near adjacencies, and we're continuing to think about technology and the use of technology and how that helps our business and improve along those lines. There are additional things that we can be doing in support of manufacturers or payers that we continue to take a look at as the near adjacencies. But I don't -- I wouldn't leave you with the sense that there's anything that's transformative or significant difference than what you've seen in our pattern, which is around clinical capabilities, pharmacy capabilities, technology enhancements and capabilities that can enhance the relationship to support patient cohorts for manufacturers or others through that process. Constantine Davides: Great. And then you did also talk about this ongoing shift to home and ambulatory setting. How do you see that sort of playing out over the next several years? And I guess I'm also just curious, as we turn the page on '25, are you -- is it a meaningful shift in sort of health plan receptivity to site of care initiatives relative to maybe a year ago? Or is it more incremental sort of baby steps along that path? John Rademacher: Yes. I do think that when you're looking at high-quality care at an appropriate cost in a setting in which patients want to receive it, our solution checks those boxes, right? And so there is going to continue to be a movement towards these lower-cost settings, and we're on the right side of those conversations and the right side of the ledger when you're looking at from that perspective. I do think that in the conversations we're having with our market access team with our payer partners, they're looking for partners to help reduce the total cost of care. It's well documented some of the challenges that they're having with medical loss ratio and utilization rates. And when they're looking for who can help to drive a better clinical outcome at a lower cost, we're part of that conversation. And so we're seeing an increase in the level of the conversations that we're having. As I called out in my prepared remarks, we're seeing increased utilization of our capabilities for site of care initiatives and bed day management programs. And we expect that's going to continue to carry forward as they're looking at ways to support their members and do it in ways in which they have high-quality care and consistent clinical outcomes. Operator: Our next question comes from the line of Brian Tanquilut with Jefferies. Brian Tanquilut: John, maybe to follow up on your answer to Matt's question from earlier. As we think about just the dynamics in terms of where patients end up, whether that's Stelara, biosimilar, TREMFYA, Skyrizi, how does that all work out? I mean maybe what I'm trying to figure out is, is there a way for you to encourage greater biosimilar utilization back to your point on payers focusing their MLRs. Maybe that's one. And then I guess the second part of the question is, is there a world where you just say Stelara economics are not enough for us to stay in the therapy and we just exited, I mean down to like, what, 6% to 8% of EBITDA at this point. So just curious how you're thinking about all that. John Rademacher: Yes. Thanks, Brian, for the question. To be clear, our relationship with Janssen and the margin profile of the product is one in which it's still a benefit to us economically and again, a benefit to the patient. So our pharmacists are part of the care team. And they're always working with prescribing physicians around helping to select the best product that's available. Certainly, there are influences by some of the payers around product selection through that process. And so we love the breadth of the portfolio that we have and the access to all of the biosimilars and the product portfolio. We certainly have strong relations with the branded pharma manufacturers, whether it's Janssen or whether it's AbbVie and continuing to look for ways to support their patient cohorts and capitalize on the strength of our platform, both clinically as well as the national presence that we have in that local responsiveness. So we feel really well positioned to continue to deepen the partnerships with the payers, with the pharma companies as well as with the prescribers and health systems to help bring the best clinical outcomes and align the best products to the patients through that process as part of the care team. So all of that, I think, factors into where we can help to influence, we will for those clinical outcomes. And the economics are one in which, yes, there is a step down given some of the changes in the discount that we're able to enjoy. But Stelara is still a very good product for us and a part of our portfolio as it moves through this transition and has biosimilar competition. Brian Tanquilut: That makes sense. And then maybe, John, as I think about the fact that you're generating a decent amount of free cash flow, back to Constantine's question earlier on deal multiples are in the high teens range, it seems like. So how are you weighing now like the buyback versus M&A capital deployment position? Meenal Sethna: Yes. I'll take that one, Brian. So as part of my prepared remarks, I wanted to make sure that we added a little more clarity to our capital allocation strategy and just reframing that, investing in ourselves, we think there's a lot of opportunities around whether you call it organic investment, technology investments, but John talked a lot about the advanced practitioner model, really expanding our scale. I talked earlier about some of the operational efficiency that I think we can get that shows up whether it's in OpEx, but also shows up with generating additional cash flow and even just some of the data and insights and some of the work that we're doing with some partnerships there. So that's really first priority for us as we think about where we're investing. And by the way, that shows up in CapEx and free cash flow also. Secondly, for us is around the acquisitions, and that is going to be a priority for us. It's really no different than what we've been doing, which is focusing on -- John talked about the fact that tuck-ins and near adjacencies make sense for us, where we can add some additional capabilities into our portfolio. We're not going that, I call it, all within adjacencies that we know and appreciate nothing transformative that we're looking at. And then I would say the share buyback probably comes in after that. It's a balance, right? We always want to find a mechanism to return capital to shareholders. But where we think we can invest in ourselves, whether that's organically or through M&A, we think ultimately, that's going to become a better return for our shareholders. And so that is a priority for us. Operator: Our next question comes from the line of Michael Petusky with Barrington Research. Michael Petusky: John, I'm just curious, given the talk about Stelara, not just on this call, but over the last year, I mean, would it make sense as we enter '26 to just sort of be more granular about the revenue attached to the business and patient census and just things that maybe could help investors have a better sense of sort of true sort of longer-term exposure to this issue? John Rademacher: Yes, Mike. Look, it's always a balancing act of how much information we can provide into the public markets and still stay competitive and be able to have our differentiators in the marketplace on that. So we're always going to try to provide as much transparency as possible and provide insights around that. I guess as we enter into '26 and kind of move beyond, the reality is the size just continues to diminish. It becomes a smaller part of our overall portfolio. And you've seen the growth in the other therapeutic categories that we've had. We've called out that there is no other product in our portfolio, no other therapy that has over 5% of the revenue. It's no longer that we have a profile of one product like we had with Stelara. So we'll do what we can to make certain that we give line of sight around the drivers of the business and why we're as confident around the growth trajectory and the areas that we're investing in that are going to bring that sustainable growth. But as we enter into '26 and beyond, it honestly just isn't going to be as big a part of our portfolio. So spending a lot of time going deep on something that just has a smaller amount of impact just will weigh your comments accordingly. Michael Petusky: Okay. And if I can just sort of follow up on some of the earlier questions around capital allocation. I'm just curious, John, like obviously, a few years ago, you guys made a run at more of a transformative asset in home health. I'm just curious, the adjacent markets that maybe you're most interested in, I mean, can you just sort of call out a couple where, hey, these are markets that are interesting to us? John Rademacher: Yes. Well, without trying to increase the multiples of areas that we're looking at on that, I mean, I'm not going to give you the pipeline of organizations. But as we've called out before, I mean, when we talk about near adjacencies, and I tried to articulate that. We certainly have depth of relationship with manufacturers and having additional things to support manufacturer services are areas that we're always looking at. The platform that we have, the clinical capabilities from our pharmacists, our dietitians, our nurses, our advanced practitioners, all of that kind of fits into what we think is a comprehensive strategy to support. And there are things that we can be looking at that could help enhance or accelerate some of our capability sets there. We have done acquisitions of nursing agencies, which is an adjacency but an enabler of our capability set along that. We continue to look for those tuck-in and other pharmacy that can bring us either density in a market or in some instances, some difference in their operating model. So those are the things that we're looking at. As both Meenal and I have said, nothing on the horizon on a transformative standpoint. All of these things we look at as being additive and accelerants to some of the strategies that we put in place. And we think that there are ample opportunities for us to think about in a disciplined way, deploying capital in order to help grow the business and return value to our shareholders. So just I'll end with the cash flow generation of this organization is tremendous, right? And we don't take that for granted. It's not our money, it's our shareholders' money. We're going to spend it wisely, but we truly believe there are opportunities for us to continue to invest in the business and look for these M&A opportunities to continue our growth and to increase our presence and relevance in the health care ecosystem. So that is the goal, and we're going to continue to operate with that mindset. Operator: I'm showing no further questions at this time. I would now like to turn it back to Nicole Maggio for closing remarks. Nicole Maggio: Thank you all for joining us this morning and participating in our call. We appreciate your interest in Option Care Health. We will be participating in a number of conferences in November and December and look forward to speaking with you then. Conference information as well as other company collateral will be posted on the Investor Relations portion of our website. Take care, and have a great day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Francoise Dixon: Good morning, everyone, and welcome to the Mach7 Q1 FY '26 Results Briefing. My name is Francoise Dixon, and I'm Head of Investor Relations for Mach7. Today, our CEO, Teri Thomas; and our new CFO, Daniel Lee, will provide an overview of our Q1 FY '26 results. We will then open it up for questions. [Operator Instructions] I'll now hand over to Teri. Teri Thomas: Happy Halloween. One of my favorite holidays, and I'll just start off by addressing the scary stuff. So this was my first quarter as Mach7's CEO, and it was a reset quarter. We've made some tough but necessary choices to strengthen the business with a goal of long-term profitability, but also operational excellence. And we have more changes to work through going ahead. It's been a good start in transforming this business, and I'll review some of the key changes later, but one key change is appointing a new CFO, Daniel Lee, who has a nick name, D Lee, which I love because I expect a lot of new logo deals to happen under D Lee. So I want you to know Mach7 is a desirable place to work. We had over 500 applicants for the CFO job in just two days. And from that large pool, Daniel stood out for his deep experience and financial discipline, but also his willing engagement to partner on strategy. He's already proving to be a great partner to me as we unite financial rigor with business and commercial innovation. So, love to introduce you to Dan. Dan, why don't you share a little bit about yourself? Daniel Lee: Thank you for that lovely introduction, Teri. I really am loving this opportunity with Mach7. This is a very important time in the company's journey, and there are very significant opportunities and potential ahead of us. Over the past several weeks, I spent quite a bit of time getting to know our team, our customers and our financial and operational foundations and processes. What I can say is that we have great strength in our technology, very loyal customers, and we're very well positioned to capitalize on all of these opportunities. As CFO, my ultimate goal really is to be a true and close strategic partner to Teri as well as our new sales leader and the rest of the team so we can drive growth, strengthen our revenue engine and accelerate our path to profitability, and I'm 100% on board to do that. Teri Thomas: That is fantastic. Thank you so much. I'm really glad that you're on board. And now on to our presentation. So this particular slide describes for those of you who are unfamiliar with us, I love that I get to work in an industry that has some real meaning that impacts patients' lives. So this is what Mach7 does. We provide mission-critical software. To say it quite simply, we get the right images to the right people in the right places at the right time, diagnostic quality and fast. And I'll be talking more about it later, but to give you a sense of how important this is, our tech is being used in areas like telestroke, where accessing the image quickly often is the factor determining if someone lives or dies or if they recover or they don't recover. So speed in our technology is absolutely critical. And in my calls with our customers, I'm reminded by them regularly how the work we do is extremely important. Speaking of customers, we had one major customer milestone this quarter, the initial go-live of the U.S. Veterans Health Administration's National Teleradiology Program. This first step in a phased go-live is addressing the needs of two unique departments that are very different from traditional general radiology. As I just mentioned, telestroke is all about critical decision-making. Images determine the path to treatment thrombolysis or thrombectomy, every piece of this program hinges on speed and instant access to images from anywhere. Our unique capabilities with zero footprint deployment, real-time image ingestion, low latency retrieval and intelligent routing are absolutely critical for telestroke. The other area that NTP is using our software is mammography, which is now live. It's a service I know well, known for its unique technical and operational challenges compared to general radiology, very high image quality needs and management of extremely large file sizes, especially digital breast tomosynthesis and then also integration with third-party systems because it's a more regulated part of imaging are really critical to the success of this service for the United States veterans. This go-live, though was far more involved than a typical go-live, not just because of those two initial departments, but also it included an arduous process of individual staff needing security screening and credentialing. This included background investigations, travel to specific locations to file paperwork. And the security work was necessary to be able to provide system access and on-site training as well as support and access to the broader deployment within the VA. So this large effort, much more engagement needed than a typical go-live. However, we now have the credentials and the infrastructure in place to support the anticipated rollout to other departments starting in the next few weeks and even to be able to expand to other visions in Phase 2 in the future. Now I covered that first bullet. Dan, why don't I hand it over to you to go through a little bit more about our financials this quarter. Daniel Lee: Thanks, Teri. That sounds good. Yes, let's talk some numbers. So, from a financial perspective, the first quarter represented a very solid foundation for the reset that we've just been discussing. Our annual recurring revenue run rate increased slightly to $23.5 million. This is highlighting the durability of our subscription and maintenance streams, which is really a core strength of the Mach7 model. Our contracted annual recurring revenue or CARR closed at $29.6 million, broadly consistent with June levels from last quarter. Sales orders totaled $2.6 million, an improvement of 17% over the same period last year. That growth reflects continued customer engagement and confidence as we realign our commercial approach. Now we did see a decline in operating cash flow over the quarter. Receipts from customers were $4.6 million, a 27% decline over the same period last year. Now the drop was mainly because of receipts timing, not underlying demand as we had two delayed renewals. These two transactions alone represented roughly 80% of the total discrepancy in cash, but both have since been invoiced post quarter. Normalizing for these timing issues, our pro forma operating cash flow would have broadly been in line with expectations compared to the same period last year. On the expense side, this quarter, the total payments were $8.3 million, which was a 16% decrease when compared to the same quarter last year. Now admin and corporate costs, which is a part of the total payments rose to $2 million, which was up 24% year-over-year. Now this was primarily driven by two one-off items. We had our annual insurance payment, which is normally paid in the fourth quarter of every fiscal year, but it shifted into Q1 this year with an expanded coverage. This item alone represented approximately $600,000. And we also had a payment related to regulatory and MDR technical reviews. These two one-off items combined represent roughly half of the entire admin and corporate costs for the quarter. We ended the quarter with $18.9 million in cash, zero debt, and we maintain a very strong balance sheet. And we're very well positioned to execute on our strategy now. Fundamentals remain very sound, and we are committed to operating very efficiently, and we had a significant reduction in our staff costs. And now I'll actually pass it back to Teri to talk a little bit more about that. Teri Thomas: Thank you very much, Dan, D Lee. Good transition point as I start to turn into our strategy, key elements of which are already in motion. At a high level, we've begun driving some greater operational efficiency across the business. Staff costs are down 18% year-on-year with most of that progress achieved this quarter. We've streamlined our leadership structure, bringing services and support together under a single customer-focused leader. We're evolving our talent model to attract and grow builders, people who are humble, hungry and smart, eager to advance their careers and make a real impact. And as our organization continues to mature, we're creating more opportunities for internal growth while keeping our cost base disciplined and sustainable. We expect to continue to develop more operational efficiency by hiring in lower-cost hubs, at least when we can and also increasing the diversity of our workforce. And now I'm going to give you a sneak peek into our strategy, which we'll be outlining in more detail at the AGM alongside some new product announcements at RSNA in November. I'll also be meeting with several investors in Australia just after RSNA for a broader set of discussions. And I'm very much looking forward to seeing some of you in Aussie in person. Do bear with me, though, I'm going to keep this pretty high level. I can talk about it all day. I do believe strategy isn't a single moment in time. It's a way of operating, and we've already begun executing several elements of our strategy, while others will unfold over time. So our strategic theme overall and product positioning is from archive to architecture, and this slide summarizes the overall picture. First point sets the context. Our industry is undergoing rapid change. Costs are rising, talent is scarce, data continues to fragment, and it creates a significant opportunity for companies that can deliver efficiency and also interoperability and connections. Second point represents our evolution. We're building a strong base while leaning deeply into customer needs and industry trends. We believe that truly understanding our customer and aligning with them is the best path to winning in this market. Now the third point speaks to advancing our mission, connecting images, people and insights to create a stronger, more intelligent future for health care, and I'll share more about that in a minute. And finally, the fourth point, execution, embedding a dynamic operating model that aligns strategy, structure, technology and talent, driving accountability, driving agility and ultimately driving results. That's the last part of our strategy, and I'll expand briefly on each of these points. Next slide. All right. A little bit on market opportunity. We are in a very resilient industry and our tailwinds are strong. The enterprise imaging market is projected to almost double, reaching about $4.1 billion by 2030, growing at roughly 12% annually. And in order to take advantage of AI and modernized software to address rising cybersecurity concerns, hospitals and health systems are updating and consolidating multiple imaging systems into unified interoperable platforms. This is precisely the space that Mach7 plays in, helping organizations replace fragmented vendor locked systems with open scalable architectures. AI and medical imaging is the fastest-growing part of our market. AI is moving rapidly from experimentation to operational integration and success increasingly depends on having the right data infrastructure, being AI ready. Mach7's architecture enables that by ensuring imaging data from multiple sources is clean, structured and accessible for clinical use as well as creating AI models. At the same time, health care data volumes are exploding and about 3/4 of that data is in the form of some type of imaging, whether it's radiology, video, ultrasound, CT scans and more heavily siloed across many departments and many modalities. A vendor can provide a strong radiology-only system, but patients and clinicians need more than X-rays and more than traditional radiology platforms to tell the entire patient story. So customers are looking for unified data management that simplifies workflows, reduces costs. And this third point has been validated over and over in my calls with customers as well as prospects and even class. They need strong tools to improve coordination of care. They need completion of the EMR with all of the right imaging. So we see rapid growth across high-volume specialties, not just radiology, but cardiology, oncology, teleradiology has been growing, and it's increasingly referred to now as tele-imaging because it does go way beyond radiology. Distributed reading, remote collaborations, AI-assisted diagnostics are becoming the norm. And these shifts play directly to Mach7's strengths, interoperability, hybrid cloud delivery and scalability. So the opportunity in front of us is not just about participating in a growing market. It's about defining how imaging data is managed and monetized in the next decade. The market is transforming. And in a shift as profound as the move from film to digital a couple of decades ago, that first wave redefined access speed and storage. The wave we're in now is about intelligence, activating imaging data through agentic AI and enterprise-wide interoperability, again, going way beyond just radiology. And that brings us to how we are innovating to meet this opportunity through our product and technology road map, which is designed to take Mach7 from archive to architecture. Next slide. So this isn't simply a technical upgrade. It's actually a response to a clear need, open, vendor-neutral platforms that unify a very broad set of data, automating workflows and enabling AI-driven decision-making. That's the foundation of archive to architecture as our strategy, transforming imaging from static storage into an active intelligent ecosystem. We will announce a new architecture launch at RSNA, an intelligent data platform built to enable agentic AI through an expanded array of open APIs and unified orchestration. It's designed to enhance integration and empower providers to deploy and manage their own AI models. We will also expand our eUnity viewer. It's fast, it's user-friendly. It's great for the enterprise. And we're moving this into a broader tele-imaging platform. We can unite radiology, advanced visualization, which is needed for a number of those growing specialties and then adding new areas like digital pathology into one coordinated viewing space. We'll release 3D visualization and distributed diagnostics while maintaining Mach7 zero footprint simplicity and interoperability. And then finally, we'll integrate system performance and workflow analytics tools to enable continuous optimization in areas like safer and intelligent migration to the cloud, something that our customers are keenly interested in, especially given the recent AWS outage as well as Azure outages in the last days and weeks. And this will be a key part of our offering. So together across these three areas, we will provide a connected AI-ready ecosystem, transforming Mach7 from a VNA and a viewer into a leader in intelligent imaging architecture. This is how we position ourselves to lead in the next decade of health care data innovation. Now how are we going to do that? Asia. To execute on our innovation road map and new product launches, we are expanding, but we're doing it in a cost-effective way. Our development teams in Canada and the U.S. will be complemented by a new lower-cost innovation hub in Asia to scale engineering capacity and accelerate product development with lower overhead. It also positions us closer to some high-growth markets in Asia and the Middle East, where we're seeing some strong demand for enterprise imaging and interoperability and where our upcoming CE Mark opens up new possibilities for enterprise and government sector opportunities. We do expect our CE Mark in the coming months, which is critical for Europe, but it's also quite important for large opportunities in the Middle East. This hub will serve as a strategic beachhead for AI readiness and platform innovation as well. Now I gave my first boom right, welcome back gift. For key contributions from our past, we do a pile of those behind me as we welcome back innovators that we worked with in the past as well as those that are new. And one of these, the first went to Ravi Krishnan. He is one of our original founders, and he brings absolute product evangelism, deep regional insights and strong customer relationships in Asia and the Middle East. He was very engaged in key large customers joining Mach7 in years past, and we really look forward to his energy and his support in once again engaging strategically and closely with some of our very largest customers, growing sales, driving innovation that is well aligned with the needs of the market. So, Asia will not remain a quiet outpost for Mach7. This strategy involves transforming our existing Asia office into a growth engine, driving innovation, efficiency and expansion. So speaking of transformation, many strategies look good on paper, but they don't move the needle. So why will our strategy work? Underneath our vision and our road map is a solid operating model and one that we've begun to execute. I like the McKinsey performance framework because it connects the dots from strategy to transformation, helping us align across 12 key dimensions of the business with our strategy. The most impactful for us right now, what you see in the upper left-hand corner is the value agenda. That drives most of what's behind the core of our strategy moving from archive to architecture. However, it also goes into our structure, our leadership, our technology levers. And a lot of those levers are already moved into position. However, we're designing through the next layers, process improvement, talent acquisition, leveraging our unique global footprint, metrics, rewards. Our purpose, it fuels our work. Our value agenda drives the Mach7 loop, connecting customer engagement through our flight crew to marketing, referral-based sales, customer-driven innovation. Our structure is evolving to support all of this with leadership alignment and accountability designed for faster and more focused execution. Our leaders all adopt a customer to ensure that we have knowledge of the customers' needs, driving decisions throughout our business. And technology is an important enabler. So we're bringing in more automation. We're leveraging AI and making data-driven decision-making as part of our work. So the model is not static. It's a system we are building and refining as we learn. But it's what allows our strategy to move from intent into action. Next slide. So building on that operating model, we've executed a full commercial transformation, one that reshapes how we engage with our customers, how we deliver value and how we grow. We've overhauled the sales organization, and we brought in Todd Stallard, Todd Stallard as our new VP of Sales to lead a refreshed sales team. He is a proven commercial leader with deep expertise in partnerships and complex global deals. But most importantly, he's a former football player whose middle name is drive. He has a healthy dose of get up and go, which I absolutely appreciate. And as I mentioned before, Ravi has joined us to help accelerate innovation and engage in some major enterprise and government opportunities. And we've refocused on well-aligned enterprise opportunities that emphasize long-term partnerships in markets where interoperability and AI readiness are top priorities. We've also added a Chief Innovation Officer to unite product and engineering under one leader to accelerate delivery, strengthen alignment and drive faster innovation cycles in connection with that team in Asia. Now speaking of in connection with teams, our flight crew. A key part of our commercial transformation is how we engage with our customers. This truly is the cornerstone of everything that we're doing. So that's where the flight crew model, which we introduced in August, comes in. Each customer has a dedicated cross-functional team led by the ACE, the advocate for customer experience. This creates a single point of accountability, and it ensures faster, consistent support across every stage of a customer relationship. The flight crew model delivers a unified Mach7 experience, improving response times, most importantly, though, deepening relationships, two way. Our staff get to know our customers. They care deeply. They're not just a ticket, and the customers feel that. connecting them directly with our product and innovation teams will also accelerate our ability to do relevant innovation that we know customers are clamoring for and ready to use. And it empowers us in what we call the Mach7 loop, a continuous cycle of feedback and innovation that ensures customer insights directly shape what we build, provide fuel for our marketing, happy customer references, drive and support sales success. So the way we engage with our customers, the way we innovate and the way we execute is all grounded in how we show up as a team, our values, our mindset and our shared accountability, which brings me to our new culture code, clients. Underpinning all of the strategy is culture. It is the execution engine for our strategy. So the mindset that we are building, it starts and ends with the customer. Customer first, everything starts with understanding who we're serving, learning and growing. We are a learning organization. Curiosity and development fuel our innovation. You can't work in technology if you don't have a growth mindset. Innovating for impact, ensuring that everything we do creates measurable value. A couple of things specific to us. M, minimizing complexity so we can move quickly and scale efficiently, I believe, is critical to our profitability. We need to make things as complex as they need to be, but no more, and we need to be nimble and scrappy. So, M, is all about moving, moving quickly and minimizing complexity. And then B, building, build with ownership, empowering our teams to take accountability, but we are making stuff. And then finally, I said it starts and ends with the customer. Sell, selling and growing together, aligning commercial success with customer success. Everyone we engage with as a prospective customer is simply a future customer that doesn't know it yet. So we will focus on our conversion rates. We will bring new customers in. And these aren't just our values. This is how we execute as an organization. This culture code, it tells people what to do when nobody is there to tell them what to do. Last slide, closing outlook. As we look ahead, Mach7 is very well positioned to execute on the strategy that we've outlined today, supported by a refreshed leadership team, a clear focus on commercials, also cultural and operational excellence. We understand our responsibility as a public company. So shareholders are also important in our decision-making. We seek to reshape how imaging data powers health care, translating that innovation into financial performance and creation of long-term value. So financial discipline will remain very important to us. Dan and I believe in maintaining a strong balance sheet, managing our cash flow carefully and accelerating towards sustainable profitability. We've paused activity in our on-market share buyback program while we complete the strategic review, ensuring that every decision aligns with our growth priorities and capital discipline. We'll share more detail on our growth strategy and our fiscal year '26 outlook at the upcoming AGM. So I'm going to close by saying I'm very confident in where we're headed. I'm very proud of the progress that we've made. And I'm quite energized by the opportunity that Mach7 has ahead of us. We're evolving, and I firmly believe it's changing for the better. Dan, would you like to say any closing words before we move to questions? Daniel Lee: Sure. Thank you, Teri. So fiscal year 2026 is a reset year, but it's also a turning point. From a financial perspective, our focus is extremely clear, disciplined execution and profitable growth. We are going to focus on operating within our means. And as I mentioned, we have a very strong balance sheet with no debt. And now really, it's just about applying capital precisely where it drives the most impact. As we move through fiscal year 2026, we expect to maintain continued emphasis on operational efficiency. and improved cash conversion and sustainable profitability, all while supporting the innovation that defines Mach7's next chapter. It's a solid foundation for the growth ahead, and we're executing with confidence and focus. Thank you. Francoise Dixon: All right. Thank you both. I think we'll open up now for questions. Francoise Dixon: We received one question in advance from Luca. And his question was, has Mach7 lost any customers during the quarter? Teri Thomas: So, yes, Mach7 has lost a customer. And it's a little bit of a lemons, lemonade situation. So we had one small customer. It was less than $100,000 ARR who was a joint venture that -- the joint venture has been dissolved. So that customer doesn't exist anymore. There's nothing we could have done about it. However, where I said lemons to Lemonade, a number of those radiologists who really enjoyed using our software have moved to a larger IDN in their area, and they have reached out and engaged with our sales team. And we have a great lead to what could become a much bigger customer. So while, yes, we lost a customer, we expect that this may transform into something far bigger in the future. Francoise Dixon: Thanks, Teri. We've received a couple of questions from Peter Cooper. So I'll deal with each one at a time. The first one is, what is the timing and process for being extended into Phase 2 of the VA contract? Teri Thomas: I cannot give you a lot on timing as we are in the middle and very focused on Phase 1 right now. The wording of it is it is something that can be executed in the future, but it's up to each visit in terms of when they would want to go forward. And I forget there is some sort of a backstop. I cannot remember what it is, but I could follow up with that later. Process-wise, though, the good thing is once we get this Phase 1 rollout process done, and we've got active activities happening with that, I feel optimistic about it. We have created a government affairs part of the business to engage with the other visits. And one thing about doing government work is it's far less paperwork for them to be able to go forward with an existing vendor that has this infrastructure in place. So we anticipate that as soon as RSNA will start engaging more with some of the visits. We've had some conversations with a few of them already. So we -- I can't comment about when these things might happen, but I can comment that we are starting to think about that. But our top priority right now is getting fully rolled out in Phase 1. Francoise Dixon: Thanks, Teri. Our second question from Peter Cooper is, what has Mach7 learned from the loss of Trinity? Teri Thomas: First of all, let me share that Trinity does remain a customer of ours. They've scaled back their engagement with us. However, they've got multiple contracts with us. They're still using us in some areas, but it's a smaller engagement than initially. One of the first customers I visited was Trinity, and I went in with a very open mind and listening ears, and I think there was a lot to learn. Some of the changes that we made to the customer part of our business, overhauling and removing silos, creating a designated team, the whole flight crew that I laid out just now, a lot of that was in direct response to the feedback from Trinity. So the one thing they shared, they said it wasn't about the software. It was about the engagement model, and we've completely changed our engagement model. Francoise Dixon: Thanks, Teri. Our next question comes from Wei Sim. Teri, what are your thoughts on GTM for VNA versus Viewer and the niche which Mach7 is looking to focus at? Teri Thomas: I'm going to ask if we can postpone an in-depth answer to that question as it is fairly complicated because the strategy that we share -- I deliberately didn't put a ton in about product and go-to-market in this preview because there are certain things we're going to release at RSNA. So I'm going to ask if I could postpone that question until we do our in-depth strategy discussion around AGM right before and/or the roadshow right after RSNA. Francoise Dixon: Our next couple of questions come from Stephen Bailey. The first one is, how is Mach7 planning to utilize its cash pile? Teri Thomas: I'm going to... Daniel Lee: I would say that... Teri Thomas: Give you a chance on that one. Daniel Lee: I would say bluntly that we don't have a plan per se to use our "cash pile". We are going to be very strategic in how we deploy our capital. One of the things that we are going to make sure is that any dollar that we do invest is going to be accretive to shareholder value. Teri Thomas: Yes. Dan and I have a very strong focus on ROI. And the -- we do not have a specific plan of something that we plan to allocate that cash towards. So my goal right now is we maintain it so that we have it at the ready if we need it, but we focus on operational excellence and a very, very careful look at any investment that we do that we have visibility to a positive return. Francoise Dixon: Our next question from Stephen Bailey is, will the company recommence the buyback given the low share price? Teri Thomas: Right now, the buyback remains on foot, pending the finish of our strategic review. So that's something that, again, I'm going to postpone addressing until our AGM. Francoise Dixon: Our next question is from Wei Sim. When and why did Ravi leave at the time? Teri Thomas: Woo-hoo. Hard for me to answer that for him. But my understanding is he left a little over a year ago. I'm probably speculating here, somewhere in one to two years ago. And I can tell you that he's very excited to be energized and back with the business, and he and I have a really strong alignment related to realizing the potential for the business. I think that commenting beyond that is probably not appropriate in a public forum. But what I can say is that we welcome him back, and he's very enthusiastic about helping support the growth of Mach7. Francoise Dixon: We have another few questions from Stephen Bailey. The first one is, is the company looking at making any acquisitions? Teri Thomas: While I'm not allergic to acquisitions, I'm always looking for a strategic growth lever, we are not currently evaluating acquisitions. Francoise Dixon: And similar question from Stephen. Is the company being looked at by any other companies with a view to them acquiring Mach7? Is the company actively seeking takeover offers? Teri Thomas: We are not actively seeking takeover offers right now. Of course, as a public company, people can look at us all the time. However, we do have a defense strategy in place, and my focus is driving operational excellence and driving that share price up. Francoise Dixon: Thank you, Teri. And the final question we have here from Stephen Bailey is, given the company's business in North America and the general lack of enthusiasm for tech companies on the ASX, is the company willing to consider a listing on a U.S. exchange? Teri Thomas: My opinion is that we're a little bit too small for a U.S. exchange right now, but I could imagine that at some point in the future when we've achieved some great success from our strategy and grown to a larger revenue base. Francoise Dixon: And we have a question from Andrew Hewitt. Have you seen any improvement in the class ratings? Teri Thomas: We have. Now it takes some time to get all of the changes that we've done coming through, class calls, organizations at periodic intervals. However, we get -- we do analyze the comments regularly and look at our scores. and they have been generally trending in the right direction. I also have the CEO's phone number and he has mine to alert me if he sees something not going in the right direction, and he has not called. And in fact, we've gotten positive feedback. I've also called -- one thing we want to do is not just rely on class. We want to know. So our ACE exec program is proactive. So we're reaching out to our customers to make sure that we understand how they're feeling about the engagement, how satisfied they are. We're putting some structures in place to assess their overall technical health, but also how are they feeling about the company broadly. I've joined a number of these calls and gotten to know several of our customers. I'm happy to report 100% of them said -- has said to me, very positive move to the flight crew. So I'm learning in real time, things are pretty positive, and I fully expect this to be pulling our class numbers up gradually over time, but it will take up to a year for all of that to come through their process. Francoise Dixon: Thanks, Teri. Our next question comes from Chris Martin. What is the sales pipeline like? For the last two years, Mike has said there is a large pipeline that zero new contracts were signed. Is there any update on sales? Teri Thomas: Yes. My opinion on the pipeline is, first of all, not as big as I would like. It's just not where I wanted to be entirely. We've got a lot of work to do. There are certain elements of our strategy that we're going to kick off at RSNA. And I expect that RSNA will be a great, great injection of energy and actual activity into our pipeline based on how we're going to show up and some of the things that we're going to do to better engage with people in the industry and frankly, get noticed. That said, we've really had good progress in the last couple of months. And it would seem strange when I mentioned the sales reset. Our commission-carrying salespeople are no longer with us. We've got a new sales leader, and we've changed a couple of people around so that we've got a completely refreshed sales team. However, we've lost no sales during this process. And I'm directly involved in most of our active sales. I do get to know those prospects well. I'm partnering with Todd in getting sales over the line. I enjoy it. And I'm happy to tell you, we've got three prospects that either have selected us or have us in the top two that expect to be finishing out their processes between now and January. So I feel good about improving our conversion rate on our not great pipeline, but I have a plan to improve the size of our pipeline and get a lot more engagements in place at RSNA when I expect I'll also have some more team members in place to make sure that we can do a really, really good job being incredibly responsive and very customer-focused even with prospective customers who don't know their customers yet. Francoise Dixon: Thanks, Teri. We don't have any further questions on the chat, but I'll just give it a couple of seconds and see if any pop up. We do have one. Our next question comes from Shuo Yang. How does today's announcement regarding limited go-live with VA impact the recognition of the $11.7 million TCV over three years? Teri Thomas: I'm going to give that one to you, D Lee for at least... Daniel Lee: Yes. To directly answer that question, we have not made any changes to our outlook for that contract. Francoise Dixon: Thanks, Dan. We have no further questions at this time. So I'll hand back to Teri. Teri Thomas: All right. Thank you very much, Francoise. And thanks, everybody, for your thoughtful questions and your continued engagement. Before we close, I just want to extend a sincere thank you to our Board of Directors for your guidance, your support through this transition quarter. And your engagement is really valued as we've done a reset on a lot of our business and strengthened our foundation for long-term growth. I also want to express my appreciation to our investors, many of whom have been with Mach7 for a long time. Thanks for your confidence and your patience as I work hard alongside our refreshed leadership team to transform Mach7 into a stronger and more focused as well as consistently growing company. And through all of this, I do believe in having some fun along the way. So we work hard, we play hard, and we're committed to making a positive impact. That's for our customers, for our team, but also for you, our shareholders. So other elements of our strategy are set to unfold at RSNA, including changes in our marketing and a new fun element that we're going to pull in. So the Mach7 of the future will look different from the Mach7 of the past, but I firmly believe it's changing for the better. We are building and we are building something meaningful, something we can be proud of, and I absolutely believe the best is yet to come. So thanks for your continued support and your belief in Mach7, and I do look forward to giving you a fuller update at the AGM. Thanks, everybody.
Operator: Good evening, and welcome to Universal Music Group's Third Quarter Earnings Call for the period ended September 30, 2025. My name is Alex, and I will be your conference operator today. Your speakers for today's call will be Sir Lucian Grainge, Chairman and CEO of Universal Music Group; and Matt Ellis, Chief Financial Officer. They will be joined during Q&A by Michael Nash, Chief Digital Officer; and Boyd Muir, Chief Operating Officer. [Operator Instructions] As a reminder, this call is being recorded. Please also let me remind you that management's commentary and responses to questions on today's call may include forward-looking statements which, by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may vary in a material way. For a discussion of some of the factors that could cause actual results to differ from expected results, please see the Risk Factors section on UMG's 2024 Annual Report, which is available on the Investor Relations page of UMG's website at universalmusic.com. Management's commentary will also refer to non-IFRS measures on today's call. Reconciliations are available in the press release on the Investor Relations page of UMG's website. Thank you. Sir Lucian, you may begin your conference. Lucian Grainge: Thank you. Hello, and welcome to all of you for joining us today. I'm very pleased to report that for our third quarter, we once again continued to post strong financial results whilst also making significant advances on the implementation of our strategic plan. For the quarter, revenue grew 10% and adjusted EBITDA grew 12%, both in constant currency. Matt will go into greater detail on the numbers later. But before he takes the mic, I will focus my remarks today on 3 strategic areas. First, how we continue to propel our new and established artists' careers to new heights, including how we extend the value of their IP by bringing our artists' music and stories into areas such as feature films. Second, our work with partners to develop commercial and creative opportunities for artists, songwriters and fans, specifically in leveraging responsible GenAI technology. And third, our ever-growing presence in established and high-potential markets around the globe. I'll begin my remarks by highlighting just a few of the stunning successes our artists continue to rack up around the world. In the U.S., UMG had 7 of the top 10 albums for the third quarter, with Morgan Wallen, I'm the Problem at #1, and our publishing company had interest in 7 of the top 10 albums. And of course, there's Taylor Swift. What Taylor has achieved with her 12th studio album is literally breathtaking. The biggest first week in music history now belongs to The Life of a Showgirl, over 4 million U.S. and 5.5 million global album equivalent sales. The album shattered a slew of other records as well. By debuting at #1 on the U.S. Billboard album chart, Taylor now has the most #1 albums, 15 by any artist in the 21st century as well as the most #1 albums ever by a solo artist. I can't tell you how proud we are of her. The soundtrack for the animated film, KPop Demon Hunters on Republic continues its historic chart success, twice hitting #1 in the U.S. The lead single Golden has spent multiple weeks at #1 around the world, including 9 weeks in Australia and 8 weeks in both the U.K. and the U.S. It is also the first soundtrack album in U.S. history to have 4 of its singles in the top 10 of the US 100, all at the same time. Sabrina Carpenter's Man's Best Friend also debuted at #1 in the U.S., spent 2 weeks at #1 in the U.K. and hit #1 in 13 other countries as well. It's her second #1 album. And KPop Group Stray Kids album Karma is their seventh #1 album in the U.S., breaking the record for the most #1 albums by a group on the Billboard 200 chart this century. I'm excited about the progress I'm seeing that's happening in the U.K. market as well. Olivia Dean secured the #1 album spot and the #1 single, a feat that made her the first British female solo artist to claim both top spots simultaneously since Adele did in 2021. And also in the U.K., we're thrilled that Sam Fender was awarded the prestigious Mercury Music Prize for his third album, People Watching. That's the kind of artist development that we like. Something which means a great deal to us as a global company is we're thrilled to see several of our Japanese artists now beginning to gain traction globally. As you know, Japan is the world's second largest music market, but there's been a misconception that opportunities for local talent outside of Japan are limited. Well, I'm extremely proud to report that UMG is shattering that misconception in several ways. For example, BABYMETAL, the group released its first album after signing with Capitol in the U.S. in August. The album debuted at #9 on the Billboard 200, making them the first Japanese group ever, ever to reach the top 10 in the U.S. in partnership with our Japanese company. Here's another example, the recent tour by superstar Ado in 33 cities across Asia, Europe, the U.S. and Latin America, attracting 0.5 million fans, was also a historic first for a Japanese artist purely outside of Japan. And here is a third example of a Japanese artist gaining global traction. Fujii Kaze, his enormous success with his third album, released in September by Republic Records and next year, he's set to perform at Coachella. This is quite a major development. I've also believed that we can break more local talent from Japan around the world. I'm really thrilled to see this progress, and it's really, I think, what sets us out and defines as a creative company. Helping our artists reach new levels of success also means extending their IP in ways that deepen connections with their existing fan base whilst introducing their music to a new generation of fans. One way we do this is through film. For example, the documentary produced by UMG's Polygram Entertainment, offering an intimate look at the life and legacy of Mexican-American artist, Selena. The film was awarded at the Sundance Film Festival earlier this year and was acquired by Netflix, who has recently announced its November release. Amazon MGM Studios has picked up Man on the Run, another Polygram Entertainment documentary, exploring Paul McCartney's creative rebirth after The Beatles break up. Man on the Run will be released in select theaters and then hit Prime Video globally in February next year. It will coincide with tour dates across North America this fall as well as the release of his book, Wings: The Story of a Band on the Run. I've seen it. And it's special, thoughtful, dramatic and emotional. The last film I'll mention is Song Sung Blue from Focus Features. It stars Hugh Jackman and Kate Hudson as the Neil Diamond tribute band Lightning & Thunder. The film features performances from Neil Diamond's iconic songwriting catalog and opens in the U.S. theaters on Christmas Day. I'm not exaggerating when I say I could go on and on about many more of our other artists' stellar achievements and projects. But I'd like to shift gears and speak a bit about our strategic advances, starting with our work with partners to develop commercial and creative opportunities for our artists as well as their fans. First, I'm pleased to report that we have successfully concluded our third major Streaming 2.0 agreement, this one with YouTube, covering both recorded music and music publishing. The agreement includes all aspects of YouTube's various music services and platforms, embodies our artist-centric principles and drives greater monetization for artists and songwriters. And as part of our new YouTube deal, we've secured really important guardrails and protection for our artists and writers around GenAI content, which brings me to my second topic. We're seeing significant creative and commercial opportunities in GenAI technology, which is why UMG is playing a pioneering role in fostering its enormous potential in music. Our foundational belief is that artists, songwriters, music companies and technology companies, all working together will create a healthy and thriving commercial AI ecosystem in which all of us, including fans, can flourish. For several years now, we've been driving initiatives with our partners to put artists at the center of the conversation around GenAI. We struck artist-centric agreements, establishing foundations and parameters for innovation, new products -- sorry, innovative new products that will unlock the power of its revolutionary technology. And both creatively and commercially, our portfolio of AI partnerships continues to expand. You will have seen, I hope, yesterday's announcement that we have reached an industry-first strategic agreement with Udio, under which the companies settle copyright infringement litigation and will collaborate on an innovative new commercial music consumption, interaction and hyper-personalization streaming product. The new platform, which is expected to launch in 2026 will be powered by cutting-edge generative AI technology that will be ethically trained on authorized and licensed music and will provide further revenue opportunities for artists and songwriters and UMG. The new subscription service will transform the user engagement experience, creating a licensed and protected environment to customize stream, share and share music responsibly on the Udio platform. We also entered into an agreement and then a strategic alliance with Stability AI to codevelop professional AI music creation tools for creators of video, images and now music. The purpose of this agreement is to provide our artists and labels with an opportunity for direct feedback into the construction of professional studio music product that uses AI to generate music ideas and demos. As we've said all along, artists should be at the center of the AI conversation, and this agreement aligns closely with the objective. These advancements are made with both global and regional partners. For example, just last month, Universal Music Japan announced an agreement with KDDI, a leading Japanese telecommunications company that will establish a collaboration to use GenAI to develop new music experiences for fans and artists in that really important market. Even as we lead the way forward on creating commercial and creating opportunities with our new partners, we're also working closely with established partners on the AI front, which includes making sure that the safeguards are put in place to protect them and their work. Spotify recently announced critical steps they are taking to advance our artist-centric initiatives as they relate AI. We look forward to the products that will be introduced through this partnership. As I said, at the time of their announcement, it's essential that we work with strategic partners such as Spotify to enable GenAI products with a thriving commercial landscape in which artists, songwriters, fans, music companies and the technology companies can all flourish, as I've said. As we strike agreements with other companies, we will only consider AI products based on models that are trained responsibly. We're in discussions with numerous other like-minded companies, whose products provide accurate attributes and tools, which empower and compensate artists' products, both that protect music and enhance its monetization and the entire experience. Ensuring safeguards is also the reason we partnered with SoundPatrol, a company led by Stanford scientists. SoundPatrol deploys groundbreaking neural fingerprinting technologies for detecting copyright infringement in music, including in AI-generated works. Based on our experience with RAI Partners, and discussions underway with possible future partners, we can confidently say that AI has the potential to deliver creative tools that will connect our artists with their fans in groundbreaking ways and on a scale that we've never encountered. Further, I strongly believe that agentic AI will dynamically employ complex reasoning and adaptation, has the power to revolutionize the manner in which fans interact with and discover music. Imagine interacting with your favorite music through a sophisticated, highly personalized chatbot. We envisage that exciting possibility on the horizon. We see the bottom line like this. As we successfully navigate the challenges and seize the opportunities presented by new AI products and others yet to come, we will be creating new and significant sources of future revenue for UMG and our entire ecosystem artists and songwriters. Now I'd like to move on to another area in which we've recently made meaningful progress, and that is the expansion of our presence in established and high-potential markets. In Japan, we recently increased the majority stake we bought earlier this year in A-Sketch, the Japanese label and artist management business by acquiring from KDDI, its minority stake in the company. In August, we entered into a strategic partnership with Maddock Films, one of India's most prolific Hindi film production studios in its newly formed music label, Maddock Music. Under this partnership, Universal Music India is now Maddock Music's global strategic partner for future film tracks and other businesses and product offerings. The partnership deepens our presence in domestic film music, which is the largest music category in India. In Vietnam, Virgin Music Group formed a partnership with The Metub Company, Vietnam's leading digital entertainment and creator company. This innovative venture will focus on signing and servicing local talent and independent labels to help them grow their music, both domestically and internationally. In Ghana, for example, Virgin Music Group took another step in its ongoing mission to invest in Africa's music and creative scene by announcing a global distribution partnership with MiPROMO, one of Ghana's longest-serving creative media platforms. I'd also like to briefly mention a significant development for our business in China, Universal Music Greater China announced the appointment of Zhang Yadong, one of the most iconic producers in the Chinese music industry to the role of Chief Music Adviser at Universal Music China. Widely recognized as a visionary whose work had defined the sound of Mandarin pop for more than 3 decades, he's going to work along with UMG's worldwide infrastructure to introduce the next generation of Chinese artists to international audiences. We're extremely excited and committed about the moves that we've made in China. And we'll be investing and are investing in next-generation local talent. I'd like to close with this. The third quarter, whilst obviously just a snapshot, marked another great quarter where we delivered strong financial growth, drove exceptional success for our artists and songwriters, shape the future direction of our company with groundbreaking announcements and continue to expand our global footprint. The consistency of our performance, combined with the continued execution of the strategic plan demonstrates that with UMG's entrepreneurial energy, we'll continue to bring artistry and creativity of the world's most brilliant and beloved music makers that we have to every corner of the globe and at the same time, leaning into distribution and business models for the future in new and innovative ways. So on that, thank you, and I'd like to hand over to Matt. Matthew Ellis: Thank you, Lucian. I'm pleased to have joined a great business and team at such an exciting and promising time. And I'm equally pleased to be presenting our results for the first time this quarter. Q3 was another quarter of solid revenue and adjusted EBITDA growth at UMG as we continue to execute the strategy the company laid out a year ago at Capital Markets Day. On top of the continued strong predictable subscription growth we saw once again this quarter, our results also display our healthy breadth with multiple drivers of long-term growth as our strong physical and merchandising revenues reflect the opportunity to directly serve superfans. All of the growth figures I will discuss today will be in constant currency. UMG's revenue for the quarter of EUR 3.02 billion, grew 10.2% year-over-year while adjusted EBITDA of EUR 664 million grew 11.6%, with margin expanding 40 basis points to 22.0%. Recorded Music revenue grew 8.3% in the quarter with strong performances from the KPop Demon Hunters soundtrack, Mrs. GREEN APPLE, Taylor Swift, Sabrina Carpenter and Morgan Wallen, among many others. Within Recorded Music, our well-diversified subscription revenue grew 8.7% for the quarter. This result was driven largely by growth in subscribers. Within the top 10 markets, there was double-digit subscription revenue growth in China, Brazil and Mexico and high single-digit growth in the U.S. and we saw a double-digit or high single-digit revenue growth from 4 of our top 5 DSP partners. With healthy subscriber growth from a range of partners across both established and high potential markets and the monetization benefits of our Streaming 2.0 initiatives soon to follow, we remain encouraged by the trajectory of the subscription business. Turning to ad-supported streaming, revenue was largely flat against the prior year quarter. Growth continues to be challenged by the shift to short form consumption, which is not yet adequately monetized. We plan to continue addressing this through our deal negotiations. Physical revenue was better than anticipated, up 23%, driven by strength in Japan led by Mrs. GREEN APPLE and Fujii Kaze as well as initial shipments of Taylor Swift's latest album, The Life of a Showgirl. While physical revenue performance may be less predictable and have more seasonality than subscription revenue, it's important to note that over a longer time horizon, this is a growing business that reflects increasing demand by fans to own physical products, connecting them with the artists they love. Moving on to Music Publishing. Revenue grew 13.6% in the quarter with digital revenue growing 17%, driven by the strength of streaming and subscription, particularly in the U.S., U.K. and China. Performance income also grew 17%. Growth in both digital and performance revenue benefited from the inclusion of Chord and a major television studio business win in this year's results. In Merchandising and Other, revenue increased 15%, driven by the strength in the U.S. and U.K. This was a result of very healthy growth in touring merch revenue which was partially offset by a decline in D2C sales due to the timing of product releases. Our touring merch revenue strength this quarter was driven by the Weeknd, Morgan Wallen, Lady Gaga and Nine Inch Nails, amongst others. Now let me turn to adjusted EBITDA. As I mentioned at the beginning of my remarks, adjusted EBITDA of EUR 664 million grew 12%, and adjusted EBITDA margin expanded by 40 basis points to 22.0%, helped by revenue growth, operating leverage and cost savings from Phase 2 of our previously announced realignment plan. This was partially offset by the negative margin impact of the revenue mix, in particular, the strong physical sales and touring merch growth. We're very pleased with our results this quarter and excited by the momentum and opportunities that lie ahead. With improved Streaming 2.0 monetization just ahead of us and fans looking to engage with their favorite artists in new immersive ways, UMG is at the center of a healthy and growing industry. Thank you. Lucian, Boyd, Michael and I will now take your questions. Operator, please open the line for Q&A. Operator: [Operator Instructions] Thank you. Our first question for today comes from Peter Supino of Wolfe Research. Peter Supino: Matt, welcome, nice to work with you again. I wanted to start by asking you for your perspective on the physical business. Your comments stood out that you see it as potentially a growth business, and certainly, that's not the consensus among the investors. So I wonder if you could share any figures or thoughts that would help us extend that concept in our models? And then the second question, if you could just talk about the investment section of the cash flow statement. It's been elevated for the last couple of years, and we have some commentary from your Capital Markets Day that it will moderate in the next couple of years. Is that a good thing or a bad thing? Do you see that investment spend as high ROI or not more maintenance-oriented? Matthew Ellis: Yes. Let me start with the second question there around the investment section. And do I think that the investments in the business are good or bad thing? They are 100% a good thing. We have the business we have today because of the investments that the company has made across many, many years now. And the investments we're making are consistent with the strategy that we laid out, whether that's continuing to support our existing roster of artists or continuing to build out where we expand. Lucian spoke about our geographic expansion. We went into detail at Capital Markets Day about those plans, and you've seen us execute against that since then. So investments will continue to be an important part of the business as we execute on the strategy going forward. And I think you'll see that continue to be an important use of cash. And as we've discussed in the past, it is the first part of our capital allocation strategy is that investment in the business. In terms of perspective on the physical business, incredibly proud of the results that we've seen from our artists this quarter with the strength there. As you look at the fourth quarter, certainly, we expect to see good results. I would remind you that very strong comps from the fourth quarter in Japan a year ago and the prior year that we'll be coming up against. But that demonstrates that this continues to be a growing part of the business. And you ask if it's a good thing or not, absolutely is a good thing. What our fans are showing us is when they have opportunities to engage in many different ways with our artists, they want to do that and they will spend money doing that. So what the team has done is find ways to meet that demand that is inherently out there. So yes, you should expect to see continued growth in the physical business. Boyd, would you like to? Boyd Muir: Yes. Thanks, Matt. Maybe just to add a little bit about the -- what you're inferring in the question, I mean there's 2 pieces to this, the old-fashioned format transformation that's going on. The reality is the CD in most of the markets in the world is very much a declining format. But we're talking about something really quite different here. This is -- this business is morphing into how we connect the fan together with the artists through a physical product, the most -- 2 most significant examples of that so far is the growth in vinyl and the collectible aspect of that. As we've said before, 50% of vinyl that is sold is sold to people who do not own record players. So this is about a collectible. And clearly, the growth in merchandise is just another aspect of all of this is connecting the fan together with the artist. So it's that aspect that is growing. It's not a format evolution of the audio format in itself. And a very significant part of this is now coming through us directly connecting the fan with the artists through, say, calling a D2C business or a [ D2Fan ] business, where around that new release of these album products, we are seeing somewhere in the region of 2/3 to 75% of the total volume actually coming through our own managed stores in relation to this product. So we're having a direct relationship with the fan. So that's much more about the evolution of this going rather than just being a tired old format transformation. Lucian Grainge: I'd also add that it's the fans telling us that the belief that we have in the superfan and how we're able to provide products and services, both physically as well as what they look like digitally in the future, they're telling us about behavior and about connection. Operator: Our next question comes from Jason Bazinet of Citigroup. Jason Bazinet: I just had one question about superfan. It seems like going back to your Capital Markets Day, you guys are maybe more optimistic about this opportunity than some of the other labels. And I didn't know if that was a function of a different vision that you have about what superfan is going to be or if it's a function of maybe different agreements that you have with your artists that may allow you to participate in sort of superfan economics in a way that might be different than other record labels. Michael Nash: Jason, thank you for your question. And if I can infer that in part what you're asking about, goes to superpremium tiers on subscription services. I think that there is a component of it that is simply about the opportunity to monetize more valuable fans. And as we've stated before, if you look at the digital download era, the top quartile of consumers were spending 3x the average. So the propensity to spend is there. And we think about this in terms of direct-to-consumer and Matt and Boyd talked about vinyl and what that means in terms of monetizing super fandom. There are different components to the equation but we have strong conviction about that we have invested directly in. With respect to superpremium tiers, we're engaged with all of our partners, talking about the opportunity. There is technology change that's going to promote opportunities, I think, around innovation to introduce more sophisticated, higher value offers to consumers over time, and we're engaged in those discussions. We're encouraged to see executives at some of the platforms like Spotify talk about their excitement, their desire to get this right. Seeing great demand for different superfan segments. So it's not just Universal Music Group seeing that. We can't speak about the perception that other music companies have regarding the opportunity. We've made our perspective clear, but I think it's important to keep pointing out that one of the world's top 5 music subscription platforms, Tencent Music in China, has, over the course of the last year plus empirically demonstrated that a super VIP product, as I characterize it, priced at 5x the average price of subscription in that market, a market regarded as a challenging market to monetize music consumption. In that market, they've gained a very, very significant traction. They recently reported 15 million SVIP subs, 12% of their subscriber base growing at 50% year-over-year. And they said that, that resulted in a doubling of their revenue growth versus the rate of increase of subscriber growth in that reporting period. So we're seeing that in a market where you've got some innovation leadership. There's clear demonstration of the opportunity. We believe industrial logic prevails here where research clearly demonstrates that at least 20% of the subscriber base is the target market for a superpremium offer and you see a focus on innovation. And as Lucian said, we think that AI will be a significant component of the focus on innovation in terms of new digital products in the future. We think this is going to play out over time. That's the viewpoint that we have. We can't account for the viewpoint of other music companies. Operator: Our next question comes from Ed Young of Morgan Stanley. Edward Young: I'd love to add a little bit more color on the AI partnerships, particularly if it's launching in '26. You sound confident that you'll be able to sort of solve the artist-centric monetization challenge where requests are generic or by genre style versus them being by artist name. So I'd love to add a little bit more on that. And then second and related, you've spoken often as a management team about developing new business models and diversifying revenue streams. Do you think or do you see agentic AI companies as likely to join the distribution landscape? Michael Nash: Thank you for your question, Ed. I'm assuming that the first question relates to recent announcements and in particular, what we've announced with Udio. In terms of artist centricity, what's significant there is that the product vision is to focus on a superfan experience for customization, deep engagement, hyper-personalization of the experience for fans interacting through AI technology with the artists that they love. So if you think about this in terms of where the marketplace is, from our perspective, the economics of the music ecosystem are really driven by fans' desire to engage with artists and by fans' desire to participate in music culture. So we're envisioning products that deepen both of those things that enables deeper engagement that is very artist-centric and that enables the fans to participate in music culture. So I hope I'm answering the thrust of your question. Yes, the vision regarding the products that will be enabled by initiatives we're supporting and specifically the one that we announced with Udio will be very artist-centric. In terms of the question regarding agentic and new music models, we're very excited about what we see in terms of the evolution of the technology and as it relates to consumer interest. So we recently did some research in the U.S. market. And in that research, the readout was 50% of music consumers are very interested in AI in relationship to the music. But that's in relationship to their music experience. The thing that ranks the lowest is artist simulation, what we would call fake artists. And you're seeing there's a lack of traction around that other than the occasional novelty phenomenon that may capture some headlines. That's not what fans are interested in. What fans say that they're interested in is AI application that makes their music service better, that improves discovery, that enables them to better organize playlist to have a better recommendation system against their express preference. So the thing with respect to agentic AI that we see as a significant potential point of innovation, imagine a perfect seamless blending of lean forward and lean back, where the interface that you have for music consumption is in a position to understand not just your music preferences, but the films and television shows that you watch, the books that you read, the countries you travel to, the conversations that you're engaged in, really, really sophisticated management of recommendation and also an understanding of listening conduct, drive time versus dinner party versus workout. We believe that the application of technology to really enhance the consumer experience in relationship to music appreciation, music discovery and contextual listening, that suggests a possibility that makes music all the more valuable that increases the connection between artists and band, all of that we see has been very virtuous. Operator: Our next question comes from Adrien de Saint Hilaire of Bank of America. Adrien de Saint Hilaire: I've got a couple of questions, if that's okay. Given the price increases that were recently announced by Spotify and presumably your new wholesale deal kicking in next year with that platform, do you have enough visibility today to see subscription growth accelerates into 2026? And second question, I'm really, sorry, if I missed this in your prepared remarks, but are there any additional details that you can provide on the timing for your U.S. listing? Matthew Ellis: Yes. So thank you, Adrien. Regarding the U.S. listing, as you know, we announced in July that we had confidentially filed with the SEC. We're in the SEC review process right now. Obviously, the U.S. government shutdown makes everything there a little bit more complicated. So we're working against that backdrop. And we'll have an update of the market when we have additional news, and it's appropriate to do so. So I look forward to doing that at the right time. In terms of the price increases on Spotify, as you mentioned, glad to see those come through. Michael, you're closer to that than anyone. Michael Nash: Yes, happy to elaborate there, Matt. So with respect to -- and looking into your question to make sure I'm covering the gist of what you're interested in, the price increase impacts and the outlook for 2026. Of course, we don't provide quarterly or even annual guidance on metrics like that. In the fourth quarter, we're going to have a tough comp against some pricing changes, but we'll also see some benefit, small benefit from the Spotify price increases that were announced earlier this year. So those things pretty much trade off. We do foresee that in 2026, we are going to start to see the pricing benefits from our Streaming 2.0 agreement. Other than that, I would simply point to the guidance that we provided on Capital Markets Day a year ago with respect to 8% to 10% CAGR in the midterm. That's the way you should really be thinking about the impact of the price increases as they play out over time. Operator: Our next question comes from Silvia Cuneo of Deutsche Bank. Silvia Cuneo: A couple of questions from my side. The first one regarding AI, you announced 2 strategic agreements today. Could you elaborate on your expectations for future similar partnerships and how meaningful this could be in terms of financial benefits compared to, for example, social apps licensing? And specifically concerning Udio, could you help us understand the mechanics of these agreements, particularly whether there are variable revenue elements tied to Udio's growth? And then secondly, quickly, regarding your cost initiatives, could you please remind us of the key cost areas that Phase 2 of your strategic design is addressing and in comparison, especially to Phase 1? Lucian Grainge: I'd just like to frame some of the conversation before maybe Michael or Matt actually add some of the detail. Sequence is critical in all of this. Search, the power of possibility of what the technology is providing all of these businesses, and you're talking about AI and Udio and all the other companies that we anticipate or we will make deals with. I've got -- I think it's important to say this. I have exactly the same feeling about this progress that I did 15 to 16 years ago when we were looking at what was the transaction business and the really early fledgling what was perceived at the time of the disruption of the album into something called ad-funded streaming. And then ad-funded streaming became premium subscription. So we are in a sequence of how the technology and how the platforms with us, as a company and as an industry, integrate and learn together how to actually create products and to provide what artists want and consumers and fans want in an organized monetized way. So we are at the front, at the vanguard of a new era. And it's one of the reasons why we're positive, we're confident and why we continue to invest right across the board in all aspects of what we anticipate will be the growth and is the growth not only in the company but in the marketplace. So on that, maybe you guys like to add some more of the actual functional details of what the question was. Michael Nash: That's a great strategic framing, Lucian. So within the question regarding the new agreements and our outlook, let me start out at a more general level and then talk specifically about the 2 new agreements that we've announced in the last 24 hours. As Lucian said, we clearly established our position in this sector as being the industry leader, developing new business models, supporting new products, numerous agreements that we previously announced to enable entrepreneurs working with established platforms, and that goes back to 2023. So the most recent set of announcements and initiatives is building on that foundation of industry leadership. And you might have noted that Lucian sounded a call to action where we started to mobilize to prepare to be able to effectively execute and implement new deals and talked about the scope of ambition being up to a dozen different conversations in which we're engaged. We're very excited about the opportunity for innovation. With respect to commercial opportunity, as Lucian said, we believe the commercial opportunity is potentially very significant. These new products and services could constitute an important source of incremental additional new future revenue for artists and songwriters. Now we're just preparing the way for market entry of these new products. Some of the things we've announced are 2026 in terms of scheduling scope on product launches. So it's too soon to provide commentary on more specific in terms of opportunities scope, but we do believe this is potentially significant. In terms of product scope, the recent announcement, I think, provide a very clear indication of what we're thinking about in terms of new AI products targeting the superfan, deepening the relationship between artists and fans, enabling fans to more deeply participate in music culture and providing tools for our artists that are being responsibly developed to enable them to narrow the gap between imagination and creation of content to broaden the palette of options they have in terms of artistic tools to be able to create content. Specific to Udio, and let me just elaborate on Lucian's comments. We entered into an industry-first strategic agreement where we've settled copyright infringement litigation and we're collaborating on this innovative new product suite, new commercial music consumption, interaction, hyper-personalization, sophisticated curation, those are the elements that are going to define this product suite. The new platform, plan is to launch in 2026. It's going to be powered by Udio's cutting-edge generative AI technology, ethically trained, responsibly trained and authorized license music content, all those things very critical and obviously to the benefit of our artists, songwriters and to rights holders. The new service we see as potentially really transforming the user engagement experience within a walled garden, enabling this deep interaction with the content. And I just want to briefly highlight, in terms of artist tools the announcement with Stability AI, this is really a groundbreaking product development collaboration that we're announcing with Stability. Stability is organizing their effort to create new tools for professionals in a category of gaming with Electronic Arts, in terms of marketing, advertising with WPP, in terms of film production with their investor and Board member, James Cameron. So UMG joins that group of significant players in their categories as the leader in the music vertical, and that puts us in a position to directly engage in a very artist-centric way the conversation with our creative community around the evolution of these tools and puts us in a position where we're going to be able to provide the best opportunity for new creative potential out of AI responsibly trained for the ranks of artists and songwriters that we work. Lucian Grainge: This is happening. It's on, and we're on. Matthew Ellis: Silvia, on the cost question you had, obviously, as you said, we're in the second phase of the program. A lot of the activity that you've seen to date has been successful in both our U.S. and U.K. platforms. Boyd, you've lived this program for the past couple of years, so you could add a little bit more detail. Boyd Muir: Yes. Well, maybe just to take a step back to level for everyone. I mean the strategic alignment, which we announced, I guess, a couple of years ago now, it's a proactive initiative. It's not reactive. It's a proactive initiative. It's designed to achieve efficiencies and targeted cost areas, but at the same time, providing our labels with capabilities to deepen -- basically to deepen artist connections with new kind of areas of commerce, experiential and the like. We're focused very much in designing the label of the future, providing our labels with enhanced access to highest-performing internal teams and access to additional resources. And Lucian mentioned in his opening comments actually about the success that we're seeing in the U.S. and the U.K. And there's little doubt that this is as a result of the strategic alignment initiatives that we're pursuing. Operator: Our next question comes from Adam Berlin of UBS. Adam Berlin: I just got one question left, really, which is, you mentioned that Q3 physical benefited from early shipments of Taylor Swift's Life of a Showgirl. Can you talk about how much of the revenue that, that album will generate has already been captured in Q3? And is there still a lot more to come in Q4? Matthew Ellis: Yes. So Adam, thanks for the question. So yes, certainly, we did see some benefit, especially with getting the initial volume out to retail stores ahead of the October 3rd launch of the album. We've never broken out results by a particular artist or a particular piece of work. Not going to do that. Obviously, the initial shipments were significant. As Boyd said in his comments around our fan business, a significant number of vinyl sales is now in our D2C business, not going through retailers that we work with. And so those would have been on a different time line. So the vast, vast majority of the benefit from the physical sales of the album will be in fourth quarter, but we certainly did see some of the uplift, the 23% growth in physical year-over-year was due to those initial shipments, combined with the strength we saw in Japan that I mentioned. So we see this benefit, not just related to one artist. Our fans want to connect with all of our artists in geographies around the world. Operator: Our next question comes from Joe Thomas of HSBC. Joe Thomas: A couple of questions, please, on my side. Firstly, you were talking about the -- I think you were talking about new deal with YouTube and you've got protections across the whole gamut of what they provide. I'm just wondering if you could tie that into your comments on streaming and the difficulty of monetizing short-form video. Have you reached some sort of solution there? And what could we expect to come in the future? And then the second question is back to the cost savings. I realize there's costs coming out. There's also costs, sounds likely, going in as you invest in the capability of the business. What is the net cost saving over the quarter, please? Michael Nash: Joe, thank you for your question. In terms of the YouTube deal and the benefits of the new deal, the scope of it and then also how it relates to disruption of short form and monetization of that supported. So yes, we were very excited that we had an opportunity to complete this agreement with an important strategic partner. As Lucian said, our third Streaming 2.0 deal, we have a long-standing, very productive partnership with YouTube. With respect to the components of the deals related to monetization, obviously, every deal-making opportunity, we consider the unique attributes of potential licensee, circumstances or category, product plans, business strategy, that certainly applies to a major and uniquely diversified platform like YouTube. In talking about the new partnership in terms of Streaming 2.0 deal, we certainly are advancing important components of our core objectives here, taking into account these unique and multifaceted components of their platform and the foundational principles that we're carrying across in all of our negotiations with our partners. And as Lucian said, we secured key protections in the agreement on AI, which is a critical achievement in promoting interest of our artists on their platform. With respect to monetization of short form, improved monetization of short-form video is certainly an objective that we're actively advancing across multiple deal renewal discussions, including this one. Beyond that, I'm not going to comment on a specific component of a deal as it relates to an individual category. But our efforts to work on better monetization of short format to address the disruption the short format has brought to the ad-supported sector is a broad-based effort across multiple different deal renewal conversations. Lucian Grainge: Yes, I'd also add that we look at the rights as an overall category, and our strategic relationship and partnership with YouTube as an overall strategic partner on the music subscription, on short form, on long-form video and obviously, all the work that we're doing on AI. So it's an entire category with one strategic partner. And as the marketplace and as our products, their products, the technology grows and develops, it all blends and all sits together to actually create value for everybody. Matthew Ellis: With respect to the cost savings question, Joe, we don't really view it from the lens of the -- how you think about the net cost savings. We continue to invest in the business, whether or not we have a cost savings plan in place at a particular point in time. When you think about the margin expansion for the quarter, up 40 basis points again this quarter, you see the benefit of those investments driving the continued revenue growth, but also the operating leverage that then delivers and that again supplemented by the cost program. So we continue to look for ways to run the business more efficiently. As Boyd discussed, setting up -- continue to evolve the business as the industry evolves and what we do evolves so that we have the resources to continue to invest and provide the support to the business that we have. And I think you've seen the success of that. Operator: Our final question for today comes from Julien Roch of Barclays. Julien Roch: Coming back on the Udio deal you just signed. Could we have some indication of the payment mechanism. Will you get a share of their revenue? Will you get micro payments every time a song is created. So some color on how the money flow will work, without giving number detail. That's the first question. And then coming back on the deal you signed with Spotify, you gave one concrete example of what those products could be, Lucian did early on. I wonder whether we could get another couple of concrete examples of what those new AI products can be. Michael Nash: Julien, thank you for your questions. With respect to detail on the business models, you will probably not be shocked to hear that I can't go into granular detail. I will say this that obviously, the advent of AI with respect to new consumer products on new service categories on platforms, obviously introduces an opportunity for us to be creative and innovative in terms of the evolution of the business model and accounting for all aspects of the value that our content and artists bring to these platforms in terms of the establishment of the model's capability and in terms of the products themselves. We're obviously looking at all the components of the consumer experience and the value created and our participation in that value. So rest assured that we're working thoughtfully with new partners and certainly with Udio and reaching the agreement with them to be able to develop a sophisticated model that is going to deliver the value to our artists and songwriters and the rights holders that it should. In terms of more specific product concepts, with respect to how we envision the future, I think Lucian provided a great general sense of our outlook. But I would just encourage you to look at the specifics of the Udio announcement and the comments that have been made by their CEO and the comments that we've made, we now have a specific product development plan that has been set in motion by a new agreement for a service that's going to be launched next year. I think that what's being described there is the attributes of this customization, hyper-personalization, engagement with the artist content in a superfan experience in a walled garden on the platform gives you a good starting point for envisioning what the product scope is going to be. I think it's a good example of the kind of thing that's possible. We talked a little bit about on the horizon, things like agentic AI and obviously, that is to be constructed and developed in new conversations. So it's premature to go beyond a statement of kind of aspiration and outlook there. Operator: Thank you. That concludes today's conference call. Thank you all for joining. You may now disconnect your lines.
Suhasini Chandramouli: Good afternoon, and welcome to the Apple Q4 Fiscal Year 2025 Earnings Conference Call. My name is Suhasini Chandramouli, Director of Investor Relations. Today's call is being recorded. Speaking first today is Apple's CEO, Tim Cook, and he'll be followed by CFO, Kevan Parekh. After that, we'll open the call to questions from analysts. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including without limitation, those regarding revenue, gross margin, operating expenses, other income and expense, taxes, capital allocation and future business outlook. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast, including risks related to the potential impact to the company's business, and results of operations from macroeconomic conditions, tariffs and other measures and legal and regulatory proceedings. For more information, please refer to the risk factors discussed in Apple's most recently filed reports on Form 10-Q and Form 10-K and the Form 8-K filed with the SEC today, along with the associated press release. Additional information will also be in our report on Form 10-K for the year ended September 27, 2025 to be filed tomorrow and in other reports and filings we make with the SEC. Apple assumes no obligation to update any forward-looking statements, which speak only as of the date they are made. Additionally, today's discussion will refer to certain non-GAAP financial measures. You can find a reconciliation of these measures in our fourth quarter earnings release, which is available on our Investor Relations website. I'd now like to turn the call over to Tim for introductory remarks. Timothy Cook: Thank you, Suhasini. Good afternoon, everyone, and thanks for joining the call. Today, Apple is proud to report $102.5 billion in revenue, up 8% from a year ago and a September quarter record. Services achieved an all-time revenue record of $28.8 billion, growing 15% from a year ago. EPS came in at $1.85 setting a September quarter record. We grew in the vast majority of markets we track and had September quarter revenue records in dozens of markets, including the U.S., Canada, Latin America, Western Europe, the Middle East, Japan, Korea and South Asia. We also set a September quarter revenue record in emerging markets and an all-time revenue record in India. These results come at the close of an extraordinary year for Apple in which we achieved an all-time revenue record of $416 billion for the fiscal year. We set all-time revenue records in emerging and developed markets. We set an all-time revenue record for iPhone. And in Services, we achieved all-time records across every geographic segment. These results reflect the tremendous customer enthusiasm for Apple products and services as well as our deep commitment to innovation. We are incredibly excited about the strength we're seeing across our products and services and we expect the December quarter's revenue to be the best ever for the company and the best ever for iPhone. We are heading into the holiday season with a truly remarkable lineup. That includes the biggest leap ever for iPhone, which has had a tremendous response from our users around the world. Our Apple Watch lineup is more capable than ever to giving users ways to take charge of their health like never before, through new features like hypertension notifications and sleep score. And the next level sound quality and active noise cancellation of AirPods Pro 3 are hitting all the right notes for our users. In October, we also broke new ground and power-efficient performance with the uncomparably fast M5 chip, packed with neural accelerators in each GPU core to supercharge AI workflows. iPad Pro combines game-changing features in iPad OS 26 with the power of M5 to create our most capable iPad ever. At the same time, the M5 MacBook Pro raises the bar for what users can do with a laptop while the new M5 powered Apple Vision Pro opens up amazing possibilities on its infinite canvas. We also launched a beautiful new software design that creates a unified experience across all of our platforms for the very first time. The design is crafted with a new material called liquid glass that brings fluidity, vitality and flexibility to our products. Along with the new design, we delivered powerful new features to enable users to do even more with their devices. That includes updates to the phone and messages apps in iOS 26 to help users stay connected, continuity enhancements in MAC to deliver an even more seamless experience across devices and a powerful new windowing system that fundamentally transforms the user experience in iPad OS 26. As we continue to expand our investment in AI, we're bringing intelligence to more of what people already love about our products and services, making every experience even more personal, capable and effortless. At the heart of it all is Apple Silicon, and we were thrilled to launch new products powered by the A19 Pro chip and M5. These incredibly advanced chips make Apple products the very best place to experience the power of AI. With Apple Intelligence, we've introduced dozens of new features that are powerful, intuitive, private and deeply integrated into the things people do every day. Features like live translation, which help users communicate across languages in real time and visual intelligence, which opens new ways to learn about and explore the world. We also introduced Workout Buddy, a new experience that uses AI to provide personalized motivational insights based on a user's workout data and fitness history. And these joined so many others from cleanup and photos and new image creation tools to powerful writing tools, we're also seeing developers take advantage of our own device foundation models to create entirely new experiences for users around the world. We're also excited for our more personalized Siri. We're making good progress on it. And as we've shared, we expect to release it next year. Now let's take a closer look at the September quarter results across our lineup, starting with iPhone. iPhone set a revenue record for the September quarter at $49 billion, up 6% from a year ago, with growth in the vast majority of markets we track despite supply constraints we faced on several iPhone 16 and iPhone 17 models given strong demand. Redesigned from the inside out and powered by the outstanding A19 pro chip, the iPhone 17 Pro is by far the most powerful iPhone we've ever made, setting a whole new standard for the smartphone industry. The iPhone 17 Pro also offers our best camera system ever with an all-new ADEX telephoto camera and look stunning with bold new finishes like COSMIC Orange. The iPhone Air introduces an incredibly breakthrough design and with a bigger and brighter display with promotion, the iPhone 17 is a fantastic upgrade packed with features users will love. In MAC, we had a strong September quarter with revenue of $8.7 billion, up 13% year-over-year driven by the strength of the MacBook Air. The MacBook Air enables users to get things done easily on the world's most popular laptop. Mac mini users are loving how much performance is packed into our smallest Mac ever made while Mac Studio customers are pushing the envelope of what's possible with our most powerful Mac ever, and the latest 14-inch MacBook Pro unlocks incredible speed and next level performance with the all-new M5 chip, which delivers 3.5x faster AI performance than M4. Turning to iPad. Revenue was $7 billion for the September quarter. Last month, we released 1 of the most attention grabbing software updates we've had in years with iPad OS 26 and we recently gave iPad users even more to love with the launch of the incredible M5 iPad Pro, which offers an incredible boost in AI performance. With an unmatched combination of power and versatility, the new iPad Pro makes every interaction delightful with its thin, light and portable design. In Wearables, Home and Accessories revenue was $9 billion. As I mentioned earlier, we were excited to unlock new possibilities for users with the launch of our newest Apple Watch lineup, making the world's most popular watch even better. That includes Apple Watch Ultra 3 with the largest display ever in an Apple watch, improved battery life and emergency SOS via satellite. Apple Watch Series 11 brings our users the most comprehensive set of health features yet. And Apple Watch SC3 delivers advanced capabilities at an incredible value. AI and advanced machine learning are at the core of powerful health features like heart rate monitoring, fall detection, crash detection and more. With our latest Apple Watch lineup, we were proud to introduce hypertension notifications, developed using large-scale machine learning models. Hypertension is one of the leading risk factors for heart attack and stroke affecting more than 1 billion adults worldwide, and we expect to notify more than 1 million users of this life-threatening condition. We're also excited about sleep score, a simple, intuitive way to help users better understand their sleep quality and discover ways to improve it. That's something I'm sure we can all benefit from. Meanwhile, AirPods Pro 3 have been a huge hit. You have to hear them to really understand just how remarkable they are. users and reviewers alike are praising their incredible sound quality and improved fit. They feature the world's best in-ear active noise cancellation, removing up to 2x as much noise as the previous generation. And with live translation powered by Apple Intelligence, AirPods deliver an incredibly new and exciting experience for users around the world. Turning to Services. As I mentioned earlier, revenue was $28.8 billion for the September quarter, 15% higher year-over-year and an all-time record. We saw double-digit growth in both developed and emerging markets and set new all-time records across advertising, App Store, cloud services, Music, payment services and video. Apple TV celebrated a big night at this year's Emmy Awards with 22 wins. The studio led the night with 13 wins the most of any comedy series in Emmy's history. Severance topped all dramas with 8 wins, adding to the accolades for this landmark series. To date, Apple TV productions have now earned over 600 wins and 2,800 nominations in total, driven by powerful original storytelling. And we're excited for audiences to discover new productions like Pluribus and to catch returning favorites like slow horses and the morning show. And soon, Apple TV will be the destination for F1 fans across the U.S. on track Day, thanks to a new partnership with Formula One. F1 is one of the most exciting and fastest-growing sports in the world. And starting next year, Apple TV will be the place for subscribers to follow every twist and turn of the new season. And in addition, F1, the movie, one of the year's biggest blockbusters will be coming to Apple TV on December 12. During the September quarter, we also marked the 10-year anniversary of Apple News. Apple News provides access to front page news from all around the world, putting hundreds of publications right at users' fingertips. Turning to retail. We're heading into our busiest time of year with our best ever lineup. In the last few months, we've opened new stores in emerging markets like India and the UAE and new locations in the U.S. and China. I was also in Tokyo last month for the opening of the redesigned and reimagined Apple Ginza store and the energy among the crowd was truly remarkable. When it originally opened, it was our first store outside the United States, and so it was especially meaningful to come back to welcome customers to the beautiful new space. Everywhere we operate, and in everything we do, we strive to give the best to our users while living by our values, whether that's building new accessibility features into our most recent software releases or advancing our environmental work by using even more recycled materials in our latest lineup or providing free educational programming to train and support American businesses with our new Apple Manufacturing Academy in Detroit. And we're continuing to invest in innovation and user experiences that will transform our future. A great example is the work we're doing in the U.S. where we're committed to invest $600 billion over the next 4 years with a focus on innovation in strategic areas like advanced manufacturing, silicon engineering and artificial intelligence. These commitments build on our long-standing investments in America, while supporting more than 450,000 jobs with thousands of suppliers across all 50 states. We built a new factory in Houston for advanced AI service, for example, which just started shipping its first products off the line, and we're leading the creation of end-to-end silicon supply chain across the country. In recent months, I've connected with developers, innovators, artists, entrepreneurs and so many others around the world, people passionate about innovation and all the things they can do with Apple products. Each one is another reminder of why we do what we do. We're driven to empower people to do more of the things that matter most to them and enrich their lives along the way. As we head into the holiday season with our most powerful lineup ever, I couldn't be more excited for what's to come. With that, I'll turn it over to Kevan. Kevan Parekh: Thanks, Tim, and good afternoon, everyone. Our revenue of $102.5 billion was up 8% year-over-year and is a new September quarter record. We set some temporal quarter records in the Americas, Europe, Japan and the rest of Asia Pacific and grew in the vast majority of markets we track. Products revenue was $73.7 billion, up 5% year-over-year, driven by growth across iPhone and MAC and reached a September quarter record. Thanks to our exceptional customer satisfaction and strong levels of loyalty, our installed base of active devices has reached another all-time high across all product categories and geographic segments. Services revenue was $28.8 billion, up 15% year-over-year and an all-time record. The performance was broad-based, with double-digit growth in the vast majority of the markets we track and double-digit growth across most of our services categories. Company gross margin was 47.2%, above the high end of our guidance range and up 70 basis points sequentially, driven by favorable mix. This includes approximately $1.1 billion of tariff-related costs, which is in line with what we had estimated on our last call. Products gross margin was 36.2%, up 170 basis points sequentially driven by favorable mix. Services gross margin was 75.3%, down 30 basis points sequentially. Operating expenses landed at $15.9 billion, up 11% year-over-year, driven by increased investment in R&D. These strong levels of business performance led to September quarter records for both net income and diluted earnings per share. Net income was $27.5 billion and diluted earnings per share was $1.85, up 13% year-over-year on an adjusted basis, excluding the onetime charge we recognized during the fourth quarter of 2024. Operating cash flow was also a September quarter record at $29.7 billion. Now I'm going to provide some more details for each of our revenue categories. iPhone revenue was $49 billion, up 6% year-over-year, driven by the iPhone 16 family. iPhone grew in the vast majority of the markets we track with September quarter records in many emerging markets, including Latin America, the Middle East and South Asia and an all-time record in India. The iPhone active installed base grew to an all-time high, and we set a September quarter record for upgraders. According to the recent survey from World Panel, iPhone was a top-selling model in the U.S., Urban China, the U.K., France, Australia and Japan. We continue to see very high levels of customer satisfaction in the U.S. at 98% as measured by 451 Research. Mac revenue was $8.7 billion, up 13% year-over-year, driven by MacBook Air. We grew in every geographic segment with strong double-digit growth in emerging markets. The Mac installed base reached another all-time high with nearly half of customers who purchased a Mac being new to the product. And the latest customer satisfaction for Mac in the U.S. was reported at 96%. iPad revenue was $7 billion, flat year-over-year. Keep in mind, we faced a difficult compare against the full quarter impact of the iPad Air and iPad Pro launch from last year, offset by the better-than-expected performance on the iPad. The installed base reached an all-time high with a September quarter record for upgraders and over half of the customers who purchased an iPad during the quarter were new to the product. Based on the latest reports from 451 Research, customer satisfaction was 98% in the U.S. Wearables, Home and Accessories revenue was $9 billion, flat year-over-year. This was driven by growth on Watch and AirPods, offset by accessories, which was impacted by strong performance in the year ago quarter, driven by the iPad launches. Both the Apple Watch and AirPods installed bases reached new all-time highs. Over half of the customers purchasing Apple Watch during the quarter were new to the product, and we also set a September record for upgraders an Apple Watch. And in the U.S., customer satisfaction was recently measured at 95%. Our services revenue reached an all-time high of $28.8 billion, up 15% year-over-year. We achieved all-time revenue records in the Americas, Europe, Japan and rest of Asia Pacific as well as a September quarter record in Greater China. The majority of categories saw a sequential acceleration. And as Tim mentioned, we set many all-time revenue records, including payment services, where we reached an all-time revenue record and saw a double-digit growth year-over-year on Apple Pay Active Users. This strong momentum in the September quarter drove our total fiscal year services revenue to surpass $100 billion, up 14% year-over-year and our best ever. The growth of our installed base of active devices continues to offer us great opportunities for the future. Customer engagement across our services offerings also continue to grow both transacting and paid accounts reached new all-time highs, and we continue to improve the quality and expand the reach of our services offerings. From additional markets for Apple Pay, now available in nearly 90 countries, to AppleCare One, a great new way to cover multiple Apple products in a single plan. Turning to enterprise. We are seeing an adoption of Apple products accelerate across industries to improve productivity and drive innovation. The BMW Group has been deploying tens of thousands of iPhones, including the factory employees to further strengthen its digital capabilities and advance innovation at the company. Capital One has expanded its Mac Choice program by adding thousands more MacBook Airs across its workforce. In the Czech Republic, its largest bank, [indiscernible], continues to invest in the Apple ecosystem with over 5,000 iPhones in addition to its existing thousands of iPads and Macs. And Purdue University has launched a spatial computing hub built around Vision Pro, designed to help prepare students to lead the next wave of innovation in critical industries like semiconductor and pharmaceutical manufacturing. Let's turn to our cash position and capital return program. We ended the quarter with $132 billion in cash and marketable securities. We had $1.3 billion of debt maturities and decreased commercial paper by $1.9 billion, resulting in $99 billion in total debt. Therefore, at the end of the quarter, net cash was $34 billion. During the quarter, we returned $24 billion to shareholders. This included $3.9 billion in dividends and equivalents and $20 billion through open market repurchases of 89 million Apple shares. Taking a step back, we are very pleased with our record fiscal year 2025 results. As Tim mentioned, total company revenue for the year was $416 billion with growth in iPhone, Mac, iPad and Services and all-time records in the vast majority of markets we track. This revenue performance led to very strong full year operating results with all-time records for net income and for diluted EPS, which grew double digits year-over-year on an adjusted basis. As we move ahead into the December quarter, I'd like to review our outlook, which includes the types of forward-looking information Suhasini referred to. Importantly, the color we're providing assumes that the global tariff rates, policies and application remain in effect as of this call and the global macroeconomic outlook does not worsen from today. We expect our December quarter total company revenue to grow by 10% to 12% year-over-year, which will be our best quarter ever. We expect iPhone revenue to grow double digits year-over-year, which would be our best iPhone quarter ever. On Mac, keep in mind, we expect to face a very difficult compare against the M4 MacBook Pro, Mac Mini and iMac launches in the year ago quarter. We expect services revenue to grow at a year-over-year rate similar to what we reported in the fiscal year 2025. We expect gross margin to be between 47% and 48%, which includes an estimated impact of $1.4 billion of tariff-related costs. And as we've said before, we are significantly increasing our investments in AI, while continuing to invest in our product road map. And so for the December quarter, we expect operating expenses to be between $18.1 billion and $18.5 billion. We expect OI&E to be around $150 million, excluding any potential impact from the mark-to-market of minority investments and our tax rate to be around 17%. Finally, today, our Board of Directors has declared a cash dividend of $0.26 per share of common stock payable on November 13, 2025, to shareholders of record as of November 10, 2025. With that, let's open the call to questions. Suhasini Chandramouli: [Operator Instructions] Operator, may we have the first question, please? Operator: Certainly, we will go ahead and take our first question from Erik Woodring with Morgan Stanley. Erik Woodring: Congrats on the results. Tim, can you maybe share a bit more detail on why you think the iPhone 17 is having the degree of success that it is at this point. And really, the question is, do you believe this is the aged installed base replacement cycle kicking in? Or are there specific features or functionality you believe stand out this cycle versus past cycles that consumers are really looking for? And then just a quick follow-up. Timothy Cook: Eric, thanks for your comments. I think it's all about the product. The product lineup is incredibly strong, our strongest ever. The 17 Pro is the most pro phone we've ever done. It's incredible in the design things. The iPhone air is -- feels so thin and so light in your hand, it feels like it's going to fly away. And then the 17 phone is an incredible value and takes several of the features that were reserved for Pro before and brings them down to the consumer lineup. So overall, strongest iPhone lineup ever, and it's resonating around the world. Erik Woodring: Great. And maybe a follow-up for you, Kevan. Can you maybe just discuss your approach to managing component cost inflation during this time, you're obviously increasing the memory content in your devices quite substantially at the same time. Memory prices are going through some pretty significant inflation. So just how are you managing through this cycle. Kevan Parekh: Erik, thanks for the question. Look, as you know, we've got a pretty incredible world-class procurement team as we're constantly finding ways to continue to drive cost opportunities. Right now on the commodity side, I would say we're seeing a slight tailwind on memory in storage prices and nothing really to note there. And as we saw from our gross margin performance, we landed in a pretty good spot above the high end of the guidance range we provided at 47.2%. And as well, we're guiding at 47% to 48%. So I think we're managing costs pretty well. As you'll recall, when we talked about this time in the cycle, we just launched a bunch of new products. Those new products do have a slightly higher cost structure than the products they replace, but the team does a very good job of focusing our efforts on getting those costs down over time. And we feel pretty good about the performance we're seeing right now overall on material cost savings. Suhasini Chandramouli: Operator, can we get the next question, please? Operator: Our next question is from Ben Reitzes with Melius Research. Benjamin Reitzes: Tim, can you talk a little bit about iPhone in China specifically? How is that going to trend in the December quarter? And have you turned the corner there? And how do you think that trajectory is going? And then I have a quick follow-up. Timothy Cook: Yes. Ben, I was just there. It's incredibly vibrant and dynamic. The store traffic is up significantly year-over-year. The iPhone 17 has been -- the family has been very well received there. We do believe that we'll return to growth in Q1, and that is largely based on the reception of the iPhone there. And so I couldn't be more pleased with how things are going there in the early going. Benjamin Reitzes: All right. That's great. And then services, great upside there, a little surprising, right? We were a little worried about that one only a few quarters ago. I was wondering if there were any [indiscernible] payments in there or if the resolution that we saw with the antitrust ruling with one of your partners was a boost and and if that played a role or if it was all really just organic outperformance with many of the things you mentioned. Kevan Parekh: Ben, it's Kevan here. Let me try to answer that question. You're referring -- I just wanted to clarify, when you're referring to the antitrust piece, you're talking about the Google trial? Is that what you're referring to? Benjamin Reitzes: Yes. Yes, sir. Kevan Parekh: Okay. Yes, there was no tax-related impact. And what I would say is our strong performance for the quarter is really organically driven. And again, just to reiterate, we had an all-time revenue record here for the quarter at $28.8 billion. And as well, we surpassed $100 billion, so best year ever at 14% year-on-year. So really that was all organic growth. As Tim outlined and I outlined in the prepared remarks, we saw a majority of the categories have sequential acceleration, and we had many all-time revenue records. But nothing abnormal at all, really pretty much all organic growth. Suhasini Chandramouli: Operator, could we get the next question, please? Operator: Our next question is from Michael Ng. Michael Ng: I just have two as well. First, just to follow up on the last one. the services revenue growth, I think, was the fastest across many categories and certainly the fastest in the last 2 years. I was just wondering if you could just unpack a little bit more of the drivers of the acceleration, was there kind of cross-selling with the new iPhone launch? Was it just installed base growth? I know you've been doing a lot of bundling with Apple One and Apple Care One. So any thoughts on that would be very helpful. And then I just have a quick follow-up. Kevan Parekh: Michael, it's Kevan. Thanks for the question. Yes, let me build on the answer there. I think that the way we look at it is not one thing to point to that would have driven this higher performance. You're right that it is slightly higher than we've seen in the last few quarters. But as you know, our services portfolio is very broad with a broad range of businesses, all that have different growth profiles and different performance characteristics. So those can vary in any given quarter. I would say our strength, again, was very broad-based, both across categories and also geographically. So I wouldn't point to any particular factor that drove any kind of outperformance at all. We were just very pleased to see that result. Michael Ng: Great. And just on iPhone sell-through, I was wondering if you were seeing any notable shifts in trends between the sell-through coming from upgraders versus switchers? Is the U.S. carrier competitive dynamic helping at all in terms of promotional activity? And any thoughts on channel inventory. Timothy Cook: Okay. We did set a September quarter record for upgraders and so it was a great quarter from that point of view. It's really too early in the cycle on 17 to make any comments about upgraders or switchers. In terms of channel inventory, we ended the quarter toward the low end of the targeted range. Obviously, because we had constraints on several models of the 16 and 17. And for complete transparency and clarity, we're constrained today on several models of the iPhone 17. There's not a ramp issue. It's just we have very strong demand. And we're working very hard to fulfill all the orders that we have. Suhasini Chandramouli: Operator, could we get the next question, please. Operator: Our next question is from Amit Daryanani with Evercore. Amit Daryanani: I guess Kevan, maybe just start with gross margins. Can you just walk through the expectations for the December quarter. I think it implies up 30 basis points or so sequentially. Can you just talk about the puts and takes on gross margin given you do have very sizable operating leverage in the quarter. So just maybe what are the puts and takes around that would be really helpful. Kevan Parekh: Yes, sure. Amit, let me walk through the outlook. As we mentioned in our outlook, we are targeting a range of 47% to 48%. You take the midpoint of that range at 47.5%, you said it's roughly 25 basis points, 30 basis points higher. Really, there's a lot of puts and takes. As I talked about earlier, this is a quarter we launched a lot of new products. Those new products tend to have a higher cost structure than the products they replaced. So there's definitely an impact from the cost side of thing, but that was more than offset by a favorable mix, especially on the product side as well as you outlined, we typically see higher leverage in this quarter. So I would say those are the 2 big drivers. And so the sequential increase is really going to be driven by favorable mix particularly from the product side. Amit Daryanani: Got it. And then if I just go back to the China discussion for a minute, the performance in China, at least in September quarter was a bit muted. Could you just talk about what resulted in the weakness over there? And do you think it was a bit more of a pause given iPhone Air, for example, I don't think was available until a few weeks ago. So just somewhat what drove the weakness in September? And is the uptick of that expectation for December there just from the iPhone Air coming out? Or are there other factors as well? Timothy Cook: Yes. The Greater China revenue was down 4% in the -- year-over-year in the September quarter. It was driven by iPhone and if you look at the iPhone, the majority of the sequential year-over-year change was due to supply constraints that I mentioned earlier. And so it was basically supply constraints that drove the results. We're thrilled with what we're seeing right now with traffic being up significantly year-over-year and the reception of the 17 family we expect to return to growth this quarter. Suhasini Chandramouli: Operator, could we have the next question, please? Operator: Our next question is from Wamsi Mohan with Bank of America. Wamsi Mohan: Tim, if I can follow up on your comments about the constrained supply in the quarter, just given the very strong demand for iPhones. Do you expect that as you can see your visibility across demand and supply, do you think that you will be exiting December at a point where you wouldn't be constrained anymore? Or do you still expect that there could be constraints as you exit the December quarter? And any way to quantify sort of what revenue could have been in this quarter without constraints? Timothy Cook: Yes. If you look at the supply constraints, today, we are constrained on several 17 models. We're not predicting when the supply/demand will balance. We're obviously working very hard to achieve that because we want to get as many of these products out to the customers as possible. But today, I'm not going to predict. Wamsi Mohan: Okay. Okay. And then as a follow-up, how do you talk about new records across a lot of categories and services. I didn't hear Search explicitly called out. So maybe it's a little bit of a follow-up to Ben's question, but given that there are some concerns around search volumes decelerating at the expense of AI. How do you think about the broader sustainability of these very strong mid-teens growth rates for services or an extended period of time, not just for next quarter where you're obviously guiding to [ 14 ]. Timothy Cook: This is Tim. The advertising category, which is a combination of third-party and first-party did set a record during the quarter. Wamsi Mohan: Okay. And sorry, just to be clear, both Apple's own internal advertising and within the licensing individually set records? Timothy Cook: Actually I'm not saying that. I'm just saying that the combination of the 2 set of record. We don't -- I'm dodging the question intentionally because we don't split it at that level. Suhasini Chandramouli: Operator, could we get the next question, please? Operator: Our next question is from Samik Chatterjee with JPMorgan. Samik Chatterjee: Maybe for the first one, Tim, you talked about the strong momentum you're seeing in China, which is also driving your conference for the December quarter. Any thoughts on the role that the smartphone subsidies in that region are playing in this momentum? And how do you think about sort of what portion of consumers are maybe using some of those subsidies, leveraging the subsidies at this point? Any more insights into that? And I have a follow-up. Timothy Cook: Yes, the subsidies play a favorable role. The subsidies, as you know, are sort of across multiple categories from PCs to tablets, smart watches and smartphones. And however, it's important to note they only apply to certain price ranges. And so there's a maximum price, and there's several of our products that are -- that sell above that price and therefore, are not eligible for a subsidy, but it does have a favorable effect. And it's clearly and at least from our vantage point, driving some consumer demand. Samik Chatterjee: Okay. Got it. And a follow-up for Kevan here. On the OpEx increase going into the December quarter, a fairly sizable step-up. So if you could just dig into that number a bit more what are sort of the components towards what you're spending? And then that increase year-over-year in OpEx does sort of exceed your revenue growth. So is that sort of what we should expect on a going forward basis as well where you probably need to invest a bit more in the near future? Kevan Parekh: Yes, Samik, thanks for that question. As we've been outlining and reiterated in our last call, we are increasing our investments in AI. We're also continuing to invest in our product road map. So the vast majority of the increase to our operating expenses are driven by R&D. While we continue to manage the company in a thoughtful and disciplined way, we're also managing the business for the long term and are super excited about all the opportunities that we see ahead. As it relates to the question around OpEx and revenue growth, while OpEx has been growing at a faster rate than revenue, we have seen gross margin expansion. And so when we look at that on a combined basis, it does allow us to have healthy operating leverage, and our operating income growth has been generally outpacing revenue growth for the past several years. Suhasini Chandramouli: Operator, could we get the next question, please? Operator: Our next question is from David Vogt with UBS. David Vogt: So maybe, Kevan, can I ask first. Can you help us understand sort of the tariff impact sequentially from the September quarter to the December quarter, particularly around iPhone supply constraints because I think I heard you say tariffs go from $1.1 billion to $1.4 billion, but the sequential uplift in iPhone revenue and presumably production given supply chain constraints is dramatically bigger. So you can help us understand how to think about the timing of those tariff headwinds as we move forward and sort of that correlation? And then I have a follow-up. Timothy Cook: David, I'll take this one. You're right, it goes from $1.1 billion to a projection of $1.4 billion. And the $1.4 billion is based on sort of what we know right now and where the tariff rates and policies and so forth are. So it assumes a stable kind of environment for the quarter. It does comprehend the change that was just made, which we're very encouraged to see with the tariffs moving from 20% to 10% in China. And so that is factored in. And that is one of the reasons why the it's not linear to volume, if you will. Does that make sense? David Vogt: No, that's helpful. That's what I was asking if the change is reflected in that outlook. And then just as a follow-up, when you think about -- I think on the Macs, I know people aren't asking about it, you talked about the tough comp, but you're going into sort of a holiday season, I understand that. But when you think about the attached possibility for other products to the iPhone in the holiday season, how do we think about sort of where the consumers heads that and their wallet is at this point in the cycle and granted it is a tough comp, but is there an opportunity to see some maybe upside from an attach rate perspective given the strength in the iPhone portfolio? Timothy Cook: We always like to remind people that buy an iPhone, all the other things that we offer. And so you can bet that we're doing that. From a Mac point of view, the challenges that last year was sort of the mother of all Mac launches. All of these from Mac mini to iMac to all the Macbook Pros, all launched literally at the same time. And this year, that compares to launching the 14-inch MacBook Pro. And so there's a very difficult compare. Of course, in the long run, I'm very bullish on the Mac. And you can see that the Mac again last quarter outgrew the market. And so we feel really well about how Mac is positioned, but this certain quarter is an extremely difficult compare. Kevan Parekh: Yes. And Tim, I'll add to that, that we also have the DRAM upgrades last year for the Mac lineup also is another factor. Suhasini Chandramouli: Operator, could we get the next question, please? Operator: Our next question is from Krish Sankar with TD Cowen. Sreekrishnan Sankarnarayanan: My first one is on the iPhone constraints. Is there a way to quantify how much this is you left on the table because of those constraints? And is the different iPhone manufacturing from 2 different regions contributing to the constraint? And then I have a follow-up for you. Timothy Cook: To be clear, the constraint was not related to manufacturing capacity per se. It was that we called the number of iPhone 16s that we were going to make, and we're a bit short of where the demand really was. So we could have sold more. We're not publicly at least estimating the extent of that. And then on iPhone 17 family, the demand is very strong. And so we obviously came out of the Q4 time frame with lots of back orders. Sreekrishnan Sankarnarayanan: Got it. And then a quick follow-up. Given like the prevalence of chatbots and now some of these AI-infused services, do you think that could change the consumer behavior on mobile app ecosystems or are you seeing any of that? And would that have any impact on your App Store? Timothy Cook: I think there are opportunities on the App Store with artificial intelligence. And so I think as we have made our on-device models available for developers, and we've seen developers begin to adopt them and so I think as you -- as that proliferates, there's an opportunity to -- for developers and for Apple to benefit from that from adding features to their apps and so forth. Suhasini Chandramouli: Operator, could we get the next question, please? Operator: Our next question is from Aaron Rakers with Wells Fargo. Aaron Rakers: I have two as well. I guess the first question is when we look at the iPhone 17 demand, which you've repeatedly highlighted is very strong. I'm curious if there's been any discernible kind of change in the mix within the iPhone 17 categories between the Pro and the Pro Max versions relative to prior cycles? Timothy Cook: It's really too early to call the mix, to be honest. And we don't like to publicly disclose that because of -- for competitive reasons. But frankly, we don't really know what the mix will be yet because we have constraints on both sides of the ledger at the top and at the entry. And so we'll see what happens as we get more supply. Aaron Rakers: Yes. And then as a quick follow-up. I'm curious, as we kind of work through kind of the AI narrative that continues to build. Is there -- could you provide any kind of updated thoughts around the build-out of Apple's private compute cloud and how we should think about that kind of as we look forward? Timothy Cook: Yes. We're obviously using PCC, our private cloud compute today for a number of queries for Siri, and we will continue to build it out. In fact, the manufacturing plant that makes the servers used for Apple Intelligence just started manufacturing in Houston a few weeks ago, and we've got a ramp plan there for use in our data centers and it's robust. Kevan Parekh: Yes. Aaron, I'll add maybe there are two since you asked a question about private cloud compute that we -- in '25, we did have CapEx costs associated with building out our private cloud compute environment in our first-party data centers. So you would have seen that in some of the CapEx investment in the year. Suhasini Chandramouli: Operator, can we get the next question, please? Operator: Our next question is from Atif Malik with Citi. Atif Malik: Great execution. The first question is on iPhone Air. Does the consumer reception and iPhone Air gives you a feel on perhaps the foldable corn market? Or are the 2 form factors very different? Timothy Cook: I'm not sure that that one is a proxy for the other. The thing that I would say is that where we don't get into the model kind of demand. At the aggregate level, we are thrilled with how iPhone has been received, and that's the reason that we're expecting double-digit growth in the current quarter. Atif Malik: Great. And Tim, as a follow-up, good to know that the personalized Siri is making good progress and on track for next year. Will you continue to use a 3-pronged approach with your own foundation models and partner with other LLM providers and maybe potential M&A? Or is one strategy more emphasized over another? Timothy Cook: We're obviously creating Apple Foundation models within Apple. We ship them on device and use them in the private cloud compute as well. And we've got several in development. And so we also, from a continually to surveil the market on M&A and are open to pursuing M&A if we think that it will advance our road map. Suhasini Chandramouli: Operator, can we get our last question, please? Operator: Our last question is from Richard Kramer with Arete Research. Richard Kramer: Tim, we've often seen Apple be a fast follower with iPhone and new technology, whether large displays or 4G or 5G. But with all the height now around AI, are you seeing evidence that AI capabilities or features are a material purchase consideration for consumers or the record sales levels you're reporting simply reflecting other factors like the retention of your iOS space? Timothy Cook: I think that there are many factors that influence people's purchasing considerations. And so -- and we don't have a great in-depth survey yet on the current iPhone 17 because it's very new in the cycle, and we give it some time to formulate. But I would say that Apple Intelligence is a factor. And we're very bullish on it becoming a greater factor and so that's the way that we look at it. Richard Kramer: Okay. And then one for Kevan. In the wake of nearly every other large tech company massively increasing their CapEx in advance of AI demand and also mentioning that there's scarce capacity, do you anticipate Apple altering its sort of long-standing hybrid approach to your own and third-party data centers? And maybe can you talk a little bit about the role you see for Apple silicon with the new M5 series of chipsets? Kevan Parekh: Richard, thanks for the question. In general, I think as we've talked about before, we are expecting increases in our CapEx spending related to AI investments. For example, as I mentioned earlier, we did end up having investments this year to build out our private cloud compute environment. And we do believe this hybrid model has served us very well, and we continue to want to leverage it. And so I don't see us moving away from this hybrid model where we leverage both first-party capacity as well as leverage third-party capacity. We'll continue to want to build out private cloud compute, as Tim outlined, as we have more usage there over time. But I think in general, we want to continue to have this hybrid model. Suhasini Chandramouli: A replay of today's call will be available for 2 weeks on Apple podcast as a webcast on apple.com/investor and via telephone. The number for the telephone replay is (866) 583-1035. Please enter confirmation code 0689794 followed by the pound sign. These replays will be available by approximately 05:00 p.m. Pacific Time today. Members of the press with additional questions can contact Josh Rosenstock at (408) 862-1142. And financial analysts can contact me, Suhasini Chandramouli with additional questions at (408) 974-3123. Thanks again for joining us. Operator: Once again, this does conclude today's conference. We do appreciate your participation.
Operator: Thank you for standing by. Good day, everyone, and welcome to the Amazon.com Third Quarter 2025 Financial Results Teleconference. [Operator Instructions] Today's call is being recorded. And for opening remarks, I will be turning the call over to the Vice President of Investor Relations, Mr. Dave Fildes. Thank you, sir. Please go ahead. Dave Fildes: Hello, and welcome to our Q3 2025 financial results conference call. Joining us today to answer your questions is Andy Jassy, our CEO; and Brian Olsavsky, our CFO. As you listen to today's conference call, we encourage you to have our press release in front of you, which includes our financial results as well as metrics and commentary on the quarter. Please note, unless otherwise stated. All comparisons in this call will be against our results for the comparable period of 2024. Our comments and responses to your questions reflect management's views as of today, October 30, 2025 only, and will include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and our filings with the SEC, including our most recent annual report on Form 10-K and subsequent filings. During this call, we may discuss certain non-GAAP financial measures. In our press release, slides accompanying this webcast and our filings with the SEC, each of which is posted on our IR website. You will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. Our guidance incorporates the order trends that we've seen to date and what we believe today to be appropriate assumptions. Our results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions, tariff and trade policies and customer demand and spending, including the impact of recessionary fears; inflation, interest rates, regional labor market constraints, world events, the rate of growth of the Internet, online commerce cloud services and new and emerging technologies and the various factors detailed in our filings with the SEC. Our guidance assumes, among other things, that we don't conclude any additional business acquisitions, restructurings or legal settlements. It's not possible to accurately predict demand for our goods and services, and therefore, our actual results could differ materially from our guidance. And now I'll turn the call over to Andy. Andrew Jassy: Thanks, Dave. We saw strong growth across our business in Q3, and we're reporting $180.2 billion in revenue, up 12% year-over-year, excluding the impact from foreign exchange rates. Operating income was $17.4 billion, but would have been over $21 billion, if not for 2 special Q3 expenses, $2.5 billion for an FTC settlement and $1.8 billion for estimated severance costs. Trailing 12-month free cash flow was $14.8 billion. I'll start with AWS. AWS is growing at a pace we haven't seen since 2022, reaccelerating to 20.2% year-over-year, our largest growth rate in 11 quarters. It's worth remembering that year-over-year percentage growth is a relative term. It's very different having 20% year-over-year growth on a $132 billion annualized run rate and to have a higher percentage growth rate on a meaningfully smaller annual revenue, which is the case with our competitors. Backlog grew to $200 billion by Q3 quarter end and doesn't include several unannounced new deals in October, which together or more than our total deal volume for all of Q3. AWS is gaining momentum. Customers want to be running their core and AI workloads in AWS given its stronger functionality, security and operational performance and the scale I see in front of us gives me significant confidence in what lies ahead. I'll share a little more detail on why. It starts with AWS having much broader infrastructure functionality. Start-ups, enterprises and governments want to move their production workloads to the place that has the broadest and deepest array of capabilities. AWS has more services and deeper features within those services than anybody else and continues to innovate at a rapid clip. These are key building blocks for anything that customers want to create, and they're a big part of why Gartner has named AWS leader in its strategic cloud platform services Magic Quadrant for 15 consecutive years. We're bringing the same building block approach to AI. SageMaker makes it much simpler for companies to build and deploy their own foundation models. Bedrock gives customers leading selection of foundation models and superior price performance to deploy inference into their next-generation applications. A lot of the future value companies will get from AI will be in the form of agents. AWS is heavily investing in this area and well positioned to be a leader. Companies will both create their own agents and use agents from other companies. For those building their own, it's been harder to build than it should be. It's why we launched strands to make it much easier to create agents from any foundation model that builders desire. For companies who successfully built agents, they've hesitated putting them into production because they lack secure scalable runtime services or memory or observability built specifically for agents. It's why we launched AgentCore, a set of infrastructure building blocks that allow builders to deploy secure, scalable agents. Ericsson used AgentCore to deliver AI agents across their workforce, Sony used it to build a agentic AI platform with enterprise-level security, observability and scalability. And Cohere Health is using AgentCore to deploy agents that will reduce medical review times by up to 30% to 40%. AgentCore's SDK has already been downloaded over 1 million times, and our builders are excited about it. It's an enabler. Companies will also use other agents, and AWS continues to build many of the agents we believe builders will use in the future. For coding, we've recently opened up our agentic coding IDE called Kiro. More than 100,000 developers jumped into Kiro in just the first few days of preview and that number has more than doubled since. It's processed trillions of tokens thus far, weekly actives are growing fast, and developers love its unique spec and tool call and capabilities. For migration and transformation, we offer an agent called Transform. Year-to-date, customers have already used it to save 700,000 hours of manual effort. The equivalent of 335 developer years of work. For example, Thomson Reuters used it to transform 1.5 million lines of code per month, moving from Windows to open source alternatives and completing tasks or a times faster than with other migration tools. Customers have also already used Transform to analyze nearly 1 billion lines of mainframe code as they move mainframe applications to the cloud. For business customers, we've recently launched QuickSleep to bring a consumer AI-like experience to work, making it easy to find insights, conduct deep research, automate tasks, visualize data and take actions. We've already seen users churn months long projects in today's get 80% plus time savings on complex tasks and realize 90% plus cost savings. And for contact centers, we offer Amazon Connect which creates a more personalized and efficient experience for contact center agents, managers and their customers. Connect has recently crested $1 billion annualized revenue run rate with 12 billion minutes of customer interactions being handled by AI in the last year and is being used by large enterprises like Capital One, Toyota, American Airlines and Ryanair. These are real practical results for customers, and there are many more examples like them. Because of its advantaged capabilities, security, operational performance and customer focus, AWS continues to earn most of the big enterprise and government transformations to the cloud. As a result, AWS is where the preponderance of company's data and workloads reside and part of why most companies want to run AI and AWS. To enable customers to do so, we need to have the requisite capacity, and we've been focused on accelerating capacity the last several months, adding more than 3.8 gigawatts of power in the past 12 months, more than any other cloud provider. To put that into perspective, we're now double the power capacity that AWS was in 2022, and we're on track to double again by 2027. In the last quarter of this year alone, we expect to add at least another 1 gigawatt of power. This capacity consists of power, data center and chips, primarily our custom silicon, Trainium and NVIDIA. We've recently brought Project Rainier Online, our massive AI compute cluster spanning multiple U.S. data centers and containing nearly 500,000 of our Trainium2 chips. Anthropic is using it now to build and deploy its industry-leading AI model, Claude, which we expect to be on more than 1 million Trainium2 chips by year-end. Trainium2 continues to see strong adoption, is fully subscribed is now a multibillion-dollar business that grew 150% quarter-over-quarter. Today, Trainium is being used by a small number of very large customers but we expect to accommodate more customers starting with Trainium3. We're building Bedrock to be the biggest inference engine in the world and in the long run, believe Bedrock could be as big a business for AWS as EC2, and the majority of token usage in Amazon Bedrock is already running on Trainium. We're also continuing to work closely with chip partners like NVIDIA, with whom we continue to order very significant amounts as well as with AMD and Intel. These are very important partners with whom we expect to keep growing our relationships over time. You're going to see us continue to be very aggressive in investing in capacity because we see the demand. As fast as we're adding capacity right now, we're monetizing it. It's still quite early and represents an unusual opportunity for customers in AWS. I'll now turn to stores. Where the team continues to deliver and innovate for customers across our key priorities, selection, low prices and convenience, particularly fast delivery, we're offering 14% more selection since last quarter from popular brands like The North Face and Charlotte Tilbury, and we've added hundreds of thousands of items from popular brands this year. Everyday Essentials continues to grow quickly, and year-to-date is growing nearly twice as fast as the rest of the business. We continue to make it easier for customers to order low-priced perishable groceries from Amazon, and customers in more than 1,000 cities and towns now can shop fresh groceries alongside millions of Amazon.com products with free same-day delivery. This is a game changer for customers who can now order milk alongside electronics, check out with one cart and have everything delivered to their doorstep within hours. The team also invented a new add to delivery button that lets customers add items to previously scheduled orders and it's been used more than 80 million times since launch, and it's just launch. It's an example of one of those seemingly simple but powerful innovations that make customers' lives easier. We remain committed to staying sharp on price and meeting or beating prices of other major retailers. In July, we had our biggest Prime Day event ever, with customers saving billions of dollars across more than 35 categories. We continue to break records on speed. We're on track to deliver at our fastest speeds ever for Prime members globally once again this year, and we've started rolling out 3-hour delivery in select U.S. cities. We're also continuing to invest in infrastructure to speed up rural deliveries and serve more customers in more communities. That includes committing over $4 billion to expand our rural delivery network across the U.S. These are small towns where people want fast delivery, but where other companies have been backing out and reducing service. In contrast, we've already increased the number of rural communities with access to our same-day and next-day delivery by 60%, reaching roughly half of the total communities we plan to expand to by the end of the year. The stores team is also innovating rapidly with AI. For example, Rufus, our AI-powered shopping assistant has had 250 million active customers this year with monthly users up 140% year-over-year, interactions up 210% year-over-year and customers using Rufus during a shopping trip being 60% more likely to complete a purchase. Rufus is on track to deliver over $10 billion in incremental annualized sales. Here are the highlights. Our generative AI-powered audio feature that combines product summaries and reviews to make shopping easier has expanded from hundreds of products at launch to millions of products and millions of customers have used it streaming almost 3 million minutes. In Amazon Lens, an AI-powered visual search tool that lets customers find products with their phones camera, a screenshot or a bar code, now includes Lens Live, which instantly scans products and shows real-time matches in a swipeable carousel. Tens and millions of customers are using Amazon Lens each month. Moving on to Amazon ads. We're pleased with the continued strong growth, generating $17.6 billion of revenue in the quarter and growing 22% year-over-year. We see strength across our broad portfolio of full photo advertising offerings that helps advertisers reach an average ad-supported audience of more than $300 million in the U.S. alone. We also continue to be excited about our demand side platform, Amazon DSP, which lets advertisers plan, activate and measure full funnel investments. Last quarter, I mentioned our partnership with Roku and we've built on that with a partnership with Netflix, providing advertisers using Amazon DSP with direct access to Netflix's premium ad inventory. We announced integrations with Spotify and SiriusXM. With Spotify, we provide advertisers with direct programmatic access to a global audience of more than 400 million monthly ad-supported listeners. And with SiriusXM, brands can reach 160 million monthly digital listeners across services like Pandora and SoundCloud and we're excited about the advertising opportunity around prime video live sports. Live sports got a lot of interest from advertisers in upfront negotiations for 2025, '26, and we exceeded our own expectations for upfront commitments with significant growth across the board. Finally, we're continuing to invade for advertisers with AI. For example, in September, we announced an agentic AI tool and creative studio that plans and executes the entire creative process in a matter of hours instead of weeks. We're also inventing and seeing strong momentum in several other areas, and I'll mention just a few. In Prime Video live sports, NBA on Prime tipped off last week and our opening night doubleheader averaged 1.25 million viewers in the U.S., a double-digit increase over last season on cable. You'll see us bring the same constant innovation here that we brought to our NFL broadcast. We're adding golf with The Masters in 2026 and new skins competition with the PGA Tour on Black Friday this year. And we've added Peacock and FOX One to Prime Videos add-on subscription offering of over 100 channels in the U.S. We continue to be energized by the response to Alexa+ compared to what we call the classic Alexa experience, Alexa+ customers are talking to Alexa 2x more. Those interactions are much longer, and they're covering a broader range of topics. So using Alexa+ and Fire TV at 2.5x the rate of classic using natural conversation to discover audio content 4x more, engaging with photos 4x more and customers are completing 4x more shopping conversations that end in a purchase. We've expanded the number of project hyper satellites and space to more than 150 and delivered over 1 gigabit per second speeds and test with our enterprise-grade customer terminal, the first commercial phased array we know of to clear that threshold. Finally, Zoox robotaxis are available to riders in Las Vegas, and we've announced Washington, D.C. as the eighth testing location. We're excited for these to continue rolling out to more riders. Q4 is one of our busiest and most energizing times of the year, and we're excited about the continued demand for AWS. The innovations will announce the reinvent in December, the positive customer response to our AI-powered experiences, all the guests will be delivering throughout the holiday season and a lot more. Thanks in advance to our teammates around the world who are gearing up to deliver for customers once again. With that, I'll turn it over to Brian for a financial update. Brian Olsavsky: Thanks, Andy. Starting with our top line financial results. Worldwide revenue was $180.2 billion, a 12% increase year-over-year, excluding a 90 basis point favorable impact of foreign exchange. In Q3, we reported worldwide operating income of $17.4 billion. This operating income includes 2 special charges, which reduced operating income by $4.3 billion. The first charge of $2.5 billion is related to a legal settlement with the Federal Trade Commission, which impacts the North America segment and is recorded in the other operating expense line. The second charge of $1.8 billion relates to severance costs for roll eliminations and impacts all 3 of our segments. The severance charge is recorded primarily in the technology and infrastructure, sales and marketing and general and administrative expense line items. Excluding these 2 charges, worldwide operating income would have been $21.7 billion or $1.2 billion above the high end of our guidance range. Moving to our segment results. We remain encouraged by the innovation our teams are delivering for customers across all 3 segments. In the North America segment, third quarter revenue was $106.3 billion, an increase of 11% year-over-year. International segment revenue was $40.9 billion, an increase of 10% year-over-year, excluding the impact of foreign exchange. Worldwide paid units grew 11% year-over-year. We continue to prioritize the inputs that matter most to our customers. In the third quarter, our sharp pricing, broad selection and fast delivery speeds continue to resonate with customers. Customers appreciate the ability to quickly receive items essential for their daily needs, including perishable groceries and have them delivered in the same day. Our millions of global third-party sellers continue to be important contributors to our vast selection, which helps customers find the items they need at competitive prices. We're committed to building innovative services and features for our sellers, including our ongoing advancements in generative AI. Today, more than 1.3 million sellers have used our generative AI capabilities to more quickly launch high-quality listings. Better listings translate into better traction with customers. And in Q3, worldwide third-party seller unit mix was 62%, up 200 basis points from Q3 of last year. Shifting to profitability. North America segment operating income was $4.8 billion, with an operating margin of 4.5%. Excluding the $2.5 billion charge related to the legal settlement with the FTC, North America segment operating income would have been $7.3 billion with an operating margin of 6.9%. North America segment operating margin also includes a portion of the severance charge. International segment operating income was $1.2 billion, with an operating margin of 2.9%. Excluding the impact of the severance charge International segment operating margins expanded year-over-year. Globally, our progress on key inputs is delivering a better customer experience while driving a more efficient cost structure. For example, we're making notable strides in improving inventory placement to speed up delivery to customers. And as a result, for the third year in a row, we are on track to deliver our fastest speeds ever for Prime members in 2025. We continue to tune and improve our fulfillment operations and our regionalized network is operating at scale. We see many benefits of our inbound process improvements, including a reduction of U.S. inbound lead time by nearly 4 days compared to last year. This allows us to be more efficient with our inventory purchasing, which benefits working capital. We're also placing inventory more strategically throughout the network. And by leveraging our existing infrastructure, we're now offering U.S. customers the ability to order perishable groceries and receive them the same day and as little as 5 hours. We're seeing positive early results since launching in January, when customers start shopping groceries on Amazon, they are visiting the site more often and returning twice as often as nonperishable shoppers. Looking ahead, we see further opportunity to improve our activity in our global fulfillment and transportation network. We continue to improve inventory placement to drive down distance travel and touches for package. We will also build on the gains from our regionalized network through algorithmic improvements as well as launching robotics and automation. Operating margin may fluctuate quarter-to-quarter, we have a delivered approach to achieve sustained progress over the long term. Shifting to advertising. Advertising revenue was $17.7 billion and growth accelerated for the third consecutive quarter. We continue to see strong growth on an increasingly large base, as our full funnel advertising approach of connecting brands with customers is resonating. Moving next to our AWS segment. Revenue was $33 billion, up 20.2% year-over-year. This is an acceleration of 270 basis points compared to last quarter, driven by strong growth across both our AI and core services and more capacity, which has come online to support customer demand. AWS revenue increased $2.1 billion quarter-over-quarter and now has an annualized revenue run rate of $132 billion. AWS operating income was $11.4 billion, and reflects our continued growth, coupled with our focus on driving efficiencies across the business. We are expanding our data center footprint, largely to accommodate Gen AI. And to the extent those assets were placed into service related to depreciation does impact our margins. As we've long said, we expect AWS operating margins to fluctuate over time, driven in part by the level of investments we're making at any point in time. Now turning to our cash CapEx, which was $34.2 billion in Q3. We've now spent $89.9 billion so far this year. This primarily relates to AWS as we invest to support demand for our AI and core services and in custom silicon, like Trainium as well as tech infrastructure to support our North America and international segments. We'll continue to make significant investments, especially in AI, as we believe it to be a massive opportunity with the potential for strong returns on invested capital over the long term. Additionally, we continue to invest in our fulfillment and transportation network to support the growth of the business, improve delivery speeds and lower our cost to serve. These investments will support growth for many years to come. Looking ahead, we expect our full year cash CapEx to be approximately $125 billion in 2025, and we expect that amount will increase in 2026. I'll finish up my remarks with net income. While we primarily focus our comments on operating income, our third quarter net income of $21.2 billion includes a pretax gain of $9.5 billion related to our investment in Anthropic. This investment activity is not related to Amazon's ongoing operations and is included in nonoperating income. We're encouraged by the start of the peak season and we are ready to serve customers in the coming months. I want to thank our teams across Amazon for their hard work as we get ready to delight customers during the holiday season. Our commitment to elevating the customer experience is the only reliable way to drive sustainable value for our shareholders. With that, let's move on to your questions. Operator: [Operator Instructions] And our first question comes from the line of Justin Post with Bank of America. Justin Post: I'll ask on AWS. Can you just kind of go through how you're feeling about your capacity levels and how capacity constrained you are right now? And then in your prepared remarks, you mentioned Trainium3 demand and maybe broadening out your customer base. Can you talk about the demand you're seeing outside of your major customers for Trainium? Andrew Jassy: Yes. On the capacity side, we brought in quite a bit of capacity, as I mentioned in my opening comments, 3.8 gigawatts of capacity in the last year with another gigawatt plus coming in the fourth quarter and we expect to double our overall capacity by the end of 2027. So we're bringing in quite a bit of capacity today, overall in the industry, maybe the bottleneck is power. I think at some point, it may move to chips, but we're bringing in quite a bit of capacity. And as fast as we're bringing in right now, we are monetizing it. And then on the Trainium demand, outside of our major customers. So first of all, as I mentioned on Trainium2, it's really doing well. It's fully subscribed on Trainium2. We have -- it's a multibillion-dollar business at this point. It grew 150% quarter-over-quarter in revenue. And you see really big projects at scale now, like our Project Rainier that we're doing with Anthropic, where they're running their next version of -- they're training the next version of Claude on top of Trainium2 on 500,000 Trainium2 chips going to 1 million Trainium2 chips by the end of the year. As I mentioned, we have -- today, with Trainium2, we have a small number of very large customers on it. But because Trainium is 30% to 40% more price performance than other options out there, and because as customers, as they start to contemplate broader scale of their production workloads, moving to being AI-focused and using inference, they badly care about price performance. And so we have a lot of demand for Trainium. Trainium3 should preview at the end of this year with much fuller volumes coming in the beginning of '26, we have a lot of customers, both very large, and I'll call it, medium-sized who're quite interested in Trainium3. Operator: And the next question comes from the line of Brian Nowak with Morgan Stanley. Brian Nowak: Congrats on the quarter, guys. So maybe 2. One, Andy, sort of a philosophical chip question. There's a lot of questions in the market about Trainium and sort of its positioning versus other third-party chips. So how do you think about the key hurdles of Trainium3 need to overcome to really make Trainium adoption broader, to your point on the last question and continue to drive Trainium as opposed to satisfying what could be broader demand with third-party chips in the near term? Andrew Jassy: Yes. Well, first of all, we're always going to have multiple chip options for our customers. It's been true in every major technology building block or component that we've had in AWS. Really in the history of AWS, it's never just one player that over a long period of time has the entire market segment and then can satisfy everybody's needs on every dimension. And so we have a very deep relationship with NVIDIA. We have for a very long time. And we will for as long as I can foresee the future. We buy a lot of NVIDIA. We are not constrained in any way in buying NVIDIA, and I expect that we'll continue to buy more NVIDIA both next year and in the future. But we're different from most technology companies in that we have our own very strong chip team, and this is our Annapurna team. And you saw it first on the CPU side with what we built with Graviton which is about 40% better price performance than the other x86 processors, and you're seeing it again on the custom silicon on the AI side with Trainium, which is about the same amount of price performance benefit for customers relative to other GPU options. And our customers to be able to use AI as expansively as they want. And remember, it's still relatively early days at this point. They're going to need better price performance and they care about it deeply. And so I mentioned earlier the momentum that Trainium2 has. And I think that for us, as we think about Trainium3, I expect Trainium3 will be about 40% better than Trainium2 and Trainium2 is already very advantaged on price performance. So we have to, of course, deliver the chip. We have to deliver it in volumes and deliver it quickly. And we have to continue to work on the software ecosystem, which gets better all the time. And as we have more proof points like we have with Project Rainier with what Anthropic's doing on Trainium2, it builds increasing credibility for Trainium. And I think customers are very bullish about it. I'm bullish about it as well. Operator: And our next question comes from the line of Doug Anmuth with JPMorgan. Douglas Anmuth: I'll stick with basically the same topic, Andy. But can you just talk a little bit about the architecture of Project Rainier and how it's differentiated and what that means for customers and for AWS? And do you expect Rainier to expand beyond Anthropic? And how do you replicate Rainier with Trainium3 chips? Andrew Jassy: Yes. I think what is compelling for entropic around Project Rainier is really is the Trainium2 chip, which we built a very -- first of all, we built a very large cluster that they can use in a very expansive way. And it's not simple to be able to build a cluster that has 500,000 plus chips going to 1 million. That's an infrastructure feet that's hard to do at scale. And so some piece of it is the infrastructure capabilities that we've built over a long period of time in AWS that is unusual in the industry. But it's just also the performance of the chip and the price performance, both of which matter. And I think that Project Rainier is something that is specific for anthropic, but we have a lot of other customers who are interested in employing large clusters of Trainium chips that we're going to hopefully give them a chance to do so with Trainium3. Operator: The next question comes from the line of Mark Mahaney with Evercore ISI. Mark Stephen Mahaney: I want to ask about 2 topics, groceries and then how to think about head count in the future. And on groceries, I want to -- the perishables, I think last quarter, you talked about 70% or something of users had never purchased from perishables from Amazon before. Just talk about whether you -- I think you used the term, Game Changer, before. Does this mean that maybe we don't -- you no longer need to Amazon Fresh stores. You always had this DVD delivery van density advantage. And have you kind of reached a point you think of scale and speed that you really can change people habit and really have them consider Amazon as one of their first grocery options? Do you really feel like you're at that point? And then secondly, just on the head count, some of the recent news. Just talk to us about how you think about head count going forward? Are you seeing -- is the level of efficiencies that you're getting from AI such that you can keep head count relatively flattish for the foreseeable future? Just talk about the pros and cons or the wins and losses in terms of that head count going forward? Andrew Jassy: Yes. So I'll start with grocery, Mark. We have a very large grocery business. If you look at our entire grocery business, if I don't even count Whole Foods Market and Fresh, in the last 12 months to over $100 billion of gross merchandising sales, which would make us a top 3 grocery in the U.S. A good chunk of it is a lot of the items that you'd find in the middle aisle so consumables and canned goods and pet food and health and beauty, very significant and continues to grow at a very good clip. But then we also have Whole Foods Market, which is the pioneer in organic foods, which is also growing at a faster clip than most grocery companies with an attractive trajectory on profitability, and we'll expand our Whole Foods physical presence over the coming years here. And I'm also very excited about this new concept, daily shop that we have, which is a smaller version of Whole Foods in urban settings, which we have 3 that we've launched that are off to very good starts that you should expect to see more of as well. And we have always been -- as you referenced, we've talked a lot about having a larger mass physical presence. And we continue to experiment with various formats. But the one that we are most excited about is what you referenced, which is the ability to provide perishable groceries with same-day deliveries. And if you think about how many of our customers are buying from us multiple times a week and who are buying things like shampoo or detergent or paper cups or water, where the ability to add milk and eggs and yogurt and other perishables to their order and have it live in the same shop in cart and then show up a few hours later, is very compelling. And we started with a few markets about a year ago, and we were really taken aback at the adoption, not just the number of people that started buying perishables from us very quickly but how often they came back downstream to buy perishables and groceries from us in the future. And so we've now expanded that to 1,000 cities around the U.S. and will be in 2,300 by the end of the year. And it's really changing the trajectory and the size of our grocery business. And I also believe that this many years tradition of the weekly stock up grocery stock up is changing. And I think we're a big part of that. And I think there's a lot of potential there for the grocery side. It doesn't mean that we won't continue to experiment with other physical formats, but we're on to something very significant with what we're doing with perish both from our same-day facilities. And then on your head count question, what I would tell you is the announcement that we made a few days ago was not really financially driven and it's not even really AI-driven, not right now, at least. It really -- its culture. And if you grow as fast as we did for several years, the size of businesses, the number of people, the number of locations, the types of businesses you're in, you end up with a lot more people than what you had before, and you end up with a lot more layers. And when that happens, sometimes without realizing that you can weaken the ownership of the people that you have who are doing the actual work and who own most of the 2-way door decisions, the ones that should be made quickly and right at the front line, and it can lead to slowing you down. And as a leadership team, we are committed to operating like the world's largest start-up. And that means removing layers. It means increasing the amount of ownership that people have, and it means inventing and moving quickly. And I don't know if there's ever been a time in the history of Amazon or maybe business in general with the technology transformation happening right now, where it's important to be lean, it's important to be flat, and it's important to move fast, and that's what we're going to do. Operator: And the next question comes from the line of Eric Sheridan with Goldman Sachs. Eric Sheridan: Wanted to know, Andy, if you could reflect on the opportunity that's continuing to present itself in terms of rolling out more robotics and automation and the broader theme of physical AI across your operations? And how should we be thinking about that as a driver of potential efficiencies, but also as a driver of the ability to possibly reinvest back in the business over the long term? Andrew Jassy: Robotics is a very substantial area of investment for us. We have over 1 million robots in our fulfillment network at this point. And I would say that while that's significant, we have a lot of invention in flight. So I expect that we'll have more over a period of time. Robotics are very important for us and for our customers and for our teammates because they improve safety, they boost productivity, they increased speed, and they let our human teammates focused on problem solving and what they do best. And we expect that our people remain at the heart in the center of our fulfillment network as they have from when we first started working the robotics. And we expect that over time, we will have a fulfillment network where robots and humans complement each other and work together. But I think you're going to continue to see us advance invest very significantly in robotics. It's going to help on the safety, the productivity, the speed and ultimately some of the cost pieces, which will allow us to continue to improve the customer experience. Operator: And the next question comes from the line of John Blackledge with TD Cowen. John Blackledge: How does Amazon think about agentic commerce going forward? And how do you think Amazon will serve customers using agents to purchase goods on Amazon in the future? Andrew Jassy: I'm very excited about -- and as a business, we're very excited about in the long term the prospect of agentic commerce. And it has a chance to be good for customers has a chance to be really good for e-commerce. And I think if you're -- if you know what you want to buy, there are a few experiences that are better than coming to Amazon. But if you don't know what you want, it's a physical store with a physical salesperson still has some advantages. Obviously, lots of people do it on Amazon all the time. But you very often want to ask questions and help get help narrowing what you're going to look for. And as you keep asking new questions, having a whole bunch of different options presented to you. And I think AI and agentic commerce are going to change the experience online where that experience where you're narrowing what you want when you don't know is going to get better online than it even is in physical environments. Now we obviously have our own efforts here in agentic commerce. We have Rufus, which I talked about in my opening comments, which is continuing to get better and better and used more broadly. And we have features like Buy for Me where we will surface on Amazon, even items that we don't stock that other merchants have. And then if customers want us to go and buy it for them on those merchants websites, we will do that. And both of those have been successful for us. But we're also having conversations with and expect over time to partner with third-party agents. And I think that it reminds me in some ways of the beginning of search engines many years ago being sources of discovery for commerce. And you had to kind of figure out the right way to work together. And today, search engines are a very small part of our referral traffic and third-party agents are a very small subset of that. But I do think that we will find ways to partner. We have to find a way, though, that makes the customer experience good. Right now, I would say the customer experience is not -- there's no personalization. There's no shopping history. The delivery estimates are frequently wrong. The prices are often wrong. So we've got to find a way to make the customer experience better and have the right exchange value. But I do think that the exciting part of this and the promise is that AI and agentic commerce solutions are going to expand the amount of shopping that happens online. And I think that's really good for customers, and I think it's really good for Amazon because at the end of the day, you're going to buy from the outfit that allows you to have the broadest selection, great value and continues to deliver for you very quickly and reliably. And I think that bodes well for us. Operator: And our final question comes from the line of Colin Sebastian with Baird. Colin Sebastian: I guess first on AWS, following up there. How much of this acceleration is driven by core infrastructure versus AI workload monetization? And I think part of it is trying to understand how important newer services like AgentCore are becoming and bringing enterprises to AWS to build agents? And then I guess, secondly, regarding the acceleration in advertising, if you could potentially disaggregate the core advertising contribution versus DSP and Prime video. That would be helpful as well. Andrew Jassy: I'll start on the AWS side, we are seeing -- we're really pleased with the results from this quarter, 20% year-over-year on a annualized run rate of $132 billion is unusual. And we have momentum. You can see it. And we see the growth in both our AI area, where we see it in inference. We see it in training. We see it in the use of our Trainium custom silicon. Bedrock continues to grow really quickly. SageMaker continues to grow quickly. And I think that the number of companies who are working on building agents is very significant. I do believe that a lot of the value that companies will realize over time and AI will come from agents. And I think that building agents today is still harder than it should be. You need tools to make it easier, which is why we built strands, which is an open source capability that lets people build agents from any model that they can imagine. But even more so, when you talk to enterprises or companies that care a lot about security and scale. They're starting to build agents, and they don't really feel like they've got -- they've had building blocks that allow them to have the type of secure scalable agents that they need to bet their businesses and their customer experience and their data. And that's why -- that was really the inspiration behind AgentCore was to build another set of primitive building blocks like we built in the early days of AWS, where it was compute and storage and database. We defined a set of building blocks that you needed to be able to deploy agents securely and scalably that we provide in AgentCore. And then when we talk to our customers, it really resonates. There is not anything else like it, it's changing their time frame and their receptivity to building agents, and it's very compelling for them. So I do think the combination of what we're doing to enable agents to be built and run securely and scalably as well as some of the agents that we're building ourselves that our customers are excited about are compelling for them. And I think the other place we see a lot of growth in AWS also is just the number of enterprises who are -- who have gotten back to moving from on-premises infrastructure to the cloud. And we continue to earn the lion's share of those transformations. And I look at the momentum we have right now, and I believe that we can continue to grow at a clip like this for a while. I think on the advertising side, that is also an area where I think collectively, we feel very pleased about the progress. Every single one of our advertising offerings this quarter grew in a meaningful way. I think there's a few things going on for us. We have what I think of as a pretty unusual full funnel offering. And if you look at the top of the funnel, which typically tends to be awareness building and broad scale to be able to use our own Prime Video and our live sports capabilities as well as going all the way down to the bottom of the funnel at point of sale being able to use sponsored products, that's -- most people don't have a full funnel offering as robust as that. And then when you layer on top of it, the combination of the audience curation and development we can do, along with the advantage measurement, it just all leads to a return on advertising spend is very unusual. And I think there are multiple places where we can expect to continue to grow. One is in our stores business. I still think if you look at the worldwide market segment share of retail, still 80% to 85% of it lives in physical stores. And that equation is going to flip over time. And I think AI is going to only accelerate that. So I think we have an opportunity -- a significant opportunity still in our existing stores. And then I think video, we've only been at this for a little bit of time, but it's already a very large amount of advertising revenue, and we're still relatively early stage. I think that will continue to be a big area of growth. And then as you referenced, the amount -- their demand-side platform or Amazon DSP, that is growing really quickly as well. And some of it had to do with the fact that we had some features. We always had a number of the core components people wanted around some of our properties, the measurement capabilities, Amazon Marketing Cloud, but we lack some features for a while as we were building out our DSP that customers told us mattered and the team over the last 20 months have closed those gaps in a very significant way so that now people feel like our DSP is fully featured. And then you look at some of the partnerships that we've done, the Roku partnership gives us the largest connected TV footprint in the U.S. And you layer on top of that, what we've recently done in providing our DSP customers, the opportunity to integrate with the ad inventory in Netflix and Spotify and SiriusXM, it's powerful. And so we are growing very quickly on the demand side platform. So very optimistic about what we're doing there. We've continued work to do, obviously, but I don't think we're close to being able to grow there. Operator: Thanks for joining us on the call today and for your questions. A replay will be available on our Investor Relations website for at least 3 months. We appreciate your interest in Amazon and look forward to speaking with you again next quarter.
Operator: Good morning, ladies and gentlemen, and welcome to the SECURE Waste Infrastructure Corp. Q3 2025 Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, October 30, 2025. And I would now like to turn the conference over to Ms. Alison Prokop. Thank you. Please go ahead. Alison Prokop: Thank you, and good morning to everyone who is listening to the call. Welcome to SECURE's conference call for the third quarter of 2025. Joining me on the call today is Allen Gransch, our President and Chief Executive Officer; Chad Magus, our Chief Financial Officer; and Corey Higham, our Chief Operating Officer. We will be making forward-looking statements during this call. These statements reflect current expectations and are subject to a number of risks and uncertainties. Actual results could differ materially. We will also refer to certain non-GAAP financial measures, which may not be directly comparable to similar measures disclosed by other companies. Please refer to our continuous disclosure documents on SEDAR+ for more information on risk factors and definitions. Today, we will review our financial and operational results for the 3 and 9 months ended September 30, 2025. I'll now turn the call over to Allen. Allen Gransch: Good morning, and thank you for joining today's call. SECURE delivered another strong quarter, demonstrating the resilience of our infrastructure-backed business. Our core waste and energy infrastructure network performed largely in line with expectations, and it continues to highlight the strength and the stability of our cash flows even amid lower oil prices and disciplined producer spending. Adjusted EBITDA for the third quarter was $135 million, up 6% year-over-year or 17% higher on a per share basis. Canadian producers continue to approach the current environment with caution, maintaining discipline and spending -- maintain disciplined spending and stable production. Our business directly benefits from their ongoing need to reliable waste management and energy infrastructure solutions. Approximately 80% of our adjusted EBITDA is derived from reoccurring production and industrial activity, while only 20% is linked to drilling and completions, underscoring our ability to generate stable cash flows across lower market cycles. This resiliency combined with disciplined execution gives us confidence in our ability to maintain strong free cash flow and balance sheet flexibility. We did, however, experience continued weakness in our metal recycling business, particularly with the ferrous market. Conditions remain challenging due to soft Canadian demand driven by tariffs on finished steel sold into the U.S. Foreign oversupply and broader macroeconomic caution that is limiting new steel production. These factors have reduced domestic sales and led to a buildup of ferrous inventory. We have now redirected 95% of our shipments to stronger U.S. markets where scrap metal remains exempt from tariffs, though the full financial benefit may be realized into 2026 as our inventory turns per month improve with our rail capacity expansion in Q4. As a result of lower drilling and completion activity stemming from weakening of the benchmark oil prices, together with the near-term headwinds in metal recycling, we are revising our 2025 adjusted EBITDA guidance to approximately $500 million. This reflects a 2% reduction from the low end of our prior range. Compared to the initial guidance provided last December, this decrease reflects the delayed ferrous metal sales as described, the weaker macro environment as well as the decision not to proceed with a small acquisition originally anticipated to contribute roughly $6 million of EBITDA this year. Importantly, our revised 2025 adjusted EBITDA guidance represents approximately 5% growth over pro forma 2024 adjusted EBITDA. This demonstrates continued year-over-year improvement despite a softer macroeconomic environment and it highlights the strength and resilience of the business. Looking ahead, we expect to enter 2026 with strong operational momentum and the benefit of several long-cycle projects nearing completion. Our infrastructure growth program remains on track with $97 million of our $125 million capital budget deployed in the first 9 months of the year. The 2 major projects we've advanced this year, both pipeline connected produced water disposal facilities in the Alberta Montney region are progressing on schedule. Each project is backed by 10-year commercial agreements with strong counterparties. The first facility is expected to be operational before year-end and the second in early 2026. These developments will add meaningful capacity in one of the most active basins in North America and generate stable reoccurring cash flow for years to come. We've also increased the project scope associated with our Industrial Heartland waste processing facility, which will expand our ability to manage industrial waste in an underserviced region. This facility is now expected to be operational later in Q2. In total, over 70% of our 2025 organic growth capital is directed towards long-cycle contract-backed infrastructure projects that perform across commodity cycles. As these assets come online, together with an expected recovery in metals recycling and continued strength across our core network, we anticipate delivering solid adjusted EBITDA growth in 2026. Our balance sheet remains strong with total debt-to-EBITDA of 2.1x or 1.8x, excluding leases, providing ample flexibility to support our capital priorities. Through the first 9 months of the year, we've returned $335 million or nearly $1.50 per share to shareholders through dividends and share repurchases, reducing our outstanding shares by approximately 8%. We remain committed to opportunistic buybacks under our Normal Course Issuer Bid and maintaining our quarterly dividend of $0.10 per share, supported by our strong free cash flow and balance sheet flexibility. Our strategy remains unchanged to build long life, high barriers to entry infrastructure backed by contracts and reoccurring volumes to operate safely and efficiently and to continue to return meaningful capital to shareholders. With that, I'll turn it over to Chad to walk through our Q3 financial results in more detail. Chad Magus: Thanks, Allen, and good morning, everyone. From a financial standpoint, the third quarter again demonstrated the strength and stability of our cash flow profile. Revenue, excluding oil purchase and resale, was $365 million, down 2% from Q3 2024, primarily due to lower specialty chemical sales and volumes tied to reduced drilling and completions. This decrease was partially offset by contributions from the Edmonton metals recycling acquisition completed earlier this year. Net income was $1 million compared to $94 million in the same period last year. The decline reflects a noncash $55 million provision in the current quarter as well as the absence of a onetime tax recovery that benefited the prior year results. Excluding these nonrecurring items, underlying profitability remained stable. The provision relates to an arrangement for crude oil storage capacity at a major oil hub in Western Canada. Following the start-up of the Trans Mountain pipeline expansion last year and the resulting increase in market egress, the near-term prospects for profitable use or subleasing of the storage tanks have decreased. In accordance with accounting standards, SECURE recognized a provision for the present value of the remaining fixed monthly payments associated with the contract. Adjusted EBITDA was $135 million, up 6% from the prior year as contributions from the Edmonton metals recycling acquisition and proactive G&A cost reductions more than offset the impact of lower drilling and completion activity and continued weakness in the ferrous metals market. Funds flow from operations was $96 million and discretionary free cash flow was $68 million, providing ongoing capacity to support dividends, growth and share buybacks. We invested $54 million of growth capital in the quarter, bringing the year-to-date total to $97 million, primarily for the Montney water projects, incremental railcars and optimization projects. Our sustaining capital spend was $24 million in the quarter and $59 million year-to-date, consistent with our expectations. We continue to forecast we'll spend $85 million on sustaining CapEx this year. With respect to capital returns, we repurchased 1.7 million shares at an average price of $15.77 for a total of $27 million in Q3, bringing year-to-date repurchases to 18.1 million shares for $268 million, including the Substantial Issuer Bid completed earlier this year. We maintained our quarterly dividend of $0.10 per share for an annualized yield of approximately 2%. Our leverage ratio of 2.1x total debt-to-EBITDA and 1.8x excluding leases, reflects continued balance sheet strength and liquidity of over $300 million, comprised of cash on hand and capacity on our credit facility. With a strong free cash flow outlook and disciplined spending, we have significant flexibility to continue returning capital while funding high-return projects and potential bolt-on acquisitions. For the fourth quarter, we expect adjusted EBITDA to remain broadly consistent with Q3 levels, supported by stable production and industrial activity as well as incremental contributions from new infrastructure as projects begin to come online. While our outlook assumes steady operating conditions, results could be influenced by several seasonal and market factors, including the severity of December weather, the extent of typical year-end holiday slowdowns, significant movements in commodity prices and the timing of metals inventory drawdowns. I'll now pass it on to Corey for some operational detail. Corey Higham: Thanks, Chad. Operationally, our team executed very well throughout the quarter, maintaining high reliability and safety performance across our network. At our waste processing facilities, we safely processed on average 91,000 barrels per day of produced water and 36,000 barrels per day of slurry and emulsion. We also recovered 220,000 barrels of oil from waste streams, reinforcing the value we create. 941,000 tons of solid waste were also safely contained across our landfill network. Overall, volumes declined from the third quarter of 2024, driven by a combination of lower activity levels, maintenance program and remediation project deferrals. Specifically, our produced water volumes were down 3% on a quarter-over-quarter basis, although up 1% on a trailing 12-month basis. In addition to lower field activity, the scheduled maintenance and shutdown of a third-party gas plant temporarily impacted produced water volumes in the Montney/Wapiti area. Both upstream volumes were fully restored by mid-Q3. Processing volumes were down 16% quarter-over-quarter as discretionary work related to customer integrity management programs, facility turnarounds and some remediation program postponement. Additionally, as part of SECURE's preventive maintenance programs and taking advantage of lower field activity levels during the quarter, we had a number of our facilities undergo onetime maintenance work impacting further -- further impacting processing volumes. All of those facilities are back to 100% operational. As a result of the produced water and processing volumes, our recovered oil volumes decreased by 26%. Landfill volumes were down 23% quarter-over-quarter due to a combination of postponed remediation projects and field activities from our customers. Of note, the comparative Q3 2024 was a record quarter for SECURE's landfill segment, magnifying the decrease in the current year period. While our volumes were lower compared to the third quarter of 2024, there was minimal impact to waste processing facility and landfill margin contributions due to price increases implemented at the beginning of 2025. Our metals recycling business continues to benefit from the scale and efficiencies of the Edmonton acquisition. We are proactively managing through near-term challenges in the ferrous market by expanding our rail fleet with 50 new cars in 2025 and adding 50 cars on short-term lease to improve efficiency and access to U.S. markets. At present, we have approximately 220 railcars shipping ferrous scrap to the U.S. Prior to the tariffs being enacted, we were able to accept process and ship our inventory at a minimum of 1 inventory turn per month. Since the tariffs were put in place, our inventory turns have decreased where it takes us on average 45 days to turn our inventory, causing our inventory to build. This is a result of shipping our product further into the U.S. versus our domestic mills with shorter railcar turnaround times. As we move into the fourth quarter, the addition of the new railcars will allow us to catch up on our inventory shipments, though the full financial benefit may be realized into 2026 as we continue to manage logistics, our average turns per month and expand our rail capacity, a key competitive advantage that provides greater flexibility and cost efficiency in serving multiple markets. We are also continuing to prioritize nonferrous metals with stronger fundamentals and maintaining disciplined purchasing and feedstock pricing to protect margins. We expect performance to improve as 3 key factors normalize: rail throughput increases and logistics efficiencies take effect, North American steel demand recovers supported by infrastructure and manufacturing investment and import pressure eases as global steel production moderates. In our Specialty Chemicals business, reduced drilling and completions activity has affected our drilling fluids business. However, our production chemicals business continues to grow. We've invested in people, equipment and product development to expand our product offering to help customers address complex operational and production challenges. In our Energy Infrastructure segment, pipeline and terminaling volumes averaged approximately 135,000 barrels per day, up modestly from last year, driven by increased throughput at our Clearwater terminal following the Phase 3 expansion. These assets continue to operate under long-term commercial agreements, providing stable fee-based cash flows and a platform for future growth. Our talented staff continue to drive cost efficiencies and throughput optimization across our operations. Overall, our infrastructure continues to perform as designed, providing safe, reliable and environmentally responsible solutions to our customers. With that, I'll turn the call back to Allen for closing remarks. Allen Gransch: Thanks, Corey. To summarize, SECURE delivered another solid quarter in what remains a volatile environment. Our infrastructure-backed network continues to generate stable, high-quality cash flow supported by reoccurring production and industrial volumes, regulatory-driven demand, strong customer relationships and operational excellence. Operationally, our teams continue to perform exceptionally well, executing projects that strengthened our network and laid the groundwork for higher EBITDA in 2026. In metals recycling, we've acted quickly to address market conditions through targeted strategies that protect margins and reposition sales to stronger markets. Looking ahead to 2026, we expect to build momentum as new infrastructure comes online and metal recycling synergies and U.S. transportation logistics are streamlined. These initiatives, combined with supportive long-term industrial fundamentals provides a strong foundation for sustained growth. The start-up of the Trans Mountain expansion and the commissioning of LNG Canada are improving market access and narrowing price differentials, supporting incremental production and associated waste volumes. Additional LNG export capacity, data center developments and ongoing government programs focused on the liability reduction and are expected to reinforce these structural tailwinds in the years ahead. With more than 80 strategically located high barrier to entry facilities across Western Canada and North Dakota, SECURE is well positioned to meet growing demand for waste and energy infrastructure. Our network offers both expansion capacity and stability across market cycles, underpinning consistent volume and earnings growth through 2026 and beyond. Thank you for joining us today and your continued support of SECURE. We'd like to highlight that we expect to provide 2026 adjusted EBITDA guidance and capital investment guidance in February of 2026, along the release of our fourth quarter and full year 2025 results. This is a change from prior years but aligns more closely with industry practice amongst our peers. Operator, we'd now like to open the line for questions. Operator: [Operator Instructions] And your first question comes from the line of Konark Gupta from Scotiabank. Konark Gupta: Just to begin with on the volume side of things. I think you guys pointed out, obviously, there's a bunch of issues in the quarter because of which the Waste Management segment volumes declined. I'm just wondering, is it possible to kind of parse out how much of the volume decline was directly associated with drilling and completion as opposed to the turnaround and other issues with production? Corey Higham: Konark, it's Corey. Good question. And when you look at the rig count dropping [ 15% ] quarter-over-quarter, it certainly made up a big chunk of the decline. And when producers -- the knock-on effect producers will tighten their budgets, they'll drill less wells, they'll complete less wells. And when they complete less wells, there's less waste to process, there's less drilling waste to dispose of. So there's just this knock-on effect where you're getting lower volumes. But when you look into the quarter, July was very similar to Q2 levels. And as you move through July, August and September, there was just a general incremental increase month-over-month, and we're seeing that into October. So it was a tougher quarter from a volume perspective, but the assets operated the way they're supposed to, and our teams are chasing and hunting every barrel and cubic meter of waste that's out there. Allen Gransch: I think too, Konark, to add to what Corey is saying, I think with a softer commodity, and I think we've been hovering in the high 50s, low 60s here, it just -- and we've said this in our outlook, it makes producers pause a little bit. They're thinking more on if they want to pause a turnaround or if they want to slow certain things down. As we're kind of looking into this quarter here, this last quarter of the year, it seems like most of them are kind of driving towards spending their budgets for the year. But you can understand with the softer commodity why activity levels generally would slow down a bit and relatively hung in there as well. So it wasn't really a surprise to us. It's just you kind of saw it come to fruition as we got through Q3. Konark Gupta: Okay. Fair comment. On the guidance then, so I mean you're expecting now I think $500-ish million for full year on EBITDA basis. And I think it's not like down a lot from the low end of what you guys said before. But is that like incrementally -- you pointed out, obviously, the M&A that didn't happen. But is there an incremental pressure you would say from the metal recycling side or from the drilling and completion side versus where you guys were thinking 3 months ago perhaps? I mean, I'm just trying to understand like what drove this push down toward the $500 million. Is it more the metals or the drilling? Allen Gransch: Good question, Konark. I would say there's a bit of balance on both. I think it's a bit of carryover on just general activity levels with the softer commodity price. And as I said, producers are kind of driving towards completing their budgets. December now becomes the period at which things slow down here in Western Canada. You used to have a bit of a breakup in the second quarter. But with all the pad drilling going on, they really just go hard all throughout the year. And so giving their own guys a break is typically now the Christmas break. And so depending on weather in December and how close they get to their budgets, we know that there's going to be some softer volumes coming through in that month. So there's a -- part of it is associated with that. Part of it is associated with metals. It took us throughout the entire Q3 to get into some of these new U.S. markets. And so we were successful now transitioning 95%. I mean it's a huge competitive advantage for our facilities here in Western Canada to have not only the mega shredder in Edmonton and being able to process more efficiently, but also to have these railcars and move in the market into the U.S. And so a huge advantage for us to shift entirely all of our scrap into the U.S. I think I talked about it in Q2, just maybe we could get an agreement with the U.S. on, on tariffs on steel, and that didn't happen. So we've effectively transitioned now 95% of the U.S. market. So for us, it's -- now that we have the market, it's all around the logistics and being able to get the turnaround time on the trains. Typically, when it's closer in Canada or relatively close from the border, you're looking at 21 days turning around your cars and getting them back and filled up again. As you think about further into the U.S., we're moving more into the 40, 45 days to get those same cars back. And so that logistics and that turnaround time is really the delta here. And we've seen our inventory start to build here in through October. And it's going to be how efficient we can get the logistics nailed down here to the fourth quarter here, but there could be some amount that spills in. So it's really just a shift to profit as we think about our logistics. We've got an additional 50 cars that we've just leased that's going to add on to our fleet. So we're sitting around 270 railcars right now. And so we're going to run with that, make sure we can optimize our logistics. And yes, so those would be the 2 main factors for pinning it down on approximately $500 million. Konark Gupta: Okay. And I just want to wrap up on the metal recycling side. I think you laid out a lot of factors there and numbers there. So I just want to understand, is that shift to the U.S. 95%, I mean that's obviously significantly higher than what you typically did before. Is that more like a temporary phenomenon? And I mean when you get more cars in next year, a, do you plan to return the lease cars? And b, do you expect the 40, 45-day inventory -- sorry, the car turnaround time to get back to closer to like 21 days or could still be higher because of the U.S.? Allen Gransch: Yes. I mean, logistically, it is further to transport the cars. So I think the average days, maybe we get it down into that, call it, 40 days range. The lease cars that we brought on, that's, I think, another 3-year lease or 5-year lease for those cars. So they're in our fleet and it will be able to allow us to manage into the U.S. market for quite some time. We don't anticipate coming back into the Canadian market for quite some time. So we're really in developing these relationships with the mills in the U.S. and just optimizing our turnaround time. So if we need a few more lease cars if we find that, that is the optimal level that we need, and that's what we're going to run. So we'll get it figured out here. It's what I call it a 3 to 6 months bringing out the logistics. But it just puts us such an advantage to our competition to be able to have these markets and to be able to price into the U.S. So again, coming up with this whole hub-and-spoke model, getting these other locations to feed into Edmonton to not only process it more efficiently, but then get it on the cars and get it down to these markets is great for us. So yes, we'll navigate that through Q4 and Q1, but after that, it should be just smooth running. Corey Higham: Yes, Konark, once the Canadian mills get some demand back and whether that's tariff relief or it's part of our federal government's Build Canada Better program, even if you have some Canadian mills resume, you saw we -- we've built some really good relationships with these mills, and there's certainly demand that we're seeing into Q1. So we don't have any issues in this current environment in being able to get rid of this inventory. If Canada does get in a much better position, we just have more outlets for our product, which is a good news all around. Operator: And your next question comes from the line of Michael Doumet from National Bank. Michael Doumet: I know it's 10% of your business, but I do want to touch on it a little bit more. So on the metals business, is there any way you can quantify how much of the 2025 EBITDA guidance was attributable to the metals? And the reason why I'm asking is because I feel like that's part of the business that can bounce back relatively easily in 2026. And just the latter part of that question. When you guys think about the metals business recovering in 2026, I would think that feedstock prices have to decline to offset the higher logistic costs. So I'm just wondering if you're seeing that already. Allen Gransch: Yes, great question. So when we look at our guidance for 2025, we've talked about metals being about 10% of that overall guidance. So call it in the ballpark of around $50 million. And I commented there's a couple of things that have happened. Number one, when we acquired [ GRI ] in February, we knew that there was going to take -- there was going to be a time frame here, call it, 12 to 18 months to realize synergies. And what our synergies were? The first synergy we wanted to achieve was operational synergies. So this was getting our other locations that we call the feeder locations set up in a manner in which we can transfer that scrap efficiently into the Edmonton market and then process it. So we get the operational synergies. Our shredder was running around 50% utilization. Our goal is to get it above 65%, and we're well on track to getting higher utilization, which is a more efficient way to process the scrap. So we knew there was going to be operational synergies. We knew there was going to be transportation synergies, and that's really from these new cars where they can hold 30% more scrap than these old leased cars that we have. And that transportation synergy, you pay by the car, you don't pay by the size that it can hold. And so we knew we would gain transportation synergies as well. And then we had some system integrations we wanted to do as well. A lot of these mom-and-pops run very archaic systems. We wanted to get it all up to a new operating system where we could use a lot of data management to make our inventory turns and our annual or monthly processing very, very efficient. And so those synergies were going to take time. So we're going to get synergies into 2026 once we have all of that figured out. But when we think about the, let's call it, the $50 million or so associated with metal, switching into the U.S. market, there was a time that we're sending kind of smaller loads where they're getting test loads and we're getting relationships complete with some mills that we haven't done business with in quite some time. So there was a bit of a -- and I think I said in Q2 and Q3, you're calling like a $3 million to $5 million kind of impact to get that all established. So now we're moving into really can we turn the inventory. I wanted to turn the inventory every 30 days so that you're not taking any sort of commodity risk. That's ultimately the way we're going to set up the business. We don't want the volatility. We just want the spread between what's coming across the scale to what we can sell to in the U.S. market. And so to your point is the price coming down to offset the logistics expense, the answer is yes. We have to factor in what we would be willing to pay on the scale versus the cost to transport to get to the U.S. market. So that just takes time to figure out. So there is more upside as we think about 2026 metals, all of this logistically figured out and optimized, but also get those synergies realized. So there will be upside in 2026. And Q4 really is just a matter of what is our inventory build and how many cars do we need to make this as optimal as possible. Michael Doumet: Allen, just on the $3 million to $5 million that you talked about there, was that the Q2, Q3 impact or potentially the full year impact? Allen Gransch: That's right. That's the Q2, Q3 impact. So now I'm moving more into just the logistics aspect in Q4 on the inventory build and how much I can transfer out. Michael Doumet: And maybe changing topics here. On the buybacks, what are your thoughts on share repurchases at these higher levels? I mean, do you or maybe the Board, do you have a preference for opportunistic buybacks? Or is there a view that maybe a more regular pro rata purchase makes more sense here? Chad Magus: Michael, it's Chad here. We've always said we're going to be opportunistic, and we reevaluate it every quarter along with our Board and just kind of set parameters as to how much we're going to buy. And obviously, we want to be in the market buying at levels that we think are attractive at that period of time. Now things have been transitioning nicely for us and that the multiple has been expanding and continue to reevaluate. We kept the wording on purpose that we're going to continue to be opportunistic buyers of our own stock. Operator: [Operator Instructions] And your next question comes from the line of Arthur Nagorny from RBC Capital Markets. Arthur Nagorny: Just on the Specialty Chemicals business, correct me if I'm wrong, but I think you previously called out that drilling and completion is about 50% of that business with the rest being more tied to production. So I guess, would it be fair to say that drilling and completion activity or revenue was down meaningfully more than that 12% for that business? Or are there any other moving pieces that we should be keeping in mind there? Chad Magus: Arthur, it's Chad here. Yes, within Specialty Chemicals, about half is drilling fluids, so really tied to the rig count and then the other half is Specialty Chemicals. And so yes, I'd say the revenue decline there is fairly close to what we saw with rig activity decline in the quarter. Arthur Nagorny: And then on the metals recycling business, it seems like the Edmonton facility generated [ $28 ] million of revenue in the quarter, which is only modestly lower than the $30 million in Q2, and that's, I guess, despite all the headwinds. But can you maybe talk about how things are progressing with that acquisition? And maybe what the revenue-generating capacity of that business could be like in a steadier operating environment? Allen Gransch: Yes, I mean the -- I would say when you think about having a macro challenge like finished steel tariffs in Canada, it has an impact on the market. This is pretty unprecedented and it's why not only with the tariffs, but also just general kind of slowdown in activity from an industrial standpoint. We knew we had to deal with that kind of more challenging backdrop. But the business and the acquisition that we've acquired, we're very happy with. It is performing very well. We're super happy with the utilization of that shredder and how the shredder is operating the yard, how we're integrating all of our facilities. So we know there is substantial upside as we think about '26 and '27 with this asset. You kind of bought it in the low part of the cycle, and we're currently optimizing at the same time. And so managing like I said, the logistics piece, once we get that figured out, this thing is going to be running very, very smoothly. And our goal will be to turn this inventory every month. And I think it gives you that, again, that competitive advantage to have multiple markets to be able to send your product to and that creates that advantage for us, specifically when we're attracting scrap into the Edmonton facility from that industrial market. So yes, so there is, I would consider what you see this year as being our low part of what metals can do, and there's definitely going to be upside. And we'll -- I think I mentioned it in the call, we're going to put 2026 guidance out with our 2025 annual Q4 release kind of end of February. That's when most of our waste peers put out guidance. So at that point, I'll give you more clarity on where I think metals could go for the 2026 year. It just gives me a few more months to get through some of these, the areas I spoke about. Arthur Nagorny: And then I guess in the Energy Infrastructure segment, you called out lower contribution from more mature areas. Is that just a function of, I guess, decline curves on producing wells? And do we need to see an uptick in drilling and completion activity for this to maybe reverse? Corey Higham: Yes. I think it's a bit of both of those, Arthur. You do have mature areas and when they stop drilling in some of those areas, the production does come down, but again, offset with the contributions from our Nipisi business. So we're pretty comfortable and confident in this business and market growth. So… Allen Gransch: Yes. I think when you look at the price of oil, as I said kind of high 50s, if you look at the basin here, the reservoirs in Canada, you're kind of in that breakeven at $50 WTI. And so yes, they're going to slow down when you're into the 50s. But when you look at the play, they're very, I would say, from a netback perspective ahead of where maybe some of the U.S. production would be. And so all of this, you see that a little bit of a pause and it's to be expected given we're in the third year where WTI seems to be soft. But it just shows you though, even with that little bit of decline on the drilling aspect, production still was very flat and kind of came into where we expected. So it's a good signal for us. And obviously, we're more bullish as we think about activity development in 2026. Arthur Nagorny: And last one for me. The adjusted EBITDA margins were notably strong in the quarter, particularly in light of the revenue declines across your segments. Is there anything in there that you would call out as maybe being more onetime in nature? Or can we expect margins to be more in this range going forward, I guess, with keeping seasonality in mind? Chad Magus: Yes, I think when you look at the last couple of years of where the margin percentage has been, it has fluctuated. It is -- with all our different service lines, they all do have, in some instances, fairly significantly different margin profile. And so it really is the mix in the quarter. And so this quarter, I think the biggest drivers were Specialty Chemicals being a lower percentage of the overall EBITDA. They are at a lower margin. And so that helped, I guess, [ void ] the margin to higher than where we've seen on average. And then also probably lower than normal G&A this quarter as well, just helped to get to that 37%. But I think year-to-date, we're about 34%. And I think that's probably when you look at what we forecast going forward, we'd expect to be in the mid-30s, but it will be somewhat variable quarter-over-quarter. Operator: There are no further questions at this time. Mr. Gransch, please proceed. Allen Gransch: Thank you for your time today. We look forward to presenting at the Baird Industrial Conference in Chicago in a couple of weeks, followed by Scotiabank Transportation and Industrials Conference in Toronto mid-November. As mentioned, we expect to release our fourth quarter and 2025 annual results along with 2026 guidance at the end of February. Thank you all for your continued support. Operator: And this concludes today's call. Thank you for participating. You may all disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Morguard Real Estate Investment Trust Conference Call. [Operator Instructions] This call is being recorded on Thursday, October 30, 2025. I would now like to turn the conference over to Andrew Tamlin. Please go ahead. Andrew Tamlin: Thank you, and good afternoon, everyone. My name is Andrew Tamlin, Chief Financial Officer of Morguard REIT. Welcome to the Morguard REIT's Third Quarter 2025 Earnings Conference Call. I am joined this afternoon by John Ginis, Vice President of Retail Asset Management; Tom Johnston, Senior VP of Western Office Asset Management; and Todd Febbo, Vice President of Office Asset Management in Eastern Canada. Thank you all for taking the time to join the call. Before we jump into the call, I would like to point out that our comments will mostly refer to the third quarter 2025 MD&A and financial statements, which have been posted to our website. I refer you specifically to the cautionary language at the front of the MD&A, which would also apply to any comments that we would make on this call. With one exception, our third quarter results were very consistent with the same trends that we saw in the first half of the year and were also very consistent with expectations for the quarter. The one exception to this was a large onetime net property tax refund received for one of the Trust's enclosed shopping malls in the amount of $3.2 million, which I will touch on in a minute. We have known for some time that 2025 was going to be a tough year due to the market rent resets at Penn West Plaza in Calgary, the impact of which has continued throughout the year and into this quarter. Further to that, we had some pockets of softness in the enclosed mall segment from some tenant failures in the first quarter, but we were also seeing some strong same-asset results from our strip segment, which are largely grocery-anchored. A further decline in interest expense from lower variable interest rates has also impacted the results. Our total net operating income for the third quarter declined from $32.2 million in 2024 to $31.3 million in 2025. This includes a $4.3 million decrease due to the Penn West Plaza lease reset, partially offset by the $3.2 million property tax refund previously mentioned. This tax refund related to 2021 to 2024 and relates to both vacant space and space vacated by bankrupt tenants. Our same-asset net operating income was flat for the third quarter, excluding the impact of these 2 items. The decline in income from Penn West Plaza is due to the expiration of the Obsidian head lease on February 1, 2025. This has resulted in a reset of rents for both Penn West Plaza tenants and subtenants to current market rates. Effectively, this building has transitioned from a single tenant building to a multi-tenant building. We are pleased with this transition, which has resulted in an occupancy of Penn West Plaza now at 81% a few months after this transition. Significant inducements of opening free rent and free operating costs to secure tenancies are also impacting the Penn West Plaza results for 2025 and in particular, the first 3 quarters of the year. Our estimate is that there will be a downturn of approximately $15 million in net operating income for this asset in 2025 with some bounce back to this number in 2026 after these inducements burn off and other lease inducements -- and other lease commitments kick in. As I mentioned, we are pleased with the 81% occupancy level of this building after coming off many years where the office market in Calgary has struggled. On Friday, March 7, 2025, the day filed for creditor protection under the Company's Creditors Arrangement Act, or CCAA. The Trust had 2 Bay locations comprising a total of 290,000 square feet of GLA, one at Cambridge Center in Cambridge and one at St. Laurent in Ottawa. The Trust's annualized gross rent earned from the Bay leases was approximately $1.5 million. In the second quarter, the Trust lease with the Bay at Cambridge was disclaimed. The remaining lease at St. Laurent was subject to a bid by Ruby Liu Commercial Investment Corporation. Rents on the St. Laurent lease is being paid while this process was ongoing. On Friday, October 24, the Ontario Superior Court rejected a proposal by Ruby Liu for the creation of a new Canadian department store chain. Subsequently, the St. Laurent lease disclaimer notice has now been received and is effective on November 27, 2025. Management is now looking at future opportunities for this location. Notwithstanding the temporary softness in the enclosed mall segment from the first part of the year, there are still lots of positives in this sector. We are seeing positive rental growth on lease renewals, and there remains lots of good conversations involving well-known national brands. It still remains quite expensive to construct new retail space, and hence, a lot of retailers are looking at existing space rather than building new space. With the exception of one location, our community strip centers are essentially full at 99%. Sales and traffic numbers at our enclosed malls also continue to be strong. The Trust's interest expense declined $1 million for the quarter due primarily to a decline in short-term variable interest rates on a year-over-year basis. Total interest expense is down over $3 million for the 9-month period. Turning to financing and liquidity. The Trust has $76 million in liquidity at the end of the quarter, which is up from $72 million at the end of the second quarter, but down slightly from $81 million at the end of 2024. As mentioned in previous quarters, the Trust's operating capital reserve increased from $25 million annually to $35 million in 2025 to account for both higher repair costs as well as leasing costs. This represents $8.750 million per quarter. Actual spending was approximately $10 million, which represented mainly repair and capital projects. Total spending for the 9 months approximates a $26.3 million reserve. So far this year, the Trust has renewed or extended 7 mortgages totaling $165 million, lowering the interest rate from an average of 5.4% on these mortgages to an average of 4.95% on renewal. The Trust has approximately 18% of its debt is variable at the end of the quarter, which has increased slightly from 15% at the end of the year. The Trust continues to focus on paying down its debt, which has declined by more than $100 million over the last 4 years. Looking at our accounting for real estate properties during the quarter, we had $10 million in fair value losses due primarily due to some minor changes across the assets in our office asset class. Our overall occupancy level of 86.6% at September 30, 2025, has increased from 85.9% at June 30, 2025. However, it has decreased from 91.2% at the end of '24 due to the increased vacancy at Penn West Plaza from the expiration of the Obsidian head lease in addition to the disclaimed Bay lease at Cambridge in June. The 70 basis point increase in the occupancy for the quarter was due to the increased leasing in our malls and our office assets. Our leasing teams have noticed increased -- increasing interest and tours for office space in major urban areas as companies continue to push their employees to get back in the office. We are cautiously optimistic that this will translate into future office leasing deals. As I previously mentioned, we are now embarking on a strategic merchandising program for St. Laurent, which will see the addition of some new nationally recognized brand names being added to the tenant roster, along with expansion plans for other tenants on the existing rent roll. The current budgeted capital commitment is $6.4 million and includes tenants such as Sephora and H&M. These are all now open, and we have received very positive reviews about their impact. We are currently working on some future phasing beyond this spend and as we look to ensure a stable, sustainable and traffic-generating mix of tenants to this asset. Discussions have previously stalled with the provincial government tenant at Petroleum Plaza in Edmonton, which came up for renewal on December 31, 2020, and is still in overhaul. At this point, there is still nothing to report in regards to these discussions or when the space will officially be renewed. Wrapping up, we recognize that 2025 will be a tough year, but we are expecting the downturn to be limited. We are especially pleased with the leasing efforts at Penn West Plaza to be able to have our most impactful office asset with an occupancy of 81% in this tough marketplace. Also, we continue to believe that there are strong fundamentals in the retail leasing environment. We are looking forward to continued positive leasing conversations for all of our assets. Most of our enclosed malls remain dominant in their geographical area and our strip malls, which are largely grocery-anchored, have performed steady. Beyond our retail assets, we have high-quality office buildings in Canada's largest markets with a high degree of government office tenants. We continue to be positive about our business and the objective of building value for our unitholders. We look forward to continuing to execute our strategy, and thank you for your continued support. We will now open the floor to questions. Operator: [Operator Instructions] The first question comes from Jonathan Kelcher at TD Cowen. Jonathan Kelcher: First question, just on the quarter, other than the rebate you got, was there any other onetime items in Q3, any lease termination income? Andrew Tamlin: No, it's all pretty steady and very predictable. So no other onetime items, Jonathan. Jonathan Kelcher: Okay. Secondly, on the 2 Bay locations, and I recognize it's early, but how has interest been in those? Have you guys had many inbounds on potential leasing there? Andrew Tamlin: Yes, I'll turn that over to John. John Ginis: Jonathan, John Ginis here. So as Andrew noted, the Cambridge location was displayed earlier this year in June, and we just got notification that we're going to get back to St. Laurent location in November. So with respect to Cambridge, we are exploring alternatives, both temporary and permanent options. So there has been interest, but obviously nothing to report as of yet. With respect to St. Laurent, we've had queries, but we really haven't advanced anything because we didn't know how this bid process [indiscernible] was going to transpire. So now that we know we're getting it back, we're going to accelerate efforts to reach out to tenants to see what potentially we can do with the space. Jonathan Kelcher: Okay. And you're doing remerchandising at that mall anyways, right? Like would that -- does that -- how does getting the Bay back fit into that, if you can talk about that? John Ginis: So we initiated a program a few years ago to kind of look at the entire rent roll of St. Laurent and kind of reenvision it in terms of more contemporary retailers that are traffic generated. So you're correct. And Andrew spoke about that in his opening remarks in terms of what we're trying to do, and we've had a lot of tangible success with respect to some recent openings that we mentioned as well. That program will continue. The Bay location here was always subject to Ruby Liu. It hasn't really come up in terms of inhibiting our leasing efforts. So we'll have hopefully more to announce in the coming quarters in terms of additional [ discriminatory ] retailers trying to introduce the rent roll irrespective of our anchored position. So -- but it hasn't hurt us in so far as retailers pulling back and not wanting to express an interest in terms of [indiscernible]. Andrew Tamlin: I would just add, we expect this to help St. Laurent, Jonathan. I mean, I think we all know that the -- sorry, can you hear me? Jonathan Kelcher: Yes. Yes. Andrew Tamlin: Okay. Yes. I think we would expect this news to help the mall. The key tenants that are focus these days are really not the Bay and tenants like that like it would have been 20 years ago. So we are looking to kind of reinvigorate the mall and having the Bay backs, back will certainly help with that. Jonathan Kelcher: Okay. And then lastly for me, you guys have about $100 million of maturities remaining this year. Can you remind us just on like what asset class those -- the majority of the properties in and how much you expect to get on up financing? Andrew Tamlin: I would expect that to be mostly flat, Jonathan. Maybe a bit of financing, but not anything -- I mean, I think for your purpose, it's probably the best to assume that it will be flat. And in rough terms, I think it's kind of 50-50 between retail and office. Jonathan Kelcher: Okay. And just -- do you expect sort of flat on both or maybe pay down the office a little bit and get a little extra from the retail? Or is it just kind of flat? Andrew Tamlin: I think it's both are going to be flat, yes. Operator: [Operator Instructions] There appear to be no further questions. I'll turn the call back over to Andrew Tamlin. Andrew Tamlin: Okay. Thank you, and thank you, everybody, for participating in the call and look forward to talking to everybody next quarter. Thank you. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.
Francoise Dixon: Good morning, everyone, and welcome to the Mach7 Q1 FY '26 Results Briefing. My name is Francoise Dixon, and I'm Head of Investor Relations for Mach7. Today, our CEO, Teri Thomas; and our new CFO, Daniel Lee, will provide an overview of our Q1 FY '26 results. We will then open it up for questions. [Operator Instructions] I'll now hand over to Teri. Teri Thomas: Happy Halloween. One of my favorite holidays, and I'll just start off by addressing the scary stuff. So this was my first quarter as Mach7's CEO, and it was a reset quarter. We've made some tough but necessary choices to strengthen the business with a goal of long-term profitability, but also operational excellence. And we have more changes to work through going ahead. It's been a good start in transforming this business, and I'll review some of the key changes later, but one key change is appointing a new CFO, Daniel Lee, who has a nick name, D Lee, which I love because I expect a lot of new logo deals to happen under D Lee. So I want you to know Mach7 is a desirable place to work. We had over 500 applicants for the CFO job in just two days. And from that large pool, Daniel stood out for his deep experience and financial discipline, but also his willing engagement to partner on strategy. He's already proving to be a great partner to me as we unite financial rigor with business and commercial innovation. So, love to introduce you to Dan. Dan, why don't you share a little bit about yourself? Daniel Lee: Thank you for that lovely introduction, Teri. I really am loving this opportunity with Mach7. This is a very important time in the company's journey, and there are very significant opportunities and potential ahead of us. Over the past several weeks, I spent quite a bit of time getting to know our team, our customers and our financial and operational foundations and processes. What I can say is that we have great strength in our technology, very loyal customers, and we're very well positioned to capitalize on all of these opportunities. As CFO, my ultimate goal really is to be a true and close strategic partner to Teri as well as our new sales leader and the rest of the team so we can drive growth, strengthen our revenue engine and accelerate our path to profitability, and I'm 100% on board to do that. Teri Thomas: That is fantastic. Thank you so much. I'm really glad that you're on board. And now on to our presentation. So this particular slide describes for those of you who are unfamiliar with us, I love that I get to work in an industry that has some real meaning that impacts patients' lives. So this is what Mach7 does. We provide mission-critical software. To say it quite simply, we get the right images to the right people in the right places at the right time, diagnostic quality and fast. And I'll be talking more about it later, but to give you a sense of how important this is, our tech is being used in areas like telestroke, where accessing the image quickly often is the factor determining if someone lives or dies or if they recover or they don't recover. So speed in our technology is absolutely critical. And in my calls with our customers, I'm reminded by them regularly how the work we do is extremely important. Speaking of customers, we had one major customer milestone this quarter, the initial go-live of the U.S. Veterans Health Administration's National Teleradiology Program. This first step in a phased go-live is addressing the needs of two unique departments that are very different from traditional general radiology. As I just mentioned, telestroke is all about critical decision-making. Images determine the path to treatment thrombolysis or thrombectomy, every piece of this program hinges on speed and instant access to images from anywhere. Our unique capabilities with zero footprint deployment, real-time image ingestion, low latency retrieval and intelligent routing are absolutely critical for telestroke. The other area that NTP is using our software is mammography, which is now live. It's a service I know well, known for its unique technical and operational challenges compared to general radiology, very high image quality needs and management of extremely large file sizes, especially digital breast tomosynthesis and then also integration with third-party systems because it's a more regulated part of imaging are really critical to the success of this service for the United States veterans. This go-live, though was far more involved than a typical go-live, not just because of those two initial departments, but also it included an arduous process of individual staff needing security screening and credentialing. This included background investigations, travel to specific locations to file paperwork. And the security work was necessary to be able to provide system access and on-site training as well as support and access to the broader deployment within the VA. So this large effort, much more engagement needed than a typical go-live. However, we now have the credentials and the infrastructure in place to support the anticipated rollout to other departments starting in the next few weeks and even to be able to expand to other visions in Phase 2 in the future. Now I covered that first bullet. Dan, why don't I hand it over to you to go through a little bit more about our financials this quarter. Daniel Lee: Thanks, Teri. That sounds good. Yes, let's talk some numbers. So, from a financial perspective, the first quarter represented a very solid foundation for the reset that we've just been discussing. Our annual recurring revenue run rate increased slightly to $23.5 million. This is highlighting the durability of our subscription and maintenance streams, which is really a core strength of the Mach7 model. Our contracted annual recurring revenue or CARR closed at $29.6 million, broadly consistent with June levels from last quarter. Sales orders totaled $2.6 million, an improvement of 17% over the same period last year. That growth reflects continued customer engagement and confidence as we realign our commercial approach. Now we did see a decline in operating cash flow over the quarter. Receipts from customers were $4.6 million, a 27% decline over the same period last year. Now the drop was mainly because of receipts timing, not underlying demand as we had two delayed renewals. These two transactions alone represented roughly 80% of the total discrepancy in cash, but both have since been invoiced post quarter. Normalizing for these timing issues, our pro forma operating cash flow would have broadly been in line with expectations compared to the same period last year. On the expense side, this quarter, the total payments were $8.3 million, which was a 16% decrease when compared to the same quarter last year. Now admin and corporate costs, which is a part of the total payments rose to $2 million, which was up 24% year-over-year. Now this was primarily driven by two one-off items. We had our annual insurance payment, which is normally paid in the fourth quarter of every fiscal year, but it shifted into Q1 this year with an expanded coverage. This item alone represented approximately $600,000. And we also had a payment related to regulatory and MDR technical reviews. These two one-off items combined represent roughly half of the entire admin and corporate costs for the quarter. We ended the quarter with $18.9 million in cash, zero debt, and we maintain a very strong balance sheet. And we're very well positioned to execute on our strategy now. Fundamentals remain very sound, and we are committed to operating very efficiently, and we had a significant reduction in our staff costs. And now I'll actually pass it back to Teri to talk a little bit more about that. Teri Thomas: Thank you very much, Dan, D Lee. Good transition point as I start to turn into our strategy, key elements of which are already in motion. At a high level, we've begun driving some greater operational efficiency across the business. Staff costs are down 18% year-on-year with most of that progress achieved this quarter. We've streamlined our leadership structure, bringing services and support together under a single customer-focused leader. We're evolving our talent model to attract and grow builders, people who are humble, hungry and smart, eager to advance their careers and make a real impact. And as our organization continues to mature, we're creating more opportunities for internal growth while keeping our cost base disciplined and sustainable. We expect to continue to develop more operational efficiency by hiring in lower-cost hubs, at least when we can and also increasing the diversity of our workforce. And now I'm going to give you a sneak peek into our strategy, which we'll be outlining in more detail at the AGM alongside some new product announcements at RSNA in November. I'll also be meeting with several investors in Australia just after RSNA for a broader set of discussions. And I'm very much looking forward to seeing some of you in Aussie in person. Do bear with me, though, I'm going to keep this pretty high level. I can talk about it all day. I do believe strategy isn't a single moment in time. It's a way of operating, and we've already begun executing several elements of our strategy, while others will unfold over time. So our strategic theme overall and product positioning is from archive to architecture, and this slide summarizes the overall picture. First point sets the context. Our industry is undergoing rapid change. Costs are rising, talent is scarce, data continues to fragment, and it creates a significant opportunity for companies that can deliver efficiency and also interoperability and connections. Second point represents our evolution. We're building a strong base while leaning deeply into customer needs and industry trends. We believe that truly understanding our customer and aligning with them is the best path to winning in this market. Now the third point speaks to advancing our mission, connecting images, people and insights to create a stronger, more intelligent future for health care, and I'll share more about that in a minute. And finally, the fourth point, execution, embedding a dynamic operating model that aligns strategy, structure, technology and talent, driving accountability, driving agility and ultimately driving results. That's the last part of our strategy, and I'll expand briefly on each of these points. Next slide. All right. A little bit on market opportunity. We are in a very resilient industry and our tailwinds are strong. The enterprise imaging market is projected to almost double, reaching about $4.1 billion by 2030, growing at roughly 12% annually. And in order to take advantage of AI and modernized software to address rising cybersecurity concerns, hospitals and health systems are updating and consolidating multiple imaging systems into unified interoperable platforms. This is precisely the space that Mach7 plays in, helping organizations replace fragmented vendor locked systems with open scalable architectures. AI and medical imaging is the fastest-growing part of our market. AI is moving rapidly from experimentation to operational integration and success increasingly depends on having the right data infrastructure, being AI ready. Mach7's architecture enables that by ensuring imaging data from multiple sources is clean, structured and accessible for clinical use as well as creating AI models. At the same time, health care data volumes are exploding and about 3/4 of that data is in the form of some type of imaging, whether it's radiology, video, ultrasound, CT scans and more heavily siloed across many departments and many modalities. A vendor can provide a strong radiology-only system, but patients and clinicians need more than X-rays and more than traditional radiology platforms to tell the entire patient story. So customers are looking for unified data management that simplifies workflows, reduces costs. And this third point has been validated over and over in my calls with customers as well as prospects and even class. They need strong tools to improve coordination of care. They need completion of the EMR with all of the right imaging. So we see rapid growth across high-volume specialties, not just radiology, but cardiology, oncology, teleradiology has been growing, and it's increasingly referred to now as tele-imaging because it does go way beyond radiology. Distributed reading, remote collaborations, AI-assisted diagnostics are becoming the norm. And these shifts play directly to Mach7's strengths, interoperability, hybrid cloud delivery and scalability. So the opportunity in front of us is not just about participating in a growing market. It's about defining how imaging data is managed and monetized in the next decade. The market is transforming. And in a shift as profound as the move from film to digital a couple of decades ago, that first wave redefined access speed and storage. The wave we're in now is about intelligence, activating imaging data through agentic AI and enterprise-wide interoperability, again, going way beyond just radiology. And that brings us to how we are innovating to meet this opportunity through our product and technology road map, which is designed to take Mach7 from archive to architecture. Next slide. So this isn't simply a technical upgrade. It's actually a response to a clear need, open, vendor-neutral platforms that unify a very broad set of data, automating workflows and enabling AI-driven decision-making. That's the foundation of archive to architecture as our strategy, transforming imaging from static storage into an active intelligent ecosystem. We will announce a new architecture launch at RSNA, an intelligent data platform built to enable agentic AI through an expanded array of open APIs and unified orchestration. It's designed to enhance integration and empower providers to deploy and manage their own AI models. We will also expand our eUnity viewer. It's fast, it's user-friendly. It's great for the enterprise. And we're moving this into a broader tele-imaging platform. We can unite radiology, advanced visualization, which is needed for a number of those growing specialties and then adding new areas like digital pathology into one coordinated viewing space. We'll release 3D visualization and distributed diagnostics while maintaining Mach7 zero footprint simplicity and interoperability. And then finally, we'll integrate system performance and workflow analytics tools to enable continuous optimization in areas like safer and intelligent migration to the cloud, something that our customers are keenly interested in, especially given the recent AWS outage as well as Azure outages in the last days and weeks. And this will be a key part of our offering. So together across these three areas, we will provide a connected AI-ready ecosystem, transforming Mach7 from a VNA and a viewer into a leader in intelligent imaging architecture. This is how we position ourselves to lead in the next decade of health care data innovation. Now how are we going to do that? Asia. To execute on our innovation road map and new product launches, we are expanding, but we're doing it in a cost-effective way. Our development teams in Canada and the U.S. will be complemented by a new lower-cost innovation hub in Asia to scale engineering capacity and accelerate product development with lower overhead. It also positions us closer to some high-growth markets in Asia and the Middle East, where we're seeing some strong demand for enterprise imaging and interoperability and where our upcoming CE Mark opens up new possibilities for enterprise and government sector opportunities. We do expect our CE Mark in the coming months, which is critical for Europe, but it's also quite important for large opportunities in the Middle East. This hub will serve as a strategic beachhead for AI readiness and platform innovation as well. Now I gave my first boom right, welcome back gift. For key contributions from our past, we do a pile of those behind me as we welcome back innovators that we worked with in the past as well as those that are new. And one of these, the first went to Ravi Krishnan. He is one of our original founders, and he brings absolute product evangelism, deep regional insights and strong customer relationships in Asia and the Middle East. He was very engaged in key large customers joining Mach7 in years past, and we really look forward to his energy and his support in once again engaging strategically and closely with some of our very largest customers, growing sales, driving innovation that is well aligned with the needs of the market. So, Asia will not remain a quiet outpost for Mach7. This strategy involves transforming our existing Asia office into a growth engine, driving innovation, efficiency and expansion. So speaking of transformation, many strategies look good on paper, but they don't move the needle. So why will our strategy work? Underneath our vision and our road map is a solid operating model and one that we've begun to execute. I like the McKinsey performance framework because it connects the dots from strategy to transformation, helping us align across 12 key dimensions of the business with our strategy. The most impactful for us right now, what you see in the upper left-hand corner is the value agenda. That drives most of what's behind the core of our strategy moving from archive to architecture. However, it also goes into our structure, our leadership, our technology levers. And a lot of those levers are already moved into position. However, we're designing through the next layers, process improvement, talent acquisition, leveraging our unique global footprint, metrics, rewards. Our purpose, it fuels our work. Our value agenda drives the Mach7 loop, connecting customer engagement through our flight crew to marketing, referral-based sales, customer-driven innovation. Our structure is evolving to support all of this with leadership alignment and accountability designed for faster and more focused execution. Our leaders all adopt a customer to ensure that we have knowledge of the customers' needs, driving decisions throughout our business. And technology is an important enabler. So we're bringing in more automation. We're leveraging AI and making data-driven decision-making as part of our work. So the model is not static. It's a system we are building and refining as we learn. But it's what allows our strategy to move from intent into action. Next slide. So building on that operating model, we've executed a full commercial transformation, one that reshapes how we engage with our customers, how we deliver value and how we grow. We've overhauled the sales organization, and we brought in Todd Stallard, Todd Stallard as our new VP of Sales to lead a refreshed sales team. He is a proven commercial leader with deep expertise in partnerships and complex global deals. But most importantly, he's a former football player whose middle name is drive. He has a healthy dose of get up and go, which I absolutely appreciate. And as I mentioned before, Ravi has joined us to help accelerate innovation and engage in some major enterprise and government opportunities. And we've refocused on well-aligned enterprise opportunities that emphasize long-term partnerships in markets where interoperability and AI readiness are top priorities. We've also added a Chief Innovation Officer to unite product and engineering under one leader to accelerate delivery, strengthen alignment and drive faster innovation cycles in connection with that team in Asia. Now speaking of in connection with teams, our flight crew. A key part of our commercial transformation is how we engage with our customers. This truly is the cornerstone of everything that we're doing. So that's where the flight crew model, which we introduced in August, comes in. Each customer has a dedicated cross-functional team led by the ACE, the advocate for customer experience. This creates a single point of accountability, and it ensures faster, consistent support across every stage of a customer relationship. The flight crew model delivers a unified Mach7 experience, improving response times, most importantly, though, deepening relationships, two way. Our staff get to know our customers. They care deeply. They're not just a ticket, and the customers feel that. connecting them directly with our product and innovation teams will also accelerate our ability to do relevant innovation that we know customers are clamoring for and ready to use. And it empowers us in what we call the Mach7 loop, a continuous cycle of feedback and innovation that ensures customer insights directly shape what we build, provide fuel for our marketing, happy customer references, drive and support sales success. So the way we engage with our customers, the way we innovate and the way we execute is all grounded in how we show up as a team, our values, our mindset and our shared accountability, which brings me to our new culture code, clients. Underpinning all of the strategy is culture. It is the execution engine for our strategy. So the mindset that we are building, it starts and ends with the customer. Customer first, everything starts with understanding who we're serving, learning and growing. We are a learning organization. Curiosity and development fuel our innovation. You can't work in technology if you don't have a growth mindset. Innovating for impact, ensuring that everything we do creates measurable value. A couple of things specific to us. M, minimizing complexity so we can move quickly and scale efficiently, I believe, is critical to our profitability. We need to make things as complex as they need to be, but no more, and we need to be nimble and scrappy. So, M, is all about moving, moving quickly and minimizing complexity. And then B, building, build with ownership, empowering our teams to take accountability, but we are making stuff. And then finally, I said it starts and ends with the customer. Sell, selling and growing together, aligning commercial success with customer success. Everyone we engage with as a prospective customer is simply a future customer that doesn't know it yet. So we will focus on our conversion rates. We will bring new customers in. And these aren't just our values. This is how we execute as an organization. This culture code, it tells people what to do when nobody is there to tell them what to do. Last slide, closing outlook. As we look ahead, Mach7 is very well positioned to execute on the strategy that we've outlined today, supported by a refreshed leadership team, a clear focus on commercials, also cultural and operational excellence. We understand our responsibility as a public company. So shareholders are also important in our decision-making. We seek to reshape how imaging data powers health care, translating that innovation into financial performance and creation of long-term value. So financial discipline will remain very important to us. Dan and I believe in maintaining a strong balance sheet, managing our cash flow carefully and accelerating towards sustainable profitability. We've paused activity in our on-market share buyback program while we complete the strategic review, ensuring that every decision aligns with our growth priorities and capital discipline. We'll share more detail on our growth strategy and our fiscal year '26 outlook at the upcoming AGM. So I'm going to close by saying I'm very confident in where we're headed. I'm very proud of the progress that we've made. And I'm quite energized by the opportunity that Mach7 has ahead of us. We're evolving, and I firmly believe it's changing for the better. Dan, would you like to say any closing words before we move to questions? Daniel Lee: Sure. Thank you, Teri. So fiscal year 2026 is a reset year, but it's also a turning point. From a financial perspective, our focus is extremely clear, disciplined execution and profitable growth. We are going to focus on operating within our means. And as I mentioned, we have a very strong balance sheet with no debt. And now really, it's just about applying capital precisely where it drives the most impact. As we move through fiscal year 2026, we expect to maintain continued emphasis on operational efficiency. and improved cash conversion and sustainable profitability, all while supporting the innovation that defines Mach7's next chapter. It's a solid foundation for the growth ahead, and we're executing with confidence and focus. Thank you. Francoise Dixon: All right. Thank you both. I think we'll open up now for questions. Francoise Dixon: We received one question in advance from Luca. And his question was, has Mach7 lost any customers during the quarter? Teri Thomas: So, yes, Mach7 has lost a customer. And it's a little bit of a lemons, lemonade situation. So we had one small customer. It was less than $100,000 ARR who was a joint venture that -- the joint venture has been dissolved. So that customer doesn't exist anymore. There's nothing we could have done about it. However, where I said lemons to Lemonade, a number of those radiologists who really enjoyed using our software have moved to a larger IDN in their area, and they have reached out and engaged with our sales team. And we have a great lead to what could become a much bigger customer. So while, yes, we lost a customer, we expect that this may transform into something far bigger in the future. Francoise Dixon: Thanks, Teri. We've received a couple of questions from Peter Cooper. So I'll deal with each one at a time. The first one is, what is the timing and process for being extended into Phase 2 of the VA contract? Teri Thomas: I cannot give you a lot on timing as we are in the middle and very focused on Phase 1 right now. The wording of it is it is something that can be executed in the future, but it's up to each visit in terms of when they would want to go forward. And I forget there is some sort of a backstop. I cannot remember what it is, but I could follow up with that later. Process-wise, though, the good thing is once we get this Phase 1 rollout process done, and we've got active activities happening with that, I feel optimistic about it. We have created a government affairs part of the business to engage with the other visits. And one thing about doing government work is it's far less paperwork for them to be able to go forward with an existing vendor that has this infrastructure in place. So we anticipate that as soon as RSNA will start engaging more with some of the visits. We've had some conversations with a few of them already. So we -- I can't comment about when these things might happen, but I can comment that we are starting to think about that. But our top priority right now is getting fully rolled out in Phase 1. Francoise Dixon: Thanks, Teri. Our second question from Peter Cooper is, what has Mach7 learned from the loss of Trinity? Teri Thomas: First of all, let me share that Trinity does remain a customer of ours. They've scaled back their engagement with us. However, they've got multiple contracts with us. They're still using us in some areas, but it's a smaller engagement than initially. One of the first customers I visited was Trinity, and I went in with a very open mind and listening ears, and I think there was a lot to learn. Some of the changes that we made to the customer part of our business, overhauling and removing silos, creating a designated team, the whole flight crew that I laid out just now, a lot of that was in direct response to the feedback from Trinity. So the one thing they shared, they said it wasn't about the software. It was about the engagement model, and we've completely changed our engagement model. Francoise Dixon: Thanks, Teri. Our next question comes from Wei Sim. Teri, what are your thoughts on GTM for VNA versus Viewer and the niche which Mach7 is looking to focus at? Teri Thomas: I'm going to ask if we can postpone an in-depth answer to that question as it is fairly complicated because the strategy that we share -- I deliberately didn't put a ton in about product and go-to-market in this preview because there are certain things we're going to release at RSNA. So I'm going to ask if I could postpone that question until we do our in-depth strategy discussion around AGM right before and/or the roadshow right after RSNA. Francoise Dixon: Our next couple of questions come from Stephen Bailey. The first one is, how is Mach7 planning to utilize its cash pile? Teri Thomas: I'm going to... Daniel Lee: I would say that... Teri Thomas: Give you a chance on that one. Daniel Lee: I would say bluntly that we don't have a plan per se to use our "cash pile". We are going to be very strategic in how we deploy our capital. One of the things that we are going to make sure is that any dollar that we do invest is going to be accretive to shareholder value. Teri Thomas: Yes. Dan and I have a very strong focus on ROI. And the -- we do not have a specific plan of something that we plan to allocate that cash towards. So my goal right now is we maintain it so that we have it at the ready if we need it, but we focus on operational excellence and a very, very careful look at any investment that we do that we have visibility to a positive return. Francoise Dixon: Our next question from Stephen Bailey is, will the company recommence the buyback given the low share price? Teri Thomas: Right now, the buyback remains on foot, pending the finish of our strategic review. So that's something that, again, I'm going to postpone addressing until our AGM. Francoise Dixon: Our next question is from Wei Sim. When and why did Ravi leave at the time? Teri Thomas: Woo-hoo. Hard for me to answer that for him. But my understanding is he left a little over a year ago. I'm probably speculating here, somewhere in one to two years ago. And I can tell you that he's very excited to be energized and back with the business, and he and I have a really strong alignment related to realizing the potential for the business. I think that commenting beyond that is probably not appropriate in a public forum. But what I can say is that we welcome him back, and he's very enthusiastic about helping support the growth of Mach7. Francoise Dixon: We have another few questions from Stephen Bailey. The first one is, is the company looking at making any acquisitions? Teri Thomas: While I'm not allergic to acquisitions, I'm always looking for a strategic growth lever, we are not currently evaluating acquisitions. Francoise Dixon: And similar question from Stephen. Is the company being looked at by any other companies with a view to them acquiring Mach7? Is the company actively seeking takeover offers? Teri Thomas: We are not actively seeking takeover offers right now. Of course, as a public company, people can look at us all the time. However, we do have a defense strategy in place, and my focus is driving operational excellence and driving that share price up. Francoise Dixon: Thank you, Teri. And the final question we have here from Stephen Bailey is, given the company's business in North America and the general lack of enthusiasm for tech companies on the ASX, is the company willing to consider a listing on a U.S. exchange? Teri Thomas: My opinion is that we're a little bit too small for a U.S. exchange right now, but I could imagine that at some point in the future when we've achieved some great success from our strategy and grown to a larger revenue base. Francoise Dixon: And we have a question from Andrew Hewitt. Have you seen any improvement in the class ratings? Teri Thomas: We have. Now it takes some time to get all of the changes that we've done coming through, class calls, organizations at periodic intervals. However, we get -- we do analyze the comments regularly and look at our scores. and they have been generally trending in the right direction. I also have the CEO's phone number and he has mine to alert me if he sees something not going in the right direction, and he has not called. And in fact, we've gotten positive feedback. I've also called -- one thing we want to do is not just rely on class. We want to know. So our ACE exec program is proactive. So we're reaching out to our customers to make sure that we understand how they're feeling about the engagement, how satisfied they are. We're putting some structures in place to assess their overall technical health, but also how are they feeling about the company broadly. I've joined a number of these calls and gotten to know several of our customers. I'm happy to report 100% of them said -- has said to me, very positive move to the flight crew. So I'm learning in real time, things are pretty positive, and I fully expect this to be pulling our class numbers up gradually over time, but it will take up to a year for all of that to come through their process. Francoise Dixon: Thanks, Teri. Our next question comes from Chris Martin. What is the sales pipeline like? For the last two years, Mike has said there is a large pipeline that zero new contracts were signed. Is there any update on sales? Teri Thomas: Yes. My opinion on the pipeline is, first of all, not as big as I would like. It's just not where I wanted to be entirely. We've got a lot of work to do. There are certain elements of our strategy that we're going to kick off at RSNA. And I expect that RSNA will be a great, great injection of energy and actual activity into our pipeline based on how we're going to show up and some of the things that we're going to do to better engage with people in the industry and frankly, get noticed. That said, we've really had good progress in the last couple of months. And it would seem strange when I mentioned the sales reset. Our commission-carrying salespeople are no longer with us. We've got a new sales leader, and we've changed a couple of people around so that we've got a completely refreshed sales team. However, we've lost no sales during this process. And I'm directly involved in most of our active sales. I do get to know those prospects well. I'm partnering with Todd in getting sales over the line. I enjoy it. And I'm happy to tell you, we've got three prospects that either have selected us or have us in the top two that expect to be finishing out their processes between now and January. So I feel good about improving our conversion rate on our not great pipeline, but I have a plan to improve the size of our pipeline and get a lot more engagements in place at RSNA when I expect I'll also have some more team members in place to make sure that we can do a really, really good job being incredibly responsive and very customer-focused even with prospective customers who don't know their customers yet. Francoise Dixon: Thanks, Teri. We don't have any further questions on the chat, but I'll just give it a couple of seconds and see if any pop up. We do have one. Our next question comes from Shuo Yang. How does today's announcement regarding limited go-live with VA impact the recognition of the $11.7 million TCV over three years? Teri Thomas: I'm going to give that one to you, D Lee for at least... Daniel Lee: Yes. To directly answer that question, we have not made any changes to our outlook for that contract. Francoise Dixon: Thanks, Dan. We have no further questions at this time. So I'll hand back to Teri. Teri Thomas: All right. Thank you very much, Francoise. And thanks, everybody, for your thoughtful questions and your continued engagement. Before we close, I just want to extend a sincere thank you to our Board of Directors for your guidance, your support through this transition quarter. And your engagement is really valued as we've done a reset on a lot of our business and strengthened our foundation for long-term growth. I also want to express my appreciation to our investors, many of whom have been with Mach7 for a long time. Thanks for your confidence and your patience as I work hard alongside our refreshed leadership team to transform Mach7 into a stronger and more focused as well as consistently growing company. And through all of this, I do believe in having some fun along the way. So we work hard, we play hard, and we're committed to making a positive impact. That's for our customers, for our team, but also for you, our shareholders. So other elements of our strategy are set to unfold at RSNA, including changes in our marketing and a new fun element that we're going to pull in. So the Mach7 of the future will look different from the Mach7 of the past, but I firmly believe it's changing for the better. We are building and we are building something meaningful, something we can be proud of, and I absolutely believe the best is yet to come. So thanks for your continued support and your belief in Mach7, and I do look forward to giving you a fuller update at the AGM. Thanks, everybody.
Operator: Good afternoon, everyone, and welcome to the webcast of ATEC's Third Quarter Financial Results. We would like to remind everyone that participants on the call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. During this call, you may hear the company refer to non-GAAP or adjusted measures. Reconciliations of these measures to U.S. GAAP can be found in the supplemental financial tables included in today's press release, which identify and quantify all excluded items and provide management's view of why this information is useful to investors. Leading today's call will be ATEC's Chairman and CEO, Pat Miles; and CFO, Todd Koning. Now I will turn the call over to Pat Miles. Patrick Miles: Thanks very much, Lacie. Appreciate it. Welcome to the Q3 ATEC financial results conference call. As usual, there will be some forward-looking statements, so please read that at your leisure. I want to take a moment and put into context what we are building here at ATEC. I will tell you, it's a very small number of public medtech companies, I believe, less than 10 that are over $500 million in revenue, meaningfully profitable and growing over 10%. Our results and guidance suggests that we are not only in that club, we are leading that club with top line growth of 30% while approaching a run rate of $800 million in revenue. My point is, is that we are becoming the company that we intended. And what I want to do is make sure that these things don't happen by happenstance, and they happen by a bunch of committed people. And so I wanted to thank those who supported and have been part of the mission and also remind everybody that we're just getting going. And so there is much to do. And so now I want to speak to why we are so uniquely positioned for a very long run. And I think the key is we're 100% spine focused. And we make decisions every day purely on spine. We are leading through proceduralization, which means that we're advancing lateral, which is reflected in convoyed sales, and we're applying that thesis across the board. From a deformity perspective, we're in the very infancy of our role or influence on that market space, really driven by EOS and EOS Insight. We have previously built an infrastructure that's going to last us a very long run. I look forward to describing more about that. And from this point forward, what you'll see is durable, profitable sales growth. And so just to share a couple of statistics from Q3, we grew at 30%. We had an adjusted EBITDA of $26 million, which is 13% of revenue. We improved by 840 basis points and turned in a free cash flow of $5 million. And so from a total perspective, that means that the total revenue was $197 million. The surgical revenue growth was 31%. Something that I'm totally excited about is the same-store sales, so revenue growth in established territories was 30%. It just tells you that there's demand in what we're doing. New surgeon users was 26% [Audio Gap] cash flow. We have plenty of access to cash and cash at $216 million. Our trailing 12 months adjusted EBITDA is $81 million, and we are flowing cash on a trailing 12-month basis, which feels great. And so what I'll do is I'll turn the detail over to Todd and be back with you after his comments. J. Koning: Well, thank you, Pat, and good afternoon, everyone. I'll begin today with the third quarter 2025 P&L highlights. Total revenue was $197 million, up $46 million and 30% compared to the prior year period and up $11 million sequentially from the second quarter of this year. The $197 million in revenue was comprised of $177 million in surgical revenue and $20 million of EOS revenue. Third quarter surgical revenue of $177 million grew 31% compared to the prior year period and was up sequentially by 5%. That represents $41 million in year-over-year growth. Procedural volume growth of 28% was driven by strong surgeon adoption, where we increased our net new surgeon users in the third quarter by 26%. Procedural volume growth reflects both an increased number of surgeons as well as earning a greater share of an existing surgeon's business. We see this happening as our procedures are used across the broader set of pathologies and as surgeons adopt more of our portfolio offerings like cervical or corpectomy. Since we first began reporting on new surgeon users in 2022, we have consistently added at least 19% net new surgeon users each quarter over the past 3 years. This surgeon adoption reflects both the attractiveness of our portfolio and the coordinated investments we're making in sales talent to meet that demand. Average revenue per procedure grew 2%, which was consistent with our expectations. Procedurally, we saw strong revenue contributions from our lateral and cervical solutions, and we are beginning to see measurable influence from our deformity offering. Same-store sales in the U.S. or sales that come from sales agents that have been in territory for a year or more grew 30% year-over-year, which demonstrates that we continue to grow significantly in the markets where we are already established. Our strong surgeon adoption, increased utilization and same-store sales growth results are testament to the durability and consistency of our revenue growth algorithm. EOS revenue increased to $20 million in the third quarter, up 29% compared to the prior year period. Demand in the U.S. market where we have a strong presence with our implant sales force continues to be strong and the biggest driver of growth in both deliveries and new orders. This in conjunction with a growing number of surgeons using EOS Insight positions us to see the benefit of the accompanying implant pull-through in the coming years. Turning to the remainder of the P&L. Third quarter non-GAAP gross margin was 70%, flat sequentially and up 80 basis points compared to the previous year, primarily driven by product mix and volume leverage. Non-GAAP R&D was $15 million in the third quarter. R&D investment was up year-over-year by more than $2 million and was up sequentially by $1 million. Non-GAAP R&D expense was approximately 8% of sales in the quarter, with top line growth driving 90 basis points of leverage year-over-year. The R&D is an area where we continue to see opportunities to invest in innovation that will drive future growth. Given the scale of our business, we can make these increased investments and generate EBITDA leverage without sacrificing the growth opportunities. Non-GAAP SG&A of $112 million was approximately 57% of sales in the third quarter compared to 67% of sales in the prior year period. SG&A grew by 11% year-over-year compared to our 30% increase in revenue, which drove 980 basis points of improvement. We continue to leverage the company's foundational infrastructure investments, improve our variable selling expenses and be very deliberate in new headcount additions. The combination of these factors accounts for about 2/3 of the improvement. We reported total non-GAAP operating expense of $127 million, which was approximately 65% of sales. Our operating expense investment reflects continued prioritization of strategic growth initiatives supporting sales expansion and new product development. While our foundational infrastructure is in place, we continue to expand the sales force, build out procedural solutions and integrate technology, data and information into the operating room experience. We continue to improve as an organization and the disciplined prioritization of these investments, along with our durable top line growth drove over 1,100 basis points of expansion in our operating margin year-over-year. I'll turn next to adjusted EBITDA, which was a record quarter for us at $26 million or 13% of sales in the third quarter, delivering 840 basis points of improvement compared to the prior year period. This quarter also marks our fourth consecutive period with over 40% drop-through on a year-over-year revenue growth to adjusted EBITDA. The discipline in how we look at headcount additions, the other types of investments we make has served us well and will continue to be foundational in how we drive profitable sales growth. You can see from the chart on this slide that the profit margin expansion that we are executing has been both significant and consistent. Our trailing 12 months of adjusted EBITDA now sits at $81 million and 11% of revenue. We are driving meaningful margin expansion that aligns with the priorities outlined in our long-range plan and as a result of disciplined execution. These deliberate results give us confidence in our ability to continue to deliver on our financial commitments and translate revenue growth into profit and cash flow. We are committed to driving profitable sales growth. Now turning to the balance sheet. We ended the third quarter with $156 million in cash on hand. Additionally, we had access to $60 million of available borrowing on our revolving credit line, which was undrawn at the quarter end, making our total cash and available cash $216 million. Our positive free cash flow of $5 million was again at the favorable end of the $1 million to $5 million range that we previously communicated. We generated $14 million in cash from operating activities, while we continue to invest in surgical instruments. Going into 2025, we had forward invested in instruments and inventory, the revenue-generating assets of the company. This year, you've seen how our revenue has grown and how we've become more asset efficient. We are growing more in absolute dollars than we ever have in our history, and we are doing it more efficiently. This efficiency is the result of the relentless execution of the plans we put in place by multiple teams across our company. The evidence of the company's inflection to cash flow generation is undeniable with our trailing 12 months of free cash flow turning positive for the first time in company history. The third quarter also marks our second consecutive quarter with positive free cash flow. Looking back at the past 4 quarters, we've now delivered positive free cash flow in 3 of the 4. With our consistent profitable growth and cash generation and a strong balance sheet, our financial position has never been better, and we foresee opportunities to begin to delevering our balance sheet in 2026. Given the momentum in the U.S. surgical business in the third quarter and healthy underlying spine market, we are raising our full year revenue guidance by $18 million to $760 million. Our revenue outlook for the full year 2025 expects adoption of our unique procedural approach to drive surgical revenue of approximately $684 million, and we expect EOS revenue of approximately $76 million. Our surgical revenue guidance raise is a result of overperformance in case volume, which we now expect to grow in the low 20% range year-over-year. We expect -- we continue to expect case ASP to grow in the low single digits year-over-year. As it relates to free cash flow, our third quarter and trailing 12-month performance further reinforces our confidence in delivering positive free cash flow for the full year 2025. We expect fourth quarter free cash flow to range from positive $6 million to positive $8 million. Turning to the outlook for the full year 2025 adjusted EBITDA. We expect sales growth to continue to leverage the infrastructure we have built, contributing to an adjusted EBITDA of $91 million, an $8 million increase versus our prior guidance of $83 million. Notably, our trailing 12 months of adjusted EBITDA of $81 million as of the third quarter speaks to our ability to deliver on our full year commitment of $91 million. As a reminder, our adjusted EBITDA guidance includes us absorbing the impact of expected tariffs in the second half of the year, and we continue to estimate the impact of tariffs on our cost of goods sold to be in the low single-digit millions of dollars for the full year. The chart on the slide depicts the consistency of the profitability progress we are making and the tremendous power of our business model to drive future profitability. Our adjusted EBITDA guidance of $91 million will generate an adjusted EBITDA margin of 12% for the full year. Notably, our current guide implies a 200 basis point improvement compared to the 10% adjusted EBITDA margin we guided to at the beginning of this year. Given the profitable revenue growth we've generated this year, we can now self-fund the investment in instruments and inventory to support our future revenue growth. We are well positioned to meet or exceed our 2027 financial commitments of $1 billion in revenue, 18% adjusted EBITDA and $65 million of free cash flow. The third quarter financial results are another step towards delivering on our commitments. We are delivering durable revenue growth, strong profitability improvement and seeing all of that translate into free cash flow. This team has made meaningful improvements in how we operate the business. You can see that clearly from the financial results. Most importantly, we are helping surgeons perform better surgery, and that is where we will remain laser-focused because it is the foundation for creating lasting value. With that, I'll turn the call back over to Pat. Patrick Miles: Well said, Todd. So I would tell you that our execution has been absolutely consistent across the strategy, and our strategy hasn't changed. It remains steadfast. We are creating value through creating clinical distinction, which compels surgeon adoption, and we continue to just get better from a field perspective. And so hugely exciting. So we like to say around here that the spine market needs ATEC. And I've never been a bigger believer in that view since I've started. And you got to realize the spine field is highly complex. And the type of revision rates or extensions of previous surgery is unacceptably high, which creates nothing but opportunity. And so the volume of variables that need to be addressed to drive success in spine has significantly increased due to a deeper understanding of the field. Historically speaking, investment has been overtly focused on flawed implant only, which is the currency of the business versus focusing on the requirements that ultimately drive outcome improvement. And so our view is that the industry needs a focal leader obsessed with mitigating variables in spine, and we are it. And so we've started down that road clearly through lateral. A key to variable mitigation is the architecture of spine procedures. That's what we call proceduralization. I think lateral surgery is a great example of that demonstrated success. However, the one thing to realize is we are absolutely in our infancy in terms of our footprint with lateral. There are multiple catalysts ahead. And so the first thing to talk about is just -- and Todd hit on it is the expanding of indications, which oftentimes is synonymous with new products. And so we have multiple new products forthcoming, including a mechanized arm. We have IdentiTi II. We just launched corpectomy. So not only expanding indications, but also increasing complexity, which oftentimes means more levels. And so we are able to address more pathology, and we just continue to be getting better in lateral. Another place that is a catalyst is the integration of technology that ultimately makes for more users. So it democratizes the technique to a wider audience. If you start to think about our informatic platform, EOS gives you the objective alignment measure and bone quality, Valence provides you where you are in space. So that's our navigation and robotic piece. And then SafeOp tells you not only the nerve location, but the nerve health. Having been at this for a long time, I would tell you, there is no one close to the level of sophistication in the most coveted element of the spine market, which is lateral. And so our next foray is into more data-driven decisions, and I will look forward to the day that we are informing the field of the best procedure for the respective pathology. And so there's still a lot to do on this front. Historically, whenever we talked about proceduralization, it was related to lateral. We have recently applied that same effort to our surgical portfolio with significant success. We used to always talk about the halo effect, meaning that we would create confidence with our lateral portfolio and people would ultimately use the least differentiated part of our portfolio in cervical. That is no longer the case. I will tell you that our cervical portfolio now stands on its own merit. Through the proceduralization effort, there is little we can't do in the cervical spine from elegant segmental surgery with our best-in-class access in IdentiTi II product through the most complex things such as corpectomy and revision surgery from the back. And so lastly, I'd hate to not shout out SafeOp. The type of information that it avails from an automated SSEP and MEP perspective and cervical spine has expanded the application of that product in this space. So our momentum really has just begun, and it's a very big deal. I would tell you another place that we are in our absolute infancy is accelerating deformity, our deformity inserts through the EOS integration. Much like lateral and cervical, our progress in deformity is just starting. So thanks to the influence through our EOS integration, we've launched AI-driven alignment for pre-op assessment. We're simulating surgery through our planning platform and providing patient-specific implants to correct deformity. Then the opportunity to confirm the plan postoperatively, meaning did I achieve what I intended to achieve. You have to realize the literature is abundantly clear. Surgeons are more likely to reflect the intended goals if they preplan. Our preplanning software is best-in-class, and the reflection of that is also best-in-class. So the EOS deformity opportunity literally creates another PTP like run just ahead. So I wanted to share a couple of things. Here's a great example of how our integrated product effort is advancing deformity. If you start on the top left picture and you look at the imaging, literally, we have the most coveted imaging. It is a biplanar low-dose standing image. It is what the surgeons want. Then we automate all the alignment measures and then create a 3-dimensional model. For a surgeon to have a 3-dimensional model in an idiopathic scoliosis is highly valuable for them to understand the rotational elements, and you'll see the top right photo is the blue, which shows the exact rotational deformity that the surgeon has to deal with and then to utilize our patient positioning efforts and straightening the spine prior to cutting or prior to the intervention is highly valuable. You can see the curve correction measured interoperatively, and you'll see it going from [ 40 to 6 ] using our best-in-class fixation. And so this is just an example of the type of sophistication that's assembled together to ultimately advance the field, and that's what we're doing with deformity. Another key catalyst forthcoming is Valence, which we expect to unlock further adoption. This truly democratizes the techniques and what we like to say is in the hands of the many. Valence is simple and most importantly, it's accessible and integrated. We don't look at technology as something unto itself. We look at how it ultimately influences the requirements of a spine procedure. And so procedurally integrated is such a key part of this. And so it's purpose-built for spine and compatible with all the 3D imaging systems out in the market. The footprint is very small. We're not taking a ton of room up in the operating room. It's not something that you spend millions of dollars on and wheel in. It has a very small footprint, which is highly valuable. And it's been demonstrated to be efficient. And so the first utility you will see with the Valence system will be in our proprietary PTP procedure and super excited for a Q4 for that to occur and expect its real influence in '26. And so I think what's so often kind of either underestimated or misunderstood about ATEC's ecosystem for which we previously invested is it is built for the long run. I genuinely believe there is currently a lack of will competitively to make such investments. That is why we love the prospects of the long run. It is the only end-to-end fully contemplated, fully integrated ecosystem. We fundamentally believe that spine surgery will be made better through data-driven decision-making, and that's what this avails to us. So as I look back over 8 years here, I would characterize our evolution into 3 distinct chapters. I would say the foundational investment years were 2018 to 2020. The infrastructure build was '21 to '23 and the profitable sales growth is '24 onward. And I just -- I remember back years ago when we assembled really the unbelievable team that exists here today and that we continue to grow. The portfolio was completely overhauled. We acquired SafeOp and evolved it, which is such a key to the type of informatic foundation that we are enjoying today, and we started to evolve our distribution. We got a bit of a hard time in the early days of our infrastructure build. So we acquired EOS and Valence, and those are key components of what we're doing today. We built a state-of-the-art headquarters to maximize the surgeon and sales training. We expanded our distribution footprint in Memphis. Something key that, again, I think that most people don't understand is we built scalable internal systems. We invested in valuable internal systems, and we made a focal international investment. What you're seeing today is a result of those efforts. And so we're levering the infrastructure investments. We're integrating data and informatic -- and our informatic platform into our surgical experience, expanding and elevating our procedural approach, and our international market is winning. And so what I thought I would do is end where we started, which is what makes us uniquely positioned is our 100% spine focus. Everything we think about every day is spine. And so we love it, and we're prospering in the space. We're leading in advancing proceduralization, which starts with lateral, but as I said, includes cervical and deformity. Our deformity leadership is in its infancy. EOS is huge. The people who are working on EOS are crushing it. We built an infrastructure for a very long run, and so can't be more excited about our capacity to scale off of that in a profitable way. So what you're going to see [ forth ] is durable, profitable sales growth, and that's what makes us the preferred destination. And so with that, I will turn it over for questions. Operator: [Operator Instructions] The first question comes from Vik Chopra with WF. Vikramjeet Chopra: Congrats on a nice quarter. A couple of questions for me. Maybe just first starting off on the cash flow. Just talk about how you see next year playing out from a cash flow perspective given the strength over the last 2 quarters? And then I had a follow-up, please. J. Koning: Yes. Thanks for your question, Vik. No, I think as we look at our long-range plan commitments, I think our cash flow expectations for next year are probably in that $20 million range on free cash flow. So on our path to $65 million of free cash flow next year. I think when you look at the amount of revenue growth that you might generate from a guidance standpoint and the drop-through on EBITDA, I think that gets you in that $20 million range. We're not at the point here where we're giving guidance, but I think as a construct, that's a good spot to be thinking about. Vikramjeet Chopra: Great. And then just on the -- your comments around LRP, Todd, or maybe even for Pat here. I mean, just given kind of how you performed this year, can we expect an update to your LRP next year given that you're tracking well ahead of your plan? J. Koning: Yes, Vik, I think as we're thinking about it, we're trying to contemplate when the right time to do that is. And we do think towards the end of next year would be a good time to do that as we enter 2027 and get 2026 mostly under our belt. And so we're thinking towards the end of next year, we'd come forward with an update to the long-range plan. Operator: Your next question comes from the line of Matt Miksic with Barclays. Matthew Miksic: Congrats on a really strong quarter. Wanted to get your thoughts on maybe the competitive landscape. And obviously, the changes -- the recent changes, and there's been a bunch have sort of, I'd say, consolidated. It looks like consolidated the major scale players in spine down to, I guess, 3, I want to say. So how do you expect that to potentially play in your favor? And perhaps like what other opportunities do you see for consolidation -- implications of consolidation, that sort of thing? And I have one follow-up. Patrick Miles: Yes. I'll jump on the first part. One of the things that is fascinating is that, first of all, we love market disruption. So if there's anything that you know that we could do to further that, let me know. And I'm kidding. The -- but the reality is these are multiyear dynamics. And it's like they never happen overnight. And so I even think J&J, the announcement was it's going to happen over a 2-year period. And so it's one of those things where it's like our focus is on just being us. We have so many catalysts that we need to focus on. We'll be opportunistic with regard to sales hires and the like, but it's just more disruption that candidly, we welcome. Matthew Miksic: That's great, Pat. And then just one on the lateral space and the role of Valence. I think you mentioned you're in the early innings. It seems like there's an opportunity, if you have 2 players kind of chasing this new approach, one of the potential differentiators and benefits to clinicians is to make that approach smoother and easier. And I don't know I've been hopping between calls here, so you may have already touched on this. But if you could talk a little bit about what kinds of benefits Valence could bring to that in terms of efficiency for surgeons already good at this and doing it regularly and what folks might benefit from and how this would benefit the expansion and adoption of [ prone lateral ] over time? Patrick Miles: Yes. The -- it's fascinating. It's like the whole PTP thing, I think, is so ripe for being a driver of procedures at 4, 5 and above. So anything at 4, 5 and above, just the ability to approach the spine and enjoy the benefits. And so the challenge always is how do you democratize it. There's always a bell curve of skill sets. And so the question always becomes is it's great to get a few doing the types of surgery that ultimately benefit a number of patients. But until you can democratize it, it's just -- it almost doesn't matter. And I think that when you look at navigation over the years and you look at even robotics, these things have been unidimensional. And so they've not been properly integrated into the workflow of a spine procedure. And so what's frustrating to us is what we want to do is apply all of the type of information that's going to drive greater precision to an experience in a methodical way. And so what we see as the opportunity for Valence is to architect just that. And I would tell you, on the team in Colorado and in San Diego, the Valence team has integrated this thing in a way that ultimately reflects the workflow that's desirous. And so my view is that these technological elements contribute to the predictability associated with the procedure. I will also say that it already -- we are leading in a huge way. Like SafeOp compared to anything else on the market is the father-son game. Our neurophysiology piece, the ability to ultimately identify where the nerve is, understand if it's degrading from a health perspective and then discern it with a motor evoked potential that's facilitated is not done by anyone. And so our retractor, our mechanized arm, it's -- again, I deem it to be a real competency of the company in just an absurd way. And so what we will continue to do is apply our learnings to things like the Patient Positioner where people don't have the will to invest, and we will continue to make things better. And so I just -- I think that the Valence element, I love it. It's one piece of it. It's one piece of the workflow of what we're building. And so anyway, clearly, I adore these things and have been at it a long time, but it's a great addition to the puzzle. J. Koning: And Matt, I think all the things that Pat said, I think, bring a level of efficiency to the experienced user, but also makes it more predictable and accessible to a broader set of users who might not be doing lateral but be doing something more traditional from a posterior approach. And so I think that's what gives us a level of excitement about what all this does in terms of expanding the lateral market. Operator: Your next question comes from the line of Young Li with Jefferies. Young Li: Congrats on a very strong quarter. So it looks like you had the biggest beat versus consensus in 3 years. It's also a seasonally slow quarter. Can you maybe just talk a little bit about what you're seeing in the market, the health of the spine market as well as some of the competitive dynamics? If you can comment on who you're taking excess share from during the quarter, that would be helpful. Patrick Miles: I'll start and provide Todd the ability to clean up what I mess up. The -- I think what's going on is a reflection of the foundation that we've built over the last several years. And I think you're starting to see some of the market disruption come through. I think the spine market is what it is. There's not a ton of change to that is my presumption. We're not seeing anything unique per se. I think the volume of surgeon users just continues to increase, and it's a proxy for a future business. And so when you start to see the volume of new surgeons added, you start to see the same-store sales, we so value the people who have been at this for a long time and watching them continue to be successful in their marketplace is a very big deal. And so I think more than anything, it's like, I think we're taking share from a lot of different companies. But I think what you're seeing is just kind of the -- we always say that there's an 18- to 24-month lag in this business. And so you're seeing kind of decisions that we made 18 to 24 months ago being reflected today. And I think in 18 to 24 months, you'll see decisions we made today reflect in the marketplace. And so I'll defer to Todd. J. Koning: Yes. I think the only thing I'd add there, Young, is from a market standpoint, I think the market has been healthy and has felt healthy. And so I think that's a good thing. I think that's a good thing for us. And we feel that when you look at our growth and you look at our size, clearly, I think you're taking share from all the major players. And I think when I look at the demographics of that and the locations and the surgeons, I think that holds true. And so you don't grow $40-plus million year-over-year without kind of touching all the competitors. Young Li: Okay. Can I ask a follow-up just on the balancing profitability versus growth. There's a bunch of companies been disrupted in spine. So you can theoretically grow them faster if you want to, but probably might have some -- some margins. You did mention durable profitable growth going forward. So can you maybe expand on that point a little bit more? How do you balance growth versus profitability? And then on that point, your average rep per case is much higher than the competition. Can you maybe talk about how you're able to achieve that, sustain that going forward? And how can that impact profitability and efficiency for your reps and instrument sets? Patrick Miles: That's far more than I could answer, so I'm going to turn it over to Todd. However, the one thing I did want to hit on is I'm not sure everybody appreciates the whole convoyed sales. When we talk about proceduralization, what happens is there's multiple products used. And candidly, they've been designed to work together to ultimately reflect in the predictability of a procedure. And so our enthusiasm is all about has the surgeon accepted our thesis surgically. And so if they do, then the likelihood for us to have a high ASP based upon the convoyed elements that ultimately get reflected within a spine procedure is high. And so that's why we're zealous to track products per surgery. We're zealots on the ASP front just because it's one of those things that's reflective of buying the thesis that we're putting forth. J. Koning: Yes. And I think I'd add in terms of how we balance and think about growth and profitability, obviously, we've got our landmark of the long-range plan out there in terms of what we've committed to from a profitability and a growth perspective. And so we have a plan to get there, and I think we've been executing to that plan. When we talk about priorities, our priorities are to grow and to invest in the innovation that will perpetuate future growth. And so that investment in growth is a combination of our investment in sets and inventory, which are the revenue-generating assets of the company. And I think we've got a solid construct in terms of how to think about that in terms of investing $0.75 on the growth dollar. And I made some comments in my prepared remarks about the size of our adjusted EBITDA now being able to be big enough that we can self-fund that growth. And so we feel confident that we've got the right amount of profitability dropping through so that we can continue to invest in the sets and the inventory of the business to perpetuate the future growth. And in combination with that, as we think about the leverage of the business, we are leveraging the overhead. And so we're certainly getting some improvement in our [ real berets ] as we've expected and as we planned. But fundamentally, we're seeing a lot of interest from surgeons to adopt the procedures. And as we grow, we can continue to drop profitability based on the fact that we've invested in the infrastructure of the business. Operator: Your next question comes from the line of Matthew O'Brien with Piper Sandler. Anna Runci: This is Anna on for Matt. I guess I wanted to ask another one on Valence. I mean you're getting pretty close to the full launch that's supposed to come later this year. And just wondering if you have any sense of what the funnel of orders looks like currently? And maybe if you could also provide some more context around the size of the ASC opportunity? Patrick Miles: Yes. The -- I was going to be a smart alec and give you a precise number. I'm kidding. What I would expect out of Valence is for us to end this year with a decent experience. As you know, the robotics side has been in Alpha for several months now. We're waiting on the navigation side to kick in. And so when that kicks in, we'll get an experience. We have a high degree of confidence in terms of what's going on there. But we don't expect any significant impact really until '26. And so clearly, there is demand for it out of the gate, which we're excited about. But my enthusiasm around the Valence system is the impact it will have on the democratization of surgery. And so we see these things as integrated tools for surgery. And so not as a big capital opportunity, capital sales opportunity, but our enthusiasm is clearly on the surgical side, which we think it will drive volume. J. Koning: And Anna, the only thing I'd add to that is I think we're clearly going to be deliberate about how we roll this out over the course of 2026, ensure we're getting good experiences and setting ourselves up for success for '26 and beyond. Anna Runci: Great. And then if I can just squeeze in one last one on international. I appreciate you're taking sort of a narrow and deep approach to your expansion there. And it looks like you're ahead of schedule against the LRP target. So I was just wondering what your outlook is on international, if that's changed, there's any upside there? Yes, just what are your thoughts? J. Koning: Yes. Thanks, Anna. I think you may be looking at the international breakout in our Q, which would also include EOS. And so when we built our long-range plan, we really talked about a global EOS, a surgical international and a surgical U.S. breakout of revenue. And so what I would tell you is I think we're kind of on plan in terms of our progress towards the long-range plan commitments that we had. So if you remember, $1 billion in 2027 was about $100 million of EOS revenue, $870 million of U.S. surgical and $30 million of international surgical revenue. So that was how that broke out, and I feel like we're on track towards that. Operator: Your next question comes from the line of Allen Gong with JPMorgan. K. Gong: Team, congrats on the good quarter. I just wanted to touch on the guidance and kind of build off of a question that was asked earlier. You had a really strong third quarter, kind of grew right through the normal seasonality we expect to see in the summer months. And when I look at your implied guide for the year, you still have a step-up into fourth quarter, but it's definitely a touch smaller than what we've seen in the past and what we've kind of expect from orthopedics more broadly. So I guess, why was this the right range to basically establish for fourth quarter? And then just to slip in my follow-up as well, when I think about the outlook for 2026, is that kind of the right run rate that we should be using the fourth quarter number as a run rate for 2026 as well? J. Koning: Yes. Fair question, Allen. And I think as we looked about it, we kind of thought that an $18 million lift off of the previous -- previous guidance was just a good place to be. I think it was a strong place. We clearly dropped the beat and raised and felt like that was appropriate. When you look, it implies a 20% year-over-year growth in our surgical revenue, about $30 million of year-over-year growth. To your point, it does imply a slower or less of a lift from Q3 to Q4. I think that's factually true. But ultimately, our guidance philosophy has kind of remained unchanged. We're going to put numbers out there that we believe we can achieve and have a reasonable opportunity to exceed. And so on the balance, we felt like it was just a prudent place to land. I think as you contemplate next year, and clearly, we're contemplating next year, that won't be a surprise to anybody. And your question is how should you think about it? And what I would tell you is we came into this year, we guided towards about $120 million of absolute growth. If you look at where we are today relative to $1 billion in 2027, that would be $120 million this year -- next year and $120 million of growth in 2027. Now then you'd also say in 2023 and in 2024, we grew $130 million each year in absolute revenue. And so I think as you contemplate it for us to kind of come out into 2026 and when we do give guidance, I think those are probably good data points to reference. The thing I'd point to in terms of what makes me optimistic about our future is you look at the growth that we've generated, especially in our surgical business. And you come to realize that when surgeons adopt our procedures, they use more in year 2 than they did in year 1, and they use more in year 3 than they did in year 2 and so on and so forth. And so the adoption continues. When you look at the dollar growth that we've generated here in 2025 in surgical revenue, the preponderance of that revenue growth has been driven by people who adopted the procedures before 2025. And so when you look at the amount of surgeon adoption we've seen thus far this year, it gives me optimism for the years to come. And so probably not giving you the exact answer you were looking for, but that time will come here in probably the next time we get on a phone call. So I appreciate the question. Operator: Your next question comes from the line of David Saxon with Needham. David Saxon: Congrats on another really strong quarter. I just had a quick follow-up on, Todd, your commentary to that prior question. So you were talking about $120 million worth of annual growth. It sounds like that could be conservative. But the question is that's kind of right around where consensus is. So it sounds like you guys are feeling pretty conservative. Is that the right takeaway? J. Koning: I think you're saying consensus today versus our current guide. Consensus -- [ 2026 ] consensus versus our current [indiscernible]? David Saxon: Yes. Yes. Yes. Sorry. J. Koning: That would be the math. That is correct. So I feel like that's -- I think of the 2 data points I laid out there, $120 million and $130 million like that feels like that would be on the low end of that range. David Saxon: All right. And then the real question I wanted to ask was just around deformity and that part of the portfolio. Would love to hear some of the traction you're seeing there. I guess, is that part of the portfolio and that offering at critical mass at this point? Or do you still have some product launches to go through before it gets there? Patrick Miles: Yes. I'll go ahead and take that one, David. We are in the absolute infancy of our influence of deformity. And I think that we've gone into it really with a -- trying to garner a better understanding through the EOS experience. And the volume of opportunity to create predictability in the deformity space is significant would be an understatement. And so from the different types of deformity being adult deformity, idiopathic and early onset, the focus is going to be idiopathic and adult for the most part. But we have several products that we're currently enjoying solid adoption on. We have multiple products in the design phase of that -- for that market space. And so I think we are as poised as we can be with regard to having influence based upon the foundation built around the EOS platform. And the EOS platform will be having an end-to-end solution that's been fully contemplated, it will be fully integrated in due time. Again, our opportunity to have a significant impact on that market space is very apparent. So anyway, I guess that's all I can comment on. David Saxon: Congrats again on the quarter. Operator: Your next question comes from the line of Caitlin Roberts with Canaccord Genuity. Caitlin Roberts: Congrats on a great quarter. You noted some discipline with sales team additions. If you could maybe provide some color on how you are being disciplined in those hires? And then also, do you plan to add to the capital sales team for the upcoming Valence launch? Patrick Miles: Yes. I'll go ahead and start, and I'll let, again, Todd to clean up what I mess up. The -- so the first part was the -- just the discipline around the sales hiring. I think we have a very good algorithm in place just in terms of minimizing the volume of time from hire to them being effectual. As you appreciate, as we talk about disruption taking time, these guys oftentimes have noncompetes and other issues that preclude the immediacy of our impact in a specific market. And we still have a number of marketplaces where we are an absolute nobody. And so it's nice that what we'll see is we'll see access granted first. We'll hire sales heads to initiate a utility. And then by the time the people are offered noncompete, their influence just becomes significantly greater. And so I would tell you that our access to hospitals is tremendous and are continuing to expand. And so I have several markets in mind that we are in our infancy and just kind of just getting going. And I would say a lot of them in the Northeast. And so that's kind of the thinking on the sales hires. Again, very -- trying to be as methodically and as thoughtful as we possibly can based upon, as Todd talked about, just a lag in terms of the influence. He talked about the surgeon engagement. And then 2025 is ultimately reflecting what we're doing or previous years are ultimately reflecting in what we're doing today. It's the same impact from a salesperson's perspective, clearly. From a Valence perspective, we're going to add some capital heads, not a ton of them. What we want to do is integrate the thing procedurally. It's -- this system is very simple, and it's simple enough to where our guys can run it who are on the ground. Making sure that we have proficient salespeople that ultimately can run the entire case is of significant importance to us. And so -- again, we'll have them where we do sell capital, we will have people in place to ultimately help facilitate that process, but our expectation from an execution perspective is the people in the room. Operator: Your next question comes from the line of Tom Stephan with Stifel. Thomas Stephan: I wanted to follow up on deformity. Todd, I believe you mentioned in the prepared remarks that being an early revenue driver. And Pat, I appreciate your comments on the portfolio kind of road map to an earlier question. But Pat or Todd, how should we be thinking about kind of the timing of when that opportunity really starts to take hold sort of as we think about, I guess, contributions to revenue growth? Patrick Miles: Let me start on the subjective, and I'll let Todd provide any objective he'd like to comment on. When the foundation of your strategy is based upon EOS and EOS Insight, what we want to see is the expansion of units and the expansion of availability of EOS and EOS Insight. And so where we have EOS units, we have a marked increase in market share. And so that's because of deformity. And so what we're seeing is just the opportunity to continue to further that expansion and that market share in places where we have systems placed. And so a big part of our effort and interest is to continue to push that. And so I would tell you that as I think about it, a big proxy for significant influence becomes the information that drives improved care. And so that's the whole clinical distinction element that we love to communicate about. And so there are product additions over the next 24 to 36 months that will continue to elevate the sophistication of not only the preoperative elements, but the interoperative elements and then the ability to assess and the ability to automate -- collect automated data. And so we think that those things will drive an outsized footprint of our influence on the deformity field. J. Koning: And Tom, the only thing I'd add to that is I think that feels like a reasonably linear experience over the next couple of years. Like as we continue to do the product innovations and deliver on the promise from an EOS Insight standpoint that Pat discussed, I think when you look at the hardware stuff, you think about adult deformity, much of what you -- what we have today is utilized very effectively there. The addition of EOS makes that all the much more available, sticky and higher demand. I think when you look at pediatric deformity, that's where we've really started to add like a hardware solution or a proceduralized solution is really the answer to that. And that's probably something that's really only, I'd say, started to be felt by us in the last, say, 6 months or so. And so I think we're at the very early stages of that. And I think there's more proceduralization there to come. Patrick Miles: And again, take this for what it's worth. I think what thrills us is we have a foundation of lateral. We see cervical starting to take off based upon its own merits. And then there's a deformity long-run opportunity, as Todd said, that's going to be linear, but it's going to -- again, just -- it provides catalysts for continued future growth. And as we look at the business over a long period of time, we've made foundational investments that will continue to evolve that ultimately reflect in a unique element of our portfolio. So it looks like it's an exciting time. Thomas Stephan: And then a quick follow-up just on surgeon adoption. New surgeon adoption growth really strong, has been for many years now. Can you just talk about, I guess, kind of the durability here moving forward, just as you look at where this growth has been coming from? And then maybe more importantly, kind of where the growth will come from moving forward? Patrick Miles: Yes, I'll go subjective and objective again. The -- I would tell you that I love the whole new surgeon adoption. It's not the same contributor in the immediate term that same-store sales is. And so the great part is, is all that does is provide a proxy for future engagement. And that's where it's like the enthusiasm from us is seeing the same-store sales continue to grow so that we're not completely reliant upon adding sales heads for growth. And so what you're seeing is you're seeing a very robust business within the context of established areas and just the proxy for future bullishness based upon the new surgeons. J. Koning: Yes. And maybe to add or to expand upon that, we've got many territories where we're established today. We can both get penetration of an existing surgeon's business in terms of more procedures and/or more case revenue within the procedure. And we are adding surgeons within that existing footprint. And we've seen that significantly here over the last probably 18 months. And -- but then to Pat's point as well, there are also areas where we have just entered, if you will, and we'll begin to see more surgeon adoption because we're -- just now essentially have proper representation. And so all that to be said, the opportunity is significant to continue to add surgeons because at the end of the day, we're a high single-digit market share player, which tells you that there's a lot of surgeons we don't do business with. Operator: Your final question comes from the line of Sean Lee with H.C. Wainwright. Xun Lee: Guys, congrats on the great quarter. I just want to touch up on the EOS a bit since I see the great revenues you guys had in third quarter, which is typically a slower quarter for hardware sales. I was wondering what are the primary drivers behind this? And do you think this will carry over into the next quarter or 2 as well? And maybe thinking a little bit on the longer-term outlook as well. I know that for the EOS, you guys were initially primarily focused on academic centers. Has that changed so far? Or are you moving on towards broadening the potential targets as well? Patrick Miles: Yes. Those are good questions, Sean. It's fascinating, right? It's one of those things where I would tell you that the thing that has, I think, inspired EOS sales is what's going on from an EOS Insight perspective. I think we were at the Scoliosis Research Society meeting, and it was a standing room dynamic. And it's a who's who that ultimately, I think, pushes forward a full body biplanar low-dose scan, which we're the only guys who have that. And so for us to be able to create informatics around that is really the driving force behind people's interest in what we're doing. And I would tell you it's both -- it's both an academic and candidly, a private interest. I think it probably has -- the initial interest is mostly around deformity. And I think it's going to extend way past there because there's a joke in the spine business that all surgeons are deformity surgeons. They either create them or fix them. And so even in short segment surgery, the value of EOS is highly valuable. And so what we're seeing right now is probably a predominance of academics, which, again, we love because now we're getting into being more relevant within the academic sector. We're seeing some privates. And then we're seeing some upgrades from previous pediatric institutions that start to see the software value that we're creating with EOS Insight. And so it is -- I would still say in the very early phase of the whole EOS experience, and I expect it will just get more robust. Operator: This concludes today's question-and-answer session. I would now like to turn the call back over to Pat for closing remarks. Patrick Miles: Thanks, Lacie. Just more than anything, I want to thank the team for their work. It's -- what a great quarter. I appreciate everybody's support in what we're doing. We have a long run ahead of us, but the foundation has been laid for future prosperity. So anyway, I appreciate everybody's work, and thanks for your interest. Operator: This concludes today's conference call. You may disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q3 2025 SPX Technologies Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today. Mark Carano: Thank you, operator, and good afternoon, everyone. Thanks for joining us. With me on the call today is Gene Lowe, our President and Chief Executive Officer. A press release containing our third quarter results was issued today after market close. You can find the release and our earnings slide presentation as well as a link to a live webcast of this call in the Investor Relations section of our website at spx.com. I encourage you to review our disclosure and discussion of GAAP results in the press release and to follow along with the slide presentation during our prepared remarks. A replay of the webcast will be available on our website. As a reminder, portions of our presentation and comments are forward-looking and subject to safe harbor provisions. Please also note the risk factors in our most recent SEC filings. Our comments today will largely focus on adjusted financial results and comparisons will be to the results of continuing operations only. You can find detailed reconciliations of historical adjusted figures from their respective GAAP measures in the appendix to today's presentation. Our adjusted earnings per share exclude amortization expense, acquisition-related costs, nonservice pension items, mark-to-market changes and other items. And with that, I'll turn the call over to Gene. Eugene Lowe: Thanks, Mark. Good afternoon, everyone, and thank you for joining us. On the call today, we'll provide you with an update on our consolidated and segment results for the third quarter of 2025 as well as an update on our outlook for the remainder of the year. Our Q3 performance was strong. We grew third quarter adjusted EPS by 32% and drove significant profit and margin growth in both segments. To reflect our strong performance in Q3 with the outlook for the fourth quarter, we are raising our full year guidance range. We now anticipate adjusted EBITDA to exceed $500 million at the midpoint of our updated range, implying approximately 20% growth year-over-year. During Q3, we raised additional capital through an equity offering and increased the capacity of our revolving credit facility. These actions provide us with more than $1 billion of additional liquidity to support our organic and inorganic value creation initiatives and do not have a dilutive effect on our 2025 EPS. We also continue to progress on several key organic initiatives, including the expansion plans for our engineered air movement businesses and launch of the Olympus Max product, a new large-scale cooling solution. Inorganically, our M&A pipeline remains robust with several attractive opportunities. Turning to our high-level results. In the third quarter, we grew revenue by 23%, driven by strong organic growth in both segments and the benefit of recent acquisitions. Adjusted EBITDA increased by approximately 31% year-over-year, with 150 basis points of margin expansion. As always, I'd like to update you on our value creation initiatives. Over the past quarter, we've continued to gain traction on our growth and new product initiatives. We're making meaningful progress on expansion plans for our engineered air movement businesses where we see significant demand in excess of our current production capacity. We closed on a lease facility in Tennessee for U.S. production of our TAMCO actuated dampers. We expect production in this facility to begin in the latter half of next quarter. We're also progressing on our expansion plans to produce Ingénia custom air handling units in the U.S. We are currently targeting a location in the Southeast and we'll provide more detail next quarter. On new product front, our Olympus Max product, a dry and adiabatic cooling solution focused on the large-scale needs of data center customers, continues to receive excellent feedback and engagement from customers. We are on track to achieve our objective of booking $50 million of Olympus Max orders in 2025 for revenue in 2026. Now I'll turn the call back to Mark to review our financial results. Mark Carano: Thanks, Gene. Our third quarter results were strong. Year-over-year, adjusted EPS grew by 32% to $1.84. For the quarter, total company revenue increased 23% year-over-year, primarily driven by higher project sales in Detection & Measurement as well as inorganic growth from the acquisitions of KTS and Sigma & Omega. Consolidated segment income grew by $32 million or 28% to $146 million, while consolidated segment margin increased 110 basis points. In our HVAC segment, revenue grew by 15.5% year-over-year, with 6.7% inorganic growth and a nominal FX impact. On an organic basis, revenue increased 9%, with solid growth from both cooling and heating. Segment income grew by $14 million or 18%, while segment margin increased 50 basis points. The increases in segment income and margin were largely driven by higher volume and associated operating leverage. Segment backlog at quarter-end was $579 million, up 7% sequentially from Q2, all organic. In our Detection & Measurement segment, revenue increased 38.4% year-over-year, with strong organic growth of 26.5%. The KTS acquisition accounted for an increase of 11.6% and FX was a modest tailwind. The increase in organic revenue was predominantly driven by higher CommTech project volumes. Segment income grew by $18 million or 53% and margin increased by 240 basis points. The increases in segment income and margin were primarily driven by operating leverage on higher organic sales and the KTS acquisition. Segment backlog at quarter-end was $366 million, flat sequentially. Turning now to our financial position at the end of the quarter. During the third quarter, we accessed the capital markets to further strengthen our balance sheet and support our growth strategy. We completed a $575 million offering of our common stock. A portion of the net proceeds from this offering was used to repay the outstanding amounts under our revolving credit facility. As a result, there is no dilutive impact to 2025 EPS. We also amended our credit agreement to increase the capacity of our revolving credit facility by $500 million to $1.5 billion and extended the maturity of our credit facilities to 2030. Following these actions, our liquidity increased by more than $1 billion and our available capacity now exceeds $1.6 billion. We ended Q3 with cash of approximately $232 million and total debt of $502 million. Our leverage ratio as calculated under our bank credit agreement was approximately 0.5x at quarter-end. Q3 adjusted free cash flow was approximately $91 million. As is typical, we anticipate Q4 to be our highest cash flow generating quarter of the year. Moving on to our full year 2025 guidance. We are updating adjusted EPS to a range of $6.65 to $6.80, reflecting our strong Q3 results and Q4 forecast. This represents an increase from our previous range of $6.35 to $6.65 and reflects year-over-year growth of approximately 21% at the midpoint. For our HVAC segment, we are maintaining revenue and margin guidance and remain confident in the fourth quarter forecast. In Detection & Measurement, we are increasing full year margin guidance to a range of 23.25% to 23.75%, raising the midpoint to 23.5%. This represents year-over-year growth of 140 basis points. We expect Q4 revenue for the D&M segment to be modestly lower sequentially due to the timing of project deliveries between Q3 and Q4. As always, you will find modeling considerations in the appendix to our presentation. And with that, I'll turn the call back over to Gene. Eugene Lowe: Thanks, Mark. Market conditions support our increased full year outlook for 2025. Within our HVAC segment, we continue to see solid demand in key end markets. Our strong backlog of highly engineered solutions and efforts to increase production capacity further reinforce our confidence in HVAC's growth opportunities. In our Detection & Measurement segment, we are seeing steady run rate demand. For our project-oriented businesses, we have a strong backlog and feel confident in our forecast for the fourth quarter. Looking to next year, front-log activity remains steady. However, as we highlighted last quarter, approximately $20 million of project sales shifted from early 2026 into 2025, creating a modest headwind for next year. In summary, I'm pleased with our strong Q3 performance, including significant profit growth in both segments, an equity offering, an expansion of our revolving credit facility, which together provides more than $1 billion of additional liquidity with no dilution to 2025 EPS, and the continued progress on our U.S. capacity expansion and new product initiatives. We are well positioned to achieve our increased full year guidance, which implies 20% growth in adjusted EBITDA and adjusted EPS at the midpoint. We also see multiple opportunities to continue growing our businesses both organically and through our robust M&A pipeline. Looking ahead, I remain excited about our future. With a proven strategy and a highly capable, experienced team, I see significant opportunities for SPX to continue growing and driving value for years to come. With that, I'll turn the call back to Mark. Mark Carano: Thanks, Gene. Operator, we will now go to questions. Operator: [Operator Instructions] The first question today will be coming from the line of Bryan Blair of Oppenheimer. Bryan Blair: Another very solid quarter. Given you're almost in November and you have supportive backlog in both segments, maybe speak to your team's visibility into 2026 and which platforms or across which end markets you're most confident in sustained growth? And to balance that, where there may be some watch items as you look to the new year? Eugene Lowe: [Technical Difficulty] Okay. Can you guys -- like I'll assume you can hear us now? Bryan Blair: We can hear you now, yes. Eugene Lowe: Okay. Thanks for your question, Bryan. So yes, I think if you step back and you look ahead to 2026, overall, we feel very good. If you look across our HVAC businesses, we do have a diversity of product lines. And frankly, we're feeling pretty positive across all of our business areas. If you look at the markets that we see the most strength, those really haven't changed from what we've talked about in the past couple of quarters. We're seeing really a sustained strength in data centers. We feel like we have some nice momentum there. Same in health care, institutional, we're also seeing a lot of activity. I'd say in the industrial markets, we're seeing a little bit -- those have been kind of flattish. We're seeing some modest growth there, which I think is a positive. And we're seeing more power activity in terms of some bidding and so forth, which could yield some opportunities. Some of the markets that have been relatively lower are also some of the more commercial buildings, more hotels, things like that. But net-net, we feel very good about the markets. And then when I look at the markets, I feel good. But then I think about our initiatives on top of that. Probably the biggest one we've talked about is the Olympus Max. That's our new data center cooling solution that's either dry or adiabatic. Very good product, feel very good about that. That's a whole new market for us that we have not served. So we see the opportunity, as we've said, targeting $50 million of bookings this year, which is really revenue next year. We believe we're on track for that. We also have some capacity expansions for some businesses that there's just a lot more demand for our products, notably TAMCO, Ingénia and Marley. So when I look at HVAC, I feel very good about the end markets and then our initiatives to drive further growth. I think if you look at some of the third-party people who track markets, they would predict for the non-resi market probably mid-single digit. We would believe that we would target to be higher than that with our initiative-driven growth that I just highlighted. On D&M, I would say overall run rate is steady. We're seeing some modest growth there. And it is a little bit of very different geographically where the U.S. remains stronger, and we are anticipating that into '26. See some good pockets and some areas that are really going nicely there. And then I'd say more flattish ex U.S., talking about Continental Europe. We are seeing an uptick in U.K. in some areas. But overall, I would say, steady, modest growth in our run rate. And then our projects, we have very good activity. We did, and Mark can tie this out, we did some of that, which we had in '26, it actually accelerated into '25. And then we have a very high backlog. Now some of that backlog is more -- it's not only '26, but we actually are having a lot more multiyear projects, which is really good, but we have to make sure we understand what falls into the forward year of '26. But overall, I would expect growth in D&M as well. So I think the backdrop for what we see is positive. Mark, what color would you like to add overall on D&M? Mark Carano: Yes. I think I might just add across really both segments, right, we're in very strong backlog positions there kind of -- for both segments really, both at or near all-time highs. So really good position from that perspective. As I look into '26 and I think about how much of that backlog is scheduled to deliver in 2026, it's about 40%, and that's similar across both segments. So we're in a nice position as we sit today looking out into next year. Gene did mention this one handful of projects that were originally in our '26 backlog, they actually delivered in Q3 in our D&M segment. I think we referenced that in our Q2 call. But they ultimately were delivered and the revenue was recognized in Q3. Bryan Blair: Understood. I appreciate the walk-through. Encouraging trends overall. Maybe offer a quick update on KTS and Sigma & Omega integration. How are those assets performing relative to deal model? And then given your now quite significant balance sheet capacity, that would be great to hear more about your M&A pipeline by platform. Where do you see the most attractive opportunities? And of the -- I believe you mentioned several attractive targets, any that are potentially actionable over the near term? Eugene Lowe: Yes. I would say we feel very good about both KTS and Sigma & Omega. Sigma & Omega is a little bit newer, so we haven't -- it's at an earlier stage. KTS is already -- it's really kind of built in and operating, to me, operating as one with our CommTech business. A couple of points there. We're actually seeing some nice wins. They have gotten a few new things, proclamations from the government where they are becoming the basis of design and the standard. They've expanded into some different areas. So KTS, we feel very positive about. We love their technology. I believe we mentioned in our last call, we're launching a joint product with KTS and then the legacy TCI business in Q4, in this quarter. I think there's a lot of excitement around that. So KTS, I would say, we're feeling very positive about. And then Sigma & Omega similarly, really good team, really nice win rate. The way that we think about that market is really multilevel applications, hospitals, or could be hotels or it could be condos, things like that, and there's typically a boiler and there's typically a cooling tower. And so a key part of our thesis there was we -- they're very strong in Canada. We think we can help them grow more in the States where we have an established channel, particularly our Marley channel is very strong and then our Patterson-Kelley channel, that's our commercial boiler line. So we have already signed up, I don't have the latest numbers in front of me, but I know of 3 or 4 that have already picked up and are very excited about Sigma & Omega. And not only are we expanding geographically, but they've launched some new products with coil and then within their self-contained units. So they have some good innovation going on. So yes, I think that that fits very nicely within our hydronics business. The teams are working well. And I will say with both of those, really good leaders and really good teams and really good cultural fit. So it's still early, but off to a very positive start. The second question you had, on M&A, I would say, and I know we've said this, it is very -- we have a very high level of activity. We have a number of processes underway. And I would say as we look into 2026, we feel very good about strategic capital deployment. We're going to remain disciplined, but there is a very attractive set of opportunities. On the HVAC side, I would say we've talked about engineered air movement as well as electric heat. In each of these areas, we see several opportunities that are very attractive opportunities. And then also on Detection & Measurement, we see some very interesting opportunities. I'd say a smaller number. We still see -- have, I'd say, right now, a more active pipeline on the HVAC side. But some very good opportunities. So we feel very good as we think about moving into '26. And as Mark alluded to on the call, I mean, we really -- we got basically $1 billion almost for free. There's no EPS dilution. So it's kind of a really unique circumstance where you can expand your balance sheet so much and have the same level of earnings. And so that gives us the opportunity to invest in growth opportunities. And we're also going to be investing in some organic opportunities as well. So yes, overall, I would say, feeling very good about the pipeline and the opportunity set we have in front of us. Operator: And the next question will be coming from the line of Damian Karas of UBS. Damian Karas: I wanted to ask you first about the capacity expansion plans. Gene, you talked a little bit earlier about the TAMCO production going to be coming online later this year in Tennessee and you're looking for a spot in the Southeast for Ingénia. Could you just maybe give us a sense for initial production capacity, how to think about that, how much you're planning to bring online? And then just in terms of the equity raise that you guys just did, like how much kind of investment outlay for these expansion plans are you expecting? Eugene Lowe: Yes, I'll give a little bit of color, and then I think some of it we're not prepared to talk to. I think the TAMCO one is basically done. We've signed the lease. We're actually very excited about this. That is a 150,000 square foot facility, very similar to our existing facility. We actually think we can ramp this up over time. So we're very excited about that. And as we said, we're targeting to get some of the equipment commissioned and to start. It takes a while to ramp up. But by the end of Q1, we should get going there. But very good opportunity. That's in Tennessee. And we actually think that that will really give us the opportunity to grow quite a bit. That's very capital light. I actually think most of the capital is -- has already been deployed there. Mark Carano: Some of it will be this year and then some into next year. Eugene Lowe: A little bit next year. The bigger one will be the expansion of Ingénia. That's going to be a much larger site, probably in the neighborhood of -- it could be 3x as high. But again, we're making great progress there, but we're not at the point at which we can really say anything. What we are anticipating is by the end of -- by our next earnings report, we should be able to kind of lay out very specifically what the investments as well as the revenue expansion capacity is for all of those. And Mark, would you like more color there? Mark Carano: Yes. I think we're just working through the finer details of the site. And when that ultimately -- we actually acquire that facility, yes, it's going to drive a little bit of the timing and the timing of the capital spend. So as Gene mentioned, we're going to be prepared to provide more color to you in -- at our Q4 call, and we'll really walk people through kind of the step function of what our plan is there. Obviously, it's a much larger facility. So the capital... Eugene Lowe: Therefore, it's more capital in there, for those of you who've... Mark Carano: Know Ingénia. Eugene Lowe: Yes, who went to Ingénia. Think of an Ingénia now, and you'll see the lasers, the punches, the night train, the robotics. So it would be a similar level of capital equipment. Damian Karas: Okay. Got you. That makes sense. We look forward to getting that update in another few months. And then I wanted to ask you about the opportunity in nuclear. I think I asked you guys about that maybe a little over a year ago, but we've had a lot of developments in the market since then. So I was curious if you maybe started seeing some of those opportunities come the way of your HVAC business. What do you think your entitlement is in that specific market? Really appreciate any thoughts on just nuclear. Eugene Lowe: So nuclear, if you kind of take the existing nuclear market, rough order of magnitude, there's about 100 nukes in the U.S. About half of them have cooling towers, the other half would have what's called once-through cooling. That's where you use a lake or an ocean or something to provide your cooling. Of those that have cooling towers, we have a very high percentage of those units. You could see natural draft towers. Those are the big towers people think of when you think of nuclear power plants. They could be mechanical draft. There's a variety of technologies, but we have a very strong position there. So how does that affect us? As people want to keep power, is it's a scarce resource right now and there's a lot of demands on power. So upgrading your cooling towers, oftentimes, you can get an extra 50 or 80 megawatts out of your power plant very quickly. And so that could provide some opportunities for us in the existing infrastructure. Could be nuclear, it could be gas, could be coal. We're seeing some of those types of opportunities. As it pertains to new nuclear, I would say that we haven't seen -- we see a lot of combined-cycle power plants. There's a very active -- there's a lot of combined cycles going all across the U.S. That seems to be the go-to -- really if you want baseload power within the next few years, it looks like that's really your only option. So you're seeing a lot of activity there, sometimes paired with data centers. And we do have an opportunity to go after the cooling towers there. Combined cycles tend to be a little smaller. But yes, we see it as an opportunity. But the brand-new nuclear, I don't think we see anything in our planning horizon, I would say, over the next 2 or 3 years. Operator: The next question will be coming from the line of Andrew Obin of Bank of America. Andrew Obin: So first question, I guess, some of your -- well, I don't know if they're competitors per se, but some of the HVAC players have been talking about pushout of large projects related to data centers. I would imagine it was because the industry is sort of out of capacity across the value chain. Any comments if you see any pushouts on large projects that you guys observe? Eugene Lowe: Andrew, not that we have seen -- and we have a number of large accounts in U.S. and Asia and Europe. I think when you get into some of the large projects, they tend to be imperfect in terms of planning. So you could take a large power project or a large automotive project or a large semiconductor. And I would put data centers in that same capacity. So there's always a little bit of uncertainty on timing, but I haven't seen anything out of the ordinary. What I would say is there's a very high demand from our key customers. They're very open with us about the demand profile and they're very much pushing us to make sure that we can meet their time lines. So to answer your question specifically, there's always a little bit of pushouts here and there, but I would say nothing out of the ordinary. Andrew Obin: Got you. And then just I know you have residential exposure, and what we've seen is some pressure on consumer this summer. Are you observing any headwinds related to consumer and HVAC? And yes, I'll just leave it at that. Eugene Lowe: Andrew, if you look at where we play in residential, it's a pretty small part of our HVAC segment, and it's really the Weil-McLain boilers. And that is a very high percentage of replacement demand. If anything, we're actually seeing nice growth there. That's predominantly replacement demand. We think any given year, it could be 80% to 90% replacement for the residential portion. I would say the commercial portion has a higher percentage of new. But yes, we have not seen any slowdown or impact from the customer. I think it's early in the heat season. But even -- I spoke to our hydronics leader this morning, I believe we're a little bit ahead of bookings plan. So we're actually feeling on target. Anything else, Mark, you'd like to add? Mark Carano: No, I mean, it's really that business, I think, as many of you know, is largely driven, because it's largely replacement, by the weather cycle, for good or bad. And last year was a tough year for that business. But this year is different; it started off in a much better place. Eugene Lowe: Yes, I think we have a little bit of an easy comp versus last year, that's fair to say. Mark Carano: Exactly. Andrew Obin: Well, we're super excited to be onboard, and thank you so much. Operator: And the next question is coming from the line of Ross Sparenblek of William Blair. Ross Sparenblek: Maybe just give a little more color on kind of your adoption expectations within the new Olympus product. What are you hearing from customers? You're targeting $50 million this year, but what's kind of the run rate maybe base case for 2026? Eugene Lowe: Yes. I think we would target to get $50 million into next year for the product. I would say the -- when I think about this, I actually have conviction on our value prop and our product. I think we have a very unique product in the dry and the adiabatic. I think it leverages a lot of our kind of core Marley strengths where we tend to be known for our engineering, our industrial-grade products. I think it transfers very well. Having said that, what I would say is there's 4 kind of big kahunas for the hyperscalers. They all have different philosophies on how they design their data centers. Do they want wet or dry? There's many different variations. So it does take some time to break in there. But what I would say is we're on track and we feel very good about this brand-new product hitting $50 million. And I would expect it to kind of grow from there. And if we're successful, it could grow very rapidly into '27 and '28. But we're off to a nice start. There's a lot of bidding activity and there's a lot of discussions going on. There is in some of these markets, as we discussed in an earlier question, some of there's a lot of also budget bidding where people are trying to get a site and trying to get funding. So you get a lot of what you'll typically see on these larger projects, some of the lumpiness and the timing changing. But what I would say is there's a very good set of opportunities in front of us, and I think we have the right product set. So yes, we're very encouraged and excited to go into next year with our Olympus Max. Ross Sparenblek: That's really helpful. So it sounds like it's kind of some big game hunting with the hyperscalers. Do you guys feel that you have a good seat at the table in that design phase? Eugene Lowe: Yes. And as you know, the hyperscalers typically have confidentiality. So we can't get into some of those. But what I would say is, yes, I do think we have a number of data center customers that we've been very proven with. As you know, there's some customers, they say, "We only want cooling towers." And then you try to do that. Some only want dry coolers. And I think what is going on at a macro level is you're seeing a movement towards higher heat loads, which tends to mean the easiest and the simplest is air-cooled chillers. If there's an air-cooled chiller, that doesn't really provide an opportunity for us, because it's an all-integrated unit. As it goes to water-cooled chillers, we could either do the dry, the adiabatic or the cooling tower on that. And everything we're hearing and seeing sees a trend moving towards that water-cooled chiller solution because you really can reject more heat, frankly. So yes. I think that's a trend that I think is favorable. It doesn't happen overnight, but it should be shifting over the next couple of years, which I think what it basically means for us is it can open up more addressable opportunity. Ross Sparenblek: That's great color. One last question here, just to put a finer point on the KTS acquisition. I thought the expectations there previously was more second half weighted, but it looks like it might have been down sequentially in the quarter. Is there anything to call out from a modeling perspective? Mark Carano: Yes. I don't think so, Ross. No. It is second half weighted, no doubt. And I think the fourth quarter will be its largest quarter. But we can chat about that offline just to sync up what you're [ seeing ]. Operator: And the next question will be coming from the line of Joe O'Dea of Wells Fargo. Joseph O'Dea: Can you just touch a little bit more on Detection & Measurement in the quarter? I think you're heading into the quarter anticipating that margin could have been down. Clearly, strong revenue, strong margin. I think this is an environment where we hear a little bit more about the potential for pushouts. It sounds like things came in. So just to elaborate a little bit more on what you saw over the course of the quarter, maybe why you saw it come forward a little faster than anticipated. Mark Carano: Yes, Joe, let me touch on that. And first of all, I think we're really pleased with the initiatives and the success and progress we've had on driving margins in our across our D&M platform. But really, I would sort of break it down into 3 buckets. When you look at year-over-year, sort of 240 basis points of margin improvement at the segment income line. A part of that, probably 40, 50 basis points of it really related to KTS. That business is performing at a higher margin level than we had originally forecasted. So that business is performing nicely. We saw very nice operating leverage in the quarter on the revenue. And this is sort of net of a less favorable mix that we had signaled in the back half of this year, particularly relative to last year. Now remember, we had $20 million of this project move up from 2026, that sort of added to the volume story here, that wasn't originally in there. So that really drove very nice operating leverage. Those contracts actually executed at a higher level than we thought. And then lastly, we did have some initiatives within D&M related to some NPI and a couple of other initiatives that have actually shifted out of the year. They're kind of shifting into 2026. And that's really largely, I think, just prioritization of where the management team is spending their time and resources right now. I think we probably had more slated than we could really accomplish during the year. So those are still projects that are going to continue. Those costs will be there, but they're going to slip out into 2026, that cost. So the latter 2, I didn't give you that, it's about, of the balance, call it, 200 basis points, it splits about 50-50. Joseph O'Dea: That's helpful color. And then I wanted to ask on the HVAC backlog up 7% sequentially. It seems like seasonally from year-to-year, maybe it tends to be flat or could even move down. And so not sure if you would observe that as a little bit better than normal seasonal trend there. And anything that you would point to that's contributing to that? Mark Carano: Yes. I think -- I mean, on the backlog, a couple of things. One, when you look at it kind of year-over-year, right, it's up 32%. Organically, represents about 2/3 of that. So nice year-over-year. Sequentially, you have a couple of things going on there. You obviously -- we typically see backlog reduction at this time of the year related to our hydronics business. So as we work through what we call kind of the preseason buy that takes place, that will -- that happens at this time of the year. And then you'll see it again in Q4 as we relieve inventory related to that. So that's a little bit what's driving it. As I look to the end of the year, what I would tell you is I think backlog overall from where we are today will likely be higher. Operator: And the next question will be coming from the line of Brad Hewitt of Wolfe Research. Bradley Hewitt: So I guess on the M&A side, curious whether the $1 billion of additional balance sheet capacity that you've secured in recent months would indicate that perhaps M&A funnel is more actionable than it had been in recent months? And would it be fair to say your appetite for a larger deal has perhaps increased? Eugene Lowe: Brad, I'd say this is probably the #1 question we got in the equity raise and I think from some investors. It's a good question. But the truth is nothing has really changed. Our strategy is the same. I would say, to your point, we do have a very robust pipeline of opportunities. I think that really what predicated the raise was our EBITDA, we've kind of outgrown our revolver. We've gotten so -- we've grown our EBITDA so much that we actually saw some opportunities that would have been challenging for us to be able to execute on. We didn't want to get caught in that situation. So we actually feel like we're in a very strong situation now. But yes, very good activity and -- but no, no change in strategy. As you know, we -- for us, we've typically said a smaller deal might be in the range of a $50 million enterprise value, a larger deal might be in the neighborhood of $500 million. And that's really where the bulk of our opportunities lie. I would say 90% plus fall in that range. And there are a couple of smaller, there are a couple of larger. But yes, that's where we sit today. Bradley Hewitt: Okay. That's helpful. And then curious what your latest thinking is around Ingénia capacity exiting the year. I think the previous expectation was around $140 million. And then when you mentioned the planned Ingénia facility in the Southeast U.S., is that incremental to the $300 million of ultimate run rate capacity that you had previously cited? Eugene Lowe: Yes. No, I think that we're still on track for hitting a $140 million run rate in this quarter, in Q4. But if you look at it, our revenue is going to be materially lower than that, right? We're kind of ramping up. And that's really in our Mirabel facility. But no. And then previously, when it was talked about the $300 million run rate, which we're really talking about is that run rate being Q4 of 2027, that is both facilities. That is both Mirabel up in Canada, outside of Montreal, and then the new facility, which we're pretty close on and we should be able to announce here in our next earnings call. So yes, it'd be both those put together. Operator: The next question will be coming from the line of Jamie Cook of Truist Securities. Jamie Cook: Nice quarter. I guess just 2 questions. One is following up on Joe's question about the profitability in D&M. Obviously, it was strong in the quarter and there were some favorable items in the third quarter. But even if I look at the run rate of what's implied in the fourth quarter, like just the run rate on D&M operating income is quite a bit higher than what we've seen in the first half of the year. So just wondering if that's like a good cadence to think about like the back half times 2 for base for 2026 just given what you're seeing on the top line and in the margins? And then I guess my second question, just any updated thoughts on your 2027, 2028 sort of EBITDA goals just given, again, where we should end up this year and given how much EBITDA has grown per year since you've put that out? It just seems like that could get pulled forward or potentially it's conservative. Mark Carano: Yes, Jamie, I'll start on the D&M topic. So you really have to kind of look back to our increase in our guide for the year, which was largely driven by D&M, the majority of it was, and kind of understand what's driving that as you look out to kind of what's implied in Q4. And there's really 3 things that we -- that are similar to Q3, they're connected to it. One is KTS margin improvement. We saw a little bit of that in Q3; you're going to see more of it in Q4. These initiatives that I talked about, that impacts both Q3 and a little bit in Q4, less so. And then the better leverage was really a Q3 element. So you think about KTS and the margin benefit from that given that will be the largest quarter for the -- did we lose someone? Okay. For that business performing this year. Does that clear it up for you? Jamie Cook: Yes, that's helpful. And then on the 2027, 2028 EBITDA targets? Eugene Lowe: Yes. I mean I think -- why don't I start there and then you can dive in? When we had our Investor Day in early 2024, so we kind of looked at 2023, which our EBITDA was $320 million. Is that right? Yes, so... Mark Carano: It was $310 million. Eugene Lowe: 310, okay. $310 million. And we said we think we can double this within the medium term, which would be 4 to 5 years. To your point, I think we're tracking very, very favorably on that. So we went from $310 million to $421 million last year. I think we're $505 million at the midpoint this year. We're seeing nice growth dynamics, particularly on our HVAC side, as well as some good inorganic opportunities. So yes. If I were to kind of say that was 4 to 5 years, I would say I'd be disappointed if we weren't -- the 5 feels too long. I do think we're ahead of plan here. And Mark, I don't know if you have any other comments you'd like to add to that. Mark Carano: No. I mean I feel good about where we sit. I mean particularly as I look out into -- at our end markets that are in some of the longer-term megatrends that are driving the business. Eugene Lowe: As we very clearly say, we want 15% growth every year. This year, we're penciling in around 20%. Last year, we were at 29%. We think our model is tracking as we expected. So yes, we'd expect, assuming we stay on plan, we would exceed that well before the 5 years. Operator: The next question will be coming from the line of Jeff Van Sinderen of B. Riley Securities. Jeff Van Sinderen: Let me add my congratulations. Just as a follow-up to the last question, as you plan for 2026, what are your thoughts on building incremental P&L leverage for the enterprise as a whole? And maybe thoughts on potential for EBITDA margin expansion just for next year. Are there any anomalous things that we need to keep in mind that might skew that either way? Mark Carano: Yes, I'll start, Jeff. I mean I want to be careful, we're not in a position where we're going to share 2026 guidance today. But I don't think of anything anomalous. I'm just sort of thinking through a couple of things. I mean when I think about our corporate structure that we have here in Charlotte, I mean, we're scaled, I think, appropriately today and really not a need to continue to really add to that as we scale the business. So clearly, I think next year, we are going to have some start-up costs related to HVAC. We've got a little bit of that in this year, with respect to some of the initiatives we have underway regarding the data center development of some of the new technologies there, the new plants that will be coming online. So that's -- while the first was kind of a positive, that's something that has potential to be a bit of a potential drag. But it shouldn't be a material number really when I think about the margin profile for next year. I mean what I would say is I feel very good about what we've done over the last few years, whether it's kind of driving the margin profile of the HVAC business up to where it is, and similarly, returning the D&M business to the margin profile that it once was a number of years ago. So as I look forward, you think about, as you continue to grow the top line, we should get operating leverage there. Jeff Van Sinderen: Okay. Great. And then you've touched on potential pushouts in the data center market. Given the nature of that data center beast, on the flip side, are you seeing any pull forwards in demand from any projects there? Eugene Lowe: Yes. I would say it's a it's a very fast-moving, fluid environment where, yes, there are some things that accelerate and can move, yes, can definitely move up well earlier than planned. In some cases, you have some of these colos that will get a facility and they'll set up a location and then they want to get a customer or a major tenant. And once they get it, all of a sudden, they're moving 90 miles an hour. And so yes, we do see things moving in both directions there. It is a very fast-moving market, with a lot of activity and a lot of -- it's a very dynamic market, as you might expect, with the amount of growth that's going on in that market. But yes, we have seen it move forward as well as seeing some of the normal project delays. Jeff Van Sinderen: Thanks for taking my question, and continued success. Operator: And the next question will be coming from the line of Steve Ferazani of Sidoti. Steve Ferazani: It's been a long call, so I'll try to ask you a couple of easy ones. Very strong free cash flow in 3Q. I know you had already tipped off the fact that all the cash -- the remaining cash costs related to the long-ago discontinued ops were taken last year. Nevertheless, much stronger cash flow this quarter. You've got the balance sheet in great shape now. But I'm looking at my model, in 4Q, if you get the typical working capital reversal that you usually get, you're looking at significant cash flow in 4Q given that you've already cleaned up that balance sheet. You're looking at a number, and I'm sure you -- my number is not far off of yours, how are you thinking about using that 4Q cash? Mark Carano: Yes. I think your -- well, I don't know your number, your presumption is correct. Steve Ferazani: I don't want to give it, but it's sizable. Mark Carano: Yes. Listen, I mean, it comes back to the M&A pipeline that we have in front of us, right? I mean we feel really good about the opportunities ahead of us. And that's just part of the pool of capital that will be available to us to drive the value creation. And obviously, we've got the plant expansion. We haven't sized that yet, but we'll certainly -- that will be part of the overall deployment of capital. Steve Ferazani: Okay. And Gene, let me follow up a question that was asked earlier because, obviously, you are getting asked about M&A opportunities and size. And I know you've talked previously and we've discussed this, that if you go larger, typical the multiples get higher. I mean so much of your success over the last few years has been paying very reasonable multiples for acquisitions. And I think investors want to hear that you're going to maintain that kind of discipline around businesses you know really well and paying that 10 to 12x. Given the balance sheet is so much cleaned up given your access to capital, is there an itch to go higher to find the right deals? Or do you expect to maintain that kind of discipline? Eugene Lowe: No, I think if you look at -- I mean, it's a great question. I think that our model has really worked. And I think our average multiple has been in the neighborhood of 11x. We typically get 1.5, 2 turns. So you kind of get it under your roof at 9x, which is a really good value, when you think of our average EBITDA that we've acquired is 20% and these have also been accretive on growth rates. Not to mention the most important point, the whole purpose of how we do M&A is to really strengthen our competitive position and to be able to expand. So yes, I think I don't see any deviation from our strategy. Typically, if you see a smaller deal, in the $50 million range, something like that, it will be a turn or 2 lower. If you see a larger deal that has more established management teams, more established IT systems, products, channels, is lower risk, you typically see is always going to be a turn or 2 higher. But the flip side of that is you can typically get some more leverage and some more synergy when you have a larger organization like that. So yes, I think that our model has not changed. We do see deals that -- and this is probably more in the Detection & Measurement side, you can see deals going for 19x, 20x. That's just not us. That's just not -- that's not who we are. We really do focus on cash returns. And yes, I would -- our model is going to stay. We're executing the same strategy that we did a year ago, Steve. Operator: That concludes today's Q&A session. I would now like to turn the call back over to management for closing remarks. Please go ahead. Mark Carano: Thanks, operator. Operator: That concludes today's conference call. You may all disconnect.
Operator: " Paul Vincent: " Thomas Deitrich: " Joan Hooper: " Noah Kaye: " Oppenheimer & Co. Jeffrey Osborne: " TD Cowen Alfred Moore: " ROTH Capital Partners Scott Graham: " Seaport Research Partners Operator: Good day, and thank you for standing by. Welcome to Itron's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Paul Vincent, Vice President of Investor Relations. Please go ahead. Paul Vincent: Good morning, and welcome to Itron's Third Quarter 2025 Earnings Conference Call. Tom Deitrich, Itron's President and Chief Executive Officer; and Joan Hooper, Senior Vice President and Chief Financial Officer, will review Itron's third quarter results and provide a general business update and outlook. Earlier today, the company issued a press release announcing its results. This release also includes details related to the conference call and webcast replay information. Accompanying today's call is a presentation that is available through the webcast and on our corporate website under the Investor Relations tab. Following prepared remarks, the call will open for questions using the process the operator described. Before Tom begins, a reminder that our earnings release and financial presentation include non-GAAP financial information that we believe enhances the overall understanding of our current and future performance. Reconciliations of differences between GAAP and non-GAAP financial measures are available in our earnings release and on our Investor Relations website. We will be making statements during this call that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from these expectations because of factors that were presented in today's earnings release and comments made during this conference call as well as those presented in the Risk Factors section of our Form 10-K and other reports and filings with the Securities and Exchange Commission. All company comments, estimates or forward-looking statements are made in a good faith attempt to provide appropriate insight to our current and future operating and financial environment. Materials discussed today, October 30, 2025, may materially change, and we do not undertake any duty to update any of our forward-looking statements. Now please turn to Page 4 of our presentation as our CEO, Tom Deitrich, begins his remarks. Thomas Deitrich: Thank you, Paul. Good morning, and thank you for joining our call. During the third quarter, Itron set new records for margins, profit and free cash flow on revenue in line with expectations. Financial highlights on Slide 4 include revenue of $582 million, adjusted EBITDA of $97 million, non-GAAP earnings per share of $1.54 and free cash flow of $113 million. On Slide 5, our third quarter bookings were $380 million with a total backlog at the end of the quarter of $4.3 billion. Turning to Slide 6. Utilities are operating in an increasingly complex environment marked by accelerating load growth, rising costs, heightened regulatory scrutiny and greater technical demands. Customers are adapting to this landscape by sequencing initiatives and in some cases, extending project deployment schedules. While regulators generally share utility strategic objectives, growing sensitivity to consumer costs is leading to more rigorous evaluation of project investments. Despite a slower pace on some projects, our customers remain focused on enhancing grid performance and reliability through the adoption of grid edge technology that delivers greater visibility and control at the edge. This is reflected in the ongoing expansion of distributed intelligence-enabled endpoints, which topped 16 million deployed by the end of the third quarter with more than 10 million additional units in backlog. Licensed DI applications grew 119% year-over-year to $20 million at quarter end. Grid Edge Intelligence defines the future of agile, data-driven distribution infrastructure and continues to expand opportunities for our Outcomes segment, which grew 11% year-over-year, led by higher recurring revenue. With respect to recent federal funding actions, Itron has seen no project cancellations, stoppages or decline in customer interest. However, these deployments introduce greater near-term market uncertainty and add to the complex challenges our customers face. Lower-than-expected Q3 bookings and heightened uncertainty have tempered our year-end booking expectations. While achieving a 1:1 book-to-bill ratio for 2025 remains possible, we anticipate current dynamics to persist this quarter, resulting in bookings below that target. Although project conversion to backlog is taking longer, lumpy bookings are a familiar pattern and do not alter our long-term business trajectory. Importantly, these changes are not due to competitive dynamics nor fundamental changes in the market. Our opportunity pipeline has expanded by over 25% since the start of the year. Moreover, outcomes-related bookings continue to lead relative backlog growth across our 3 segments. Lastly, we recently announced the acquisition of Urbint with the transaction expected to close during the fourth quarter of 2025. The Urbint business aligns well with our M&A priorities. Its software-oriented scalable platform complements our current portfolio and addresses the needs of critical infrastructure providers. Urbint's SaaS business model delivers solutions for emergency preparedness and response, damage prevention and worker safety. We are excited to welcome the Urbint team on board soon. We will share more details about Urbint and the expanded Itron portfolio on our next quarterly call. Now Joan will provide details about our third quarter and our outlook for the fourth quarter. Joan Hooper: Thank you, Tom. Please turn to Slide 7 for a summary of consolidated GAAP results. Third quarter revenue of $582 million was near the top end of the range we provided and lower than the prior year due to planned portfolio changes and the timing of large project deployments. Gross margin of 37.7% set a company record for the second consecutive quarter and was 360 basis points higher than last year due to favorable customer and product mix. GAAP net income of $66 million or $1.41 per diluted share compared to $78 million or $1.70 per diluted share in the prior year. The decrease was due to higher tax expense with the prior year benefiting from favorable resolution of a foreign tax audit. This was partially offset by higher GAAP operating income. Regarding non-GAAP metrics on Slide 8, non-GAAP operating income of $89 million or 15.3% of revenue was an all-time quarterly record and increased 13% year-over-year. Adjusted EBITDA of $97 million or 16.7% of revenue were both all-time records and EBITDA dollars increased 10% year-over-year. Non-GAAP net income for the quarter was $72 million or $1.54 per diluted share versus $1.84 a year ago. Higher income tax expense more than offset higher non-GAAP operating income. Q3 free cash flow of $113 million or 19.5% of revenue is a new company record and compares to $59 million a year ago. This increase reflects improved working capital, lower tax payments and higher operational earnings growth. Year-over-year revenue growth by business segment is on Slide 9. Device solutions revenue decreased 19% on a constant currency basis due to the expected decline in legacy electricity products in EMEA and lower water volumes in North America. Network solutions revenue decreased 6% year-over-year, primarily due to the timing of project deployments. Outcomes revenue increased 10% on a constant currency basis due to the continued growth of recurring revenue. Moving to the non-GAAP year-over-year EPS bridge on Slide 10. Our Q3 non-GAAP earnings per share decreased $0.30 year-over-year to $1.54 per diluted share. Higher tax is the driver of the year-over-year EPS decline, contributing negative $0.51 per share. Prior year tax expense was unusually low due to a favorable resolution of a foreign tax audit. Pretax operating performance contributed a positive $0.22 per share improvement, driven by the fall-through of higher gross profit. Turning to Slides 11 through 13, I'll review Q3 segment results compared with the prior year. Device solutions revenue was $104 million with a record gross margin of 30.9% and operating margin of 24%. This segment continues to deliver strong profitability improvement. Gross margin increased 370 basis points year-over-year and operating margin was up 240 basis points due to the favorable change in customer and product mix. Network solutions revenue was $394 million with gross margin of 39.3% and operating margin of 31%. Gross margin increased 340 basis points year-on-year and operating margin was up 330 basis points due to improved customer and product mix. Outcomes revenue was $84 million with gross margin of 38.9% and operating margin of 19.9%. Gross margin increased 390 basis points year-over-year, and operating margin was up 520 basis points due to a higher margin revenue mix and operating leverage. Turning to Slide 14, I'll review liquidity and debt at the end of the third quarter. Total debt was $1.265 billion, and cash and equivalents were $1.332 billion. Please note that our recently announced $325 million all-cash acquisition of Urbint is expected to close during the fourth quarter. During the third quarter, we amended and increased our revolving line of credit to $750 million, which now matures in 2030. Now please turn to Slide 15 for our fourth quarter outlook. We anticipate fourth quarter revenue to be between $555 million to $565 million. The midpoint of this range represents a decline of 9% year-over-year. For non-GAAP earnings per share, we expect a range of $2.15 to $2.25 per diluted share, which assumes a negative effective tax rate of approximately 19%. This negative tax rate is driven by the favorable conclusion of an uncertain tax position, which will be recorded in Q4. At the midpoint, this EPS implies an increase of $0.85 versus Q4 of last year. Normalized for the tax rate, the midpoint EPS estimate is up approximately 7% versus last year. Please note, our fourth quarter outlook does not include any impact from the Urbint acquisition. Now please turn to Slide 16 for an update to our annual 2025 outlook. We now anticipate 2025 full year revenue to be within a range of $2.35 billion to $2.36 billion. At the midpoint, this is down 3% versus 2024, which had approximately $125 million of catch-up revenue. Normalizing for the 2024 catch-up revenue, the midpoint of the updated guidance is approximately 2% year-over-year growth. Our non-GAAP earnings per share full year outlook range is increasing versus prior estimates due to the favorable tax item I just mentioned. Our current expectation for full year 2025 non-GAAP earnings per share is a range of $6.84 to $6.94 per diluted share with an expected annual effective tax rate of approximately 12%. At the midpoint, the updated non-GAAP EPS estimate is up 23% versus 2024 or 16% when normalized for the tax rate. While our revenue growth has been challenged with lower-than-expected bookings and the pushout of ongoing project deployments, we are proud of our progress to improve the margin profile of the business, which has allowed us to drive higher profitability on lower revenue. And now I'll turn the call back to Tom. Thomas Deitrich: Thank you, Joan. The market we serve is unique. And although recent volatility has increased, the industry's long-term growth trajectory remains unchanged. Our record financial results despite industry headwinds, reflect our multiyear strategic efforts to optimize the product portfolio and global supply chain. The team is performing well, and our grid edge intelligence solution leadership is undeniable. The opportunity pipeline continues to grow and is at record levels. Together, these factors reinforce our confidence that we remain on track to achieve our 2027 targets. Finally, Urbint adds a new dimension centered on operational resilience solutions with strong growth potential. As we build out this solution set, including cross-pollination of data streams to create new offerings, significant opportunity lies ahead. Leveraging the strength of our balance sheet, we remain actively engaged in pursuing inorganic growth opportunities. We are in the early stages of the digital transformation in energy and water systems. Itron is well-positioned to expand its business alongside these global infrastructure shifts and ongoing growth in the years ahead. Thank you for joining our call today. Operator, please open the line for some questions. Operator: [Operator Instructions] Our first question coming from the line of Noah Kaye with Oppenheimer. Noah Kaye: First, I just want to get the modeling right. Joan, thanks for giving us the color on the tax rate for 4Q. Can you just give us an understanding on the delta for revenues versus the prior implied guide? Is lower rev primarily in networks? Or is it elsewhere? And then how to think about kind of gross margins. If we back out the tax impact, it would seem like gross margins might go down sequentially, but just want to make sure we're thinking about it directionally right. Joan Hooper: Yes. I would say the biggest weakness is in networks, and it's the commentary we made about deployments they're just pushing to the right. They're going a little slower than we would have expected. From a standpoint of gross margin, I would expect Q4 to look pretty close to what Q3 is. The impact of the taxes, it's a $39 million discrete benefit. So, it had a statute limitations that expired on October 15. That is worth about $0.84 a share. Noah Kaye: And then just to dovetail off of that, Tom, I want to segregate a little bit between the impact of project delays on revenues and the overall demand environment and bookings. So, to take the second part of that first, I mean, the metric you provided on the 25% pipeline growth from the start of the year is helpful. Can you give us some color on what's impacting some of the conversion delays from pipeline into bookings? And how you see this trending over the next couple of quarters? Thomas Deitrich: Sure. So, I think it's undeniable the demand is coming. That record pipeline and being up 25% since the start of the year is pretty clearly a strong signal of where the market is going. If I look at it through the lens of win rates, our win rates are at or above historical rates. So, the competitiveness of the portfolio remains very strong and good. If you dig one level deeper, the rate at which recurring revenue bookings are happening, meaning software and service types of things. We passed our goal for the year in Q3. That's very strong. So, outcomes backlog is up 36% year-over-year. It's well over 20% of the total backlog. We're very pleased with our progress there. Where we have seen some delays in decisions, so they're just sort of getting pushed out is on the more hardware-oriented projects. So that's really due to some of the complex operating environment that I talked about earlier. I definitely see increased interest in the part of the customers on trying to find good ways to move forward and live within the regulatory constraints or perhaps some of the operational constraints that they have. So, I would think about it as moving much more towards buying a Jeep a piece at a time rather than buying the whole Jeep. And that really plays to the platform that we have with forward-backward compatibility and really is good for the customer as they get to manage that cost, but it also is good for the incumbent as the way that business tends to roll through. So again, I still see the environment as very robust. Our '27 targets are clearly on track. A couple of places we're already achieving it or ahead. Lumpiness in the bookings, okay? We've seen this before, and it doesn't really give us pause on the strength and the outlook of the business. Noah Kaye: I appreciate you reiterating the '27 targets, components. Operator: Our next question coming from the line of Ben Kallo with Baird. I'll go to the next person in queue. Coming from the line of Jeff Osborne with TD Cowen. Jeffrey Osborne: Just a couple of quick ones on my side. Tom, on the 6% decline in networks and the rationale you gave, could you just be more descriptive? Is that new customers that were commencing new rollouts for DI? Or are these people that were underway maybe on a 3- or 4-year cadence and have just elongated that to sort of look more disciplined in front of the regulator on their existing CapEx budgets that might be a bit overextended because of tariffs or whatever reasons? Thomas Deitrich: Right. On the revenue side for booked projects specifically is what I think you're asking about. Again, I think it's software and services growing nicely, double-digit growth year-over-year. What we saw from, let's say, first half, second half is the catch-up of the constrained revenue from prior years when you lap it year-over-year. We also had an end of -- a completion of a major deployment in the networks business that rolled off. And we have seen customers in some occasions spreading projects what used to be a 3-year project over 4 years or something like that. So, I don't think it causes any loss of backlog or loss of revenue. It certainly does spread things out on some of those projects. And that's what you see rolling through the P&L. Jeffrey Osborne: Are they giving you more clarity as to when they -- if you thought things were going to be at run rate when things will resume? Or like what visibility are they giving you as it relates to their plans as we head into the spring of next year? Thomas Deitrich: I guess I'm trying to read through the lines of what you're asking. I mean we know what their deployment rates are and those get reprofiled on a regular basis. So, it's not every project. It's a few that tend to spread over a longer period of time, and we know what that looks like. No projects have stopped. So, it's not like there's a complete stop on anything that was intended to be ongoing on the revenue side at all. I do think that higher costs and capital budgets within the year clearly have something to do with it in cases where some of the government funding may have disappeared. The customers have to make decisions on how they handle that, whether they go back and make appeals to the government. I would suggest even the projects that are listed as canceled may or may not be canceled. But in all cases, customers absolutely intend and are continuing to work through that process. It just creates a little bit of churn in the near term. I suspect that this levels out in the quarters ahead. So again, it's not something that gives us any pause on what '27 targets will really look like and remain tremendous confidence in where the business is going. Jeffrey Osborne: And just 2 rapid fire ones. I know you're not giving guidance for '26, but could just Joan comment on what tax rate we should be assuming given all the moving parts you've had this year? And then I also just wanted to confirm, if I heard you right, I think you said that outcomes is 20% of the $4.3 billion backlog and up 36% year-on-year, that would be a number greater than $800 million. Is that over 7 to 10 years? Or what's the duration of that $800 million, if I heard you right? Thomas Deitrich: Yes. So again, it's well over 20%, and it is up 36% year-over-year. So, you're kind of in the right ZIP code there. The backlog is generally 3, 4 years in length overall. So even though we might have longer-term deals, we generally stick to our traditional way of thinking about what is counted in backlog as those outcomes, long-term recurring revenue contracts tend to be, in many cases, nearly evergreen as there are provisions to allow extensions in the contracts themselves. So, think of it as a 3-, 4-year visibility. Joan Hooper: Yes. And on '26, as you say, it's really too early to tell. I mean we end up building up the tax rate based on jurisdictional mix of revenue, everything we know at the time. I think the top end would be like the 25%, which we typically use as a placeholder. Operator: [Operator Instructions] And our next question coming from the line of Chip Moore with ROTH Capital Partners. Alfred Moore: Tom, I want to follow up on your commentary on bookings. It sounds like it's possible, right, you could put up $1 billion, but less likely you get to 1:1 for the year. Just with your comments on '27 being intact, any -- it's too early for guidance, obviously, but any way to help us think about growth trajectory next year just with some of these moving pieces? Would we expect growth? Or how should we think about that? Thomas Deitrich: Yes. Again, I think it's way too early to think about where we will land on 2026. We'll get to that when we officially set guidance early next year. I think there will be growth. It's just a question of what level it would be, and that's what we're working through with our customers and the team right now. Alfred Moore: And if I could ask one more, just on Urbint. I know it hasn't closed, so you're limited on what you can say. But just maybe speak to how the deal came about and any customer overlap and potential synergies there and anything else you can provide? Thomas Deitrich: Sure. So Urbint, just a quick background on what it is. It's a SaaS-based business. Their customers are essentially utilities, tremendous overlap between the customers that they have and that we have. What do they do? They really help the customer with things like emergency preparedness and response. So, if a storm is going to roll through a particular territory, how can you use the power of AI to predict the storm path so you can preposition crews. How you recruit those crews, how do you make sure that you manage workflows and right down to things like making sure you're getting the crew paid and they've got a place to sleep to make sure that you've got a closed-loop process there. When you're in the heat of battle, how do you keep good records as to what you're actually doing, how do you keep the workers safe is another module, whether it's in a normal field deployment kind of activity or whether it's in the heat of battle in a restoration kind of environment. And there's a damage prevention module as part of it as well. So tremendous potential there as we combine operational data that generally comes out of our systems to make those algorithms and services much more robust. And you can think about the cross-pollination the other direction, which is our restoration services and vegetation management services. You can apply some of the same analytics and thought process around how that works. So, we're excited about where this business will go and be able to expand share of wallet with existing customers and certainly be able to take those capabilities from Urbint to our 8,000 customers around the globe as well. So again, I think there's great potential here. We'll talk about more as to what it means and how it looks after we get through the close during this quarter. Operator: Our next question coming from the line of Scott Graham with Seaport Research Partners. Scott Graham: A question about -- your backlog was up year-over-year, and I think that the hope here was that a strong third quarter bookings number would mean that you have a better organic in '26. And then if you didn't get that, the organic could be fairly muted once again in 2026. I'm going to assume that, that still holds unless, of course, you have some extraordinary fourth quarter of bookings. But even then, I think that that's more of a '27 event. So, my question is, is it possible, Tom, in 6 months' time that we could be revisiting the '27 targets and perhaps leaning more into margin than sales? Thomas Deitrich: No, I don't anticipate that we're going to be revisiting the 2027 targets. Okay. What you potentially could see is maybe you're on the lower end of those '27 numbers on the revenue line, maybe on the high end on some of the other numbers that were in that overall model, whether you're talking about free cash flow or gross margin kinds of numbers, but well within the range is really what we are thinking and seeing overall. Recall, we had this conversation probably 2 years ago where there was a fair amount of skepticism whether the gross margin numbers were realistic or not. I think we've probably more than erased those doubts given where we're operating today and what the future looks like. I would say that lumpy bookings are kind of normal in our business. It's just the way things work. We're obviously doing a much better job of growing that nice stable recurring revenue on the software side. So, some of that lumpiness does even out in the years ahead. But again, I wouldn't get too worried about lumpiness in the bookings in the short run. Scott Graham: I appreciate that. If I could just maybe, follow up sort of a corollary question to that. And as you look at your backlog and the delivery times that are in those orders, let's call it, in the first half of the year, are you now seeing those delivery times changed by, let's say, pushed out by 2 quarters, 4 quarters? How much of the backlog has had delivery times pushed out? Just give us a little bit of a better feel for that. Thomas Deitrich: Yes. I would say that think about it in a more holistic sense than that. If you had a project that you were planning on doing the deployment over 3 years, maybe you're now profiling it over 4 years in some particular cases. That's kind of what it would look like. So, you're really kind of taking the same area under the curve and perhaps spreading it a little bit for some of those projects. So, it's less discrete than perhaps the way I'm interpreting your question. And again, this is not every project. This is a few larger projects, which slowed down the revenue on the hardware side of things. Meanwhile, the software portion and services portion of the business continues to grow nicely and continue to do exactly what we wanted to do inside of the business. So, I think you got to look at it through both lenses and think about how that expresses itself through the P&L as well as how we can help our customers with the types of things they need to get done. Operator: I'm showing there are no further questions in the queue at this time. I will now turn the call back over to Mr. Tom Deitrich for any closing remarks. Thomas Deitrich: Very good. Thank you all for joining the call today. We look forward to updating you again at the end of the year. Thanks. Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good morning. My name is Cynthia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Biogen Third Quarter 2025 Earnings Call and Business Update. [Operator Instructions] Today's conference is being recorded. I'd like to turn the conference over to Mr. Tim Power, Head of Investor Relations. Mr. Power, you may begin your conference. Tim Power: Thanks, Cynthia, and good morning, everyone. Welcome to Biogen's Third Quarter 2025 Earnings Call. During this call, we make forward-looking statements, which involve risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. We provide a comprehensive list of risk factors in our SEC filings, which I encourage you to review. Our earnings release and other documents related to our results as well as reconciliations between GAAP and non-GAAP results discussed on this call can be found in the Investors section of biogen.com. We've also posted the slides for our webcast -- we posted the slides on our website that will be used during this call. On today's call, I'm joined by our President and Chief Executive Officer, Chris Viehbacher. Dr. Priya Singhal, Head of Development; Alisha Alaimo, our President and Head of North America; and Robin Kramer, our Chief Financial Officer. We'll make some opening comments and then move to Q&A session and to allow us to get through as many questions as possible, we kindly ask that you limit yourself to just one question. And I'll now turn the call over to Chris. Christopher Viehbacher: Good morning, everyone. Thank you, Tim. Can I have the first slide, please. So I think we've delivered a very strong third quarter. In particularly, I'm very happy to see our growth on launch products, delivering year-on-year growth of 67% in the third quarter. The launch products again in this quarter, and if I look at this year-to-date as well, more than have offset the MS decline on a year-to-date basis. LEQEMBI continues to show good, strong, sustained sequential global demand growth with sales globally of $121 million. You may recall that we disclosed in the second quarter that we had increased inventory levels in China. And so we had higher Q2 sales and with some offset now in Q3, but when you look at this on a rolling 12-month basis, we're very happy with the progress we're making on LEQEMBI, the approval of the IQLIK subcutaneous injection for maintenance is now approved in the U.S. and it has rolled out and patients are benefiting from that. SKYCLARYS is now available in 34 markets globally. We've got 30% year-over-year revenue growth. That is actually not as high as even the patient growth because we have a number of early access programs in countries, making sure that patients benefit from the product while we negotiate with pricing and governments around the world. And ZURZUVAE, 150% revenue growth year-over-year. This is just an amazing product. One of the most interesting things is I think we are actually changing the perception of postpartum depression. Every day, there are media stories about this terrible condition from others. Jennifer Lawrence is the most recent person to talk about her experience with postpartum depression. So ZURZUVAE is not just a product. I think we are really revolutionizing how people look at this. And that's important, and it's -- but it's also driving a lot of revenue growth for us. If I look at the pipeline, again, very good strong progress. We have litifilimab Phase III studies now are fully enrolled, and both are now expected to read out in the second half of 2026. Now I look at this as not just an acceleration. Lupus is an extremely competitive area. There are a lot of studies ongoing. And one of the things when you look commercially at a new product is, can I recruit patients in clinical trials? Because that's kind of a harbinger of how things are going to work commercially. So we can accelerate, we can accelerate in a competitive environment that tells me that already physicians are seeing something special about litifilimab, and I'm certainly encouraged by that not just from the fact that we're going to get the data earlier. But as I say, I think it's a good sign for the commercial success longer term of the product. We continue to build out our early-stage pipeline. As we'll see in a minute, we've got, I think, an extremely robust late-stage pipeline. Now it's the time to turn to an earlier stage. We've started a Phase I study for BIIB142. It's an IRAK4 degrader for autoimmune disease. We actually expect to put another 3 to 4 molecules into our early-stage pipeline over the coming 18 months. And then we continue to be active on the BD side. We announced the agreement to acquire Alcyone Therapeutics. This is a very strategic acquisition for us. ASOs continue to be a mode of administration that is necessary to treat a number of diseases. We ourselves have other products such as salanersen, BIIB080, zorevunersen. And so this is a mode of administration that will be much more convenient for patients and we're seeing other companies obviously also developing ASO. So this is really going to be a breakthrough, we believe, for patients who are taking intrathecal injections. And then we have just added the C5aR1 antagonist through our licensing agreement with Vanqua Bio, one of the nice things about immunology drugs is that they tend to offer you an opportunity to create a portfolio in a product. Once -- as you follow these immunological pathways, they can lead to a number of different indications. And the beauty of that is, of course, that once you've been able to demonstrate safety, you can then very efficiently go into other indications. And again, we expect to announce at least another one, if not two, further research stage deals by the end of the year. So if we can move to the next slide, please. Now these are -- I love this slide. When I look at this and I look at the lines that are extending all the way across the page, I mean, a company our size, 10 Phase III or Phase III-ready programs and that covers 5 Phase III NMEs. And we've got a lot of conviction around this pipeline. And we've seen a lot of good data in Phase II. And we're getting close to now seeing a lot of the readouts out of that. Now one of the things that you probably don't think about is that these are not just 10 Phase III programs. This is also 10 launches. If I take just felzartamab as an example, there are 4 indications of that, 2 of those, AMR and MVI are transplant. Two of those are in nephrology. And then, of course, we've got lupus coming along with three indications in lupus. And of course, we're still in rare disease with zorevunersen. We have a next generation of SPINRAZA with salanersen, and we're quite excited about what's coming along with BIIB080 in tau, but all of those require now that we start building up commercial teams building insights, thinking about pricing, thinking about value propositions. So a lot of activity going on inside the company. Another thing I'd like to look at in terms of trying to predict whether things are going to be a success or not is, can we attract strong talent. Because people bet their careers when they come to a company and especially if it's a new product. And I have to say I've been super impressed with the talent that we've been bringing into Biogen. And that sort of says to me that people are willing to bet their careers on these exciting new products. And I have seen time and time again over my career that, that often translates into commercial success. Market research is important, but I think some of these other indicators are even more important. So we go to the next slide. So what we've been trying to do over the last 3 years. The first is, obviously, let's grow our new product launches. And again, 67% revenue growth says this is a very strong performance. We've got LEQEMBI, SKYCLARYS, ZURZUVAE even QALSODY. And when I look over the last trailing 12 months, it's almost $1.2 billion in revenue. So -- and obviously, these products all have long runways in terms of market exclusivity and in each of these, these are first in first -- not only first-in-class, but first-ever treatments in these areas. So we're actually doing an awful lot of market creation, but for those of you who've got a lot of commercial experience, you know that creating markets is a lot tougher than just going into established markets and taking market share. And I think that speaks to a lot of the commercial strength of our teams at Biogen. Then let's look at the profitability of our legacy business. And yes, I think we beat on the top line this quarter because of MS. But that's not all by accident. And I think we are beating just about every analog when you're looking at products that have come to the end of their market exclusivity periods. I think that speaks to the strong customer care. I think it speaks to the strong loyalty of patients to Biogen's product. We are still the company that treats more patients with MS than any other company out there. And one of the things that we shouldn't forget is it's not all legacy. There's an amazing product out there called VUMERITY that has been growing very strongly this year. It's almost $0.5 billion sales in the first 9 months of this year. And this is a product that has market exclusivity well beyond the end of the decade. And we're proud to see particularly our U.S. team investing more into this business and that is responding well. And it is really the only patent-protected product still in the oral segment, which is extremely important part of the MS market. And then we've been very conscious of being efficient. We are going to deliver this $1 billion of gross savings. We were clear right from the get-go that we would be investing some of that as part of the launch in our new products, but also in research and development. You've seen our revenue growing, but our OpEx growth was still flat over this year. Despite a lot of new investments, we have added products to our late-stage development and we are doing all of this recruitment for the commercial preparation of all these launches that are now in Phase III. And then obviously, if I look at our pipeline, we have cut development costs by almost 25% and research by 40% and I would argue that we have a stronger pipeline than we did before. And that's really a lot of what Priya has done in terms of being very careful about, which products we put into development, building conviction behind those. I think as I look at the pipeline, I'd say we've got a very exciting and a high conviction late-stage pipeline. One of the reasons that we're doing these early-stage deals is, I think we now need to build an early-stage pipeline and Vanqua is just one example of that. We continue to generate strong cash flow, and we continue to look at where are the opportunities across the entire spectrum about how we can grow our business. I think we are very disciplined about where we put that cash flow. Everything that we want to invest in has to be something that contributes to growth. And so with that, perhaps we can learn a little bit more about our pipeline, and I'll pass it over to Priya. Priya Singhal: Thank you, Chris. This year, we've made important progress across the development pipeline and we are positioned to continue to deliver multiple expected milestones over the next 18 months. As Chris noted, we remain focused on execution against our strategic objectives. And there are a few achievements I'd like to highlight from this quarter. Importantly, as Chris mentioned, despite competitive recruitment for trials in the space, we have now fully enrolled both TOPAZ studies for litifilimab in SLE. This allows us to now pull forward both expected readouts from these studies into next year 2026. Next, we continue to advance two exciting new opportunities. First, with salanersen where the pivotal study design for presymptomatic infants and the broader clinical development plan has been aligned with the FDA. We are also engaging with ex-U.S. regulators and expect to initiate the registrational study in early 2026. We also continue to advance Felzartamab in Late MVI, where we expect to initiate a potential registrational trial in coming months. And today, we announced an update on high-dose SPINRAZA, where the FDA provided us with a path forward. We resubmitted promptly, and now we have a PDUFA in April 2026. Over the last few years, we have transformed both our late-stage and early-stage pipeline. We have followed the science and secured proof-of-concept to advance high-scientific-connection assets into potentially registrational stages. And as we prosecute the early-stage assets, we continue to follow the science by testing the most important scientific hypothesis. We now expect to deliver several readouts from our pre-POC pipeline next year. We're also focused on broadening the pre-POC pipeline, both with internal research assets that we advanced to IND stage like BIIB142 IRAK4 degrader and by also remaining deeply engaged in targeting external innovation, including our announcement last week, as Chris mentioned, to collaborate with Vanqua Bio on a preclinical C5aR1 antagonist. Turning to our late-stage pipeline. I'm encouraged by the breadth of opportunities to further scientifically advance our assets including our ability to educate on the profile of our innovative medicines with our data. For example, this week at ACR we presented important differentiated data from our positive Phase III DAPI trial, showing a consistent clinically meaningful benefit across outcomes that are relevant for SLE patients and providers such as flare reduction, fatigue, morning stiffness, musculoskeletal pain, LLDAS as well as remission. And underscoring our comments that we made at our September lupus seminar on the potential importance of DAPI for patients with SLE, including women of childbearing age we presented data demonstrating limited placental transfer in a preclinical setting. Next, I would like to spend a few minutes on the continued LEQEMBI development to deliver optionality for Alzheimer's disease patients. As you can see on the left side of this slide, we have already been successful this year in delivering meaningful differentiated treatment options for LEQEMBI. Today, it is the only anti-amyloid therapy with a maintenance option as well as an at-home subcutaneous maintenance option. And we continue to advance our rolling submission to the FDA for LEQEMBI subcutaneous initiation. The option for maintenance and the availability of subcutaneous delivery are also potentially relevant to LEQEMBI in the presymptomatic AD population. The AHEAD 3–45 Study as you can see here, is an important study that aims to comprehensively evaluate LEQEMBI in 2 different stages of presymptomatic AD with the appropriate scientific questions and the relevant primary endpoints. Additionally, we have seen increasing momentum in the development, approval and utilization of blood-based biomarkers. We see this as a key enabler that potentially simplifies the diagnostic pathways. We remain excited and believe the potential for LEQEMBI in the presymptomatic AD population can be an important opportunity for Biogen. In closing, I'm encouraged that LEQEMBI AHEAD 3–45 Study is just one of several important registrational readouts we have over the next few years. As you can see on this slide, our high scientific conviction pipeline will play a critical role given the increasing momentum in our registrational data flow. This will begin with 2 litifilimab Phase III readouts in SLE next year, and 2027 onwards, we will see multiple registrational readouts across several assets in diverse and important therapeutic areas. With that, I would now like to hand the call over to Alisha for an update on our commercial business. Alisha Alaimo: Thank you, Priya and good morning, everyone. Today, I'll review the commercial results we achieved in Q3, beginning with our multiple sclerosis portfolio. Our MS business continues to deliver significant revenue, which provides the resources to invest in our growth products, advance our pipeline and achieve our vision for the new Biogen. In the U.S., we saw strong performance, mainly driven by strategic actions to support VUMERITY's growth and some onetime events. When we look at competitive dynamics globally, we are seeing increased impact of TECFIDERA generics in Europe. And for TYSABRI, we believe we are well prepared for our biosimilars entrant in the U.S. Now turning to LEQEMBI, which delivered another strong quarter with global revenues growing 82% compared with Q3 2024, underscoring its increasing impact on the Alzheimer's community worldwide. In the U.S., our team is working collaboratively with Eisai driving strong execution and customer engagement, which we believe supported our prescriber base growing another 14% quarter-over-quarter. This quarter, we sustained consistent growth of new writers and new patients and LEQEMBI holds majority share as the #1 prescribed anti-amyloid treatment. Throughout 2025, we estimate LEQEMBI captured roughly half of all the new patients treated with anti-amyloid therapies. Now with the launch of IQLIK subcutaneous auto-injector for maintenance LEQEMBI is the first and only anti-amyloid treatment to offer an at-home injection, giving physicians, patients and care partners more options to continue to slow disease progression following the 18-month initial treatment period. Early feedback from customers and payers has been positive. And into next year, we will remain focused on securing Part D coverage and supporting patient access to LEQEMBI. Last quarter, we noted that for the first time we observed early signals indicating the anti-amyloid market grew with 2 players. We are encouraged that this quarter, our data shows the market continued to grow by approximately 15%. We also shared that blood-based biomarker testing was advancing at a significant pace. And here, our physicians have pointed to a meaningful impact. They report blood tests to help move from probable to definitive diagnosis more quickly, enabling HCPs, patients and their families to focus more on the treatment discussion. We anticipate up to 350,000 Alzheimer's blood tests this year and more than 60,000 PET scans to date, which is a 75% increase compared to this time last year. Our data show early indicators that PET, CSF positive tests are increasing, which we believe may be attributable to increasing use of Alzheimer's blood diagnostics as a triaging tool. As we previously noted, we are educating HCPs about the quality of blood-based biomarkers, including the performance of BBM that meet the requirements of the Alzheimer's Association's new practice guidelines for amyloid triage and confirmation. As we look to 2026, we expect LEQEMBI's momentum will continue to be driven by our focused strategies, which we believe are already having a positive impact on intent to prescribe perceptions of efficacy and safety and health care providers' understanding of the role of anti-amyloid therapies. Moving on to SKYCLARYS, where the launch continues to drive patient growth across all regions, including the U.S. and overseas. SKYCLARYS is now available in 34 countries, contributing to strong growth of 30% compared to the same time last year. In the U.S., as expected, patients continue to grow quarter-over-quarter with quarter 3 revenue being impacted by channel mix in the context of the IRA changes to Medicare. As we shared in the past, our strategy in the U.S. is to reach the remaining Friedreich's ataxia patients, their neurologists and PCPs, which our data indicate are primarily based in the community. Our efforts are focused on delivering on this goal as nearly 2/3 of new patients in Q3 were prescribed by first-time writers and roughly 1/4 of new scripts were written by PCPs. Outside the U.S., we remain focused on continued geographic expansion with multiple commercial launches planned in the first half of 2026. Last, turning to ZURZUVAE, which continues to perform above our expectations. As we shared earlier this year, our expanded field team has had a meaningful impact, delivering $55 million in the U.S., which is a 19% revenue growth compared to last quarter. We are also encouraged by the increasing breadth of writers, which grew 19% quarter-over-quarter. And in quarter 3, 80% of ZURZUVAE prescriptions were written as first line, demonstrating health care providers' belief in the value of therapy that provides rapid relief to mothers impacted by postpartum depression. Across our portfolio, I am proud of our teams for executing with discipline and delivering on our strategic priorities. Their hard work is helping us serve patient communities, build new markets and drive sustainable growth. I will now turn it over to Robin for an update on our financial results. Robin Kramer: Thank you, Alisha. I would like to provide some key highlights about our strong third quarter financial results. Unless otherwise noted, each of the comparisons I make during my remarks are versus the third quarter of 2024. We delivered 3% revenue growth this quarter, driven by continued strong commercial execution. Our 4 launch products generated $257 million in revenue in the quarter, representing a 67% growth. We continue to see resilient performance from our U.S. MS business which was favorably impacted by gross to net adjustments, timing of shipments and strong demand growth for VUMERITY. This was partially offset by continued generic erosion of TECFIDERA in Europe. Notably, the year-to-date cumulative revenue from our launch products has more than offset the year-to-date decline in our MS product revenue. This commercial execution, combined with our disciplined operating expense management resulted in non-GAAP diluted EPS growth of 18% for the quarter. We also delivered $1.2 billion of free cash flow in the quarter. Turning to our guidance. I'm encouraged by the strong business trends that we continue to observe in Q3. This is reflected in our improved revenue outlook. You'll note that our non-GAAP EPS outlook has been updated to reflect that stronger business outlook while adjusting for expected business development activities that are expected to close in the fourth quarter. I will provide more details on this in a moment. Let me cover some key components of our Q3 revenue performance. Starting with our MS franchise. In addition to the strong commercial execution that Alisha discussed, VUMERITY benefited from approximately $22 million of favorable inventory dynamics. And overall, U.S. MS benefited from favorable gross-to-net adjustments of $38 million in the quarter. Outside of the U.S., sales were primarily impacted by expected generic pressures for TECFIDERA. We continue to defend our IP. However, we observed an acceleration of erosion, particularly in Europe as generics continue to launch in new geographies, including Germany. This, combined with the channel dynamics, resulted in a sequential net decrease in TECFIDERA revenue of $28 million versus the prior quarter in Europe. On a positive note, year-over-year and quarter-over-quarter impact of the TYSABRI IV biosimilar in Europe was roughly offset by growing demand for our subcutaneous formulation, which has no biosimilar alternative and now accounts for more than 50% of all branded and biosimilar natalizumab patients in Europe. For SPINRAZA, we continue to be encouraged by the consistency and demand globally. And as expected, ex-U.S. SPINRAZA was impacted by the drawdown of the inventory build from the first quarter. We continue to expect full year global SPINRAZA revenue to be relatively similar in 2025 as compared to 2024. Turning to our launch products, starting with LEQEMBI. We continue to see steady sequential demand growth globally with third quarter end market sales booked by Eisai of approximately $121 million. As you will recall, we had a $35 million inventory build in China in the prior quarter, representing roughly 6 months in demand in the region. Approximately half of this build was drawn down in Q3. Therefore, as expected, there were negligible sales recognized for China in Q3 as demand was satisfied with the inventory in the channel. We continue to expect demand in China in Q4 to be satisfied with this remaining inventory with minimal revenue generated in the fourth quarter. SKYCLARYS saw continued growth globally with revenue increasing 30% from this time last year. In the U.S., continued sequential patient growth was offset by approximately $6 million adjustment related to channel mix in the context of the IRA redesign related to Medicare. We expect SKYCLARYS to continue to grow, and we are working to secure reimbursement in certain European markets as well as in Latin America. As Alisha noted, we are pleased to see continued strong growth for ZURZUVAE driven by increased demand. Now a few comments on the rest of the P&L. Before I get into the quarterly dynamics, I would like to highlight the variance shown here between GAAP and non-GAAP cost of sales. GAAP cost of sales was $674 million, up 6% year-over-year due to an approximately $100 million pretax charge accrued in Q3 that related to a judgment on Genentech's claim for past royalties and interest related to TYSABRI. Without this impact, it would have been approximately $570 million, representing an 11% decrease year-over-year. More broadly, cost of sales benefited from favorable product mix from lower contract manufacturing revenue in Q3 2025, which has a lower margin. This trend is expected to continue through the remainder of the year due to the planned campaign timing of contract manufacturing that we have previously discussed. Non-GAAP core operating expense or R&D plus SG&A expense is flat year-over-year. What's evident in our results is that we remain disciplined in our cost management as we continued to deliver on our R&D prioritization and Fit-for-growth initiative, while ensuring that we are supporting investments in our launch products and long-term growth potential. Now I'd like to provide a brief update on our balance sheet. This quarter, we generated approximately $1.2 billion of free cash flow due to business performance and continued cost management discipline. We exited the quarter with $4 billion in cash and marketable securities, and $2.3 billion of net debt. Our financial strength gives us the flexibility to reinvest in strategic growth initiatives, including advancing our pipeline, supporting product launches and exploring growth opportunities as we work to deliver the new Biogen. Turning now to guidance. We have updated our non-GAAP EPS guidance to reflect a stronger underlying business outlook and investment for growth from business development transactions expected to close in the fourth quarter. As you know, the SEC requires inclusion of acquired IP R&D charges associated with business development transactions and GAAP and non-GAAP financial results. [indiscernible] onetime charges, our business outlook has continued to strengthen in the quarter, yielding a $0.25 per share improvement. Our updated full year guidance includes an approximately $1.25 per share impact for business development transactions that we expect to close during the fourth quarter including the license agreement with Vanqua Bio and the acquisition of Alcyone Therapeutics. The following are some key considerations underlying our financial guidance. We expect sales to be roughly flat to up 1% as compared to last year at constant currency, an improvement from our last guidance update in July. This reflects strong business performance, including the resilient performance of the U.S. MS business year-to-date. We also expect increased competitive pressures on the ex-U.S. MS business to accelerate, particularly for TECFIDERA in Europe, where we expect the sequential impact in Q4 to be roughly double the erosion we saw this quarter. In addition, as we discussed into July, we are investing to support exciting new pipeline expansion opportunities, including a new program for felzartamab and MVI and the salanersen Phase III study discussed by Priya earlier in the call. As discussed earlier in the call, we are also beginning to invest in prelaunch activities for our late-stage high-conviction pipeline and key initiatives such as direct-to-consumer advertising in support of our launch products. We believe these investments position us to drive future growth while delivering innovative solutions for patients. As we look ahead to the fourth quarter, we expect operating expenses will be approximately $1.1 billion. This reflects the typical seasonality of our Q4 spending, our ongoing investments to drive growth and our focus on cost efficiency. It also reflects the progress we've made in our pipeline with the opportunity to invest in 10 programs, either in Phase III or expected to start Phase III in the coming months. We are encouraged by our progress towards delivering the new Biogen, and we believe it's important to make these investments as we work toward our goal of sustainable growth and long-term value to shareholders. Importantly, we believe we remain on track to deliver the $1 billion of gross savings and $800 million of net savings projected under the Fit-for-Growth initiative by the end of 2025. And as I have mentioned previously, we expect contract manufacturing revenue in Q4 this year to be $10 million to $20 million due to planned timing of contract manufacturing batches versus Biogen innovator product manufacturing. Please be sure to review this slide and our press release for other important guidance assumptions. And with that, I will pass the call back to Tim to open up questions. Tim Power: Thanks, Robin. Cindy, could we go to our first question, please? Operator: [Operator Instructions] Your first question comes from Umer Raffat with Evercore. Umer Raffat: I wanted to spend a quick second on EVOKE trial, if I may. And my question is, in a scenario where we do see a trend, how do you see that impacting the LEQEMBI franchise? And even more importantly, how does that change your thought process around the portfolio offering you have in the space? Would you need to have a GLP collaboration or an asset in-house in a scenario like that? Christopher Viehbacher: Well, I think on the study, let's see what the results are and where that's going to affect. We've looked at that. I think if it is positive, we do think it's probably going to be more used in the primary care setting at an earlier stage. We'll have to see what the -- again, what the results are, but it doesn't seem like this would actually affect the amount of plaque I do think, as a company, though, we are interested in having a full portfolio of products to achieve Alzheimer's. We have the BIIB080 program. And obviously, working on brain shuttle technology so I think we would probably evaluate that as and when the data are available. There's certainly no lack of GLP-1s out there. Priya Singhal: I can just add that I think what's really important here is that they are hypothesizing that neuroinflammation will play an important role. And as Chris mentioned, I think that it doesn't really target the pathology. The important thing is that the EVOKE trials included patients on stable doses of Alzheimer's treatment, including the anti-amyloid antibodies. So we'll be interested in seeing that data. And what we also believe is that it will increase the awareness of the disease and the need for treating disease early. Operator: Your next question comes from the line of Evan Seigerman with BMO Capital Markets. Evan Seigerman: Can you step back, I'm really struck by your progress in immunology. Can you just talk to me about how this renewed focus can drive growth and pipeline expansion into the end of the decade? And what can you do with Biogen to accelerate some of these programs? Christopher Viehbacher: So maybe I'll start. When I came to Biogen, I argued that we've always been in immunology because basically, a lot of diseases like MS, we are treating by really trying to have an impact on the immune system. As I pointed out, our MS drugs don't even cross the blood-brain barrier. So I would argue, we've always been an immunology company. And immunology is really an area that has really flourished over the last 10 years. And I think DUPIXENT was really one of the first drugs to really demonstrate the disease-modifying capability when you follow those pathways, and of course, they can lead into a wide range of activity. So that's an area we understand. In the short run, I think we're more focused on rare immunology and immunology that is overlaps with areas that we already have some experience in. I would argue, for example, with lupus, lupus is an extremely complex disease with a lot of different symptoms and things that affect patients. And I think the experience that Biogen has had in MS will be directly applicable to lupus. And I think we'll be able to develop that market in a way that the existing companies with their products haven't been able to do. And I think over time, we can actually build out a portfolio of products that broadly affect the immunology. There's a lot of opportunity here. There's a lot that we still don't understand. And as we look at kind of the first -- the next 5 years, they're more in this rare immunology. But if I look at a 10-year time frame, then I think we can go into broader indications. And Vanqua is just one example of bringing in an asset that could actually have multiple indications. And I think you'll see us do more of those. And again, these are areas where you really have to have a deep scientific understanding of how these pathways work. They can be -- there are a lot of things that cross over. One of the things that we just see in diseases Nrf2, microglia and things like that actually cross over diseases. And that crossover I think is something that we can bring to the immunology part as we go into different indications even with felzartamab, for example, although we're in 4 kidney indications, we're looking at another 3 indications that have nothing to do with kidney and again, because we understand things like neurofilament and other things, we think that we have perhaps some insight that will allow us to develop medicines that other companies don't. So for us, it's a core area. We're not abandoning neuroscience by any means, and we still have a very strong investment in Alzheimer's and ALS. We still have a big one going on in Parkinson's as well. But I do think immunology is a great space for Biogen to be. Operator: Your next question comes from the line of Salveen Richter with Goldman Sachs. Salveen Richter: You mentioned a focus on expanding your early-stage pipeline via BD, and this is partly driven by the late-stage pipeline here where you have about 10 Phase III trials ongoing. Could you just maybe speak to the confidence in the latter that's allowing you to kind of maybe just work on that earlier basket here. Christopher Viehbacher: I guess there's 2 parts to the question. The confidence in the late-stage pipeline, certainly, if I look at felzartamab, I think we feel that we've seen some pretty compelling data in the Phase II. Obviously, there's always a risk as you go into Phase III. But we've got -- we've seen -- if you just take AMR, I mean we had an 80% resolution of AMR in patients. On IgAN, we saw that actually even 2 years after the last treatment of a patient that they were still seeing a benefit. So makes us believe that we have a disease-modifying effect in IgAN. So all of those things on felzartamab on BIIB080, obviously, we're doing pioneering work. Nobody has really ever reduced tau to the levels that we expect to be able to do so, and we'll see what the results of those trials -- that trial is. As I look at lupus, again, we had very strong Phase II results, I think, particularly in CLE where there is no drug yet approved. I think we have a very strong belief dapirolizumab has already proven itself in 1 Phase III. And so doing a second Phase III would seem to be -- have a reasonably high probability of success. And I think, again, even on the SLE and litifilimab, it's an area that the company has been working on for quite a long time. So I think there's never a guarantee in research and development, but I think we have morphed the pipeline from a lot of moonshots, if you like, to something where we've actually had a thoughtful progression and derisking of our pipeline. And if I look at the peak sales potential of that late-stage pipeline in relation to our existing business. [Technical Difficulty] Operator: Ladies and gentlemen, this is the conference operator. We are experiencing an interruption in today's call. Please stand by. I'm going to place music back on the conference. Do not disconnect your lines. Thank you. And you are now reconnected with the audience. You may proceed. Tim Power: Great. Thanks. Sorry, we got disconnected there. Chris, do you want to just respond to the last question, and if you don't mind? Christopher Viehbacher: Yes, I'm not sure where we dropped off. It's interesting with all the hundreds of billions of dollars going into data centers and AI. We still have things like telephone calls. Yes, just on the -- so again, high conviction around the late stage, early stage, we are building a lot of commercial capability now in preparing for the launch of that late stage. Building up an awful lot of capability and understanding of immunology and now it makes sense to actually continue that and build upon that in the early stage. A lot of companies get so focused on the launches and the late-stage pipeline that research can sometimes be neglected. But this is now really the time to be investing in the next generation of products. And I would argue there's never been a better time to be in immunology. And I think Biogen is ideally suited to it. Operator: Your next question comes from the line of Brian Abrahams with RBC Capital Markets. Brian Abrahams: Maybe a question for Alisha. Can you give us a sense on the early experience with LEQEMBI subcu maintenance uptake and access with regards to non-formulary exceptions what the potential timelines might look like to get on formularies, both for maintenance and induction? And maybe whether we should be thinking about net price here, ultimately landing at parity between the IV and the subcu forms? Alisha Alaimo: All right. Thank you for the questions. I think so far, the feedback has been very positive from not only payers, but HCPs and patients. We also anticipate that subcu maintenance is going to enable patients to also stay on therapy longer. So we see it as a big upside. It will take some time for providers and patients to just with new outpatient treatment modality even in a maintenance capacity. But we do see this as a great bridge as we move into the potential of subcu initiation. So we do expect a gradual uptake, but over time, it will become a meaningful driver for long-term therapy and for our treatment outcomes. Now and into next year, what the teams are doing is first are educating sites on what you referenced, which is this non-formulary exemption process. However, payers have told us that this should not pose challenges to HCPs who are interested in transitioning their patients from IV and we are already aware of the first patients successfully navigating this process with their physicians, and we do know that we have several patients that are already on subcu. We also have a companion that has rolled out to the entire market that also helped patients with how to do the auto injection, making sure they get their shipments and also making sure that physicians feel comfortable. Also through the non-formulary exemption process, if you look at analogs in the market outside of Alzheimer's disease grade rates are typically quite high. So again, we don't think that will pose a challenge. And then second is working through this Medicare Part D formulary for in the cycle for the goal of gaining access for patients across the nation. So we are now going through that process for Medicare, and we believe that we will have access, full access by 2027. In the meantime, though, they do go through the non-formulary exemption process. But at the end of the day, we are hearing that IQLIK is really just an amazing option for patients and physicians. In fact, just the other day, I was speaking to a physician who had done his 10,000 infusion of LEQEMBI. And he said some of his patients are very excited they can go on vacation. They can take this with them, and it's now giving them freedom to be able to travel even more than what they do today. So far, so good. Moving into 2026, and we believe the initiation is going to even be a great accelerator for us as well. Operator: Your next question comes from Paul Matteis with Stifel. Paul Matteis: There's been a lot of increasing interest in the prevention studies being run by Lilly and you and Eisai. And I guess I wanted to just ask a broader question. How should we think about the commercial implications if these studies are positive? Obviously, these could change the narrative significantly on the utility of Abeta drugs. But what our team is struggling with is it's still a real challenge to actually treat the diagnosed population. There's all these capacity issues. MRIs, it's been a very, very complicated sort of supply chain. And so -- it feels to me like actually diagnosing patients and mobilizing providers to treat people who are asymptomatic might create even more significant capacity issues and difficulties with, again, the whole chain of how to kind of use and monitor these drugs. So what would you say to that? And how can you guys sort of prepare for a successful outcome here to actually generate a significant ROI? Alisha Alaimo: Thanks for the question. I'll go ahead and take that one. We've been thinking about this quite a bit, obviously, with top of mind as the potential of a successful trial reading out, whether it is going to be Eli Lilly's trial or it will be Eisai/Biogen's trial. And some of the things that we're looking at is especially in the PCP area, how they improve the quality of their referrals into physicians. Now as I said, blood-based biomarkers are growing at a rapid pace. Also just recently, Roche had a BBM that was approved called Elecsys. And this is really only a rule out BBM and is approved for a primary care setting, which basically helps them with this sort of asymptomatic or very early stage, Alzheimer's disease. So we believe through some of the efforts of the field on educating, which, by the way, we're not the only ones. There are several organizations that are supporting these efforts to make sure that physicians understand that a lot of these BBMs meet the criteria for confirmation. And what we're seeing is that during a pilot that we're running now, which we'll read out after the next quarter is can we actually improve the prescribing or the diagnosing and also then the referral and the quality of that referral. I will say, though, that we are seeing already in PET CSF that the positivity rates of those tests have increased dramatically as well at the beginning of this journey, we were sitting at 50-50 positive versus negative and we are now north and upwards of that number and positivity. We believe that's through the improvement of the triaging with the blood-based biomarkers. So I think that's one part of it. The second part of it is, of course, some of these patients then won't land in Medicare depending on their age. And so it's how do we also socialize and work with the commercial plans because they are the ones that would need to cover the product at that point. And so clearly, some of those conversations have already happened because we do have some younger population patients that want to go on product -- and so I do think we are thinking through that. And by the time these trials read out, I do think that capacity will be also much better. Christopher Viehbacher: And I think we can also say to complement what Alisha just said, the subcutaneous form when that -- if that gets approved as we expect for initiation for maintenance. If the blood-based diagnostics start to replace the PET scan and the lumbar puncture, you're dramatically reducing the workload at the neurology. And as we've talked about in past meetings. A lot of what we've been doing is trying to make the care pathway simpler for physicians with the idea of being able to increase throughput. And as Alisha rightly pointed out, I mean, Today, about half of the patients who are able to get an appointment with their neurologists are not actually eligible. And again, as we increase that yield really from the referrals, as Alisha pointed out, that again will significantly increase the capacity. And we have to say that we still have quite a few neurologists that have not yet actually initiated therapy on Alzheimer's. So this -- I think we'll still -- as this comes along, I think we'll find that the capacity will flex. Operator: Your next question comes from the line of Marc Goodman with Leerink Partners. Marc Goodman: My question is about SKYCLARYS. Can you just give us a little more color on what's happening behind the scenes? I mean, you mentioned the $6 million impact in U.S. sales, and you talked about OUS reimbursement issues a little bit. what's going on with volume growth maybe in the U.S. and then just overseas? Or are we seeing patient growth? Are we seeing good persistence like are there discontinuations? Just give us a sense of just what's happening with SKYCLARYS a little bit more? Alisha Alaimo: Thank you. I'll go ahead and take that question. I think first, 4, I'll start with ex-U.S. Building on the successful launch in the U.S., we continue unlocking new geographies for SKYCLARYS, which is now available, as we said earlier, in 34 countries. And we are pleased to see the steady and continuous growth once the access is granted overseas. And with that is a country-by-country basis, and they do continue to add patients on a weekly basis, which we see updates about. When you look at the U.S., the U.S. is in a different situation because we did launch earlier. And with that, we have basically had very high penetration in our centers of excellence, and we believe 90% of our remaining opportunity sits in the community. And so we do have patient growth, and we do have volume growth. When it comes to discontinuations, when we first launched, we did notice that in the beginning, our discons, though in line with MOXIe, we're happening quite early on, and we put a lot of tactics into place over this last year to address that with not only the field force, but the medical team. And I will say, fast forward to today, our discons rates have actually declined. So we've improved our discontinuation with education with physicians about some of the side effects they see and also what patients can expect. I think the second part of this, which I think will probably impact the entire world with this launch is how patients after they've been on it for a year or 1.5 years, because it slows the progression, it's very hard to be able to see like what is slowing progression look like. And we have had a couple of instances where patients have discon after about a year's time period, they've declined actually quite quickly, and they've now come back on to products. So we do know that at that time point, we will put more tactics into place on educating the actual patients and activating the patients. Operator: Your next question comes from the line of Andrew Tsai with Jefferies. Lin Tsai: So going back to Alzheimer's, you guys have a Phase II tau data set coming up mid-2026. So I'm curious what you would want to see on CDR-SB and the degree of talent reduction as well? And if that study is positive, what would be your guys' base case and upside case expectation on the regulatory pathway? Priya Singhal: Sure. So I think overall, we believe that tau is really important pathological target and accumulation of tau is relevant and central to Alzheimer's disease. With BIIB080, the approach we've taken is really to address whether knocking down tau, all 6 isoforms of tau can result in target engagement. So we would need to see impact on biomarkers, fluid biomarkers, imaging biomarkers and then see at least a trend on the clinical benefit. That would be important for us to kind of think about the hypothesis. We know that early-stage research in AD is always highly uncertain. But I think if this hypothesis is proven, there's a huge opportunity. Now I think the other question you had was how would we think about it in the portfolio perspective. I think once we have that, it would be a stepwise approach to thinking of if it is positive, is there value to combination, parallel, sequential dosing and these are areas that we're thinking about really deeply as we think about what would be the optimal approach and outcome for patients with early Alzheimer's. Operator: Your next question comes from the line of Terence Flynn with Morgan Stanley. Terence Flynn: Maybe just a follow-up for me on tau. I know J&J is progressing an anti-tau antibody in Phase II and could have some data early next year. You guys obviously explored this approach as well. I think there are some differences maybe in terms of binding here. But when we see that J&J data, assuming it comes before BIIB080, how should we think about read through to your ASO program. Priya Singhal: I think overall, based on what I understand from the J&J program, this is posdinemab. And it's a tau monoclonal antibody it targets the mid-domain of tau. So it is different. And in our experience, we've had an experience and the field has had an experience of targeting tau with monoclonal antibodies thus far, that has not been promising. And we believe that the main reason here is the extracellular tau that it targets. And actually, that is the hypothesis [ posdinemab ] is testing. So we'll wait to see they are in Phase II. And I think what we saw from the Phase I data was an impact in some of the fluid biomarkers. However, we didn't actually see any data on tau PET, which we believe is very important. So we'll look for that data. And in terms of read-through I think, as I said, it's early days for research in Alzheimer's disease with an anti-tau agent. So we'll have to see what we see and then really try to analyze it, but I think if it works, it could be helpful, right? Because it would then address the point that is knocking down tau actually has an impact. So I think it would be overall positive, but we wait to see the data first. Operator: Your next question comes from the line of David Amsellem with Piper Sandler. David Amsellem: I have ZURZUVAE question. So just wanted to get your thoughts on the fit of the product in the commercial portfolio, given that it's primarily a women's health product that doesn't really synergize with your other business units. I guess, how are you thinking about keeping the asset now that more well-resourced well-capitalized partner now controls the other 50%? Christopher Viehbacher: Well, I'm not sure how well capitalized I would say. I think we are -- we still feel like first, we are very happy with the partnership with Supernus, I mean that is going extremely well. And they have taken a different approach than Sage, but I do think that this is still a product where Biogen actually can play a significant role. There is a huge unmet need. You're having to shape a market. And that is an area where commercially Biogen is very strong. From a resource point of view, I'm not so sure that even for Supernus is this is an easy fit because the prescriber base for Supernus typically is a psychiatrist, but here, the main prescriber is actually the OB/GYN. And so the resource level, I think, compared to the actual sales and profit of the product, still mean that this is an opportunity. I'm not sure we are keen to get into other neuropsychiatry areas, but I think in terms of being able to create a market, Alisha and her team are doing a terrific job. It was a tricky one because, again, this is a one-and-done treatment. And so you really have to build prescribers who are prescribing multiple times. But the opportunity is significant. There's only about 80,000 women treated today and about 500,000 mothers, and this is just the U.S. alone, I believe this suffer from postpartum depression. So I think this fits very much with the ethos of Biogen. And I don't know, Alisha, whether you want to add anything there? Alisha Alaimo: Yes. Just to add to what Chris said. I mean, first of all, we have really gotten off to a great start with Supernus, and they've done a really nice job of trying to minimize the business impact anytime you have a handover. And so we really are off to a very good start with them. On the surface, it looks like there are synergies when it comes to the rest of the portfolio, but that's only when you look at really the field force. If you look behind the scenes and you look at really our infrastructure of Biogen, which we're in a very fortunate situation. And you look at things like our bio group, which is really our commercial operations group, we have a lot of synergy when it comes to data and analytics, insights generation. And especially, we have a very strong omnichannel presence. And so what's been great about even putting ZURZUVAE into our portfolio is that we've been able to utilize a lot of the back office support to support this launch. And we believe that's also part of the reason why the launch has been successful is because of all of the experience that we've had with our other products. And also with our AI generation, we're doing some really interesting things for the ZURZUVAE launch as well. So stay tuned also on some more direct-to-consumer that we're planning for next year, which I think is really going to be a great accelerator for ZURZUVAE. Priya Singhal: Maybe I can just add that we also have approvals in the EU and U.K., and it is a very important moment for mothers with PPD because it wasn't really recognized as an entity, and this speaks to the quality of the data and the efforts and the high unmet way. Operator: Your next question comes from the line of Jeff Meacham with Citi. Unknown Analyst: It's Ross on for Jeff. I guess our question is, how was -- how is the company thinking about capital allocation, especially considering balancing BD and new launches, especially if there seems to be a heightened focus on developing an earlier-stage pipeline? Christopher Viehbacher: Yes. Thanks, Jeff. I mean, first, everything we're doing, as I said earlier, is to invest in long-term sustainable growth. We have been able to, I think, do a great job through previous judgment of building a very strong late-stage development pipeline. I mean a lot of companies when you're putting a lot of things into Phase III development start having to increase the R&D spend and yet we are still actually spending less than what we did 3 years ago. So I think we've demonstrated capital efficiency on that. We're being very thoughtful, but also the indications. So we're not going into indications where we have to go up against typically an AbbVie or a Sanofi or people like that. So the actual commercial investment is relatively modest compared to the opportunity. And that's, again, a space where Biogen plays well. We are recruiting people to bring in new capabilities in nephrology and in transplant and in lupus, but that's actually a relatively small number of people. And I think one of the best times to bring in assets is actually pre-IND you can do that on a cost-effective basis. You can take advantage of the fact that a lot of companies have venture capital backed financing, that is designed to take that risk, and you can actually build a portfolio easier of early-stage assets, either by collaboration or licensing and then you bring them in at the right point where Biogen can actually start to use, it's more commercially oriented skills and development skills to shape those products. So I think from a capital allocation point of view, I think we can manage all of this. And I think we still have room, and we're not abandoning looking at later-stage assets, but the later this stage, obviously, the more expensive and you have to be extremely disciplined on ensuring that whatever you buy is going to generate a return on investment. So I think we are in a good spot today. And I think we've got the capital we need to do the business. But of course, we're continually monitoring that and making sure that everything we do is driving shareholder value. Tim Power: Thanks, Chris. That's it for today. I know it's a very busy morning for everybody. When you've got more questions, the IR team is here to answer those for you. Thank you. Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Christie Masoner: Welcome to GoDaddy's Third Quarter 2025 Earnings Call. Thank you for joining us. I'm Christie Masoner, VP of Investor Relations. And with me today are Aman Bhutani, Chief Executive Officer; and Mark McCaffrey, Chief Financial Officer. Following prepared remarks, we will open up the call for your questions. [Operator Instructions] On today's call, we will be referencing both GAAP and non-GAAP financial measures and other operating and business metrics. A discussion of why we use non-GAAP financial measures and reconciliations of our non-GAAP financial measures to their GAAP equivalents may be found in the presentation posted to our Investor Relations site at investors.godaddy.net or in today's earnings release on our Form 8-K furnished with the SEC. Growth rates represent year-over-year comparisons unless otherwise noted. The matters we'll be discussing today include forward-looking statements such as those related to future financial results and our strategies or objectives with respect to future operations. These forward-looking statements are subject to risks and uncertainties that are discussed in detail in our periodic SEC filings. Actual results may differ materially from those contained in forward-looking statements. Any forward-looking statements that we make on this call are based on assumptions as of today, October 30, 2025, and except to the extent required by law, we undertake no obligation to update these statements because of new information or future events. With that, I'm happy to introduce, Aman. Amanpal Bhutani: Good afternoon, and thank you all for joining us today. At GoDaddy, our mission is to empower entrepreneurs and make opportunity more inclusive for all. We draw inspiration from our customers, millions of micro business owners bringing ideas to life every day. They are resilient, creative and determined even as technology and the world around them rapidly change. Our mission is to make that journey simpler, supporting their growth and success with tools that cut through the complexity and make running their businesses easier backed by human guidance. In the third quarter, we delivered strong financial results, achieving 10% growth in total revenue while also delivering A&C bookings growth acceleration to 14% on strengthening customer cohort dynamics. We also delivered normalized EBITDA margin of 32% and increased our AI investment and capabilities with new products ready for launch. Reflecting on our strong performance, we are raising our full-year 2025 revenue guidance to 8% growth, the top end of our 3-year range of 6% to 8%. At GoDaddy, we are energized by the Agentic Open Internet, our vision for an open, trusted and accessible web with AI agents helping us with our tasks. For more than 30 years, the Open Internet has enabled entrepreneurs to bring their ideas to life, and GoDaddy has been a foundational partner in that journey. The next leap forward is the Agentic Open Internet, where AI-powered agents collaborate and complete end-to-end tasks with speed and precision. These unlocks will help small businesses thrive in the years ahead. And as we meet the moment and build towards this next era, GoDaddy itself is transforming in 3 ways: First, our Airo platform evolution from Generative AI to Agentic AI; second, agents transforming how work gets done internally; and third, by building on the foundation of being the world's largest domain registrar and putting the infrastructure in place to make the Agentic Open Internet safe and accessible for all. The first part of the GoDaddy transformation is the evolution of the Airo experience from a Generative AI platform to an Agentic AI platform. Over the last few days, we launched 5 new Airo agents that handle fundamental customer jobs to be done like finding and buying domain names, building websites and applications, creating logos and compliance documents. This is just the beginning. Our pipeline includes many more agents ready for launch over the next few days and weeks. The interactive design of these agents reflects our unique ethos of guidance, a core differentiator for GoDaddy. Agents are learning to anticipate next steps across multiple jobs, proactively guiding a customer through each interaction with clarity and confidence. Live for both new and existing GoDaddy customers, they deliver tailored support by instantly understanding each customer's unique business context. These new capabilities are available through the beta launch of Airo.ai, a new website built on the GoDaddy software platform. We can test new agents on Airo.ai quickly and maintain a seamless path back to GoDaddy.com. Look out for new agents on Airo.ai every week over the next few weeks, and we will direct targeted traffic to it soon. With this release, Airo Plus was shift from a Generative AI tool set to an Agentic AI tool set. Airo Plus will serve as a direct monetization vehicle on airo.ai and on GoDaddy.com. Staying true to the needs of our micro business customer and our culture of experimentation, Airo.ai includes 2 different vibe coding experiences. Both experiences use an Agentic AI chat interface to build websites and both allow seamless publishing. The difference is that one lands the customer in the websites plus marketing editor, while the other introduces the editor in line with the chat interface. As customers use these experiences, we are excited to add more functionality to these tools. The second part of the AI transformation at GoDaddy is the impact Agentic AI is having on how we operate. Teams across the company are reimagining their roles in an Agentic world and identifying the shifts required to solidify gains in velocity and efficiency. From experimentation to care, to engineering, to corporate functions, we are evolving beyond the value of Generative AI and shifting focus on measurable improvements driven by agents. Our evolution in software development provides a good example. In Q2, we set a company-wide goal to reach 70% of AI-generated code by year-end. We are making great progress towards this goal. This month, more than 45% of code written at GoDaddy was generated by AI. And for new applications, this number is significantly higher. With that momentum, we are now shifting our focus from measuring code generation to measuring reduction in product cycle time. The expected net result is faster velocity, which allows us to build more capabilities without incremental investment. The impact is already visible. A small team used AI to build the Airo App Builder and launched it in short order on Airo.ai. The pace of iteration on this product is high, and it positions us to move fast on emerging shifts like Agentic browsers. Another example comes from our aftermarket team, which used AI tools to build a new portal for ultra-premium domain names. In the past, this type of work was hard to prioritize. Now a small team experimented, built and delivered it end-to-end within weeks. For both the Airo App Builder and the ultra-premium marketplace, our internal measurement tools show that nearly 90% of the code was AI generated. The third part of GoDaddy's AI transformation builds on our foundation as the world's largest domain registrar. Our vision for an Agentic Open Internet imagine today's open web, enhanced by agents that can operate independently, collaborate across systems and automate customer journeys. These agents can discover one another, validate identity and establish trust across domains, creating an open space for agents to collaborate. Working back from that vision, we launched GoDaddy's Agent Name Service or ANS. Built on DNS infrastructure and proposed as an open standard. GoDaddy's ANS provides verifiable identities for AI agents. By registering agents with ANS, value is immediately created for publishers by providing their agents with a verifiable identity. Value is also created for consumers of ANS since they can securely discover and validate agents across the open web. While many companies are beginning to explore this idea, we are excited to be leading the way. GoDaddy is launching ANS with its own agents to showcase registration, discovery and validation, and we are now inviting partners to join this open ecosystem. We have a bold vision for the Agentic Open Internet for our customers, and we look forward to showcasing this vision at our Investor dinner in December. Before I pass it to Mark, as always, I'd like to share some updates on our 2025 strategic growth initiatives. The first is pricing and bundling, which continues to deliver strong results across both segments of our business. This work remains centered on giving customers greater value and choice through tailored bundles that simplify their decision-making and deepen engagement across our platform. Execution remains on track for 2025, and we are focused on launching the 2026 bundles, further extending our reach and impact. Our next initiative, seamless experience, creates frictionless journeys that support our customers from their first search to purchase and renewal. This large-scale experimentation engine continues to deliver improvements in conversion, attach and renewal rates. In Q3, we expanded our optimization work to include more end-to-end flows across the customer journey using AI to personalize recommendations and refine design in real time. This initiative is meaningfully contributing to bookings growth with continued momentum into next year. Turning to commerce. Growth in our payment solution remains solid, driven by continued conversion within our existing customer base. We also drove solid adoption of our high-margin subscriptions, including GoDaddy Capital, Rate Saver and faster payouts, all of which are helping entrepreneurs simplify their operations and improve cash flow. These capabilities strengthen our commerce ecosystem, deepening relationships with merchants and positioning us to capture more of their business as they scale. And last but not least, GoDaddy Airo continues to be our primary customer engagement engine and key catalysts for our strategic growth initiatives, driving value as it powers better attach, higher average order size and improved retention. Our history shows that customers who adopt more products stay longer with us, generating higher lifetime value. The success metrics we track make it clear that Airo is creating a more valuable and durable customer cohort than our strongest historical benchmarks. In closing, I am proud of the progress our teams achieved this quarter, advancing our AI vision with Airo.ai, pioneering trust and security in the Agentic Open Internet through ANS and our experimentation culture that is accelerating innovation across the company. GoDaddy is evolving rapidly with the moment. And as AI reshapes what is possible, we are leading with the solutions we develop and helping entrepreneurs everywhere take the next leap forward with confidence, simplicity and world-class care. With that, here's Mark. Mark McCaffrey: Thanks, Aman. Good afternoon, everyone, and thank you for joining us. We are pleased with our strong execution, which led to favorable results and exceeded our top line guidance. As a result, we are raising our full-year revenue guide to 8% at the midpoint to reflect the continued strength across the business. We delivered A&C revenue growth of 14% and grew free cash flow 21% to an impressive $440 million. We continue to demonstrate our commitment to shareholder returns, repurchasing 9 million shares for a total of $1.4 billion year-to-date. Taken together, we are on track to exceed our Investor Day North Star commitment of a 20% CAGR. How are we getting there? As Aman mentioned, our strategy that elevates GoDaddy Airo as our primary customer engagement engine is hitting its stride. High-intent customers are adopting more products, spending more and generating higher lifetime value. Our $500-plus customer cohort now represents approximately 10% of our base, and this cohort has higher attach and near perfect retention, boosting our ARPU up 10% to $237. In the third quarter, total revenue grew 10% to $1.3 billion, surpassing the high end of our guided range. Growth was broad-based, driven by continued strength in both the primary and secondary domain markets as more ideas come online and by the momentum in A&C, we're rising attach rates or expanding customer lifetime value and deepening engagement across our ecosystem. Retention rates remained at 85%, and our total customers grew sequentially to $20.4 million, underscoring the durability of our model and GoDaddy's central role in bringing entrepreneurs to the Open Internet. Additionally, international revenue grew 14%, primarily driven by the strength in the primary and secondary domain markets as we continue to expand our reach globally. For our high-margin A&C segment, we drove 14% growth in revenue to $481 million on the ongoing solid adoption and attach of our subscription solutions. Our Core Platform segment delivered elevated revenue growth of 8% to $784 million on 28% growth in aftermarket and 7% growth in primary domains. Moving to profitability. Normalized EBITDA grew 11% to $409 million, delivering a margin of 32%. This reflects leverage gains across the P&L from AI-driven efficiencies and continued operational discipline, partially offset by gross margin pressure from product mix and continued investment in our AI initiatives. Total bookings grew 9% to $1.4 billion. Within that, A&C bookings grew 14% and core platform bookings grew 6%. As a reminder, bookings primarily represent cash collected during the period. Free cash flow grew an impressive 21% to $440 million on our bookings growth, powered by continued strengthening of our customer cohorts and the greater than 1:1 conversion of normalized EBITDA to free cash flow. On the balance sheet, we exited the quarter with $924 million in cash and total liquidity of $1.9 billion. Net debt was $2.9 billion, representing a net leverage of 1.7x on a trailing 12-month basis. We maintained our disciplined approach to capital allocation, repurchasing 4.1 million shares during the quarter, totaling approximately $600 million. As of the end of the quarter, our fully diluted shares outstanding were 137 million. Pivoting to our outlook. For the full-year, we are raising our 2025 revenue guide to a range of $4.93 billion to $4.95 billion, representing growth of approximately 8% at the midpoint. We expect total bookings growth, absent FX impacts to be in line with total revenue growth and A&C bookings growth to continue its momentum. For the full year, we expect A&C revenue growth in the mid-teens and Core Platform growth in the mid-single digits. For the fourth quarter, we expect revenue to be in the range of $1.255 billion to $1.275 billion, representing 6% growth at the midpoint. This range reflects a more difficult A&C revenue comparison, the expected impact from the .CO registry contract expiration and our consistent approach of excluding high-value aftermarket transactions from our guidance. For Q4, we expect A&C growth in the low to mid-teens and core platform growth in the low single digits. For the full year, we expect a normalized EBITDA margin of approximately 32%. And for the fourth quarter, we are projecting 33% normalized EBITDA as we continue to balance operational efficiency with investments in AI innovation. We expect normalized EBITDA to maintain greater than a 1:1 conversion to free cash flow for the full-year and reaffirm our free cash flow target of approximately $1.6 billion, representing growth of over 18%. On capital allocation, our approach remains unchanged, and we will continue to evaluate all opportunities to maximize long-term shareholder value. In closing, GoDaddy is delivering solid profitable growth driven by durable revenue performance and continued operational discipline. Our strategy around Airo is working. We are ahead of our target of our Investor Day North Star, reflecting consistent execution across the business. Our expanding AI-powered innovation and efficient operating model position us to drive long-term value creation for customers and shareholders. We look forward to hosting many of you at our Investor Dinner in Tempe on December 2, where we will showcase the innovation setting the pace for GoDaddy's sustained success. I will now turn the call over to our VP of Investor Relations, Christie Masoner, to open up the line for Q&A. Thank you. Christie Masoner: [Operator Instructions] Our first question comes from the line of Vikram Kesavabhotla from Baird. Vikram Kesavabhotla: Can you hear me okay? My first one is a little more conceptual in nature and really a follow-up to some of Aman's comments regarding the changes taking place across the Internet. And specifically, when you think about a lot of the AI and Agentic services that are emerging across the board and changing the way that consumers find information, discover products and make decisions, how do you think all of this will ultimately impact the importance of domains and websites going forward and the demand for those products? And then my second question is on the customer base. It looks like your total customer count was up slightly on a sequential basis. But Mark, curious if you could offer any thoughts on how we should see that metric progress through the balance of the year and going forward. And beyond just the total customer count, what are some of the underlying metrics that you're following to measure the health of your customer base right now? Amanpal Bhutani: Yes, Vik. Let's start with -- I've been a sort of proponent of AI and been super bullish on AI for a long time. I fundamentally believe that AI and Agentic AI is going to automate journeys for our customers and for their customers, allowing our customers to sort of serve their customers in a manner that we could only imagine a couple of years ago. And it's super exciting to be GoDaddy and meeting this moment and with all the innovation that's happening internally in the company, too. I think we're experiencing this moment where there's a symbiotic relationship between more websites and better models that consume those websites, and it's getting easier to build websites, and that's going to lead to more websites being created. And I think that symbiotic relationship is a positive. It's a positive for GoDaddy. If I have 10 ideas that I wanted to bring to the world, but it was hard to do. And if it's easier to do, I can just do it much faster. I can do it with the help of tools, but I can do it faster. That's fantastic. To me, that means there should be more domain in the world. And in fact, there should be more agents in the world. And that's what we're trying to showcase at GoDaddy. With Airo.ai launching, we're demonstrating how just starting with a few agents, but over the next few weeks, we're going to put dozens of agents on Airo.ai. So people can start to get a feel for what it's like as a customer sort of progresses between these agents and build whatever idea they have. And of course, while AI is continuing to make us better in terms of our internal velocity and our efficiency, what we're really looking at is how agents can transform how we work internally and then how agents can exist in the outside world. And that's where agent named service is just a fantastic innovation that we're bringing in terms of an open standard. And our goal there is to allow the world to register agents to discover agents that can work across domains that can work across companies. And all of that agent infrastructure is also based on DNS. It's based on the domain infrastructure that we're the largest player in the world for. So I think these things are coming well together and ultimately, making it easier for our customers is what we are focused on. That's the tool set we're building. We're bringing our scale and strength of products and the variety of products that we have to that customer built for that customer. And the more agents do for our customers, I think the better it's going to be for us. Mark McCaffrey: Yes. And Vik, on the customer question that you had, yes, we turned positive this quarter. But remember, our strategy is around high-intent customers. We're looking at that cohort of $500 plus, why? That is the cohort that's buying more, attaching more, has a higher average order size. We're seeing great momentum as that is contributing meaningfully to our bookings number going forward. And that will continue to be our strategy. We will -- that is what is driving our ARPU number and is adding to that 10% ARPU growth that we had this quarter. So again, no change there. We will continue to focus on that high-intent customer. Christie Masoner: Our next question comes from the line of Ygal Arounian from Citi. Ygal Arounian: Definitely a lot of interesting stuff with Airo and Agentic and GenAI in general. So maybe on the rollout of Airo.ai, and I know we'll learn a lot more about this in the coming weeks at your Investor event. But can you just maybe set the stage a little bit for how this is rolling out, how it works with the current Airo product. You mentioned the monetization on Airo Plus. You'll have things like the vibe coding tool, it looks like we'll have to play around that a little bit, how that compares to the kind of current web builder and how these things sort of integrate and how that contributes. And then second question, which I'm sure ties into the first one. But just on the comments around the strengthening customer cohort dynamics, I know a lot of that is driven by the higher-value customers and that cohort growing faster. Can you talk a little bit more about the drivers of that and what you're seeing there, particularly around conversion from Airo would be helpful to hear. Amanpal Bhutani: Yes. Let me start with how Airo is sort of evolving and how Airo.ai is going to be launched. Now it's important to mention that Airo.ai is built on the GoDaddy software platform. What that means is that anything you see on Airo.ai is not a separate experience. It actually links in very well into the GoDaddy experience. If you go to Airo.ai as an existing GoDaddy customer, it already knows everything GoDaddy knows about you, and it gives you a different experience because it knows that you're a customer. What we'd like to do with Airo.ai is to bring targeted traffic to it and test agents very, very quickly. And then whatever is more successful, bring it back into the GoDaddy experience where we have a ton of traffic already. In terms of monetization, as I shared, Airo Plus will be the monetization vehicle on Airo.ai and GoDaddy.com for all of these agents. And Airo Plus is already ready to do that. With the launch of Airo.ai, which it is still in beta, but we'll sort of make it full release over the next few weeks. With this launch, Airo Plus is going to offer paywalls on Airo.ai as well. So we'll be able to test that experience to see -- to add some friction to convert new customers. And we're super excited about being able to move very, very fast. I know you've mentioned wanting to try it out, and I'm super excited. I'd love for you to try the App Builder, and you'll find it, I think, pretty interesting. But what you don't see, and I'm really excited about is the changes to the App Builder coming next week and the week after, where new capabilities are coming every 5, 7 days into that product and the other agents as well. And as I look at them, I'm sort of more and more excited about what's going to be available just over the next couple of months. And I'll turn it to Mark. Mark McCaffrey: Yes. And we're excited about our ability to get to the high-intent customers. And what we're seeing from that cohort is that they are attaching to a second product at a much higher rate than previous cohorts. We're seeing near perfect retention rates now that we've had experience with these cohorts since we launched Airo in and of itself over 12 months ago. And it's becoming more and more of a driver of not only our bookings and our revenue, but our ARPU as we continue to grow into the year. So these customers are coming in with the idea of doing something with their domain, doing something with their idea, getting to monetization on their end, and we're seeing those strong results start to become a tailwind as we go into future years. Amanpal Bhutani: I think -- sorry, Ygal, it's important to mention that Airo is our primary vehicle for driving engagement and attach, right? And what Mark is really talking about is the better attach, the better renewal, the more one-stop shop, better exposure for our customers for the breadth of our products that creates this 500-plus cohort. And like Mark said, with the near perfect retention, we're super excited about expanding that more and more now getting to 10% of our base. Christie Masoner: Our next question comes from the line of Trevor Young from Barclays. Trevor Young: Aman, I'll start with a bigger picture one for you. You mentioned more AI-generated code, reduced production cycles, overall faster velocity of innovation. I think I heard you use the phrase experimentation culture a few times in your remarks. Is there a bit of a shift here where you're going to have more of that experimentation going forward, more small groups going out to create new features quickly and just see how it works. You put that on Airo.ai. And then if it works, you kind of bring it back to core GoDaddy. Amanpal Bhutani: That's exactly right, Trevor. I think it's very common for people to think about teams as, let's say, 7 to 10 or groups of 7 to 10 going out building things over multiple weeks and multiple sprints. Now what we're seeing is teams of 3 to 5 that are using AI in the new products, 90% of the code ultimately is being written by AI. So the inefficiencies are really less and less in writing the code part and it's everything else around it. And that's where agents can make a much bigger difference as we automate the full cycle, right? And what we're finding is that smaller team is able to release much faster and Airo.ai gives us a surface where we can have many, many releases every week without worrying about our big funnel, our conversion that we have to do on GoDaddy.com, surface it to a large enough group of people that we get data very quickly on Airo.ai that it's working and then introduce it to our customers where the big funnels are. Mark McCaffrey: Yes. And just with that, this culture just didn't start this quarter. This has been evolving for years for us. This is now getting to a great pace that it's getting faster and better and the ability to innovate and launch is becoming quicker and to get results that drive meaning in our financial model. It's fantastic. Trevor Young: Great. And then a quick second question. Just in aftermarket, really strong acceleration there. Was that at the higher end, the above $10,000 domains that tend to be more lumpy and tougher to predict? Or did something fundamentally change in kind of the lower-priced domains that's driving that stronger growth? Mark McCaffrey: Trevor, no doubt, we saw a return to high-value transactions this quarter. It was very strong at the higher end level, which, yes, those are the lumpy ones that are difficult to predict. Now we did also see continued strength at the lower levels. Again, no change in momentum there. It's still a great secondary market, but we definitely saw a pickup in the higher-value transactions. Christie Masoner: Our next question comes from the line of Josh Beck from Raymond James. Josh Beck: I wanted to ask a little bit about kind of how to think about maybe the TAM for Airo.ai. Obviously, your existing business is very closely related to the -- certainly the SMB environment and certainly new business formation. Are you getting into a new area where it's maybe beyond just the website? Just kind of curious on maybe if we should be thinking about a different TAM. And then on the like custom app piece of it, should we think of this being competitive with Lovable or Base44, those kind of players? Amanpal Bhutani: Yes. Look, as you'll see on Airo.ai, even for website building, we're offering 2 experiences. One is very tuned to our micro business customer. As you interact with it, you'll find that it's learning and more and more instead of the customer asking for something, it prompts the customer says kind of buy this next, right? Or here are 3 options, pick one of them. Because that's what we found in our testing that our customers don't necessarily want to keep prompting to do something. They want AI to sort of guide them through the process. And you know how sort of important guidance is to our culture in care. So we're taking like our transcripts and our care guides help people build website, and we're training our agents on that, which is very particular to GoDaddy, right? It's very much our secret sauce. It's very much something that we focus on the sort of ethos of guidance. But as we do that, obviously, the models and the tools we have are much more capable. And we do have a big set of customers that are designers and developers that are in our core business, typically our hosting business. And those customers are more interested in going deeper and being able to give more complicated prompts and letting the AI generate something for them, right? The next thing actually, you'll see very, very quickly on Airo.ai. Today, the tool does similar to other tools, it can create it and can host it for you and you can go look at it. But what you'll see pretty soon is that, that same model will start to create WordPress sites. And that's, again, going back to we're a very large WordPress host. We have a large base of customers that work with us on WordPress. And we think Agentic AI can do a fantastic job for our customers to help them. But the way that, that tool works is a little bit different than the tool that we optimize for our micro business customers. That one is really for that customer base. Hopefully, that gives you some context of how we're approaching it. We're not looking at this as we're going to a different customer. We're looking at this as we have a breadth of customers, and we have a set of AI capabilities, and we're expressing them in different ways depending on how the -- which customer is approaching us. Mark McCaffrey: Yes. And another way to look at it, Josh, is as more ideas come online, and people are spending money to get those ideas online and create that opportunity. We're getting more of the wallet share upfront from that high-intent customer that is propelling above $500. So the combination of the 2 is a great tailwind for our business, and we remain laser-focused on that customer, the micro business and the person who's getting that ID online. Christie Masoner: Our next question comes from the line of Ken Wong from Oppenheimer. Hoi-Fung Wong: Aman, I wanted to ask about the Agent Name Service. I think a very fascinating concept here. We think back to the past, it was clear you guys had a right to win in SSL, given that the website journey starts with the domain, starts with GoDaddy. Help us understand what the rationale might be for why GoDaddy can serve a similar purpose in the Agentic Internet? Amanpal Bhutani: Yes, I love that question. So if we go back, and we'll take your analogy. If we go back and we say when the Internet came along, what solved the identity problem? And it wasn't websites. It was actually domains and DNS that was sort of first to the identity problem, right? And if you think about agents needing to be registered where 2 different companies or 2 different domains or 2 different systems have to be able to trust and validate that an agent is saying what it is, right? You have to be able to validate it. That's the service that Agent Name Service provides. And by attaching it to the DNS infrastructure, which is one of the largest things on the Internet and is what makes the Internet possible for us to navigate, right? By attaching it to the DNS infrastructure, we are really reusing the fundamentals of the Internet, right? And what that -- what the Agent Name Service can do is, it can do a bit more than DNS where not only can it register, it can have the certificates embedded in it, and GoDaddy is also a certificate authority. So those certificates get embedded into it, and it can also provide a way for companies to discover those agents. And you'll see all of these as we launch Agent Name Service with our own agents, you'll be able to see how each of those steps work and how much easier it makes for different companies or different domains to be able to tap into agents. This is based on a fundamental belief that different companies and different individuals are going to create agents that are very, very good at different things. And we will -- because different groups of people specialize in different things, those agents will do certain tasks very well. And another agent will want to tap into that capability. When it does tap into that capability, it wants it to be validated, it wants it to be trusted, and that's what ANS provides. And it provides it at the foundational layer of the Internet. Hoi-Fung Wong: Got it. I really appreciate the context and looking forward to seeing how that evolves. Mark, one for you. Great to see the higher guide for the year. I guess I'm just trying to unpack what maybe the primary drivers are. I think right off the bat, we can see that aftermarket was really strong. But how should we think about maybe the primary market, the A&C piece contributing to that raise? Or was this largely just a byproduct of that step-up in aftermarket? Mark McCaffrey: We're seeing strength across the business. And even if you took the aftermarket beat out, and we definitely had an elevated aftermarket beat this quarter, we are still growing at a very high rate. And I think if you take out the aftermarket, we're at around an 8% growth, which really reflects the underlying strength that not only in the domains market, primary and secondary, but also in A&C in and of itself because we're seeing those customers come in with that intent. We're seeing that cohort we talked about driving towards that second product, increasing the average order size. We see it through multiple different products in our portfolio. So I would say it's overall momentum. And on top of that, we had a really good aftermarket with a high transactions returning. Amanpal Bhutani: If I could just add and take us back to our 3-year model, which I know Mark mentioned already, but it is important to highlight that we are at the top end or ahead in each of the metrics in our 3-year model. And that beat that Mark is talking about goes down to normalized EBITDA, it goes down to free cash flow. And by maintaining the margins on those lower metrics, we really as a company producing much more dollars on those bottom line metrics. And that's fantastic for our company because it is being driven by the growth on the top line. Mark McCaffrey: Yes. And thank you, Aman. And remember, our North Star, we look at free cash flow. But when everything is working together, that number, combined with our share buyback gets us to that North Star. And we are ahead of schedule on that -- delivering that number or that CAGR we talk about. Hoi-Fung Wong: Appreciate the reminder. We always have such short-term memory over on the -- in Wall Street. Christie Masoner: Our next question comes from the line of Arjun Bhatia from William Blair. Willow Miller: I'm Willow Miller on for Arjun Bhatia. Thinking about the balance of investing in AI and supporting profitability, is it fair to say your investments in AI can be offset by the efficiencies gained from internal use cases of AI? And then as a follow-up, can you comment on internal use cases of GenAI and Agentic AI in the customer care org -- could guide headcount come down over time? Amanpal Bhutani: I think we have already demonstrated that. It's not that our investment in AI can be offset by efficiency. We've actually demonstrated that we are actively and have been for the last over a year plus. We're offsetting our investment with creating efficiencies in other areas. That's one of the reasons I shared how much AI-generated code is happening at GoDaddy and how quickly the new products are moving and coming to market. So I'm very, very bullish about that and very, very happy with the progress that the team is making. In that role, sort of Generative AI so far has had the biggest impact where you're using AI to generate content, whether it's code or other things across different functions. Now with Agentic AI, our focus is shifting to the broader cycle time, like if there is a product life cycle or a life cycle of a corporate process, what we're finding is that by using agents, we can go after efficiencies in other areas. And that's our new focus, and that's got us excited as well. In terms of the care guys, we have leveraged on the [indiscernible] item. I want to say for the last 6 years I have been here, and we've been very disciplined and shown many, many moments of efficiency with care while providing better and better service. And that's been our model. We want to provide higher and better service for a lower price. And there's no sort of doubt in my mind that we'll continue to deliver that, that our care offering will get better and better with AI, and we'll be able to do it more and more efficiently over time. Mark, I don't know what you'd add. Mark McCaffrey: Yes. No, I think you hit it right. We've been on this journey for several years now, and we've been creating the operating leverage within the model. And now we're seeing the evolution of that as we're able to produce more efficient, whether it's engineering, whether it's care, whether it's in our corporate functions. That efficiency allows us to free up hours and times, and now we can reinvest those in what I would say is exciting things like the AI functionality we've talked about today. But it's -- this has been a journey, and we've set it up so we can get those efficiencies continue hitting our normalized EBITDA marks that we put out there. We're very comfortable with the 33% we put out for next year, and that's because it gives us the balance of the efficiency plus the ability to reinvest in innovation going forward so that we can carry the LTV for GoDaddy well into the future. Christie Masoner: Our next question comes from the line of Mark Zgutowicz from The Benchmark Company. Mark Zgutowicz: Guys, just thinking about ongoing A&C bookings variables, is the forward acceleration more dependent today on new product adoption versus pricing and bundling, which I think supported your guidance at the beginning of the year. That's question number one. Question number two, it looked like there was a little bit of deleverage in A&C adjusted EBITDA year-over-year. I was just curious what that might be attributable to? Is that AI investments in product or marketing and sort of what that looks like over the next couple of quarters? Mark McCaffrey: Yes. And I'll start with the latter and then go into the -- well, I'll start with the first part. Let's go there. The strategy is working, Mark. And we continue to focus on the high-intent customer, the $500-plus cohort we talk about because the average order size goes on, they attach more -- and that's all the accumulation of what you're seeing in the strength in A&C right now. Obviously, our pipeline is strong, and Aman talked about the agents that will be coming back, which will help propel us well into the future. But what you're seeing today is what we've been doing for the last few years through Airo, going after those customers, focusing on those stronger customers, focusing on that cohort, and that is rolling out as we get -- finish up '25 and go into 2026. On the leverage, product mix. We just had some shifts in product mix in the segment normalized EBITDA. Nothing to call out. It should stay in a similar range, give or take a few points as we go forward, just dependent on that product mix. Mark Zgutowicz: Got it. And maybe if I could squeeze one more in. Just in terms of incremental token costs perhaps as it relates to vibe coding. Is there any considerations we should have there in terms of how that may or may not impact gross margin? Amanpal Bhutani: Yes, we're keeping a very close eye on our AI costs, and we have for a very long time, right? We've used -- Airo use Generative AI for almost 2 years now. So we keep a very close eye on it. We do have alternate model capabilities, models that we host internally, which we can use to offset the cost. But what you're really going to see is us testing with different models, us sort of striking the right balance of that objective function of producing revenue, giving customers an amazing experience and managing the cost. So we're looking at that full equation, and we feel comfortable that we have the expertise to manage it and still hit the 33% margin before Mark jumps in with that... Christie Masoner: Our next question comes from the line of Naved Khan from B. Riley. Ryan James Powell: This is Ryan Powell on for Naved. So we were wondering, you introduced some AI upgrades to manage WordPress earlier this year, and we're hoping if you could talk about any uptake you've seen by the pros since rollout. And then secondly, on international growth outpacing overall, if there are any specific markets to call out? Amanpal Bhutani: Yes. The WordPress updates have gone really well. Designers, developers that work with us are using the tool. We measure how quickly they are able to get up the site running. We see improvements in that cycle time, and we're happy about that. The bullishness from what we tested with the WordPress upgrade is what is bringing the agent to Airo.ai very, very soon, where we'll be able to offer a fully Agentic ad interface that works with the other agents and allows the customer to create a WordPress site, skipping many, many, many, many steps. So we feel very good. We recently actually won a couple of awards for best WordPress for small businesses. So word is starting to get out, but GoDaddy has a new WordPress platform that we're putting AI tools around it and the capabilities are new and different. We do have a small amount of effort around tapping into agencies and sort of new markets on that. And that's still very early, but the early feedback that we've received has been good. Of course, they want to see more, and we're excited to sort of give them more AI capabilities and sort of continue the testing. Mark McCaffrey: And Ryan, on international, nothing to call out. We saw strength similar to what we saw in the domestic market in both primary and secondary. And we saw some large aftermarket transactions land in the international geographies, but nothing specific to call out. Christie Masoner: Our next question comes from the line of Ella Smith on for Alexei Gogolev at JPMorgan. Eleanor Smith: So first, I was hoping to ask about the state of SMBs since it's become more opaque under the government shutdown. What are you hearing from your customers? Amanpal Bhutani: Yes, Ella, what our survey shows is that our customers, they continue to be more bullish about their businesses than they are about the economy, but their overall view of the economy has not changed too much in the last several quarters. Now obviously, when we engage with them, they have a lot on their mind right now. But what we've seen in the past is that this is a very resilient group of people, and they have a high propensity to believe in themselves and believe in their businesses. And we don't find any sort of pullback in terms of their engagement or sort of entrepreneurship in general. And if we get down sort of to the specific metrics, then broadly, when we look across all of GoDaddy, we're seeing higher 2-plus attach, so more customers taking 2 and more products. We're seeing higher average order size. We're seeing the 500-plus cohort growing in the business. We're seeing customers try many more products, even though sort of they're buying more, but they're trying even more products. So we still see a lot of positive signals for engagement for conversion and renewals have continued to be better. Now of course, renewals are going to be better given our focus on high-intent customers. But we think some of that renewal goodness is also indicating that while folks have stuff on their mind, our services tend to be essential to their success. So we're not seeing any weakness in the renewals for them. Mark McCaffrey: Yes. And I would just focus on the word they continue to be a very optimistic group about their ability to be successful. And that hasn't changed, and we haven't seen that showing up or heard it showing up anyway. Eleanor Smith: Great. That's very helpful. And if I could squeeze one more in. We're really curious about the perception of domains and AI. So it seems like Airo has been positive for domain sales. Are you seeing your customer -- are your customer funnel composition change at all? Or even are you seeing customers adopt new type of TLDs that weren't as common before? Amanpal Bhutani: We have seen over the last year or 2 more, for example, .ai domain usage, right? And as any of those sort of TLDs becomes more popular, you see some demand shifts. But if I take a long -- a little bit longer time period and look at it very broadly, we don't see massive shifts in preferences for our customers. We see a steady amount of traffic and pipeline. We see improving conversion rates over time. Now again, that's a focus of our marketing and our strategy of high-intent customers working there, too. But we see pretty consistent demand and usage from our customers when it comes to domain. And again, I'm just very bullish on AI. I think it will do amazing things for us, for our customer. And as it gets easier to create content, as it gets easier to build website, I think there's a symbiotic relationship where LLMs are using websites to gain content, creating tools that make it easier to have websites, and that's a symbiotic relationship that should sell more and more domains. And frankly, I'm even more excited about a world where that domains infrastructure powers agents across the world. And I went on about it already a little bit, so I want to repeat myself. But I'm just super excited about a world where -- which we call the Agentic Open Web, where agents use the ANS infrastructure and open standard to sort of work with each other. And it just bothers the mind on how exciting that world is going to be for our customers, like they'll be able to do things they couldn't even imagine 2, 3 years ago. Mark McCaffrey: And just one thing to call out, Ella, nothing on the TLD specific, but we did see a return to large transactions in the aftermarket, the secondary market, not calling that a trend just yet, but it was increased activity, and we'll continue to monitor as we go forward. Amanpal Bhutani: Yes. That usually means -- while it's not a perfect correlation, it usually means bullishness on behalf of people buying those domains because they go after sort of these high-value names. Christie Masoner: Our next question comes from the line of Brent Thill from Jefferies. Sang-Jin Byun: Can you hear me okay now? This is actually John Byun for Brent Thill. Two questions. One, just on industry trend. There's a lot of talk about the MCP servers and exposing some of the features and functionality to the outside and maybe to partners. Wondering how you're thinking about that in terms of exposing functionality and letting integration into some of what you provide? And then I have a follow-up after that. Amanpal Bhutani: Yes. We're all on board with MCP and A2A. And you will find like GoDaddy with ANS supports both protocols. So when you register an agent, you actually tell it they want to use MCP or A2A. And we're looking at the best ways of offering all our customers the ability to surface their content or functionality, let's say, it's a commerce offering, all using MCP or maybe ACP in the future. So all of that is very much in the wheelhouse for us. We're excited about being able to offer our customers all of this capability or something like an MCP capability wrapped in an agent, right, wrapped in a manner that they can trust that they feel good about and it represents them in the best way possible and builds on the content or functionality they already own. Sang-Jin Byun: So make it easy to consume for SMBs, makes sense. And then the other question, the A&C growth, it's been growing kind of like mid-teens. You've been guiding to mid-teens for quite a while now, maybe the last several quarters. And you have a couple more quarters of maybe tougher comps in the 16% level, I guess, through the March quarter. But how should we think about that going forward in general? I mean, is it kind of now going back to low to mid-teens or low teens in general as we kind of anniversary that as you get bigger and bigger? Mark McCaffrey: Yes. So John, just a couple of highlights there. We were talking about revenue for Q4 that we have a tough comp for revenue. So we called that out. As we go into 2026, and obviously, we'll talk about '26 as we close out the year, we feel really good about the momentum we're seeing, and that's why we're calling out that cohort that is attaching faster, greater AOS, higher retention. A lot of that shows up in the A&C bookings and then obviously becomes A&C revenue. And we feel really good about how we're going into the second half of this year and what that will mean for '26 and what that will mean for the long term. Christie Masoner: Our next question comes from the line of Elizabeth Porter from Morgan Stanley. Elizabeth Elliott: Great. We've talked a lot about Agentic, and I wanted to ask a little bit more specifically as it relates to commerce, where we've seen examples like OpenAI, Instant Checkout. And so the question is, as customers increasingly shift towards conversational or some of these AI-driven interfaces that may be sitting just outside of the traditional website real estate, how are you expecting the role of the traditional website to evolve within that ecosystem? And what are some of the investments that you're making in the product portfolio to capitalize on this potential shift and interfaces for engagement? Amanpal Bhutani: Yes. I mean, I'm sure since you're asking the question how early we are in this AI life cycle. And when we look at commerce with AI or with the large LLMs, we're even earlier when it comes to commerce. Now everything we've seen, and we're engaged with sort of the big players out there and keeping up to speed and how things are evolving and changing. Ultimately, our customers do need a place where all their content is available, where all the different functions that have to be executed are available. And the investments we are making is to prepare ourselves to be able to surface our customers' content and data and actions across the LLMs, across Agentic browsers, across whatever new AI technology comes along. And secondarily, making sure that our customers surface in those LLMs in a manner that makes sense for them and is accretive for them. So those are the 2 areas where we're putting in the most energy, but it's just very, very early. And I mean, none of us have really a crystal ball and how this is evolving. But what we try to do is stay very much up to speed with it and look forward 3 to 6 months and say, look, we're here now, what do we expect next and move very quickly towards that. Elizabeth Elliott: Great. And then just as a follow-up, Mark, I wanted to follow up on your most recent kind of comments around that strengthening customer cohort dynamics kind of showing up in A&C. So could you provide a little bit more color on what exactly you're seeing as it relates to the strengthening dynamics? Is this incrementally more users or more of just the better ARPU? And how should we think about the skew between gross new customers driving the strengthening versus more going back to the installed base of existing customers and that being the bigger driver? Mark McCaffrey: Yes, absolutely. And thanks, Elizabeth. A good way to look at it is and if you want to look at what is being driven by quantity, you look at stronger renewal rates, better attach and new customers coming in for the first time and getting to all 3, right? And then you have the pricing and the bundling on the other side that as we provide more value, we can start to charge. Both of them are contributing about equal to our funnel right now, which is, again, going to the initiatives around pricing and bundling and seamless experience contributing both equally as we go forward. So it's a good way to look at it. We're seeing strength across the board, and that's why we feel really good about our momentum going into 2026. Christie Masoner: Thank you. That concludes our call. I'll hand the call back over to Aman for closing remarks. Amanpal Bhutani: Well, thank you all for joining. A shout out to all GoDaddy employees for a fantastic quarter, and I look forward to welcoming all our investors at our Investor Dinner in December. Thank you.
Operator: Greetings, and welcome to the Antero Resources Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Dan Katzenberg, Director of Investor Relations. Thank you. You may begin. Dan Katzenberg: Thank you for joining us for Antero's Third Quarter 2025 Investor Conference Call. We'll spend a few minutes going through the financial and operating highlights, and then we'll open it up for Q&A. I would also like to direct you to the homepage of our website at www.anteroresources.com, where we have provided a separate earnings call presentation that will be reviewed during today's call. Today's call may contain certain non-GAAP financial measures. Please refer to our earnings press release for important disclosures regarding such measures. Joining me on the call today are Michael Kennedy, CEO and President; Brendan Krueger, CFO; Dave Cannelongo, Senior Vice President of Liquids Marketing and Transportation; and Justin Fowler, Senior Vice President of Natural Gas Marketing. I will now turn the call over to Mike. Michael Kennedy: Thank you, Dan, and good morning, everyone. I'd like to start on Slide #3 titled Antero's Strategic Initiatives. We are entering an exciting time period for the natural gas market. Rarely have we witnessed such a visible step change in demand. The significant demand growth is driven by increasing U.S. LNG exports, combined with a surge in natural gas power generation that is accelerating from the build-out of new data centers. Antero is poised to benefit from these structural demand changes through our long-term vision and recent strategic initiatives, which includes adding to our core Marcellus position in West Virginia. We accomplished this through both bolt-on transactions and continuing our organic leasing program to increase our position in the West Virginia Marcellus fairway. Returning to West Virginia dry gas development to highlight our ability to quickly respond to the regional demand that is beginning to show up in Appalachia. We can either supply directly into future demand projects or grow into the local market if the local basis tightens. Also use hedging as a tool to lock in attractive free cash flow yields to support our dry and lean gas development program and our efforts to be countercyclical in transactions and share repurchases. We believe the execution of these strategic initiatives will enhance our ability to capitalize on the significant demand increases that are expected for natural gas over the long term. Now let's turn to Slide #4, which highlights our third quarter operating results. Continuing our trend of improving our drilling and completion results, the third quarter was our most impressive operating performance to date. We set numerous company records and achieved significant progress. The right-hand side of the slide highlights the various company records [indiscernible] 5,000 feet. On the completion side, our completion stages per day continues to climb higher, averaging another quarterly record at 14.5 stages per day or 2,900 feet per day. And as Patterson-UTI highlighted on their call last week, we set what we believe to be a world record for continuous pumping hours [indiscernible] 15 days of nonstop pumping hours, a truly remarkable feat. Next, let's turn to Slide #5, titled Marcellus Core Fairway Expansion. Our additional land investment is driven by the ongoing success we are seeing from our development plan and on the ground from our organic leasing effort. Strong well performance continues to expand our view of where the Marcellus core boundaries extend. The map on the left of this slide depicts what we believe to be the Marcellus core at the time of our IPO in 2013. As you can see, we built our position focused on Doddridge and Harrison counties, which we believe will deliver the best drilling results. However, over the past decade, as our development focus shifted into the neighboring counties and our well performance continued to strengthen. These results have driven an increased organic leasing program into those counties. Antero's organic leasing efforts have been a tremendous success over the years. We continue to acquire acreage at attractive levels per location with the incremental locations more than offsetting our annual turn-in-lines. Further, this program allows us to maintain our development focus in close proximity to our current footprint, reducing geologic risk while leveraging the benefits of Antero Midstream. Now to touch on the current liquids and NGL fundamentals. I'm going to turn it over to our Senior Vice President of Liquids Marketing and Transportation, Dave Cannelongo, for his comments. David Cannelongo: Thanks, Mike. Several market trends are pointing to improving NGL fundamentals and higher prices in the coming quarters. Following several years of substantial year-over-year supply increases, multiple third-party data providers are forecasting a slowing of NGL production growth across the U.S. due to the current low oil price environment and sharp reduction in oil-directed rig counts. Subdued drilling activity in oil basins will have an impact on associated rich gas and NGL production, particularly in the Permian Basin, which accounts for more than half of total U.S. C3+ supply. As shown on Slide #6 titled U.S. C3+ Supply Growth slows, the chart on the left shows projected NGL supply growth in the Permian slowing down dramatically in 2026 compared to previous years. At the same time, the chart on the right shows total U.S. C3+ production growth in 2026 is nearly flat with only 11,000 barrels a day of incremental supply expected. This indicates that while the Permian should continue to rise, albeit at a slower rate, this increase is being offset by even slower growth or outright declines in less economic Tier 2 producing regions, including the Bakken, Rockies and Mid-Continent. The declining expectations for C3+ supply growth comes at a time when exports from the U.S. are now able to ramp up, aided by a debottlenecking of terminal capacity. Year-to-date, propane exports have increased by over 120,000 barrels a day, averaging 1.85 million barrels a day compared to 1.72 million barrels a day for the same period last year. This increase occurred despite current global trade uncertainty, illustrating the continued call on U.S. barrels. At the same time, LPG export terminal expansions have started to come online beginning this summer and ample export capacity will be available for the foreseeable future, as shown on Slide #7 titled New Capacity to ramp up Exports. Going forward, unconstrained dock capacity will allow U.S. barrels to efficiently clear the market and bring Mont Belvieu prices as close as possible to premium international LPG prices. In the past, Antero has often benefited during times of U.S. Gulf Coast terminal constraints with our ability to export barrels out of markets so it can capture high dock premiums. The ability to execute this strategy has served as a differentiator for Antero versus almost all other NGL producers in the U.S. However, it is important to remember that Antero benefits more from higher Mont Belvieu prices than from high dock premiums. This is because higher Mont Belvieu prices lift both our export sales and all of our domestic sales, the latter of which are exclusively priced on a Mont Belvieu index. Antero on average exports less than 45% of its gross C3+ production and sells the remainder of its C3+ volumes in the domestic market. Therefore, an uplift in domestic sales prices is much more impactful for Antero's NGL realizations. In conclusion, the key challenges of 2025 all trend in our favor moving forward as reduced producer activity, combined with higher export capacity and international demand pull is expected to bring propane storage inventories from the top of the 5-year range to near the 5-year average by early 2026. These fundamentals will support Mont Belvieu prices in 2026 and strengthen C3+ prices as a percentage of WTI. With that, I'll now turn it over to our Senior Vice President of Natural Gas Marketing, Justin Fowler, to discuss the natural gas market. Justin B. Fowler: Thanks, Dave. As we approach winter, we see seasonal and overall positive fundamental demand trends coming for natural gas. I'll start on Slide #8 titled TGP 500L Basis Strength. LNG export demand is expected to increase by 4.5 Bcf from the beginning of 2025 to exit 2025. This increase is almost entirely due to the successful and quick ramp-up of the Plaquemines LNG facility. This week, the facility achieved a new daily record for feed gas at approximately 3.9 Bcf per day. With the first 18 trains now complete, Venture Global will begin Plaquemines 2, which will increase the capacity by an incremental 2.4 Bcf per day with the first phase in 2026, followed by the second phase in 2027. The significant demand pull for this LNG facility has led to higher demand along our TGP 500L firm transport path and has driven a higher premium at that delivery point relative to Henry Hub. Looking ahead to the winter, this premium to Henry Hub has increased to nearly $0.80. And in 2026, the premium is now at $0.64 for the full calendar year, the highest level seen to date. As a reminder, approximately 25% of Antero's gross natural gas is sold at the TGP 500 pricing hub. Our exposure to TGP 500L is expected to lead to higher natural gas realizations. Slide #9 takes a closer look at the significant natural gas demand surge that is coming over the next 24 months from the new LNG capacity additions. Over this short period, LNG demand is expected to increase by another 10 Bcf per day, driven by the start-up of Plaquemines 2, Golden Pass, Corpus Christi 3 and Calcasieu Pass 2. These new LNG facilities are expected to continue to drive higher price premiums along the LNG fairway hubs, where we sell 75% of our natural gas. In addition to the substantial LNG demand growth, power demand is also expected to increase significantly over the next 5 years. The map on Slide #10 illustrates all of the competition for natural gas supply in our development region and down our firm transportation corridor. Based on announcements that have been made to date, regional demand is expected to increase by 8 Bcf per day. As Mike has discussed in the past, Antero has 1,000 gross dry gas locations that we could accelerate activity on if there is a regional call for higher supply. Along our firm transportation fairway, there has been more than 3 Bcf of power demand projects announced to date. Additionally, there is an incremental 13 Bcf per day of expected demand between LNG facilities and power projects announced along the LNG Gulf Coast fairway. All of these projects will be competing for natural gas supply that could face supply challenges in that short time frame. Antero is uniquely positioned to participate in each of these 3 regions with our ability to increase dry gas activity for local demand or use our firm transportation portfolio to access increasing demand all the way down to the LNG fairway. With that, I will turn it over to Brendan Krueger, CFO of Antero Resources. Brendan Krueger: Thanks, Justin. Our capital-efficient program that Mike highlighted resulted in attractive free cash flow of over $90 million during the quarter. Year-to-date, we have generated almost $600 million of free cash flow. Slide 11 highlights the uses of our 2025 free cash flow. Year-to-date, we have paid down debt by approximately $180 million, purchased $163 million of stock and invested $242 million in asset acquisitions. We believe this portfolio approach to uses of free cash flow will drive attractive shareholder value creation as we continue to compound this effort going forward. As we've proven historically, we will be disciplined in our transactions. The transactions we completed during the third quarter were accretive to the key metrics that we prioritize, including free cash flow and net asset value per share. Importantly, we were able to fund this activity entirely with our free cash flow in 2025 and therefore, did not have to issue equity at today's levels in our financing efforts. Now let's turn to Slide 12 to discuss our updated hedge program. During the quarter, we added natural gas swaps for the fourth quarter of 2025 and full years 2026 and 2027. We also restructured our wide natural gas collars for 2026, raising the floor price. As Mike touched on during his comments, these hedges support our strategic initiatives. We have now hedged 24% of our expected natural gas volumes in 2026 with swaps at $3.82 per MMBtu and 20% with wide collars between $3.22 and $5.83 per MMBtu. Our hedge book allows us to protect the downside by locking in a portion of our free cash flow yield. This is illustrated on Slide #13, titled Reduced Cash flow volatility. Our hedges have locked in base level free cash flow yields of 6% to 9% at natural gas prices between $2 and $3, while at the same time, we maintain significant exposure to rising natural gas prices. Further, these hedges result in a 2026 free cash flow breakeven at just $1.75 per Mcf, assuming year-to-date NGL prices. Looking forward, our return of capital and transaction strategy is anchored by our low absolute debt position that provides us with substantial flexibility to pivot between accretive transactions in our core Marcellus West Virginia footprint, debt reduction and share repurchases. We will continue to evaluate accretive opportunities to increase our net production and core inventory while importantly waiting to increase gross volumes until the broader natural gas market calls for it. While we continue to target maintenance capital, we are well positioned with substantial dry gas inventory for future growth opportunities from the regional demand increases that are expected. With that, I will now turn the call over to the operator for questions. Operator: [Operator Instructions] And your first question comes from Arun Jayaram with JPMorgan. Arun Jayaram: Gentlemen, I wanted to maybe start with the decision to commence D&C operations on the gas side in Harrison County. I just wanted to know if you could talk about what the catalyst was for that kind of decision? And did data centers, power deals down the road, did that play into kind of the calculus about doing something you hadn't done in 10 years or so? Michael Kennedy: Yes, Arun, that's exactly kind of the catalyst. We've been active in those discussions and it became clear to us all those discussions really related to kind of the eastern portion of our acreage position and where those opportunities would be located, also where the local demand is. And so we thought looking at our position, we have 100,000 acres. We have significant historical activity there. We have the midstream infrastructure. So we have a proof-of-concept pad. It's already a pad that exists with wells going south. So if it's drilled north, and it will be very low-cost wells and highly productive, and we're excited to get back at it in the Harrison County area. Arun Jayaram: Got it. And then maybe my follow-up, just given, Mike, this -- doing a little bit more kind of gas drilling, thoughts on how you're thinking about a 2026 program at Antero. And obviously, historically, around this time, you have decided to do a, call it, a drilling partnership, which has defrayed some of the costs. But how are you -- what is your thinking around 2026 at this point? Understanding it's still probably early in the budgeting process. Michael Kennedy: Yes, it's still early, but we're still at maintenance capital, Arun. This is just one pad. Really, the fourth quarter production level, we're in the [ 3.25 to 3.5 ] range. That's the level we'll hold generally in '26. So we're still there. This is just more of a proof-of-concept pad. On the drilling JV, that's still to be determined. We'll see where kind of the market is related to that, and we could have -- we could continue that in '26, but we haven't made that decision yet. Operator: Your next question comes from John Freeman with Raymond James. John Freeman: Just a follow-up on Arun's question with the -- following the acquisitions and the higher production level now that you cited that you're going to have in 4Q. Just kind of how does that impact kind of the prior commentary about maintenance CapEx? I just think previously, you've kind of talked about kind of flattish CapEx to maintain production. Just wondering if this has an impact. Michael Kennedy: It is at the same ratio that increased -- the production increased by 3%. So it's logical to expect a 3% increase in your maintenance capital. So that's like an incremental $20 million from that $675 million level. John Freeman: Got it. And then looking at the acquisitions, the $260 million of acquisitions in the quarter, just trying to get a better feel for if this is now kind of a bigger focus of the company? Or was this sort of kind of one-off in nature and just you happen to have all these sort of transactions domino during the quarter? Just kind of how to think about that going forward? Michael Kennedy: Yes. I don't know if it's a bigger focus. I just think with our position in the West Virginia Marcellus, these type of transactions come to us and are available to us if they make sense at the time. When you look at our acreage position and contiguous nature of it, we are the liquids developer in West Virginia. And so we get opportunities from time to time. And so we evaluate them and these ones make sense. Operator: Your next question comes from David Deckelbaum with TD Cowen. David Deckelbaum: Mike, I guess, as we get into '26, obviously, you guys just drilled a record lateral length, and we saw the impacts to the average lateral length in the quarter. I guess just given some of the land spends that you have this year, how do you see that progressing on average into '26, given that you guys have had some pretty significant efficiency gains to date? Michael Kennedy: Yes. No, it actually goes up. It's a good -- I think it goes up to 14,000. I think we're generally around this year in the low 13,000. Next year is up 1,000, but you highlighted the very efficient nature of our leasing program, David, that's exactly what it's doing, is trying to optimize those lateral lengths and also expand our position. So next year is up about 1,000 foot per well. David Deckelbaum: Yes. I guess -- I appreciate that color, Mike. My follow-up is just we saw, obviously, the acquisition this quarter. It looked like it was an increase in existing working interest, which I guess is -- I don't know if you would view that as aberrational or if you view this as a trend that likely continues perhaps into next year? Michael Kennedy: I don't know if we'll have those opportunities. It was 3 separate transactions, all with working interest, another one is royalty interest, another one with more acreage based. So hopefully, they continue into next year, but it's hard to forecast. But like I mentioned, we have such a dominant position in this area of the Marcellus. These type of transactions tend to be available to us if they are -- if they make sense and if they're accretive. Operator: Your next question comes from Kevin MacCurdy with Pickering Energy Partners. Kevin MacCurdy: The hedges you added this quarter were unlike past quarters and that you aggressively hedged the next quarter or fourth quarter in this instance, and you opted for swaps for next year instead of the wide collars before. Has your strategy on hedging changed? Or was this just opportunistic? And should we expect you to have a certain hedge level heading forward from here? Michael Kennedy: I think it's probably both. If we could replicate what we have next year where it's these are approximate numbers a quarter with wide collars protecting at $3.25 with exposure up to 6 and a quarter in that high $3, $4 range and then 50% unhedged. That's actually a good model for us. I don't know if that will be available going forward. But that's a good level for us. When we looked at the program, as Brendan mentioned in his comments, the ability to lock in above 5% free cash flow yields. I think it's 6% to 9% in the $2 to $3 range, but then expose ourselves completely to the upside up to a 20% free cash flow yield. That feels like a prudent way to manage the business. Kevin MacCurdy: I appreciate the color there. And then as a follow-up, ethane volumes significantly outperformed on price and volume this quarter. Was that just due to sales timing? Or is there any sustainability to that beat? David Cannelongo: Yes, Kevin, this is Dave Cannelongo. Really just a function of customers and when they're up and running and taking full volumes and then also -- or the spreads into the Gulf Coast on ATEX have been improving here in the back half of the year. So just taking advantage of our capacity on that system. Operator: Your next question comes from Phillip Jungwirth with BMO Capital Markets. Phillip Jungwirth: On the dry gas acreage in Harrison County, there's been a lot of operational improvements and advancements in drilling and completion technology since you last drilled here. So I was wondering if you could talk to your expectations as to how much of an uplift you'd expect versus kind of the historical type curves from the wells that you had drilled here previously. Michael Kennedy: Yes, we expect about a 50% improvement. The old wells in that area was more like 1.3 Bcf per day, but with today, after 12 years, we've gotten a lot better at it. And I think we have approximately 1,500 wells now, and those are one of our first. So we're excited about optimizing the completion of those wells. And so it was 1.3 Bcf per day, expectation is 2 Bcf -- I mean, 2 Bcf per 1,000 foot now. Phillip Jungwirth: Okay. Great. And then I wanted to come back to something you referenced last quarter. But with your water systems, I was wondering if you could expand upon the data center cooling opportunity for Antero Resources and Antero Midstream. Just what would this look like? And how would you look to play a role? Brendan Krueger: Yes. I think just to build on what we said last quarter, we think we are well positioned and uniquely positioned having that upstream, midstream integration being fifth largest gas producer in Appalachia. We've invested about $600 million or so in the water system. So that provides Appalachia in West Virginia, in particular, with an advantage, I think, relative to other areas. The terrain is a bit more difficult in West Virginia, but we think the advantages of being close to fuel supply, being close to water having the upstream, midstream integration really do position Antero well. So having a lot of discussions there, nothing to announce at this time, but continue to have quite a bit of discussions there. And then I think in terms of -- as we look at just the regional demand overall, I think we view this as -- it could take a few different forms. You've got either behind-the-meter power for data centers. There's been quite a few announcements just on natural gas-fired power generation, both in West Virginia and the region at large. And then I think just local prices tightening to the extent you have regional demand and local prices tightening, as Mike had mentioned, we've got that significant dry gas inventory to take advantage of all those various opportunities. The other thing I would just note is we are intentionally being a bit patient on this as well. I mean I think as you look at our LNG portfolio, for example, we had many opportunities on Plaquemines, for example, to do long-term deals at certain prices with Plaquemines that were much lower than what we're seeing basis trade at as that LNG facility is ramped up. So we do think patience is a bit of a key here. And as you let this play out and the scarcity of supply continues to build, we think the ability to do margin-enhancing deals will become greater for Antero. So having a lot of discussions, but also taking a patient approach, and we want to do the right thing versus just coming out with an announcement just for the sake of coming out with an announcement. Operator: Your next question comes from Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: Mike, I wonder if I could pick up on this topic of not ceding market share, if you like, in the basin. What's your decision point for growth? And I guess I'd kind of frame the question like what are the conditions you need to see? Do you need to see basis improve? Or is it just about local demand increasing before you decide to step into dry gas growth in your backyard? Michael Kennedy: Yes, Doug, interesting question. We've been talking about that. Obviously, this is a proof of concept, so we'll see the results on this, but we're highly encouraged currently. So you mentioned ceding the basin, and we are the dominant producer in West Virginia. I think we produce over 40% of the state's natural gas. We have the dominant acreage position. We have the midstream. We have the acreage HBP. We have investment-grade balance sheet. I mean, everything you'd want for developing it. So why shouldn't we develop it? So it's proof of concept. We'll prove out the resource. And then when you look local demand, absolutely would encourage us to grow into that. Also, if you kind of look out the curve, if you get $4 NYMEX natural gas and you could hedge basis in the future years, that may be something we would entertain as well. So a lot of kind of different decision points there. But like I said, we're uniquely positioned for this, and we're very encouraged, and we look forward to this pad. Douglas George Blyth Leggate: I appreciate that. And of course, given the depth of the inventory you have, you've got a lot of optionality, but it does raise the question, and you got to forgive me for this one, about the rest of your portfolio and the potential for asset sales and you know where I'm going with this in Ohio. Can you offer any color, confirmatory or otherwise as to where you are in that process? Michael Kennedy: Yes. We're just in the middle of that process, Doug. We're highly encouraged there as well. As you can imagine, I mean, that's a highly desirable or coveted asset with the contiguous acreage position, all the midstreams in place, the ability to access the firm transport to price it outside of the basin. The liquids portion, the dry gas portion, it's kind of a ready-made asset for companies. So also all the data centers over in Ohio as well and all the power demand over there. So it's highly coveted. So that's kind of why we wanted to do a market check. We're just in the middle of it, but we are encouraged. Operator: Your next question comes from Betty Jiang with Barclays. Wei Jiang: I want to go back to the data center proof of concept. It seems to me that you don't need to prove to the market that you can grow dry gas and grow it very cost effectively. And so this proof of concept is really for the customers and people you're speaking to on the other hand. So my question is, these customers and entities, what are they looking to derisk with your proof-of-concept pad? Is it the speed of which you can deliver volume? Is it the capacity of resources that you can deliver to? And once that pad is online, could that catalyze the conversation that you're having on the power and data center side? Michael Kennedy: I think the proof of concept is twofold for us, and then I'll let Brendan talk about his discussions with the counterparties. But for us, it's one, what's the EURs, what's the deliverability -- just so we know, we haven't drilled a well over here in 12 years. So is it the 2 Bcf? Is it higher than that? Is it lower? So we'll see and how to optimize that development. But also in the midstream, lot of midstream capacity over there, showing that we can flow it into these local kind of sites where these data centers are potentially being located, just the ease of our ability to deliver gas straight to the actual facility. But I'll let Brendan talk about other -- the customers. Brendan Krueger: Yes. I think just to add on top of that, I think from the standpoint, we haven't drilled a well over here in 10 years. It just shows we've got the inventory over here. It will give them good perspective on the ability to quickly ramp up. And I think having the ability to have that residue gas, not only at the processing facilities in the Eastern -- I'm sorry, in the Western part of our play, but also on the eastern part of the play where you're seeing some announcements out there on gas-fired generation, it provides just more flexibility in discussions -- like as I mentioned, we're having multiple discussions. And so the ability to have flexibility around these discussions and what could be best for Antero as it relates to kind of margin enhancement. This just gives us more flexibility having different parts of the play producing in larger ways. Wei Jiang: Got it. That's helpful. My follow-up is on the land budget. You have increased it for 2025. But I'm wondering if the land budget would just be higher for longer given you have expanded the scope or the boundaries of what you define as core. And can you just speak to the attractiveness of the organic leasing initiative versus potentially what you see in the private space in that area? Michael Kennedy: Yes. We generally go -- so our kind of base organic leasing is always kind of looking out the next 24 months and trying to enhance those -- the working interest or the lateral lengths like we discussed earlier. And that's generally up to the $50 million to $75 million level. And then above that is the expansion and what do we see in a particular year. So we go in generally in the year in that $75 million to $100 million range, and that's where we've been in the last 3 years. This year, we've just seen a lot of opportunities because our wells continue to strengthen in these areas that we're developing, and there's more acreage in those areas than there have been kind of in the middle of the field. So our opportunity set continues to grow as our wells and our -- continue to support that. So right now, it'd probably go into next year, and I think most people's models has about $100 million. But if we continue to see opportunities throughout next year, that could be higher kind of in the back half of '26 if this level of activity continues. Operator: Your next question comes from Jacob Roberts with TPH. Jacob Roberts: I wanted to ask about cash taxes. I think on the last update you gave the market, it was a 2028 time frame at those commodity prices. Just wondering if that math has changed at all given where we sit today? Brendan Krueger: No, no change there. No material cash taxes through 2027. So 2028 would be that first year we expect to pay some. Jacob Roberts: Okay. Perfect. And then circling back to the dry gas activity. This 6-well pad or the activity going on currently to get to that 50% uplift relative to a decade ago, should we be expecting some iterative completion design? Or is this ready to go into manufacturing mode? Michael Kennedy: Ready you go. I mean, like I mentioned, I think we've, since that time, drilled over 1,000 wells. So it was primitive back in 2013 when you look at it. So it would just be doing our typical 36 barrels of water per foot, 200-foot stages and the spacing on it is like 830-foot spacing. So lateral -- between the laterals. So just our typical design in the liquids, but just applying it to the dry gas for the first time in 12 years. Operator: Your next question comes from Nitin Kumar with Mizuho Securities. Nitin Kumar: I want to start on the hedging. You addressed earlier, it's a little bit more prudent sort of financial management, and I agree. As you've kind of put a floor on your free cash flow yield, what are your thoughts on the cash return profile? You've kind of not done a dividend like some of your peers as you're stabilizing your cash flow, is that part of the discussion going forward? Michael Kennedy: I don't think a dividend, but I think we can be very countercyclical on share repurchases with locking that in, also evaluating transactions even in a low commodity price environment. We always want to be countercyclical, and we have really no debt, very low debt, no maturities for years and years. So we want to be countercyclical, but if you don't have the hedges in place when the countercyclicality happens in low commodity prices, the free cash flow is not there as well. So we wanted to lock in a baseline of free cash flow and then be able to use it for share repurchases or transactions is where we're thinking. Nitin Kumar: Great. Great. I appreciate that. And then the topic of M&A has been covered quite a bit, but you confirmed earlier that you're marketing the Ohio assets. Just curious, as you mentioned, you don't have a lot of near-term debt or a big balance sheet. What do you think would be the use of proceeds if you were successful in getting the price you want? Michael Kennedy: Yes. No, it's a good question, and that's why it's a high bar for us because the most likely case, I would still say it's the hold case, but we'll see where that -- the marketing goes. But the use of proceeds right now is, like you mentioned, we're at $1.3 billion of debt. We have $300 million on our credit facility, and we have, I think, $400 million on a '29. That's kind of callable at par. So we really only have $700 million of prepayable debt. The other $600 million is a 2030 maturity, I think, [indiscernible]. So that's a good piece of paper. So that -- but then you also look at where our equity trades and the type of valuations that you're going to see for the Utica is well in excess of where our equity trades. So that could be a use of proceeds as well. It wouldn't be a bad trade if you sell your Utica for well in excess of where your equity trades and you use that to buy the shares. Operator: Your next question comes from Leo Mariani with ROTH MKM. Leo Mariani: Just wanted to follow up a bit more on this concept of growing net volumes without growing sort of gross in the near term. Obviously, you talked about M&A. It sounds like you're undecided on the drilling partnership here. But just in terms of the M&A strategy other than undeveloped acreage, are there opportunities to continue to pick up minerals, working interest? Are you generally trying to do this kind of ahead of the drill bit over the next kind of 12 to 24 months? I mean you said that these 3 deals kind of came up recently. Are you seeing just kind of more deals in the basin? Just want to get a little bit more color around some specifics on kind of the M&A strategy here and kind of growing the net without growing the gross. Michael Kennedy: Yes. I think you hit on it. These are all small bolt-on transactions increasing interest. When we talk about gross versus net, all of our processing is full. I think we're at 106% of processing capacity. All the FT is full. So on the liquids side, it's a challenge to grow gross because all the facilities are full. So in order to grow that the net, you have to look to the working interest and the royalty and all of these are highly free cash flow accretive. So that's where our heads at. So as they come up, we assess them and see if it makes sense based on that. And then like we've been talking about a lot on this call, the ability to grow the dry gas is really dependent on regional demand on a local basis. And so that is an opportunity for growth there, but really just trying to grow the net and maintain the gross volumes. Leo Mariani: Okay. That's helpful. And then you obviously highlighted a number of kind of operational records on the quarter with some very strong improvements in terms of frac stages and cycle times and everything. Can you just give us any thoughts on whether or not you think there's a decent amount kind of more improvement to come here? Or do you think you're starting to kind of maybe bump up on some of the limits, I guess, 15 days in a row without stopping on the frac side. It seems like maybe hard to do a lot better than that. Michael Kennedy: Yes, if we continue that. So when you get those days, you're doing 16, 17, 18 stages a day, and we averaged 14.5 during the quarter. So we get more continuous pumping throughout, which is our goal. I think you could see that go a bit higher. But right now, I think if we had a pad and had this type of performance, you think it average on the 15 stages kind of per day. So a little bit of improvement, but the 14.5 stages is really high. Operator: And your next question comes from Kalei Akamine with Bank of America. Kaleinoheaokealaula Akamine: Maybe to start, I'd like you to talk to Slide #5 and the one that illustrates the expansion of what you consider to be core in the Marcellus. So activity in the East in areas like Wetzel and Tyler, that's been robust for quite a while, and it's easy to see how that is now core. But activity to the South and the East has been a little bit less frequent. What gives you confidence that the core is expanding to those areas? Michael Kennedy: Our recent well performance is -- we've Tyler and Wetzel, but it's also been in the kind of in the eastern portion of Ritchie and northern part of Gilmer and you look at some other competitors, and they've had good results down in the Gilmer Lewis area. So you've seen that. And then like we talked about on the dry gas, that's in Harrison County. Kaleinoheaokealaula Akamine: Got it, Mike. I appreciate that. For the second question, I will go to Slide #10 here. So gas demand has expanded across that pipeline fairway. So 2 questions. Pipes in that direction are quite full. Do you guys have visibility on maybe new FT opportunities to push more gas into that region? And then it feels like given the demand pull, there's increased competition in the Gulf to lock these volumes down. Do you see any direct-to-consumer opportunities along this route that you could participate in? Michael Kennedy: Yes. I think Justin can correct me, I think we had 2.1 Bcf a day going down into the Gulf. And we've intentionally been floating like Brendan's comments suggested, we've carried this for quite some time. We're going to see where the actual basis goes. And when you look at these type of opportunities and demand growth, 25 Bcf a day, 17 of it being in the Gulf Coast or along that path, we think there'll be a lot of opportunities, but I can let Justin expand on that. Justin B. Fowler: This is Justin Fowler. So the way we think about this on Mike and Brendan's previous comments, the local demand, if all these projects go forward, it's going to be there. So that's going to drain gas out of various local pipes, various local pools. And then to Mike's point, when you think about the Antero 2.1 or so Bcf of Southbound, there was approximately 10 Bcf reversed over the years since the shale revolution took off. So right there, we're about 20% of that volume heading south. And then when you really zoom in on some of our pipelines, which we're calling mid-path, Antero owns rights past those potential projects as well. So we are evaluating different projects in Kentucky, Tennessee, Mississippi, where we cross. And then to your point on just the LNG market, yes, the LNG groups are going to have to potentially start to lock in supply just as there will be scarcity across the summer season, winter season, et cetera, that could cause peak situation. So we have been talking to a lot of those groups as well. But to Brendan's point, patience is key at the moment, and there's a lot still to be developed. If I understood your first part of your question correctly, in terms of new capacity being added southbound, it's just such high cost. And any of those projects are going to be toward the end of the decade. So Antero is in a good situation here to continue to watch the basis locally and just that behavior locally and then also just working with these various groups in the mid-path delivery points that those projects move forward. Brendan Krueger: And the only thing I would add just on the point about end users, there has seemed to be a bit of a shift in terms of the demand pull side of things. When the basin took off, it was more of a producer push. There has been a lot more significant interest from a demand pull perspective and folks wanting to get the actual supply due to some of that scarcity of supply that I think is starting to take hold in the market. Operator: Your next question comes from Neil Mehta with Goldman Sachs. Neil Mehta: And Mike, congratulations on stepping into the CEO role. I'd just love your perspective early on. It's been a couple of months now of just observations as you step into this new role and the business has done very well over the last couple of years, particularly coming out of COVID. But what do you think the next frontiers are from a strategy perspective as you look to the next end of this decade? Michael Kennedy: Yes. I think you saw that in the strategic initiatives, Neil, we have such a terrific asset and best rock, some of the best rock in North America, definitely the best rock for liquids development and midstream access, midstream capacity, balance sheet, investment grade. So it kind of ticks all the boxes. And now the strategic initiatives going forward, just trying to enhance that, doing bolt-on acquisitions in West Virginia, trying to enhance our exposure there, some dry gas development like we've talked about. That's a good opportunity for us and then using hedging as a tool. That's one thing that, like I mentioned, we want to be countercyclical and the only way to do that is to have some sort of certainty of cash flow during low commodity price times. So that's kind of the next frontier that we're looking at, but we're excited about it. And like I mentioned, we have the dominant position in West Virginia, so we should expand upon that. Neil Mehta: Very clear, Mike. And then I just wanted to go to the macro on NGLs. And as we watch your pricing sheet, it's a tougher environment right now. I guess not so bad when you look at it as a percentage of WTI, but on an absolute basis, it's pretty challenging. So just talk about the path for recovery in '26. Do you think that recovery is going to be more supply driven or demand driven? On the supply side, I saw you put out some interesting numbers in terms of volume growth. It's probably below where I think consensus is for volume growth in the Permian for NGLs next year. So is that out of consensus view that you guys have that we can offset sort of the prevailing view that even if black oil is flat, that NGLs will still be growing significantly? David Cannelongo: Yes, Neil, this is Dave Cannelongo. I'll take that one. So I guess to your first question on looking forward to 2026, Certainly, oil prices do play a key role in what happens with NGL pricing. And as you alluded to, as a percentage of WTI, it's been improving here in 2025 despite some of the market headwinds that were out there. So if you kind of look back at 2024, through the first 9 months of the year, a little less than 54% WTI, 60% WTI here in 2025. So that really kind of speaks to the value for NGLs is still there, driven by res/com in elasticity and petchem demand. Looking forward to '26, obviously, we're very optimistic about the trade uncertainties getting resolved here. Obviously, some announcements here this morning that we think will certainly some of that. If you look back to what was being exported in particular to China prior to the tariff announcements in early April was around 600,000 barrels a day or 1/3 of U.S. LPG exports headed that direction or propane exports. In June, it was a little less than 100,000 barrels a day and since rebounded to about 300,000. So certainly, some following there, but we'd like to see that continue to improve. That will help with efficiencies on freight pricing, which will also drive Mont Belvieu higher. So those are kind of the key things we're looking to. I don't know how long the world can sustain at a $50-something per barrel WTI as well. So we're -- you expect at some point, that's going to resolve itself and also become a tailwind for NGL prices on an absolute basis. Coming back to the supply picture and your questions on that, that view is a third-party view that we put in our presentation. I think there's a lot of different groups that are out there. There's been some consolidation in the third-party analytical groups. So there aren't as many people out there providing views. It seems to be a belief around gas oil ratios increasing, and that really seems to be what's behind some of the higher NGL supply growth views. But undoubtedly, I don't think anybody is disputing in this oil price environment and lower rig count environment that NGL supply growth is going to be as strong as it was if you're looking at the chart in the prior years. Operator: And your next question comes from Paul Diamond with Citi. Paul Diamond: Just wanted to touch quickly on kind of capital allocation given current conditions. With your hedge book, you guys put out a pretty decent your free cash flow next year and have used kind of evenly between stock repurchases, debt repayment and acquisitions. I guess in kind of a bull scenario, how much cash would you be willing to build if you want to really maintain countercyclicality, assuming that you have limited debt to really buy back now? And if your stock starts to run, what level of cash is comfortable? Michael Kennedy: Yes, that will be a good problem to have. But I think I mentioned earlier, we have $700 million of debt that we can pay down. Of course, we'd be buying shares all along that way as well. So in a real bull case scenario where you get into a couple of billion of free cash flow a year, you would start to build some cash. But I think you'd be -- unless you didn't really have any other transaction opportunities, I think you'd kind of be where we're at right now, where it's kind of like 1/3 repay debt, 1/3 equity purchases and 1/3 in transactions. Paul Diamond: Got it. And just kind of switching to the other side of that coin, some of your peers have really started to do production management, whether it be curtailments or choking or anything along those lines. Given your FT, I know it's less of an opportunity for you, but just wanted to see if you saw how Antero would play in that on the margins. Is that something you haven't looked into or. Michael Kennedy: Well, when we do it, we just don't talk about it. It's already built into kind of our guidance, and it's really kind of they may say it's curtailment practices, but I think it's really economics based and the gas prices are low in the basin. So it wouldn't make economic sense to flow to that whenever that occurs, which is rare, like you mentioned, with the FT and the liquids, we don't really have that much local basis exposure. But we do have it from time to time, but we always build that in the risking of our guidance. Operator: And ladies and gentlemen, there are no further questions at this time. So I'll turn the floor back to Dan Katzenberg for closing remarks. Thank you. Dan Katzenberg: Thank you, and thanks, everyone, for joining the call today. Please feel free to reach out with any questions that you have. Have a good day. Operator: This concludes today's call. All parties may disconnect. Have a good day.
Clara Bermudez: Good afternoon. We shall begin with the presentation of results of GCO Third quarter 2025. You know me. I am Clara Gomez Bermudez. You know me from previous presentation of results, I am the Financial and Risk Management Officer at GCO. And as usual with me in this presentation are Isidro Lapena, CFO of the Group; and Nawal Rim, Director of Investor Relations, who as on other occasions will coordinate this presentation and will pull together all of the questions that you ask throughout the presentation, and we will answer them at the end, either individually or grouped together, depending the volume of questions received. And before we start, as usual, I wanted to thank you for being here with us. This presentation that, as you know, is remote. And also thank you for your continued interest, not only on the performance of our stake, but also the businesses of the group. A regulatory issue before we start, the financial information that we are presenting in this presentation of results has been calculated based on our management information, IFRS 4. And since it is a quarterly presentation, we will not report under the International Standard 17 for insurance and 9 for financial investments. I should also mention that, as you know, on March 27, INOC, S.A., manifested their interest in carrying out a takeover bid over 100% of the shares of GCO. And precisely yesterday, 29th of October, the CNMV authorized this bid. We would like to remind you that the price of the bid is a cash payment of EUR 49.75 per share of GCO or alternatively a swap of one Class B share for each 43.9446 shares of GCO, all of it based on the reference price of EUR 2,186. So as you know, because it's been published this morning, the CNMV has established the period of acceptance that started today, October 30, and which will end on the 28th of November. That is the term to accept the terms of the bid. And now starting with these first 9 months of 2025. Well, our assessment is positive, very positive of all of the aspects and businesses. And along the lines of what we have seen over the first 6 months of 2025, here in this executive summary, you can see the 3 main aspects that we wanted to stress. On the one side, when it comes to growth, you can see this growth of 4.7%, almost EUR 4.77 billion turnover in business distribution and we will get into more detail later. But I can say now, you know this because we'd mentioned this in previous presentations that the growth difficulties we are experiencing at Atradius are more than offset with the good performance of the Occident business in terms of turnover, especially because of commercial activities. I will not stop to talk about this now at this point. We will talk about this in more detail later, but I did want to talk about the 2 aspects that we stress in this executive summary. On one side, under result, a satisfactory consolidated results EUR 614.2 million, an almost 7% growth, 6.9% specifically, as compared to the previous year. And the truth is that out of the 2 main elements that have an impact on the result of the business, on the one side the financial result, and on the other side, the technical result, the weight of the positive behavior focuses on the good evolution of the technical result. The main indicator of which is the combined ratio that you can see on screen below 90%. In the case of Occident, minus 0.8 percentage points. And below 80% in the case of Atradius, although with an increase of 1.6 percentage points. In Atradius, slight worsening as compared to the previous year, because the lower growth in turnover does not offset the increase in the claims ratio, especially mid-sized claims. And despite the fact that we have more weather events this year as compared to previous year, the combined ratio has a positive behavior in Occident. And finally, I wanted to talk a bit about the evolution of permanent resources at market value. It's been an exceptional evolution this quarter. You know that permanent resources at market value have to be analyzed together with the solvency ratio. We will have a specific slide explaining that in more detail later. And you cannot see it now on the screen, but there is an increase of 9.6% as compared to the previous year. And it is true that it is due to the current context somewhat. We will let you know in detail later, but the good performance of financial markets has contributed or is the main contributor to these permanent resources at market value, which in the end is due to more capital gains in variable income, which have a direct impact on its -- on the good evolution as such. And you know that before we start with the evolution of the results of the group, we always like to give you some context, 3 ways. On the one side, global economic environment, financial markets, and after that we give you context about the Spanish insurance sector which is where we have our main business. And here you can see the global economic environment and how it has evolved. The past 9 months have been marked by political uncertainties, starting with the protectionist policies, especially happening an impact on the first half year announced by the government of the United States also due to commercial or economic situation between the U.S. and China and the main war conflicts worldwide. So with all of that, the forecast of the IMF, the latest one that you can see from October 2025 have improved as compared to previous ones. Here, you can see the estimation. At the level of Spain, it is better with this 2.9% that you can see on screen as compared to our European counterparts with that 1.2%. Globally speaking, this should translate into a 3.2%, as you can see at the top of the slide. And now on to the evolution of financial markets. On the screen at the bottom left, you can see the evolution of fixed rate interest rates. For us, fixed income interest rates is very important. Our investment is mostly fixed income, and this allows us to offer our policyholders attractive savings products. 3.3% at the end of the quarter in the 10-year bond. Normally, it is around 3.2%, 3.3%. Now it's gone down slightly in the past few days, it's around 3.1%, 3.2%. It is true that it is impacted by the monetary policies of central banks. But in the end, good evolution of interest rates for the insurance market as a whole. And as we said, an exceptional behavior of the stock markets, specifically the Spanish stock market with 73.46% in the current year. And this is a positive impact in markets, but also in the evolution of capital gains that have an impact in the capital of the company. And also, we would like to give you some context about the insurance sector in Spain. And last year, there hadn't been much growth in the insurance sector, but we've been picking up. We've been going back to the path of growth, a total increase of 13.6% for the whole sector in Spain with the impact of the good evolution of Life premiums, almost 26%. You know that this is more of a context matter because this normally depends on the issuances at specific moments in time, and these lead to Life growing 22.2%, but also a good behavior of non-Life with the 8% that you can see on screen. In Motor, you know that it is a very competitive line, a growth of 8.6% and Multi-risk 6.6%, as again, you can see on this slide. I would like to remind you that this increase of 11.4% in Health in the case of GCO Health is included within Life. So it's not comparable because in the rest of the sector, it is considered outside of Life. But if we compare ourselves with the Spanish insurance sector, we can say our situation of non-Life has been satisfactory as compared to the rest of the sector with better growth in Motor and the rest of the insurance sector, also a better growth when it comes to Multi-risk. And in the case of Life, you know that we focus more on recurring premiums rather than single premiums because we believe these are the ones that offer more value to our customers because they promote systematic savings and also provide more value to the group. And as usual, we will also show you to summarize P&L's income and results' income at the top -- results at the bottom. When it comes to income, we've already talked about the good performance of the turnover of the group. Here, you can see divided by business, very good behavior, and Occident with this 7.5%, specifically recurring premiums, which is what I just mentioned on the previous slide comparing to the rest of the Spanish insurance sector and a good behavior of single Life premiums with this 9.7%. So rather than single premiums per se, what we include here is the increase of supplementary premiums that these supplements that our customers make on to their savings plans. And it is also true, as we said at the beginning of the presentation that in the case of Atradius, to which we do shorting. It's -- the is the growth is more modest. We're having more tensions in Atradius as compared to the rest of business, mainly because of the lower commercial activities of our policyholders, but still positive as compared to the previous year. And in the -- we compensate with the good evolution of surety insurance and accepted reinsurance. And also, a good behavior of Memora. This is a company through which we do our funeral business 5.5%, which in the end leads to this 4.7% that you can see on the screen. And now on to results. The bottom-line positive behavior and better than the previous year in all lines of business, starting by Occident to stress positively with this 11.2%, almost EUR 260 million result. I already mentioned it at the beginning, a good result despite the fact that we have had a higher claims ratio due to weather events as compared to the previous year. It is true that in 2024, well, it was an exceptional year in terms of less weather claims than usual. But in this year, we've observed an additional EUR 22 million net of weather events as compared to the previous year. And still, we grew by 11.2%. Good result in Atradius, almost same as the previous year, EUR 328 million profit. In the previous year in 2024, Atradius had exceptional results in 2024. So we can be happy with the ordinary result of Atradius. It is true that the lower growth means that you cannot always absorb the general increases in claims ratio. I will not stop to talk about Memora or the non-ordinary result. You can see on the screen the good evolution of Memora. Non-ordinary are not relevant, not even EUR 9 million positive, which are mainly due to financial investments and to a lesser extent, responsibilities which was not necessary. So as a whole, the result leads to a consolidated result of EUR 614.2 million, a growth by almost 7% and EUR 558 million attributable results, so discounting minority shareholders and in total 4.7% growth. And you know that we always like to go deeper into one of the key elements of the good evolution of the Group's business over the years, which is diversification of businesses, not only between Occident and Atradius, what we used to call traditional business and credit business, but also the different products of each of the businesses. You can see that Motor weighs less with this 13.1% as compared to Multi-risk, 15.4%; and the quite relevant weight of Life, which is almost 20%. And also contributing to this diversification, the business of Memora, which has a weight of 4.3% over the total of the group. Diversification not only by products, also by countries. It is true that most of the weight is in Spain with this 65%, but we also through Memora increased this because we have present in all of the Iberian Peninsula, Spain, and Portugal. I will not stop to talk about sustainability actions. You know these very well. We continue with our Sustainability Master Plan for 2024-2026, and it is published on the website of the Group. This is part of our DNA. I just wanted to stress that we continue to carry out all of the planned actions. And as usual, we're showing share price evolution. You also know this very well, just like we do. It's been a positive evolution of the GCO share, of course, conditioned by the takeover bid announced by INOC, S.A., on March 27, which leads to this growth at the end of the quarter of 36.21%, which compares better with the reference indexes. Here, you can see the evolution of IBEX and EuroStoxx Insurance. And as usual, stressing the joint behavior over the years, which exceeds 11%, 11.7% and which clearly compares positively with the reference indexes. And as usual, the situation of the dividends of the group, you can see this here, the dividends that we have distributed charge to 2025, which grew by 8.7%. The joint dividend of July and October as compared to the previous year in the end, it's EUR 30 million as a whole. In the July dividend, EUR 24 million in October. And this is an increase of 8.7%, which again confirms the commitment of the group towards growing profitability because it grows over the years, profitability for the shareholders, which we've been able to maintain not only in regular situations, but also in general terms in exceptional circumstances such as the years of the crisis. And also in keeping with the calendar plan. And without further ado, I'll pass it over to Isidro Lapena, who will continue to explain in detail the evolution of the results of the group. Isidro Lapena: Thank you, Clara. We'll start with Occident. In Occident as in previous quarters, we continue with a good performance of sales activities and with the satisfactory retention of our clients, which has led to the figure of EUR 2.69 billion turnover, which is an increase by 7.5% as compared to the third quarter of last year. If we talk about recurrent premiums, the increase has also been 7.5%, stressing the increases in Multi-risk and Motor with 10% and 10.3%, respectively. Results, ordinary result, EUR 259.6 million with an increase of 11.2% and the technical result has increased by 10%, reaching EUR 250.6 million. Divided by business, in non-Life, the combined ratio has improved 0.8 points, going up to 89.6% with a good evolution in Multi-risk and Motor. And in Life, the technical financial result is almost maintained at the same level as last year with a slight improvement of 0.1% as we will see later. By lines of business, Multi-risk with EUR 734.4 million turnover, growth of 10% above the -- or over the sector, which was 6%, stressing mass lines 10.5%, as a consequence of good commercial activities, both in sales and in cancellations. Combined ratio is 87.8%, an improvement of 0.5 as compared to the third quarter of last year. I would also like to stress the increase of written premiums -- of earned premiums, sorry, with an improvement in efficiency ratio, which has offset the slight increase of the technical cost as a consequence of a higher claims ratio due to weather events. Due to all of this, the result has increased by 15.1%, going up to EUR 85 million. And now on to Motor. We can see an increase in written premiums of 10.3%, above the sector, which has been 8.6%, going up to EUR 623.5 million in a competitive environment, which, as we said before in other presentations, although there is an upward pressure on prices, this is not leading to more cancellations at Occident. Combined ratio is at 94.4%, 1.5 points below the ratio of the third quarter of 2024, thanks to 3 factors: the increase in earned premiums along the lines of the increase in turnover, improving claims ratio and reinsurance results, which leads to the technical cost dropping 0.9 and the improved efficiency ratio with a drop of 0.7 as compared to the same period of last year. As a consequence, the result of the line has seen an increase of 50.2%, obtaining technical profit of EUR 33 million. As to other, we see an increase of 2.8% in written premiums which goes up to 5.1%. If we talk about earned premiums with an increase of technical costs, which as we can see on screen is more than offset with the improvement of the efficiency ratio. As a consequence, the line maintains a combined ratio of 84.9%, a 0.5 point below September 2024, very much in line with the past few quarters. And this translates into a technical result of EUR 47.3 million, 8.9% above the third quarter of last year. And now on to Life. Life as a whole increases in recurring premiums, increasing turnover in all lines, in all businesses, except for net contribution to investment funds, stressing particularly the behavior of Life savings. Technical financial result increased slightly 0.1%, reaching EUR 150.9 million, stressing improvements in Life. And in the combined ratio of funeral dropping 1.5 points. Combined Health ratio worsened, combined ratio of 94.3%, 6.1 points above September 2024, but much better than the first half year of 2025, where if you remember, we were at technical losses with a combined ratio of 100.4%. As summary, for Occident the increase in written premiums and earned premiums and the improvement of 0.9% of the efficiency ratio, which leads to a reduction of costs of 3.9%, which are almost EUR 6.7 million, have allowed us to offset the moderate increase of technical costs of 0.1% that we experienced if we compare this to the same period of last year. So in the end, we are improving the profitability of the business. We have reached a combined ratio -- we've improved the combined ratio by 0.8 points coming to 89.6%, reaching an ordinary result of EUR 259.6 million with an increase of 11.2%. Additionally, the contribution of EUR 13.3 million non-ordinary results coming basically from realizations of investments leads to a total result of EUR 272.9 million with an increase of 13.6%. And now on to Atradius, we can see that earned premiums are at EUR 1.727 billion with an increase of 1.1%. The stress is the positive evolution of surety and reinsurance in a downward pressure environment for renewals and a certain uncertainty due to the geopolitical and economic situation impacting mainly the credit business that continues with the trend we saw in the past few quarters of deceleration in practically every market. The result is that the ordinary result is at EUR 327.9 million with a decrease of 0.5% and the technical result is at EUR 446.2 million with a decrease of 5.3%. When it comes to the geographical distribution of income, we can see a decrease of earned premiums in America, Central and Northern Europe and Asia, whereas in the rest of areas, there is growth. The stress is Western Europe due to the increase of reinsurance in Ireland and Southern Europe with better surety business in Italy. As to profitability, we should say that we continue with our conservative provisioning criteria and the gross combined ratio worsened by 1.6 points, but it's still behaving well with a ratio of 75.9%. The efficiency ratio experiences a logical increase due to more income in reinsurance with higher fees. The claims ratio is still very contained due to the lower impact of severe claims and the positive runoffs. We are specifically 1.3 points below in claims ratio than at the end of 2024. As to risk exposure, it increases by 3%, and we still maintain strict selection criteria. And we continue with adequate diversification of risks by country and sector, which is allowing us to have a good quality of the portfolio. As a summary, income increases despite the downward trend in renewals and the uncertainty caused by the current geopolitical and economic situation. Technical result before reinsurance drops by [ 5.3% ] in a period characterized by the upwards normalization of standard claims ratio with a lower incidence of severe claims and a cautious provisioning policy. Reinsurance improved by EUR 18.5 million, maintaining the transfer ratio at 35% and the financial result improves due to the reinvestment at the new market rates of fixed income and liquidity. With all of this, the ordinary result is at EUR 327.9 million with a decrease of 0.5%. Additionally, the total business result is impacted by non-recurring losses of EUR 4.1 million corresponding to realizations and extraordinary expenses reaching EUR 323.8 million with an increase of 0.2% as compared to the previous year. Clara, maybe if you now want to talk about Memora results? Clara Bermudez: Yes, the results of the non-insurance business of the group that we offer on this screen. Well, evolution of income, 5.5% a bit over EUR 207 million turnover, very good performance of the ordinary result, EUR 18.1 million, more than 30% relative growth. The main contributor to this is not the business per se, but the better evolution of the financial expense, which drops by EUR 11.7 million going down to EUR 7.9 million negative, which is the main contributor to the positive evolution of the business. It is also true that the margin over EBITDA that you can see on screen which is 23.6%, very similar to that of the previous year. It is true that usually the margin over EBITDA should be around 25%. But you already know that the Memora business has a seasonal component and towards the end of the year, it should be more -- should be closer to that 25%. And leaving the business side a bit behind and now talking about the balance sheet and permanent resources. We already mentioned it at the beginning of the presentation of results, it has been an exceptional period, growth of 9.6% as compared to year-end. And the main contributor to that is the good evolution of financial markets that were mentioned at the beginning. You know this perfectly well. And in the end, this impacts in terms of more capital gains of equity. But seeing the permanent resources market value in an isolated manner, does not give you the total overview of the good evolution of the business because just like any other insurance business it should be considered as a whole together with the evolution of the solvency ratio. You know that part of these resources or these own funds have to be immobilized to attend to the risks of the group, and this is shown in the solvency ratio. On the screen, you can see the evolution of the solvency ratio. We only show it at year-end from 232% to 236%. And the rating agencies also come from the robustness of our business. Here, you can see the different rating agencies. We have a summary. In the case of A.M. Best they give us an "A" for all of the operating entities of the group, understanding those both of Occident and Atradius. And in the case of Moody's, "A1" with a stable outlook for Atradius, highlighting the strong competitive position and the conservative investment portfolio. And you can also see the Moody's rating for GCO, "A3" with stable outlook, improving as a consequence of the better sovereign rating of Spain, highlighting the financial strength of the group, but also the good diversification among the different businesses of the group, specifically between Occident and Atradius. And to finish the presentation of results, we always offer a snapshot of the evolution of the investments of the group. We continue to maintain our cautious and conservative investment policy. You can see here the EUR 18 billion managed funds increasing by 6.7% as compared to end of 2024 and the different components of investment. As we already said at the beginning of the presentation, our reference asset continues to be fixed income, 53.1% growing as compared to last year. We've made more investment in fixed rate, making use of the situation of -- the current situation of interest rates and the evolution of equity is not because we've invested more, but because the markets have evolved favorably. As we've said in the presentation, and this translates into equity having a higher percentage, but it is just purely out of context. We feel very comfortable with our treasury position. Our cash and cash equivalents, which allows us to take care of our operations. And with this, we would finish the presentation as on other occasions. Now we will answer the questions we have received. So Nawal Rim, Director of Investor Relations, she's received many questions, and I think Isidro will answer on his side. And if there are any questions about the takeover bid, I will answer myself. Before finishing, of course, thank you again for your interest in GCO and for attending this presentation of results. Thank you, Nawal. Nawal Rim Barange: Thank you, Clara, Isidro for your presentation. We will start now with the Q&A. And as Clara said, due to the situation we are in -- we've received a few business questions, and we've received questions about the takeover bid of INOC, S.A. We will start with the business questions. In Occident within non-Life, we have several questions that need more detail, especially in terms of the increase in turnover in non-Life, the improvement of the combined ratio, which is below 90%, specifically 89.6% despite weather events and also what's in store from until the end of the year. Isidro Lapena: Thank you, Nawal, couple of questions about non-Life. We'll start with the income. As to income, I can say that we are quite happy about the evolution of the turnover of non-Life in Occident because we have premium increases above the growth of the sector. This has been possible, thanks to the robust performance of sales, contributing to a net increase of the number of policies, but also the number of policyholders. Now on to profitability. I would like to say that we continue to maintain a positive gap compared to the sector of 2.6 points when it comes to combined ratio despite the fact that we are having a higher claims ratio due to weather events, especially in the past few months in simple Multi-risk, but also in Motor. The improvement in the combined ratio of 0.85 points, we've already said in the presentation is due to, on the one side, more earned premiums, which is at the level of increase in income in the 2 main lines, Multi-risk and Motor, and also better productivity due to the efficiency measures implemented that you all know, which is allowing us to absorb the slight increase of the technical costs by far. You also asked about the perspective towards the end of the year. The forecast is that we will see a similar trend for the remainder of 2025 with increases in written and earned premiums with maintained technical costs and reduction of expenses due to the merger of Occident. As we've said on other occasions, there are some questions about how the key events and other events may impact us. And they will most probably happen and despite reinsurance and the consortium, they may have a negative impact on the P&L, although we trust our risk management to carry out or to continue with the fourth quarter. Nawal Rim Barange: We'll continue now with Occident Life business now. They ask about the evolution of Life premiums. And there's also questions about the evolution of the Health combined ratio, specifically expectations towards the end of 2025. Isidro? Isidro Lapena: Thank you, Nawal. In Life, we're also happy with the increase in premiums we are experiencing, thanks to more sales activities and a good contention of cancellations, and we are increasing the turnover in all lines. I would like to stress the good behavior of our periodic premium portfolio, which is, as you know, what contributes more value and profitability to us. They are growing at a good pace, 4%. And on the other side, single premiums grow by 9.7%, thanks to the good behavior of supplementary premiums. Focusing on the second part of the question on Health, you know that for us, it is a strategic line, even if it's not so relevant when it comes to volume as other lines. But if we analyze the evolution of the premiums, if you remember in the first quarter, it was more moderate. It was 0.6% due to our agreement with Telefonica to cover their employees, which is renewed in January, and it limits initially the increase in premiums. And this effect, as I've explained on other occasion, dilutes over the months, and this is why in this third quarter the growth has been greater, reaching 2.8% increase at the end of September. As to the combined ratio of Health, it is at 94.3%, and we must say that we are improving quarter-on-quarter and that the measures adopted are having the desired effect, always bearing in mind the risk profile and the needs of our customers. And finally, there was a question about expectation towards year-end. Well, for year-end, what we expect is that the combined ratio will continue as it was until now in terms of profitability. Nawal Rim Barange: I'll continue with you Isidro to cover the questions on Atradius. They ask specifically for more detail on growth in terms of claims ratio combined ratio. And as usual, these prospects towards the end of the year given the current context. Isidro Lapena: Thank you, Nawal. These are also several questions on Atradius. If we start with growth, the volume of premiums in Atradius has increased by 1.1%, thanks to the fact that we are focusing especially on commercial activities, which is bearing fruit because we continue to have customer retention ratios, which are quite stable, I would say, very stable. The prospects for growth globally seem to be positive. And given the current context, we expect to maintain a stable level of income for year-end 2025. It is true, however, that on the one side, it's difficult now to grow in credit insurance, but we are offsetting this with surety and reinsurance. And on the other side, income is conditioned by the sales of our policyholders who in turn are impacted by the macroeconomic uncertainty, tariffs and the FX, which is quite a random effect. And if we now move on to claims ratio, we've seen that it improves by 1.3 points, but we have to be cautious there because this improvement is mainly due to the change in expectations associated with specific serious claims, which we have not experienced this year, no key events. Because if we focus on standard claims ratio, we are observing a negative trend above previous years almost in all markets. And we are, therefore, seeing this upwards normalization of claims ratio that we anticipated in previous quarters. As to the combined ratio, there were also some questions about that. And in the presentation, we saw that it still shows good behavior, 75.9%, although it is true that it has worsened by 1.6 points as a consequence of fees due to the growth of reinsurance. Prospects in the end and for the whole of the year, I would like to say that we will continue with our cautious underwriting policy, and we expect to maintain a stable level of income with a normalized combined ratio in an environment of uncertainty as to how the currency exchange, tariffs and macro economy may evolve. Nawal Rim Barange: Thank you, Isidro. We will now continue with the questions on the takeover bid. On the one side, we received several questions about the price increase by INOC, S.A. last week. They asked us what INOC, S.A. has conveyed in this sense and whether there are more increases foreseen. Clara? Clara Bermudez: As to the question on price, I think that there isn't much more to say that we haven't said before. On October 21, INOC, S.A., increased the price of the bid from EUR 49 after dividend adjustments to EUR 49.75 in the cash mode and in the swap mode in the end, it translates into a Class B action of the newly issued INOC, S.A. shares for each 43.9496 (sic) [ 43.9446 ] shares of GCO. As to why? Well, almost the same thing, not much to add versus what you already know. This was due to, as INOC, S.A. says, the good performance of financial markets. You've seen that IBEX growth above 35% this year and also the good performance of the GCO business for the past few months. And the last question, whether we foresee more increases, as you may understand, we do not have much of that. There isn't much we can say about that. I think -- well, I'd like to remind you that in the end, it's a voluntary takeover bid, which has been approved by the CNMV. Nawal Rim Barange: Finally, after the recent approval of the CNMV, we've received questions about the expected calendar and whether the transaction will be finalized before the end of the year. Whether you expect that? Clara Bermudez: As you well know, the approval is very recent. CNMV approved the transaction precisely yesterday, 29th of October. In the calendar as was announced this morning, the acceptance period started precisely today, October 30, and it will end on the 20th of November. And during this period of time, all of the shareholders who decide to accept the takeover bid through their depository banks can do so either in the cash mode or the swap mode. As you know also because it is so specified in the prospectus published by INOC, S.A., the voluntary takeover bid is conditioned, and the condition is reaching the minimum threshold of more than half of those with direct voting rights. Once the acceptance period ends on the 28th of November, that was just published this morning by the CNMV, well, the foreseeable thing that we expect is that the CNMV has between 4 and 5 working days, specifically -- yes, 4 or 5 working days to publish the results of the takeover bid. And this translates approximately into December 5. And having said this, depending on the results and as INOC, S.A. also mentioned in the prospectus, if they reach more than 90% of the capital targeted, they manifested there to exercise the right of for sales or the squeeze out. And if they do not reach that threshold, but they reach more than 75% of the share capital with voting rights, they will carry out this sustained purchase or that will stay in the market for a term of 30 days. These are as to the calendar. When it comes to the exact date, the cash will be paid or the swap will take place, you have the entire detail of this in the prospectus, which is published not only in the CNMV, but also on the website of INOC, S.A. and the website of GCO. So I think it's not worth it to get into detail here. And we are positive that INOC, S.A., throughout this process, we will report in a timely manner about the different advances that take place with the transparency and rigor that they've always displayed. So I don't think there's much more to say about that. Nawal Rim Barange: Okay. Good. So with this answer, we finalize the presentation of results of the first 9 months of 2025. I would like to thank you, as usual, Clara Gomez, Isidro Lapena for the presentation and for the answers to the questions. I would like to remind you that, as usual, any pending questions will be managed directly through the Investor Relations team in the coming days. And finally, I would like to remind you that you can visit our website where you have all of the information, both financial and sustainability information that can be of interest to you. As usual, thank you for your presence and participation. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good day, and welcome to Essex Property Trust Third Quarter 2025 Earnings Call. As a reminder, today's conference call is being recorded. Statements made on this conference call regarding expected operating results and other future events are forward-looking statements that involve risks and uncertainties. Forward-looking statements are made based on current expectations, assumptions and beliefs as well as information available to the company at this time. A number of factors could cause actual results to differ materially from those anticipated. Further information about these risks can be found on the company's filings with the SEC. It is now my pleasure to introduce your host, Ms. Angela Kleiman, President and Chief Executive Officer for Essex Property Trust. Thank you. Ms. Kleiman, you may begin. Angela Kleiman: Welcome to Essex's third quarter earnings call. Barb Pak will follow with prepared remarks and Rylan Burns is here for Q&A. We are pleased to report solid results for the third quarter, highlighted by a $0.03 FFO performance and an increase to our Core FFO full year guidance. Today, I will cover key takeaways from the quarter, a high-level outlook for 2026 and provide an update on the transaction market. Starting with operations. Our portfolio performed well amid a backdrop of muted job growth across the U.S. and heightened policy uncertainty. Year-to-date, through the third quarter, we generated a blended lease rate growth of 3% on all leases and 2.7% on like-term leases. This is a proven example of the competitive advantage of our low supply markets. As expected, Northern California is our best-performing region and the fundamental backdrop remains favorable with forward-looking supply continuing to decline comparable to a level in the years following the great financial crisis. Within the Bay Area, San Francisco and Santa Clara counties are generating the highest rent growth year-to-date, reflecting attractive rent to income ratios, demand benefiting from AI-related start-ups and above historical average migration trends. Our Seattle region remains healthy, but is trending at the low-end of our full year expectations, driven by a combination of challenging year-over-year comparison, soft demand and pockets of supply temporarily limiting pricing power in certain submarkets. Finally, on Southern California. This region is generally performing in line with our expectations. As we have discussed Los Angeles has lagged primarily attributed to delinquency recovery, muted job conditions similar to the U.S. and pockets of supply on the West Side and Downtown L.A. With supply expected to drop in 2026, the infrastructure spending earmarked for Los Angeles and market occupancy improving, we see a path to pricing power. Given the soft economic environment and policy uncertainty, we are not surprised the hiring and investment decisions have been delayed across the U.S. But we are pleased to see the West Coast once again outperforming the U.S. average, a trend we anticipate continuing. Looking to 2026, our portfolio is well positioned relative to other U.S. markets, supported by lower levels of housing supply, attractive affordability and demand catalysts from the technology sector. Directionally, we assume Northern California to continue outperforming and to rank among the top U.S. markets as job growth in Northern California gradually gains momentum, which is supported by announcements of significant office expansions. Next in the ranking would be the Seattle region. With total housing supply deliveries declining by almost 40% next year, we are optimistic about the market's outlook. For Southern California, we expect stable economic conditions with Los Angeles fundamentals to improve. Moving on to early building blocks. We forecast our blended lease rates for the second half of the year to land at a similar level to last year. As such, we anticipate another year of stable growth with 2026 earn-in between 80 to 100 basis points. Lastly, on our investment activity in the transaction market. Page S-16.1 of the supplemental demonstrates the value created from our capital allocation strategy since 2024. We have focused our investments in the highest growth submarkets in Northern California, acquiring almost $1 billion of assets in this region while achieving accretion relative to dispositions and improving overall age of the portfolio. As for the transaction in that market, year-to-date volume on the West Coast is slightly above 2024, but remain below average historical levels. We continue to see a competitive bidding environment for high-quality properties in our markets, and cap rates are generally in the mid-4% range, with most of the Bay Area transactions in the low 4%. Although cap rates have compressed in Northern California, we will continue to enhance value from our operating platform and drive FFO and NAV per share growth for our shareholders. With that, I'll turn the call over to Barb. Barb Pak: Thanks, Angela. I'll begin with a recap of our third quarter results, followed by comments on investments and the balance sheet. Beginning with our third quarter results. We achieved a solid quarter with Core FFO per share exceeding the midpoint of our guidance range by $0.03, attributed to lower G&A and interest expense. As a result of the third quarter beat, we are pleased to raise the midpoint for Core FFO per share to $15.94. As for operations, we remain on plan and are reaffirming the full year midpoint for same-property revenue, expense and NOI growth. Turning to the structured finance portfolio. Year-to-date, we have received $118 million in redemptions and anticipate $200 million in total proceeds for the full year. As you may recall, over the past 2 years, we have made the strategic decision to redeploy the redemption proceeds into acquisitions at better-than-market rate yields and in markets with the highest near-term rent growth potential. This strategy has resulted in better NAV growth, improved cash flow for reinvestment and higher quality of FFO earnings. Looking ahead to 2026, we are pleased that we are in the final year of the redemption-related headwinds and the realignment of this business will be behind us. Overall, we expect roughly $175 million in additional redemptions next year. Given heavy redemptions in 2025 and expected in 2026, we anticipate this will reduce our 2026 Core FFO growth, net of reinvestment by approximately 150 basis points depending on timing of redemptions. As we look further out to 2027 and beyond, we expect that FFO volatility from this business will abate as the size of our structured finance book will have decreased from the peak of $700 million in 2021 to around $250 million in total investments. Lastly, a few comments on capital markets and the balance sheet. Throughout 2025, we executed several financings to further strengthen our balance sheet, increase our liquidity, diversify our capital sources and proactively address near-term maturities at attractive rates in the current market environment. With manageable maturities over the next 12 months, healthy net debt to EBITDA of 5.5x and over $1.5 billion in available liquidity, our balance sheet is strong heading into 2026. I will now turn the call back to the operator for questions. Operator: [Operator Instructions] Our first question come from the line of Nick Yulico with Scotiabank. Nicholas Yulico: I wanted to see if there was any way you could break out the blended rate growth a bit in the third quarter, just for some perspective on how much L.A. and Orange County might have been a drag on those numbers? Angela Kleiman: Nick, it's Angela here, thanks for your question. As expected, you called it. L.A. has been a drag, but that's not a surprise to anybody. In terms of our blended for the third quarter, Southern California came in at around 1.2% and Northern California close to 4% and Seattle right in the middle at about 2%. And to call out L.A., specifically, LA is below the 1.2% average for Southern California. L.A. is really 1%. So that gives you the range and the magnitude, but on the high end, when we're looking at Northern California, San Francisco and San Mateo, they're in kind of that 6%, 5% range, in terms of the blended. So hopefully, that kind of gives you the bookends of the -- of our portfolio. It's a pretty wide range. Nicholas Yulico: Okay. Great. And then I guess my follow-up question is just in terms of in Northern California, whether you've seen any like real pickup in demand from -- I mean, if we see again from some of the job announcements of new company formations or some of the activity on the office side in San Francisco or the broader Bay Area, just anything more you can share on how that's actually translating into demand on the ground? Angela Kleiman: Yes, that's a good question. We certainly are seeing a steady strength in the Northern region. And when we look at the top 20 tech postings, the postings have remained steady with September a slight uptick in California, mostly benefiting from the Northern region, the San Francisco, San Mateo and, of course, the Santa Clara counties. It's tough to get exact numbers because they don't show up, the BLS numbers, as we talked about, has been challenging. What we are seeing is that, we're seeing more start-ups than we've ever seen in the past. And you could -- anecdotally, what we're seeing is that office space less than 10,000 square feet are in hot demand. And that is a new phenomenon that we've not seen in the past. Operator: Our next question comes from the line of Eric Wolfe with Citi. Nicholas Joseph: It's Nick Joseph here with Eric. You mentioned the '26 earn-in of estimated to be 80 to 100 basis points. I was hoping you could break that down between Northern California, Southern California and Seattle? Angela Kleiman: Nick, I don't have the exact breakdown in front of me. I will just point to you that we, of course, we're assuming that Northern California will lead and Southern California will rank third in terms of the major 3 regions with Seattle in the middle. But I think a helpful data point could be that if you look at our blended lease rates in the third quarter, it's comparable to the same -- to what we achieved last year -- a little bit lower than what we achieved last year. However, what we're seeing in the fourth quarter is we're on track for fourth quarter to do better than last year. So year-over-year for the second half, we're assuming that we're going to land in the same zone, somewhere in the low 2%, and that gives us the 80 to 100 basis points earn-in. Nicholas Joseph: Appreciate that. And then just on the preferred book, I think you said 150 basis points headwind. What's the sensitivity around the timing of the potential redemptions for next year? Barb Pak: Nick, it's Barb. I mean there's a couple that are maturing in the first quarter. And if they may need an extension for 1 month or 2, that's really the sensitivity that I'm talking about. But the maturities are very much in the first half of the year. And so, what we've guided to and what I provided was assuming that they're fully redeemed at maturity. If they get extended, it might be a little bit lower. Operator: Our next question comes from the line of Jeff Spector with Bank of America. Jeffrey Spector: Great. Just a follow-up on the first question or Nick had asked, I think, is a follow-up question on jobs. I mean, it does seem like we're seeing mixed signals between AI hiring, tech layoffs. I mean, how are you thinking about this into next year, maybe even medium-term? What are you hearing from, let's say, your -- any peers, any executives that you talk to in terms of the job outlook in your region? Angela Kleiman: Yes. Jeff, that is a great question because it really goes to the heart of where is AI taking us, right, on more of a broad conversation from that perspective. So a lot of things are happening right now, which is noisy, and we are seeing recent layoff announcements, but keep in mind that large tech companies, they get most of the headlines. Broadly across the U.S. layoffs -- layoffs are occurring. So for example, UPS in Atlanta is cutting 48,000 jobs. From what we're seeing on the ground here is that this is a normal part of the business cycle. In an environment where the macro environment is soft, business are and they should be focusing on efficiency. And so I don't think, from what we're seeing that they are AI-driven job losses. But in terms of what we think is going to happen with the conversation about AI displacing jobs and being -- becoming -- or is viewed to be a disruptor, we do think that's going to happen at some point. AI capabilities, it's growing rapidly, and we're seeing research suggesting that most companies are experimenting with AI. So that experimentation level is very high. But the adoption, the level is low because the return on investment is still unclear. So for example, Essex where we see AI benefiting data analytics and certain repetitive tasks, but it is still in early developmental stages, and we need additional technology to interface with AI applications for utilization. Essex have not had significant workforce reduction using AI. And so what we do expect is that the pace of disruption or job displacement will be more gradual because on the flip side, what we're seeing is, as I mentioned earlier, an unprecedented number of start-ups, small companies that because of AI, can form businesses. And that is not being picked up by BLS. But certainly, it's being picked up by the demand that we're seeing in Northern California. Does that make sense? Jeffrey Spector: Yes. That's helpful. And maybe could you talk a little bit more about San Francisco specifically, let's say, downtown and we're seeing all these great articles on downtown, the city versus your suburbs. How is your portfolio benefiting from all of this? . Angela Kleiman: Well, I think interestingly, downtown, we view Northern California generally is still in a recovery phase and giving more rents are relative to pre-COVID levels. And the suburban started recovering last year. Downtown is recovering starting this year. But when we look at relative blended rates for our markets, if I break out San Francisco, for example, year-to-date blended rate growth is 5.2%, where San Mateo is 6% and San Jose in that 4% range. And so the relativity isn't -- the dispersion isn't huge, and they're all quite strong. And when we look at announcements of new office space, it's just as concentrated in the suburban area as it is in downtown. Operator: Our next question comes from the line of Steve Sakwa with Evercore ISI. Sanketkumar Agrawal: This is Sanket on for Steve. Switching a bit. You guys have been very active on transaction front this year, and we just wanted to understand what are the cap rates are used on acquisitions and exclusions for those assets? And how deep is the investor pool within that market? Rylan Burns: This is Rylan here. I'd point you to S-16.1 where we've tried to break out specifically the cap rates that we've been targeting and been successful at acquiring over the past 1.5 years, and also point you to the Essex yield, which is 40 basis points higher, which is as a result in something we've talked about, our operating platform, given our asset collection models in these markets, we're able to pull out a significant amount of controllable expense by putting them onto our platform. So that's been one of the driving factors in our acquisition strategy. So, as Angela mentioned, cap rates have compressed. There's been a significant sentiment change as it relates to Northern California over the last year. I'd say we've been relatively early and been able to acquire significant, almost $1 billion of assets in these submarkets at that 4.8% market rate and a 5.2% yield to Essex. So we're pleased with what we've accomplished, and we're hoping to continue. Sanketkumar Agrawal: And as a follow-up to that, like are you guys evaluating share repurchases? Given where the stock price has been like -- it's been a common theme across your peers. Angela Kleiman: Sanket, that's a good question. And I think you've seen that we have a very solid track history of buying back stocks and assessing all the relative value leading to that decision. And if you look at where we are today, where we're trading today, it's much more compelling from a stock buyback perspective than it was in the third quarter. But I do want to highlight that our transaction in the third quarter was around a 5% cap rate, and you add growth to that. It's quite compelling because stock back then was trading in kind of that low- to mid-5% range. So once again, you will see us being very disciplined in making sure that we're going to maximize the yield depending on our cost of capital and investment instrument available to us. Operator: Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: So going back to the lease rate growth during the quarter versus the back half projections, I think, was around 2.7% as of last quarter. Was Southern California lower than projected? Or was it Seattle? I think as you mentioned in the prepared remarks that drove maybe pricing being a little bit softer than you had -- had you thought last quarter? And then just wondering if you think the Seattle softness, is it kind of a temporary phenomenon or could persist into 2026? Angela Kleiman: Austin, I think you make -- it's really driven by Seattle. And what we're seeing in Seattle is that the demand has coming softer. And we had expected that demand to moderate throughout the year, on a national level. And keep in mind, Seattle does not have the benefit of the AI start-ups that Northern California does. Northern California has 80% of the AI business. So Seattle is going to be more in line with the U.S. average at the current cycle. But I do want to know that the -- some of the headline news like Amazon laying off corporate employees, they have multiple locations. So it's not a Seattle-specific issue. And when our team dug into the WARN notices, it's less than 10% of the layoffs is Seattle-specific. So this leads us to believe that this is not a market that we're seeing red flags. It's a market that's stable. It's still performing well. Certainly, it's not reaching above average CAGR growth that we had hoped, but it's still a good market. And with next year, supply going down by almost 40%, it's going to do just fine. Austin Wurschmidt: Appreciate the thoughts. And then just the 4% growth in blended lease rates in Northern California coupled with some of the office leasing you've referenced across the Bay Area, do you think that the region can sustain that level of growth in 2026? Or was there any specific phenomenon like back to office, that may provide a little bit of an incremental lift that maybe is less sustainable to the extent job growth remains more muted, more of a broader comment than specific to the area. Angela Kleiman: Yes. Austin, I think there are different -- in every cycle, there are different influences that drive job growth. And currently, what will happen -- what we're seeing in the Bay Area is really more of a recovery story. We're not -- we have not begun the growth story yet. And because if you look at the top 20 tech hiring companies, the postings, is still going to add and slightly below the long-term average. And so what we're seeing, that 4% forecasted is a catch-up, if you will. And this market still has a lot of legs. Operator: Our next question comes from the line of Jamie Feldman with Wells Fargo. Unknown Analyst: This is Connor on with Jamie. Can we talk about your fourth quarter leasing strategy. Where are you seeing renewals go out for the quarter? And if you have any insight on new lease growth quarter-to-date? Angela Kleiman: Connor, yes. Our general strategy for the third quarter at the beginning, as we approach the seasonal peak is to push rents and in the Northern California and Seattle region. And then in Southern California, we toggle between rents and occupancy, subject to market conditions. And as we wrap up the third quarter we pivot to more of an occupancy or more defensive focus, especially as we saw strength early on, which, of course, taper off. And that's a normal seasonal cycle. In terms of the renewal growth, what we're seeing is that it's been quite sticky. So in the third quarter, we sent renewals out around mid-4s, say, around 4.6% and we landed for the quarter around 4.3%. So only 30 basis points of negotiations, which is quite good. Currently, for November, December, we're sending renewals out around mid-5%. And so with negotiation, we probably will land at maybe high 4s. So this is another reason that gives us conviction that fourth quarter blended rates will be better this year than last year. And in terms of the -- what was the third question? New lease rates? Connor, what was your third question? Unknown Analyst: Yes, it is on the new lease rates. Angela Kleiman: So new lease rates for October for the same-store, it's pretty much flat, and that's expected. Especially for this time of the season. I think a good data point I'll point you to is loss to lease because we talked about that in the past is a good gauge of the portfolio. And where we're sitting today in October, we have a gain to lease of 1.6%. So that's not exciting. But having said that, it's also nothing alarming. So just to give you some context, pre-COVID 2019, so it gives you a sense, more of a historical range, our gain to lease was worse, it was at 2.3%. So this is so far playing out to be a normal seasonal cycle in a soft macro economy. So we're quite pleased with how the portfolio is performing. Unknown Analyst: That's super helpful. And then maybe on the preferred book. It looks like there was a $21 million commitment this quarter. Is there anything we should read into that as a way to maybe selectively offset some of the redemptions going forward? Just trying to kind of think about use of proceeds here beyond acquisitions? Rylan Burns: Connor, Rylan here. As we've said, we are not getting out of this business. This is a good business, and there are interesting opportunities where we believe we'll get a premium yield to what we can buy in the fee simple side. In general, the strategy is just to make this a more manageable size relative to our total business. But if we see good opportunities, in this case, with partners that we know very well, and we're really comfortable with our position in the stack, we will continue to make investments in this book. So we're not getting out of it. It's really just trying to control the size of it and just pick the best opportunities for our shareholders. Operator: Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Alexander Goldfarb: I just want to circle back to the debt preferred equity book. I know, Barb, you've articulated this for a while to trim the book given it has gotten too big as a percent of FFO. But in the current environment where acquisition yields are in the 4s, which is well inside of where your stock is trading and the DPE, you guys have a long successful track record with and provides better returns, and you've been good at that, would you guys consider reassessing the decision to dramatically shrink it? Maybe 10% of FFO was too much, but it just seems like it's a good tool that you guys have to be competitive in a low cap rate world. And unfortunately, it seems to be relegated back to the -- almost up to the attic, if you will. Barb Pak: Alex, it's Barb. Rylan just made a good point that we're not getting out of the business. We're just being more selective. And given the redemptions are very heavy, it is shrinking. There's been a lot of capital raise that's chasing this business. And so yields have compressed. It's not risk-adjusted like we would like, and we're not going to go and do all the deals out there just to backfill this book. And so this business will ebb and flow. And right now, based off of what we know and where the environment is, it is shrinking. But it could change over time, and we -- it has evolved over time. So this is just where we are in the cycle today. Alexander Goldfarb: Okay. And then Angela, the New York Mayor election certainly has gotten a lot of buzz, but Seattle has got an interesting election coming up next week, with the Mayor and City Attorney that are both being challenged from the progressive side. So can you just give some thoughts on how the apartments are looking and what the consequences of both the progressives win? What that means for apartments in Seattle? And then if you think that as a result, that means divesting more Seattle, buying more on the East side? Just want to understand better the ramifications of what folks can expect from next week. Angela Kleiman: Alex, that's a good question. And we've been -- as you know, following the legislative environment as closely as possible. It is hard to predict what will happen. But this is what we know. Washington did enact rent control early this year. It was effective around May. And what was enacted was very similar to California. It was CPI plus 7%, max of 10%. So in this environment, that signals to us that this is a -- the legislators understand the need to protect tenants from price gouging, but at the same time, they also understand that regulation -- heavy regulation is going to be counterproductive. It's going to reduce housing production and community investment, which ultimately results in higher costs all around. So given that they recently enacted rent control, we would expect naturally that this will play out for some period of time before any further changes are made. Alexander Goldfarb: Okay. But what about on the Mayor -- like if the Mayor of the City, Attorney changes? Do you see any negative consequence to apartments or not really? Angela Kleiman: Hard to say, we haven't heard anything that's being proposed that would give us great concern and from the ultra progressive side. And once again, my example to you is, we've got enacted, had a lot of input from all parties. So it's hard to predict, but so far, I don't -- we don't see a meaningful change right away. Operator: Our next question comes from the line of Adam Kramer with Morgan Stanley. Derrick Metzler: This is Derrick Metzler on for Adam Kramer. I was wondering if you could share your thoughts on SB 79. And does this impact your South San Francisco development at all? Or any other potential developments that you might have in the pipeline? And just kind of generally, do you see an impact on future development opportunities from this and kind of in combination with the recent changes to [ Sica ]? Rylan Burns: Derrick, Rylan here. It's a good question. At a high level, we view this in several of the recent legislative changes that have occurred at the state level is good for California. We need more housing. The SB 79 specifically says that if you're within a half-mile radius of a transit stop in markets where there's greater than 15 rail stations, you can establish the ability to get higher density. So as an illustrative example, if you go to a city and get entitlements that allow, say, 80 units to an acre, now you'd be able to get 120 units to the acre. So this should be beneficial. It's not going to benefit ourselves San Francisco deal as we're already through the entitlement period and under construction there. When we think bigger picture of what this could do to the supply landscape in California, it should help on the margin, create some more opportunities. But some mitigating factors to keep in mind. Transit-orient development has been a focus of the state and cities for the past 20 years. The majority of our city's arena plans are concentrated along transit sites. So in other words, zoning has already become more favorable in these locations. Secondly, I think the real gating issue today on increased development are just for the returns. The majority of deals that we've underwritten last year have in-place yields around 5%, many of them sub that. So in summary, it's a long-term beneficial to California, but I don't see it taking a dramatic change in the supply outlook for our markets. Operator: Our next question comes from the line of Haendel St. Juste with Mizuho Securities. Haendel St. Juste: A couple of quick ones for me. First, I was hoping you could comment on the use of concessions across the portfolio where it is today versus maybe a year ago and how it compares across the key regions, SoCal, NorCal, Seattle? And are you offering concessions on renewals? Angela Kleiman: Haendel, from concession perspective, let's see. Right now, our concession levels are comparable to the same period last year, about 1 week. And that's pretty typical for this time of the year. In terms of the breakdown across the region, Northern California is right at a week -- actually, everybody is right around a week and not a whole lot different. But keep in mind, concession is also more driven by competitive supply nearby. And so that's going to probably be more of an influence than what's happening with the macro economy. As far as -- we'll see concessions. On renewals, no, we don't -- it's de minimis, negligible on renewals. It's mostly on new leases. Haendel St. Juste: Got you. Got you. Appreciate the color. And then my second question, I guess, it's on L.A. and the new versus renewal spreads you're seeing there. I think you mentioned the blends in L.A. were around 1%. So assuming renewals are low single-digit positive, that would imply new leases are negative and a pretty decent spread there. So again, I'm curious on if you could set some color on what that spread is on the new versus renewals in L.A.? And if that's a sustainable spread and if you think that maybe perhaps renewals could come under pressure? Angela Kleiman: Yes. So renewals are negative. Once again, but that's not unusual for this time of the year. So they say -- we're about, say, 100 basis points in the negative for Southern California. I'm sorry, I said -- I mean new leases. New leases are negative. Yes. And L.A. is much wider in that. L.A. is closer to 1.8%, so closer to say, negative 2% on new leases. Renewal, they're sitting around mid-3% in September for Southern California and L.A. is in the low-3% range. So not too different. Renewals are pretty consistent across the board, generally speaking. New lease, it's hard to say whether it's going to come under pressure. I mean it's, of course, going to follow our market rents ultimately end of next year. And that has a lot of factors. It's job growth, that's where supply is going to be. And what we're seeing right now with supply decreasing and occupancy stabilizing in L.A., we wouldn't expect more pressure on new leases next year versus this year. And so just to give you an example, occupancy, net of delinquency right now sitting at above 94%, which is great. In September, it was still below 94%. It was 93.9%. So it's been steadily increasing. So that tells us that this market is stable. And there is underlying fundamentals to support the stability and potentially growth. Operator: Our next question comes from the line of Julien Blouin with Goldman Sachs. Julien Blouin: In Seattle, you talked about the fact that Seattle doesn't really benefit from the AI tailwinds the way SF does. But I was wondering, do you think it could actually end up being a relative loser within the tech markets if investment in talent within tech sort of continues to flow towards AI. Do you see any impact from that? Angela Kleiman: Well, I think the Seattle economy has a good stable group of industries anchoring it. And so I don't see that AI being ultimately a negative to not just Seattle, but any other economy, because you can make the same argument for parts of Southern California or other areas outside of California where there's AI presence. We do view that AI will be net additive and the economy in Seattle will continue to grow. You've got Amazon there, which is huge. Microsoft is very solid and quite a few other ones. So we don't see AI as a net negative for Seattle. Julien Blouin: Got it. And then maybe just a quick one on Contra Costa where occupancy fell about 60 bps sequentially in the third quarter. Can you just give us a sense of what you're seeing in that market? Angela Kleiman: Yes. Contra Costa, I mean, that market is going to ebb and flow, and it's been digesting a huge amount of supply over the past 2 years. And so we've -- we pushed rents because we saw some strength there. And then, of course, ultimately, sometimes that comes in at the expense of occupancy, but we did see sequential revenue growth there, which was a good indicator that the market is doing fine. Operator: Our next question comes from the line of Robin Hanlin with BMO Capital Markets. Robin Haneland: [ You leaned into ] Santa Clara acquisitions as of late. Can you elaborate on the long-term potential in these markets versus buying back your stock today? And also curious is rebalancing your exposure to the city of San Francisco is on the horizon? Rylan Burns: Robin, Rylan here. I mean if you look at that 16.1% and where we've been able to source deals in that initial yield layered in with what we think the micro market supply outlook and the potential for rent growth there. As Angela mentioned earlier this year, we think that was definitely the highest risk-adjusted return opportunity available to us. As we've said in recent days with the stock falling off, that math is being reevaluated. But we feel really confident and excited about the acquisitions that we have been able to acquire in there. And again, the micro market fundamentals in terms of the supply outlook for the foreseeable future. I think your second part of your question was San Francisco. We have underwritten every institutional deal that's come to market in San Francisco. There have not been a lot of them. And what we generally found is that the cap rates there have been even more aggressive, the competitive bidding has been made the relative value opportunity for us to create value on the buy in San Francisco is really not emerged relative to what we -- where we were able to purchase along the Peninsula with similar fundamental outlook. So we will continue to underwrite everything in Northern California and step in if we see a unique opportunity. Robin Haneland: And then we noticed that San Diego and Oakland, seeing decelerating same-store revenue. Can you maybe supplement us with new lease rates in the markets? And then color on how demand is trending in those two? Angela Kleiman: Yes. So San Diego, we've had supply concentration in pockets of North City and North Coast submarkets that directly competes with our portfolio, although that is starting to abate. So that's good. And of course, it's San Diego is influenced by a general soft demand in Southern California and the U.S., and that's -- those are the key drivers of the weakness. Similarly, on Contra Costa as well, we've had much heavier supply in Contra Costa for several years. But that market has been recovering. Although we don't have -- we actually have sequential improvements in revenues for Contra Costa. So it's just San Diego where we don't have sequential growth in gross revenues. Operator: Our next question comes from the line of Rich Anderson with Cantor Fitzgerald. Richard Anderson: So Jeff Spector asked a question about jobs and he said he understood the answer, and I didn't. So let me see if I can sort of ask it a different way. What is your view when you think of West Coast jobs in 2026 versus national jobs in 2026? When you keep in mind perhaps a blessing and curse impact on jobs from AI, entertainment in L.A., Seattle kind of being somewhere in the middle with Amazon. Do you think that your markets from a job growth perspective alone will outperform the nation, in line with the nation, maybe below the nation? What is your view on jobs going into 2026, if you have one right now? Angela Kleiman: Rich, our view with respect to jobs is that we should outperform the U.S. average. The question here is magnitude. And that as we would all expect, is going to be influenced by the macro economy. But what we're seeing is Northern California has of course the AI benefit that is a catalyst, it's also in a recovery phase. And so we are seeing positive immigration, which is not the historical norm. So that's going to benefit Northern California. Seattle is anchored by the broad tech economy and which has gone through its massive pivoting and lay off about 1.5 years ago. So it's stable with upside. And in Southern California is going to perform similar to the U.S., albeit with more professional services, it should do better. But more importantly, fundamentals in L.A., we see has troughed or near the bottom. And so while we don't know how long it's going to take to recover, we do see that there should be more upside than downside in that market. So hopefully, that gives you a better breakdown that you're looking for. Richard Anderson: That's great. I appreciate that. Second question, thinking about perhaps moving some of your investment incrementally more from Southern California to Northern California. Obviously, much talked about with the Olympics coming to L.A. perhaps housing for athletes. I wonder if there'll be an opportunity to sell in front of the Olympics now? I'm thinking -- I'm thinking in 1996 in Atlanta when there was sort of this wave of housing and then there was a hangover effect after the Olympics. That was a little disruptive. Atlanta obviously became a great market eventually. But do you want to be there for a year after the Olympics in bulk? I'm wondering if you're thinking about your business as an option for the Olympic Committee, as a mechanism to move more product, maybe a little bit quicker out of that area and into other areas of your portfolio? Rylan Burns: Rich, Rylan here. Interesting question. As we mentioned, we are fundamentally a little bit more positive on the L.A. market going into next year as the supply is coming down. And we do see some near-term catalysts as it relates to the Olympics. We do not plan to convert any of our existing leases into short-term rentals to take advantage to the extent that, that was your question, that's pretty difficult to do with existing tenants hoping to stay in and be able to enjoy the Olympics and the World Cup in our units. Just speaking broadly on the transaction market, outside of downtown L.A. and the West side, the tri-cities to the north, these are still well bid markets with lots of transactions occurring in that 4.5% or 4.75% type range. We saw a deal closed last quarter, Marina del Rey, that was a sub-4.5% cap rate. So there is still a lot of capital interest in the broader L.A. market, with downtown being a notable exception, as it's still challenged with the operating performance. I think we'll see more transaction opportunities in downtown L.A in the next year. And as we do with all of our markets, we're underwriting everything and looking to take advantage of any mispriced opportunities. Operator: [Operator Instructions] Our next question comes from the line of Linda Tsai with Jefferies. Linda Yu Tsai: It hasn't really come up on the call, but are you hearing of any impact on employment outlook as it relates to the higher cost of HB1 (sic) [ H-1B ] visas going forward? Angela Kleiman: Linda, we actually -- what we're hearing is that it potentially could be a net positive because the intention of this legislation is really to minimize the middleman, some of these H-1B, consulting firms like Deloitte for example. And what this will allow the large companies that can actually pay the fee, to just go direct instead of having to pay a consulting fee and then still having -- incurring other costs. And potentially, what we're hearing is that they can actually get a better or increased allocation, which would ultimately be good. So we don't expect a meaningful impact to Essex and it may actually become a net benefit. Operator: Our next question comes from the line of Alex Kim with Zelman & Associates. Alex Kim: Just a quick one for me. Could you walk through the decline in year-over-year repair and maintenance costs and -- can that be attributed to the continued decrease of same-store turnover? And is it sustainable into Q4 and 2026 and beyond? Barb Pak: Yes. This is Barb. Repair and maintenance is lumpy and it does vary from quarter-to-quarter and even from year-to-year. I think we have done a good job on trying to control our costs via our procurement programs. We are seeing a little bit lower turnover and the delinquency turnover that we had incurred the last few years has been much more stable this year. So it's a combination of a variety of things. Too early to talk about 2026. We're still in the midst of our budget process, so more to follow. What I would say, though, overall controllable expenses. We've done a good job keeping those around 3% for many years. And I don't see anything on the horizon that's going to change that heading into 2026. Operator: And this does conclude today's question-and-answer session. And also, this does conclude today's conference, and you may disconnect your lines at this time. We thank you for your participation.
Operator: " Renee Aguiar-Lucander: " Monika Tornsen: " Richard Philipson: " C. Ballantyne: " Farzin Haque: " Jefferies LLC, Research Division Sushila Hernandez: " Richard Ramirez: " Matthew Phipps: " William Blair & Company L.L.C., Research Division Operator: Good day, and welcome to the Hansa Biopharma Quarter 3 2025 Results Conference Call. Please note this event is being recorded. [Operator Instructions]. I would now like to turn the conference over to Hansa Biopharma's CEO, Renée Aguiar-Lucander. Please go ahead. Renee Aguiar-Lucander: Thank you very much, Operator. Good afternoon, good morning. Welcome to the Hansa Biopharma conference call to review Q3 and results for the first 9 months of 2025. I'm Renee Aguiar-Lucander, CEO for Hansa Biopharma. And joining me today is Evan Ballantyne, CFO; Richard Philipson, Chief Medical Officer; and Maria Tornsen, Chief Operating Officer and President of the U.S. Please turn to Slide 2. Please allow me to just quickly draw your attention to the fact that we will be making forward-looking statements during the presentation, and you should therefore apply appropriate caution. Please turn to Page 3, and today's agenda. Today, we'll discuss the progress we've made in the 9 months of 2025 and review the quarterly performance. I'll also share my reflections and insights based on my first 6 months in the role. The presentation itself should take roughly 20 minutes, after which there will be an opportunity to ask questions during a Q&A session. Please turn to Page 4. Over the past several months, Hansa has been through quite a transformation, including a significant reshaping of the capital structure involving debt restructuring and significant strengthening of the cash position through 2 successful equity raises. In addition, the reporting structure of the company has been changed to provide for enhanced accountability and transparency as well as result in a simpler and leaner organization. We have in parallel added key competencies to the senior team, which are crucial for a successful BLA filing review and prelaunch preparations as well as the requirement for a successful product launch subject to approval in the U.S. I believe that the market opportunity in the U.S. is very substantial, and this brings me to the last but ultimately most important point and key event of this quarter, the successful outcome of the Phase 3 ConfIdeS trial. This trial randomized patients between 2022 and 2024 with a 12-month follow-up period, and we're truly delighted that we could report at such a strong p-value of 0.0001, which I believe reflects the unmet medical need for these highly sensitized patients. And we're now looking forward to submitting the BLA filing before the end of the year. Moving to Europe. This summer quarter reflected lower-than-expected transplant rates, further impacted by the absence of transplants in Germany due to the situation flagged already in Q2 as well as continued challenges related to local reimbursement. I'll comment further on this shortly. Regarding pipeline developments, we were excited to report the very first clinical data from the gene therapy area, which clearly showed imlifidase's ability to successfully reduce antibodies related to AAV vectors by over 95% reduction from baseline and thus enable dosing of patients who otherwise would have been excluded. These data, in conjunction with further clinical data obtained from our collaboration with Généthon, bolsters our view that gene therapy could become a significant future market opportunity for Hansa. Please turn to Page 5. As I already stated in my Q2 address, I was expecting Q3 to be a weak quarter for reasons which should not be a surprise to anyone who's actually tried to obtain a hospital appointment during the summer in many European countries. This actually ranges from difficult to close to impossible, except for reasonably acute situations in many regions. However, this was exacerbated by a variety of country-specific factors already mentioned. As we've now had the opportunity to review the situation in Europe somewhat in more detail over the last couple of months, our conviction regarding the significant growth opportunity has not been diminished, but we do believe that there are several areas which can be improved and strengthened to enhance both performance and predictability. We have identified several of these and intend to start rolling them out in this quarter. However, as a backdrop to these initiatives, I'd like to review some of the key situational facts of the kind of European market. So, as I've already kind of stated previously, at the time of launch in Europe, there was limited clinical data available. There were only 2 sites that were actually in Europe, which participated in the Phase 2 trial. So very few KOLs had any experience of this procedure in Europe at the time of launch. There was also obviously need for drafting and implementation of guidelines. And as we know, Europe has a long and complex reimbursement process to deal with. Due to the fragmentation of the market, obviously, there are different national organ allocation systems, and they do not all kind of operate in the same way. And obviously, at the same time, as the company was really challenged with the kind of limited KOL support and experience and clinical data, there was also a large clinical study initiated at 23 of the European sites, many of them very large academic institutions to recruit 50 patients in a transplant trial. There's also been the strategic decision earlier to go very broad in Europe rather than have a more focused approach. So, what we are going to do since we do believe that there is an extremely large growth potential based on where we are today, is to really review the organizational structure overall. We're looking for accountability, focus and efficiencies, and we've identified some areas that we think would benefit to be strengthened. We're also going to invest in Europe in terms of systems, clarifying KPIs, reporting lines and provide additional education and training. We will obviously focus on dissemination of the clinical data that we now have in terms of the Phase 3, I do think that this kind of Phase 3 trial and the clinical data that stems from that will become extremely important in conversations with European KOLs and transplant surgeons. And we'll focus on all of that in terms of best practice and peer-to-peer interactions. So, in summary, we will be refining and implementing these activities over the next 3 months, and we'll keep you updated as we move through this process. Please turn to the next page. Following the strong Phase 3 data, I just wanted to provide a brief overview of the U.S. market opportunity, where there are several key differentiating factors from Europe, which we believe will impact both the potential size of the overall opportunity as well as the adoption rate compared to what we've experienced in Europe. So, a large, a significant differential is obviously that we have a large and robust clinical trial that just read out with data that's going to be available to the community prelaunch. As part of that, we also have a lot of KOL engagement and experience as part of the very large trial that's being conducted in the U.S. In terms of pricing, if we look at kind of reimbursement, obviously, the price that can be managed by the company will be based on research and the clinical and payer studies. There is a national organ allocation system which is centralized with clear guidelines for how these matches are being made and with also a specific kind of focus on highly sensitized patients. In terms of this we are going to focus on the 25 sites we were part of the Phase 3, which represent about 25% of all transplants in the U.S., where these transplant surgeons will be familiar with the procedure, and we'll have a subsequent rollout plan with an initial target of about 100 clinics. In addition, the data that will read out from the European-based PAES study will also be available; as will real-world data from Europe, which we hope will also in the near future, we will see in form of some publications. We have a well-researched, externally validated and structured launch plan, and we have very strong market analytics capabilities internally. There is an active patient advocacy in the U.S., strong kidney organizations and a clear physician demand for the product. So, in conclusion, we're extremely excited about the upcoming regulatory process and look forward to engaging with the FDA with a purpose and focus of bringing imlifidase to patients in the U.S. With that, I'll hand over to Maria, who will provide some more details on these topics. Monika Tornsen: Thank you very much, Renee. Next slide, please. Our Q3 performance was, as Renee mentioned just earlier, impacted by the seasonality and the pause of the German prioritized program for highly sensitized patients. As mentioned in our Q2 report, Germany paused participation in the Eurotransplant prioritized program earlier in the year. And as a result, we did not recognize any sales in Germany in Q3. The prioritized program continues in the other smaller countries in the Eurotransplant zone. While German physicians can still use IDEFIRIX in the normal ETKAS program, it will require publication and adaptation of new guidelines for broad adoption. And we, therefore, expect this to continue to have a negative impact in the near to midterm on our sales performance in Germany. We continue to work with physicians to understand the timing of these new guidelines, and we have also initiated various public affairs efforts to better understand how and when the prioritized program can be reinstated in Germany. In addition to Germany, our sales were also negatively impacted by regional dynamics in the Spanish market where the lack of transplant protocols in the region of Andalusia is limiting usage of IDEFIRIX. From a market access perspective, we have been very successful in gaining national reimbursement in 21 European and international markets. Over 90% of the European population are covered by national reimbursement. However, in some European markets, we also need regional reimbursement to enable IDEFIRIX usage. We still have some key regions in Europe where this reimbursement is lacking. And one such example is the Catalonia region in Spain, where the overall health care budget has been blocked at the regional level, impacting IDEFIRIX negatively. As Catalonia and Andalusia are two of the largest regions in Spain, our Spanish sales were lower than expected in Q3. Despite some of these market challenges, we have a strong support in many European and international markets with one example being France, a country where there are clear guidelines for IDEFIRIX usage, strong support from key opinion leaders, significant positive clinical experience over several years and a clear path to reimbursement. We are building on these positive experiences as we look at how we can optimize performance across Europe. As Renee mentioned earlier, Europe represents a significant growth opportunity and as such, we are implementing multiple activities to address the European performance. We are reinforcing our peer-to-peer education on guidelines and delisting practices, and we are arranging multiple educational events with one example being a large scientific event in November with around 80 European key opinion leaders. We're also, as mentioned earlier, reinforcing our public affairs efforts to address some of the systemic barriers we are observing in some key regions and markets. And finally, our market access team are working on addressing the regional access challenges mentioned earlier. Please turn to Slide 9. Let's now turn our focus to the U.S. market, which represents a significant opportunity for Hansa. As Renee mentioned, a few weeks ago, we presented positive top line data from ConfIdeS, our Phase 3 trial in highly sensitized kidney transplant patients. When we look at the U.S. market, it is important to remember that these highly sensitized patients have no approved desensitization therapy available today and the unmet need is therefore significant. There are approximately 15,000 highly sensitized patients with a cPRA over 80% in the U.S. today and more than 7,000 with a cPRA over 98% and 3,500 patients in the most sensitized group with a cPRA at 99.9% or above. In total, 100,000 patients are in the U.S. transplant waitlist. And each year, 45,000 patients are added to the waitlist with highly sensitized patients representing 20%. Unfortunately, due to the long wait list, each year, there are 10,000 patients who pass away or become too sick to transplant while waiting for an organ and the median wait time for an organ for these highly sensitized patients is seven years. Please turn to the next slide. With the recent announcement of the positive Phase 3 ConfIdeS data, our U.S. organization is focused on preparing for a potential launch in the second half of 2026, subject to FDA approval. As mentioned, the U.S. market represents a significant opportunity. And while there are important learnings from the European launch, there are also obvious reasons why the U.S. launch will be different. The market opportunity is significantly larger than in Europe. As you saw on the previous slide, there are today 15,000 highly sensitized patients in the U.S. wait list, and this list is growing each year. Unfortunately, 2,500 highly sensitized patients pass away while waiting for a matching organ or they become too sick to transplant each year. If we look strictly at the ConfIdeS criteria, cPRA over 99.9%, there are today 3,500 patients on this waitlist. Half of them have waited over seven years for a suitable organ, which is a sign of the tremendous unmet need that exists for these patients. The burden of being on dialysis should also not be underestimated. These patients need to undergo dialysis for several hours, multiple times a week, and the cost for Medicare is approximately $100,000 per patient per year for dialysis. For those patients who are fortunate to find a matching transplant, they will have a significantly better outcome, with more than 80% being alive after 5 years, compared to 40% on dialysis. The recent patient preference study also shows that these patients are waiting for an approved desensitization therapy, with 61% of U.S. patients today practically discussing this with their physician. While our European launch has been impacted by the regional market dynamics described earlier, the U.S. market is vastly different, and we should, therefore, expect a stronger launch. In the U.S., there is a national organ allocation system where highly sensitized patients are prioritized. As you heard earlier, this is one of the challenges we're facing in some European markets. There is also significant efforts from the current U.S. administration to improve transplant care and ensure better outcomes for patients and better usage of organs. From a market access perspective, we know that kidney transplants are covered by Medicare. Our market access team will work with various stakeholders to ensure adequate reimbursement through both outlier payments and NTAP, New Technology Add-On Payment. It is also worth noting that Hansa will enter the U.S. market with significantly more clinical experience and data compared to the situation we're launching in Europe. The ConfIdeS centers are collectively responsible for 25% of all transplants taking place in the U.S. each year. This puts us in a much better situation compared to the European launch, as these centers already have clinical experience using imlifidase and have seen the benefit of desensitizing their highly sensitized patients with imlifidase. As the U.S. market is highly concentrated, with 200 adult kidney transplant centers and 100 of these representing 80% of the transplant volume, this is a launch we can manage successfully ourselves with a small footprint. We expect to hire around 20 field-based key account managers who will be responsible for the sales of imlifidase. Finally, already today, we have a very experienced team leading this exciting launch. Current team members all bring significant therapeutic area experience and launch experience. Over the coming 12 months, we will also add to this team to ensure we are ready to launch Imlifidase successfully, assuming FDA approval. And with that, I would like to hand it over to our Chief Medical Officer, Richard Philipson, to discuss our pipeline. Richard? Richard Philipson: Thanks, Maria. So, I'm going to start by presenting a short summary of the efficacy and safety outcomes of the ConfIdeS study, which is a Phase 3 open-label randomized controlled study evaluating kidney function at 12 months as measured by estimated Glomerular Filtration Rate, or eGFR, in highly sensitized kidney transplant patients treated with imlifidase prior to transplantation compared to a control group. I'll begin with a brief summary of the study design. Patients considered potential candidates for the study were consented and entered the prescreening period. One or more unacceptable antigens were delisted from the patient's HLA profile to increase the likelihood of the patient receiving an organ offer. When an organ offer was received, patients entered screening and underwent a final evaluation of eligibility. Eligible patients were then randomized to the imlifidase arm or the control arm in a 1:1 ratio. The period of follow-up in the study was 12 months from the time of randomization. Patients randomized to the imlifidase arm accepted the organ offer and were treated with imlifidase. If treatment resulted in crossmatch conversion from positive to negative, and patients were transplanted and entered follow-up. Patients randomized to the control arm either accepted the organ offer, were treated with non-approved desensitization and then proceeded to transplant, or the organ offer was rejected and the patient waited for a more compatible organ offer or offers later in the 12-month follow-up period. Next slide. A total of 64 patients were randomized in equal numbers to either treatment with imlifidase or the control arm. So, there were 32 patients in each arm of the study. Two patients randomized to the imlifidase arm did not proceed to treatment. In one case, the organ offer was refused. In the other case, the patient withdrew consent to be treated with imlifidase. The overall rate of completion of the study was excellent; a total of 58 patients, or just over 90% in the study completed the 12-month follow-up period. The treatment groups were balanced with respect to sex and age. Overall, there are almost equal numbers of males and females in the study and the mean age of the study population was 45.3 years. The treatment groups were also balanced with respect to race and ethnicity and representative of our highly sensitized kidney transplant waitlist population. So with respect to the primary efficacy outcome at 12 months, mean eGFR was 51.5 mls per minute in the imlifidase arm compared to 19.3 mls per minute in the control arm, with a statistically significant and clinically meaningful difference between the 2 groups of patients of 32.2 mls per minute with a p-value less than 0.0001. This outcome reflects the excellent graft survival that was observed in the imlifidase treatment arm. So, looking at of the supportive analyses of the primary endpoint, these provide outcomes consistent with the primary analysis. So, when we performed an analysis of 12-month eGFR using a nonparametric test, which doesn't assume normally distributed data, the outcome remains statistically significant. Similarly, when we look at 12-month eGFR in patients transplanted based on organ offer randomization, again, the outcome remains statistically significant. These supportive analyses of the primary endpoint give us additional confidence in the robustness of the primary outcome. Also of note, a key secondary endpoint of dialysis [Break] significant with a p-value of 0.0007 in favor of imlifidase. Turning to safety. The tolerability of imlifidase was good. It was a low instance of infusion reactions and no infusions were interrupted due to infusion reactions. Infections observed in imlifidase-treated patients were typically not related to treatment. And the AE and serious adverse event profile of imlifidase reflected a population of patients undergoing kidney transplantation, and most serious adverse events were considered unrelated to imlifidase treatment. So in conclusion, with respect to the outcomes of the ConfIdeS study, the treatment arms were well balanced at baseline, and the demographic characteristics reflected a highly sensitized dialysis-dependent population waitlisted for transplantation. Retention in the study was excellent. Just over 90% of patients completed the study. The primary endpoint was statistically significant and showed a clinically relevant difference, where at 12 months, mean eGFR was 51.5 ml per minute in the imlifidase arm versus 19.3 ml per minute in the control arm. The tolerability of imlifidase was good and the safety profile was consistent with previous clinical trial experience, reflecting a population of patients undergoing kidney transplantation. Next slide. I want to turn now to our Phase 3 clinical trial in patients with anti-Glomerular Basement Membrane disease, also known as Goodpasture syndrome or Goodpasture disease. Hereafter, I'll call the condition anti-GBM. We have previously conducted an investigator-sponsored single-arm Phase 2a clinical trial in Europe in which a single dose of 0.25 milligrams per kilogram of imlifidase was given to 15 adults with circulating anti-GBM antibodies and an eGFR less than 15 ml per minute. All patients received standard of care treatment with cyclophosphamide and corticosteroids, but plasma exchange was only administered if anti-GBM autoantibodies rebounded. The primary outcomes in this study were safety and dialysis independency at 6 months. The study population comprised 9 men and 6 women with a median age of 61 years who were enrolled at sites in 5 countries in Europe. At the time of enrollment, 10 patients needed dialysis with 5 of these patients being anuric or oliguric. The remaining 5 patients had eGFR levels between 7 and 14 mls per minute at the time of enrollment. At 6 months, 67% of patients were dialysis independent, which is significantly higher when compared with an outcome of 18% at the corresponding endpoint in a historical control cohort. So based on the outcomes of this previously conducted Phase 2a study, we have now conducted a randomized open-label Phase 3 trial in 50 patients with anti-GBM in the U.S., U.K. and Europe, in which the primary endpoint is eGFR at 6 months, and the key secondary endpoint is the proportion of patients with functioning kidneys at 6 months. Patients randomized to the imlifidase arm received this treatment on top of standard of care, which is compared to a control arm of Standard of Care alone. In this study, Standard of Care comprises a combination of immunosuppressives, glucocorticoids and plasma exchange. We expect top line data from this study by the end of this quarter. So I'd now like to hand over to our Chief Financial Officer, Evan Ballantyne. C. Ballantyne: Thank you very much, Richard. Let's walk through the company's financial performance for Q3 and the year-to-date 2025 results. Next slide. Total revenue for Q3 2025 was SEK 31 million and was SEK 17.9 million or 37% below the same period a year ago of SEK 48.7 million. Contract revenues from Sarepta, which have been fully recognized, totaled approximately SEK 8 million in 2024 and accounted for a portion of this difference. IDEFIRIX product sales for Q3 2025 were SEK 30.1 million, which is 24% below Q3 2024 of SEK 39.8 million. Year-to-date, Q3 2025 product sales totaled SEK 143.6 million reflecting a 25% increase compared to the same period a year ago of SEK 114.5 million. As Maria mentioned, sales were negatively impacted in Germany by regional dynamics and in Spain by the lack of transplant protocols. Quarterly volatility reflects the unpredictability of the organ allocation market in Europe. We expect quarterly fluctuations to diminish over time once the post-approval efficacy study is completed and Hansa expands its market footprint. Next slide, Slide 21. For Q3 2025, SG&A expenses totaled approximately SEK 88.4 million, which is SEK 12.6 million or SEK 16.6 million unfavorable compared to Q3 2024. R&D expenses in Q3 2025 totaled approximately SEK 7.2 million and were SEK 9.4 million or 11.8% favorable compared to Q3 2025, '24. The Q3 2025 quarter-over-quarter changes in financial income and expense net compared to the same period a year ago were immaterial. Year-to-date, changes in financial income expense compared to the same period a year ago were primarily driven by favorable changes in the U.S. dollar exchange rate against the Swedish krona of SEK 141.6 million, noncash interest expense related to the NovaQuest note and a SEK 59.4 million charge taken by the company to reflect the NovaQuest loan restructuring modification. The company's Q3 2025 operating loss was approximately SEK 147.6 million and was SEK 30.7 million or 20.8% unfavorable compared to Q3 2024 of SEK 116.9 million. The year-to-date Q3 2025 operating loss of SEK 395.8 million was 17% favorable compared to the same period a year ago. On a year-to-date basis, Hansa's cost of sales was approximately SEK 10 million favorable compared to the same period a year ago. The company's gross margin for the 9 months ended September 30, 2025, was 60% compared to 50% for the same period in 2024. Slide 22, please. On a year-to-date basis, cash used in operations at Q3 2025 totaled approximately SEK 353.3 million, an improvement of SEK 173.8 million compared to the same period a year ago. For the period ended September 30, 2025, cash and cash equivalents totaled SEK 252.1 million. However, on a pro forma basis, cash and cash equivalents, including net proceeds from the October 1 capital raise amounted to SEK 888 million. Headcount at Q3 2025 totaled 133 employees. On a pro forma basis, headcount is 116, including 17 FTEs currently serving notice periods related to the Q2 restructuring actions. And now I'd like to turn the presentation back to Renee for closing remarks and Q&A. Renee Aguiar-Lucander: Thank you, Evan. Please turn the page. So, in summary, the business is in significantly better shape than it was 6 months ago with a strong balance sheet, clear organizational structure and focus, excellent Phase 3 data from ConfideS supporting a BLA filing with the FDA and an exceptionally strong and experienced senior team. Everybody on the team that you see on this slide has done this before. And that, in my view, is crucial for any successful execution in a complex environment. The European commercial business was continuing to show healthy growth on an annual basis, will fluctuate quarterly. However, based on the recent Phase 3 clinical data and the readout of the PAES study in combination with some key areas of investment improvement, we strongly believe that 2026 will provide improved visibility, performance and start to reflect the innate potential of the European opportunity. Finally, I just want to remind you all that we will host a KOL event on the 12th of November with 2 highly distinguished U.S. transplant surgeons, namely Professor Montgomery and Professor Cooper, who will share their view of the top line data of the Phase 3 and provide insights into clinical practice and the medical needs of highly sensitized patients in the U.S. That concludes the presentation, and we can open up for questions. Operator: [Operator Instructions] The first question comes from Farzin Haque with Jefferies. Farzin Haque: So what are your expectations for the U.S. FDA review process? You noted that you will request priority review, but do you expect an AdCom? I mean the data is pretty robust, but are there specific areas where FDA may be more focused on? Renee Aguiar-Lucander: So, we are not expecting an AdCom, but we are expecting to ask for priority review. The issues, obviously, with the FDA at this point in time are a little bit inscrutable, more than usual because obviously, as we know, there is a government shutdown in the U.S. And so it is unclear, obviously, when the FDA will reopen and what the backlog at that point in time will look like. However, I completely agree with you with all of the kind of strong data, the unmet medical need, the fact that it's an orphan indication, we have Fast Track designation. I believe that I had high hopes of the fact that we should get priority review. However, with the existing situation in the FDA, there's obviously nothing that we can see as a guarantee. So, we obviously also have to assume that there is a chance for us to get standard review. Farzin Haque: Got it. And quickly, where are you at with the CMC aspects for the U.S. launch? Renee Aguiar-Lucander: I'm sorry, can you repeat that? Farzin Haque: For the CMC aspects for the U.S. launch? the status of that. Renee Aguiar-Lucander: Yes. So, there's not going to be any change in terms of our CMC setup or manufacturing setup for the U.S. launch compared to the European commercial production. So from a manufacturing perspective, we're going to stay with the same providers. And those providers are at the moment, both located in Europe. We do not have a U.S.-based manufacturing site at this point, but we are as confident as we can be with regards to being able to kind of get through kind of also on the CMC and manufacturing side. But I'm sure there will be review issues. There always are review issues with regards to CMC, but we feel reasonably confident with where we are. Operator: The next question comes from Sushila Hernandez with Van Lanschot Kempen. Sushila Hernandez: So on the challenging situation in Germany, do you foresee that this could have an impact on the rest of Europe? Are other countries revising their prioritized kidney allocation system? And do you already have visibility on when the situation in Spain could be improving? Renee Aguiar-Lucander: Maria, do you want to take this? Monika Tornsen: Yes, happy to take the question. So, when it comes to Germany, this is a very local issue in Germany. The highly sensitized program that we're talking about was implemented a few years ago across the Eurotransplant zone. Germany have recently looked at that program and really sort of asked the question, is this providing health equity for all patients independent of their CPRA score. So, it's more of a health equity sort of moral ethical question in the German health care system. There is no whatsoever spillover to the Eurotransplant zone or to other countries at all. So, it's very specific to Germany. And as I mentioned, we have, I would say, strong support from the key opinion leaders who are looking at revising guidelines to enable transplants for these patients through the typical ETKAS program. And we're also initiating some public affairs initiatives to really see what we can do from a corporate perspective in terms of raising the unmet need for these highly sensitized patients and see if there's anything we can do to impact so that this program gets implemented again. And I think your second question relates to Spain. And I think what is worth noting for Spain is that Spain is compromised of many regions. And in these regions, you have various numbers of hospitals. And the challenge in Spain relates to regional reimbursement in Catalonia, where the health care budget as a whole is, I guess, stuck at the regional level. So it's not unique to Imlifidase at all. But obviously, it impacts the hospital's ability to get paid. So, we need to have sort of some funds released from that regional budget. So that's the Catalonia situation. Andalusia is somewhat different because they have a local allocation system for organs. So, you need some guidelines to be implemented in that region to enable the reimbursement and enable the physicians to order Imlifidase for their patients. I would say that in Spain, we have also very strong support from the key opinion leaders. So that is worth noting. So, these are sort of structural policy issues that we're dealing with in Spain. Sushila Hernandez: Okay. And then just one more question, if I may. What kind of top line data will you be releasing from the NT-GBM study later this quarter? Richard Philipson: Yes, sure. So, as I think I mentioned in the presentation, the primary endpoint is eGFR at 6 months. and we'll be looking at dialysis dependency. And then beyond that, there's a whole range of secondary endpoints relating to outcomes relating to anti-GBM antibody levels, eGFR at other time points, et cetera. And then, of course, there is, there will be safety. But I imagine what we will talk about when we release results at the end of the year will really be focused on the primary outcome, the key secondary outcome and comments on safety. Operator: The next question comes from Richard Ramirez with Fidelity. Please go ahead. [Audio Gap] Richard Ramirez: Yes. So, I think they said the wrong name. My name is Richard Ramis, and I'm calling from Redeye. Never mind. I have a few questions. Let's start with a financial one. Could you specify what cost of revenues made up if there are any fixed parts? And also what you would expect for a long-term gross margin? Renee Aguiar-Lucander: Evan? C. Ballantyne: Yes. So cost of revenues at the current time are obviously made up of drug substance, drug product and finished product. However, currently, we have manufacturing agreements that require us to manufacture more product than we actually sell. As we bring additional markets online and as the U.S. comes online, we expect our gross margin to increase because we won't have to write off unused or excess product into cost of goods sold. So I think gross margins will improve significantly. Richard Ramirez: Yes, that's what I expected. And I have a market question on European sales. Could you discuss a bit which countries in Europe have generated most of your revenue thus far? And where do you see growth in 2026? Renee Aguiar-Lucander: Maria? Monika Tornsen: Sure. So we don't specify our sales per country. But what I can say is we noted that our Q3 performance was impacted by Germany. We had 0 sales in Germany, and this is related to this highly sensitized program being paused, as I mentioned. When it comes to growth potential, I mean, we have looked for the last several months at the business, and we see significant growth potential. I mean there's been a lot of work done in Europe in terms of getting guidelines in place, getting reimbursement at national level, working on the regional reimbursement, getting physicians and their teams ready to use imlifidase. And we have many centers that have significant experience and very positive experience. So, we think that all of these things have set us up for future growth in Europe. And when it comes to where that will come from, I mean, it is a typical market. I mean the big 5 markets bring the majority of sales that's where you have the most patients and the most transplant centers. So, I hope that answers your questions. But I think in general, we're very optimistic about the potential in Europe despite sort of these structural barriers that we are dealing with currently. Richard Ramirez: Yes, sure. Then I wanted to ask you about the, any potential future clinical studies with imlifidase in the U.S. after the U.S. approval. And also if there are any, rather what are the further studies you need to do in gene therapy before you can start selling the product? Renee Aguiar-Lucander: So in terms of imlifidase clinical trials, I don't think that we have any kind of real plans for additional clinical trials with imlifidase in the U.S. market. So obviously, that will then hopefully obviously be an approved product and commercially available. In terms of additional or other kind of clinical trials, that is something that we would potentially undertake with our second enzyme. And that is with regards to any kind of thoughts with regards to clinical trial development with 5487, that is something that we've done a fair amount of work on internally and externally to arrive at an answer, and we should be in a position to announce that later this quarter. But at this point in time, there's still some pieces missing in order for me to kind of announce that on this call. And with that, maybe if you go back in the queue, and we can allow someone else also to ask some questions. Thank you. Richard Ramirez: Yeah sure. Thanks. Operator: [Operator Instructions] The next question comes from Matt Phipps with William Blair. Please go ahead. Matthew Phipps: This is Madeline on for Matt Phipps. Do you have any updated thoughts on the next steps for development in GBS, potentially any details on study design for a potential Phase 3 study? Thanks for taking the question. Renee Aguiar-Lucander: Yes, I think that's kind of all part of the review that we have been conducting over the last several months. I include that in the kind of overall pipeline assessment that we've been doing both externally and internally. And so we will comment on that as well in the next couple of weeks or so, hopefully, when we have these kind of last bits and pieces in place. So it's a very timely question, unfortunately. It will be a little bit longer until I can be addressing that as well. Matthew Phipps: Thanks Operator: We have a follow-up from Richard Ramirez. Please go ahead. Richard Ramirez: I also wanted to ask about the antibody-mediated rejection - AMR indication. What are your plans there? Renee Aguiar-Lucander: I think at this point in time, we don't have any further plans for AMR. I think that, again, this is something that we're going to have to, we can discuss or kind of take into account potentially when the product is commercially available. There may obviously be investigator-led interest in terms of studying this in a variety of different indications, but we will probably deal with that within the context of the medical affairs and the investigator-led request that we might get once the product is on the market. So that is probably how we're going to be dealing with any kind of related or other kind of transplant-related potential kind of unmet medical needs that relates to imlifidase use. Richard Ramirez: Thanks. That's all from me. Renee Aguiar-Lucander: Great. Thank you. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to CEO, Renee Aguiar-Lucander for any closing remarks. Renee Aguiar-Lucander: Thank you for listening to this quarterly report. We hope that you will join our KOL event on the 12th of November or catch us at some of the upcoming November investor conferences in either New York, London or Stockholm. I look forward to speaking to you again to review our Q4 and full year results. Thank you. [Audio Gap] Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Methanex Corporation Third Quarter 2025 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to the Director of Corporate Development and Investor Relations at Methanex, Ms. Jessica Wood-Rupp. Please go ahead, Ms. Wood-Rupp. Jessica Wood-Rupp: Good morning, everyone. Welcome to our third quarter 2025 results conference call. Our 2025 third quarter earnings release, management's discussion and analysis, and financial statements can be accessed from the Financial Reports tab of the Investor Relations page on our website at methanex.com. I would like to remind our listeners that our comments and answers to your questions today may contain forward-looking information. This information, by its nature, is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. Certain material factors or assumptions were applied in drawing the conclusions or making the forecast or projections, which are included in the forward-looking information. Please refer to our third quarter 2025 MD&A and to our 2024 annual report for more information. I would also like to caution our listeners that any projections provided today regarding Methanex's future financial performance are effective as of today's date. It is our policy not to comment on or update this guidance between quarters. For clarification, any references to revenue, EBITDA, adjusted EBITDA, cash flow, adjusted income, or adjusted earnings per share made in today's remarks reflect our 63.1% economic interest in the Atlas facility, our 50% economic interest in the Egypt facility, our 50% interest in the Natgasoline facility, and our 60% interest in Waterfront Shipping. In addition, we report our adjusted EBITDA and adjusted net income to exclude the mark-to-market impact on share-based compensation and the impact of certain items associated with specific identified events. These items are non-GAAP measures and ratios that do not have any standardized meaning prescribed by GAAP and therefore unlikely to be comparable to similar measures presented by other companies. We report these non-GAAP measures in this way because we believe they are a better measure of underlying operating performance, and we encourage analysts covering the company to report their estimates in this manner. I would now like to turn the call over to Methanex's President and CEO, Mr. Rich Sumner, for his comments and a question-and-answer period. Rich Sumner: Good morning, everyone. We appreciate you joining us today to discuss our third quarter 2025 results. Our third quarter average realized price of $345 per tonne and produced methanol sales of approximately 1.9 million tonnes generated adjusted EBITDA of $191 million and adjusted net income of $0.06 per share. Adjusted EBITDA was higher compared to the second quarter of 2025, primarily due to higher sales of produced products, offset by our lower average realized price. I'll start by providing an update on our newly acquired assets and integration activities. During the third quarter, both the fully owned Beaumont plants as well as the 50% owned Natgasoline plant operated at high rates, produced a combined 482,000 tonnes of methanol and 92,000 tonnes of ammonia. We have a structured 18-month integration plan across all functions of the business to ensure we fully realize the expected benefits of this highly strategic transaction. We've begun executing on our integration plan and working with our new team members at these manufacturing sites on asset and safety reviews. On the supply chain side, we've integrated the new logistics operations into our business to ensure we meet customer needs while focused on planned synergies. Given normal inventory flows, the high rates of third quarter production from these new assets will not fully flow through earnings until the fourth quarter of 2025. Now turning to methanol market conditions. Global methanol demand was relatively flat in the third quarter compared to the second quarter across all downstream derivatives. Demand for methanol-to-olefins in China operated at high rates, consistent with the second quarter and increased to approximately 90% by the end of the quarter, supported by an increasing amount of import supply availability from Iran, which we estimate operated at close to 70% rates through the quarter. This increased supply from Iran, along with relatively high operating rates across the industry, led to an inventory build, particularly in coastal markets in China. Looking ahead to the third quarter, we estimate the methanol affordability into MTO and the marginal cost of production in China to be approximately $260 to $280 per tonne. We continue to see spot and realized methanol prices in all other major regions at premiums to these pricing levels. We posted our fourth quarter European quarterly price at EUR 535 per tonne, representing a EUR 5 increase from the third quarter. Our North America, Asia Pacific, and China prices for November were posted at $802, $360, and $340 per tonne, respectively. We estimate that based on these posted prices, our October and November average realized price range is between $335 and $345 per tonne. Now turning to our operations. Methanex production in the third quarter was higher compared to the second quarter with the full contribution from the new assets and higher production from Geismar, Medicine Hat, and New Zealand, which all experienced planned or unplanned outages in the second quarter. In Geismar, production was higher in the third quarter after the site experienced unplanned outages late in the second quarter. All plants returned to production in early July. As previously noted, both the Beaumont and the Natgasoline facilities operated at high rates during the third quarter. In Chile, we operated the Chile I plant at full capacity throughout the quarter, marking the first time we've had one plant operating at full capacity throughout the Southern Hemisphere winter months for more than 10 years. During the quarter, the Chile IV plant successfully completed a planned turnaround and restarted at the beginning of October. We expect both plants to operate at full rates through to April 2026. In New Zealand, we had higher production in the third quarter as the plant restarted in early July after a temporary idling of the operations to redirect contracted natural gas to the New Zealand electricity market. Gas supply availability in New Zealand continues to be challenged, and we're working with our gas suppliers and the government to sustain our operations in the country. In Egypt, we operated at approximately 80% of capacity during the third quarter as gas availability during peak summer demand remains constrained. There has been stabilization of gas balances in the country, but some continued limitations on supply to industrial plants are expected going forward, particularly during the summer months. The plant is currently operating at full rates. Our expected production -- equity production guidance for 2025 is approximately 8 million tonnes, which is made up of 7.8 million equity tonnes of methanol and 0.2 million tonnes of ammonia. Actual production may vary by quarter based on timing of turnarounds, gas availability, unplanned outages, and unanticipated events. Now turning to our current financial position and outlook. In late June, we closed the OCI acquisition, consistent with our financing strategy, using proceeds from the bond issued in 2024 and borrowing $550 million under the Term Loan A facility. During the third quarter, we repaid $125 million of the Term Loan A facility with our cash flow from operations and ended the third quarter in a strong cash position with $413 million on the balance sheet. Our priorities for the rest of 2025 are to safely and reliably operate our business and continue to execute on our integration plan. Our capital allocation priority is to direct all free cash flow to deleveraging in the near term through the repayment of the Term Loan A facility. We do not anticipate significant growth capital over the next few years and remain focused on maintaining a strong balance sheet and ensuring we have financial flexibility. Based on our fourth quarter European posted price, along with our October and November posted prices in North America, China, and Asia Pacific, our October and November average realized price is forecasted to be between $335 and $345 per tonne. Based on a slightly lower forecasted average realized price coupled with produced sales levels much closer to our run rate equity production, including the newly acquired assets, we expect meaningfully higher adjusted EBITDA in the fourth quarter of 2025 compared to the third quarter. We'd now be happy to answer your questions. Operator: [Operator Instructions] Our first question comes from the line of Ben Isaacson with Scotiabank. Ben Isaacson: Rich, can we talk about Trinidad? You saw Nutrien closure, and I'm not asking you to comment on their issue, but I believe you're next door. And so my questions are, what's your relationship with the NEC? Are they asking you for retroactive port fees or is that a risk? And then if Nutrien is down, which it is, does that mean more gas allocated to you? Rich Sumner: Thanks, Ben. Yes, we have a contract with the NEC for port fees or port arrangements, that's not -- we're not in a similar situation there. As it relates to gas and gas availability, we're in a similar situation as we've been talking about in Trinidad, which is gas markets are tight. A lot of the downstream contracts come up at the end of -- most of them come up at the end of this year. Ours runs until September 2026. So we're in discussions with the NGC about gas. When we look at the gas outlook, we think that in the near term anyways that tightness remains. There are activities happening in Trinidad that over the next few years could mean some slight uptick on supply there. But we don't see a meaningful change to the situation we're in, which is a one plant operation. And right now, we're operating one plant at full gas supply. So even if there were more gas available today, certainly, we wouldn't expect that a restart of Atlas or anything like that would make sense. There just isn't enough gas to go around today for all the downstream. So our situation will be focused on the next round of discussions for the current gas supply. We don't have a turnaround for Titan for some time. So that's our main focus and we're in discussions with the NGC. Ben Isaacson: And if I can just do a quick follow-up. Rich, you talked about kind of recontracting some of the OCI book. Can you just talk about that? What was the existing OCI book like and why does there need to be some recontracting now? Rich Sumner: Yes. I think one thing to note is we did increase our sales. So you would have seen from Q2 to Q3, we increased sales by about 350,000 tonnes, which is about 1.4 million tonnes on an annualized basis. The assets are running extremely well. And so when you've got the production there, there could be some recontracting that we need to do for next year, certainly, we're in those discussions. In the near term, we'll take that into our supply chain. We'll actually flex as much as we can within our existing sales contracts. So we have flexibility to increase sales there. And then we'll be working if we had to do short-term contracts to the end of the year, we don't see that being significant. What you should expect though is in the fourth quarter, we will have higher sales than we did in the third quarter. And you should expect next year, the quarterly average sales to be higher than they were in the third quarter as well as we recontract for next year. Operator: Our next question comes from the line of Joel Jackson with BMO Capital Markets. Joel Jackson: I'm going to ask 2, but I'll do one by one. Can you maybe give us an idea, could you quantify like if -- I mean, accounting you're able to -- if you do the Q4 accounting in Q3, what would have been the EBITDA like boost in Q3? Basically, how much is earnings hit by the accounting treatment the first month-and-a-half of Beaumont? Rich Sumner: I think -- thanks, Joel. I think the way to think about it is that we had 1.9 million tonnes of equity production coming through sales. When we look at our production in the third quarter as well as into the fourth quarter, we now are at a point where we've got the asset base with the newly acquired assets closer to what we would say is our run rate with our new strengthened asset portfolio, which we think is really something that is going to -- we're working on is consistently demonstrating this performance. So when we think what is that run rate number, if we gave, when we introduced the OCI transaction, is about $9.5 million, a little bit more than that per annum of equity tonnes, including ammonia. So what should be coming through is about 2.4 million to 2.5 million tonnes. That's a delta of 500,000 to 600,000 tonnes versus Q3. So that's where the main earnings difference is coming from, which is a meaningful -- that's a meaningful increase in EBITDA. And that's what we're expecting when we get into the fourth quarter is that sales of produced product is going to look more like our equity run rate. So that's why we're kind of guiding to a meaningful uplift as we move into the fourth quarter. We're not at $350 per tonne, but we're close. So it should be setting up to be a strong quarter. Joel Jackson: Second question, just first, there were some news this week that maybe Natgas, the plant lost some gas or it was down. Tackle that for a second. And then I know you talked about before about turnarounds, maybe being able to do turnarounds maybe a year later than usual, looking at some of the [indiscernible] you have. Can you speak about that? And then I imagine Beaumont, Natgas, G3 wouldn't have to have turnarounds anytime soon. Also [indiscernible] Beaumont and Natgas probably wouldn't? Rich Sumner: Yes. First on the Natgas point. I think there may be some interpretation from gas monitoring around the operations in Natgasoline. We don't really comment on kind of daily gas reports where I think where this has been picked up. Nothing should be read into that, that there's any significant issues happening at Natgasoline based on any of that information. So probably I'll end it there on that one. But on the turnarounds, we have guided to about $150 million in CapEx per year, and that's 2 to 3 turnarounds a year. I think that's good guidance. We're always looking at ways that we can optimize around maintenance without sacrificing safety and reliability. And that's something that our team is consistently looking at. Within the $150 million, there's a good -- there's a meaningful amount of capital for the new assets, that's something we're looking at closer. But we're going to -- we would stick with the guidance of around $150 million on average and something we're always looking to further optimize. Operator: Our next question comes from the line of Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: You ran Beaumont and Natgasoline at high rates, you expect to run them at high rates. Where is the methanol going? Are these going to North American customers or offshore customers? And if they're going to offshore customers, what kinds of customers are they? What products are they making? Rich Sumner: Yes. I mean when we -- so when we introduced the OCI acquisition, what we had said was a large percentage of the contracted business we would expect would be in North America and Europe, and that's largely where we're selling the product. Obviously, the assets are running really well. And so there's some small uncontracted tonnes, which then we will increase the flexibility in our existing assets, our existing customer base as well as having to place some of those tonnes. That's a short-term basis. What our commercial -- global commercial team is working on now is looking at 2026 recontracting. And I think you can -- we give guidance about what our regional allocations look like on a percentage basis, and we would say those are the regional allocations to think about our global portfolio for next year. In terms of which applications we sell into, we sell into -- we have diversified set of customers. So you can think of our sales portfolio as almost a representation of the breakdown of global methanol markets. And that's pretty much what it will look like next year, a well-diversified sales portfolio into different derivatives with a similar global allocation that we guide to in our investor deck. Jeffrey Zekauskas: Just maybe if I could try it one more time. Global methanol demand isn't really growing very much, if it's growing at all, and you've got extra production. So whose tonnes are you squeezing out? Rich Sumner: Well, these tonnes were existent before we had them. So we're not squeezing out any tonnes. There is some incremental production over what we might have modeled. So we're talking about 200,000 tonnes in a 100 million tonne market, which isn't meaningful. So we're not worried about placing those tonnes. And methanol markets year-over-year, we would say, are growing -- it's growing about 2% to 3%. 2% to 3% is really being driven by China and Asia, where it represents 70% to 80% of global methanol demand. That's on the back of export manufacturing and strength in those markets as well as energy derivatives mainly in China. So the market is not growing at strong rates. The Atlantic and other markets generally flat. But we don't think that the market is in retreat and supply continues to be constrained, right? So we have a constrained methanol market with -- when we look at gas being either in mature gas basins or gas being redirected into LNG. Existing supply continues to be tight. So we're not concerned about having higher operating rates. Quite frankly, it's the opposite. We've got our assets in low-cost basins and it's highly profitable to have this production in our system. Operator: Your next question comes from the line of Nelson Ng with RBC Capital Markets. Nelson Ng: First question just relates to capital allocation. I think, Rich, you talked about paying down the Term Loan A gradually. So from your perspective, would the balance sheet be in the right place after you fully repay the Term Loan A and obviously have a reasonable cash buffer on -- in place in your balance sheet? Would that be -- would you be done deleveraging at that point? Rich Sumner: No, we won't be done deleveraging. But we do think the focus doesn't need to be entirely to deleveraging. We are -- our main focus in the near term is paying down the initial tranche, like you said. And if you look at the Term Loan A facility balance that we have, also consider that we've got excess cash on hand. We think we've got about $350 million left to go there, which is our primary focus. And really, our primary focus is we continuing to deliver what we're doing right now and what we've done through the third quarter and really focusing on conversion to cash for shareholders. Beyond the $350 million, we -- our debt target gets us back to our 3x debt to EBITDA. Our target has always been 2.5x to 3x, and we've got a debt tranche coming due -- a bond coming due in '27, which we wouldn't want to fully refinance. Having said that, we believe we've got a really strong asset base with competitively -- stronger, more competitive asset base. And so the strength of the free cash flows is there that we can continue to deleverage and focus on the balance sheet. We don't have a significant growth capital, and there could be some room there as well for shareholder returns. But that's what we want to -- first, we want to get there and the focus on that is the $350 million that's in front of us. And it's really -- that's the primary focus today. Nelson Ng: My next question is just in terms of, you talked about how you've started on the 18-month integration strategy. And obviously, it's still early days. But do you -- in terms of the -- I think it's roughly $30 million of anticipated synergies that you expect to realize. Can you give a bit more color in terms of where most of those benefits will come from? Rich Sumner: Yes. So the $30 million is primarily IT-related, insurance related, logistics, which means terminals and other optimization around logistics. So it's -- those are relatively hard synergies, and we plan to be realizing those on an 18 -- it's more like almost a year period now, but 18 month -- 12- to 18-month period. Some of those are easier to get at in the near term than others. IT will take a little longer. The other elements of the deal, I think, is that we're really focused on is getting above deal value results. And when we look at that, we focus on the assets. We model these assets at a certain operating rate as well as annual capital and maintenance capital. And I think today, we're achieving above those results. So our goal is to replicate that. And obviously, we're still early, and we're really focused on working with the teams, understanding the assets, how they operate the safe and reliable assets and be able to deliver and replicate this going forward. So that's the primary focus. Operator: Your next question comes from the line of Josh Spector with UBS. James Cannon: This is James Cannon on for Josh. I wanted to ask on New Zealand because I think last quarter, you guided to about 400 kt out of that unit this year. It seems you're tracking decently above that, but you held the overall guide relatively stable. Is there anywhere else in the portfolio you're seeing maybe weaker-than-expected results? Rich Sumner: Yes. I mean, I guess I'll kind of caution around New Zealand. Right now, we've got the asset running at 60% to 70% rates through the third quarter on the one Motunui plant. That gas balance is, we're really tight on gas. The country is tight on gas and our gas allocation is allowing us to operate at minimum operating rates today. So it's still something we're really focused on. The 400,000 tonne sort of assumes that for part of the year, we would be shut in. But at the end of the day, we're really focused on how we maintain that 400,000 tonne based on gas supply today. So we're working closely with gas suppliers. When you look at the other assets in the portfolio, everything is pretty much on the guidance. Egypt today, we're at full rates. We've come off the summer where we were at 80%, which is actually a very good result relative to the -- a lot of the -- that's usually where the demands on the grid are the highest. So today, Egypt is probably above. We've got 2 plants operating in Chile. So that run rate assumes the average for the year. So we're a bit above there. And then the other assets, we're pretty close. So things are going well right now. I think we need to think about that backdrop against how our newly acquired assets are running. And it sets up really well for us to demonstrate the strong free cash flow generation that we expect from the investments we've made, have P3 fully operating and really, I would say, the strength of the portfolio enhancement we've made with these assets. So that's our focus right now is continue to replicate that and focus on free cash flow conversion for shareholders. Operator: [Operator Instructions] And your next question comes from the line of Laurence Alexander with Jefferies. Laurence Alexander: So can you give a sense for what's going on in terms of the global industry utilization rate and what you're seeing in terms of demand, in particular in Asia for DME and MTO applications? And then secondly, can you speak to how the IMO decision to defer the flex fuel mandate might affect the cadence of demand for methanol over the next couple of years? Rich Sumner: Thanks, Laurence. Yes, from industry operating rates, Q2 and Q3 period tend to be the highest. And I would say across the industry, we've operated high. And what do I mean by that is if you look -- these are round numbers, but the Atlantic is operating at 80% operating rates. The Pacific, ex-China, is operating at 75% rates, and China is operating at 70% rates. Those may not seem high. But if you back out capacity that's permanently idled or gas feedstock that has been redirected or issues around, geopolitical issues that's constraining supply, the effective utilization is much higher than that. So we would say that we're at very high operating rates and there's not a lot of latent capacity, especially when Iran is operating at 70% rates, which is seasonally high there. So notwithstanding that, we did see some build during the quarter in coastal markets in China. But as that built up, we've now seen MTO operating rates moving up above 90% and that meant that inventories are now moderating in the coastal markets in China. So I think everything there tells us that even when everything is working, the market actually is relatively in balance. And then when we move into the Q4, Q1 period, supply gets restricted. And there actually isn't enough supply to meet all demand today, which is -- we would say this is a constructive market from that perspective. When you ask about MTO and DME demand, DME has been -- that demand is relatively flat. There's no -- it does go up or down a bit between 3.5 million and 4 million tonnes based on operating rates, but it's not really a move around the demand side. MTO moves up or down based on availability in the market as well as affordability there. And we've seen MTO continuing to operate now at high rates as we move into the fourth quarter. We would expect that might come under pressure as Iran gets restricted and there's less import supply availability. So hopefully, that answers the first question. On the IMO, we -- first, on the marine side, that is the big upside for methanol and a new application. Obviously, 400 ships should be in the water between -- dual fuel vessels between now and the end of the decade, represents a big demand potential. The IMO, obviously, we were watching closely what the IMO would do around the adoption of the net zero framework. Really what that would have done if it were adopted and some of the guidelines that they were proposing were adopted, it would have enhanced the competitiveness of low-carbon methanol as a fuel to meet those regulations. So the deferral by -- it has been deferred by 1 year. It came up against meaningful political opposition. We think that 1 year deferral allows the IMO to line out their guidelines and spell those out more, which was a big pushback during the meeting, but the opposition is a big hurdle. So that's something we're going to closely watch. The marine industry continues to support the net zero framework. There's been a lot of invested capital by shipping companies on investing incremental capital on dual fuel ships to meet low carbon regulations in the future. So something we're going to continue to watch. Our Low Carbon Solutions team will be working really closely with the marine sector on how that goes forward. Operator: Our final question comes from the line of Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: How have you fared in buying gas forward for your new assets that you've acquired? And that gas prices have been pretty low from the time you bought it, but they've moved up. Are you hedged yet or do you have more to go? Or where do you stand? Rich Sumner: Thanks for the question. The gas situation, when we acquired the assets, the OCI assets came to us largely unhedged. We already had our North American exposure. At least in the near term, we were hedged at around a 70% level on our existing book of assets. Where that puts us today is, I'll start, in the near term, we have hedged a little bit up. So we're closer to the 70% level to the end of the year across our total North American exposure. Into '26 and '27, the number gets closer to 50% to 60% hedged. We opportunistically enter the market if there's attractive pricing. Today, we wouldn't be looking to hedge at today's price. We will be seeking if the pricing drops below $3.50 as an example, we'll look to put in more. Today, we're comfortable with that open exposure and we'll opportunistically enter the market to layer more in when the pricing allows for that. Interestingly, the near end of the curve isn't priced that way, but the longer end of the curve actually is priced lower, and we did some contracts below $3.50 on a nominal basis out beyond 2030 recently, not big contracts, but -- so we're always looking to seek competitively priced gas for us that's really favorable for our North American exposure. Jeffrey Zekauskas: So in terms of hedging near term, it might be that you wait until the spring before you really try to lift your purchases again. Is that a base case? Rich Sumner: I mean it will be market determined. Of course, if we see the forward curve drop off for any reason and it's attractive, then we'll enter the market. I understand what you mean. Typically, we'll see some softening when inventories start to build so much as the gas market trades off of how inventories are trading. But we'll wait and see. And obviously, we've got a team that's reviewing these things daily and managing our exposure for us. Operator: And with no further questions in the queue, I will now turn the call over to Mr. Rich Sumner. Rich Sumner: Okay. Thanks again for joining the call this morning and for your questions and interest in our company. We hope you'll join us on November 13th for our Investor Day presentations and Q&A. Operator: Thank you for your questions. And this concludes today's conference call. You may now disconnect.