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Operator: Thank you for standing by. At this time, I would like to welcome everyone to today's Clearwater Paper Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to Sloan Bohlen, Investor Relations. Sloan? Sloan Bohlen: Thank you, Greg. Good afternoon, and thank you for joining Clearwater Paper's Third Quarter 2025 Earnings Conference Call. Joining me on the call today are Arsen Kitch, President and Chief Executive Officer; and Sherri Baker, Senior Vice President and Chief Financial Officer. Financial results for the third quarter of 2025 were released shortly after today's market close. You will find a presentation of supplemental information, including a slide providing the company's current outlook posted on our Investor Relations page at our website at clearwaterpaper.com. Additionally, we will be providing certain non-GAAP financial information in this afternoon's discussion. A reconciliation of the non-GAAP financial information to comparable GAAP information is included in the press release and in the supplemental information provided on our website. Please note Slide 2 of our supplemental information covering forward-looking statements. Rather than reading this slide, we'll incorporate it by reference into our prepared remarks. And with that, let me turn the call over to Arsen. Arsen Kitch: Thank you, and good afternoon, everyone. Let me begin with a summary of our third quarter performance highlights. We delivered adjusted EBITDA of $18 million, which is towards the high end of our guidance range of $10 million to $20 million. Year-to-date adjusted EBITDA from continuing operations stands at $87 million, up from $26 million during the same period last year. This increase is driven mostly by our efforts to reduce fixed costs and 4 incremental months of Augusta results included in our P&L. Net sales grew by 2% versus the prior quarter, driven by a 6% increase in shipment volumes, partly offset by lower market-driven pricing. We successfully completed all 3 of our planned major maintenance outages for 2025. The Lewiston outage was completed in August at a direct cost of $24 million. The Augusta outage was completed in October at a direct cost of $16 million. I'm pleased to report that the execution of our planned major maintenance outages was significantly improved versus prior year. This confirms our belief that an annual cadence delivers generally more manageable and predictable outages. We've also largely captured the run rate benefits of our fixed cost reduction initiatives. These are now tracking to around $50 million in savings for the year, which would exceed our original estimate of $30 million to $40 million. These savings are helping us offset some of the margin pressure that we're facing during this industry down cycle. Let's now turn to some commentary on the industry and our key strategic initiatives. While the latest third quarter AF&PA report is not yet available, the trends that we saw in Q2 have largely persisted into Q3. We believe a competitor is continuing to ramp new SBS capacity, which may add up to 10% of additional supply to the industry. Without other changes, this level of new capacity would result in utilization rates in the low 80% range by year-end. This will be well below the normalized cross-cycle average of 90% to 95% and would result in supply exceeding demand by more than 500,000 tons. These low utilization rates have led to margin pressure, resulting in returns that can support investments into our capital-intensive industry. This is simply not a sustainable position to be in for the industry, which is why we believe that the industry will rebalance supply with demand in the medium to long term. As we previously discussed, there are several potential paths to this recovery. First, RISI is forecasting an approximately 350,000 ton net capacity reduction in the first half of 2026, which would drive utilization rates to above 90%. Second, tariffs and a weakening dollar may put pressure on the price of some of the more than 700,000 tons of imports into the U.S., encouraging customers to seek domestic suppliers. And lastly, industry participants may choose to swing capacity to other grades such as CUK, white top or other non-bleached applications. This could help absorb excess SBS capacity. Without a combination of these supply changes, we believe that it will take more than 5 years of demand growth to fully absorb the excess capacity that exists today. While the current industry oversupplies primarily limited to SBS, we believe that it is having an impact on the other 2 paperboard substrates. Each substrate has its own strengths and applications, but there's meaningful overlap between them, presenting substitution opportunities to customers. This is why we believe that pricing has been historically correlated between SBS, CUK and CRB. Today, CUK has priced $50 per ton higher than SBS according to RISI, which is not intuitive given SBS' superior print quality and higher bleaching costs. If you look at the 30-year history of this market, it is only in recent years that CUK pricing has exceeded SBS. CRB today is priced $120 per ton lower than SBS according to RISI, which is a narrower gap than we've seen historically. SBS has superior performance characteristics versus CRB with a higher production cost of more than $200 per ton due to the use of virgin fiber and bleaching. Buying decisions and packaging are driven by several factors, including performance, cost and sustainability. Most importantly, customers by paperboard by area or square feet and not tons. To match the strength performance characteristics of SBS, a customer would need to use a heavier weight of CRB, resulting in a price that we estimate to be equal to or higher on a per square foot basis than SBS in today's market. If these trends persist, we believe that CPG and retail customers will look closely at substitutions, which would support higher SBS demand, put a ceiling on CUK and CRB and return to historical pricing correlations between the 3 substrates. Let me now shift to some comments on potential CUK investment that we previously discussed. As a reminder, we're exploring adding CUK swing capability to one of our SBS machines. We have nearly completed the engineering work, and now I can share some additional details on the project. The estimated capital required for the investment is approximately $50 million with a 12- to 18-month lead time to complete. At today's prices, the project return is estimated to be more than 20%, largely based on trading up lower end SBS volume to CUK. The returns will be considerably higher if we assume that we're filling up open SBS capacity. Our mill in Cypress Bed, Arkansas is best positioned for this project, given its proximity to customers and access to low-cost softwood fiber required for CUK. We estimate that open market demand for CUK is around 300,000 to 400,000 tons with potential upside if independent converters had reliable domestic supply. Our goal will be to capture around 100,000 tons of this volume, utilizing about 1/3 of Cypress Bend's capacity. The remaining 2/3 of the capacity would remain in SBS. We see 2 upsides to this project. First, there is a strategic benefit to expanding our product portfolio to better serve our converter customers. Second, it would enable us to more fully utilize our network capacity during an SBS industry downturn. We may conclude in the future that this is a good investment, but we're putting a final decision on hold at this time. We remain focused on running all 3 of our SBS mills, vigorously defending our SBS market share and preserving the strength of our balance sheet. With that, I'll turn the call over to Sherri to discuss our Q3 financial results in more detail as well as provide an outlook for Q4 and some additional thought -- some initial thoughts on 2026. Sherri Baker: Thank you, Arsen. Let's start by reviewing our financial performance in the third quarter in more detail. Net sales were at $399 million, up 1% year-over-year, driven by a 3% increase in paperboard shipment volumes partially offset by lower market pricing. Net loss from continuing operations was $54 million or $3.34 per diluted share, primarily due to a $48 million noncash impairment of goodwill. This noncash impairment represents all of our remaining goodwill. Most of this goodwill was accumulated through the acquisition of Manchester Industries in 2016. The impairment was driven by the decline in our market capitalization as compared to the increase in our book value, which was driven by the gain from divestiture of our tissue business late last year. Adjusted EBITDA was at $18 million towards the higher end of our guidance range of $10 million to $20 million. We saw improved cost performance due to our fixed cost reduction initiative, which more than offset lower pricing and higher input costs. SG&A as a percent of sales was at 6.2% at the lower end of our targeted range of 6% to 7% of net sales. We believe that this is at the lower end of our industry benchmark, demonstrating our commitment to running a lean, cost-effective company. Let's now turn to our balance sheet and capital allocation. We generated $34 million in cash from operations during the quarter and approximately $3.5 million in free cash flows. Our net leverage ratio is at 2.7x, and we have ample available liquidity of $455 million. While our leverage ratio has increased due to the current industry down cycle, our aggregate debt level has remained stable as we continue our focus on maintaining a strong balance sheet. We also repurchased $2 million of shares, bringing our total to $20 million against our $100 million authorization. We will consider additional share repurchases when we have a line of sight to free cash flow generation in the near to medium term. Turning now to our outlook for the fourth quarter. We expect adjusted EBITDA of $13 million to $23 million. We expect slightly lower paperboard shipments versus the third quarter due to seasonality. We expect 3% to 4% lower production volume, driving less cost absorption than during the prior quarter. We have largely captured the benefits from our fixed cost reduction efforts in previous quarters. And while we will maintain those savings, we do not expect significant additional savings between the third and fourth quarters. We expect other input costs to remain relatively stable, and our guidance includes $16 million of major maintenance outage costs at our Augusta mill, which was completed in October. And lastly, let me provide you with some of our initial assumptions for 2026. We expect revenue of around $1.45 billion to $1.55 billion and a capacity utilization rate in the mid-80% range. We are also assuming that we'll see the carryover impact from 2025 market-driven price changes into 2026. We expect to generate enough productivity and cost reductions to offset 2% to 3% of cost inflation. We expect capital expenditures of $65 million to $75 million. To generate incremental cash flow, we will target more than $20 million in working capital improvements, primarily in inventory. And lastly, given newly enacted tax legislation, we do not expect to be a net cash taxpayer next year. The biggest variable that is difficult for us to predict is price changes in 2026. Currently, RISI is forecasting an increase in SBS folding carton price of $30 per ton and cup stock of $40 per ton in the first half of next year. This corresponds to their assumption that utilization rates will improve to over 90% with a net industry capacity reduction of approximately 350,000 tons. Regardless of industry conditions, we remain focused on operating effectively, reducing our costs and maintaining a strong balance sheet. I'll now turn the call back to Arsen for closing remarks. Arsen Kitch: Thank you, Sherri. While we're navigating a challenging industry environment, we remain confident in the long-term fundamentals of the paperboard market and our ability to generate strong returns. We have high-quality assets that are geographically well positioned to serve independent customers, and we intend to maintain our market share. We believe that paperboard packaging has strong demand fundamentals as consumers and customers continue to seek sustainable and renewable packaging solutions. We have a strong balance sheet with manageable debt levels and more than $450 million in liquidity, positioning us to weather this current downturn. In an environment where utilization rates returned to 90% to 95%, we expect to achieve cross-cycle adjusted EBITDA margins of 13% to 14%, resulting in free cash flow conversion of 40% to 50% or over $100 million in free cash flow per year, assuming $1.8 billion to $1.9 billion in net sales. Let me conclude my remarks by thanking our people for their efforts to remain focused on operating safely and providing excellent service to our customers. I would also like to thank our customers for putting their trust in us and our shareholders for their continued interest. With that, we'll open it up to your questions. Operator: [Operator Instructions] And it looks like our first question today comes from the line of Sean Steuart with TD Cowen. Sean Steuart: Arsen, I want to start with the decision to hold the CUK swing capacity project. I gather, given a pretty strong return profile for that project, this is more around wanting to hit balance sheet targets. Assuming that's correct, can you give us a sense of where you would like to see leverage ratios get to or free cash flow profile for the overall company improved to before you would greenlight that project? Arsen Kitch: Yes. Good question. So you're right. I think it's a good -- it's likely a good project but we're putting that decision on hold. It would take more than 2 years for us to deliver cash flow from this project, which means we'd have to finance it through debt. And right now, we need to prioritize maintaining a strong balance sheet and focusing on running our SBS mills and defending our market share. We said previously, we're targeting a leverage ratio in the 1% to 2% range. EBITDA margins cross cycle 13%, 14%. So we'll revisit this decision later. In today's market environment at today's prices, it is a very attractive return, but we have to revisit it in the future and see what those conditions look like and see if we need to update our assumptions. Sean Steuart: Okay. Understood on that front. And then with respect to your view on the market outlook for SBS, I gather a lot of this is based on what RISI is forecasting in terms of forthcoming capacity closures. According to their forecast, we would need to see those announcements soon. I guess I'm wondering on your perspective of industry willingness to make these -- to take these initiatives to rebalance the market and the extent to which you're seeing any import relief at this point as tariffs take hold and if that's helping at the margin at all? Arsen Kitch: Yes, listen, we're not going to comment on what our competitors may or may not do. You're right, RISI is forecasting a first half net capacity reduction of 350,000 tons. So they're assuming a turn in the market. We're certainly hoping for that, but we're planning for tomorrow looking like today. From an import perspective, it's still a bit early to tell. But as we look at European imports July year-to-date, they're down, I believe, approximately 10%. So I think you're starting to see some cracks in the import balance into North America between a 15% tariff and a weakening dollar, absorbing 20% or 30% of additional costs for an importer into North America, I think, is getting harder and harder. And for domestic customers, I think they're looking for more reliable, stable domestic supply. So we're optimistic that this will be a tailwind for us as we head into 2026. Sean Steuart: Okay. Just one last one, maybe for Sherri. You went through a bunch of 2026 metrics that you're targeting. Do you have an initial view on what the maintenance schedule is going to look like? And I appreciate you're smoothing this out now with a more regular schedule across the mill platform. Can you give us a perspective on the cadence of anticipated closures in 2026? And are we safe to assume that the overall expense that you're targeting would be similar to 2025 levels? Sherri Baker: Yes. So I'll answer the second part first. You should expect the cost to look very similar to what we see in '25. So I would start there. We're still finalizing the schedules for next year, so we'll be able to come out and tell you exactly which facilities and which quarters probably by our February call. And then we'll highlight if there's any overlap in consistencies if we change the quarters. Arsen Kitch: Sean, maybe one more comment on that. We had our Lewiston outage in late Q2. So it was in August with Augusta in October. Doing an outage in the middle of summer is pretty challenging from just a heat perspective. So we are looking at potentially moving out that outage into earlier in the summer, maybe late Q2 just to make it a safer, more manageable outage. So we're still finalizing those details, but that is the potential for us to have the Lewiston outage a bit earlier in the year, which would mean that we would have 2 Lewiston outages within a 12-month period potentially. But we'll share that with you in February. Operator: Our next question comes from the line of Matthew McKellar at RBC. Matthew McKellar: First, shipments in the quarter were solidly ahead of where you sort of guided to. It looks like food service sales are pretty healthy, but could you provide some maybe additional perspective on where you saw the incremental strength versus your expectations as of late July? And if you could provide any other broader commentary around relative strength or weakness you're seeing conditions across liquid packaging, folding carton, food service, that would be great. Arsen Kitch: I think summertime is normal seasonality uptick for food service. We certainly saw some nice strength in food service. And our team is doing a really nice job of competing vigorously in the market and filling out our capacity. I think we've had some optimism from some of our food service customers. I think you may be seeing some import relief helping on things like paper plates that is helping some of our paper plate customers see stronger demand. So I think those are some of the -- I think those are some of the variables that came into play in Q3. Matthew McKellar: Okay. That's great. And I guess just following up on the second part of that, any other comments around kind of weakness you're seeing into Q4 or strength relatively between those kind of product categories? Arsen Kitch: I think Q4 is seasonally a little weaker than Q3, and it's typically in food service. Just the seas of the summer season is over. So we're expecting A little bit of seasonality decline as we head into Q4. And I think, as Sherri mentioned, we'll also see a few percentage points less of production as we head into Q4 versus Q3 that we will have some absorption impact in that, as we stated in the last earnings call, absorption is a meaningful component of our P&L. And if you do the math, it could be upwards of $500 a ton of absorption with production changes. So I think that's part of the reason why Q4 is flat versus Q3 as I think it's -- we'll see some impact of absorption. Matthew McKellar: Okay. And just kind of pulling on that string. It's a fairly large range for guidance on EBITDA in Q4, considering you're through the maintenance. Is it mostly seasonality of demand and maybe energy costs that would take you to the top or the bottom of that range? Do you maybe even see any risks around I guess, the government shutdown and the supplemental nutrition assistance program? What else would you be watching for in terms of variability within that range? Arsen Kitch: I think energy is right. We did bake in some energy into Q4 versus Q3, but it's very much weather dependent. And some of our -- one of our mills at least is more susceptible to bigger swings in energy prices than the other mills just due to its location. So I think part of it is energy, part of it is just production. 1,000 tons of production is worth upwards of $500,000. And for those folks that spend time in paper mills know that 1,000 tons plus or minus in any given week or given month is a rounding error, but it has a pretty substantial impact on our earnings. So I think it's the nature of being a paperboard focused business with 3 mills. Matthew McKellar: Okay. Fair enough. And last for me. Just the working capital improvement of $20 million to $26 million. Can you just share a little bit more about how you plan to achieve that? It sounds like it's mostly inventory, but also the timing of when you'd expect to reach that target? Sherri Baker: Yes. It will be primarily in inventory. I think you'll see us start to work those pieces down in the second half of next year. So that would be the timing of when I would be looking to achieve those estimates. Arsen Kitch: And I think back to the production comment, this year, I think we probably built a little bit of inventory and we'll be reducing inventory next year to free up some working capital. So there will be a trade-off between fixed cost absorption and just cash coming off the balance sheet. So there'll be some trade-off as we head into next year. And we'll provide a bit more context on this in the coming quarters. Operator: [Operator Instructions] All right. Ladies and gentlemen, that does conclude today's call. Thank you so much for joining us today, and you may now disconnect.
Operator: Good afternoon. Welcome to Tigo Energy's Fiscal Third Quarter 2025 Earnings Conference Call.[Operator Instructions] Joining us today from Tigo are Zvi Alon, CEO; and Bill Roeschlein, CFO. As a reminder, this call is being recorded. I would now like to turn the call over to Bill Roeschlein, Chief Financial Officer. You may begin. Bill Roeschlein: Thank you, operator, and it's a pleasure to join you today. Also with us is Zvi Alon, our CEO. I'd like to remind everyone that some of the matters we'll discuss on this call, including our expected business outlook, our ability to increase our revenues and become profitable and our overall long-term growth prospects; expectations regarding recovery in our industry, including the timing thereof, statements about our demand for our products, our competitive position and market share; the impact of tariffs and our current and future inventory levels, charges and reserves and their impact on future financial results; inventory supply and its impact on our customer shipments, statements about the recovery of the solar industry, statements about our revenue and adjusted EBITDA for the fourth quarter of fiscal 2025 and our revenue for the full fiscal year of 2025; as well as statements about our existing backlog and bookings; statements about the anticipated benefits of our manufacturing and marketing partnership with EG4; and our ability to realize such benefits, as well as our ability to expand market share in the U.S. through power market; our ability to refinance our convertible debt prior to maturity; our ability to obtain funding that's acceptable to fund our working capital needs; our ability to penetrate new markets and expand our market share, including expansion in international markets, investments in our product portfolio are all forward-looking and as such, are subject to known and unknown risks and uncertainties, including, but not limited to, those factors described in today's press release and discussed in the Risk Factors section of our most recent annual report on Form 10-K, our quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2025, and other reports we may file with the SEC from time to time. These risks and uncertainties may cause actual results to differ materially from those expressed on this call. These forward-looking statements are made only as of the date when made. During our call today, we will reference certain non-GAAP financial measures. We include non-GAAP to GAAP reconciliations in our press release furnished as an exhibit to our Form 8-K. The non-GAAP financial measures should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. Finally, I'd like to remind everyone that this conference call is being webcast, and a recording will be made available for replay on Tigo's Investor Relations website at investors.tigoenergy.com. And with that, I'd like to now turn the call over to our CEO, Zvi Alon. Zvi? Zvi Alon: Thank you, Bill. To begin today's discussion, I will highlight key areas in our recent financial and operational performance before turning the call over to our CFO, Bill Roeschlein. He will discuss our financial results for the third quarter in more depth as well as provide our guidance for the fourth quarter of 2025 and updated guidance for the full year of 2025. After that, I will share some closing remarks, tell you about our outlook and then open the call for questions from the analysts. I'm pleased to report that we ended the third quarter of 2025 with our seventh increase on sequential quarterly revenue growth. Quarter-to-quarter, we grew more than 27% -- and on a year-over-year basis, we grew 115%. We are pleased to see a return to growth similar to what we saw before the industry downturn and believe our top line growth and market share gains are evidence of the value that Tigo brings to the marketplace. Now to the numbers. In the third quarter of 2025, we reported total revenue of $30.6 million and shipped 795,000 units or 600 megawatts of MLPE. Importantly, we have also returned to GAAP operating profitability for the quarter, which we had guided towards the high end of our estimates on our last quarter call. And for the second time in a row, we are reporting positive adjusted EBITDA. I'm exceptionally proud of what our team here at Tigo has accomplished. To give some geographical color to our results, we saw strong growth in the EMEA and Americas region, which comprised 70% and 26% of our revenue. Noteworthy, we performed exceptionally well in the U.S. as sales grew by approximately 68% sequentially, making it our largest sales region this quarter on a country level. Contributing to this is our sustained effort in the U.S. repower market, where we continue to make significant inroads in these areas. During the third quarter, we also announced a domestic manufacturing marketing partnership with EG4 Electronics in the U.S. This partnership will allow Tigo and EG4 to offer an ITC and domestic content bonus tax credit Tigo-optimized inverters for the U.S. customers, along with the 45X tax credit for Tigo and EG4. Although analysts expect weakness in the U.S. market next year, we believe this partnership, combined with our repower initiative, may mitigate the macro headwinds in the U.S. market and potentially provide significant growth opportunities for us in 2026. And with that, I will turn it over to Bill. Bill? Bill Roeschlein: Thank you, Zvi. Turning now to our financial results for the third quarter ended September 30, 2025. Revenue for the third quarter of 2025 increased 115% to $30.6 million from $14.2 million in the prior year period. On a sequential basis, revenue increased 27.3% with improved results coming from many countries in the EMEA and Americas regions, including Italy, the United Kingdom, Czech Republic and the United States. By region, EMEA revenue was $21.6 million or 70.5% of total revenues, Americas revenue was $8 million or 26% of total revenues and APAC revenue was $1.1 million or 3.5% of total revenues. By product family, for the third quarter of 2025, MLPE revenue represented $26.8 million of revenue or 87.5% of total revenues, while GO ESS represented $3.1 million or 10.3% of total revenues and Predict+ and Licensing revenue represented $0.7 million or 2.2% of total revenues during the quarter. Gross profit for the third quarter of 2025 was $13.1 million or 42.7% of revenue compared to a gross profit of $1.8 million or 12.5% of revenue in the comparable year ago period. Sales of GO ESS, which included reserved inventories, had a positive 1.5% gross margin impact during the quarter. Operating expenses for the third quarter increased 1.8% to $12.4 million compared to $12.2 million in the prior year period. The increase was driven primarily by higher sales and marketing costs in the quarter. Operating income for the third quarter increased by 106.2% to $0.6 million compared to an operating loss of $10.4 million in the prior year period. GAAP net loss for the third quarter was $2.2 million compared to a net loss of $13.1 million for the prior year period. And adjusted EBITDA in the third quarter increased 134.3% to $2.9 million compared to adjusted EBITDA loss of $8.3 million in the prior year period. These results reflect both top line growth and operating expense management. As a reminder, adjusted EBITDA is a non-GAAP measure that represents net loss as adjusted for interest and other expenses, income tax expense, depreciation, amortization, stock-based compensation and M&A transaction expenses. Primary shares outstanding were 69.5 million at the end of the third quarter of 2025. During the quarter, we issued 6.5 million shares from our ATM program for gross proceeds of $10.9 million, representing an average purchase price of $1.69 per share. Subsequent to quarter end, we completed the ATM program with the issuance of 837,000 shares for gross proceeds of $2.2 million, representing an average purchase price of $2.61 per share. Now turning to the balance sheet. Accounts receivable net increased $5.4 million in the third quarter to $15.8 million compared to $10.4 million last quarter and $8.8 million in the year ago comparable period. Inventories net increased by $9.6 million or 50.8% to $28.5 million compared to $18.9 million last quarter and $46.8 million in the year ago comparable period. Our inventory buildup comes as a result of increased activity that we're seeing in our business. Cash, cash equivalents and short-term and long-term marketable securities totaled $40.3 million at September 30, 2025. Principal on our convertible debt due in early January 2026 is $50 million. We've been working diligently with certain financial parties regarding refinancing this debt. And while we have not entered into any binding agreements yet, we expect to complete this process in the fourth quarter. We further expect to utilize a combination of cash on hand and borrowing arrangements to complete the refinance and fund our working capital needs as we continue to grow the business in 2026. Turning now to our financial outlook for our fourth quarter of 2025 and full year 2025. As a reminder, Tigo provides quarterly guidance for revenue as well as adjusted EBITDA as we believe these metrics to be key indicators for the overall performance of our business. For the fourth quarter of 2025, which traditionally is a seasonally slow quarter in our industry, we expect revenues and adjusted EBITDA to be in the following range. We expect revenues in the fourth quarter ended December 31, 2025, to range between $29 million and $31 million. We expect adjusted EBITDA in the fourth quarter ended December 31, 2025, to range between $2 million and $4 million. For the full year of 2025, we anticipate revenue to be between $102.5 million and $104.5 million. That completes my summary. I'd like to now turn the call back over to Zvi for final remarks. Zvi? Zvi Alon: Thanks, Bill. As we look ahead, I'm happy to say that even against the backdrop of the economic uncertainty, we believe that our track record of 7 consecutive quarters with top line growth and disciplined expense management builds a strong foundation for profitable future growth as we near the end of 2025 and look into 2026. We firmly believe in the growth prospects of our business and look forward to providing additional updates in the coming quarters. With that, operator, please open the call for Q&A. Operator: [Operator Instructions] And our first question is going to come from Eric Stine with Craig-Hallum Capital Group. Eric Stine: So I'm wondering maybe we could just dig in on the improvement that you are seeing in the U.S. since that obviously was a highlight in the quarter. And then just curious, you've got this new arrangement with EG4. What kind of -- I know it's early, but early impressions, what you think that potentially can become here as we get into fiscal '26? Zvi Alon: So let me start with the first question on the improvements in North America. We, in the last couple of quarters, highlighted that we have identified a segment which is not very well served, and it's not necessarily new installations, it's the repowering of existing ones, and it's a very large installed base and we targeted it. We are very happy to say that it has been very successful. So we have seen a major increase in our revenue as we've just reported for North America, and we see a major continuation in the future. We have a unique solution that really is aiming at solving this problem. In addition, we have seen a very nice inroad with the new installations and new storage to the point where we actually are getting close to the depletion of all the inventory we actually had before. So it's all very positive indications in at least being able to address the growth in North America, unlike the general market, which is actually down. In Europe, since we are diversified and needless to say, Germany is still a fairly big chunk of our business, but we see very good inroads in Italy, the U.K., Czech Republic, which -- that diversification helps us quite a bit to actually eliminate some of the downside of some of the countries. So in general, this strategy has been really working well for us in trying to avoid the biggest downfall or shortcoming of the market -- as the market is recovering. Now on the EG4 for North America relationship and partnership, EG4 is a very well-known supplier that started with the off-grid and expanded well beyond that. And we have had that relationship with them for quite some time in complementing their inverter and storage solutions with our MLPE. What we have announced is that together, what we will bring to the market is a domestic content applicable solution, which will be an optimized inverter solution that includes obviously the inverter and optimizers as well. And this progress is actually continuing as planned. And the early indication we provided when we just made the announcement that we foresee an opportunity to start shipments early in Q1 or sometimes mid-Q1, and that has not changed so far. I believe that it will provide a significant increase in our footprint to new installations with that partnership and really providing a very competitive solution in the optimized inverter market. Eric Stine: Got it. That is helpful. And then maybe just sticking with part of that answer, when you talk about repowering. I mean, I would assume the open architecture setup of your optimizer is important going after that market opportunity and just competitively, I mean, is that -- does that mean that -- or I'm curious what you think that means in terms of how you stack up events against others who may be looking at repowering as well? Zvi Alon: So you're absolutely 100% correct. The open architecture is really very well positioned to address any repowering capability. But in addition, we have a very strong inverter solution that is also an open system and can work with pretty much any old installation in the market and can be easily adjusted with the power requirements to whatever power needs of that one specific system is, and that's really very unique. So the combination of these 2 is what's really very unique in the market. Needless to say, it also benefits from the fact that it's very easy to install. It pretty much is 100% compatible with all the other components that you have in the system. So you don't need to replace the whole system and provides all those benefits to the installer and to the owners of those systems. Operator: And the next question will come from Philip Shen with ROTH Capital. Philip Shen: I wanted to get some more clarity on the EG4 partnership. Sorry if I missed it because I'm navigating a couple of calls at the same time. But when do you expect your initial output to be available? Zvi Alon: So as we've indicated before, and I just repeated it, Phil, it will be sometimes in Q1, middle to the second part, but we don't now have the specific date, but we are targeting Q1 shipments. And we have a fairly good indication as to the potential for us next year, and it is significant. Philip Shen: Great. So how much of your overall volume of production could come from EG4 for 2026? I mean could it be half? Or do you think it's maybe 1/3? Zvi Alon: So in the U.S., it's a brand-new production capacity for us. So it would initially be the majority for EG4, but we plan to actually utilize it also beyond the EG4 as well. And so the initial production capacity will be really dedicated to the EG4 relationship. But it's a brand-new line, which we are just in the final stages of getting it up and running. Philip Shen: Right. Okay. So... Zvi Alon: This is additional capacity, which we did not have before. It's not replacing any. We are adding capacity. Philip Shen: Right. And do you think you could use this U.S. EG4 facility to ship units to Europe or elsewhere in the world? Zvi Alon: Correct. You're absolutely 100% correct, yes. And we do plan to get the maximum utilization we can, as you can imagine. Philip Shen: Right. Okay. Great. Shifting over, I know you have not provided any guidance for 2026, but I wanted to see if we could get a sense for what you're looking for. From a seasonality standpoint, would you expect Q1 to be similar to a past Q1, maybe which one might be a useful comparison? And then what kind of growth could we see in '26 year-over-year or maybe sequential growth? However you think you can describe the '26 outlook in a way that makes you feel comfortable, but can give the market color would be fantastic? Zvi Alon: Thank you. So you're absolutely right. We did not provide the guidance for '26 yet. We will do it early in Q1 as we traditionally have been doing at the beginning of the year. But I was trying to communicate that as you can see in Q3 and some of the guidance we provided to Q4, which normally is a down quarter, we actually provided guidance to a flat quarter, not down. And we feel fairly strong about the outcome and where we are. I don't want to unveil too much specificity, but I can tell you, we are very comfortable with that guidance that we just provided, which gives us a very good indication as to how we get into 2026. So we do believe it's going to be a growth year for us, and we will provide a bit more guidance as to the specificity, as I said, in early Q1. And as far as seasonality, normally, as you know, Q4 and Q1 are a little bit more challenged, but Q2 and Q3 are actually on the upside, and we have been demonstrating it also this year. So we do believe that we will see a very similar behavior in the market. I will tell you that we are happy with the results of the repowering in the North America market, and that has no seasonality at all. And so that's a little bit more comforting, and it might actually provide some more stability for us in North America as we move through the year. Philip Shen: Right. Okay. Interesting. And from a margin standpoint, as we get through '26, do you also feel very comfortable with the current levels, call it, 40-plus percent to actually remain steady through '26? Zvi Alon: Absolutely, Phil. Yes. Philip Shen: Great. Great. So that's good. And then one last one, I'll pass it on. You just mentioned the repowering initiative. And can you share what percentage of the market might be repowering -- or what percentage of your revenue could be repowering for next year? Zvi Alon: I'm not sure we're ready to actually share this number in more specificity. But I can tell you, in Q3, the North America results have been substantially impacted by the repowering. And that has demonstrated for us the depth and strength. So obviously, as we move into 2026, we believe it's going to gain much more momentum and can be much more significant. Philip Shen: So the boost in the North America business really was substantially positively impacted by the repowering efforts? Zvi Alon: It was a very strong addition, yes, absolutely. Philip Shen: Great. Okay, so that momentum can continue through Q4 and through '26 as well? Zvi Alon: Correct. And I will tell you, it does not suffer from the problems of the new installations that the whole market is going through, including us. Because when you do the repowering, it's installations that you have and they don't quite work and operate and you really have no choice but to repower it. Operator: And the next question comes from Amit Dayal with H.C. Wainwright. Amit Dayal: Congrats on another strong quarter. Zvi, just touching on just your last comments. I'm just trying to get a better understanding of what's driving sort of this repowering trend here in the U.S. Is this more market-driven? Or is there any regulatory element that is also supporting some of this repowering-related sales improvements? Zvi Alon: Amit, thanks for the question. So to be very, very clear to the point and focus, there is no regulation or government or anything that is impacting it. It's purely financially driven. Customers who installed in systems that are aging and they don't perform anymore and they did benefit from the solar installations they did want to continue, and they have no choice, either to rip it apart, start from scratch, which is very expensive, or to repower. So it is just a ready-made a problem that is looking for a solution, and we've identified it and aimed at this market, and we have a solution which is superior and is not relying on any benefits from any local government or any changes at all. It's a purely financial decision by the owners of those systems. Amit Dayal: Understood. That's very helpful. And do you get similar efficiencies from the post-repowered setup that you might have had before? Or are there even more improvements? Zvi Alon: There are actually more improvements because most of those aging systems have been suffering from a reduction in performance before they actually broke or about to break. And so yes, there is an uptick in performance for those. And in some cases, this is not yet a big phenomenon, but in some cases, customers opt to also add storage too. So that's an additional source that potentially is available for us. Amit Dayal: Interesting. And then this could -- this repowering trend could begin in other geographies for you in the future also, it looks like? Zvi Alon: That is absolutely correct. We started focusing here in the U.S., and it seems to be working for us well. But this phenomenon is a global phenomenon. And many of the systems are aging. They are 7, 8, 9, 10 years old plus. And in many cases, you cannot get replacement parts. It's just you have no choice. So it's a problem that has been created over time and now it is coming to fruition, and it's a ready-made market basically. Amit Dayal: Understood. Just one last one for me. This -- you have the EG4 sort of manufacturing setup here in the U.S. now. What is happening on the business development side, Zvi, to sort of take advantage of this? Are you making any investments in like sales teams over here or any other partnerships you may be looking to capitalize on the manufacturing setup you have over here now? Zvi Alon: The beauty of this relationship is such that it is relying on the strengths of the 2 entities. EG4 is a very good brand in a specific market, which is doing well and growing nicely. And the Tigo-MLPE optimization has been growing and very well known in our space. And so the combination of them do not require any additional new sales or marketing activities. It's utilizing the existing channels we have, and that's the beauty of the relationship. Operator: At this time, this concludes our question-and-answer session. I would like to turn the call back over to Mr. Alon for closing remarks. Zvi Alon: Thanks again, everyone, for joining us today. I especially want to thank our dedicated employees for their ongoing contributions as well as our customers and partners for their continued hard work. I also want to thank our investors for their continued support. Operator? Operator: Thank you for joining us today for Tigo's Third Quarter 2025 Earnings Conference Call. You may now disconnect.
Operator: Welcome to Booking Holdings Third Quarter 2025 Conference Call. Booking Holdings would like to remind everyone that this call may contain forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guaranteed of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements. Expressions of future goals or expectations and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements. For a list of factors that could cause Booking Holdings' actual results to differ materially from those described in the forward-looking statements please refer to the safe harbor statements in Booking Holdings' earnings press release as well as Booking Holdings' most recent filings with the Securities and Exchange Commission. Unless required by law, Booking Holdings undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. A copy of Booking Holdings' earnings press release is available in the For investors Section of Booking Holdings' website, www.bookingholdings.com. And now I'd like to introduce Booking Holdings speakers for this afternoon, Glenn Fogel and Ewout Steenbergen. Please go ahead, gentlemen. Glenn Fogel: Thank you, and welcome to our third quarter conference call. I'm joined this afternoon by Ewout, our CFO. I'm pleased to report another strong quarter that underscores the power of our platform, the discipline of our execution and momentum we're building for the future. Our room nights gross bookings and revenue all exceeded our prior expectations. Beyond the financial results, I am very encouraged by the progress we've made on our strategic priorities. We are at a moment where advances in AI are just beginning to create new ways that people plan and experience travel. With our history of innovation, scale and data that helps us understand what customers want and when they want it, we are well positioned to harness these developments to drive more value for both our travelers and partners. I'll share specific examples from the quarter shortly. But before diving into those, let's review our third quarter financial highlights. We delivered double-digit gross bookings and revenue growth, reflecting robust demand across our globally diversified business. Our third quarter room nights reached 323 million, an 8% year-over-year increase. This exceeded the high end of our prior expectations, driven by healthy demand across 4 of our major regions. Of particular note was the U.S., where growth accelerated to high single digits, supported primarily by stronger outbound travel and momentum in our B2B business. The better-than-expected room night growth helped drive third quarter gross bookings up 14% and revenue grew up 13%. Adjusted EBITDA reached $4.2 billion, up 15% from the prior year quarter. All 3 metrics were above the high end of our prior guidance ranges. Finally, adjusted earnings per share in the quarter grew 19% year-over-year. Consistent with our prior earnings guidance, I want to note that FX benefited our growth rates by approximately 400 to 500 basis points. As we enter the fourth quarter, we continue to observe stable levels of global leisure travel demand. Ewout will provide more detailed financial insights shortly, including our outlook for this quarter and for the full year. Beyond the headline numbers, I'm excited about the meaningful progress we're making on key initiatives. We're advancing our Connected Trip vision, strengthening our loyalty programs and building AI capabilities that create more value for both travelers and suppliers. Asia and alternative accommodations continue to remain growth drivers Together, these efforts are reshaping how people, plan, book and experience travel and how we are unlocking greater value for our partners. Let me start with the Connected Trip. We continue to advance on our long-term vision to make the planning, booking and traveling journey simpler, more personalized and with less friction while providing new opportunities for our partners through data-driven insights. Today, Booking.com, travelers can already book accommodations, flight, rental cars, pre-book rides and attractions on our platforms, and we continue to invest to expand these verticals and to deliver a more seamless experience. For example, we enhanced our home screen to adapt dynamically to each traveler's most recent search, making it easier to move across verticals and transition smoothly from planning into booking. And we continue to broaden our flight supply, most recently adding new partnerships with Ryanair in Europe and Southwest in the U.S., giving travelers even more choice. These efforts are resonating Connected Trip transactions, meaning a trip that includes more than one travel vertical grew mid-20% year-over-year in the third quarter and now represent a low double-digit percentage of Booking.com's total transactions. Our other verticals also continue to deliver strong growth with flight tickets up 32% year-over-year and attractions up close to 90%, albeit from a relatively smaller base. Most importantly, travelers who choose to book multi-vertical trips with us also choose to come back to us for future bookings more often, which reinforces the long-term value proposition of a Connected Trip vision. Now I'd like to spend some time on Booking.com's Genius loyalty program, which plays an ever more important role in attracting and engaging travelers and stands out as one of our core differentiators. The purpose of Genius is straightforward, reward our most loyal customers with extra value while delivering real benefits for our partners. Genius members book more often, convert at higher rates, book further in advance, cancel less and choose to come back more consistently than non-Genius customers. In fact, in the third quarter, travelers in Genius Levels 2 and 3 made up over 30% of our active base and accounted for a mid-50% range of our room nights over the last 4 quarters, increasing from last year's levels. Today, Genius is available at over 200 countries and territories. The program spans our range of supply from large global hotel chains to independent properties and increasingly alternative accommodations and our other verticals. What sets Genius apart is that travelers get immediate tangible benefits such as tiered discounts or perks like free breakfast or room upgrades. We're continuing to invest to make these benefits more personalized, data-driven and relevant to each traveler's journey. On the partner side, we carefully designed Genius so that it provides incremental value rather than simply shifting existing demand. Our data shows that Genius members submit reviews more often, driving higher property visibility and increasing occupancy rates for participating properties, particularly during off peak periods. That helps partners optimize their revenue management. At the end of the third quarter, over 850,000 partners had chosen to participate in Genius. Looking ahead, we see several opportunities to continue strengthening our Genius offering. We're already expanding our offering across verticals and exploring ways to provide additional benefits. Loyalty programs remain a core pillar across our brands, not just at Booking.com. Most recently, OpenTable enhanced its program, which is now called OpenTable Regulars. The updated program offers new ways for diners to redeem points on experiences and introduces a new loyalty tier that provides enhanced benefits such as one named priority Notify Me which will alert diners to last-minute tables earlier than others with additional benefit launches planned over coming quarters. For restaurants, it helps encourage more repeat visits from high-value guests. Let me now turn to Gen AI, which we continue to believe represents a major opportunity to enhance the traveler and partner experience. While there is certainly a lot of excitement in the industry, our approach has been disciplined and focused on where AI can make a real difference for our customers, our partners and our business. On the customer side, we saw encouraging developments this past quarter. At Agoda, for example, we launched an AI-powered chatbot that provides travelers with prompt hotel-specific answers. By cutting through complexity and delivering precise information quickly, it helps travelers make timely and more confident booking decisions, reducing uncertainty and improving the overall experience. Another example is KAYAK's AI Mode, a natural language search experience that combines KAYAK and large language model data to deliver smarter contextual results right from the home page. At Booking.com, we've begun integrating new features into our app to assist travelers earlier in their planning process. These include natural language search capabilities that offer more inspiration such as destination highlights. As we further develop our agentic capabilities, combine them with our data-driven insights on when to offer relevant suggestions and advance our Connected Trip vision, we believe travelers will increasingly recognize the value proposition of our platform. We also see important opportunities for AI to create more benefits for our partners by driving better personalization and conversion, AI helps generate incremental demand across our verticals. Just as importantly, we are applying AI to make partner to guest communication faster, more streamlined and more intuitive. A core strength of our business has always been the unique value we bring to our supply partners and AI is enhancing these capabilities. As an example, Booking.com continued to add to its robust suite of Gen AI tools for partners, including Smart Messenger and Auto-Reply. Smart Messenger uses intelligent response generation and automated workflows to bring together relevant partner, property and reservation information, knowing when and what to suggest to support accommodation partners in their communications to guests. Auto-Reply takes this further allowing partners to set custom reply topics that deliver instant personalized responses to both common and unique guest questions. Early results have shown an increase in partner satisfaction compared with our prior messaging tools, underscoring how AI can provide tangible, differentiated value to our partners. Beyond our internal efforts, we're also building relationships with leading AI organizations reflecting our ambition to remain at the forefront of this rapidly developing field and to broaden our potential sources of customer traffic. We recognize that Gen AI is transforming how travelers research and find inspiration for their trips, and we are committed to continue to expand, evolve and meet them wherever they choose to search. Most recently, we were one of the first wave of apps available in OpenAI's ChatGPT App Store after being one of the launch partners for their operator platform earlier this year. Our strong relationship with companies such as OpenAI, Google, Amazon and Salesforce combined with our disciplined approach, give us confidence that Gen AI will be an important driver of long-term value for our travelers as well as our partners. On alternative combinations, we are continuing to strengthen our offering. In the most recent quarter, listings grew to over 8.6 million up approximately 10% year-over-year with double-digit room night growth. Travelers value choice and the breadth of supply across hotels, homes and unique properties differentiates us as a platform. Alternative accommodations remain a long-term growth opportunity. Customer demand for alternative accommodations is healthy across every region and our ability to combine that breadth of supply with our marketing reach and payments capabilities makes us well positioned in this segment. Finally, I want to touch on Asia, which remains a driver of growth for us and is one of our most exciting long-term opportunities. It is the fastest-growing major travel market in the world with industry growth expected to remain in the high single digits over the next several years, and our ambition is to grow even faster than the market. Our offering in the region is built on the complementary strengths of Agoda and Booking.com. Agoda is a strong local player with consumer trust across Asia while Booking.com brings global reach and brand recognition together. They create a combination that allows us to serve both local and outbound travelers across the region. As we look forward, we know we are operating in a period of rapid change, driven by geopolitical developments, macroeconomic uncertainty and accelerating technological innovation. What gives us confidence and makes me optimistic about the future is the strength of our value proposition through the Connected Trip, our Genius loyalty program and our relationships and innovations in Gen AI, we are building products that engage travelers, generate incremental demand and value for our partners and create differentiators. With that, I'll turn it over to Ewout to walk through the financial results in more detail. Ewout? Ewout Steenbergen: Thank you, Glenn, and good afternoon, everyone. I'm pleased to walk you through our results for the third quarter and share our current outlook for the fourth quarter and full year. All growth rates are on a year-over-year basis and the reconciliation of non-GAAP to GAAP financials can be found in our earnings release. Now let's turn to our third quarter performance. Our room nights in the third quarter grew 8% a positive result versus a strong prior year comparison and exceeded the high end of our guidance by nearly 3 percentage points. This outperformance was helped by an expansion of the booking window beyond our prior expectation and what we experienced in the second quarter, resulting in more room nights being pulled forward into the third quarter. We saw broad-based strength in room night growth across all major regions, and each region exceeded our expectations. Europe and U.S. were up high single digits, and Asia and Rest of World each delivered low double-digit growth. Our globally diversified portfolio proved its value once again as we continue to see robust growth in certain travel corridors, including Canada to Mexico and Europe to Asia, which effectively offset softer demand in certain inbound corridors to the U.S. Notably, our U.S. booker room night growth accelerated meaningfully from the second quarter driven by solid improvements in domestic and outbound growth, and we believe our growth once again outpaced the broader U.S. accommodations industry in a meaningful way. We're also encouraged by the growth in our direct channel in the U.S. We saw the booking window in the U.S. normalize in the third quarter, which is also an encouraging improvement from the second quarter. That said, in the U.S., we continue to see slightly lower ADRs and a shorter length of stay versus the prior year which may indicate that some U.S. consumers are continuing to be thoughtful on their discretionary spending. More broadly, global ADRs on a constant currency basis were up about 1% year-over-year, which was an improvement from the second quarter, and the global average length of stay remained similar to last year. While we are pleased with our third quarter results, we remain focused on accelerating our long-term earnings potential and are energized by the progress we are making across many key strategic initiatives. We continue to strengthen our direct relationship with our travelers and see tangible progress with increases in our direct mix, mobile app mix and loyalty mix. Over the last 4 quarters, our B2C direct mix was in the mid-60% range, which was up versus the low 60% range 1 year ago. The mobile app mix of our room nights was in the mid-50% range over the last 4 quarters, which was up from the low 50% range 1 year ago. We find that the significant majority of bookings received from our mobile apps come through the direct channel. We continue to drive engagement in our Genius loyalty program that delivers value to both our travelers and partners. The mix of Booking.com room nights booked by travelers in the higher Genius tiers of Levels 2 and 3 was in the mid-50% range over the last 4 quarters, and this mix increased year-over-year. These Genius Level 2 and 3 travelers have a meaningfully higher direct booking rate than our other travelers, which demonstrates the strength of the program's value proposition. We also see continued momentum in diversifying and expanding our business into growth areas such as alternative accommodations, payments, flights and attractions. For our alternative accommodations at Booking.com, our room night growth was about 10% and growth outpaced our overall business in each of our major regions. The global mix of alternative accommodation room nights was 36%, which was up 1 percentage point from the third quarter of 2024. Our total merchant gross bookings increased 26% year-over-year in the third quarter. Over the last 4 quarters, merchant gross bookings surpassed $123 billion in total transaction value representing about 68% of total gross bookings, an increase from about 61% 1 year ago. Our merchant payments business is foundational to the Connected Trip, offers more flexibility for our travelers and partners and generate incremental revenue and contribution margin dollars for our business. We marked another quarter of solid growth in our other travel verticals, reaffirming our strategic focus on building on our Connected Trip vision. During the third quarter, over 17 million airline tickets were booked across our platforms, representing an increase of 32% year-over-year, driven by the continued growth of our flight offerings at Booking.com and Agoda. We also delivered another quarter of meaningful expansion of our attractions vertical with tickets booked on our platforms growing nearly 90% year-over-year from a relatively smaller base. As Glenn mentioned before, we're seeing healthy growth in Connected Trip transactions, and our data shows that travelers who book more than one travel vertical with us more frequently choose to book directly with us in the future. The progress across all these initiatives is interrelated and the combined effect is helping us expand the number of customers who choose to come to us directly and book with higher frequency. Before turning back to our third quarter results, it's important to note that the third quarter has historically been our seasonally highest absolute quarter in terms of revenue and earnings. Gross bookings of $50 billion increased 14% year-over-year or about 10% on a constant currency basis. The constant currency growth rate was approximately 2 percentage points higher than room night growth due to about 1 percentage point from higher bookings growth from flights and other travel verticals as well as an increase in constant currency accommodation ADRs of about 1%. The increase in gross bookings exceeded the high end of our guidance by about 4 percentage points, driven by the room night outperformance as well as about 2% higher accommodation ADRs versus our expectations. The impact from changes in FX was about in line with our expectations. Third quarter revenue of $9 billion grew 13% year-over-year, which exceeded the high end of our guidance by about 4 percentage points, in line with the outperformance on gross bookings. Constant currency revenue growth was about 8%. Revenue as a percentage of gross bookings of 18.1% was lower by about 30 basis points year-over-year due to an increased mix of flight bookings as well as increased merchandising contra-revenue, some of which was tied to bookings made in prior quarters. This was partially offset by higher revenue from payments. Marketing expense, which is a highly variable expense line increased 9% year-over-year. Marketing expense as a percentage of gross bookings was a source of leverage, driven by changes in traffic mix and lower brand marketing expenses as a percentage of total gross bookings. We continue to make disciplined investments in social media channels at attractive ROIs. On a combined basis, marketing and merchandising as a percentage of gross bookings also had leverage in the quarter. As expected, third quarter sales and other expenses as a percentage of gross bookings was slightly higher compared to a year ago, driven by an increasing merchant mix, resulting in higher payments expenses partially offset by increased efficiencies in customer service. Adjusted fixed operating expenses increased 10% year-over-year or mid-single digits after normalizing for changes in FX. The year-over-year increase was also impacted by increased cloud costs. We continue to drive efficiencies in our fixed expenses through our ongoing cost optimization initiatives while, at the same time, reinvesting into the business to effectively drive long-term growth. Adjusted EBITDA of approximately $4.2 billion grew 15% year-over-year, which was about 6 percentage points faster than the high end of our guidance due primarily to stronger revenue growth. Adjusted EPS of $99.50 per share was up 19% year-over-year, faster than the growth in adjusted EBITDA, helped by the benefit of a 4% lower average share count. During the third quarter, we realized approximately $70 million of in-quarter savings from the Transformation Program, primarily in sales and other expenses and in personnel expenses. We also took further actions during the quarter to advance certain efficiency initiatives into the implementation phase. And as a result, we now estimate in-year savings for 2025 will exceed $225 million and we have enabled approximately $450 million in annual run rate savings, surpassing our prior expectations. For the full program, we now expect to deliver about $500 million to $550 million in run rate savings, and we estimate the aggregate transformation cost will be approximately 1x the run rate savings. In the third quarter, we incurred $105 million in transformation costs, which were excluded from our adjusted results. As a reminder, we're reinvesting approximately $170 million above our baseline investments in 2025 to support our strategic priorities for long-term value creation. This reinvestment is funded by the savings generated from the transformation program, combined with additional operational efficiencies in our ongoing operations. Now turning to our cash and liquidity position. Our third quarter ending cash and investments balance was $17.2 billion compared to our second quarter ending balance of $18.2 billion due to a reduction of $2.4 billion from deferred merchant bookings and other current liabilities. We generated $1.4 billion in free cash flow, offset by capital return activities, including about $700 million in share repurchases and about $300 million in dividends. Additionally, we paid $1.5 billion to redeem high coupon debt that was originally due in 2030. As we look ahead to the fourth quarter, while there remains some uncertainty in the macroeconomic and geopolitical backdrop, we're pleased to see continued momentum with steady travel demand trends in our business so far in the fourth quarter. As always, we will continue to closely monitor the travel environment for any changes. Our guidance for the fourth quarter assumes recent FX rates for the remainder of the quarter, including the euro-U.S. dollar at 1.17. We estimate changes in FX will positively impact our fourth quarter U.S. dollar reported growth rates by about 5 percentage points. We currently expect fourth quarter room night growth to be between 4% and 6% and we expect growth to moderate from the third quarter as we expect the booking window to be less expended in the fourth quarter. We currently expect fourth quarter gross bookings to increase between 11% and 13%, including about 2 percentage points of positive impact from higher flight ticket growth. We expect constant currency accommodation ADRs to be about in line with last year. We currently expect fourth quarter revenue growth to be between 10% and 12% lower than the increase in gross bookings due to a higher mix of flight bookings. We currently expect fourth quarter adjusted EBITDA to be between $2 billion and $2.1 billion or about 14% growth at the high end. We currently expect fourth quarter adjusted EBITDA margins to be slightly higher than last year, driven by leverage on adjusted fixed operating expenses. Turning to the full year 2025. With a strong third quarter on the books, steady trends to date, along with improved visibility for the fourth quarter, we're increasing our full year guidance. Assuming recent FX rates will remain steady for the remainder of the year, we estimate changes in FX will positively impact our full year reported growth rates by about 3 percentage points for gross bookings and revenue and by about 4 percentage points for adjusted EBITDA and adjusted EPS. On a constant currency basis, our latest expectations are above our long-term growth ambition of at least 8% growth bookings and revenue growth and 15% adjusted EPS growth. On a reported basis, for the full year, we now expect room nights to be up about 7%, gross bookings to be up about 11% to 12%, revenue to be up about 12%, adjusted EBITDA to be up about 17% to 18%, adjusted EBITDA margins to expand year-over-year by about 180 basis points higher than our prior expectation of about 125 basis points, revenue to grow faster than both marketing and adjusted fixed operating expenses, sales and other expenses to grow similar to revenue and adjusted EPS to be up slightly more than 20%. In conclusion, we're energized and highly motivated by the clear momentum in the business. Our continued progress reinforces our confidence that our loyal customers and global supply, along with our technology and data all powered by our people are industry-defining assets that will fuel our long-term success. Thank you to all of my colleagues across the company for their shared commitment and extraordinary work. With that, we'll now take your questions. Operator, will you please open the lines. Operator: [Operator Instructions] And our first question comes from the line of Kevin Kopelman with Cowen. Kevin Kopelman: I was hoping to dig in on your U.S. acceleration in Q3. Could you talk about your B2B initiatives in the U.S. that you mentioned and maybe globally? And then it sounds like B2C also accelerated in the U.S., so any additional color on what you saw as the key drivers there would be great. Glenn Fogel: Kevin, so obviously, we are very pleased about our U.S. acceleration. I haven't looked at the numbers. So I guess it's 3 quarters in a row that we have some acceleration, which is always good to see. And it is both B2B and B2C. And we are pleased about what we're doing in the B2B region. We haven't talked about it a lot in the past. We're not there beating our breast about how great our B2B is, but it's pretty darn good. And we've been winning some contracts. We don't make big announcements about them, but they are good, and we'll continue to advance. So we're very pleased with where we are. There's nothing really specific to talk about right now. We have talked a little bit about bringing together become more efficient. We have many different B2B units around the world because we have the different brands, have different B2B units. We're going to create things that are more efficient, really bring the best of old breeds together. So we really have something that's even better for our partners and our travelers. In regards to the B2C area, also, good numbers there. We're really pleased to see what we're doing. But this has been a very long-term process that we've been talking about for many, many years. about how improving the product will improve the results, and that's what we've been doing. There's nothing that's miracle. There's no magic bullet happening, et cetera. It's bringing the brand together, it's doing a product better. I mean, just to give you an example, I hope people watching the baseball have seen some of our branding there. I certainly have gotten some calls from people. And that's the thing, make people aware that we have a great product and then execute and do what's necessary. If anything goes wrong, provide that great customer service that really brings people back because they love using it. I don't know, if you have anything more to add to that? Ewout Steenbergen: Yes. Let me add a few other data points, Glenn. Kevin, clearly, we saw healthy growth domestically in terms of travel as well as outbound saw some healthy growth. So both were doing well from a U.S. perspective. Another important thing that I would like to point out, and I think we're really positive and really excited about this. This is the growth of our direct channel in the U.S. So what we are seeing is clearly a payoff of our brand awareness that is getting stronger in the U.S., more familiarity and therefore, more customers coming now direct to us in the U.S. So that is really something that has seen quite a step-up in the third quarter, and we see that as a really positive trend. And ultimately, that is all the result of all the investments we have been making over the last number of quarters and years. Investments in products, investments in supply, in marketing and in brand. So overall, indeed, thank you for pointing it out, we're very happy where the U.S. is this quarter. Operator: And our next question comes from the line of Doug Anmuth with JPMorgan. Douglas Anmuth: I know you were early in the test program with OpenAI as well, but can you talk about your thought process heading into the app integration and what you're seeing in the early days? And just how should we think about economic impact if bookings were to shift from direct traffic or from Google? Glenn Fogel: Doug, well, that's a question I would have expected. Of course, you sort of -- you gave the answer there about how early it is. So it's a little difficult to talk about anything besides and say, it's early. We're very happy to be in the first wave of apps with OpenAI. I think that says something about us and the value we bring to partners that they would do it with us to get it going. It's one of those areas that, obviously, we want to explore every area where a traveler may want to begin their discovery, their inspiration, et cetera, and then be able to provide that traveler with what they need in terms of actually executing what they want to accomplish in their travel needs. Your question is really what will the future be if more and more people started OpenAI, that obviously is the old -- I think it used to be called the $64,000 question, I think it's much bigger nowadays. It's something that a lot of people don't know, but what I am very confident of is that even though people may change over time, how they want to start their travel inspiration, discovery, I believe that we will always be there in the area to provide what is really necessary, which is going beyond that and executing and doing the actual transaction fulfillment. They're working to make sure they're getting the best value, the area of making sure you're doing the right types of payments. They're making sure you're following all the regulations, very complex. It's one of those things where people sometimes are a little naive about how incredibly complex this travel business is. And it's not so easy. You just throw some, oh, it's easy, you just put up a name and somebody is going to be able to book across and just intermediate somewhat, that's not the way the world works. And if it did work that way, we were anticipating a long time ago, Google would have taken this thing over a long time ago. Look, we're very proud of where we are right now, but we're even more proud of how we are building out even more value. And that goes into things like the Connected Trip. Being able to bring together all the different verticals in a way that the traveler really sees is the reason they want to come to us because they really are getting more benefit from users. And of course, the other side being able to use our Connected Trip in a way that the partner is able to get more incremental demand, and it's using science. It's using data. It's using our proprietary knowledge that we have, that we don't share with people. Those are some of the things that we have that we believe are key to keep us at the forefront of the travel industry. And I don't know, Ewout anything you want to add? Ewout Steenbergen: Yes, maybe a couple of points, Doug. Just you also asked about the economics and some of the data. So first of all, what we are seeing in terms of traditional search that we still see volume growth. So travel clicks that are coming to us from traditional search are still going up year-over-year. That, of course, might change over time, but I think that is an important data point. The other is the number of leads that we're receiving from large language models relatively small, but it is growing. And probably over time, these 2 worlds might become more hybrid because we are seeing, of course, more AI being built into browsers at this point in time. What are we measuring in terms of impact, ultimately, faster search, better conversion, lower cancellation rates and higher customer satisfaction, very early signals we're having around it. But overall, very encouraged we are with what we are seeing at this moment. Operator: And our next question comes from the line of Lee Horowitz with Deutsche Bank. Lee Horowitz: Maybe sticking with the AI topic. There's obviously a lot of noise in the market around some of your hotel partners looking to partner directly with some of the generative search players in order to perhaps increasing the bypass platforms like yourselves. I guess how do you contextualize this particular risk? And what tools do you think you have at your disposal to maybe mitigate this kind of disruption? Glenn Fogel: So for a very long time, Lee, as you know, hotels have found it a way that they can be shown for, let's say, Google. And some people will go to Google, and we'll go directly to a hotel. That happens. We would love for them to come to us first and we continue to try and create something that is a better reason for them to come to us or just want to go directly to one of our hotel partners. That will probably happen in LLM world too. Some people will do that, too. I wouldn't be surprised. But this idea that, that is going to cause this giant shift, I just think that that's not the way the world is going to work. And again, proof is that it hasn't happened in the old day of Google. And so far, we're seeing that I don't think it's going to happen in an LLM model. One of the things, again, comes into what do we bring to the table, why the customers still continue to come to us and they come to us direct. That's the point Ewout made about that mid-60% number of people into us direct in the B2C area, and it continues to grow. It continues to increase. Why is that happening? It's happening because we do a lot of things for the customer that they feel is the best way for them to execute their travel needs. And really, a lot of it comes down to trust is giving more value, is making sure that they get the best way to do it. And of course, having our Genius program, which Ewout also talked about and think about that. More than 30% of our active customers in Genius levels 2 and 3, mid 50% of the room nights at Booking.com. This is a program that really gives incredible value, which is why somebody instead of going direct, they come to us. And as we continue to build that out and are able to provide the exact perfect, perfect offer to that traveler, working with the partner to make sure it's going to be incremental to them. That's a win, win, win. Win for the traveler, win for the partner, win for us. Now think about trying to do that in OpenAI or any of the large language models, that didn't happen. So obviously, I don't disagree. Some people are going to go to a large language model. You'll see a hotel to go directly there. Sure. But I think that is an overblown threat at this time. Operator: And our next question comes from the line of Mark Mahaney with Evercore ISI. Mark Stephen Mahaney: I wanted to ask 2 topics, please. First is social media, I think you mentioned kind of leaning into social media marketing. I think you've been talking about this for a year and maybe to -- could you spend a little bit more time on that? Has that now become a material, let's say, a double-digit percent of your performance marketing coming from there? And do you find that the returns have been continually improving. And then Asia, you [ ripped ] on Asia in the opening comments. So could you peel that back a little bit? Are there particular parts within Asia that have really started to perform better for you. You've been -- I know that the region as a whole has got the world's highest travel growth rates. But do you feel like with the Agoda and Booking that you've been particularly able to penetrate certain markets better than others? Ewout Steenbergen: Mark, this is Ewout. First, on the social media. We continue to experiment and invest and with the social media channels whilst we also continue to stay very disciplined with respect to ROIs, which is really important because these channels, the ROIs can really fluctuate a lot. So we are very much focused on really being able to measure incremental ROIs in a very clear way. We see different stages of where the social media channels are. Some are more leaning in than others. So changes will happen there over time with all the different channels. I prefer not to go too much in detail which ones are really better working for us than others because, obviously, I don't want to make others smarter than they are at this point in time. But what we like is really diversifying our multiple social media platforms because expanding our performance marketing channels overall is a positive. In terms of spend, you should think about that it is a couple of hundreds of millions, which is meaningful, of course, a total number, but if you look at the total marketing spend for us, it's, of course, still a smaller percentage of the overall spend. In terms of Asia, very clearly, we are very happy with the growth we're seeing in Asia. We have 2 strong brands, 2 different strategies. Agoda is very much focused on localization and they really present themselves as a Korean company in Korea and a Japanese company in Japan. Booking has far more the global reach, the global model, the global optimization that they bring to the region. We're making a lot of investments in terms of our product, in terms of our marketing, in terms of our supply. And overall, we are happy with the growth we are seeing, and we're really -- despite, of course, always healthy competition we're having in Asia, we're really holding up very well in that overall environment. Asia is, of course, from a medium and long-term perspective, the most important market. That is where we will see over the next few decades, the largest growth in the world because the GDP growth is going to be the highest there. There will be very large parts of the population that will start to travel and travel more in the future. So the fact that we are already the market leader outside of Mainland China and being able to be focused to hold that position is going to be positioning us very well for the next couple of years. Operator: And our next question comes from the line of Ronald Josey with Citi. Ronald Josey: I have 2, please. Glenn, as entry points to the web and booking involved here given just newer tools and OpenAI being one of them, can you talk to us how maybe this evolves or changes your strategy to attract to call it 30%, 35% or so traffic that's not direct. So a question about how the front end is changing and sort of thoughts there. And then on the product side, look, seeing tons of innovation with AI Trip Planner, Penny, hotel search, AI Mode, concierge. I think you talked about the homepage is unique now per user. Talk to us about the impacts this might be having on either cancellation rates, conversion rates, things along those lines. Glenn Fogel: Ronald, I'll let Ewout talk your second question. Your first question, you want to hear -- and I make sure I understand your question right, you want to hear more about how are we going to deal with trying to get that last 35% to come direct. Is that kind of the question, will you give me a little more sense of what you're asking. Ronald Josey: That's exactly right. I guess I'm wondering how much -- how more important brands are going forward as OpenAI goes through the app strategy and has users front end of the web evolves. Glenn Fogel: Yes. So that's -- that is a good question. And of course, as we all know, you don't want to go to 100% direct because you may be missing a lot of customers who may come from a different channel. There is a -- there's some sort of optimization that we should be doing. And obviously, right now, we still enjoy getting a higher direct coming to us. And how do you do that? Again, it goes back to the simple things is all people who deal with retail type services should is giving more value to that customer. And it's not just having a better travel service is, as I said earlier, is you got to make people aware of it. And I know I just got some interesting advertising brand data recently. And in certain areas of the world, U.S., for example, our brand awareness is still not where I want it to be. And as I've talked many times in the past on these calls about how certainly in the homes area in the U.S., we are not where I'd like to be in terms of brand awareness. So it's not only improving the products, it's also making people aware of it. That is something that is not something that is impossible. It's actually very possible. It just requires us to continue to do what we've been doing, which is why we've been grinding it out and increasing albeit not as fast as I'd like but it hasn't happened. That's increasing the service and putting more brand power behind this. There's nothing really secret about this. There's nothing unique about this is just continue to do the work, so to speak. And that, we've been doing it for -- I've been here now 25 years, and that's how we've gone from nothing company to now many, many hundreds of millions of satisfied customers. That's basically all we can really say without giving away. Here's what we're going to do next quarter, and that's another thing. I don't want to tell my competitors what that's going to be, but we're going to keep on doing it, and I am pleased with the progress we've made. Ewout, you want to give on his second question. Ewout Steenbergen: Sure. Ron, we're seeing a couple of things. First, conversion, definitely with all the new tools that we're having, we're seeing that people have an opportunity to find easier what they are looking for can be more targeted, have a faster path to ultimately get to a booking and that is helping conversion levels. Then also what we are seeing at the same time is that cancellation rates are a bit lower. Every period, if you look at it, it's slightly lower than in the comparable period 1 year ago. And that's also a positive. And we believe that this is not a coincidence. This is also because people can find exactly what they are looking for. So they don't need to continue to search and ultimately cancel one booking and book somewhere else or book something else with us. So they are satisfied with what they have booked, so cancellation rates slowly coming down, also clearly a huge economic effect. And then if something goes wrong, what we're also seeing is that customer service is seeing a huge benefit in what we can deliver, reduced contact rates, faster handling time and higher customer satisfaction. I think it's actually remarkable. If you look at our results this quarter, our customer service costs are down year-over-year, are down year-over-year in absolute terms despite volume growth of close to 10%. So the average cost per booking is coming down very rapidly and the satisfaction scores are going up. So all of these things are interrelated. It's interrelated with all the elements that Glenn said, people come more direct to us, are booking more often with us, are booking more across multiple verticals, are canceling less, are having higher satisfaction and like to come back and book more direct. So all of these things are interrelated and really strengthening each other. Operator: And our next question comes from the line of Justin Post with Bank of America. Justin Post: Great. A couple. First, I'd like to dive into the U.S. It really seems like the OTA industry is maybe taking some share here. Just wondering if it's the loyalty program, leisure growing faster than business, what's helping the industry take share and you specifically take some share? And then on the algorithm, just wondering, there's a lot of stuff going on with Connected Trip. Obviously, payments and more air. Just could you help us think about how both bookings could grow relative to nights and also how you're thinking about revenue take rates over the next couple of years? Glenn Fogel: Sure, Justin. I'll talk about first of one, I'll let Ewout talk what kind of specifics he wants to give about the numbers regarding Connected Trip and et cetera, the questions you asked. So on the U.S., we talked a little bit about this already, how pleased we are with those numbers. And I did mention brand is obviously important, improving the service that's important. You asked about consumer versus business. Obviously, we get both, but we do tilt much more to consumer. So clearly, we are doing well in that area. Now as you know, there's a lot of debate about what's going on in the U.S. economy right now. People -- some people are saying, well, we have a 2-speed economy where the higher ends of the economic strata are doing very well, and they're spending a lot of money and the bottom part of the economic strata are suffering a little bit more, not being able to purchase as many services perhaps they wanted to, et cetera. It's interesting because we play the entire gamut of the economy. We are able to sell at the top, we sell more economy products and services, too. So clearly, for us, we are able to benefit whether it's a strong economy or not a strong economy, we're doing well. Look, I can't say anything that's more specific than the fact that we continue to execute well making sure the service is good, make sure all the things that we talked about are working well, making sure we're getting that brand in front of people, making sure if anything goes wrong, we fix it. That's how we do a good job. And it adds on itself and Ewout used that word flywheel. More people become aware of it, they've had a good experience. They come back. Yes, the awareness is not where I'd like it to be, but it is improving. This is the way we do it. And we -- I've been talking about this Justin, we talked about this for many, many years. I said I want to be bigger in the U.S. and that we're growing, here's how we're going to do it, and we're doing it. It's blocking and tackling, day by day, improving it. No, as I said already once, I said there are no silver bullets in this business. It's just continue to execute day after day after day. Ewout, talk about numbers you did on the Connected Trip stuff. Ewout Steenbergen: Justin, when we speak about Connected Trip, I would like to make a distinction between what we're seeing now and then really where we are heading to in the future. So what are we seeing now? We're seeing a lot of our other verticals growing in a very healthy way, flights 32%; traction 90%. We see our payment-related bookings going up in the mid-20%. We see our Connected Trip transaction, so where someone books more than 1 vertical for the same trip going up mid-20s. Of course, the direct element is a part of that. So all of these metrics look really in the direction that customers like to really bring those elements together because it's peace of mind, it's all-in-one platform, and we deliver a lot of value for them as a consequence. But if you think about generative AI this is really the opportunity for us. We can make the real Connected Trip come to life over the next couple of years. And what I mean with that is building an intelligence layer that all these elements of the trip naturally fit together are interrelated, all personalized based on what we know and what you like to do and how you like to travel and where you like to dine. If something happens, everything can automatically be updated. It means that people will be more frequently using our app, we can become more proactive in what we offer to you and more and more value can be created as a consequence. So actually, that is our big opportunity around generative AI. And I think the value we can generate in that way is really going to be even more than what we are seeing today. So that's why I am perfectly really excited about. Justin Post: Maybe one quick follow-up. Do you think the gap between bookings growth and room night growth can grow? Ewout Steenbergen: Yes. There's, of course, always a few things that go in the mix, take FX aside, what our ADR is doing. That is, of course, one element there. It's the growth in other verticals that is going in there. But generally, we would say, yes, because if we take room nights plus ADRs plus other verticals, we would like to, of course, to see that total gross bookings will grow faster than room nights on average over time. Operator: And our next question comes from the line of Trevor Young with Barclays. Trevor Young: Glenn, maybe a bigger picture one for you. From a competitive standpoint, do you foresee competitive intensity picking up over the next 2 to 3 years? It seems as though a major Asia player has aspirations in Europe while an accommodation competitor is making a big push into traditional hotels and adjacencies. Meanwhile, consumers will have a new channel via AI tools to make travel all that much more accessible. And if you do see competitive intensity picking up, how are you evolving your strategy to better position Booking for that environment? Glenn Fogel: Yes. It's a good question, Trevor. But I have to say that this business, this industry, and I take to the regulators all the time in Europe, has always been one of the most competitive of any industry than I've ever experienced. And sure, there are new things to look at now. And there are old competitors in the past, and they're no longer there. I remember once upon time everybody talked about, what about TripAdvisor? Well, where is TripAdvisor now? No offense to them, but they're not the threat they were at one point. Or what's going to happen with Meta? And I can go through over -- given things that we have had to face, incredible competition time after time after time. So sure, there's a lot of competition right now. And I know you're alluding to Trip.com, Ctrip in China. Yes, a very good competitor. And sure, now we have AI as a competitive threat, but also in that one a little different because that gives us incredible benefits too. Incredible power because of the incredible scale we have and the incredible engineering talent, et cetera, in AI, this is actually a competitive advantage I would say, a net, net situation. But in the long run, I believe it's the same way it's always been. We just have to keep on grinding out better things for our services. But there's a time there is no such thing as mobile. Mobile comes in, we had to immediately create a great mobile site for our customers, which we did. Well, now we have AI and lots of great things working there that can make even better. One of the really good things about being the scale that we are and the data we have, that proprietary data that we have and the incredible number of customers and partners and all these new things we've already begun to do in all the different verticals. And in addition to things that we don't talk about a lot of things like insurance, for example, we don't talk about that a lot. Where the things we're doing in terms of providing advertising opportunities for our partner. We don't talk about that one too. There are so many things that we are just beginning to really put together and putting it all together, using, as I said before, the data, the science, being able to build these things in a way that's much better that smaller players cannot constantly do. That's an advantage we have. So I see actually, yes, it's extremely competitive, but I said this I don't know which quarter recently, I said about, I find this is the most exciting time for us ever. I actually see us in a much better position than we were years ago, decades ago. I see this is an opportunity for us to create as Ewout was just talking about bringing it all together in a way that we could really accelerate the growth factor here if we do it right over, and you pointed out a 5-year type horizon. That's what we want to do. And I believe we can do it, and it's up to us to make sure it does happen. Operator: And ladies and gentlemen, that concludes our question-and-answer session. I will now turn the conference back over to Mr. Glenn Fogel for closing remarks. Glenn Fogel: Thank you. I'm glad to end it on that. I think of the future, it's so great. So I want to express my gratitude to our partners, our customers, our dedicated employees and our stockholders. We truly appreciate your support as we continue advancing our long-term vision. Thank you, and good night. Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Operator: Liliana Juárez González: Good morning, and welcome to our third quarter 2025 earnings call. Joining us today are our President and CEO, Enrique Beltranena; our Airline Executive Vice President, Holger Blankenstein; and our CFO, Jaime Pous. They will be discussing the company's results followed by a Q&A session. This call is for investors and analysts only. Please note that this call may include forward-looking statements under applicable securities laws. These are subject to several factors that could cause the company's results to differ materially, as described in our filings with the U.S. SEC and Mexico CMBB. These statements speak only as of the date they are made, and Volaris undertakes no obligation to update or modify them. All figures are in U.S. dollars compared to the third quarter of 2024, unless otherwise noted. And with that, I'll turn the call over to Enrique. Enrique Javier Beltranena Mejicano: Good morning, everyone. This quarter once again demonstrated that Volaris' agility and discipline continue to set us apart in a complex environment, driving tangible results. We acted nimbly and with focus, fine-tuning our network and capturing sequential improvement in demand across our core markets. Our results this quarter confirm that our commercial and operational strategies are delivering according to our flight plan. In our last earnings call, we noted that demand momentum was starting to build, and this quarter validated that trend. The recovery we anticipated for the second half is unfolding day by day as we projected. We observed stable domestic demand in a rational supply environment. Additionally, travel sentiment improved in the cross-border market, notwithstanding the geopolitical disruptions observed throughout the year. We executed where it mattered most, taking deliberate actions to strengthen profitability. The third quarter's performance in terms of unit revenue was fully in line with our expectations. The year-over-year variation in TRASM has narrowed each month, confirming that demand recovery continues to strengthen across our network. The sequential improvement is the proof statement that our strategy is delivering consistent momentum, and we believe that improved booking curves for the fourth quarter should position Volaris for a stronger 2026. In the domestic market, supply rationalization across all players continues to create a healthier balance between capacity and demand. Our load factor in the Mexican market reached 89.8%, consistent with last year's levels and reflecting a stable demand under a more rational supply environment, which supports healthier yields going forward. In the international market, we are seeing a steady recovery in cross-border demand with traffic improving month-over-month and holiday bookings already trending ahead of last year. Our 77% load factor reflects our tactical focus on optimizing yields to maximize TRASM. We remain focused on what is within our control, maintaining cost efficiency, adapting quickly, and executing with discipline. As a result, TRASM, CASM, ex-fuel, and EBITDAR margin all came slightly better than our guidance, reaffirming our ability to deliver consistent execution. Building confidence from this solid performance, we're maintaining our full-year 2025 capacity growth outlook of approximately 7% with prudent growth, unparalleled cost control, and improving demand trends towards year-end, we are reiterating an EBITDAR margin in the range of 32% to 33% for 2025. Looking ahead to 2026, we are embedding flexibility into our fleet plan and targeting ASM growth in the range of 6% to 8%, while retaining the ability to adjust a few percentage points in response to demand trends or OEM developments. This level of growth would bring us back to year-end 2023 capacity levels, underscoring that our growth remains prudent and aligned with market conditions. Our capacity decisions remain firmly anchored on customer demand and sustained profitability. I want to make it very clear to our investors. Volaris will continue to control growth with discipline fully aligned with market demand. Taking all necessary actions to efficiently reintegrate aircraft returning from engine inspections to ensure we meet this commitment. Having said that, as demand continues to recover, we are also seeing healthy supply dynamics, particularly in Mexico's domestic market. Volaris continues advancing from a position of strength with leadership in core domestic markets and a world-leading cost structure that will further improve as we reduce fleet ownership costs and gradually narrow the gap between our productive and nonproductive fleet. Sustaining differentiation requires constant evolution. We're not standing still. We're constantly adapting our ultra-low-cost carrier model to Mexico's unique dynamics, lowering barriers to traveling, enhancing service and maintaining our unwavering commitments to low costs and low fares. Leveraging Volaris' scale as Mexico's largest airline, we've built meaningful customer loyalty and driven strong repeat flying across our network. A strong example of this evolution is Guadalajara. A decade ago, this market handled a modest passenger base with limited international connectivity. Today, thanks to Volaris' expansion and market development, Volaris Guadalajara boosts nearly 100 daily departures, connecting travelers to 26 domestic and 22 international destinations. Over our 19 years of history, Volaris has proudly transported more than 90 million passengers to and from this market. Similar to what we've seen in Guadalajara, this trend is emerging across other markets that are rapidly evolving and opening new opportunities for growth, a typical emerging market phenomenon that underscores our role as a catalyst for national mobility and economic development. As our network matures, so has our customer base. We began as an airline built predominantly around VFR traffic, and we have since evolved into a more diversified customer mix. Today, roughly 40% of our passengers remain VFR, while the remainder represent a broader range of travel motivations from business to leisure to other niche segments. This evolution positions us to further strengthen our network through better frequencies, attractive schedules, and varied destinations, reinforcing Volaris as the airline of choice for both our VFR base and all passenger segments traveling from our core markets. Building on this momentum, the next phase of our model focuses on capitalizing on repeat travel and driving incremental TRASM growth across all revenue streams. As Holger will discuss, we continue launching new ancillary products and advancing network and commercial initiatives to better serve a broader customer base, all while maintaining the low-cost DNA that defines Volaris. This evolution builds on our core bus switching strategy, which remains foundational to our growth. As a result, we remain committed to serving this segment by consistently offering low fares. Leveraging our ultra-low-cost carrier model, Volaris is strategically positioned to continue improving TRASM by expanding our product suite and optimizing distribution channels. We're enhancing the customer experience across multiple fronts, refining our network strategy, streamlining boarding processes and offering enhanced seat selection options that continue to strengthen revenue diversification while preserving the cost efficiency that underpins our long-term profitability. Sequential PRASM improvement and a resilient cost structure highlight our disciplined execution. We're closing 2025 and entering into 2026 stronger, more efficient and better positioned to continue delivering value to our customers, capturing opportunities and driving sustained profitability. Volaris has proven its resilience time and again and will continue to do so. I'll now turn the call over to Holger to continue to discuss our third quarter commercial and operational performance as well as the evolution of our broader product offering in more detail. Thank you very much. Holger Blankenstein: Thank you, Enrique, and good morning, everyone. Operationally, our team delivered another quarter of strong disciplined execution. Volaris PRASM performance reflects our ability to anticipate market shifts and respond decisively, managing capacity to protect yield and maximize profitability. Volaris maintained network stability and operational flexibility throughout the quarter, effectively managing delays in aircraft deliveries and ongoing engine constraints. As a result, ASM growth reached 4.6%, coming in slightly below our guidance of approximately 6%. Overall, total third quarter load factor stood at 84.4%. The domestic load factor reached 89.8%, supported by steady demand through the summer season in a balanced supply environment. August performed particularly well, benefiting from an extended public school vacation period. Looking forward, current booking curves for the holiday season look solid. International load factor was at 77% as we actively prioritize yields overloads to optimize profitability. For the fourth quarter, as we head into the holiday high season, international traffic is tracking stronger with historical seasonality, setting the stage for improved profitability as we close the year. And as Enrique mentioned, VFR cross-border demand has been recovering sequentially. We believe we have reached an inflection point in the U.S.-Mexico transborder market with booking trends showing sustained improvement compared to last year. While we remain disciplined in our capacity deployment, this strengthening demand backdrop provides greater visibility heading into 2026. Moreover, we continue to drive robust ancillary adoption. Our average ancillary revenue per passenger for the third quarter reached $56, marking the eighth consecutive quarter above the $50 threshold. Ancillaries now consistently account for over half of total revenue, remaining a standout driver of resilience and profitability across all market conditions. This performance highlights the structural strength of our ULCC model in our markets and the sustainability of our revenue mix. The sequential TRASM improvement we anticipated last quarter materialized fully in line with our expectations. with third quarter TRASM reaching $0.0865, just ahead of our guidance and down 7.7% year-over-year, improving from the 17% and 12% declines recorded in the first and second quarters, respectively. These results confirm that the actions we took earlier in the year are delivering tangible progress. We have good momentum heading into the year-end with forward bookings showing sequential improvement and providing visibility into sustained strength and healthy demand through 2026. As these results demonstrate, Volaris has built a business model and network that allow us to flexibly and decisively capture demand where it is strongest across our markets. As our customer base becomes increasingly diversified, we continue to refine our ULCC model, lowering barriers to travel, encouraging repeat flying and broadening our customer mix while continuing to offer low base fare in our core traffic. A key pillar of this evolution is our ancillary and affinity ecosystem, which continues to grow in both scale and contribution. Our affinity portfolio, including v.club membership, v.pass monthly subscription, the annual pass and the IVex co-branded credit card together represent an increasingly relevant share of our business. Today, v.club represents a growing share of total revenues, while 1/3 of all sales through Volaris direct channels are made using our co-branded credit card. The index card is the largest co-branded credit card for any industry in Mexico. In July, we seized the growing affinity for the Volaris brand by launching our in-house loyalty program, Altitude. We are encouraged by a strong early response with membership enrollments tracking above our expectations. We see significant potential for this franchise, particularly as we integrate our co-branded credit card early next year into Altitude, allowing all card transactions to earn Altitude points. The ultimate goal is to position Volaris as the airline of choice, not only for our core VFR base, but for all customer segments traveling from our core cities across our network in Mexico's domestic market. We already serve a broad mix of travelers from small business to leisure to multipurpose passengers, alongside our loyal VFR base. Guadalajara, which Enrique mentioned, has become a strong market for the multi-reason customers, such as those who travel for leisure on some occasions and for business on others. The growing mix of repeat travelers on the flights we operate represents a structural tailwind to our average fare, ancillary sales and ultimately, margin. This evolution of demand is also unlocking new profitable opportunities for our network, capacity allocation exemplified by the addition of our Mexico City to New York route and increased route breadth from Guadalajara. We are enhancing our product and service offering to better capture the full value of these segments. Simultaneously, as the AOG situation with Pratt & Whitney stabilizes and the political and economic environment improves, we have been able to refocus our efforts on strengthening our network and ensuring industry-leading breadth and depth across our core cities, particularly in Tijuana and Guadalajara. We are also optimizing itineraries and schedules to better serve each segment, for instance, shifting certain red eye flights to more convenient time slots for business and leisure travelers. We expect the financial benefits from these adjustments to begin materializing in our TRASM results next year. In addition to our recent launched Altitude loyalty program and code shares, we continue to introduce new products and partnerships in a cost-efficient, low-complexity way that strengthens our revenue diversification. We are proud to announce recent initiatives that include expanding our presence in GDS through Sabre's new distribution capability or NDC standard. Volaris will expand its reach to Sabre's broad network of corporate and leisure travel agencies across North America and beyond. We are also ramping up marketing for Premium Plus, our blocked middle seat product for the first 2 roles. We are implementing these new revenue initiatives with a focus on the latest technology and minimizing costs and complexity. With this, we are broadening our customer base while remaining true to our ULCC DNA. Overall, we continue to prioritize low cost, operational efficiency and superior customer service. To this end, one recent innovation has been the introduction of AI agents that can immediately assist customers across multiple languages and channels, boosting our speed and efficacy and volume of interaction. Today, 79% of Volaris customer service is handled through digital channels, up from zero before the launch of our AI agent. This allows us to manage 3x more call volume while cutting service cost per interaction by nearly 70%, a clear example of how technology supports both our customer focus and cost leadership. At the same time, our NPS remains strong in the 40s, reflecting how our customers continue to recognize the total value we deliver across our flights, products and services. Looking into next year, we will continue to manage capacity with discipline, adding growth selectively across our network and leveraging our flexibility on lease extensions, redeliveries and network development to support our 6% to 8% capacity growth outlook. At the same time, the foundation we've built this year positions Volaris to continue strengthening into 2026. Supply rationalization in the domestic market is expected to support a healthier yield environment while cross-border demand continues to recover. Our initiatives to expand the customer base and grow ancillary revenues should drive higher revenue per passenger, positioning Volaris for continued profitable growth into 2026. Now I will turn the call over to Jaime to cover our third quarter 2025 financial results and full year 2025 guidance. Jaime Esteban Pous Fernandez: Thank you, Holger. Our third quarter financial results reflect our adjustments to prioritize profitability as cross-border traffic conditions gradually improved throughout the summer. Despite external headwinds, we succeeded in controlling what we can control, and we delivered on each line of guidance. Let me first turn to our P&L for the third quarter compared with the same period last year. Total operating revenues were $784 million, a 4% decrease. On the cost side, CASM was $0.079, virtually flat versus the third quarter of 2024 with an average economic fuel cost down 1% to $2.61 per gallon. CASM ex-fuel was $0.0548, aligned with our guidance and up just 2%. This result reinforces the success of our variable cost model and our effective cost management as we achieve our CASM ex-fuel guidance despite flying fewer-than-expected ASMs and encountering a peso that appreciated more than planned versus the second quarter. While a stronger peso is a benefit to Volaris' overall results, it adversely impacts our cost lines. As a reminder, fleet-related expenses such as depreciation and amortization, depreciation of right-of-use assets and maintenance continue to reflect the full fleet included grounded aircraft. In addition, as we approach a higher number of lease returns in 2026, the P&L line for aircraft and engine variable lease expenses captures the effect of the delivery accruals, which means this line item includes related maintenance for aircraft returns scheduled in the future. Current market conditions have created opportunities to acquire aircraft coming up for redelivery on attractive terms, helping reduce future redelivery expenses and extend time on the assets. Leveraging these opportunities, during the quarter, we acquired two of our formerly leased Cos, acting selectively and only where it made strategic sense. During the quarter, this also represented a benefit to the aircraft and engine variable lease expense line as it involved the cancellation of redelivery accrual related to these aircraft. Moreover, on the other operating income line, we booked sale and leaseback gains of $6.6 million related to the Airbus deliveries of three new aircraft. This line also includes our aircraft grounding compensation from Pratt & Whitney. EBITDA reached $264 million with a margin of 33.6%, aligned with the guidance provided for the quarter. EBIT was $68 million, resulting in a margin of 8.6%. The sequential tighter spread between our EBIT and EBITDA margins reflects our efforts to mitigate the impact on our P&L from engine-related AOGs. Finally, we generated a net profit of $6 million, translated into an earnings per ADS of $0.05. Moving briefly to our P&L for the first nine months of 2025. Total operating revenues were $2.2 billion. EBITDAR totaled $659 million with an EBITDA margin of 30.6%. EBIT was $35 million, representing an EBIT margin of 1.6% and net loss was $108 million. Turning now to cash flow and balance sheet data. The cash flow generated by operating activities in the third quarter was $205 million. The cash outflows used in investing and financing activities were $69 million and $130 million, respectively. Third quarter CapEx, excluding fleet predelivery payments, totaled $106 million and year-to-date stood at $195 million in line with the $250 million we guided for the full year. Volaris ended the quarter with a total liquidity position of $794 million, representing 27% of the last 12 months total operating revenues, sustaining our disciplined and conservative approach to cash management. At quarter end, our net debt-to-EBITDA ratio stood at 3.1x. And going forward, our focus remains to deleverage. Importantly, we have no planned near-term need for additional debt and have already financed all predelivery payments for aircraft scheduled for delivery through mid-2028. Our strong flexible balance sheet remains a key pillar of business. Looking ahead, we will continue to explore financing alternatives beyond traditional sale and leasebacks for a means to structurally reduce fleet ownership costs and further strengthen our capital structure, potentially switching operating for finance leases where appropriate. Looking back, the first nine months of 2025 tested our resilience amid volatility in demand. Yet we remain disciplined and focused on our core priorities. Cost control, profitability and conservative cash management, actions that preserve the strength and value of our business. I want to highlight that we originally had an ASM growth plan for around 15% during the year as guided in October 2024. We have since adjusted our plan to nearly half that level due to external circumstances while keeping CASM ex-fuel in line with our original plan. This demonstrates not only how much control we have over our cost base, but also the strength and adaptability of our ULCC model. With approximately 70% of our costs being variable or semi-fixed, we maintain a uniquely flexible structure that allow us to efficiently navigate operational headwinds and protect profitability. Now turning to engine availability and our fleet plan. As of the end of the quarter, our fleet consisted of 152 aircraft with an average age of 6.6 years and 2/3 being new models. On average, during the quarter, we had 36 engine-related aircraft groundings. Regarding our future fleet plan, we are in a favorable position of having an order book of 122 aircraft, 84% of which are A321neos with competitive economics from the group order. As mentioned, capacity growth is anchor on customer demand and sustained profitability. We have multiple levers to control growth and optimize the deployment. First, we have the option to realign our delivery schedule as we did last year through our rescheduling agreement with Airbus, supporting disciplined single-digit annual growth over the next few years. Importantly, this plan already factors in the aircraft returning to operation at the engine shop visits. Second, we have the flexibility to either extend leases on aircraft due for redelivery or when conditions and terms are favorable, acquire aircraft approaching lease expiration, enabling us to make the decision that best balance cost efficiency and strategic value. Finally, more than half of our upcoming deliveries are intended for fleet replacement. Together, our order book and staggered lease returns represent a meaningful competitive advantage, allowing us to plan growth with precision, sustain structural cost leadership and preserve the agility to adapt to market conditions. We will continue to manage our fleet plan effectively, maintaining flexibility to optimize value and support a strong cash position. Our fleet strategy continues to evolve. To this end, last month, we phased out the last A319 from operations, an aircraft type that at the time of the IPO comprised over half of our fleet. Over the past 10 years, we have continuously adapted transition and became more efficient, and we are committed to continue doing so in the decade ahead. Turning now to guidance. As Enrique and Holger explained, we continue to see demand gradually improve as we head into the holiday season. For the fourth quarter of 2025, we expect ASM growth of approximately 8% year-over-year, TRASM of around $0.093, CASM ex-fuel of approximately $0.0575 with the sequential increase reflecting the timing of heavy maintenance events and a seasonally higher proportion of international operations. And finally, an EBITDA margin of around 36%. This outlook assumes an average foreign exchange rate of around MXN 18.6 per U.S. dollar and an average U.S. Gulf Coast jet fuel price of $2.2 per gallon in the quarter. These quarterly figures are aligned with our full year 2025 outlook, which we reaffirm as follows: ASM growth of 7% year-over-year, EBITDA margin in the range of 32% to 33% and CapEx net of predelivery payments of approximately $250 million, unchanged from our prior outlook. The macros in our quarterly guidance led us to a full year average foreign exchange rate of around MXN 19.3 per dollar and average U.S. Gulf Coast jet fuel price of approximately $2.15 per gallon. Now I will turn the call over to Enrique for closing remarks. Enrique Javier Beltranena Mejicano: Thank you, Jaime. I'd like to conclude our remarks with several reminders. First and foremost, Volaris continues to prove the strength and adaptability of our ultra-low-cost carrier model. We have shown once again that we can respond to market dynamics with discipline. Throughout 2025, we have adjusted our capacity growth from around 15% to nearly half that level while keeping our CASM ex-fuel fully in line with our original plan. Currently, travel sentiment, especially in the cross-border market is improving, a clear validation that our strategy is working. These trends position Volaris well for 2026 and beyond. Regardless of external conditions, our cost leadership, flexibility and expanding product suite are enabling us to address customer needs, capture profitable growth and continue creating value. At the same time, Volaris remains focused on offering low-cost, high-value service that makes air travel more accessible to our broader set of customers, including our core bus switching VFR segment. We are also optimizing itineraries, strengthening distribution and expanding our commercial offerings to drive higher TRAS among a diversified passenger set. We believe our markets are evolving. How European low-cost air travel developed 2 decades ago with strong growth potential, expanding passenger segmentation and a clear preference for affordable high-value travel. Volaris is advancing from a position of strength, leading in our core markets with one of the most efficient cost structures in the world, one that will further improve as we reduce fleet ownership costs and close the gap between productive and nonproductive aircraft. Finally, let me be clear, we are not changing our DNA. Our proven low-cost, low complexity model continues to evolve with enhanced ancillary and loyalty offerings that attract a broader customer base, improve fare mix and strengthen long-term profitability. In short, we are disciplined. We're evolving, and we are well positioned to continue delivering sustainable value for our shareholders. Operator: [Operator Instructions] Our first question is going to come from the line of Duane Pfennigwerth with Evercore ISI Institutional Equities. Duane Pfennigwerth: You mentioned a couple of interesting things in the prepared remarks. One, international is tracking stronger than normal seasonality. And then two, that you believe we're at an inflection point in U.S. transborder. Can you just elaborate on both of those? Holger Blankenstein: Duane, this is Holger. So yes, let me talk a little bit more in detail about the U.S.-Mexico market. We're talking about an inflection point because since mid-August, our sales in the U.S.-Mexico transborder market are above last year's level. And that clearly demonstrates our ability to fine-tune our capacity, manage demand and capture the market momentum that we're seeing. If we look into the fourth quarter, the U.S.-Mexico transborder booking trends are also showing a sustained improvement compared to last year. And that's why we are quite optimistic about the fourth quarter traffic evolution, both in the domestic, but also in the transborder market. Duane Pfennigwerth: Okay. And then maybe you probably covered this and maybe I missed it, but can you tell us the number of lease returns that you expect next year, how many aircraft will go back? How does that compare to this year? And I don't know if there's any good way to kind of net that expense relative to the reimbursement that you're getting from Pratt? Like how do we think about the net of lease return expense and reimbursement in '25 and '26? Jaime Esteban Pous Fernandez: Duane, this is Jaime. In terms of redeliveries of plan, next year, we're budgeting 17 redeliveries versus 7 that happened this year. So, it's a high number of deliveries. I would like you to focus there are many pieces related to aircraft deliveries, engine returns and redeliveries. So rather than focusing on just focus on our full year growth it is important that our priority, as Enrique mentioned, is to narrow the gap between productive and nonproductive fleet while ensuring that we deploy capacity to a market that is consistent with customer demand, all while maintaining the flexibility to adjust capacity up or down as well. Operator: [Operator Instructions] Our next question will be from the line of Thomas Fitzgerald with TD Cowen. Thomas Fitzgerald: A lot of good stuff in the deck. I was wondering if you could dig into Slide 8 a little bit more and how we should think about the potential RASM uplift over the coming years as those initiatives ramp Holger Blankenstein: So, Thomas Fitzgerald, this is Holger again. So, we've quantified the potential for each of the products that we saw on Slide 8, and we expect a positive year-over-year impact on TRASM of these products in 2026. We expect that our commercial initiatives that you saw will begin contributing financially in 2026, and we will communicate the specific targets on all of those products as the adoption of those products scale. These initiatives that you saw there are going to be incorporated in our TRASM guidance for the next year for 2026 when we provide guidance in the next earnings call. Thomas Fitzgerald: And then I'm just kind of curious, as your customer mix diversifies and you take on more SME traffic, is there any investment or maybe it's immaterial, but just that you have to do for your cabin crew just on the soft product and maybe people who especially as you take in volume from some of your interline partners? Holger Blankenstein: So Tom, it is very important to mention that we are implementing the broadening of our customer base and target customers while maintaining a low cost, low complexity model. So you should not see any meaningful impact in our costs and in our complexity of the onboard product, for example, as we implement these products. We are broadening our target customer base, for example, through implementing different distribution channels like the GE, for example. We're going to diversify our revenue base, but we will maintain our low-cost, low complexity model. Operator: Our next question will come from the line of Michael Linenberg with Deutsche Bank. Shannon Doherty: This is Shannon Doherty on for Mike. Thanks for taking my question. Enrique, you alluded to some growth trends or the growth trends, I should say, that you saw out of Guadalajara emerging in other markets. Can you provide us with some more examples? Enrique Javier Beltranena Mejicano: Sure. I think when you look at our bus fare customer base, I mean, that's a segment that grows by far much more rapidly and much more different than any other business traffic that we can see, for example, in the U.S., okay? You can also see how our capacity to penetrate the market has improved our number of passengers that are using the airlines, okay? In the last years, we have developed more than 10 million passengers that have become first-time flyers, and that's really important. So that makes a dramatic difference versus a mature market. Shannon Doherty: And maybe more generally, what do you guys think is driving like the improved travel sentiment in the cross-border market? Like and how is demand in other Central American markets to the U.S.? Holger Blankenstein: This is Holger. So we actually did a survey of our customers, both in the U.S. and Mexico, and they target two main factors for not increasing travel more quickly in the first half of the year. We did it entering the summer season. The first was economic uncertainty, which is about 50% of the responses. And that economic uncertainty is improving significantly as macro conditions in both countries are strengthening in the second half of the year. So that's the reason for not traveling has evaporated and is improving significantly. The second concern was related to migration policies. People were worried about traveling and leaving the U.S. or going to the U.S. And in the public discourse, we are noting that, that has evolved from a broad concern about all immigrants to a more focused conversation around individual and legal violations of immigration policies in the U.S. and that really has reduced the perceived apprehensions among our customer base. So we're seeing more willingness to travel in the transborder market in the second half of the year and specifically in the fourth quarter, where we're seeing solid booking curves in the transborder market. And that brings us to the guided TRASM, which is basically at the levels of last year 2024. Just to maybe close this point off, travel in the transporter market was delayed in our opinion at the beginning of the year and is now catching up as people want to visit their friends and family in Mexico or in the U.S. Operator: Our next question comes from the line of Rogério Araújo with Bank of America. Rogério Araújo: Congratulations on the results. I have a couple here on fleet. First, you said 17, one seven aircraft returned. Is that correct? And how many you expect to be delivered by '26? Also on that matter, what is the number of expected grounded aircraft throughout 2026? I understand you have 36 now. And lastly, how to think the net CapEx for '26 compared to this $250 million in '25? Jaime Esteban Pous Fernandez: This is Jaime. And Jose back into our fleet plan. And let me try to be really on a summary. Our goal next year is to reduce significantly the gap between productive and nonproductive fleet. And it has many moving pieces. I want to start with the AOGs. We see an improvement in AOGs. Remember, this year, we expect and year-to-date, we have 36 average planes. We expect that, that will improve to around 32, 33 next year with the highest point of the AOGs initially in January and significantly going down by year-end. The second [indiscernible] is, is deliver strong Airbus, we’re expecting around 12 to 13 deliveries of new aircraft from Airbus still we need to confirm that with Airbus and we will give detailed guidance in the next earnings call. And finally, with delivery, we are budgeting 17 aircraft to be redeliver. All of those details, we are planning, you should think about ASM growth next year, as Enrique mentioned and reiterated in the range of 6% to 8%, which factors all of the above that I mentioned. Compensation [indiscernible] multiyear agreement remains to 2028, but we are seeing an improvement and we are planning with the flexibility to adapt our demand to customer demand and market condition with the capitalization of flexibility in our market. And the last question was with respect to CapEx. This year guidance is still the same $250 million. Expect that next year is going to be higher than this year because we are investing in the maintenance related to engines returns and the delivery of aircraft. Enrique Javier Beltranena Mejicano: I just want to say again, I mean, our numbers of growth for next year are all inclusive. They include the returns of the engines from Pratt, the deliveries from Airbus, replacement of aircraft from the actual fleet. They include the deliveries, they include everything, all of the above. It's included in the number. So please think about that number as a total number of growth and not the conflict with capacity into the market. Operator: Our next question will come from the line of Filipe Nielsen with Citi. Filipe Ferreira Nielsen: Congrats on the results. My question is regarding CASM ex-fuel. You guided $0.0575 [ph]. You mentioned about the timing of having maintenance putting this a little bit higher than expected. I just wanted to understand how this should evolve? Is it a one-off in fourth quarter related to maintenance? Or is it something that will continue throughout 2026? How are you looking at this trend and not only at the quarter? Just trying to understand the cost impact here. Jaime Esteban Pous Fernandez: This is Jaime. I'm going to start with the 4Q. The sequential increase reflects the normal seasonality in specific cost lines that higher in the 4Q happened last year. It represents higher landing and navigation expenses due to the increased mix of international operations in the 4Q. We also have addition related to deliver maintenance events, which temporarily elevated unit cost are not structural impact aligned with our planned maintenance schedule. And as I mentioned, we will provide full guidance for 2026 in the next earnings calls. You are going to see a higher CAS than this year related to the investment in maintenance and delivery to have the fleet aligned with our growth plans. Operator: Our next question comes from the line of Jens Spiess with Morgan Stanley. Jens Spiess: So on the point of groundings and being the peak at the beginning of next year and then gradually improving, by year-end, how many aircraft do you expect to be grounded? And then when do you expect groundings to reach 0? Is it by mid-'27, by the end of '27? Like what's your visibility on that? Enrique Javier Beltranena Mejicano: Sorry, I'm going to repeat it. We expect that by year-end of 2026, the average number of AOGs will be around 25 to 27. And we believe that we are going to be with no material impact on AOGs related to engines by the end of 2027. End of 2020. Jens Spiess: Okay. Perfect. And if I may, just one additional one. Obviously, you already gave a lot of details on ASM growth for next year and all the variables. But clearly, you have a lot of flexibility given the redeliveries, the 17 redeliveries you have next year. So if demand is much better than expected, by how much could you potentially increase ASM growth? And conversely, if demand is weak by how much could you reduce it potentially? Enrique Javier Beltranena Mejicano: By around 2 percentage points, either up or down. Operator: Our next question will come from the line of Guilherme Mendez with JPMorgan. Guilherme Mendes: Just a quick follow-up. Holger, you mentioned about an overall rational supply on the market, so meaning rational competition. Just wanted to hear your thoughts on how should we think about competition in '26. There's additional capacity coming online from you and from some of your peers, if you do expect the current rational and disciplined competitive environment to remain in 2026? Holger Blankenstein: Sure. This is Holger. So we have some visibility on the domestic market. For us, in the Mexican domestic market, we are budgeting low to mid-single-digit growth for 2026. And we will provide more granularity on our growth rate in the domestic market when we provide the full year guidance in our next earnings call. If we look at the competition, we have visibility on the published schedules of our domestic competitors and industry growth is likely to remain rational from what we can see right now. And that obviously supports a higher and healthier fare environment for us. We are seeing now that competitors have been following a meaningful capacity rationalization to bring capacity in line with domestic demand. And we see that trend continuing into 2026, which will lead to a more balanced and healthy domestic supply-demand environment. Operator: Our next question comes from the line of Alberto Valerio with UBS. Alberto Valerio: Just a follow-up about the groundings. So you expect to normalize it in the end of 2027, 2028. Am I right about this? And about cycles, how have been the cycle of engines and also the deliveries of Airbus, when we should see some normalization on this? And if I may, another one is about one line on the results that is the variable leases come a little bit below what we were expecting, what we were estimating. Should we keep that for the future? This is more related to engines. Is that correct? If you can give some color on that? Enrique Javier Beltranena Mejicano: As mentioned, we expect a positive trend on engines from the shops. We rescheduled with Airbus. So this year, the deliveries are quite aligned on what we plan some minor delays or not material delays. We expect that to continue next year. We have not because we schedule year-end. And we are planning accordingly with that with a lot of flexibility with the different levers that we have in our fleet plan between the deliveries of planes coming back from the shop. We are optimistic and planning around that. If you're right, we should be out of the material impact by 2027 with some minor in terms of absolute 2028. And compensation over[Indiscernible] 2028 in contrast. Operator: Our next question comes from the line of Abraham Fuentes Salinas with Banco Santander. Abraham Fuentes Salinas: During this quarter, we see an improvement in the aircraft and engine rent expense. So I wonder if you can give us a little more color what you expect during 2026 in terms of ASM. Enrique Javier Beltranena Mejicano: Can you repeat the question was too low. Abraham Fuentes Salinas: Yes, of course. We saw an improvement during this quarter in aircraft and engine rent expense. So I wonder if you can give us a little more color what to expect for 2026 measure as ASM. Enrique Javier Beltranena Mejicano: I think the benefit in this quarter is related to the conversion of operating leases into finance leases. So that was the viable aircraft and lease line has the benefit in this quarter. As we continue next year and make decisions in the deliveries, we may explore, as we mentioned during the call in order to lower the total ownership cost of the fleet. And next year, we think that, that number should be a little below what we had this year and more aligned to 2024. Operator: This concludes today's question-and-answer session and I would like to invite management to proceed with his closing remarks. Please go ahead, sir. Enrique Javier Beltranena Mejicano: This is Enrique. I would like to finish the call saying that we continue to demonstrate the strength and adaptability of our ultra-low-cost carrier model and our command over our markets and cost structure. I want also to say again that regardless of the external environment, our cost leadership flexibility and the capacity to expand our product suite ensures that we address customer preference. I also want to say again that we'll continue to control growth with discipline, and that includes everything. It includes all the pieces of the question and it's fully aligned with market demand. It is also important that we will continue prioritizing low cost with high-value service to increase access to air travel for a broader set of customers, and it is important to say that we will continue with leadership in core domestic markets and a world-leading cost structure. Having said that, I would like to thank you, everybody, for being in the call, and thank you to our family of ambassadors as well as our Board of Directors, investors, partners, lessors and suppliers for their support. I look forward to speaking to you all again next year. Thank you very much. Operator: This concludes the Volaris conference call today. Thank you very much for your participation, and have a nice day.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to today's Welltower Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Matt McQueen, Chief Legal Officer and General Counsel. Matt? Matthew McQueen: Thank you, and good morning. As a reminder, certain statements made during this call may be deemed forward-looking statements in the meaning of the Private Securities Litigation Reform Act. Although Welltower believes any forward-looking statements are based on reasonable assumptions, the company can give no assurances that its projected results will be attained. Factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the company's filings with the SEC. And with that, I'll hand the call over to Shankh for his remarks. Shankh Mitra: Thank you, Matt, and good morning, everyone. Given the sheer volume of announcements last evening, we'll keep our Q3 related comments concise, but I'm pleased to report that it was another record quarter with occupancy, margins and net operating income, all exceeding our already very high expectations. However, it was a watershed period in our company's history from 2 important perspectives: capital allocation and people. After I walk you through our significant capital allocation-related activities, the team will provide details of Q3 results. Then I'll return to discuss my favorite topics of people, culture, incentive design and beginning of a new era of our firm, Welltower 3.0. Let's start with acknowledging luck. Many of yesterday's transaction announcements started 6 months ago at the height of uncertainty post Liberation Day. We always believed that life is not about predicting. It is about positioning. So when the luck knocked on our door in April and May, we are positioned with our balance sheet, exceptional team, technology platform and perhaps most importantly, courage to run towards this uncertainty and chaos. This positioning drove more than $23 billion in incremental transactions, resulting in year-to-date activity over $33 billion and bringing us closer to ever realizing our decade-long ambition of transforming Welltower into a pure-play rental housing platform for the rapidly aging population. At the core of our offering will always be systems, process, technology and data-driven insights to enhance the experience of our customers and site level employees, not capital, which is ultimately a commodity. Every capital allocation decision made at Welltower is viewed through an opportunity cost prism, evaluating the value foregone by pursuing a specific course of action while considering all implication of those decisions well into the future. And that opportunity cost prism allow us to narrow our focus on technology-driven transformation of our niche housing business. There is always room in organizations to boost performance by amping up their pace and intensity. And the fastest way to move the dial is to narrow the focus in a maximum growth, maximum gain war. This is why we're exiting our Outpatient Property Management business. While we'll continue to own some outpatient medical assets, it will consume little management time and effort due to triple net nature of the retained properties. This is not to say a B2B business like OM is not a good business, but the intensity that is needed to achieve our audacious dream of transforming a tech for TAM-rich B2C industry like senior housing requires the laser focus of a hedgehog and the discipline to say no to hundreds of good ideas. While our motivation to go all-in on senior living with focus and opportunity to enhance the enterprise growth rate, we recognize that the direction of asset prices for what we are giving up is uncertain. Hence, we structured our large OM sale with significant participating profit interest while the deal structure reflects a degree of heightened creativity, it is by no means a novel approach within our firm. We applied a similar idea nearly 5 years ago when we wrote a participating senior credit note on HC-One assets in the U.K. with warrants and equity kicker at the height of Brexit and COVID uncertainty. I am delighted to inform you that the significant downside protected structure has generated a nearly 14% unlevered IRR at exit while providing us an opportunity for the seat at the table in a bilateral negotiation for this recap. This recapitalization transaction marks the beginning of new chapter of new operating income growth as our long-duration strategy unfolds for HC-One assets. Speaking of the U.K., I'm delighted to announce that after 6 years of conversations, negotiation and a near transaction, we're finally the proud owner of Barchester Senior Living portfolio. We recognize that buying highly successful family-owned businesses requires patience, finance and a commitment to excellence that their legacy deserves. While a large checkbook that no counterparty ever question is necessary, it is by no means a sufficient condition. We have carefully studied many transactions that Warren and Charlie have completed over the years with family-owned businesses. And I'm delighted to inform you that this $7 billion negotiation was done during a single sitting resulting into a firm handshake. Our years of conversation and close familiarity with the Barchester assets and management was certainly helpful as preparation. Equally important with the integrity and professionalism demonstrated by our counterparty. We're proud to welcome Pete and Barchester management team to Welltower operating partner family. Despite giving up in-place yield in HC-One and other loans and initial dilution incurred from 170 assets that are in lease-up from our recent acquisitions, together, the dispositions and acquisitions are expected to be accretive to FFO per share in 2026. To be clear, we would have completed these deals even if they are collectively near-term dilutive because of the significant opportunity of earnings and cash flow growth in '27 and beyond and due to the long duration aspect of the transactions. These capital allocation decisions together are expected to change the near- and long-term growth rate of our firm despite the significant size of our asset base. This speaks to the level of excitement and high expectations we have from this year's $33 billion of transformative capital allocation activity. With that, I'll pass it on to John. John Burkart: Good morning, everyone. I'll keep my comments relatively brief this morning. But as Shankh mentioned, we reported another fantastic quarter with no let-up in the strong momentum experienced in the first half of the year. While uncertainty persists for the direction of the broader economy, our business continues to gain strength given the needs-based and private pay nature of our business, while our asset management initiatives through the Welltower Business System, or WBS, continue to bear fruit. Our strong results this quarter were once again driven by the exceptional performance from our senior housing portfolio. In fact, Q3 marked the 12th consecutive quarter in which SHO portfolio same-store NOI growth exceeded 20%. Attaining 20% plus NOI growth for any sector is an incredible achievement, but 12 consecutive quarters is truly exceptional and likely unprecedented. Year-over-year organic revenue growth remains at approximately 10%, driven by a 400 basis point occupancy gain and strong pricing power. Our solid top line results were led by our U.K. portfolio as a 550 basis point year-over-year ramp in occupancy drove a 10.4% increase in revenue. Operating margins across the same-store portfolio took another step higher, rising 260 basis points as growth in RevPOR or unit revenue continues to solidly outpace growth in ExpPOR or unit expense. And while we've experienced a substantial recovery in margins over the past few years, we have a long runway for further expansion due to the scaling benefits achieved through higher occupancy, i.e., greater operating leverage, which will be further amplified by our far-reaching WBS initiatives aimed at transforming the Senior Housing business. The backdrop for growth in 2026 and well beyond remains favorable as senior housing demand is expected to grow even stronger while supply remains dormant. The beta of the sector remains attractive. But what truly sets us apart are our efforts to generate outsized alpha through operational excellence. And with the exit of our Outpatient Medical Property Management business, we are doubling down our efforts, attention and resources to our Senior Housing business with a singular focus of operational excellence through digital transformation. This includes the appointment of Russ Simon, as EVP of Operations. Russ has created tremendous value for Welltower shareholders as Co-Head of U.S. Investments as well as partnering with me on asset management. Going forward, Russ will shift his focus to overseeing our asset management, capital planning and experiential solutions initiatives. Additionally, as Shankh will describe in greater detail, we are in the midst of a complete reimagination of our technology ecosystem. We're delighted to have Jeff Stott join us from Extra Space Storage as our Chief Technology Officer. While Logan Grizzel and Tucker Joseph have been appointed Chief Innovation Officer and Chief Information Officer, respectively. I'll conclude by saying that we've never been more excited as we are today about the prospects for our company. The Welltower team continues to work tirelessly alongside our best-in-class operating partners to reinvent our business through WBS and to elevate the experience of senior housing residents, their families and the site level employees. While I'm thrilled about the progress we've made to date, our excitement truly lies in what's to come as we enter Welltower 3.0, which will be defined by operations first. With that, I'll turn it over to Nikhil. Nikhil Chaudhri: Thanks, John, and good morning, everyone. Since our last call 3 months ago, we have expanded our year-to-date transaction activity by $23 billion, including $14 billion of acquisitions and $9 billion of dispositions and loan payoffs. With today's announcements, our year-to-date investment activity now totals $23.2 billion, up from the $9.2 billion announced on the second quarter call. Of this $23.2 billion, $5.4 billion closed through the end of the third quarter and nearly another $11 billion has closed since, with the remaining $7 billion expected to close later this year and in the first half of next year. On the disposition front, we are under contract to sell an additional -- to sell an 18 million square foot outpatient medical portfolio for $7.2 billion, resulting in a $1.9 billion gain on sale. We structured this investment to retain a $1.2 billion preferred equity stake accompanied by a profits interest, giving us 25% of upside while protecting our downside through the buyer's subordinated equity. We closed on the first $2 billion tranche of this transaction last week with subsequent closings expected through next summer. Additionally, we will exit the OM Property Management business with over 160 of our colleagues transitioning to Remedy Medical properties, allowing them to continue their career growth. Following this transaction, our residual OM portfolio will essentially consist of premium net lease assets to high-quality investment-grade tenants. The long-term absolute net nature of these leases require minimal management intensity. Turning to acquisitions. We are pleased to announce the GBP 1.2 billion acquisition of the HC-One portfolio in the U.K. Many of you will recall our courageous GBP 540 million first mortgage investment in HC-One's recapitalization at the height of COVID and Brexit uncertainty. That investment was structured with downside protection through a claim on HC-One's real estate portfolio at a last pound basis of approximately 40,000 a bed and upside participation through warrants and equity kickers. We have enjoyed a close working relationship with the company's management and ownership and have supported the company's growth through modest additional capital support. This investment has now delivered a profit of greater than GBP 350 million and over the last 4-plus years with an unlevered IRR of nearly 14% and a 1.6x equity multiple. While the payoff of this high-yield loan is modestly dilutive near term, the equity ownership of these assets adds significant duration to our returns. By deploying significant value-add capital and leveraging Welltower business systems and the best practices from our broader U.K. business, we expect this transaction to generate an unlevered IRR in the low teens. Moving on to our GBP 5.2 billion acquisition of Barchester which spans 3 buckets. First, 111 assets under a highly aligned RIDEA 6.0 structure. These high-growth assets rank in the top quartile within the U.K. and have in-place occupancy in the high 70s due to 39 newly delivered assets. Second, 152 mature assets in a triple net structure. These mature assets are 90% occupied with strong coverage, 3.5% annual rent escalators and the ability for Welltower to reset rent every 5 years to capture additional upside. Third, 21 assets that are currently being developed. In addition, through several other transactions, we are acquiring an additional 9 assets under construction in the U.K. Given the significant nonpurpose-built stock and negative net supply growth over the last 10 years in the U.K., we are ecstatic about the significant growth opportunity embedded within this portfolio. While I have highlighted our larger transactions, our focus on granular activity remains unabated. The $14 billion of new investments announced today span more than 46,000 units across 700-plus communities across 50 different transactions. Our team spent the last few months walking every single one of these communities, conducting their diligence and establishing business plans with our operating partners. 91% of this activity was sourced off market. 16 of these transactions were in the U.K., 2 in Canada and the remaining 32 in the U.S. I expect that with our narrower focus and relentless pursuit of better outcomes, the transactions announced today will fundamentally enhance the long-term growth potential of our company's earnings. With yesterday's announcement, we have added over 170 senior housing communities to our investment pipeline that are under development or still in lease-up. These communities will be a drag on near-term results, but as we detailed in our letter to our future shareholders, we will not hesitate to make capital allocation decisions, which are a drag today, but have the potential to create significant value tomorrow. I'll now turn the call over to Tim to walk through our financial results and updated earnings guidance. Tim McHugh: Thank you, Nikhil. My comments today will focus on our third quarter 2025 results, the performance of our triple-net investment segments, our capital activity, a balance sheet and liquidity update and finally, an update to our full year 2025 outlook. Welltower reported third quarter net income attributable to common stockholders of $0.41 per diluted share and normalized funds from operations of $1.34 per diluted share, representing 20.7% year-over-year growth. We also reported year-over-year total portfolio same-store NOI growth of 14.5%. Now turning to the performance of our triple-net properties in the quarter. As a reminder, our triple-net lease portfolio coverage stats are reported a quarter in arrears. So these statistics reflect the trailing 12 months ending 6/30/2025. In our senior housing triple-net portfolio, same-store NOI increased 3.1% year-over-year and trailing 12-month EBITDAR coverage increased to 1.21x. Next, same-store NOI in our long-term post-acute portfolio grew 2.7% year-over-year and trailing 12-month EBITDAR coverage was 2.02x. Moving on to capital activity. We continue to capitalize our investment activity with predominantly equity, raising $2.9 billion of gross proceeds in the third quarter. Additionally, in August, we completed a follow-on issuance of $1 billion in senior unsecured notes across 2 tranches for a blended coupon of 4.875%. This capital, along with retained cash flow, allowed us to fund $1.7 billion in net investment activity and end the quarter with $7 billion of cash and restricted cash on the balance sheet, while driving net debt to adjusted EBITDA to 2.36x, representing yet another record low leverage level for the company. With our current capital position, near-term liquidity profile and expected proceeds from asset sales and loan payoffs, we are fully funded for the entirety of our acquisition pipeline, including the $14 billion of new acquisition activity, which we announced last night. And we expect run rate net debt to adjusted EBITDA to tick modestly higher by approximately 1 turn on a run rate basis for all of our announced transaction activity. Lastly, as I turn to our updated 2025 guidance, I want to remind you that we have not included any investment activity in our outlook beyond what has been closed or publicly announced to date. Last night, we updated our full year 2025 outlook for net income attributable to common stockholders of $0.82 to $0.88 per diluted share and normalized FFO of $5.24 to $5.30 per diluted share or $5.27 at the midpoint. There are 2 items I want to highlight in last night's net income guidance that relate to fourth quarter activity and beyond. The first is our medical office portfolio sale, which, as Nikhil detailed earlier, is expected to have a total gain on sale of approximately $1.9 billion, $400 million of which is expected to be reflected in net income in the fourth quarter with the remaining $1.5 billion expected in 2026. The second item relates to the 2035 10-year executive continuity alignment program. We expect approximately $1.1 billion of upfront costs associated with the initiation of the plan to impact net income in the fourth quarter, which will be adjusted out of normalized FFO. In addition, the program will result in a recurring amortization expense stream that will flow through normalized earnings over the next decade, alongside the ongoing impact of the increased diluted share count. Now turning to our normalized FFO guidance. Last night's increased range represents a $0.17 increase at the midpoint from our prior normalized FFO range. This increase is composed of a $0.045 increase from higher NOI in our senior housing operating portfolio, $0.105 from accretive capital allocation activity and a $0.02 increase from FX and income tax benefits. Underlying this FFO guidance is an estimate of total portfolio year-over-year same-store NOI growth of 13.2% to 14.5%, driven by subsegment growth of outpatient medical, 2% to 3%; long-term post-acute, 2% to 3%; senior housing triple net, 3.5% to 4.5%; and finally, senior housing operating growth of 20.5% to 22%. This is driven by the following midpoints in their respective ranges. Revenue growth of 9.6%, driven by increased expectations for occupancy growth of 390 basis points and RevPOR growth of 5.1% and expense growth of 5.25%. And with that, I will hand the call back over to Shankh. Shankh Mitra: Thank you, Tim. Before we start Q&A, I want to highlight the most important announcements we made last night, the launch of Welltower 3.0, an operations and technology-first platform. This is the third iteration of our company after refounding our firm from a deal shop called Healthcare REIT. We took HCN down to its studs and built Welltower 1.0 with a goal of being a great capital allocator. We turned over half of the assets, majority of the operators and 95% of the people. And we launched a data science platform that in words of a CIO from a leading private equity firm has become synonymous with the category, much like Band-Aid or Kleenex. Then came COVID. And with Charlie's prodding, I realized we needed to recruit individuals from industries of high standards or equivalent of short-haul trucking executives to address the challenges of the railroad industry decades ago. The hiring of John Burkart from multifamily industry and subsequent hiring of hundreds of our colleagues who are focused on operations and asset management to delight customers and site-level employees marked the beginning of Welltower 2.0, a well-oiled capital allocation machine with high-performance compute power to sort through trillions of data points to buy one asset at a time. We brought in best-in-class operators under aligned contracts and provided them with an end-to-end asset management and technology platform while also building regional density. Things have been going on well in recent years, which -- with performance, which I would describe as being somewhat satisfactory. And yet again, we are disrupting our own firm from within, which we believe will create a leaping emergent effect culminating into Welltower 3.0, an operating company in a real estate wrapper. This new era places operations and technology first with a singular focus on delighting customers and prioritizing site-level employee satisfaction with complementary capital allocation actions to go deeper in our markets with a narrower focus. This phase starts with a complete retooling of our organization, not writing a manifesto. Many organizations hire management consultants, create pretty PowerPoint decks, announce new mission and vision statement, but ultimately change nothing about how they go about doing business. There is no place for consultants, [ Silverton ] bankers or managerial layers at our shop, only leaders who are willing to get their hands dirty by actually doing the work and building the business, laying one airtight brick at a time. We're taking the best from our capital allocation side of our house, including Tim McHugh and Russ Simon to lead the next phase of our journey focused on operations, technology and innovation. Additionally, we are once again bringing in significant talent from industries with higher standards, which includes proven tech executives such as Jeff, Logan and Tucker to join Swagat to form a tech quad, which will serve at the core of Welltower 3.0's growth engine. I'm convinced you will see a new wave of talent from -- will follow these leaders, similar to what we have witnessed in recent years on the capital allocation side of the house, which has become the envy of the real estate industry. This newly established tech quad will be key to reduce latency in a complex adaptive system like our business. As latency shrinks materially, the network effect will kick in high gear, creating a new paradigm of maximum growth and maximum gain that simply does not occur in an industry like ours with changes at glacial pace. Lastly, today, I will describe a dramatic change, which strikes at the heart of this company's incentive structure. From my first day in this business, I've been bothered by the misalignment of the incentives between our company, the owner of our assets and our operating partners, the manager of the community. I wish I could have said better things about the alignment between management and forever owners of a company like ours. Hence, you have seen a decade-long effort from us to fix and align external and internal incentives. And Charlie would constantly tell us, show me the incentives, and I'll show you the outcome. Following years of deep structural changes in this area, I'm delighted to inform you that my utopian idea of everyone swimming or sinking together is finally taking shape, an ecosystem of internal and external participants where everybody is fully aligned and everybody is all in. I would urge you to read our press release from last night carefully to fully grasp the changes that are taking place in 3 distinct steps to achieve the same goal of alignment and ownership. One, elimination of compensation for Welltower management and making them owners through performance-oriented Welltower stock; two, introduction of RIDEA 6.0 construct where the operator wealth creation is now irrevocably tied to Welltower stock; and three, a $10 million annual grant for site-level employees for the 10 best performing senior housing communities also in Welltower stock. All of them capture the 5 key tenets of the incentive design that we have previously laid out to you. Simple, significant, nongamable, earned as a team and duration matched with the immediacy of a role's impact, 10 years to forever for Welltower management, 5 to 7 years for operating partners and 1 year for site level employees. I would underscore that my colleagues are betting their prime years of their career on this idea, and so are many of my operating partners, Dan Hughes at StoryPoint, Matthew Duguay at Cogir and Courtney Siegel at Oakmont. While we are embarking on -- what we are embarking on embodies a unity of purpose, shared sacrifice and perhaps some share dilution, woven in a seamless wave of deserved trust and mirrored reciprocation by a group of random employee people from different walks of life. And they share 2 rare genetic qualities, a fiduciary gene representing their innate desire to put the interest of our owners ahead of their own and a delayed gratification gene, which refers to their instinctive bias towards sacrificing an immediate reward for a much larger gain tomorrow. While a long-winded person like me with long attention span is perfectly capable of spending hours detailing every part of this plan, let's focus on my favorite, the Welltower grant for site-level employees to honor the memory of Charlie Munger. And let's start by inverting. Our ultimate goal is to delight customers and their family. And of course, they want a digital experience, the ability to find us easily in a crowded and rapidly changing digital world and so on and so forth. But more than anything, residents want a consistent and happy pace who cares for them. Imagine a world where our site level employee work in beautiful and inviting communities equipped with most advanced and easy-to-use digital tools, freeing them from paperwork and administrative burdens. Not to mention meaningful career advancement opportunities in sister communities with only regionally dense portfolio of scale in this business and they get paid more than they otherwise would in a competitive community, sometimes in a significant and life-changing way due to Welltower grant. Why would they leave? Costco's experience many -- over many decades suggest perhaps they won't. Instead, they will continue to delight our customers. Our reputation of happy customers will further attract even more customers who are willing to pay for that level of service in an industry where usually half of the phone calls go unanswered. That's network effect, pure and simple. And the fruits of this network effect will silently compound over many years and decades to come. Charlie often said, take a simple idea and take it seriously. He would be happy to know today that we have taken the simple idea of Berkshire-style stewardship, along with Costco-style customer obsession very, very seriously and betting our life on it. And with that, I'll open the call up for questions. Operator: [Operator Instructions] All right, it looks like our first question today comes from the line of Vikram Malhotra with Mizuho. Vikram Malhotra: Congrats on the strong results, all the transactions. I guess just, Shankh, you've outlined a lot of changes, portfolio, personnel, comp plan, et cetera. And I'm just trying to understand like you talked about Welltower 3.0, but things have been going really well for a while. The industry is -- you've got leading results, stock 2x, 3x depending on when you measure it. So I'm just trying to get a sense of like ultimately, 2 things. One, in general, is there a goal? Is there something you're trying to prove? And kind of how should we think about the growth engine from a cash flow standpoint from here on? Shankh Mitra: Thank you, Vikram. We're not trying to prove anything. We fundamentally believe -- I personally fundamentally believe that we're here to contribute. We have really nothing to prove. Fundamentally, what we are trying to do is to take away if you just think about agency problem from the system across the board and try to align people to be owners, right? So align interest with our owners across the way through the whole ecosystem. That's all we are trying to do. And bringing sort of the second question you asked, which is a very important one, which is how do we elongate the growth curve well into the future. Making real money is all about duration. And duration of growth is all that it matters. We're too focused on near term. We're too short term in this world. And if you think about -- think through how real value creation works. It's all about duration. So part of your question was why things are going well, why are we again disrupting it? Think about things were going well -- very well for Netflix when they're killing it by sending people DVDs. And what would -- where would they be if that's what they're still doing today, right? If you don't disrupt your organization from within, somebody else will do it for you. And so that's what we are trying to do, thinking through what the future of this business will look like, and we have taken it on ourselves to transform this business digitally to get to a better outcome for our customers and site level employees. That's all we are doing, and we hope that will generate very significant growth and compounding of cash flow over a period of time for our owners. And frankly speaking, that's the journey we're in. Operator: My apologies for the delay. I had a network hiccup there. And our next question comes from the line of Jonathan Hughes with Raymond James. Jonathan Hughes: And congrats on the announcements. A lot to talk about, but hoping you can share more details on this new comp plan. Was that presented by the Board as a team package as an all or nothing proposal? Did it evolve into that? And then the 3 operators that are now similarly changing their incentive fee to take units, is that structure being offered to other partners as part of RIDEA 6.0 to further align them with shareholders, now management and extend the duration of hopeful outperformance? Shankh Mitra: Okay. So let me answer the first question, and then we'll go to your second question. So our Board has spent enormous amount of time with leading comp consultants, several law firms and many, many consultants and advisers for months at this point and spend hundreds and hundreds of hours to come up with what they consider is the right plan, which you saw. So I have really nothing to add to that other than the fact that it aligns with the 5 tenets of the incentive design that we have always talked about, right? Simple, significant, earned as a team, duration matched and nongamable, right? That's really what it is. As I said, the first 3 operators that we mentioned, they're the founding class, they don't necessarily have to be the only ones, right? We are trying to simply align the interest of our operating partners with our owners. And obviously, as you know, that regional density is very important to us. So if there will be opportunities to bring in other operating partners into the fold, we'll consider it. But at this point in time, we only have the 3 partners who are the founding class of this new program, and we'll see where future gets us. Operator: And our next question comes from the line of John Kilichowski with Wells Fargo. William John Kilichowski: Shankh, in the past, you've talked about the various source of capital available to the company. In the case of the acquisitions you announced yesterday, why not issue equity to fund some of those investments instead of the asset sales? Shankh Mitra: Very, very good question. So if you go to John, the first call I did as CEO, I laid out my belief of how capital allocation works. Most people think of capital allocation as a function of where capital goes or what you buy in a very simplistic term. It's actually so much more intricate than that. And then you have to think about your source of capital and you have to think about relative cost of that capital. And so as you can think about what we are doing, if you fix aside, which is the buy and just purely consider the sell, you're right, correct. We could have done it through equity. And frankly speaking, the spot cost of that equity is lower than the spot cost of that asset sales, which is like $9 billion of asset sales that Nikhil talked about. So it would have generated a higher near-term accretion and it would have created a disaster for the long-term value creation of this company. So in other words, if you think about our assessment of what we are giving up, you have to think about these things from an opportunity cost standpoint. What we are giving up by definition that we are not doing it through equity tells you that our view, which is a view you don't have to agree with, our view of our cost of equity is higher than the cost of the capital of the asset sales. So you can come to the decision, obviously, why is that? Because we have a higher view of growth and the duration of growth of that equity. It is an incredibly important question. I have seen so many companies and their management get sucked into near-term FFO accretion math and dilute their shareholders without thinking through how long-term value creation works. Thank you for the question. Operator: And our next question comes from the line of Michael Carroll with RBC Capital Markets. Michael Carroll: Shankh, I wanted to circle up on the recent Care Home deals, the Barchester and HC-One. I mean how do these portfolios compare to Welltower's current portfolio in terms of asset quality and maybe the private pay percentage? And does that impact the growth outlook of those assets at all? Or is it very similar to the current portfolio? Nikhil Chaudhri: Yes. On a cumulative basis, it's very, very similar. It's similar quality assets on a blended basis, similar metrics. So yes, really no change there. Operator: And our next question comes from the line of Farrell Granath with Bank of America. Farrell Granath: I know in the opening remarks, you outlined a lot of the aspects of the MOB disposition. But I was wondering if you could discuss your decision why for the structure. Shankh Mitra: Yes. So let me repeat, Farrell, what I said. If you just think about it, we are making an opportunity cost decision of 2 things. First, refocusing and entirely have a singular focus of management's time and attention into this digital transformation of an industry called senior living. That's what we are focusing on. So that's sort of one aspect of a strategic move that's behind this. The second, obviously, is the cost of capital conversation we just had. Now remember, at the end of the day, we have no idea what the future looks like. We don't have a crystal ball. It is entirely possible that the value of these assets tomorrow is significantly higher, right? We obviously have a view that the next 10 years is in a deglobalized world. It is going to look, obviously, relative to the last 10 years when we had 0 inflation, 0 rates, it's going to be different. But we have no idea we're right or not. So the structure reflects that if values go up significantly, right, or value goes up at all, we -- our shareholders will still reap the benefit of that value accretion that we are leaving behind today. That's what the whole structure is about, is how do we sort of do what we are trying to do and focus that capital into high-growth opportunities at the same time. We think very highly of Remedy as an operator. All our colleagues are going there. We think they will continue to create a lot of value. It is entirely possible that cap rates come down, interest rates come down. We're totally wrong about our macro views. And if all of those things happen, you have to sort of think about, okay, did I sell these assets in the wrong time in the cycle, right? So it's just sort of think about an opportunity cost from a strategic standpoint, also an opportunity cost from a capital standpoint, and that's how we came to this conclusion. Operator: And our next question comes from the line of Nick Yulico with Scotiabank. Nicholas Yulico: Just following back up on the outpatient medical sale. Just a few questions there. I mean you guys in the sub give that held-for-sale NOI. I just want to make sure that, that's sort of apples-to-apples to apply that to the sale of the $7.2 billion, and that looks like it's a 6.25% cap rate. And I just want to see if that's right. And then also on the preferred, if you could just talk about what the yield is you're getting on the preferred and then also if you guys are offering any seller financing as part of the transaction? Nikhil Chaudhri: Sure. So I'll start kind of backwards. On the preferred, the coupon is 8% and it's $1.2 billion, and that's really all we're leaving behind. That's why the $7.2 billion transaction results in net proceeds of $6 billion. So no seller financing. This will be financed through bank financing. Then secondly, to answer your question about the yield, that 6.25% is in the right ballpark. That includes some property management and profitability as well. The real estate yield is a little bit lower. But then obviously, if you think about the net yield once you factor in the reinvestment of the pref, that's closer to 6%. Operator: And our next question comes from the line of Omotayo Okusanya. Omotayo Okusanya: More high-level question for you guys. When your numerous press releases hit last night, I couldn't help but go back to Shankh's annual letter where you really kind of doubled down on this idea that you can actually grow faster at a bigger size and that because of various network effects you would get. And you also kind of talked a lot about doubling down on data design because of just kind of improved latency and how it will just kind of help you do business with better operational efficiency. Could you talk a little bit about just again, Welltower 3.0 and everything that's going on, whether it's RIDEA 6.0, all this alignment with management compensation, how do you kind of just see all that fitting together? And exactly what does that set you up for going forward? Shankh Mitra: Yes. Very, very good question. So tell -- think about -- let's take it simplistically, let's talk about, obviously, we laid out in our -- in my annual letter, how sort of a growth curve for an organization works, right? We sort of talked about first to get a team of people together in close proximity, which is obviously -- I talked about how that works according to Newton's law of gravitation. So you got it, obviously, that force is proportional to the -- inversely proportional to the square of the distance. So it's a very important factor that you bring this team as tight and close as possible. Why? Because the tight team is where you have very, very little latency. But let's think about that a little bit more about how that reflects, right? You think about, okay, let's just take easy example, dumb examples, right? This is a business John talked a lot about like if you call a community, there is a pretty good chance that -- 50% of the chance that you will not hear back. And if you do hear back, there's a pretty good chance that you will hear back in 2 business days. Now think about where Welltower business system has been deployed? Our customers, prospective customers are hearing back in single-digit minutes, which is still not acceptable to me. But at least that's we're hearing back in single-digit minutes instead of 2 days. That's significantly reducing latency. Think about historically, this business room turned happened in 37 days. Now it's happening in 11, still significantly higher than what John did or Jerry did, which was 3 to 5 days, but we're getting there. That's latency. That's you are taking latency out of the system, right? You think about -- we just talked about, right, in our company, I'll give you a third corporate level example. In our company, there is no management layer. It's not like things flow through layers from A to B to C to D and finally, it comes to the executive, and we make decisions. That's not how this organization works. We actually do the work with the bare hands sitting down and make decisions on the spot, right? So you think about that's taking latency out of the system and you make decisions fast, right? That's how you get these kind of results. When latency comes down in the system, that's when network effect kicks into gear, high gear and you get into a world of maximum gain, maximum growth. In otherwise, what is a glacially moving pace of doing business. That's what we are trying to do. We have done that, as I have talked about on my annual letter on the transaction side, deal side of the house, right? Think about how many people have. Think about the comment Nikhil made, we have bought 700 communities. And I'm going to repeat what he said. We have walked every single one of these communities. That is not given. How do we do that, right? Sort of that how do we take the latency out of the system is a lot of technology initiative, a lot of decade of effort. So that's kind of what we do. And on the other hand, if you just think about it, the hiring of Jeff and Tucker and Logan and what is the next step of that is to do that in the operations. I expect someday that no calls will go unanswered. And every call, if it goes, it will be returned immediately. That will be taking latency to 0. And those days of operations are coming. Operator: And our next question comes from the line of Michael Goldsmith with UBS. Michael Goldsmith: Lots of exciting news today, so I'll ask something maybe more holistic in that how do you go about managing the execution risk of everything announced today, including acquisitions, dispositions, new leaders? Where are you focused from an operational perspective to ensure these changes are implemented successfully? And what could go wrong here? Shankh Mitra: That's a very, very broad question. So look, the fact of the matter is how do we manage risk on -- on the deal side of the house, we have a very, very large team, which obviously has more experience in doing transaction than pretty much any team in this business, right? That doesn't require an asterisk. It does. So you think about it, that's -- obviously that happens. That team has done even during COVID, incredible execution when you couldn't fly, you couldn't do all of those things, so that sort of it. And that team is Tim's and Nikhil's team, deal tax, deal accounting and deal law sort of on the legal side. So there's a very, very strong team combined whether it's U.S., Canada and U.K. On the operations side, the reducing risk and operations is a purely function of what we've talked about building out Welltower Business Systems and trying to put that into high gear. And we are constantly evolving that, right? We're bringing in executives from industries of high standards. We obviously talked about a few. And that process is evolving. Our view of what the opportunity is, we're getting more and more and more excited about it every day. And we're bringing people who are looking at ourselves and say who -- what kind of skills we're missing. And we're bringing in people to complement that and take this thing forward. That's really what it is, and that's what we are doing. Remember, business is all about people. Spreadsheets don't do business with spreadsheets, legal documents don't do business with legal documents, right? It is entirely a people-driven business. Most business, I believe, are people-driven business. And for us, it is all about bringing and attracting the best talent and retaining the best talent. That's all we are trying to do. That's your ultimate risk mitigation through building a real vibrant culture where people, everybody is all in and they behave like owners. Operator: And our next question comes from the line of Ronald Kamdem with Morgan Stanley. Ronald Kamdem: Great. Quick 2-parter for me. So on the incentive structure for Welltower 3.0, the presentation mentioned the 5 named executive officers, but far down in the release, it also notes that management is working with the Board on long-term incentive and retention for 2 existing and 5 newly promoted EVPs. So I guess my first question is, was it possible for all 12 to go all in on the incentive structure? And then my quick follow-up is just on competition over the next 10 years, whether it's talent, whether it's technology, as more capital comes to the space, how do you think about protecting Welltower's moat over that time period? Shankh Mitra: Thank you, Ron. Those 2 questions are actually fairly correlated. So let's start with your first question. As we said, that we are working with our Board to come up with a strategy to retain our colleagues who are actually doing all the work. We're absolutely doing all these things and hopefully, that you guys are pleased with our execution. That's not because of me or Tim or Nikhil, that's our group of team. This is a team game. We're all putting tremendous amount of effort 24/7, and this has been 10 years in a row. So this has been obviously for us that retaining that group of people that you mentioned is extremely important. How we go about it, it's a broad process. As I mentioned in the previous question that our Board has gone through enormous amount of effort with their lawyers and bankers and comp consultants to come up with a process that has been satisfactory for us. And we'll hope that, that same process will unfold, and we'll get to the satisfactory answer for our rest of our colleagues here that you mentioned. But as far as I'm concerned, as you know, I only believe in one way of living, go all in and do it in that manner, right? Do very few things. The only things I'd like to do is to go absolute all in. So that will be my hope. And think about it, the second point of your question, as more capital comes in, there's a structural element to that question. As you think about it, a lot of capital is structured in GP/LP style. Frankly speaking, LPs don't pay GP enough to spend the hundreds of millions of dollars that we spend on technology to get there because there's no way to get that money back, frankly speaking. So we shall see how that happens. It needs to be done by permanent capital. And from a permanent capital standpoint, you need a mindset. It's not a question of money. You just need a mindset to say, how do I transform a business? How do I invest today where I may or may not see the benefits of which for a long time to come. That's the question of long attention span. You guys don't remember, but when we went after this sort of the data science approach where in those days, we did was not called AI or something, we call machine learning, supervised learning, unsupervised learning. We got nothing out of it for 3 years. And we keep investing, right, and kept going around and seeing if we can get there. Ultimately, it's exciting to talk about after 5 years, we got something out of it and what has done to today for latency in our firm. But it requires years of investment and that sort of evolves the needs of the organization, the talent of the organization. We are constantly trying to move the ball forward. And we welcome other people to do, most people so that we want to see what is out of the possible looks like. And if other people come up with good stuff, we have no problem to copy. But unfortunately, in this world, most people don't have long attention span. Instant gratification is how most of the companies work. And as I said, GP/LP structure is actually not very amenable to long-term innovations. It needs to come from forever capital. Operator: And our next question comes from the line of [ Seth Berge with Citi. ] Nicholas Joseph: It's Nick Joseph here for [ Seth. ] Shankh, just one question, obviously, on the strategy change. Curious if you could touch on the balance between going more all in on senior housing versus the earnings volatility as Welltower becomes less diversified going forward. Shankh Mitra: Very good question. So Nick, I would refer you to sort of understand how we think about this topic starting from our foundational document, which is called the letter to future shareholders. You will see that there's a whole section I wrote about this topic of volatility versus risk. We are not concerned about volatility. We're concerned about risk. And risk is the probability of losing permanent capital. So for your first question, if you just think about how we behave, let's take an example of the last 5 years. What are the 2 periods of volatility? One was COVID, right, and sort of what happened subsequent to that COVID, whether it's labor and other inflation issue all. What did we do? We ran towards it, not ran from it. So we like volatility. What happened 6 months ago, liberation, the exact same thing. So if you think about where we built our organization, we built through the bouts of volatility. We love volatility. But on the other hand, risk mitigation, that's why you are seeing we're running a balance sheet impossibly low leveraged, right? So risk management is not just you have to think through, you can do it from the asset size, asset mix, or you can do it through the liability side. So that sort of thing I sort of -- I would like you to sort of think about that, some kind of belts and suspenders we have built into it. Second is operational. And think about what we are doing in this business from an operational standpoint to reduce -- meaningfully reduce risk to get into to understand how this business works, right? It's -- obviously, it is a business where it's a complex adaptive system. Different people got, obviously -- results are almost always on the tails. I wrote about that [indiscernible] for many years in my annual letters. And so we know how to manage that tail risk, and that's what we are doing. Everything we are doing to build out our operating systems, Welltower Business System is to manage that risk. We like volatility. We're trying to manage risk. And that comes in both forms. One is to managing the risk through balance sheet and managing operational risk throughout our business system, which is where we're putting all the efforts. Hopefully, that answers your question. Operator: And our next question comes from the line of Juan Sanabria with BMO Capital Markets. Juan Sanabria: Just on the investment side, curious on your thoughts on both single-family and manufactured housing and opportunities or lack thereof in that -- in those 2 good groups relative to the seniors and active adults. Shankh Mitra: Very, very good question. Finally, somebody gave me an easy question to answer. I remain within my circle of competence. I don't comment on things that I don't know anything about. So that's one of our key tenets of our business that we are very much focused on what we know and our cycle of competence, what do I know about manufactured housing and nothing. So we'll remain within our cycle of competence, keep doing what we do. Operator: And our next question comes from the line of Richard Anderson with Cantor Fitzgerald. Richard Anderson: So the investments in hard assets is real interesting and headline grabbing and all that. But I think you would agree the most important investments you're making are -- I don't even know, I don't have to guess in people, but also in operating systems and technology. But -- so I want you to reconcile something for me and how you're approaching this. So your incremental tech investment is requiring a requisite return on that investment for it to be a reasonable investment. And so for all the customer experience that you're talking about and happy customers, happy associates and all that sort of stuff, what do you -- do you have concern about fatigue at the rent level? In other words, everyone's happy, but then they see a 10%, 12% increase in their rent every year. At what point are you kind of watching it to make sure it's not happening and to maybe have to sort of scale back some of these internal investments that are really what are going to sustain you for the next 5, 10 years? I'm just curious how you approach that line of sight. Shankh Mitra: Very, very good question, Rich. So if you just think about the 2 questions inside your question. First is the technology investments, whether it's technology itself or it's people around technology, we almost have an unlimited appetite to do it. And the way we see that returns, it's a significantly higher returns than real estate returns, and you see that returns come through your real estate P&L. I hope you are seeing that. Look at your performance relative to the industry performance or relative to anybody, and you will see that, and this performances are not coming through because we have easy comps. We have very, very hard comps. And despite that, these results are coming through. So you are getting back that ROI, which is significantly higher than, as I said, real estate ROI through the P&L. So that's sort of the first question. Second question is a nuanced question, much more nuanced question. which is if you think about -- I've said this before, we like -- think about how this business works. Obviously, if you have no rooms to sell by nature of demand supply, rents go up. However, we have always kept rents sort of in high single-digit level. We think that's sustainable in that sense, and we have no problem leaving money on the table today for tomorrow, right? Now one of the things that in senior living business, if you think about sort of the how long people stay in the community on average of, say, 20 months, you only get one of those rent increases, right? So from your perspective, I'm thinking people are getting -- first, 10%, 12% is not something we send people. But regardless, if you're thinking, okay, what if somebody gets 10% rent increase for 5 years, that's not really how it works, right? An average duration is, call it, 18 to 24 months, so you usually get one rent increases. So put all of those things together, just know philosophically, if the question is a philosophical question, I've said this that delayed gratification gene is part of this organization's ethos. We will always leave money on the table today for a greater gain tomorrow. That's just how this place works. So we're not in a hurry. We want the duration of that growth and duration of the growth comes from happy customers and happy employees, and that's what we're focused on. Operator: And our next question comes from the line of Jim Kammert with Evercore. James Kammert: Apologies, a bit of a pedestrian question, but maybe for Tim, how was the $1.1 billion noncash charge for the comp plan calculated? Just trying to understand some of the accounting mechanics here, please. Tim McHugh: Yes, Jim. So the plan is as highlighted in our 10-Q, the plan is essentially broken up into 2 pieces. There's an upfront expense piece of it, which is the $1.1 billion that you're alluding to. And then there's another $200 million that will be amortized over the following 10 years of the plan. Operator: And our next question comes from the line of Wes Golladay with Baird. Wesley Golladay: Do you see similar opportunities for the Welltower business system in the U.K. as you do in the U.S.? Is it pretty much plug and play? Shankh Mitra: It is nothing but plug and play. But yes, we do enormous opportunity. Just think about, generally speaking, there's a tremendous amount of opportunity overall in this business from an operations and operations sophistication perspective, and that same opportunity exists in U.K. as well and very much so. And our operating partners are welcoming us to bring in new ideas, new technology, new process. Business systems is about business first, systems later. It's about process first, technology later. But still all of those things, we're enormously excited about that opportunity. Nikhil, do you want to add anything to that or John? Nikhil Chaudhri: No, I think that covers it. It's really the same opportunity. Shankh Mitra: One of the things I'll just mention from a U.K. standpoint, as you have seen, hopefully, in the quote on our press release that the U.K. government is meaningfully welcoming us to bring that technology, that operational sophistication to the care sector. So that's also very much of a strong angle that we have been working with the government. Operator: And our next question comes from the line of John Pawlowski with Green Street. John Pawlowski: Can you help frame how NOI is performing on the 2024 vintage of senior housing acquisitions versus expectations at underwriting? Shankh Mitra: John, generally speaking, we have -- let's just talk about where it's not performed. We were hit obviously very big in holiday, right? Other than holiday, I would say most -- not just as an individual, but also as an aggregate, acquisitions have performed in line to higher than what we underwrote. Nikhil, would you say that? Nikhil Chaudhri: Yes, absolutely correct, yes. Operator: And our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: Just curious what percent of the SHO NOI the 3 operators under RIDEA 6.0 represent? And I guess as you continue to grow, how do you keep a large percentage of the SHO NOI under that new alignment? And just curious if there are hurdles to adding other operators to the structure in the near term? Shankh Mitra: Yes. So I don't really have that information... Nikhil Chaudhri: I don't have the number on top of my head. Tim McHugh: 20%. Shankh Mitra: So that's the -- Austin, that's the answer 20%. But remember, as I answered in the previous question that this doesn't have to be -- that was the founding class. This doesn't have to be only those 3 operating partners. And what we are trying to do is to run a regional density of a business, bring in our operators, operating partners to focus on what they do. This is a business that has unremoval complexity at the customer level, which our operating partners do an exceptional job of providing their care and handling that complexity. On the other hand, we are only focused on where scalability creates a strategic advantage, right? So that's sort of how the responsibilities are being divided. And we're both, as I know, as I mentioned times -- several times, our interests are aligned, and we're all trying to get to the same place, right? So if that's the case, we don't see a lot of issues to get there. As operational issues come up, we're obviously solving it together. And we'll see where we get to. Operator: And our final question today comes from the line of Mike Mueller with JPMorgan. Michael Mueller: Just a quick one on the announced investments. You've talked about IRRs, but can you just give a sense as to the overall initial blended yield on the $14 billion and maybe parameters for how wide the range was between the different components? Nikhil Chaudhri: Yes, Mike, we never really disclose yields until the transaction is closed and then it shows up in the sub. But in general, the activity is not that dissimilar to our activity in the last couple of years. Operator: All right. Thank you, Mike, and thank you all for your questions today. Ladies and gentlemen, this does conclude today's call. So again, thanks for joining in. You may now disconnect. Have a great day, everyone.
Operator: Thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Stride First Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Timothy Casey, Vice President, Investor Relations. Sir, please go ahead. Timothy Casey: Thank you, and good afternoon. Welcome to Stride's First Quarter Earnings Call for Fiscal Year 2026. With me on today's call are James Rhyu, Chief Executive Officer; and Donna Blackman, Chief Financial Officer. As a reminder, today's conference call and webcast are accompanied by a presentation that can be found on the Stride Investor Relations website. Please be advised that today's discussion of our financial results may include certain non-GAAP financial measures. A reconciliation of these measures is provided in the earnings release issued this afternoon and can also be found on our Investor Relations website. In addition to historical information, this call will also involve forward-looking statements. The company's actual results could differ materially from any forward-looking statements due to several important factors as described in the company's earnings release and latest SEC filings, including our most recent annual report on Form 10-K and subsequent filings. These statements are made on the basis of our views and assumptions regarding future events and business performance at the time we make them, and the company assumes no obligation to update any forward-looking statements. Following our prepared remarks, we'll answer any questions you may have. Now I'll turn the call over to James. James? James Rhyu: Thanks, Tim, and good afternoon, everyone. Demand for our products and services remain strong. In fact, we believe industry demand and trends around online education continue to grow. We indicated in August that we believe we would grow enrollment between 10% to 15%. And while we achieved enrollment growth in that range, we still fell short of our internal expectations. While demand as indicated by application volumes remains healthy, overall growth was tempered. Well, what happened? Well, we made a couple of strategic decisions that we believe will pay dividends over the longer term, but limited our growth in the short term. First, we invested in upgrading our learning and technology platforms with third-party industry-leading platforms. We continue to believe the investment is the right long-term decision to ensure we are deploying industry-leading technologies and systems. However, the implementations did not go as smoothly as we anticipated. We are actively engaged with our vendors to improve the situation. We heard from our customers that their engagement with these platforms detracted from their overall experience. This poor customer experience has resulted in some higher withdrawal rates and lower conversion rates than we expected. Secondly, we wanted to focus on running high-quality programs. And in some instances, the best approach to achieve that is to limit enrollment growth while we improve our execution. We estimate that the combination of these factors resulted in approximately 10,000 to 15,000 fewer enrollments than we otherwise could have achieved. We also believe that these challenges will likely restrict our in-year enrollment growth. While demand continues to remain strong, we do not anticipate the same in-year enrollment increases that we have seen over the past few years. So our outlook for this year compared to last year is a bit muted. However, our outlook for this business over the longer term remains bullish, and these investments should help us achieve our longer-term goals. Our mission and our path are clear to me than ever. Families want and deserve educational choice. Meeting the demands of families in this country is an increasingly diverse task that is challenging to meet with a one-size-fits-all model. So for many families, we are providing the only real affordable alternative in meeting their needs. And the trends just continue to move in that direction. Whether it be safety issues like bullying or neighborhood violence or health issues or special needs that cannot be met by local schools, we are providing a service that is both increasingly in demand and increasingly necessary. And we are investing in areas that will help enable us to meet the needs of the families we serve. One simple example is the rollout this year offering every second and third grader free ELA tutoring. We know that in order for kids to continue learning, they need to be able to read, write and communicate. Therefore, we are investing to ensure the youngest students in our programs can do just that. We are tomorrow's education today. We meet the diverse needs of families that want flexible, personalized career forward and tech-enabled education at an affordable cost. This fall has proven challenging for us, and I want to thank our customer-facing employees, the teachers, administrators and other staff who have worked tirelessly to help us overcome those challenges to serve the students. I also want to thank all our corporate employees who never forget who our customers are and how impactful what we do is in the lives of so many families. Thank you. With that, I'll turn the call over to Donna. Donna Blackman: Thanks, James, and good afternoon. As James mentioned, our results this quarter reflect the continued demand for our core offering. Families are seeking alternative options for their students to solve ongoing challenges within the existing education system. However, we also had some internal challenges this quarter as we implemented new platforms for our students. While this caused some disruption, I believe these changes are important for the long-term growth of the business. As always, I am incredibly grateful to all of the Stride employees for their commitment to the families we serve, it is an opportunity and a privilege to influence the lives of so many students each and every year. Turning to a few highlights from our quarterly results. Revenue for the quarter was $620.9 million, up 13% from the first quarter of last year. Adjusted operating income was $81.1 million, an increase of almost $23 million or 39%. Adjusted earnings per share were $1.52 up $0.43 from last year. And capital expenditures were $21.7 million, up $6.9 million. As I mentioned, our quarterly results were strong demand for our core offerings. Our total enrollments for the quarter were up 11.3% from last year. Once again, setting a record for the number of students we will serve as families continue to seek out educational alternatives. Career Learning and middle and high school revenue for the quarter was $241.5 million, up more than 21% from last year. Career learning enrollments grew 20% to 110,000. General Education revenue grew over 10% to $363.1 million on enrollment growth of 5.2% to 137,700 students. Total revenue per enrollment across both lines of revenues was $2,388, up 3.7% from last year. As we mentioned in August, we are seeing a positive funding environment, but we do expect some impact from state mix and timing. And as such, we now believe we will finish the year flattish in revenue per enrollment compared to FY '25. Gross margin for the quarter was 39%, down 20 basis points from last year. I mentioned last quarter that we are continuing to invest in the business, which will have some impact on gross margin. Additionally, given the challenges we had this quarter, we expect to incur some additional expenses related to the platform rollout. As a result, we now expect full year gross margins will be down from FY '25 but still above what we saw in FY '24. Selling, general and administrative expenses totaled $173.1 million, up 3% from last year. We still expect SG&A as a percent of revenue to decrease compared to last year. Stock-based compensation for the quarter was $10.2 million, an increase of $1.8 million compared to last year. We expect to see an increase in stock-based compensation this year, largely due to the impact of a long-term performance grant. And therefore, full year stock-based compensation will likely be in the range of $41 million to $44 million. As I mentioned earlier, adjusted operating income for the quarter was $81.1 million, up 39% compared to FY '25. Adjusted EBITDA was $108.4 million, up roughly 29%. Adjusted earnings per share, a new metric we introduced last quarter was $1.52, up 39.4% from last year. Our profitability strength was driven by the enrollment growth in the quarter and improvements in operating margins. Capital expenditures in the quarter were $21.7 million, up $6.9 million from last year. Free cash flow, defined as cash from operations less CapEx was a negative $217.5 million compared to negative $156.8 million in the prior year period. Cash flow followed our typical seasonality related to school launch and the onboarding of students in the first quarter. As in years past, we expect to see positive cash flow for the next 3 quarters. We finished the quarter with cash, cash equivalents and marketable securities of $749.6 million. Turning to our guidance. As James mentioned, we do not expect in-year enrollment to be nearly as strong as they have been for the past years. However, despite the short-term impacts we are seeing, our guidance this year keeps us firmly on track to achieve our FY '28 financial goals. For the second quarter of 2026, we expect to see revenue in the range of $620 million to $640 million, adjusted operating income between $135 million and $145 million; and capital expenditures between $15 million and $18 million. For the full year, we expect revenue in the range of $2.480 billion to $2.555 billion; adjusted operating income between $475 million and $500 million. Capital expenditure between $70 million and $80 million and an effective tax rate between 24% and 25%. While any new technology can bring challenges, we are committed to delivering a quality experience for all of our families and our partners. And we will make the investments needed this year to ensure we are set up for long-term success. Thank you for your time today. Now I'll turn the call back over to the operator for your questions. Operator? Operator: [Operator Instructions] Your first question comes from Jeff Silber with BMO Capital Markets. Jeffrey Silber: I obviously want to focus on the guidance for the year. And forgive me, did you give enrollment guidance for the year? I think you had said 10% to 15% on the prior call. I'm just wondering where you're coming out now. Donna Blackman: With did not give guidance for the full year. We gave the guidance that we gave for the count date was 10% to 15% for the count date, we came in at 11.3%. But we do not anticipate that we will see the same level of in-year enrollment growth that we've seen over the past 3 years. So based upon that assumption, the 11.3% growth that we saw from October to October, we don't expect to see that same year-over-year increase by the end of the year. Jeffrey Silber: Okay. And then you did call out about 10,000 to 15,000 weaker enrollments. And you cited 2 items. One was, I guess, a bad systems implementation and other was limiting enrollment growth to focus on high-quality programs. Can we parse out what each one had that impact on that 10,000 to 15,000. And if you can give a little bit more color on each of those items, I think that would be helpful. James Rhyu: Yes. I mean I think -- so the -- it's difficult to say exactly. I'll for say that first. So again, anything I say is going to be based on the data that we can see and estimate. But certainly, we believe that the majority was due to the system implementation issues. It impacted the overall customer experience. We had a higher level of withdrawals as a result. And we attribute the higher level withdrawals directly to the system issues that we're having. So I think that's definitely the predominance of them. It's also the area that we think is most resolvable. We're working very furiously with our partners to fix those issues. And I think that the ability for us to run quality programs is tied intimately with the platform issues that we discussed because we don't want to do is to really exacerbate a problem by having more students come on to a platform that is not meeting our expectations. Operator: our next question comes from the line of Jason Tilchen with Canaccord Genuity. Jason Tilchen: Great. A little bit of a follow-up on the last question. I'm wondering if you could just share a little bit more about, a, the rationale and the timing for this tech implementation and then a little bit more about exactly what went wrong. James Rhyu: Yes. I think -- so the first thing is the rationale for the implementation is actually pretty simple. As we have scaled and we have more than doubled in the past 5 years. And that level of scale requires platforms that are large enough and robust enough to meet the demands of our scale and our anticipated additional growth. And so we operated a number of platforms that were either in-house proprietary platforms or with third parties where we didn't have the confidence that they were going to be at a scale to the extent we needed them to. And so investing in a new set of platforms for the long term, we believe, and we still believe execution issues aside, is the right for our business long term. And so the idea of investing in upgrading our platforms continues to be, we think, the right approach. The timing, there's one real window of timing that you have to fall into for most of these types of upgrades where you have, in theory, the least disruption to your customers. And that is in the summer between the end of one school year and the beginning of the next school year. So we sort of have to execute in that sort of delicate window. And clearly, what we thought we were going to achieve in terms of an execution in that window, we did not achieve. Demand continues to be very strong. And so we're confident that we're going to overcome this, but the timing for this implementation sort of has to occur really in that summer period. And you really only get that window of chance, and we didn't execute as well as we should have and our partners didn't execute as well as they should have, and we're going to spend the year making sure that we get it fixed. Jason Tilchen: Great. And just a follow-up to that. I just want to make sure I understand. Was it essentially the implementation took longer than expected to complete and sort of blend at the beginning of the school year? Or was there something else that went wrong? And then the other sort of question, the dynamic between the 2 programs Gen Ed and Career Learning, it seems like Career Learning, the enrollment remained very strong there, while we saw a sequential decline for Gen Ed. So wondering if this sort of tech upgrade had any sort of impact on one program more than the other? James Rhyu: Yes. So not a material impact on one program versus the other. So I wouldn't sort of read too much into that split. The implementation again, there was a couple of platforms there. The main platform implementation took a little bit longer than we expected. Also, we encountered more problems on the rollout than we anticipated. So even when it did roll out for the new semester, the number of problems we experienced during the rollout that impacted directly to customers' abilities to log on the resiliency of the platform, the performance of the platform, all impacted the customer trajectory and the customer experience. So I would say it did take longer, and it continues into the year to have issues that we're continuing to fix. So I think that's sort of the thing that we're dealing with is that we're now in the year, and we have been now for a couple of months and we're continuing to ensure that we're improving the platforms in here as well. Operator: Your next question comes from the line of Greg Parrish with Morgan Stanley. Gregory Parrish: I was hoping to get a little more color on the decision to limit in your enrollment growth. With the platform implementation issues, is that impacting in-year enrollment growth? Or is that not the case? Is this more of a permanent structural decision to just improve the quality of your programs? James Rhyu: So I think it's a little bit of both. Clearly, we want to limit the exposure that the platform issues are having. So just sort of limiting the intake during a period when we want to make sure that the platform gets stabilized is important. So -- and that directly correlates to the quality of the program, you can't have high-quality program, if you're having customer experience issues. So I think they sort of go hand in glove. Gregory Parrish: Okay. So would you say that this is just a 1-year sort of in-year impact and then next year, it would probably -- and there's only been a couple of years that has been happening. Or is this -- next year, we're going to kind of -- it could go back to the way it has been in the last few years? James Rhyu: Yes. I think all things being equal, meaning that assuming we fix all the issues in this year, which we do anticipate, we have a clear road map that this year, the issues will, in fact, be fixed. Assuming that demand continues to be strong as we have seen it. Yes, we would believe that next year we would be able to return to growth in year. Now obviously, a lot of variables included there, certainly not guidance of what next year is going to be. But if the demand were to maintain at the high levels that we've been seeing it and all other things being equal to, say, a last year type of performance, then yes, I mean that's what the math would suggest. But we're really focused on making sure we get it fixed this year. So that is really the #1 priority. And again, I think we have a clear path of getting these resolved in this fiscal year. Gregory Parrish: Yes. Okay. That's helpful color. I know there's a lot of moving parts there. And then maybe just one last question here. I just wanted to talk about competitive landscape. And I say that with you have double-digit enrollment growth here to start the year. So very healthy. But with your success over the last couple of years, there's -- other programs are going to try to copy some of your very successful strategies. I think your biggest competitor had a great start to the year. I think following your playbook in many ways. And I know you're for lifting all boats in the industry, but maybe just help us with what you're seeing out there in the competitive environment? Any changes? Just anything you're seeing on that front? James Rhyu: Yes. I mean I have said pretty consistently that I want all players in the space to be successful. I want to make sure that the industry is healthy and that the industry has high-quality players. I think a healthy industry promotes higher quality players in the industry. I think that's important. I mean, congratulations to our competitors who are doing well. I think that's great for them. I think if you just look at the raw numbers, forget about percentages for a second. If you look at raw numbers, I still think our growth year-over-year outpaced our largest competitor's raw growth numbers by a large margin. When you start at a lower base, the percentage is, obviously, that's just math. But I think what we can see is demand remains strong, and we welcome healthy competition. And I think we're going do everything we can to tee ourselves up for strong next year. Operator: Your next question comes from the line of Stephen Sheldon with William Blair. Matthew Filek: You have Matt Filek for Stephen Sheldon. I wanted to start with a clarification question. Are these platform issues solely related to the classroom and learning experience? Or are these platforms also used for processing enrollments and other administrative like functions? James Rhyu: Yes. It's a really straight question. It's actually both. So they are the -- what you would consider to be the more traditional customer-facing side of the equation. The platform that serves up the courses and get the people -- get the students engaged with the program, if you will, as well as the more back office administrative side you just referenced. Matthew Filek: Okay. That's helpful. And then what inning do you feel you're in for rectifying these platform issues? And then can you also tell us when exactly these issues started? And then one more thing as well. Would you kind of call this 2 separate platform issues? Or is it one thing? How should we think about all of that, especially timing of fixing the issues? James Rhyu: Yes. So they are distinct platforms. So it is, in this case, specific to your question, 2 distinct platforms that we're talking about in terms of back office, front office. We did not really have an indication of the impact of these issues until we got well into August. And unfortunately, the timing wasn't great because it happened to be after our last earnings call where it was more funnel activity of demand that we were seeing that was very strong. And then subsequent to that, we started seeing the withdrawal issues as the platform issues became apparent. So the timing was unfortunate that it was after our last earnings call. And I think that when we think about sort of the road map to getting these issues fixed. We're working every day on them. We believe that over the course of the year. It's not a onetime fix that we're implementing, it is a series of fixes. We think that the biggest ones happen here in the next few months, but they will persist throughout the entire year. And in fact, we are engaged with our partners to ensure that there -- it doesn't end just when we think that have the issue fixed. But that we signed up with these partners to ensure that there was a robust ongoing set of improvements to the platforms and innovation curve that we would drive with them that they would invest behind. And so while the immediate issues, we expect to get fixed in the next few months with the biggest issues and then sort of throughout the year with the remaining issues, we still expect to be investing in improving this platform and improving the experience for our customers well into the future. It's not just a 1-year deal in terms of the expectation we have on improvement. But the most pressing issues we expect to be fixed in this year. Operator: [Operator Instructions] Your next question comes from Alex Paris with Barrington Research. Alexander Paris: I just have a couple of clarification type of questions. So at count date, you had 247,700 students, up 11.3% year-over-year. You said that it could have been 10,000 to 15,000 higher if it were not for these issues with the platform rollout. I guess the first question I have is, did those withdrawals occur before the count date or after the count date because the Q2 guidance calls for revenue at the midpoint of up 7.3%. So fall term enrollment was up 11.3%. And if it's flat revenue per enrollment, I don't know why revenue would be up only 7% unless these withdrawals continue to occur beyond the count date. James Rhyu: Yes. So let me try to maybe clarify how you're looking at this first and then sort of circle back maybe on sort of how these withdrawals are manifesting themselves. The comp in each of our subsequent quarters from last year is on a rising set of enrollment and rising set of revenue. And so if what we did was we remain stable, i.e., flat you still have a deterioration on the year-over-year growth mathematically because you're talking about last year when in the course of the year, you were rising, and we do not expect sort of the same dynamic of growth that we saw last year. And so I think that's the first point. Just mathematically, I think, you have to look at it from each quarter sequentially last year that was growing. And now we're not sort of indicating that same growth. The second piece circling back, I think, is that largely speaking, the vast majority of the growth that we think we could have, the indication of the 10,000 to 15,000 occurred in the first fiscal quarter, meaning everything in that estimate statistically is a calculation estimate through September 30. So said a different way, if we did not have those problems, and our estimates were correct. We actually would have anticipated that our count date, our September 30 only number would have likely exceeded the upper range of our guidance, mathematically. Now a lot of assumptions built in there around how we're calculating higher withdrawal rates and things like that. But I think to your question, the predominance of it that we're indicating in that number is falling between sort of middle of August through end of September. Alexander Paris: Okay. And then when we talk about in-year enrollment, I guess I was sort of thinking about the January enrollment. But implicit in your guidance is rather than sequential rise in raw enrollment from quarter to quarter to quarter like we saw through Q1, Q2 and Q3 last year. It would be a decline in the second. The second quarter raw number for enrollment will be less than the first quarter raw number enrollment. And third quarter will be less than the second quarter and presumably, the fourth quarter will be less. And then next year, once all these problems are fixed, we can presumably return to growth. Is that the way to think about it? James Rhyu: Yes. So I think we're not giving exact enrollment guidance per se exactly. But I think we should probably not presume growth beginning of the year to the end of the year in enrollments. We will handle some backfills. We have some attrition during the course of the year. We -- there's likely some backfills that we will do. But yes, I think beginning of the year to end of the year, we should not anticipate growth. And we do, again, assuming the conditions remain strong as we've seen, the demand conditions remain as strong as we've seen and we can revert back to the prior retention characteristics that we had prior to this issue. We do think that we could resume to in-year growth in subsequent years. Alexander Paris: Got you. And then the last question and related is revenue per enrollment. You previously said positive funding environment, probably up a bit, and now you're saying flat. Is that the delta? Donna Blackman: As I said in my prepared remarks, we are still seeing a positive funding environment. We will see some impact from the mix and from timing. And as you may recall, one of the things that we did last year was that we had some adjustments throughout the course of the year, given the in-year enrollment growth that we had throughout the course of the year. We're not anticipating having that same level of in-year enrollment growth. So we won't have that catch-up that we had last year. And then we also had that higher funding catch-up and Q4 funding adjustment, I should say, in Q4. From the back half of the year, the comps are a little bit tougher. And then again, to the point, we don't expect to have that level of in-year enrollment growth that we saw last year that we adjusted the revenue per enrollment throughout the course of the year... Alexander Paris: So has anything really changed on -- has anything really changed on the funding environment outlook? You said you still view it as a positive funding environment. But has the mix changed relative to your expectations a few months ago? The expected mix, like by state? Donna Blackman: I'm sorry, when I talk about mix, the mix is depending upon where we grow, where the withdrawals come from during the course of the year, that's the mix we talked about. So the point that James made, we won't have any end year enrollment growth, right? The reality will happen is that we'll have some -- prior to the last 3 years. We would have in-year enrollment growth. Our withdrawals exceeded that in-year enrollment growth, right? And so we'll still continue to have that mix that will happen. And so it depends on where that mix happens, that will drive the variability that we might see in our revenue per enrollment, whether it be a higher general ed or Career Learning. But in terms of the pure funding environment, the sentiment is the same today as it was in August. Alexander Paris: Got you. All right. I appreciate the extra color and I'll ask other questions as we follow up. Operator: Ladies and gentlemen, this concludes the Stride First Quarter Fiscal Year 2026 Earnings Call. On behalf of Stride, I would like to thank you all for joining. You may now disconnect.
Operator: Good evening. We welcome you to The Navigator Company Third Quarter 2025 Results Presentation. [Operator Instructions] I'll now hand the conference over to Ana Canha. Please go ahead, madam. Ana Canha: Ladies and gentlemen, welcome to The Navigator Company conference call and webcast for the third quarter and nine-months results. Joining us today are the following directors, Antonio Redondo, Fernando de Araujo, Nuno Santos, and Antonio Quirino Soares. As usual, we will start with a brief presentation, and we will have Q&A session at the end. The presentation can be accessed through the links available on the website, and questions may also be submitted using the webcast platform. Antonio will start by commenting on the main highlights of the quarter. I will now hand over to Antonio. Antonio Redondo: Good afternoon, and thank you for joining us today. I'm pleased to share the results for our third quarter and first nine months of 2025. As you will see in today's presentation, Navigator once again demonstrated its ability to adapt swiftly to very challenging market conditions while maintaining its strong competitive position in Europe. We continue to focus on creating value and protecting margins while investing in diversification and reinforcing the foundations for sustainable growth. I will begin with Slide 4 with an overview of the key highlights. The first nine months of 2025 were marked by very significant volatility driven by geopolitical tensions and rising protectionism, adding to macroeconomic risks. Like others in global trade, Navigator felt the impact of slower demand in key markets. The pulp and paper sector has faced severe pressure visible in the sharp downturn in pulp prices in China since April, which also significantly impact Europe. As anticipated, the third quarter marked the lowest point in this downward cycle. Faced with falling prices across its markets, Navigator succeeded in positioning itself competitively. We are firmly established around the globe, which enabled us to seize opportunities, grow our sales volumes in all paper segments and increase our market shares. Focused on operational excellence, the company implemented initiatives to optimize its variable costs and streamline its operations. The downward course of production costs is already visible despite the temporary impact of cost categories such as energy and chemicals, the effect of which has tended to be diluted as the nine-months period progressed. Pulp and tissue cash costs dropped to near the lowest since mid-2021, with while paper cash cost reached a two-year low. As a result, the pulp and tissue cash costs fell at the end of third quarter to the second lowest level since mid-2021. The paper cash costs were the lowest of the last two years. Despite significant market volatility across all segments, our packaging and tissue businesses delivered solid year-on-year growth and already account for 32% of the EBITDA and 29% of the turnover. In tissue, we are successfully scaling up operations and following recent acquisitions, namely Navigator Tissue U.K. In packaging, our sales continues to show positive momentum with growth in volume, value and strategic positioning in lower basis points. We maintained a strong financial position after dividends and strong CapEx, keeping our net debt-to-EBITDA ratio at 1.85x. Now turning to Slide 5, please, with the main financial figures. Turnover totaled EUR 1,489 million. EBITDA stood at EUR 300 million with an EBITDA margin of 20.2%. Fernando will highlight the main impact on the period. The successful execution of our diversification strategy has strength resilience amid market volatility with tissue and packaging segments helping to offset the impact of subdued pulp and paper prices. In an uncertain macroeconomic environment, our EBITDA margin remains among the strongest in the industry, namely amongst those exposed to pulp, although below our historical average. I will now hand over to my colleagues, who will walk you through the results in more detail and share some insights on how our different business areas have been doing. Fernando will start by the main impacts on EBITDA. Fernando, please go ahead. Jose de Araujo: Thank you, Antonio. Turning to Slide 6. We can take a closer look at the main impacts on EBITDA in the year-on-year comparison. As already mentioned, EBITDA stood at EUR 300 million, down 30% year-on-year with an EBITDA margin of 20%. Year-to-date results were below last year's due to lower sales price and rising cash costs, mainly for energy and chemicals in the beginning of the year, which, as I mentioned, has since started to reduce. The downward trend in uncoated woodfree and pulp sales price were pressured by falling benchmark index. Change in our product mix also influenced our average sales price. Apart from pulp sales, all paper and tissue products saw a significant increase in sales volume over the nine months period. Turning to Slide 7 with a quarter-on-quarter EBITDA analysis. In this quarter, EBITDA stood at EUR 84 million, down 17% quarter-on-quarter, reflecting EBITDA margin of 18%. Quarter-on-quarter, the EBITDA decreased mainly due to the sharp price reductions, partially offset by strong volumes and variable and fixed cost savings. Navigator sales price fell across all segments quarter-on-quarter, following the drop in key benchmark index. We witnessed a strong rebound in pulp sales versus Q2, plus 31,000 tonnes, driven by the market recovery in Europe and overseas despite our selective sales strategy amid sharp price drops. In uncoated woodfree and packaging, we sustained volumes, offsetting the typical seasonality of the third quarter. We saw a good trend regarding production costs. Wood costs were down due to lower prices and lower extra Iberian purchase. Energy and chemical costs also decreased due to lower prices. External fibers were also down as a result of lower market prices. As Antonio already mentioned, pulp and tissue cash cost dropped this quarter to near their lowest since mid-2021, while paper cash costs reached a two-year low. Turning to Slide 8 with debt maturity and liquidity. During the first nine months, we repaid close to EUR 400 million in debt, including EUR 275 million early repayment, strengthening our debt profile and increasing the share of sustainability linked instruments. We also secured EUR 365 million in long-term facilities with EUR 140 million still available, including an European Investment Bank loan, EUR 40 million to support the decarbonization projects with no significant payments due in the next five years. We raised EUR 225 million new debt with a seven-year maturity, extending our average debt maturity to 5.2 years from 3.5 years in December. We also raised the weight of sustainability-linked debt to 79%. After this debt renegotiation cycle, Navigator reduced its debt repayment commitments to very low volumes over the next five years, hence ensuring the reduction of its average credit spreads and increasing the weight of the debt raise and the ESG requirements. At the end of the period, 78% of our debt was on a fixed rate basis. It should be noted that despite the rising interest rates in relation to our last financing cycle, our average cost of financing at the end of September remained low at around 2.6%. The unused long-term credit facilities currently totaled EUR 140 million. Turning to Slide 9 with an overview on CapEx. The high strategic CapEx cycle start in 2023, boosted by the NextGenerationEU and innovation funds is coming to an end and expect to be phased by mid-2026. In the first nine months of 2025, CapEx totaled EUR 160 million, of which approximately 61% of total corresponds to value creating environmental or sustainable investments. NextGenerationEU projects advancing on schedule, reflecting our strategic discipline and focus on delivering results with 77% is secured by the end of September in time within the PRR calendar and in budget. Moving to Slide 10, which presents key performance indicators. Let me highlight our ongoing commitment to operational excellence and long-term value creation with a strong focus on decarbonizing our industrial process and investing in innovative technologies that improve resource circularity and cost efficiency. This quarter, we achieved a significant milestone in our decarbonization road map, namely with two biomass power lime kilns in the operation at our Aveiro and Setúbal sites and the third biomass power kiln at Figueira da Foz is now in the start-up phase. These projects are designed to reduce both greenhouse gas emissions from pulp mills and the dependence on fossil fuels. Notably, the new lime kiln in Figueira da Foz will also make a very significant contribution to simpler use of resource by enabling reclamation of carbonate sludge, reducing the quantity of this waste sent to landfill by around 90%. Thanks to this investment, the Aveiro and Figueira da Foz mill will operate in 2026, producing around 9% renewable energy. The conversion of lime kilns from fossil fuels to sustainable biomass will open the door to the innovative use of Eucalyptus globulus, a byproduct from wood preparation operation as a renewable fuel. At the Setúbal mill, the conversion of lime kiln to biomass as this energy source will lead to a reduction in carbon emissions of around 17,000 tonnes CO2 emission license per year. In Aveiro and in Figueira da Foz, the project will allow a reduction of approximately 10,000 tonnes CO2 per year in each site. In Setúbal, this groundbreaking project has attracted support from the Innovation Fund, the European Union Fund for climate policy, geared especially to energy and industry and working to bring to the market solutions for decarbonizing the European industry and helping it make the transition to climate neutrality. The Aveiro project and the new lime kiln in Figueira da Foz have been partially financed by the NextGenerationEU funds. Together, these three projects represent a total investment of approximately EUR 60 million. This innovation substitution of fossil fuels will improve the cost base of the pulp production process. It once again demonstrates Navigator commitment to operational efficiency and underlines how its actions are aligned with the principles of sustainability in transforming waste into value and taking real steps to consolidate the group's circular economy strategy. Antonio Quirino will now comment on pulp and paper price. António Soares: Thank you, Fernando. Turning to Slide 12 with pulp and paper prices. Between April and August this year, the hardwood kraft pulp price index in China sharply decreased, strongly influenced by overcapacity in the pulp and paper sector in view of the current situation of severe tensions in international trade and the reduction in demand in several paper segments in Western markets. The price dropping cycle bottomed out at a price of $493 per tonne, which is down by 18%, the lowest since 2021. Although this downward cycle has been shorter than previous cycles, it started from a significantly lower peak, reflecting a structurally weaker base than in preceding cycles. In Europe, the benchmark index for hardwood pulp, the peaks hardwood kraft pulp in dollars rallied to $1,218 per tonne in April, up 22%, only to lose ground again in the months that followed, returning to $1,000 per tonne in August, down by 18% as well and remaining at that level until the end of September. In both regions, China and Europe, prices ended the third quarter on an upward trajectory. Moving to paper. The benchmark index of office paper in Europe, PIX A4 B-copy stood at an average of EUR 1,023 per tonne in the first nine months, which is 8% down on the same period last year, but 21% above the pre-pandemic average of EUR 847 per tonne in the period of 2015 to 2019, but below 25% from the 2022 peak. As we review Navigator's performance in Europe, I would like to highlight our approach to sales pricing, which closely track the evolution of benchmark indices. We pursued two different strategies. First, we placed greater emphasis on economy products. So this allowed us to increase our sales volumes, though it did have some impact on our overall product mix. This strategy enabled us to offset the decline in imports into Europe by offering products with superior quality and stronger environmental credentials compared to typically typical imported papers into Europe, particularly those from Asia, while maintaining a price point above imports, but below our premium and standard ranges. At the same time, it allowed us to continue supporting our most loyal premium customers with this economy offerings. Second, we maintained price premiums on our value-added product. This strategy ensured that our pricing on premium and standard products remained favorable compared to the market index and specifically for A4 B-copy PIX. It's important to note that in international markets, our prices were affected by two other factors, namely the weaker dollar and the decline in the pulp markets in China. This dual approach has helped us remain competitive and responsive to market dynamics, balancing volume growth with value retention. Moving to Slide 13 on printing and writing paper market, we see that the global apparent demand for these papers fell by 2.7% until August. Specifically, uncoated woodfree paper remained the most resilient, falling 1.6% this year, which is aligned with historical average market decline, and this compares with 5.1% decrease in coated woodfree papers and 4.2% decrease in mechanical fibers papers. In Europe, the apparent demand for uncoated woodfree paper fell by 6.4% until August, driven specifically by a reduction in imports that were 11% below the same period of last year. In the United States, demand slipped by just 1%, while the closure of a major mill drove import reliance at 31% year-on-year, leveraged by tariff expectations. With capacity cuts and duties adding pressure, prices have climbed and are likely to remain strong with more increases forecast through 2026. In the first nine months of 2025, Navigator grew its share of total deliveries from European mills by 1.2 percentage points year-on-year, reaching about 26%. This was driven by strong gains in international markets at 6 percentage points, while our European share remained steady at over 18%. Navigator's operating rate rose to 87% in the first nine months of the year, 7 percentage points above the same period last year. Meanwhile, the industry rate as a whole recovered slightly from 80% to 81%. These developments enabled Navigator to strengthen its order intake market share by 3 percentage points globally to 27% and by 2 percentage points in the European market to reach 19% year-on-year. Now moving to Slide 14 to discuss pulp market. As Antonio mentioned previously, from April through August, there was a steep downward adjustment in pulp prices. In terms of demand, global demand for hardwood pulp grew by 8% year-on-year until August. China remaining the main engine of growth with an impressive increase of 12% due to the continuous in new paper capacities in several grades followed by the rest of the world with a 9% increase. In contrast, demand in Europe continued to fall following the shrinking consumption of printing paper, as mentioned before, edging down by 1%. In the U.S., demand dropped by 1% as well after heavy restocking over the same period last year. The strongest global growth was for eucalyptus pulp, which was up by more than 10% in the first eight months of the year, with China growing impressive 14% and Europe in line with the same period of last year. This performance has consistently boosted Eucalyptus share in the hardwood reach segment on the chemical pulps. On the supply side, the ramp-up of projects on the pulp side that were brought online in 2024 increased the availability of market pulp in 2025, exerting pressure on operating rates. Even so, factors such as growing consumption, maintenance shutdowns and recently announced cuts in production helped to balance the market and sustain the activity of hardwood producers in the first nine months of the year. The global pulp market will continue to be influenced by China, where growth in domestic consumption and projects for new tissue, paper and board capacity have shaped the market balance. However, a significant proportion of these new lines are still at the initial start-up stage, which could mitigate the impact in the short term. Doubts also mounting as to the region's ability to supply wood sustainably for the new capacity. In Europe, stock levels remained relatively stable. In China, although stocks at ports have been building up since January, analysis of paper production suggests that this growth is proportional to the expansion of their industrial operations and not an anomalous accumulation. The ratio of stock of days of production has been stable in recent months, pointing to a balance between supply and demand. Our sustained competitive advantage is anchored in the uniqueness of Eucalyptus Globulus, eco-efficiency and fiber quality. On a positive note, as Antonio mentioned, our pulp cash costs ended Q3 at the second lowest level since mid-'21, down 20% from January to September and 19% quarter-on-quarter. Moving to Slide 15, covering the tissue market. We see that after a substantial growth of 6.3% in 2024, Western European demand for tissue was up year-on-year by 0.6%. Navigator's tissue sales volume, finished products and mills grew to 177,000 tonnes, a 14% increase compared with the same period of last year, with sales up 17%, boosted by the integration of Navigator Tissue U.K. in May last year. The recent acquisitions in Spain, '23 and the U.K., '24 have enabled us to balance our geographical mix and creating greater resilience in our tissue business. Finished products accounted for 98% of total sales, while wheels accounted for the remaining 2%. The at home or consumer retail segment has grown in importance and currently accounts for around 83% of sales. The away-from-home segment, wholesalers, the Horeca channel and offices accounts for the remaining 17%. The highlight of the quarter in the Tissue segment was the business in Iberia, which recorded its best ever quarter in sales of finished products. We continued with the integration of the U.K. operation with increased collaboration between local and Iberian teams, aiming to boost cross-selling opportunities between markets, optimize the portfolio and identify and implement further cost cutting and efficient opportunities. Navigator also launched a strategic plan to consolidate its U.K. tissue rolled operations, building on an already efficient model to achieve even greater competitiveness and alignment with best practices. Moving to Slide 16 on the Packaging segment, we see that the global market for machine glazed and machine finished kraft papers grew by approximately 11% year-to-date August, reflecting its strong performance. In this segment, Navigator sales were up 7% year-on-year in volume compared to last year, thanks to a rise of 1% in price and a 7% increase in volume with a 10% growth in the area of paper sold due to an increased penetration in low grammage segments according to the strategy. Navigator has been developing and investing in the gKRAFT sustainable packaging segment, offering alternatives to fossil-based plastics and supporting the transition to renewable low-carbon products. gKRAFT brand has won market recognition, achieving a 15% growth in new customers opened during the period of year-to-date September with a presence now in more than 40 countries worldwide. The top performance in the period was the release liner products, together with solutions for food and nonfood packaging, which are strategic priority areas for our business. These segments benefit more significantly from the use of lightweight papers, where the Eucalyptus Globulus offer significant competitive advantages, both economically and technically. MG and MF kraft papers or machine glazed and machine finished kraft papers are used in similar applications such as bags, sachets and several flexible packaging items. Traditionally, machine finished is a slightly lower cost alternative with inferior surface quality in comparison with machine glazed. However, with the conversion of PM3 in Setúbal, production of machine-finished kraft papers in the gKRAFT range will be able to compete with machine glazed on quality. In Europe, machine finished kraft paper for packaging purposes is produced by paper suppliers who typically can only ensure products above 60 grams. The overwhelming majority of the paper machines able to produce below 40 grams are old, small and nonintegrated machines and aimed at the machine-glazed kraft papers. The rebuild of the PM3 machine in Setúbal takes advantage of Navigator's vertical integration and the cost efficiency of the Eucalyptus Globulus fiber for production of distinct top quality kraft papers. As a result of this project, Navigator will move up to fourth place in the European league table of low-grammage flexible packaging manufacturers, strategically consolidating its presence in the segment where demand is surging. In order to ensure that the asset maintains its flexibility and it is adaptable, the project has been designed to allow, if necessary, the production of different grades of uncoated wood-free paper, guaranteeing our capacity to respond to market dynamics and preparing us for future scenarios. I will now hand over to Antonio. Antonio Redondo: Thank you, Quirino. Let's please turn to Slide 17 with a wrap-up of the Q3 and nine months results. Our diversification strategy is paying off. The diversification to higher growth and less cyclical markets such as tissue and packaging, although more dependent on end user consumption, reinforces the company's long-term value creation and resilience. In tissue, we are successfully scaling our operations, expanding into new markets and positioning ourselves to further unlock long-term synergies that will drive sustained growth. In packaging, increased penetration in low-grammage segments confirmed the strong appeal of Eucalyptus Globulus fiber for the same, leading to a 10% increase in paper area sold compared to a 7% increase in sales volume in tonnes. By focusing on efficiency and cost management, we achieved a significant reduction in cash costs across all pulp and paper segment. We kept our focus on core operations, business transformation and innovation. We carried out value-added CapEx of EUR 160 million aimed at sustainable long-term cost efficiency, while keeping consistent conservative financial policies after high level of CapEx and EUR 175 million dividend payout. Let's turn to Slide 19 with a few words about the outlook. Let me now share our perspective on the current market environment and our outlook for the coming months. Globally, we are seeing a reduction in overall uncertainty and still moderate growth prospects. It's important to recognize the continued presence of risks, protectionism, economic fragmentation and financial vulnerabilities in major economies remain a concern. While a recession does not appear imminent, growth is still relatively subdued and ongoing uncertainty continues to weigh on investments and international trade. Despite the challenges and limited visibility, we are cautiously optimistic about short-term market development. We anticipate that conditions will improve, particularly in the pulp, tissue and packaging segments, where the printing and writing paper segment demand is expected to remain under pressure, although with uncoated woodfree presenting most likely again better perspective than other printing and writing papers. Regarding the pulp market, China continues to play a decisive role. Growth in domestic consumption and new capacity projects have shifted the market focus. That said, many of these new lines are still in the early stages, which should moderate the immediate impact. There is also increasing uncertainty regarding the region's ability to source wood sustainably for the expansions. As a result, we have seen pressure on global prices and a change in trade flows with China in growing. Notably, the third quarter of 2025 was the weakest since 2021 with prices averaging USD 500 per tonne in China. We believe this marks the bottom of the current price cycle as both China and Europe saw prices start to recover towards the end of the last quarter. In the printing and writing paper, the overall global outlook remains challenging and need a structural consumption downturn. Europe with strong uncoated woodfree demand contraction, while U.S. and remaining overseas markets with a more moderate fall. Global uncoated woodfree demand with minus 1.6% so far this year is in line with the last 10 years yearly rate. On the supply side, Europe has seen significant capacity reductions with recent closures removing around 430,000 tonnes annually, about 7% of the region's capacity. Another major European player is also facing financial difficulties, which could lead to further capacity cuts. European imports remain stable with no upward pressure. EUDR discussions continue and its implementation is expected to reinforce European pulp and paper market. Meanwhile, the U.S. market has shown great resilience. The closure of the country's largest mill accounting for 8% of total capacity has deepened the market shortfall with North American production estimated to lag 800,000 to 1.1 million tonnes versus North American demand. Another closure announced this quarter will remove 320,000 tonnes of uncoated woodfree capacity by Q3 next year, further increasing U.S. import requirements. Meeting this demand will depend on a select group of countries able to supply products meeting U.S. market stringent specifications, primarily manufacturers in Europe and Latin America. Latin American suppliers, however, are facing the prospect of higher tariffs, both antidumping duties and custom service than those currently imposed on European imports. In response, U.S. producers may focus on their domestic market, potentially creating opportunities for competitors in their existing export market. Despite this complexity, new opportunities are arising in the uncoated woodfree market. For example, Mexico's customs tariffs on Asian imports and Colombian tariffs on imports from Brazil are providing competitive advantage for Navigator in these countries, supporting sales and expanding our footprint. In tissue, demand has increased by an estimated 0.4% so far in 2025, with annual growth expected to hold steady at around 1% through to 2029. The integration of Navigator Tissue U.K. is progressing with stronger collaboration between the local and Nigerian teams, unlocking cross-selling, optimizing the portfolio for higher-margin products. To strengthen our market position and operational resilience, we have launched a strategic plan to consolidate our U.K. tissue roll operations in two sites, Leyland and Leicester, reducing sites from five to two, integrating production and storage for greater efficiency, scalability and cost competitiveness, building on an already efficient model to achieve even greater competitiveness and alignment with best practice. Regarding a new tissue machine, the final investment decision is anticipated by year-end 2025. Packaging continues to perform strongly with growth in sales and price. Our project to convert the PM3 paper machine at Setúbal is progressing as planned. This will elevate Navigator to fourth place among European manufacturers of low-grammage flexible paints, consolidating our presence in a segment with robust demand. Navigator's integrated management, sound financial position and our ability to respond flexibly to market demand from forest to finished products are enabling us to face these challenges and prepare confidently for the future. Continued development and diversification of our business base will further reinforce the resilience and sustainability of our business model. The next slide provides a quick update on our operational excellence initiatives. Amid the ongoing global uncertainty, Navigator is proactively strengthening its resilience through several targeted initiatives under a program called Operational Excellence Initiatives 2025, 2026 as already announced last quarter. Keeping its focus on high operational standards, the company has launched internal programs designed to act on different fronts to protect results. These involve programs for the optimization and reduction of variable costs by streamlining specific consumption of raw and subsidiary materials, seeking strategic negotiation with suppliers as well as logistic cost reductions. The company will also step up its commitment to Iberian wood, promoting local and sustainable fossil fuel. in this first quarter is already visible the impact of some of the measures implemented. As mentioned in our previous call, Navigator is advancing its operational excellence through a robust investment in AI, namely advanced process control solutions aimed at enhancing process stability, efficiency and product quality. The company has successfully deployed third-party APC systems, two in classification processes and value of breaching with two more in the pipeline, while it is also developing proprietary machine learning algorithm solutions internally. These include optimization of precipitated calcium carbonate incorporation and reduction of variability in tissue grammage control and integrated control of thickness, grammage and reference in uncoated woodfree paper production. This multipronged approach reflects Navigator's commitment to innovation and continuous improvement and across its industrial operations. We're also focusing on improving efficiency by cutting fixed costs, mainly freezing headcount and optimizing running costs. We continue to invest in reliability by speeding up implementation of the asset performance management, APM system and executing specific action plans to build up teams and improve systems for asset management, maintenance and reliability. Along CapEx -- alongside this CapEx plans will be subject to careful review, especially as regards to scheduling, seeking to reduce projects in 2025 by approximately EUR 40 million, prioritizing those under the resilience and recovery program and those offering higher rates of return. Lastly, we will address our commercial strategy and market diversification by relaunching economic products, being more aggressive with low-end products in the face of the current economic situation, while protecting the margins and volumes of premium products. With a positive perspective following the decisions of the European Commission on 24th of April 2025, the ERSE, the energy regulator in Portugal on 22nd of July, a revised third-party access tariff for less intensive customers has been set. Navigator installations in high and medium voltage will benefit from rant discussion on those tariffs between May and December '25. In addition, with approval of increased support for indirect CO2 costs in Portugal through the environmental fund. This support, we must say, has been both delayed and very modest, especially when compared to the more substantial measures provided to our competitors in several other European countries, notably in Spain, in France, in Germany, and in Finland. Business diversification and innovation in products remain at the heart of Navigator strategy, especially in the tissue and packaging segment, where there is still great potential for growth. Thank you. Ana Canha: Thank you, Antonio. This ends our presentation. We are now open for the Q&A session. Operator: [Operator Instructions] Our first question comes from Cole Hathorn from Jefferies. Cole Hathorn: I'd just like to follow up on your office paper business. In a challenging demand environment, you've done exceptionally well. So I'm just wondering on your commercial strategy, how did you maintain the stronger operating rates of kind of 87% versus the industry? Was this a real focus on the economic products to keep your operating rate elevated. I'm just wondering commercially how you drove the better operating rates in uncoated woodfree. And then I'm also just wondering, sticking to Europe, was there also something around one of your competitors or some of your competitors dropping the ball commercially? Just wondering if it's a bit of both. Antonio Redondo: Okay. Thank you for your question. And I'm trying to rephrase it just to make sure we fully understand them. I will give some elements to the answer, and then I'll ask Quirino to follow up. Your first question is focused on office papers. And you realize that our results are quite resilient under the present situation, and you would like to understand how this resilience can be explained vis-a-vis our European competitors. Is this right? Cole Hathorn: That's correct. Antonio Redondo: Okay? And the second question is if you believe that some of our European competitors have dropped the ball under the same context, I understand. Cole Hathorn: Yes. Antonio Redondo: Okay. I will give you some elements of answer and then Quirino will follow up with more details. For the first question, I think there is not a silver bullet. We didn't perform one single action that allow us to be significantly more resilient than our competitors. First and probably foremost, we have a unique product quality that is second to none to anybody else in the world. And we have very, very strong brands. And I think, again, this quarter, our quality has proven to be very differentiated from our competitors. And in an environment where people consume less products, they probably can afford to choose better products. At the same time, our brands have a very large recognition in the world, but particularly in the markets where we are in. The second element, I think, is related with our sustainability practices and our sustainability reputation. We didn't saw and we are not seeing any drawback any decrease on sustainability when choosing papers, namely office papers and filling and writing papers. And we have the sustainability credentials that we show, we prove, we demonstrate, again, second to none in the group. The third element is probably related with our geographic spread. We are very much present in the corners of the world, if you will, with a strong presence in Europe and a growing presence outside Europe, which I think also Quirino demonstrated. I will stop here on the first question. I will ask Quirino to complement what I've mentioned. And then we can also explain how economic products has helped us to support the high end. António Soares: Absolutely. Thanks for the question. So I think Antonio mentioned the key points. So we see a strong resilience on our premium and branded offering products in the market. And this is related with the fiber and the quality of the products, which is very appreciated in the market. So I think this is really, as Antonio mentioned, a strong element to the answer. The other one is in geography. Actually, our coverage of around 130 countries in the world provide contrary to some of our smaller competitors in Europe provide an insurance, let's say, because we're covering several regions, we take profit from local regional growth. We did see the Americas, both in North America and Latin America quite positive for us as well. Don't forget that we saw this year also a decrease in imports into Europe, which was also helping the European industry to find some space. But your question relates to our comparison to Europeans. So imports is not an element to answer this, but it helps everyone, I would say. And I would just comment on what I mentioned before on the dual pricing strategy where we continue to protect more the price -- decreasing less the prices on the premium and branded products. But we went more strongly into the economy market with our partners, supporting them on their needs of economy products now that imports are reduced. And so this increased penetration in economy products also boosted our operating rates compared to European mills. Antonio Redondo: Regarding your second question, I think we can -- sorry, regarding your second question, I think we can concur with you. What we have seen so far is exactly in a market where demand is shrinking in some regions more than others. We see a significant amount of competitors leaving this market, either leaving to other markets or just, as you said, dropping the ball. This was the case clearly in the States, as we mentioned, with one large mill announced for this year, actually already stopped and another one preannounced for next year. We had a sale towards the end of last year and early this year in Europe. And without naming competitors, I think we can keep on seeing the same pattern. If you just look to the results and keeping the geography around if you just look to the results of our European competitors in Q2 and Q1 this year, I think it's easy to understand that some of these companies will never be viable. So in a market that is going down in terms of demand and lacking strong elements of competitiveness, I think it's a question of time before we see others keep on reducing capacity. Cole Hathorn: And maybe just as a follow-up, your cash costs, you have on Slide 14, your cash cost going down 19% quarter-on-quarter. That's a very big reduction in cash costs. We've seen some of the Nordic players talk about lower wood costs. We've seen some easing of wood costs after a rally in wood costs, but most people are talking about an easing of costs into 2026. So I was just surprised to see cash costs coming down so much for Navigator. So I'm just wondering if you could give a little bit more color of what drove the lower cash cost. Is it wood? Is it just better operating rates? Is it your own self-help initiatives to reduce chemical energy consumption? Any color would be helpful. Antonio Redondo: Okay. So if I understand correctly, you'd like us to give a bit more color on the cash cost reduction, correct? Cole Hathorn: Yes, please. Antonio Redondo: So the cash cost decreased in all different segments. They have decreased in pulp, they have decreased in uncoated woodfree and packaging and they have decreased in tissue. The ones that you mentioned that are in our Slide 14 are specifically referring to pulp. And let me add the following. I think probably we have a couple of elements here. One, as we have seen, our cash costs are on top at the level of 2021. So it's a significant reduction on 2021. Having said that, we had an increase of cash costs in Q1. So we are comparing Q3 with the Q1 where we had higher cash costs. At the time we explained, this was mainly related with energy and chemicals. So the different elements that we have mentioned, they all play a part here in the reduction. I think we can also say that in between September and January this year, our total cash cost dropped 20%. So you see the big impact that we are trying to have on cash cost control. What are the main elements? For sure, energy and chemicals that have a bigger impact on the first quarter of the year. Also, wood is mainly by managing wood origins by managing the sources of wood. And also, we have managed to keep in control fixed costs. Of course, when your operating rates are improving, you have also an efficiency element on it. I will pass to Fernando if he wants to add something. Jose de Araujo: No. Perhaps on the fixed cost that is on the payroll side, at the beginning of the year, the expectations for the year were higher than the ones that we have now. And part of our payroll expenses are related with the performance of the company. This means it's also some justification for the declining in the cash costs in the period. Related to direct costs, it's like Antonio said, the energy, chemicals and the wood. Part of it is price and part of that is management, the proportion of wood available from different sources and trying to be more efficient on the operational side. Antonio Redondo: Following up the comments from Fernando,, let me just add one thing about HR, which is we took the decision on -- already on the second quarter. We announced it when we present second quarter results as a freeze in recruitment. So we are managing our operations with, I would say, a more limited number of people, which is a challenge because in some areas, we are building new equipment, we are building operations, we are growing. In some other areas, we are not. So we are balancing people between different operations to keep costs under control. Operator: Our next question comes from Bruno Bessa from Caixa Bank BPI. Bruno Bessa: I have three, if I may. The first one, you mentioned an improvement in terms of your backlog for the Q4. Just wondering whether this is a pure seasonal effect or if there is an upturn in terms of demand that is above the usual pattern in Q4. This will be the first question. The second question regarding paper prices. In the last cycle trough, you control quite well the price level because you reduced you and your competitors reduced the average capacity utilization rate. My question is why aren't you doing the same this time around? What has changed in the market for you not to follow the same strategy this time? And the third question, we saw a relatively weak quarter on volumes in the tissue business following on a year-on-year basis. Just trying to understand what is behind this effect, if there is any kind of one-off impact in terms of production? And what are your expectations for the upcoming quarters? Antonio Redondo: Okay. Thank you. Again, for sake of clarity, I'm going to try to rephrase the questions and I will give some elements of answer. I will ask my colleagues to help on replying. So your first question is about the improvement of backlog. I think you are referring to uncoated woodfree and you'd like to understand if this is demand or purely a seasonal effect. Bruno Bessa: Correct. Antonio Redondo: Okay. Thank you. Your second question is that you believe that previously this industry a better discipline on pricing and we try to understand what is happening right now. Bruno Bessa: That's correct. Antonio Redondo: And the third question is about tissue. You saw coming to what you were expecting weaker volumes on Q3. And would like to understand if this is one-off impact or any issue regarding our mills. Bruno Bessa: That's it. Antonio Redondo: Okay. I will give elements over three questions. For the first two, I would then ask Quirino to follow up. And for the third, I will ask Nuno also to comment. So starting with backlog improvement. A very quick comment, and Quirino will detail much more than myself. This is much more than seasonal effects. We are actually conquering, if you will, market share. I think we have shown that in one of the slides. We are conquering market share in order intake. Quirino can elaborate a bit more why we are doing that, but some elements of that have already been given, namely by enlarging our product offer with adding new -- not new, adding products that we didn't have before. On paper prices, I think we agree with you. We see the same. We see that the discipline of the market this time was not at the level that was before. We, as a market leader, try to keep prices and provide actually an umbrella for prices where the majority of our competitors could protect themselves, but they choose not to do. They choose to -- in spite of that to lower prices and, of course, we are also reacting namely with low-end products. Look, I'm not sure if I mentioned this in one of these calls, but I mentioned this very often. There is a very famous sentence from Robert Crandall. Robert Crandall was the CEO of American Airlines after the liberalization. And he said the airline industry was run by the dumbest competitor. And I think this applies also to pulp and paper. I mean no matter the effort that we, as a market leader, do to protect prices, some of our competitors, I guess, out of the aspiration, I go back to the first question that was raised by our colleague from Jefferies. Out of the aspiration, they just give up drop wall, I think was the expression and decreased prices. Nuno, do you want to follow up, please? Nuno de Araújo Dos Santos: Yes. So on the backlog on Q4 is a bit seasonal, but more than seasonal. So we see -- first, we are getting our market share in deliveries, in sales. But what you see in backlog is actually our ability more recently to progress more in market share in order intake, which is a bit more forward-looking because these are orders to be delivered in the next few months. So we are progressing on that. Again, in the Americas, a bit in Europe as well. And in what we call the overseas markets, the North African and Turkish market, which also are picking up a little bit due to the opening of the upward trend on the pulp prices that we mentioned. So this is bringing more activity to the paper market as well. On the prices, only to agree with what Antonio said, I mean, with low pulp prices in -- during the number of months in a row with a portion less now than in the past, but with a portion of players which are nonintegrated, operating on average. Our competitors were, on average, at a lower level. You listened for sure that on average, including us, the uncoated woodfree industry in Europe was operating at 81%, so slightly up from 80% last year, but we increased much more than the market. So our competitors are under severe pressure. So probably that's the explanation over there. Jose de Araujo: Regarding your third question on tissue, also an introductory comment and I'll pass to Nuno. First of all, no, we don't have any issue in our mills, so no operational issue, no one-off impact. The economic situation across Europe is not across the world, but particularly across Europe, and this affects tissue, obviously, that affects other brands, less tissue than other brands that also affects tissue. But also, we have been working on improving profitability and we have decided to net down some sales that we believe are not profitable for our objectives. Nuno, do you want to follow up, please? Nuno de Araújo Dos Santos: Okay. Can you hear me? I hope so. Antonio Redondo: Yes. Nuno de Araújo Dos Santos: Okay. No, basically, you said it all already. The market in tissue this year is slightly slower in terms of growth. I think we've said it versus last year, we were -- we have a 3%, 4% growth rate in the market. This year, European market, Western market has been growing at around 0.3%, 0.4% growth rate, which is relatively small, reflects the economy, some tendency for some consumers to trade a bit on specs. So instead of buying three or four ply products, they might choose a similar product, but with two plies or reduce a bit the kitchen rolls used at homes. But I mean, this reflects the overall economic sentiment on one side. And the second reason that Antonio also mentioned, we want to have sustainable and healthy relationships for both sides, always with our partners and clients and protect the long-term sustainability of the relationship. In some situations, it's better to drop a bit some volumes, but to protect the way we are able to serve those clients, and this is what we've been doing. But nothing that is concerning for others. Bruno Bessa: Okay. If I may, just a follow-up on the first question about the demand for -- and the backlog that you have. From what I understand, the improvement you are seeing is mostly driven by your market share gains more than an effective healthier end demand market at this stage, right? Antonio Redondo: Yes. The market in Europe in the latter part of the nine months is not significantly better than what it was in the beginning of the year. Of course, there is one positive impact is that imports are significantly increasing. And this, of course, also open space for long-term strategic suppliers to our customers. Operator: [Operator Instructions] Our next question comes from António Seladas from A|S Independent Research. António Seladas: I have three. First one is related with the different dynamics between Europe and U.S. regarding the printing and write paper. So U.S. is coming down by 1% and Europe about 6%. So what are the difference why the difference is so large, taking consideration that, I guess, the digitalization and all that stuff is more or less similar. Second question is related with saving costs at your U.K. tissue operation. If you can provide some color on it and when we should start to see the results on the profit and loss account. And last question is related with -- there were some provisions on the third quarter figures that you released last week. So I don't know if you can provide also some insight or explain why were these provisions. Antonio Redondo: António, sorry, I'm so sorry, but I think I can summarize the first two. I didn't at all got the third one. Can you please be so kind to say it again? António Seladas: Sure. There were some provisions on your profit and loss on your third quarter figures in your third quarter results release last week. So if you provide -- if you can explain why were -- what was the reason for the provisions? Antonio Redondo: Okay. I'm going to rephrase the questions just to make sure that we fully understand them. First one, you'd like to understand the different dynamics between U.S. and Europe in terms of the downturn so far this year? António Seladas: Yes, exactly. What explains the difference, so big, so large. Antonio Redondo: Okay. Okay? The second one, if I understood correctly, is about our tissue U.K. operation. And by saving costs, I'm not sure if you were referring about synergies or if you're referring about our project to consolidate into a smaller number of installations. António Seladas: It's the second one, in fact. Antonio Redondo: Second one. And the third one are provisions on the third quarter results. Correct? António Seladas: Correct. Antonio Redondo: I will give a quick comment on the first one and the second one, I'll pass then to Quirino or Nuno and the third one, Fernando will answer you. So the different dynamics. I think most likely, we cannot justify what is happening in the uncoated woodfree market no longer by digitalization because I agree with you, if it was purely digitalization, the conversion will be more or less the same, and it is quite significant. Having said that, let's not forget that the market downturn started in U.S. prior to Europe, a couple of years, three or four years prior to Europe. And in U.S. for probably quite some time, we see more an asymptotic behavior of demand. So I think the main explanation for the difference is the economic dynamics on -- between U.S.A. and Europe. But I will leave to Antonio to comment further. António Soares: I think just the same, if you think on the data between '19 and '25, if you compare 2019 with 25% and you average the average percent will increase in the market, the annual -- the compound annual growth rate is actually quite the same. It's 5.5% in North America per year from '19 to '25 with COVID in the middle and all of that and Europe as well, 5.5%. So as you mentioned, Antonio, there is a matter of timing where U.S. started to decline much before and now it's more an asymptotic with 1% decrease. Antonio Redondo: Regarding the cost savings in tissue by consolidating the operation, and before passing to Nuno, just to remember, we are doing this with an ongoing operation in five sites. and we are not buying new machines. So this process is a process that is relatively slow because we need to make sure that we do not let our customers down. So we can only migrate the machines when we are able to reach production in such a way that we keep on supplying our customers in a continuous way. Also, this implies a reduction of number of people and in some cases, a reduction, which is the most expensive. In some other cases, people moving from one side to the other. So if this takes people into consideration, you have from one side, our concerns with people like a company that is very much concerned with its HR. And also we have consultation processes with the employee representatives. So the process already started. It started around August to take significantly more than one year. Nuno? Nuno de Araújo Dos Santos: Yes. I think it might be worth stating even though that's not exactly the objective of your question, but we are addressing both fixed costs and structural costs, but also variable costs in the U.K. operation. So we have -- since we acquired the company last year, we have been performing a revision and the redesign of all cost items. So our paper costs are going down significantly, but also, let's say, the packaging materials, logistics, et cetera. So that's one big element that we are working on. Second, as Antonio mentioned, we are working on the fixed costs. First, of course, Accrol, as you know, as you remember, was floated in the market. We took out a lot of PLC costs and cost -- excess costs that a company that was independent and directly floating in the U.K. market required. Now we have started as it was announced in the process of restructuring and consolidation of our sites. We've just started. It's planned to last until last year. We will again optimize the cost structure of the company, and we will do this in order to have one of the most competitive and most efficient operations in the U.K. In addition to that, something that we are working also in parallel, let's call it the third element of it is increasing productivity of our lines and our plants for you to have an idea, efficiency when we started and we -- the company joined Navigator one year ago, 1.5 years ago was around the OE of the operation was around 30%, 35%. And since then, we have already improved it to 45%. So this is a technical industrial measure KPI, but it's worth mentioning that productivity on the lines, the production lines has also increased significantly over the last 16 months. So overall, we're working on all of these elements. Jose de Araujo: About the provision, the provision has two elements. One element is the fact that we will dismiss some people at the U.K. and that represents more or less 30% of the value. The remaining value regards different with a supplier in our investment phase that is asking works and things like that, and it starts with process. And despite the fact if you lose this will increase only the amount of investment, we have accounted a provision because we have some tax benefits on that. António Seladas: Okay. Just a follow-up question regarding the different dynamics between U.S. and Europe. Should we expect -- what kind of demand should we expect in Europe for next year? So I don't know if you can share with us your ideas. Antonio Redondo: This is the hundred million dollar question. Again, First of all, we cannot share what we have, but this is competitive information. But I think some of the elements that we gave you as an answer can provide you -- before I can provide you an answer now. If we believe this is very much linked to the economic situation across Europe, if we are positive that the economy next year is going to be significantly better, I think we will see a significantly lower decrease. If we believe that the economy is going to be more or less at the same level, we will probably see more or less the same type of decrease. Operator: Ladies and gentlemen, there are no further questions from the conference call at this time. We will now proceed to read the first question from the webcast. The question comes from Jaume Rey Miró from GVC Gaesco. And the question is, do you expect CapEx linked to ESG projects to keep these high levels we have seen in the last three years until you achieve these CO2 targets in 2035? Can we have a forecast in absolute terms for CapEx in general next year? Antonio Redondo: Okay. I'm going to give an introduction and then Fernando will follow up. ESG is not only decarbonization, but I understand that the main concern and of course, also the main CapEx so far has been decarbonization. If you probably remember the slide in our presentation, Slide #10, and you see that the emissions will be stable from 2026 to 2030. So we will drop vis-a-vis the reference here, which is 2018. In '26, we expect to drop 55% out of 86%, and in 2030, 58% out of 86%. So I'd say the large majority of the emission reduction is done. So purely decarbonization, the large majority of the projects are behind us. is why we are able to keep this level of emissions in the next four to five years. Of course, we are always willing to look to opportunities to speed up the decarbonization provided we find that the projects are value added and they are value added by themselves or Europe makes available funds to increase decarbonization and we increase the value added by using those sites. So, in short, a large majority of the ESG investments dedicated to decarbonization, which is the largest part, I would say that will be concluded by 2026 when we conclude the PRR, the EU Next Generation funds. Jose de Araujo: This means 2026 despite lower than the amount that we are expected to spend in 2025, it's still above our average investment. Antonio Redondo: Our average CapEx is around EUR 100 million and EUR 120 million. This means from 2027 onwards is what we would expect. Of course, without expansion CapEx. So the PM3 expansion, which will mainly in 2026 and using again grants from next-generation funds will be concluded by September 2026, and we hope to be able to take the final investment decision on the tissue machine by the end of this year and also the impact of '26 and '27. Fernando was referring this ballpark EUR 120 million is outside the normal maintenance CapEx without expansion CapEx. Ana Canha: This ends our session. Thank you all for your time. As always, we are available for any additional clarification through our usual contact. Have a great evening.
Operator: Good afternoon, ladies and gentlemen, and welcome to Global Industrial's Third Quarter 2025 Earnings Call. Please note, this event is being recorded. At this time, I would like to turn the call over to Mike Smargiassi of The Plunkett Group. Please go ahead. Mike Smargiassi: Thank you, and welcome to the Global Industrial Third Quarter 2025 Earnings Call. Today's call will include formal remarks from Anesa Chaibi, Chief Executive Officer; and Tex Clark, Senior Vice President and Chief Financial Officer. Formal remarks will be followed by a question-and-answer session. Today's discussion may include certain forward-looking statements. It should be understood that actual results could differ materially from those projected due to a number of factors, including those described under the forward-looking statements caption and under Risk Factors in the company's annual report on Form 10-K and quarterly reports on Form 10-Q. I would like to remind everyone that in Q4 this year, our quarter will close on Saturday, January 3, 2026, representing 1 additional week in our quarter compared to the prior year. While we are adding 4 working days to our quarter, this is the period between the Christmas and New Year's holiday, which historically represents the lowest sales week of any given year. The press release is available on the company's website and has been filed with the SEC on a Form 8-K. This call is the property of Global Industrial Company. I will now turn the call over to Anesa. Anesa Chaibi: Thank you, Mike. Good afternoon, everyone, and thank you for joining us. Overall, we were pleased with our performance in the period as we delivered our second consecutive quarter of revenue growth, along with strong year-over-year profitability. We continue to manage the business proactively and have executed well. In the quarter, revenue increased 3.3% to $353.6 million. We grew the top line each month during the period and growth has continued into the early parts of the fourth quarter. Performance was once again driven by our largest strategic accounts, where good momentum and sales progress continues. This was partially offset by a reduction in our smallest and more transactional customers, which is in line with efforts to be more intentional and focused in how we go to market. In addition, I'd like to highlight the results of our Canadian operations. Canada generated a second consecutive quarter of strong top line expansion, which resulted in substantial operating leverage improvements in the local market. Investments made in recent years are delivering upon our expectations. We expanded our distribution capacity, improved supply chain and procurement processes and invested in our people and culture, all strategic steps that bring us closer to our customers and enable us to deliver the enhanced value they've been looking for. Gross margin was 35.6% for the third quarter, an increase of 160 basis points over the third quarter of 2024. Operating income improved over 18% to $26.3 million, and we had strong cash flow generation in the quarter. We continue to advance the transformation of our business model and the placement of the customer at the center of everything that we do. We are reframing our go-to-market strategy to take a more intentional approach to attracting customers, renewing our focus on identifying and targeting key accounts while aligning the organization to better meet and serve our customers' needs. We are working to expand the solutions and products we offer so that we are better positioned to deepen existing relationships and gain greater share of wallet over time. We are also enhancing our ability to serve customers more effectively and with increased efficiency through implementation of our new CRM and reworking our processes, procedures and technology to better serve our customers. We are leaning into these efforts and making steady progress against our strategy. My interactions with national vendor partners and customers at the Global Industrial Trade Show in September reinforced my belief that we are on the right track. The show provided me with the opportunity to meet with a broad cross-section of partners representing national brands as well as specialty products. I also met with customers in both structured meetings and breakouts and more importantly, through spontaneous discussions on the show floor. These interactions highlighted a clear opportunity to become a more meaningful channel partner for our vendors and to broaden the relationships and the support we provide customers. By better showcasing our capabilities and telling our story with greater clarity, we will be well positioned for even greater success with a tremendous runway ahead of us and a unique platform to scale organically. Now I will turn the call over to Tex. Thomas Clark: Thank you, Anesa. Third quarter revenue was $353.6 million, up 3.3% over Q3 of last year. U.S. revenue was up 2.9% and Canada revenue improved 12.3% in local currency. Price was positive mid-single digits in the quarter. This was partially offset by a slight decline in total volume, which was a result of some intentional actions. While we saw order count growth in our largest and most strategic customers, we continue to see volume declines primarily in onetime lower order value transactions. We believe the volume decline headwinds in this transactional segment will begin to wane in the fourth quarter as we start to anniversary prior actions taken near the end of 2024. These new actions include efforts to be more focused in how we go to market and emphasize our highest value potential customers. The quarter also saw some decline in federal government spending due to the timing of awards and budget uncertainty. As of today, we have seen growth continue into October. Gross profit for the quarter was $126 million. Gross margin was 35.6%, up 160 basis points from the third quarter last year. We were very pleased with this margin performance, which reflects price capture and diminishing favorability of pre-tariff inventory that flows through the cost of sales on a FIFO basis. On a sequential basis, as expected, gross margin pulled back from the record level generated in the second quarter of this year. The tariff environment remains highly fluid and the cumulative impact of incremental tariffs remains potentially significant. Since our second quarter earnings report, additional tariffs were both announced and went into effect in early August including reciprocal tariffs and a doubling of duties on steel and aluminum. As a result, we took an additional pricing action in late August, which supported margins to the end of the quarter. We continue to actively monitor the situation and are focused on supplier diversification, price management and strategic cost negotiations. We maintain a healthy inventory position and continue to prioritize availability for our customers. Management of our margin profile remains a key area of focus. As we move through the current cycle, our goal is to manage to price/cost neutral. In addition to tariff uncertainty, I would note that historically, Q4 generates softer margins in part due to product mix and peak season freight surcharges. In the fourth quarter, we expect to see continued year-over-year margin expansion. On a sequential quarter basis, there may be some margin pullback in line with historical performance. Selling, general and administrative spending for the quarter was $99.7 million, an increase of 6% from last year and essentially flat on a sequential quarter basis. As a percentage of net sales, SG&A was 28.2%, up 70 basis points from last year. SG&A reflects strong general and discretionary cost control. This was offset by a year-over-year increase in variable compensation expenses related to performance within both selling commissions and our bonus pool accrual increasing compared to last year. Operating income from continuing operations was $26.3 million, an increase of 18.5% in the third quarter, and operating margin was 7.4%. Operating cash flow from continuing operations was $22.6 million. Total depreciation and amortization expense in the quarter was $2 million, including $0.8 million associated with the amortization of intangible assets, while capital expenditures were $0.7 million. We continue to expect 2025 capital expenditures of approximately $3 million, which primarily reflects maintenance-related investments and equipment within our distribution network. The company's tax rate in 2025 is 26.4% versus 23.7% in 2024. The increased rate in 2025 results from an increase in nondeductible executive compensation. Let me now turn to our balance sheet. We have a strong and liquid balance sheet with a current ratio of 2.2:1. As of September 30, we had $67.2 million in cash, no debt and over $120 million of excess availability under the credit facility. We continue to fund our quarterly dividend, and our Board of Directors declared a quarterly dividend of $0.26 per share of common stock. I will now turn it back to Anesa for some closing remarks. Anesa Chaibi: Thank you, Tex. The team has done a great job executing our strategy throughout the company. We are effectively navigating the market disruption and uncertainty from the current tariff environment through a focus on what we can control. We are taking actions to better position Global Industrial to grow and believe we can open the aperture of the total addressable market that we pursue. We remain well positioned to continue investing in our growth initiatives and to also evaluate strategic M&A. I'm encouraged by the progress we're making throughout the company and look forward to finishing 2025 in a strong position that will set us up for a successful start to 2026. Thank you for your interest in Global Industrial. Operator, please open the call for questions. Operator: [Operator Instructions] Our first question comes from Ryan Merkel with William Blair. Ryan Merkel: I wanted to start off on price. Could you give us a sense for how much price impacted the quarter? And then I think you mentioned an August price increase. Can you give us a sense of what you think price will be in 4Q? Thomas Clark: Ryan, yes, I'll go ahead and take that one. So pricing, as you know, costing environment is fluid. And while we are working to diversify our supply chain and making sure our first goal is inventory availability for our supply chain partners and our customers. Obviously, the cost increases due to the tariffs primarily is a real cost that we're incurring right now. So as you mentioned, in August, we did take some additional pricing actions as we saw that inventory mix change as our cost of goods was mixing into more tariff inventory. As we looked at that cost of goods flow, we saw more of that move in. So again, it was in that mid-single digits range, just over 5% of price in the period that we saw. That would include obviously anything that we took in that mid-August price increase. We would expect that to be pretty consistent or slightly higher in the fourth quarter, just given that timing of that second move. Now we know things are fluid. There are obviously threats in the marketplace of some additional tariffs, but there's also some potential green shoots or bright spots where maybe there's going to be some relaxing of tariffs, and we've seen some of that out there. So we're going to continue to monitor that, and we'll be ready for those actions, and that's what the team is focused upon. Ryan Merkel: Okay. Got it. And then you mentioned the large strategic accounts, there was growth and I guess, the smaller customers with a little bit of a decline. What -- how much did the large strategic customers grow? And do you expect to continue to accelerate that part of the business as we think about the next couple of quarters, just given the initiatives and the focus there? Anesa Chaibi: Yes. I guess -- thanks, Ryan, for the question. Our strategic accounts had continued momentum. We're leaning into those, gaining greater share of wallet and doing more to figure out what their needs are and adding assortment, SKUs, things along those lines so that we can serve that need. As we look at -- we shared that we intentionally pulled back in certain areas, and it was for kind of the long tail, more transactional customers. And I think we're now eclipsing that. But we're also focused on as we look to reposition ourselves and go to market in 2026 and beyond is realigning the org to then serve customers along specific industries and sectors. And we're piloting that right now, but it's just in the very early innings so that we're positioning ourselves for '26 in a positive way. So we've still got some more work to do, but we are seeing some progress there on all fronts. Ryan Merkel: Okay. Perfect. And then just to clean up, you mentioned October, there's continued growth. Should I take that to mean it's at that 3% level? Or you mentioned the government is a little weaker as perhaps the government slowed down the business a little bit in October? Anesa Chaibi: We've seen state and local actually be positive. We've also seen some bounce back recovery on the federal side just based on timing of when some things flow through and actually were booked and billed, if you will. So we're seeing some good momentum, and we're in the process of close to closing the books for the month of October, but we've seen higher growth rates than what we're reporting today. I don't know, Tex, if you'd like to add anything or not. Ryan Merkel: No, I think you covered it perfectly. Operator: And the next question comes from Anthony Lebiedzinski with Sidoti & Company. Anthony Lebiedzinski: So certainly realize that you are being more intentional with your go-to-market strategy and seeing less of the transactional customer. But just wondering if we were to adjust for those transactional customers, what are you seeing from your -- from the rest of your core SMB customers? Just wondering if you could speak to the health of that customer group, what you're seeing there? Anesa Chaibi: Yes, do you want to jump in? Go ahead and take the lead. Go ahead. Thomas Clark: Yes. Thanks, Anesa. So yes, as we talk about -- if you think about some of the -- go back a year ago and when we had a CEO transition, some of the first things that Richard Leeds highlighted in his first public remarks were that we had gotten into some of the activities that may have been a little bit more on the promotional end that they were driving value. They were driving orders, they were driving revenue. But when we look at the lifetime value of those customers, it wasn't the type of customer that fit right for what we were trying to accomplish and who we could best serve in the long run. So those are some of those key changes that we've made. When we look at our broader portfolio of customers and that recurring revenue, the retention within our core business, not only small, medium business, but the public sector and the larger enterprise customers, we believe it's very healthy. We still see good retention rates in that area. And it's an area that -- that's the area that we're continuing to focus on the intentionality on how we service those businesses. So I think we're fairly bullish on the health of that core customer, and it's really been that more transactional customer that we've seen some slowdown. And like we said, we think some of that -- some of those changes we made were about a year ago. They were in the early parts of Q4. So you'll have less headwinds from a year-over-year perspective than we've had so far this year. So that should be a benefit into the fourth quarter. Anthony Lebiedzinski: Got you. Okay. That definitely helps. And then just in terms of your comments about expanding solutions and products, how do we think about your TAM opportunity? I don't know if there's a specific number. I don't know if you're ready to share that. But as we think about next year and beyond that, I mean, how do we think about just the opportunity for Global Industrial to participate from a higher product offering that you guys are planning to have? Anesa Chaibi: Yes, Anthony, that's a great question. I don't have a specific number right off to share with you or communicate today. We -- I have requested that the team look at kind of -- as we look at the go-to-market and the industries that we're going to serve, I think that will help frame up for us, respectively, across each one of those verticals, if you will. And then what we'll do is we'll share what we think that full opportunity is. But as you're well aware, in the industrial space, especially in distribution, industrial distribution, it's double-digit TAMs across different dimensions. And it's -- we're going to be very intentional, and we're going to make some investments across certain industries and lean into others. So I don't have a number today, but my hope is that I'll be in a better position to share with you once we wrap up the full year and what we're positioning and looking to move forward in '26 with. Anthony Lebiedzinski: Understood. Okay. And then my last question, just thinking about your SG&A expenses, is the growth mostly incentive comp accrual. And so as I look at the first quarter, you guys were essentially flat in terms of your expense growth from the prior year. Second quarter, you were up 3.5% and then up 6% in the third quarter. So maybe just help us better understand your expense growth and how do we think about that going forward? Thomas Clark: Yes, Anthony, I'll jump in on that one. So if you think about it, last year, when we reported our third quarter, we were in a position where we're seeing revenue decline and some softness on the bottom line. As you can imagine, that directly correlates to kind of how variable comp is earned both at the selling level of the individual contributor, but also to management and executives kind of how we earn variable compensation and non-equity incentive compensation. So last year, we were in a period where that was actually coming down or being reversed in the third quarter. This year, we're really booking to our plan and thinking about how that's being accomplished. So there is a big year-over-year differential just simply because we're in a point where we're growing our profit this year. Last year, we were seeing some pullback. So just -- it's really the timing of that impact. That is really the almost exclusive driver of the year-over-year change in our SG&A portfolio. Operator: This concludes our question-and-answer session and also concludes our call today. Thank you for joining, and have a nice evening. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Caesars Entertainment, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brian Agnew, Senior Vice President of Corporate Finance, Treasury and Investor Relations. Please go ahead. Brian Agnew: Thank you, Shannon, and good afternoon to everyone on the call. Welcome to our conference call to discuss our third quarter 2025 earnings. This afternoon, we issued a press release announcing our financial results for the period ended September 30, 2025. A copy of the press release is available in the Investor Relations section of our website at investor.caesars.com. As usual, joining me on the call today are Tom Reeg, our CEO; Anthony Carano, our President and Chief Operating Officer; Bret Yunker, our CFO; Eric Hession, President, Caesars Sports and Online; and Charise Crumbley, Investor Relations. Before I turn the call over to Anthony, I would like to remind you that during today's conference call, we may make certain forward-looking statements under safe harbor federal securities laws, and these statements may or may not come true. Also, during today's call, the company may discuss certain non-GAAP financial measures as defined by SEC Regulation G. Please visit our press releases located on our Investor Relations website for a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure. Our Q3 investor presentation has been posted to our website, and our Form 10-Q has also been issued as well. We experienced hold volatility in our reported results. Management will discuss hold normalized results in our call today, and a full reconciliation can be found in our earnings presentation posted on our website on Slide 21. I will now turn the call over to Anthony. Anthony Carano: Thank you, Brian, and good afternoon to everyone on the call. Our diversified portfolio delivered third quarter consolidated net revenues of $2.9 billion and adjusted EBITDA of $884 million. On a hold normalized basis, the company reported $927 million in consolidated EBITDA. During the third quarter, our Digital segment delivered strong volume growth in both sports and iCasino. Adjusted EBITDA in our Digital segment was negatively impacted by NFL hold in September and faced a difficult comparison to last year, which included WSOP results. Our Las Vegas segment posted solid results in the face of softer market-wide visitation and adjusted for poor table games hold. We are seeing sequential improvement in operating trends in Las Vegas as we enter the fourth quarter. Regional revenues were up year-over-year, driven by strong returns in Danville and New Orleans and same-store net revenue growth, resulting from continued strategic reinvestment in our Caesars Rewards customer database. Regional EBITDA grew 4% on a hold normalized basis during the quarter. Starting in our Las Vegas segment, we reported same-store adjusted EBITDA of $379 million and hold normalized EBITDA of $398 million. Segment results were driven by 92% occupancy versus 97% last year and ADR decreased 5% as a result of citywide visitation weakness during the quarter. As we progress through the quarter, trends improved sequentially with September delivering the strongest results of the quarter. During the quarter, the group room night mix was 13%, and the segment is on track to deliver a record EBITDA year in 2025 due to our strong Q4 booking pace, where group mix should increase to 17%. Recent CapEx investments at the Flamingo in Las Vegas, including a brand-new pool experience, Pinky's by Lisa Vanderpump, Gordon Ramsay Burger and Havana 57 continue to exceed return expectations. We are excited about upcoming CapEx projects in Las Vegas, including a new Omnia Day Club by Tao at Caesars Palace, the rebrand of the Cromwell to the Vanderpump Hotel and the recently announced Project 10 by Luke Combs that will transform the vacant Margaritaville space at the Flamingo. These exciting projects continue our commitment to reinvest in our assets while elevating our guest experiences. As we look to the fourth quarter in Las Vegas, we see trends improving sequentially, driven by positive leisure trends and a strong group and convention calendar. In our regional segment, we reported adjusted EBITDA of $506 million and hold normalized EBITDA of $517 million, driven by 6% net revenue growth. Early results from our strategic customer reinvestments are promising, driven by strong rated play trends in the quarter. We will continue to refine our marketing approach as we remain focused on delivering strong returns on these investments. Margins improved sequentially this quarter, driven by better flow-through on these investments. New projects in Danville and New Orleans continue to generate strong returns, and we look forward to completing Phase 2 of the master plan currently underway at Caesars Republic Lake Tahoe in mid-2026. I want to thank all of our team members for their hard work through the first 3 quarters of 2025. Their dedication to exceptional guest service has been the driving force behind our accomplishments this year. With that, I will now turn the call over to Eric for some insights into the third quarter for our Digital segment. Eric Hession: Thanks, Anthony. During the third quarter, Caesars Digital delivered net revenue of $311 million, adjusted EBITDA of $28 million and hold normalized adjusted EBITDA of $40 million. Recall that last year, in Q3 2024, we benefited from approximately $8 million of net revenue and EBITDA contribution from the World Series of Poker. The World Series of Poker was sold in Q3 of last year, and so now we fully annualize the impact of the sale on our EBITDA comparisons. In addition to the effect of the poor hold and the loss of the World Series of Poker revenues impact on flow-through, we had a number of other headwinds this quarter that included incremental state taxes, higher acquisition marketing spend and some bad debt. As we previously noted, there will be volatility across quarters, but we're on track to exceed our 50% target flow-through for the year. Our core KPIs remained strong during the quarter. Specifically in sports, total parlay mix improved approximately 210 basis points year-over-year, and we saw growth in average legs per parlay and a higher cash out mix versus the prior year period. In addition, we realized volume growth of 6%, a notable sequential improvement, which was unfortunately more than offset by the negative sports outcomes our industry experienced in September. In iCasino, we delivered 29% net revenue growth, driven by continued strength in volume and average monthly active users. We continue to evaluate or elevate our product offering during the 2 quarters to include new in-house games, improved bonusing capabilities and elevated live dealer product. We look forward to a redesigned Horseshoe Online casino update in Q4. Overall, in Q3, our total monthly unique payers increased 15% to 460,000. From a tech perspective, we continue to convert new jurisdictions to our universal digital wallet and proprietary player account management system, which is now live in 22 states. The enhancement gives our customers a significant upgrade to their wagering experience. Pending regulatory approval, we plan for the Missouri State sports betting launch in December of this year to be the first state where we offer a shared wallet experience to our customers from day 1. We continue to expect a complete rollout of our universal wallet product on our proprietary TAM by early 2026. As we head into Q4 and 2026, I'm pleased with the significant progress on the technology side of the business that's driving strong volumes in both sports and iCasino. The continued progress in all areas is showing up in our top line results, and our focus on spending efficiency will drive solid flow-through to EBITDA. We continue to see a business capable of driving 20% top line growth with 50% flow-through to EBITDA, which keeps us on track to achieve our long-term goals. I'll now pass the call over to Bret for comments on the balance sheet. Bret Yunker: Thanks, Eric. In addition to redeeming $546 million of senior notes during the quarter, we repurchased $100 million of stock, including October activity. We've now repurchased close to $400 million of stock since mid-'24, shrinking our share base by 6%. Our balance sheet remains in great shape with our nearest maturity in 2028 and a floating rate debt mix that will continue to benefit from interest rate cuts. Our weighted average cost of debt currently sits at just over 6%. We expect to continue using our strong and growing free cash flow to both reduce debt and opportunistically repurchase stock. Turning it over to Tom. Thomas Reeg: Thanks, Bret. To jump into a little more detail, we told you on the last call that Vegas was going to be a soft summer. It was a soft summer. Our ADR was down a little over 6%. Occupancy percentage -- occupancy was down about 5 percentage points. So that's about 90,000 room nights for us that flows through all of the non-gaming pieces of the business. On the gaming side, volumes held in pretty well. Slot handle was down only 2%, even though we had 90,000 less room nights. I hate talking about hold, but this is a quarter where you can't get away without talking about hold. Hold was down almost 600 basis points in Vegas in the quarter. On a year-over-year basis, it impacted us a little over $30 million. And it's -- and there were another -- a little over $10 million of onetime items that benefited us last year that don't repeat, the largest of those being cancellation of the sponsorship contract on the Planet Hollywood Live theater in Vegas. The quarter got better throughout. So July was the worst month of the quarter. August got better. September got better. What we told you when we talked to you in the beginning of the quarter was it would be soft. We would expect recovery in the fourth quarter. That is what we are seeing. Our cash room revenue forecast for the quarter is down just slightly. Cash room revenues in the third quarter were down a little over 11%. So that's considerable improvement. A lot of that is the group calendar that Anthony referenced. We have some Caesars-specific groups that benefit us, not necessarily the entire market. We had the Oracle conference that was in 3Q last year and was in early October this year. And then we have BravoCon coming up as the quarter continues. F1 for us is looking considerably better than it did last year -- than it performed last year, not as good as year 1, but up from last year. The headwind for the remainder of the year is New Year's Eve is middle of the week this year, which is not particularly helpful calendar-wise. But other than that, we see Vegas coming back strongly. I know that's a big question -- has been a big question. Again, what we laid out in July of soft summer recovery in the fourth quarter, continued recovery in the first quarter is still what we see today. Group should be, as Anthony said, a record in '25 versus '24. That's largely on the strength of the fourth quarter. And then first quarter should be a new all-time record ahead of '25 -- I'm sorry, '26 should be a full-time -- a new record for the full year ahead of '25, largely on strength in the first quarter of the year. So it was a difficult summer. There is definitely -- has been softness in leisure demand for Las Vegas in the summer months, particularly in properties that I would view as priced takers, those that are as you go down the customer spectrum or you move out from the center of the strip, demand for those were soft. Premium has held up better, but it's the return of group business in the fourth quarter and first quarter that allows rate compression that brings us back to a much healthier looking market as we look at this quarter and into '26. For regionals, we talked about how last quarter we'd embarked on increase in marketing reinvestment, starting in properties that were competitively impacted and moving beyond that as we saw what was working. As the quarters go by, I think I've said this to you a number of times, you'll see us refine that, take out what's not working, expand what is to more markets. We have a lot of test and control out all of the time. And you could see better flow-through. You would have seen even better flow-through if we had held both brick-and-mortar and Vegas hold percentage was the lowest that it's been in over 3 years, and that's particularly unusual in regional, regional pretty is pretty stable. But what we're seeing in regional is the flow-through of the marketing is improving. You should expect that to continue to grow -- to continue going forward and demand in regional is pretty solid. Like we have no complaints about what we're seeing in regional. In digital, obviously, we've got the sports outcomes that have been -- there's been a lot of conversation about those both here and elsewhere. So I won't belabor those. We're happy with where we are. Margin-wise, happy to see us growing handle. iGaming continues to perform quite well. So all of our goals remain in front of us in terms of what we've laid out for digital and fully expect that we'll get there. So we feel good about that story as well. And then in terms of free cash flow, you should expect that we'll remain balanced in using our free cash flow between paying down debt and repurchasing our stock. At current levels, our stock is attractive to us. You should expect us to be active as we go through the remainder of the year. And with that, I'll open it up to questions. Operator: [Operator Instructions]. Our first question comes from the line of Brandt Montour with Barclays. Brandt Montour: So Tom and team, I want to start with Las Vegas. And I want to just sort of dig into some of the comments that you made, Tom, specifically around leisure demand. And I heard positive leisure recovery, but I also heard that the group fill-in is most of the sequential improvement that you are looking for or seeing into the fourth quarter. And so maybe you could highlight some other metrics in terms of how we should think about the sort of very near-term sequential leisure recovery, whether that's bookings 4 weeks out, occupancy, et cetera, or anything else that might be helpful there? Thomas Reeg: Yes. So when we talked to you last quarter, we're looking at the same forward booking calendar that we can see. Now looking at that point, it looked particularly soft, which is why we told you we were expecting a soft summer. That came in when you adjust for hold about where we anticipated it would be as we sit -- and if you think about sequentially and the quarter that you're in, because it's the third quarter, it's a leisure-dominated quarter. There's not a lot of group business in Vegas when the weather is particularly hot relative to other quarters. And that leisure customer continued to get better during the quarter. July was the worst. August built on that and then September, October has continued, but that leisure customer is still softer on a year-over-year basis. The difference is what you get in group activity allows us to compress rate much better than we were able to in the third quarter, and you don't have nearly the amount of miss in occupied rooms. We had 90,000 in the third quarter, about 500 basis points of occupancy. Our occupancy looks better and our rate looks better than it did third quarter. Brandt Montour: Great. And then maybe moving over to regionals. You guys put up a hold adjusted regional number that did show growth, and you had told the market that you were promoting more last quarter and perhaps rolling out promos to less or more impacted -- more non-supply impacted markets. But it looks like either that hasn't started yet or you're getting pretty good returns on those tactics. And so I guess the question is, are you -- is this the type of flow-through that we can expect from this program, whether it's supply impacted or nonsupply impacted markets as you sort of move through the evolution of those new programs? Thomas Reeg: Yes, Brandt, that's a great question. And we would expect as the quarters go by, we become more efficient in that marketing, you're dialing back more that's not working and expanding what does. And I want to be clear, there was a sense that we were getting into some sort of promo war. I heard that from a lot of investors. The way we look at it in most of our -- in all of our markets, Caesars Rewards is the most impactful customer program that there is among any operator. In many of our markets, we have a property as well that is better than others. So that's higher quality. So if you think about the way marketing works, you may lean on those advantages a little bit and say, I'm not going to be as generous in my giveback as others, and you're still going to perform quite well. I think that, that gap got to be a little larger than we needed it to be in properties that were not competitively impacted. So I would think of what we're doing is kind of taking up that slack, not entering into a promotional war. And we're not seeing significant response from competitors that suggest that this is going to keep going higher. What I'd expect you'd see going forward is what you saw this quarter where the flow-through from that revenue growth continues to look better as the quarters move on. Operator: Our next question comes from the line of Dan Politzer with JPMorgan. Daniel Politzer: I just wanted to go back to Vegas and that leisure customer. I mean it sounds like things are getting a little bit better. Just group is obviously helping in terms of compression. But I mean, how do you kind of look to stimulate that leisure customer? Do you think that there are structural issues in Las Vegas that need to be addressed in terms of pricing? And then it sounds like in terms of fourth quarter, things have gotten better. So I don't know if there's any way to kind of frame kind of that bouncing off of third quarter in terms of some kind of broad estimates. Thomas Reeg: Yes. So on the pricing question, we price hundreds, thousands of items across Vegas every day from obviously, rooms and restaurants to ATM fees to everything that you purchase in Vegas, and we're constantly adjusting them. What was interesting -- there's a few things that are interesting to me in that conversation. And I don't discount that there are areas in our business and in Las Vegas that got -- might have gotten over their skis pricing-wise. But to put it in context, we're in a quarter where while we're talking about pricing and degradation to demand, our occupancy percentage was over 90% in the quarter. It's stronger as we move into the fourth quarter. But most interestingly, while those stories were out there, most days that you read those stories, you could have gotten a room in Vegas for $29 plus a resort fee on the strip. So there's a value trade in -- what's great about Vegas is there's something for everybody. Sean McBurney, our Regional President out here who does such a fantastic job using the example of, you can come see Paul McCartney and pay $500 plus a ticket at the same weekend that you're going to see -- you can see Donny Osmond for $60. So there's something at every price point. And keep in mind, in a quarter where we're -- it was undeniably soft versus last year, and we're glad to see it coming back in the fourth quarter. It doesn't take a lot to turn that back the other way. You're talking about 5 percentage points of occupancy got us to a 10% decline in adjusted EBITDA. You don't need much to swing back the other way to where you're right back to where you were before. So -- and one more point, we're talking about a quarter where we did about $400 million of adjusted EBITDA in the third quarter, so the summer in Vegas. That quarter typically premerger was $300 million to $320 million of EBITDA. So this is still a very strong market. It offers something for every price point. And sure when you're pricing thousands of things every day as we are and our peers are, it's going to be easy to find things where you say, look at how much this bottle of water costs. But the value proposition in Vegas stacks up versus just about anywhere that you could want to travel. And what you can do while you're in town is the breadth of what's available, you cannot -- I line that up with any city in the world. So we feel fantastic about Vegas fundamentally. And we think it won't be very long until that's a story where we'll be talking about -- remember when -- remember the summer when we talked about $25 bottle of water, and that's not what was driving activity. Daniel Politzer: Right. Okay. No, that's really helpful detail. Just pivoting to regionals, this is more of a high-level one. But obviously, in terms of that more promotional strategy, and I get it's kind of more short-term oriented. But how did you kind of think through that versus maybe the puts and takes of putting more capital into the ground at some of these properties to improve the amenities if there would have been a return on that as opposed to just being more promotional? Thomas Reeg: Yes. I mean we -- since the merger, we have invested $3.1 billion in just our regional assets. $2.8 billion of that is in the 16 properties that generate 75% of our regional EBITDA. So the properties that have been less touched by capital and all of them have been touched are those that are pretty small, may not have hotel. I think the -- if you look at the regional capital investment across us and our peers, we've outpaced everybody in the last 5 years. And we're really in -- let's harvest those investments and let's give people a reason to come and see them. You spend the capital. Keep in mind, these are properties that are in somebody's neighborhood. They pass it or they pass a billboard every day for 10, 15, 25 years, if you put the money that we put into these properties over the past 5 years, the customer is not going to automatically know it unless you stimulate a visit, get them into the property. And that's what we see is as we reactivate customers that didn't know the money that was put in, New Orleans being a great example of, you start to see organic momentum build because you're showing customers a property that's different than they remember. And so that investment has been made. This is the message of, hey, come and see us and see what we've done. And what we see out of that is organic follow-through. And like I said, this doesn't happen neatly in 90-day periods. This stuff happens over a longer period of time. But we are particularly encouraged by the trends that we're seeing that suggests that what we're doing is working and driving more aggregate cash flow, which is the goal of this whole enterprise. Brian Agnew: Shannon, for Q&A, we've got a lot of people in the queue. Can we just have everybody ask one question and then circle back if possible? Operator: Our next question comes from the line of Steve Pizzella with Deutsche Bank. Steven Pizzella: Just wanted to ask on the regional performance. From the state level data, it looked like trends deceled a little bit in September from July and August levels. Did you see that in your business? And then how do you think about the fourth quarter from a comps perspective for regionals given we saw an acceleration in the data starting October of last year? Thomas Reeg: So the September question, recall that last year, Labor Day Sunday was in September, and this year, it was in August. So that's a -- that's one of the biggest weekends of the summer, and that's a significant calendar shift. So I would look at August numbers and September numbers together. The only market I can think of that saw a significant shift in demand in September was Atlantic City. The rest of the countries performed kind of as you'd expect. Cost side, I don't have anything in particular to call out on the regional side. What -- in terms of driving incremental margin, that will be a function of -- as we refine our marketing as we move through the quarters, you should expect flow-through and margin to increase. Operator: Our next question comes from the line of Lizzie Dove with Goldman Sachs. Elizabeth Dove: I guess big picture, longer term or for next year, specifically for Vegas, it's a lot of moving pieces. You've got the capital investments you mentioned, some good guys from conferences, but also maybe 1 or 2 conferences leaving the system, macro TBD. High level, I know it's early, but just curious how you're thinking about how those kind of puts and takes play out to Vegas next year. Thomas Reeg: Yes. The big question, Lizzie, is the consumer. Is this leisure demand -- are we going to see it continue to improve and recover? Or do we stall at some point that's shy of where we were before. That's a difficult question to answer. That's a macroeconomic question. I know that the mix will be better for us, in particular, recall that we have the State Farm conference early in the second quarter, which is a particularly large conference for us that drives significant EBITDA. And then you've got the market-wide stuff that's well understood. But the -- we're now, what, 4 months into this stepdown in leisure demand for Vegas. And we -- while we're better than we were in July, we're still not back to where we were on a year-over-year basis. So that will be the question in '26 in my mind is how quick does that recover. Operator: Our next question comes from the line of David Katz with Jefferies. David Katz: I just wanted to double back on digital, if I may, for the fourth quarter. I know that the sequential cadence can be tricky where there is some preseason spending in 3Q. I recall a comment, Tom, that indicated the fourth quarter should be super strong. We're still focused on kind of that run rate of $500 million by the fourth quarter. If you could just update us there, please? Thomas Reeg: Yes. The big swing factor there, David, is game outcomes. Obviously, we had a fourth quarter -- a third quarter that wasn't great. We're 4 of 13 weekends into the fourth quarter, those outcomes have not gotten substantially better. So we are hold for the first 4 weekends was above last year's hold, but below our budgeted hold. So that will have an impact on where the fourth quarter comes in. But the -- as you have seen, sports outcomes are particularly volatile. So I wouldn't take 4 of 13, whether it's positive or negative as determinative at this point, but that's where we stand as we sit here today. Operator: Our next question comes from the line of John DeCree with CBRE. John DeCree: Maybe, Eric, I wanted to circle back to your prepared remarks. I think you were kind of dissecting the quarter a little bit and had mentioned, if I heard correctly, some higher acquisition marketing spend in the quarter. If I heard that correctly, I'm wondering if you could elaborate a little bit. Was that kind of expected or unexpected? And was that more customers than you thought getting on board? Just curious if you could give us a little bit more color there. Eric Hession: Sure. Yes, it wasn't kind of unexpected. It was spend that as we went through the quarter, we steadily increased heading into football and heading into a strong acquisition period for the iCasino side. We acquired a lot more customers during the period as a result of that spend. We believe that over time, those -- that spend will come to fruition with the lifetime values of the customers. However, in the period in which we spent it, it shows up as a drag. And so because on a year-over-year basis, we did increase the spending, I wanted to call that out as one of the reasons why the flow-through was challenged in the quarter. Operator: Our next question comes from the line of Steven Wieczynski with Stifel. Steven Wieczynski: So Tom, I want to go back to the regional reinvestment and ask that question maybe a little bit differently. But it's one of the questions we get a lot from investors is the fact that when you were at Eldorado and you were out buying things like Isle of Capri, I mean, you were kind of known as the kind of the king of cutting promotions and basically getting your peers to kind of do the same thing and understand that was kind of a smart business decision. Now you're somewhat kind of pivoting away from that, and you mentioned a lot of that decision is tied to Total Rewards and the power of that platform. So I know you said that hasn't started a promotional war yet, but just trying to get a little more color as to what gives you the confidence that, that doesn't eventually happen. Thomas Reeg: Well, I mean, we can see -- we see it down to the granular customer level, what's the customer responding to, what are they not responding to. The point I was trying to make is in most markets, there's going to be a gap between what we're spending and what our peers are spending that we're going to be spending less. That gap in hindsight may have gotten too wide. And so what you're seeing is recovery in that, not one-upmanship. And when you change that, it's like when you make an investment, the customer notices that you're making an effort to win their business and all of the reasons that they came to the property before and into the rewards program are -- make them sticky when you get them back. So this is -- this evolves every day. You're competing in these markets all the time. I would say the level of discipline throughout the business is far better than it was before we started this, and we're not seeing anything that suggests that this needs to keep climbing higher and higher. And you should be able -- you should start to -- you can start to see that in the flow-through as we go through the quarters that this quarter was better than last quarter, and you'd expect -- I would expect that to continue. Operator: Our next question comes from the line of Barry Jonas with Truist. Barry Jonas: Some of your competitors are looking at the predictive markets. What's your view there for Caesars Digital? And have you seen any impact as these markets are starting to make inroads into sports? Eric Hession: Yes. To answer your second part first, so far, we haven't seen any impact. I suspect most of the volume that they're generating is coming from states that don't have legalized sports betting. And then there's probably some on the margin that is coming from the legalized states that we might not have been able to access anyway, like 18- to 21-year olds and that type of customer demographics. In terms of the overall plan, we're actively watching it. As we've said before, we can't be out on the lead on this one. We're going to monitor it, make sure that we're not left behind if there's regulatory clarity and that we have a good plan in place for -- should that outcome happen. But in terms of our current actions when there's still uncertainty, and I'm sure you've seen some of the letters from the regulatory agencies, our best approach at this point is to monitor it, put our plans in place, make sure that we're adequately resourced and be ready to move if there's a legalization definition in either direction. Thomas Reeg: Yes. We will not put any of our licenses at risk. We believe what's happening in prediction markets is sports gambling. If there is a -- if there's a path that develops where we can participate in a way that doesn't put licenses at risk, you should expect we would be -- we are preparing and would be prepared to go down that path, but we're watching it the same as you are. Operator: Our next question comes from the line of Shaun Kelley with Bank of America. Shaun Kelley: Tom or Eric, just wondering if we could get your thoughts or help on sort of both the seasonality of the digital segment as we kind of move into Q4 because it is a peak sports season. Obviously, you mentioned we appreciate there's some outcome headwinds, but just more broadly, how you'd expect that to trend? And then secondarily, if you could, Eric, given the lean in on marketing, this kind of -- in this period, your thoughts around customer acquisition as we move into next year, especially as digital wallet is kind of up and running and just you feel really good about the product. Thomas Reeg: So let me take the seasonality question. Obviously, fourth quarter is your highest volumes given that it's football season and football dominates sports betting. The way that we account for our partnerships is that those -- that spend hits during the season of play. So if you think about some of our large contracts that will roll off in '26, the bulk of that expense hits in the fourth quarter. So it makes volatility -- it makes volatility and hold -- sports hold outcomes more impactful because you're carrying a bigger fixed cost than we're carrying in any other quarter of the year, but then I'll let Eric take the rest. Eric Hession: Yes. And then in terms of the marketing spend, I would expect it to go back to normal levels for Q4 versus prior year. So nothing -- no incremental acquisition spend along those lines versus kind of where we were trending prior to that. But to your point about heading into next year, I would say the vast majority of our marketing spend has traditionally been earmarked towards the direct channels like Facebook, Google, Snap, those types of things and very more limited on the brand side. I think to your point, with the app in the shape that it is and with the shared wallet now being active in nearly every state and will be in the first quarter, there is an opportunity to do a little bit more of the top of funnel type advertising because the retention rates are going up and the customer response to the app is improving. So I would look at that mostly as a shift, though, not necessarily as an incremental spend, but we'll evaluate it as we go through. And if we're getting really short paybacks on certain spend, we might increase it slightly, but I wouldn't anticipate anything major next year. Thomas Reeg: And it's -- Shaun, that's similar to what I just talked about in regionals, right? I mean our -- we did our big brand campaign in '21 when sports betting kicked off and our app was not as competitive as it needed to be versus our peers, we've done a lot of work in getting the app up to par, culminating with share of wallet, as you pointed out, we need to give that customer a reason to take a look again. And so that's kind of the top of funnel that Eric is referring to. Operator: Our next question comes from the line of Stephen Grambling with Morgan Stanley. Stephen Grambling: Two quick follow-ups on digital. Just given you've seen a lot of moving parts in the regulatory environment across brick-and-mortar and digital, what do you see as the key milestones you're watching for to get comfort on the prediction markets? Is it really just waiting until we get maybe all the way to the Supreme Court? Are there other things that could happen between now and then? And then given the outsized wins on behalf of consumers, are you seeing any change in how much money is being kept in accounts that might be indicative of future wagers or strength further into the football season? Thomas Reeg: So I'll do the first one, have Eric do the second one. I wish there would be a point of clarity and certainty in the near term around prediction markets. It seems like the path this is going to go on will ultimately be decided at the court level, ultimately, the Supreme Court level. And I'd expect that there's going to be rulings that go in both directions along the way. And ultimately, if something gets appealed up to the Supreme Court, there is a state rights versus federal rights question here that's larger than just sports betting that might argue that the court takes it up relatively quickly. There's also the argument. There's a lot of stuff bubbling up to the Supreme Court and maybe this gets pushed back further than we'd like. But we -- I would expect we're going to be in this cloudy period for quite some time. Eric Hession: And then on the second part of the question, we -- after customers have a good weekend, we do see the balances higher. It doesn't necessarily persist all that much over time. They tend to either draw them down or recycle it throughout the week and into the next weekend. But there is definitely a loose correlation between the customer outcomes and the volume as you'd expect when the hold goes down. But I would say that the outcomes of the customers in Q3, while it was to their favor, our core volume growth was still much stronger than in prior periods. So that -- the entire result wasn't driven by the customer outcomes. Operator: Our next question comes from the line of Chad Beynon with Macquarie. Chad Beynon: During the quarter, I know the city ran a few ad campaigns. I'm not sure if that stimulated demand. So a, I wanted to ask about that. And then secondly, is this something that you think we could maybe continue -- could continue to see throughout 2026 to just help the perception of value for some of those customers that have fallen away? Thomas Reeg: Yes to both, Chad. So we participated in the sale that you're referring to. Our bookings picked up considerably during that sale. So it was effective. And we know that LVCVA intends this to be an ongoing campaign. So you should expect this not to be one shot in terms of the messaging around value in Las Vegas. Operator: Our next question comes from the line of Jordan Bender with Citizens. Jordan Bender: There's been some movement in the M&A market. As you think about your leverage and your footprint in Las Vegas, I just want to check your temperature around potential asset sales in Las Vegas and then also how you think about the Caesars Forum put call agreement outstanding. Thomas Reeg: The call option -- the put call option is -- you should expect that if that's exercised, it would be called by VICI. I'd anticipate that they'd be doing that toward the end of that period of time. And -- but I don't want to speak for them. We choose the rent, it would be -- we would choose the lowest rent that we're able to choose. In terms of M&A, we would -- we're never closed. So if there was something that made sense for us, I'd say we're open to talking about each and every asset, but we are not actively involved in marketing the Vegas asset. Operator: Our next question comes from the line of Daniel Guglielmo with Capital One Securities. Daniel Guglielmo: We've seen some OpEx pressure this quarter and last. And as you start budgeting for next year, are there certain expenses outside maybe the marketing that we've hit on that you all are going to spend more time thinking about for 2026? Thomas Reeg: I mean labor is always our biggest, and we're constantly looking to optimize labor across the enterprise. We're well into the union contracts in both Vegas and Atlantic City. So you're kind of at manageable increases as we move forward. There's nothing that stands out as you asked that question to me. Brian Agnew: But if you're looking at labor in the 10-Q, specifically in the regional segment, that's not exactly same-store because you've got Danville and New Orleans in there, and there were some onetime benefits in the prior year quarter. So it's not really a same-store number if you're looking at that labor line in the Q. Thomas Reeg: Yes. So Danville and New Orleans are both substantial integrated resorts that had -- Danville wasn't open, and New Orleans was much smaller last year. Operator: Thank you. And we've run out of time. I would now like to turn the call back over to Tom Reeg for closing remarks. Thomas Reeg: Thanks, everybody. We'll see you next time. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
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