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Operator: " Ido Schoenberg: " Mark Hirschhorn: " Stanislav Berenshteyn: " Wells Fargo Securities, LLC, Research Division Charles Rhyee: " TD Cowen, Research Division Jenny Cao: " Truist Securities, Inc., Research Division Jack Senft: " UBS Investment Bank, Research Division John Park: " Morgan Stanley, Research Division Operator: Hello, everyone, and welcome to Amwell's conference call to discuss their third fiscal quarter of 2025. Joining us on the call today are Amwell's Chairman and CEO, Dr. Ido Schoenberg; and Mark Hirschhorn, Amwell's CFO and Chief Operating Officer. Earlier today, a press release was distributed detailing their announcement. The earnings report is posted on the Amwell website at investors.amwell.com and is also available through normal news sources. This conference call is being webcast live on the IR page of the website, where a replay will be archived. Before they begin prepared remarks, I'd like to take this opportunity to remind you that during the call, we will make forward-looking statements regarding projected operating results and anticipated market opportunities. This forward-looking information is subject to the risks and uncertainties described in the filings with the SEC. Actual results or events may differ materially. Except as required by law, we undertake no obligation to update or revise these forward-looking statements. On this call, we'll refer to both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in the earnings release. With that, I would like to turn the call over to Ido. Ido Schoenberg: Thank you, Operator, and good afternoon, everyone. For the third quarter, our results compared favorably to the guidance we provided. We showed steady progress in executing our plan, which is designed to achieve cash flow breakeven by the end of 2026 and to ultimately resume profitable growth. Our plan is based on 2 main work streams. First, focusing on our enterprise-grade, mature, and well-differentiated new platform to generate considerable value in our select market segments. Second, ensuring that all our operations are extremely efficient and effective. Both efforts rely heavily on the integration and adoption of rapidly evolving technologies, primarily enterprise-grade AI infrastructure. In recent years, we have invested significantly in recruiting exceptional talent and establishing strong governance, compliance, and operational frameworks. We have also committed substantial resources and continue to do so towards building ecosystem interoperability that enables seamless data exchange and deep integration with existing EHRs and clinical systems. These investments help position Amwell as a highly dependable, secure, and scalable technology-enabled care platform for our customers. We enable our customers to align our technology with measurable economic value while helping them address critical challenges such as clinician burnout, staffing shortages, and operational inefficiencies. Additionally, we position them to capitalize on emerging opportunities, including the integration of algorithm-based health care services, comprehensive care coordination, and new digital therapeutic solutions. These integrations may help our customers leverage predictive AI to reduce costly interventions and hospitalizations. Our efforts are beginning to pay off as reflected in our results, and we believe the impact will only accelerate going forward. For our first work stream in Q3, we began socializing our product focus areas through 2026 with our clients and prospects. We are committed to making the new Amwell platform the most effective and valuable hybrid care backbone we have ever offered them. Our mission is to help our customers reduce care costs, improve clinical outcomes, and offer the highest member engagement and satisfaction through exceptional user experience. We strive to achieve this through the following focus areas: First, we are moving AI into the core workflow layer. We're responsibly implementing enterprise-grade AI and other technologies to transform patient intake, personalized dialogue, and navigation, as well as clinical program matching and onboarding. Our efforts benefit from almost 2 decades of telehealth experience and access to an incredible data and knowledge repository driven by many millions of digital-first care encounters. Second, we are enhancing and simplifying the way we work with our own and third-party partner clinical programs. This enhanced program integration is expected to help offer our customers even more options across the care continuum while adding more value to our clinical program partners. Also, clients will be able to seamlessly integrate clinical programs they've already committed to into their Amwell platform with unprecedented ease. As noted on our earlier calls, these third-party partners represent an important high-margin flywheel growth opportunity for Amwell. Our own clinical programs are likely to be the first to benefit from these changes and further improve our offering across urgent care, virtual primary care, comprehensive behavioral health, nutrition, lactation, and more. Third, we are investing in and will remain heavily committed to our data and analytics infrastructure. We plan to offer our customers even better ways to measure and improve financial and clinical outcomes across all programs while offering patients an even more personalized, simple, and relevant journey. As payers, employers, and health systems look to consolidate their technology-enabled care strategy, we offer a unique and reliable solution. It allows them to realize their financial, clinical, and member engagement goals while maintaining full flexibility to dynamically choose and replace the clinical programs that work best for them in the simplest, most scalable, and reproducible way. Our second work stream is centered around relentless focus and commitment to efficiency and quality. We are further improving our platform to make it even easier to deploy, maintain, and support. Self-management and automation tools for our customers are a good example of this commitment. These tools empower clients to do more faster while simultaneously reducing our own cost of deployment. As we carefully define what we focus on, we are decisively divesting noncore assets. Earlier this year, we announced the sale of Amwell Psychiatric Care, or APC, and are currently pursuing other actions to divert access resources away from non-core assets. It is important to note that we plan to continue to fully support and maintain legacy assets that still provide value to our customers. These customers have expressed comfort from the stability and reliability of our trusted legacy solutions. We hope to see them gradually migrate to our core offering over time when they are ready. In parallel, we systematically analyzed our own efficiency across all our operations. We were able to find opportunities to improve efficiency, including with widespread AI adoption, while rightsizing headcount across the board. These reductions in force were made possible through various interventions, including careful reallocation of talent across the company. Now I'll take a step back to look broadly at the macro environment. In 2025, we continue to see clear signs that the market is shifting in our favor. Consumer demand for digital health is accelerating. Mental health telehealth utilization reached 27.8% in July, according to the Epic Research data tracker. And 79% of Gen Z now use health technology monthly, according to PwC 2025 Healthcare Consumer Insight survey. At the same time, digital clinical programs are demonstrating real results. Research shows digital disease management can reduce 30-day readmission rates by 50%. This effectiveness is driving significant investment. AI start-ups, many of which could be considered clinical program themselves, capture 60% of all digital health funding in Q1, according to the AHA Center for Health Innovation. However, payers, employers, and health systems are struggling with fragmentation. Employers now manage an average of 4 to 9 point solutions, yet only 22% trust these vendors to act in their best interest, according to Evernorth Insights. This fragmentation carries real cost. For example, inefficient data exchange costs healthcare organizations up to $20 million annually. As a result, integration has become a strategic imperative. 62% of health plan leaders identify integrated solutions as a top 2025 priority according to HealthEdge's annual survey. Organizations need help managing technology, engagement, reporting, and the commercial burden of multiple vendors, and that's exactly the gap we are positioned to fill. In that setting, the Amwell platform promises much-needed relief by maintaining future-ready flexibility with the efficiency, effectiveness, and peace of mind of offering one relationship, one user experience, and one data and reporting infrastructure across a dynamic and open-ended array of clinical programs and vendors. Our unique business model never forces our clients to only use Amwell clinical programs. This aligns our interests and positions us well as their long-term partner. While many of our competitors feature their brands to members, we enable our customers to use their own white-labeled experience. Their Amwell platform inside allows them to offer a unified customer-branded gateway to all their covered programs. Finally, and importantly, our ability to supplement automated programs with trusted in-network certified providers at scale enables and accelerates the safe and effective adoption of these new AI-driven solutions. Our special architecture is helpful in making customer acquisition costs more effective and in improving the customers' overall brand value and stickiness by associating it with a wide array of helpful services and exceptional platform experience. Our ability to help customers obtain a clear view of whole-person and cohort outcomes and offer them tools to continuously improve results by switching programs and matching them with the right cohorts is highly desirable and appreciated. In our conversations in the market, our strategy resonates. As we look forward, we fully expect our competitive advantages to become increasingly visible and compelling as we continue to roll out our new Amwell platform. We believe that our long journey is in many ways only beginning, and we are excited about what the future brings to our loyal and sophisticated supporters, our customers, and our company. With that, I would like to turn the call over to Mark for a review of our financials and our guidance. Mark? Mark Hirschhorn: Thanks, Ido, and good afternoon to everyone on the call. On today's call, I will walk through a few key operating metrics and financial results from the third quarter and then provide an update to our guidance for the remainder of this year. In the third quarter, we delivered results ahead of expectations for both revenue and adjusted EBITDA, reflecting stronger subscription retention, increased visit volume in specialty care and virtual primary care, and meaningful cost efficiencies driven by the successful execution of our restructuring. Our progress this quarter reinforces that the actions we began earlier this year are translating into durable financial improvement and accelerating operating leverage. Today, I will walk you through our quarterly performance, highlight the financial impact of these strategic actions and provide an updated view on our guidance for the balance of 2025. Total revenue was $56.3 million, which represents an 8% decrease year-over-year and includes the step-down in contribution from Leidos and the divestiture of APC. Normalizing for the sale of APC, Q3 revenue would have increased 1.3%. Subscription revenue of $30.9 million increased 18% year-over-year and represented 55% of total revenue compared to 43% of total revenue a year ago. Total visit volume of approximately 1.1 million visits in the third quarter was down 21% from a year ago, although in line with our expectations. Amwell Medical Group, or AMG visit revenue was 23% lower than last year at $21.2 million. Normalizing for the sale of APC, however, visits were down 3.5% from a year ago. Average revenue per visit was $71, which is 14% lower this quarter compared to last year's Q3. But when normalizing for the sale of APC, average revenue per visit was 3.5% higher, driven by a continued mix shift to higher-priced virtual primary care and specialty care visits. GAAP gross margin expanded to 52% compared to 37% a year ago as a result of greater software and services revenue generating stronger margin contribution than last year's comparable quarter revenue mix and divestiture of APC. Our operating expenses totaled $58.9 million in the quarter, a decrease of 16% compared to last year, comprised of a 6% reduction in R&D, a 46% decrease in sales and marketing and a 14% decrease in G&A expenses. We remain focused on optimizing our resources, and we are clearly moving in the right direction and getting closer to our foundational cost basis. Adjusted EBITDA was a loss of $12.7 million for the quarter, which compared favorably to a loss of $31 million a year ago, evidence of our acute focus and execution of our cost containment initiatives. In terms of cash and liquidity, we reported a cash burn of approximately $18 million in Q3 and ended the quarter with approximately $201 million in cash and marketable securities with 0 debt. Finally, to wrap up my comments today, I'll share our revised guidance outlook. With just 2 months remaining in the year, we now expect our full year revenue to be between $245 million and $248 million versus the prior range of $245 million to $250 million. Adjusted EBITDA in the range of a negative $45 million to negative $42 million versus the prior range of negative $50 million to negative $45 million. Our range for AMG visits remained steady between 1.3 million and 1.35 million visits. Our full year guidance assumes the reduction of R&D expenses by more than 10% this year versus 2024 as we streamlined and completed the bulk of our software configuration to our existing build and integration commitments. At the same time, we continue to expect sales and marketing costs to decline more than 25% year-over-year and G&A expense to decline at least 20% for the year as we continue to organize the company around a new lower cost structure. We now project Q4 revenue in the range of $51 million to $54 million and adjusted EBITDA between negative $15 million to negative $12 million. We have made meaningful progress rightsizing the cost structure while diligently working to position Amwell for longer-term success. We have quite a bit of work left to do, but we remain committed to our goal of generating positive cash flow from operations during 2026. I want to thank our entire team for their commitment and passion to our overarching mission of increasing access to affordable, high-quality health care. Thank you all for your time and attention. I'd now like to turn the call back to Ido for his closing remarks. Ido? Ido Schoenberg: Thank you, Mark. We're seeing a remarkable transformation in our market. As AI health care solutions proliferate both within and beyond Amwell, they're delivering significantly better patient outcomes with greater accessibility and affordability. In this evolving landscape, Amwell's role as an integrated backbone has never been more vital. Our unique ability to seamlessly blend intelligent automation with certified trusted clinicians provide a safe, effective pathway to superior care outcomes today and tomorrow. Our clients value our proven track record of delivering measurable economic value while ensuring compliance and providing essential support to overburdened health care providers. Through enterprise-grade workflow automation, we're enhancing both access and operational efficiency. We are proud of our mission and firmly believe it's more relevant now than ever before. With that, I'll open the call for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Stan Berenshteyn of Wells Fargo Securities. Stanislav Berenshteyn: A couple for me. First, I actually wanted to go back to the prior quarter where you had announced a Florida Blues plan win. I was curious if you can give us some color regarding how you won that? Was that a competitive takeaway? And are you seeing any similar opportunities for you going forward? Ido Schoenberg: Stan, yes, we are very pleased with this important win. It was a competitive situation, and we are deinstalling a major competitor in this setting. The drivers for this really demonstrate everything I spoke about in the prepared remarks. I believe that Florida Blue, like many other payers understood that there is enormous fragmentation, enormous opportunity in AI programs, but they need to create one infrastructure under their brand that will allow for one efficient consumer engagement solution that will be able to drive care with their own choices of clinical program, including maybe different choices for different ASOs or different cohorts and one report and one infrastructure. They, like many other people, existing customers and people that we talk with during our dialogue with the pipeline, really talk about vendor fatigue and complexity. There is a tami of amazing programs, some are better than the others. Many of them have enormous opportunity, but many of them are risky, and there is real need for one technology-enabled care infrastructure, which is an integrator and a distributor, if you will, for members. So all those important value points based on our dialogue with this very important customer, in my opinion, we're leading to this win and are indicative of a future demand that is likely to grow as more AI-driven program proliferate. Stanislav Berenshteyn: And then a follow-up for me here. Regarding the comments you made in the prepared remarks around potential further divestiture of noncore assets. Can you give us any insight as to what those assets might be? And are you in any active discussions here? Or is this more of a theoretical process? Ido Schoenberg: So this is very practical. Let's start there. The key conclusion is that the opportunity we spoke about with Florida Blue and many others is very, very exciting. And because of that, we decided to focus all our efforts around it because we believe that's the best ROI for Amwell and the best way we can create value for our customers. We do have a long list of legacy products that do the job but do the job well. Examples are automated programs for hospitals or inpatient solutions and so on and so forth. These are good products that are secure and reliable and dependable, and we plan to continue and use them, but we are going to spend less, significantly less in growing these market segments in comparison to this very clear enormous opportunity that I shared earlier. And that's really part of our strategy that we are implementing as we speak. Operator: Our next question comes from the line of Charles Rhyee of TD Cowen. Charles Rhyee: You talked about AI and implementing that across the enterprise and other technology to sort of inform patient intake, navigation, et cetera. Can you talk a little bit about how that can be monetized? Is that something that you are charging extra for? What is sort of the model as we think about that? And maybe, Mark, I know it's still probably a little early. How should we think about maybe any kind of guardrails to think about when looking out to '26 at all, at least from a top line perspective? Ido Schoenberg: Absolutely, Charles. So suffice to say that AI is influencing everything we do and everything that happens in our ecosystem. It's very, very dramatic. Let's start with the product, and let's start with third-party partners. When you think about someone like Sword, for example, their ability to predict with AI likelihood of someone getting surgery very soon is incredibly important. Our ability to route this patient to Sword and then document these savings and report it back to the likes of Elevance and others is incredibly, incredibly valuable. The same is true for other partners like HelloHeart that is able to use predictive modeling to manage medication adherence better, and there are many other such examples. So first and foremost, AI is influencing both Amwell and non-Amwell clinical programs themselves. In addition to that, AI is allowing us to create a dramatically different experience for consumers. It can be highly personalized. You can get immediate attention as a person and have a very simple, easy, attentive, personalized navigation to programs that are likely to be helpful for you. So that's another area where AI has enormous value. The monetization of such value, both things actually really increase ROI for our customers and increase traction. So when a great experience is leading to a virtual primary care experience at over 30 days saving $500 for our customers, that's very good for Amwell. That's very good for our customers as well. In addition to that, using of AI for data analytics so you can push information about outcomes in a very coherent way across different programs for a whole person and whole cohort is allowing our customers to choose the right programs and refine them over time. It also allows us to further personalize the experience for consumers and getting more use -- even more use and more higher NPS over the next. So all those examples in program essentially increase the value and the traction of our platform. We don't necessarily charge more for our platform directly in order to do that, although we may be able to do that in the future. But much more importantly, as we share the value of this traction in this traffic, each time we refer someone to Sword, for example, we get some rev share from this company, which is good for us and much better than the alternative customer acquisition cost. So overall, all those investments are really creating more value for our own platform. In addition to that, like any other company, we brought some wonderful talent from big tech, people like Amazon and others. And we are looking at every part of our operation, whether it's core generation, QA, product management, sales, deployment, support and so on and so forth. And like many others, we are investing much in order to implement those solutions in order to be better, more effective, more efficient. And that work is ongoing and has more and more impact. I would just suggest that if you need to quantify the most important financial impact, and our relevance going forward, I would suggest that our ability to tie together hybrid solution between certified humans like our national network and other solutions together with AI-driven programs that as a result, create much better financial and clinical outcomes with much lower cost and much higher engagement is the heart of the influence of AI on our financial performance. Charles Rhyee: But I guess it sounds like then maybe, Mark, in terms of how should we think about next year? And also if we're not necessarily charging more for these innovations and obviously demonstrating more ROI for customers, how should we think about margins at least? Is the current rate, I think it was 52% here in the quarter. Is that sort of the right level we should be thinking about next year? Or maybe any kind of thoughts there would be helpful. Mark Hirschhorn: Yes. Charles, I don't believe the introduction of the AI features and the attributes that we're looking to implement throughout the year are going to have any meaningful impact on our margins. What's going to lead to the margin probably variation from '25 to '26 will be exactly what we saw in '25, which was the greater ability to bring more software revenues into the top line. Clearly, we had significant to the tune of tens of millions of dollars of implementation revenues generating very high margins. They impacted the margin profile tremendously. And that's why we're exiting at these stronger margins compared to '24. '26, I believe, will be consistent with the '25 margin profile. Charles Rhyee: And maybe one last one, if I could. You talked about sort of divesting sort of noncore assets. Obviously, APC was an example. Is there a lot of other assets still that you would consider in that noncore bucket? And is there a sense for timing? Is this something that we'd like to do very soon? Or is this when you can get something a good value for it? Mark Hirschhorn: It's more the latter, Charles. We're not in the market with either of these, what I would suggest are a couple of defined assets that can be bifurcated from the rest of the business without losing any focus, without challenging any of the clients right now with removing some of these. These are distinct assets that have a certain profile of clients that we could, in fact, cordon off, we could run them separately. But I think throughout '26, we will try to, again, narrow our focus in those areas that Ido shared in his prepared remarks. Operator: Our next question comes from the line of Jailendra Singh of Truist Securities. Jenny Cao: This is Jenny on for Jailendra. Just had a question around macro with all the macro noise, tariffs and economic uncertainty. Have you seen any impact on your sales pipeline as health systems continue to evaluate their IT budgets? Just curious how that conversation has been going in terms of the last couple of months? And related to that, can you talk about your direct tariff exposure? Ido Schoenberg: Jenny, well, essentially, what we see in the market is that our solution is serving very important pain points that many of the customers using the new ones see as obligatory in the sense that if you think about it for a payer, the ability to have reliable, effective solution around hybrid care and technology-enabled care is a tool that is demanded by the sponsors, by employers and others and generate enormous savings. Implementing effective AI-driven care programs is not a question of if, it's really a question of how. You must do it, and that's very clear for our customers. That's very dangerous. It's very confusing. It's error-prone. We offer our customers an ability to create less noise by having one platform that is embedded in their infrastructure and much less vendor fatigue by allowing us to do the heavy lifting of connecting to more and more solutions and making it still part of one experience and one report. So when we talk to them, that's not a line item they are likely to pass upon even if pressed. As it relates to health systems, we definitely believe that when we look at things like workflow automation, inpatient solutions, hardware solutions, things of that nature, there's definitely some resistance right now and some caution because of the economical impact. And that's one of the reasons why we are moving away resources from promoting such solutions into our core offering. At the same time, when you look at delivery network that are implementing value-based care, when you look at their competition for patients, their need to add, for example, behavioral health to their core offering, things of that nature, their ability to expand their reach beyond catchment areas, all these things directly influence revenues, directly influence their livelihood and are considered as essential. And therefore, we see that we still have an offering that resonates and is relevant right now. As it relates to tariffs, very minimal impact. We have a tiny business line that still has some hardware outside the United States. And that, of course, is impacted, but it has a negligible impact on our performance. We are proudly creating our software as a U.S. firm and therefore -- and our businesses in the U.S. as well. So we don't see any meaningful impact -- direct impact as it relates to tariffs. Of course, it may influence the market and the macro like everyone else, but it's not Amwell specific. Operator: Our next question comes from the line of Kevin Caliendo of UBS. Jack Senft: This is Jack Senft on for Kevin. I wanted to go back to the comments on diverting resources away from the noncore assets. So just to clarify, this is something that's not embedded in guidance this year, correct? And then maybe as a second part to that, is this -- if it's not, is this something that could move up your time line on being cash flow breakeven next year? Or is this something that could even meaningfully move up cash flow expectations? If you can just comment on kind of what your expectations are there, that would be great. Mark Hirschhorn: Yes. This is not included in any of the guidance that you've seen throughout 2025 or the new guidance we provided for the final quarter this year. The impact that it would likely have would not be substantial to the degree that it would change our perspective on cash flow breakeven from operations in the end of 2026. Jack Senft: And then maybe just a quick follow-up. I know your sales and marketing expense, it took a nice step down sequentially this quarter. I know you're still targeting the declines of at least 25% plus this year. But maybe as we look at each like kind of line item in the operating expenses here, are these kind of good run rates to think about going forward? Or is there still additional leverage that you can pull next year? I think you touched on it a little bit briefly, but if you can just talk a little bit more about it, that would be great. Mark Hirschhorn: Yes, sure. As you pointed out, right, we had we really optimized the spend and reduced significantly the sales and marketing costs quarter-over-quarter, but obviously, compared to last year, that's material. I think there's still some meaningful opportunity to take out some costs in 2 other areas, probably G&A. We -- another significant area, probably the most from an absolute dollar perspective was in our costs and the delivery functioning. That's where we're likely going to be benefiting from the implementation of AI tools, both clinical operations, clinical delivery. We'll be able to scale the growth at a lower cost. And I think that will be visible throughout 2026 and beyond. Operator: Our next question comes from the line of John Park of Morgan Stanley. John Park: I know you guys talked about the cash flow breakeven target in '26. And also given the noncore divestitures that are conversations that are going on, if you had to prioritize or rank the factors going into this -- going into that target, factors such as customer renewals, perhaps price increases, service mix, maybe some other factors that I'm not considering right now, how would you rank those? Mark Hirschhorn: Are you asking how we would rank those in consideration of our target for cash flow breakeven next year? Or how do we rank them purely from a top to bottom priority? John Park: Yes. Like how would you prioritize those things? Obviously, the divesting noncore assets is probably going to get you a decent chunk there, but just wondering how -- any other factors to consider to reach that target? Mark Hirschhorn: Yes. The divestiture of those noncore assets will certainly help to focus the company on our core initiatives and would obviously provide some additional dry powder for the balance sheet on top of our $200 million that we just ended the quarter with. And again, we have no debt. So that gives us a little bit more leverage. But I think we primarily have to focus on client retention, ensuring that our platform is delivering and our teams are handling the requests, the growth, the other opportunities for ROI that our clients are demanding. So I'd probably tell you retention is #1. And then, of course, some of the growth initiatives on the product side would then likely be ranked as the #2 priority John Park: I know you mentioned Sword as kind of a way to implement more partners. Is there any areas or topics that you would not want to partner where you would want to just own outright versus integrate with third party? Ido Schoenberg: So our service to our customers is the ability to help them under the brand, create one customer acquisition cost gateway connected to programs of their choosing. The fact that we come out of the box with a very long list of solutions across the full continuum doesn't hurt. But even more exciting is the fact that we can very easily add anything they want to or their clients want to implement. So as long as our customers believe that the solution is logistic, it's secure, it's compliant with different regulations, things of that nature, we will gladly implement it as part of their solution so they can benefit and monitor the value of such implementation. Operator: I'm showing no further questions at this time. I would now like to turn it back to Ido for closing remarks. Ido Schoenberg: Thank you, everyone, for joining. We really appreciate your time. It's interesting to see how relevant Amwell is in a time of great change, and it's exciting to see how this will grow even more as we go forward. Thank you again, and have a good evening. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Thank you.
Operator: Good day, everyone, and welcome to the Finance of America Third Quarter 2025 Earnings Call. At this time, I would like to hand the call over to Mr. Michael Fant. Please go ahead, sir. Michael Fant: Thank you, and good afternoon, everyone, and welcome to Finance of America's Third Quarter 2025 Earnings Call. With me today are Graham Fleming, Chief Executive Officer; Kristen Sieffert, President; and Matt Engel, Chief Financial Officer. As a reminder, this call is being recorded, and you can find the earnings release on our Investor Relations website at ir.financeofamericacompanies.com. Also, I would like to remind everyone that comments on this conference call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the company's expected operating and financial performance for future periods. These statements are based on the company's current expectations and are subject to the safe harbor statement for forward-looking statements that you will find in today's earnings release. Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of risks or other factors, including those that are described in the Risk Factors section of Finance of America's amended annual report on Form 10-K for the year ended December 31, 2024, filed with the SEC on May 20, 2025. Such risk factors may be amended and updated in our subsequent filings with the SEC. We are not undertaking any commitment to update these statements if conditions change. Please note, today, we will be discussing interim period financials for our continuing operations, which are unaudited. In addition, we will refer to certain non-GAAP financial measures on this call. You can find reconciliations of non-GAAP to GAAP financial measures to the extent available without unreasonable efforts in our earnings press release on the Investor Relations page of our website. Now I'll turn the call over to our Chief Executive Officer, Graham Fleming. Graham? Graham Fleming: Thank you, Michael, and good afternoon, everyone. The third quarter of 2025 marked a period of strategic execution and strong performance for Finance of America. In a dynamic market environment, we remain focused on operational excellence, proactive balance sheet management and long-term growth. Year-to-date, we have reported GAAP net income of $131 million or $5.78 per basic share, reflecting the benefit of lower interest rates and tighter spreads, partially offset by softer home price appreciation projections in the third quarter. On an adjusted basis, we generated adjusted net income of $33 million for the quarter or $1.33 per share, representing a significant sequential improvement and more than double the level from a year ago. The increase was driven by improving revenues across our business with increased margins on HomeSafe and HECM products, stronger origination fee income and higher capital markets revenue as a result of the over $3 billion of notes issued in our securitizations backed by our proprietary loans during the quarter. Compared to the first 9 months of 2024, we have seen funded volumes increase by over 28% and adjusted net income grow by more than 5x from $9 million in 2024 to $60 million in the first 9 months of 2025. This translates to $2.33 of adjusted earnings per share, a major step toward our full year guidance. Turning to adjusted EBITDA. The company generated $114 million for the first 9 months of 2025, a 171% improvement compared to the same period a year ago. During the quarter, we completed a series of transactions to enhance liquidity and balance sheet flexibility. We repaid $85 million of higher cost working capital facilities and entered into an agreement to repurchase the entirety of Blackstone's equity stake in FOA. We also closed our largest proprietary securitization in company history in September, a nearly $2 billion issuance. As of September 30, these actions left the company with $110 million in cash and cash equivalents compared to $46 million as of June 30. This increase in cash provides FOA with enough liquidity to satisfy the $53 million corporate bond payments due later this month. In addition to our strong results, in October, we announced a strategic partnership with Better.com, expanding our product offerings and enhancing our technology backbone to better serve our demographic, which Kristen will touch on in more detail. Over the last several years, we've continued to invest in digital innovation, AI and data analytics, strengthening the foundation of our business. While still very early in the adoption of AI technology, we fully expect these investments to improve the customer experience, enhance the ROI on our marketing spend and increase the productivity of the organization, driving improved operating leverage. Kristen will share more on the progress we've made in these areas and the impact across our platform. Kristen? Kristen Sieffert: Thanks, Graham, and good afternoon, everyone. The third quarter represented a disciplined period of execution across Finance of America. We delivered solid origination performance, advanced our technology transformation and continued to strengthen the core fundamentals that position FOA for sustainable, profitable growth into 2026 and beyond. Origination performance remained robust with funded volume reaching $603 million and submission volume reaching $887 million for the quarter compared to $764 million in the same period last year. By the end of October, for the year 2025, we funded $1.97 billion in reverse mortgages, surpassing our entire 2024 production of $1.92 billion, and October submissions totaled $336 million, the highest month in 3 years. Beyond headline volume, the team continues to make substantial progress in transforming the business model. We're embedding AI, digital automation and advanced data analytics across our wholesale and retail channels, driving measurable gains in efficiency and conversion. We're already seeing tangible results from our digital-first strategy. Over 20% of customers who engaged with our new digital prequalification completed the process without loan officer intervention. The tool, which includes a soft credit pull, delivers a 3-minute prequalification experience, setting a new benchmark for speed and customer engagement in the reverse mortgage industry. This will translate into greater efficiency per loan officer, and we saw this in October's numbers as our loan officers were able to service 25% more opportunities and generated a 32% increase in monthly submission volume over the year-to-date averages. Our continued investment in and attention to the top of the funnel is driving stronger digital engagement and setting the foundation for efficient volume growth in 2026. Unique web leads increased 16% quarter-over-quarter. Customer e-mail retention increased 36% from the time of the AAG platform acquisition and leads generated through e-mail nurture from our database increased 206% quarter-over-quarter. In the coming months, we're enhancing this digital ecosystem further with SMS engagement tools for sales teams, AI-powered call agents to provide 24/7 borrower support and AI-powered wholesale tools to improve our partner experience. These initiatives are expected to increase conversion at critical funnel points, expanding our operating leverage and the scalability of our model. We are also continuing to advance our diversification strategy through a strategic partnership with Better.com that broadens our impact into the total addressable market. These traditional home equity products enable us to serve approximately 30% more of the potential borrowers already engaging with our brand who need higher loan-to-value solutions than our current reverse suite provides. At FOA, we're not just adapting to the future of home equity, we're defining it. Our investments in digital automation, data infrastructure and AI are structurally enhancing unit economics, driving margin expansion and strengthening our long-term earnings power. As home equity continues to move from the most underused retirement asset to a mainstream solution for the modern retiree, FOA is positioned at the center of this transformation, committed to unlocking opportunities for millions of Americans to realize the full potential of their retirement. With that, I'll turn it over to Matt to review the financials. Matt? Matthew Engel: Thank you, Kristen, and good afternoon, everyone. The third quarter reflected strategic execution and strong performance for Finance of America, highlighting both the consistent progress of our operating performance and our ability to take advantage of opportunities as they arise. On a GAAP basis, the company reported a net loss of $29 million for the quarter as lower interest rates and tighter spreads were more than offset by softer home price appreciation projections impacting the noncash fair value of our residuals. Year-to-date, the company is still significantly positive, reporting $131 million of pretax income for the first 9 months of 2025. Adjusted net income for the quarter totaled $33 million or $1.33 per share, a 125% increase from the prior quarter and more than double the level from the same period last year. This improvement was driven by higher origination margins and increased capital markets activity. For the first 9 months of 2025, we have funded approximately $1.8 billion in originations compared with $1.4 billion during the same period last year, an increase of 28% year-over-year. Adjusted net income totaled $60 million or $2.33 per share, up meaningfully from $9 million or $0.38 per share in the same period of 2024. This improvement reflects stronger margins, increased capital markets activity and continued expense discipline across our platform. Excluding fair value changes from market and model assumptions, Q3 revenues totaled $103 million, bringing year-to-date total revenue to $263 million, an increase of 22% year-over-year from $215 million in the first 9 months of 2024. During the quarter, we strengthened our liquidity through the issuance of $40 million of 0% convertible notes as well as the monetization of residual assets, completing over $3 billion in securitizations, including a nearly $2 billion securitization in September, the largest in the company's history. Additionally, we paid down $125 million of working capital and other financing facilities with $60 million remaining to be redrawn for future use. Despite these paydowns, cash levels increased from $46 million as of June 30 to $110 million as of September 30, allowing us to set aside funds for the scheduled $53 million corporate debt paydown later this month. As announced in August, we entered into an agreement to repurchase all existing shares owned by Blackstone. In accordance with GAAP accounting rules, this agreement is seen as an obligation and therefore, accounted for as a liability and a reduction to equity as of the date of the announcement. Our September 30 balance sheet reflects this liability and reduction to equity. Turning to guidance. We are reaffirming our full year 2025 adjusted EPS target of $2.60 to $3 and anticipate tracking toward the low end of our previously stated volume range of $2.4 billion to $2.7 billion. Looking ahead to 2026, we expect volume growth of 20% to 25% year-over-year, supporting a 2026 adjusted earnings per share guidance of $4.25 to $4.75 per share, which is up from $2.60 to $3 in 2025. With that, I'll turn it back to Graham for closing remarks. Graham Fleming: Thank you, Matt. As we close the third quarter, I want to take a moment to reflect on the progress we've made. In just over a year since our transformation, we have achieved consistent profitability and expanded our leadership in reverse lending while delevering and strengthening our balance sheet. As Kristen mentioned, we're seeing strong momentum at the top of the funnel with record lead generation, higher digital engagement and continued efficiency gains, all of which give us confidence to achieve a 60% year-over-year increase in 2026 adjusted EPS guidance. These accomplishments demonstrate our progress in building a stronger, more efficient and more diversified Finance of America. Our continued investment in modernization, digital innovation and AI is enhancing productivity, expanding operating leverage and positioning us to scale efficiently as demand for home equity solutions grows. We believe we are well positioned to deliver sustained volume growth of roughly 20% annually over the coming years as we build the most trusted and technologically advanced platform for retirement-focused home equity solutions in America. We are confident in our direction, encouraged by our results and excited about the opportunities ahead. As we look to 2026, we remain committed to driving sustainable growth, enhancing shareholder value and helping more Americans discover there is a better way with FOA. And with that, we'll open the call for questions. Operator: [Operator Instructions] We'll take the first question today from Doug Harter, UBS. Douglas Harter: Just on the buyback, I guess, has that been completed yet? Or what is the updated time frame on that completion? Matthew Engel: It has not been completed yet, Doug. It's really -- we're on track to complete it. Most likely that will begin later this month and into December perhaps. Douglas Harter: And can you remind me the cash total of that, just as we think about kind of this, the uses of your current cash position? Matthew Engel: It's about $80 million. Douglas Harter: Okay. And then how do you think about what is the right level of cash to hold? Like how much of that capacity do you have to redraw do you think you need to do in the coming months? Matthew Engel: So if you kind of piece it together, Doug, I think we ended the quarter with $110 million. We indicated we had paid down during the quarter $125 million of working capital facilities, right, which was $85 million of the kind of corporate general facilities and then other kind of warehouse debt. So of that $125 million, $60 million of it is available really to be redrawn as necessary. So you can really kind of add that to the $110 million we had on hand at the end of September to give you the kind of the adjusted cash capacity we have heading into the fourth quarter. Douglas Harter: Got it. And then I guess, how should we -- obviously, a strong securitization quarter, which I imagine was a big part of the cash generation. How should we think about your cadence in the coming months, quarters of securitization? And just any update on how that market is functioning right now? Matthew Engel: Yes. I think generally, our cadence has been to do kind of one large securitization every quarter. We did accelerate. We probably accelerated, pulled one that we had planned for Q4 into Q3. But that said, we do have a smaller securitization we expect to complete this month and it remains to be seen exactly what that timing looks like. But I do think the Q3 activity was larger than what you'd normally expect to see on a go-forward basis. The market has been performing very well. Spreads have been tight. Demand has been good. One thing we've seen, especially as we started doing some larger deals. Remember, we did a $1 billion deal in July, which at the time was our largest deal ever, followed that up with a $2 billion deal in September, doubled that. Both were very well received. And that when you start talking bigger numbers, you just get a different class of investor, multiple new investors coming in. So we saw a very good reception for our bonds in those deals. Operator: The next question is from Leon Cooperman from Omega Advisors. Leon Cooperman: There are lots of different measures of earnings. How much cash do you generate in a typical year? In other words, how much cash would you generate in a 12-month period on average? Graham Fleming: So Leon, I'll answer that one. So in any given year, when you look at our PTI, it may -- because we create residuals in MSR, I would say within 24 to 36 months after our P&L, that number all turns green. So if we post $100 million or $120 million of PTI for this year, you would expect over the course of 3 years that, that would all become cash? Leon Cooperman: Okay. But I want to take the $100 million divide by 3, it's a typical year. Graham Fleming: Well, we do have currently on our balance sheet, we still have roughly $300 million of residuals and retained securities, right, that over the coming years, we'll continue to monetize those residuals, and they'll continue to turn to cash. And then our new residuals -- we'll create new residuals and new MSR on a go-forward basis. Leon Cooperman: So basically, how many shares is the new capitalization going to be? Matthew Engel: So total what we have today about 24 million shares outstanding, right? 8 million of that will be repurchased in the Blackstone transaction, which leaves you with about 16 million. And then the convertible notes, both the $150 million we have from the prior convertible notes and the $40 million notes we just added would add about 7 million plus our stock options get you back to about 24 million. So you'll see our total fully diluted share count go from what today is about 31 million, down to about 24 million on an adjusted basis going forward. Leon Cooperman: So are you suggesting that you generate about $4 a share in cash earnings? Graham Fleming: Yes, at $100 million in PTI, that would be correct. Operator: And everyone, at this time, there are no further questions. I'll hand the conference back to Graham Fleming for any additional or closing remarks. Graham Fleming: Yes. Thank you, everybody, for joining. We appreciate your participation, and we look forward to updating the full year numbers in March of next year. So thank you very much, everybody. Operator: Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.
Operator: " Jerrell Shelton: " Robert Stefanovich: " Mark W. Sawicki: " Thomas Heinzen: " Todd Fromer: " Kanan, Corbin, Schupak & Aronow Kyle Crews: " UBS Investment Bank, Research Division David Saxon: " Needham & Company, LLC, Research Division Puneet Souda: " Leerink Partners LLC, Research Division Matthew Stanton: " Jefferies LLC, Research Division Subhalaxmi Nambi: " Guggenheim Securities, LLC, Research Division David Larsen: " BTIG, LLC, Research Division Mason Carrico: " Stephens Inc., Research Division Operator: Good afternoon, and welcome to Cryoport's Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. As a reminder, this call is being recorded. I will now turn the call over to your host, Todd Fromer from KCSA Strategic Communications. Please go ahead. Todd Fromer: Thank you, operator. Before we begin today, I would like to remind everyone that this conference call contains certain forward-looking statements. All statements that address our operating performance, events or developments that we expect or anticipate occurring in the future are forward-looking statements. These forward-looking statements are based on management's beliefs and assumptions and not on information currently available to our management team. Our management team believes that these forward-looking statements are reasonable as and when made. However, you should not place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results, events and developments to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Item 1A, Risk Factors and elsewhere in our annual report on Form 10-K to be filed with the Securities and Exchange Commission and those described from time to time in the other reports which we file with the Securities and Exchange Commission. As a reminder, Cryoport has uploaded their third quarter 2025 in review document to the main page of the Cryoport Inc. website. This document provides a review of Cryoport's financial and operational performance and a general business outlook. Before I turn the call over to Jerry, please note that because of the strategic partnership that has been established with DHL Group and related sale of CRYOPDP to DHL, CRYOPDP's financials, which were previously a part of Cryoport's Life Sciences Services reportable segment are now presented as discontinued operations. Cryoport previously provided quarterly historical information on this basis for fiscal year 2024 and our first quarter 2025 in review document, which remains available on the Cryoport, Inc. website. This information is intended to support the financial modeling efforts of those needing this information. Please note that unless otherwise indicated, all revenue figures discussed today will refer to continuing operations. This includes Cryoport's fiscal year 2025 revenue guidance. It is now my pleasure to turn the call over to Mr. Jerrell Shelton, Chief Executive Officer of Cryoport. Jerry, the floor is yours. Jerrell Shelton: Thank you, Todd, and good afternoon, everyone. With us this afternoon is our Chief Financial Officer, Robert Stefanovich; our Chief Scientific Officer, Dr. Mark Sawicki; and our Vice President of Corporate Development and Investor Relations, Thomas Heinzen. During the third quarter, we continued our strong momentum, delivering double-digit growth in both our Life Sciences Services and Life Sciences Product segments. Notably, revenue from our support of commercial cell and gene therapy grew 36% year-over-year to $8.3 million, driven by the continuing global adaptation of these life-saving therapies. It is imperative that the growth of the -- it is impressive rather it is impressive that the growth of the regenerative therapies market, which we believe is still in very early stage of development, has remained resilient despite ongoing challenging macroeconomic, political and geopolitical backdrops. Within Life Sciences, revenue increased 16% year-over-year and represented 55% of our total revenue from continuing operations for the quarter. This included a 21% increase in the BioStorage - Bioservices revenue, underscoring the persistent demand for our integrated platform. Driving this growth is the rising prevalence of chronic and rare diseases, prevalence of chronic and rare diseases, coupled with continued advancements in cell and gene therapies targeting solid tumors and autoimmune diseases. We also are encouraged by signs of stability in our life sciences product market, where revenue grew 15% year-over-year, driven by improved demand for our market-leading cryogenic systems. In the third quarter, we expanded our product portfolio with the launch of MVE Biological Solutions next-generation SC4/2V and SC4/3V vapor shippers. These cryogenic systems models have been redesigned, utilizing innovative technologies to offer customers added protection during extended or challenging shipments and include several key advancements designed to enhance the performance and reliability. MVE's newly designed condition monitoring solutions for these doors are integrated with each unit, combining our trusted cryogenic systems with advanced real-time condition monitoring technology supplied by Tacromed, another Cryoport company. These innovations reflect MVE's unwavering commitment to support the life sciences with advanced intelligent connected assets to safeguard vital biological materials. Beyond our core systems and services, we are progressing on a number of other growth initiatives designed to better serve our clients and diversify our revenue streams. These initiatives include the onboarding of our first clients for IntegriCell, our cryopreservation services located in Liege, Belgium and Houston, Texas. These cryopreservation services are designed to address a critical aspect in optimizing the supply chain for the development and commercialization of cell-based therapies through high-quality standardized cryopreserved starting materials. We're excited by IntegriCell's recent progress as it moves forward to become a significant revenue and profit generator. Additionally, in late October, we opened the logistics portion of Cryoport Systems' new state-of-the-art global supply chain center at the Charles de Gaulle Airport in Paris, France. This 55,000 square foot facility provides us with increased ability to serve our clients in the European and global markets. It is designed to support complex life sciences life sciences supply chain needs, including biologistics, bioservices and future cryopreservation services. An official grand opening is scheduled -- is to celebrate the launch of this facility will be held on November 20 with Bioservices opening in mid-2026. In addition, we are also advancing toward opening a global supply chain center in Santa Ana, California, which is expected to come online in the second half of 2026. This facility will consolidate 3 existing locations and feature next-generation technology to optimize operations and client support. Complementing all of these activities, we have begun implementing our recently established strategic partnership with DHL Group. Due to the -- to DHL size, this strategic relationship will take some time. And when completed, it will enhance our positioning in the APAC and EMEA regions and reshape our competitive profile within the industry by leveraging DHL's global scale and capabilities. Regenerative medicine has been advancing steadily, largely driven by the expanding pipeline of regenerative therapeutics entering clinical development and commercialization. Despite any short-term headwinds, cell and gene therapies have continued to enter and move through the clinical pipeline, which should ultimately result in growing revenue from commercially supported therapies. Cryoport's temperature control supply chain solutions are supporting the largest portfolio of clinical and commercial gene therapies in the world with a record total of 745 global clinical trials and 83 of these in Phase III, representing approximately 70% of the cell and gene therapy clinical trials. In the third quarter, 4 BLA MAA filings occurred and 3 more were filed in October. For the remainder of 2025, we anticipate up to an additional 7 application filings, 1 new therapy approval and 2 additional approvals for label or geographic expansions or moves to earlier lines of treatment. Of course, the timing of these filings may be impacted by the current government shutdown of the FDA in the United States. While global trade conditions remain dynamic, Cryoport did not experience any new material impact from tariffs in the third quarter. Furthermore, we have, of course, taken steps to diversify our supply chain to mitigate potential impacts that could come as a result of tariffs, impacts not covered by these mitigations are covered by surcharges. With the strong momentum we have achieved year-to-date and our progress across the board, we are updating our full-year 2025 outlook for total revenue from continuing operations to the range of $170 million to $174 million. Our team is dedicated to building long-term value for our shareholders. Cryoport is maintaining and growing its competitive differentiators as the only pure-play end-to-end temperature-controlled supply chain platform that supports the largest portfolio of clinical and commercial cell and gene therapies globally. This concludes my remarks. So I'll now ask the operator to open the lines for your questions. Operator: [Operator Instructions] Your first question comes from the line of Kyle Crews from UBS. Kyle Crews: Congratulations on the quarter. Maybe just to start, the high end of the guidance implies a sequential decline in revenues. At the same time, you're seeing positive momentum across the entire business. You have an increased number of commercial therapies supported higher number of clinical trials, and you've launched new products within MDE. Can you help us reconcile that with the implied sequential decline in guidance? And then for a second question, can you discuss if the recent release of the triple FDA draft guidance is that support making clinical trials easier has resulted in an uptick in clinical trial interest at your company? Jerrell Shelton: Well, you had a lot of questions in there. And I think Robert will start answering your financial questions, and Mark will address your FDA question. Robert Stefanovich: Yes. Look, you're certainly right in terms of how you phrased the question. Given all the macro uncertainties right now, we think it's a responsible guide. It balances the momentum that we are seeing versus the macro conditions, such as the current government shutdown and the ever-changing tariff landscape. I think we've managed it to date very well. And we're obviously, of course, focused on profitable and disciplined growth. If you look at the revenue guidance and the increase in revenue guidance represents about 8% to 11% revenue growth over the prior year from continuing operations. But as you said, at the same time, we continue to be very bullish on our market-leading position. We feel that our long-term growth rate will be close to that of the cell and gene therapy market, as you can see in our Q3 performance, and as more and more commercial therapies come to market. In fact, if you look at our commercial revenue right now, it's already a fairly significant portion of our total revenue. I think it's roughly about 18%, 19% of total revenue. So we're trying to balance those 2 parts. One, the cautious view on the macro uncertainties, but at the same time, we are very bullish in terms of the outlook and bullish in terms of finishing the year strongly. Jerrell Shelton: Mark, do you want to answer the FDA portion? Mark W. Sawicki: Sure. Assuming you're referring to the REMS requirement, is that correct? Kyle Crews: No. They recently released 3 new draft guidances related to clinical trials. Yes. Mark W. Sawicki: Yes. So obviously, yes, some of the draft guidance announcements that you're talking of that came out recently, some of them are targeting some generic small molecule programs. Those don't have a significant bearing on our market. Those that are aimed at the orphan markets and those that are focused on driving biologics approvals much more quickly, are impactful to us and our clients, and we do believe that those will help drive more activity in the future from a BLA standpoint. Just turning to REMS because I think it's important to understand that one, too. So the REMS requirement, which has also one that's been announced, will have an even more impactful positive impact for us as it will drive the implementation and utilization of cell therapies into the community care setting. And I think if you look at both BMS and J&J's CARVYKTI revenue in Q3, both of them had very strong growth. And in fact, CARVYKTI folks even came out and said almost 80% of the patie. Kyle Crews: Great. And then maybe just one last one. Can you discuss whether you're seeing increasingly different trends within gene therapy and cell therapy within the broader cell and gene therapy market? Mark W. Sawicki: Yes. I mean, obviously, there's a little bit of tentativeness around financing in the gene therapy space because of some of the challenges that have been seen, but that doesn't impact the long-term opportunity. And so there are still a lot of new start-ups in the gene therapy space. There's a lot of activity and investment that's going into the gene therapy space. But obviously, the lion's share of funding at this point is still going into the cell therapy side of things. And obviously, with the number of potential approvals moving forward later this year. We've got another potential, as Jerry mentioned in his introductory comments, and potentially another 7 filings this year, and potentially even another 1 new and 2 supplemental approvals this year. So there's very strong activity in the cell therapy space as well. Thomas Heinzen: Just to round that off, Mark, just would point out in our review piece, we broke down by percentages the clinical trial portfolio that we have. And the number of gene therapies in there is a single-digit percentage, and the number of vaccines is even smaller. It's like 3%. So we're much more exposed to the cell therapy side of the world. Operator: Your next question comes from the line of David Saxon from Needham. David Saxon: Congrats on another strong quarter here. Maybe, Robert, I'll start with you. I didn't hear anything on EBITDA guidance. I think the expectation is to reach profitability on a quarterly basis sometime this year. So is that still the expectation? And then how should we think about profitability as it relates to 2026? Could you see that on a full-year basis? Or are there any meaningful investments we should be aware of? Robert Stefanovich: Yes. No, thank you. As you can see from our '25 performance to date, the adjusted EBITDA, we improved it by over $10 million for the first 9 months, bringing our adjusted EBITDA loss in Q3 to $600,000. So we are getting very, very close to getting and crossing the line to positive adjusted EBITDA. From a cash flow perspective, cash flow from operating activities was positive for the quarter. We had about $2.2 million positive cash flow from operating activities. And we think we can get to positive EBITDA. We're very close to it as early as year-end. That was our target. At the same time, I do want to highlight, we're obviously trying to balance some of the growth initiatives that we have with driving towards solid positive EBITDA. There are some specific client-driven growth initiatives that we have, including the global supply chain center that we're opening in Paris this month, as well as the IntegriCell platform that we started out a while back. And those, in some cases, require some upfront investments. So that's really balancing those 2 parts, but we're certainly making very strong progress towards that goal. And overall, we like our momentum. We like the positioning that we're in, and our teams are working towards executing on that goal. In terms of profitability itself and crossing the line of profitability, we have not given guidance. Our main focus is really on executing on our initiatives, driving positive EBITDA, and obviously creating that pathway to profitability. Jerrell Shelton: David, you've heard us talk about the pathway to profitability before, and we certainly are on that pathway to profitability. And as Robert points out, we're moving toward positive adjusted EBITDA. And so we think possibly we can get there in the fourth quarter and certainly early next year. And that's a surrogate for cash flow. But remember, we have a number of facilities, which I went over in my opening comments. I just mentioned a couple of examples, a number of capital investments taking place. We know that those are the right capital investments. We vetted them thoroughly. We know that they're the right thing to do for the future. But as we're building those out in today's accounting, it does affect your income statement. So our pathway to profitability includes all the things that Robert said, plus building out those facilities and then starting to experience the operating leverage that comes with getting those facilities up and running and utilized. David Saxon: Jerry, maybe my second one is for you. Just on product, that growth really improved versus kind of the first half. So maybe talk about what's driving that strength? How much of that is market versus some of those new products you called out, maybe driving some mix benefit? And then in terms of the backlog, I guess, can you talk about that at least qualitatively? And then what level of visibility does that give you into the product growth outlook as we head into 2026? Jerrell Shelton: David, we talked about backlog a lot during the COVID period because we had an extraordinary period. But we don't talk about backlog now as much because we are on more normal -- we're in a more normal market, which is about a 6- to 8-week lead time. It's no longer 6 months or a year lead time. It's back to the normal, which is about 6 weeks lead time. So we do monitor our sales trends. We do monitor our order intake, and that order intake does give us indication that the market is beginning to stabilize. And of course, government shutdown hasn't helped us there any, but it still continues to go on. It hasn't helped us because it does slow down the government sales that are associated. But so we're doing well in terms of the industry and the stabilization. There was no impact on the new things that I talked about in my comments and opening up. No revenue coming in from that. It wasn't time. It does take time for these things to get out. The 3 -- the 2 doors that were developed with the integrated condition monitoring at MVE are focused on the animal health business. And so that's a seasonal business, and there will be an uptake there. But we have a number of things going on at MVE. Does that answer your question, David? Or is there other parts to it? David Saxon: That was super helpful. I guess maybe if I could rephrase it, like how -- the market has been stable year-to-date. I guess as we think about our models for 2026, like do you -- is making the assumption that, that continues a fair assumption? And then with, I guess, those product launches in the animal health space, maybe some increased demand across the other end markets, like maybe how should we frame or how would you frame product growth potential for 2026? Jerrell Shelton: I would look at it with stability and use a very high single-digit growth rate. Operator: Your next question comes from the line of Puneet Souda from Leerink Partners. Puneet Souda: So maybe first one on some of the cell therapy exits that we have seen. I mean you're delivering relatively strong growth. Some of it is comps, but some of it is just overall market stability, which you talked about. But just trying to understand if you could contrast with what we're seeing, Takeda exiting its allogeneic programs, Galapagos is winding down their programs. Novo is divesting its cell therapy assets. Are you seeing any downstream impact from those exits on your pipeline or the service demand overall? And then within that, as Jerry said, high single-digit growth -- is that still something you -- I mean, is that you're contemplating into 2026 and '27, just given sort of these exits? And maybe just provide us any context for backfilling some of these programs that might have been lost. Jerrell Shelton: Yes, Puneet, we're honored that you're on the call because we thought you might miss it because of conflicts. But let me start, and then Mark will add to what I have to say. First of all, the 9%, I said high single digits, so you said 9%, that's fine. But that supplies to MVE product segment and you mix product and services. And so in the Service segment, where you have Galapagos, you've cited and some of the other activity that's happened, that's -- that's normal to me. You should probably know this, but it's normal to have puts and takes. And people make their investments and other -- and sometimes they can support them financially going forward. Sometimes they can't. Sometimes they're rationalizing what they're doing, and we have no insight on that. What we do know is we are continuing to grow. We continue to see robustness. We have an increase in the clinical trials that we support with 83 being in Phase III. I think it was 83 in Phase III. And we're doing well, and we see a continued buoyancy in the market. This science is not going to stop. It's going to change the way medicine is practiced around the world. It just takes time. And it has had some headwinds, but it's buoyant, it's strong, and we're growing, and we intend to continue to. Do you want to add to that? Mark W. Sawicki: I think you answered it pretty well. The only thing I would just add is Jerry is right. I mean, I think some of the changes that you mentioned are really strategic portfolio decisions. I don't think they're market-driven decisions. There's also other companies that are putting a lot more money into and expanding their programs from a top 5 pharma standpoint. So we don't have a level of concern around that. As Jerry had mentioned, very strong pipeline activity, very strong activity from a regulatory standpoint. As we had mentioned, upwards of another 7 filings this year, upwards of potentially another 25 filings next year. So there's a lot of activity in the space, which will continue to expand the number of commercialized therapies and the revenue associated with those therapies as the market matures. Thomas Heinzen: [Indiscernible]. Could I thing in there just to pile on? Mark W. Sawicki: Yes, Tom, please. Thomas Heinzen: Just to point out, September funding in biopharma was quite strong, and October was the best month of the year so far. We had over 20 IPOs and follow-on offerings of greater than $100 million in October alone. So some of the programs you mentioned are falling off, but certainly other ones are coming in up and taking the place. Puneet Souda: On the government shutdown piece and the implied 4Q guide, I'm just trying to understand how should we think about the segments within the guide for the fourth quarter, Bioogistics versus BioStorage, Bioservices versus the MVE Life Sciences product line. Maybe just help us understand -- how should we think about modeling each of those, if you could provide some segment commentary? And just maybe just if you could pinpoint in the government shutdown exactly, I mean, what are customers telling you? What are some of the worries here if this shutdown extends into December? Jerrell Shelton: On the first part of your question, Puneet, it depends on what you think about the government shutdown. Frankly, the government shutdown is temporary. Right now, you can't make a filing, you can't pay your fees for a filing. But that's going to end soon. It can't go on forever, and there's an election coming up, which I think will motivate a political end to the shutdown. And then we'll see some things open up. We'll see things start to move through, and we'll catch up. So it's not going to last forever. The government shutdown is. And again, under the backdrop we've had, we've shown substantial growth in spite of any headwinds there. Mark, do you have anything to add to that? Mark W. Sawicki: Yes, I think you answered it well. I mean, yes, from a service standpoint, we haven't seen any impact other than the delay in filing activity, which they just can't do because they can't pay -- as Jerry mentioned, their filing their application fees. That's the only impact that we've seen is there may be a short-term delay in some of the filing activity, but the service activity still remains very robust. And then just looking at Q4 without going into too much detail, obviously, we expect year-over-year increase on the services side. On the product side, it largely depends on timing, especially if you look at some of the larger freezer orders or even some of the potential delays in government shutdown, that they could just have an impact on timing of whether those are going to come in, in Q4 or be shifted in Q1. Jerrell Shelton: That's because they're capital expenditures and somebody has to sign off on them. Does that help you? Puneet Souda: Yes. Operator: Your next question comes from the line of Matt Stanton from Jefferies. Matthew Stanton: Maybe one for Mark. Just on the commercial trends, you're tracking up over 30% here year-to-date. It sounds like you saw some approvals here early in the quarter to continue more filings and then I think next year, '25, which is a big number. Can you just talk about the durability of the growth in terms of what you're seeing here from customers? And as we think about that kind of 30% plus, how you feel about that on the commercial side into '26? And I mean, is there opportunity for that to accelerate even further if some of these things kick in on REMS or some of these filings kick in, and to your point earlier, start to get signed off and get out there? But just talk about the kind of growth algorithm on the commercial side. Mark W. Sawicki: Yes. I think as you focus, you're going to focus on two things. One is the existing therapies as they mature, they move to earlier line and they go through global expansion. And as we had mentioned earlier, I mean, both BMS and Janssen and J&J have come out with very positive comments around growth and their data -- their financial data supports that. [ Janssen ] said their goal is 10,000 doses by year-end and 20,000 patients by the end of 2027, which is a substantial increase. And then you have the newer therapies as they launch, they're also expecting significant ramps. Vertex has come out and said they expect to see CASGEVY start to ramp more significantly. And then we have other data on some of these earlier launches, so which most of it has come out at or ahead of guidance. So if you take those in addition to the new filing activity, we think it will remain robust in '26 and beyond. Matthew Stanton: Great. And then, Robert, maybe just to go back and know a few times just on the 4Q ramp. I mean, I know last quarter, you guys were kind of saying 4Q probably higher than 3Q, part of that seasonality. Obviously, 3Q came in better than we expected. Is it fair to say that the sequential quarter-over-quarter implied 4Q, I mean, the government shutdown, maybe some of the timing you talked about, I mean, is that kind of a low single-digit million impact tied to those and maybe erring on the side of conservatism? Just kind of thinking about three months ago, 4Q higher than 3Q and now we have kind of the opposite playing out. And maybe just confirm there was nothing kind of that fell in 3Q that you had previously expected to fall in 4Q. Robert Stefanovich: No, no, there's not. But you already really framed it. Yes. I think it's really balancing that and looking at our guidance. Certainly, we have upside potential, no question. But given some of the uncertainties, we felt that that guidance kind of reflects where we stand right now to acknowledge some of those other aspects that we discussed earlier. Operator: Your next question comes from the line of Subbu Nambi from Guggenheim. Subhalaxmi Nambi: You recently announced the Cryoport Systems received ISO certification. Could you speak to what this means in terms of your customer win rate or any competitive dynamics? How meaningful is this? Jerrell Shelton: I want Mark to speak to that. But in addition to that ISO, we've also won an award or two and certainly one that we're proud of, and we did help on that ISO. So Mark, take it away. Mark W. Sawicki: Yes. So ISO 21973, which is really around the governing of handling of cell therapy-based materials is what we received that certification in. We are the first entity that has received a formal ISO certification. Others have claimed that they have compliant with it, but we actually have received a certification from the ISO governing body related to that. Yes, on a global basis. So what it really does is it reinforces us as the best-in-class and the gold standard as it relates to the management of these therapies on a global basis and reinforces, obviously, the quality paradigm that we have. And I think as you look at our growth as it relates to commercial revenue as well as our clinical trial adds, the market continues to respond very favorably to that as they continue to put a larger share of the overall clinical trial count as well as the commercial activity into our portfolio. So we believe that will be a continued positive influence on decision-making by our clients and sponsors. Jerrell Shelton: You might mention that award that we won also. Mark W. Sawicki: Yes, we actually won two awards, CPHI award, which is one of the larger chemical industry awards for excellence of supply -- temperature control supply chain solutions. And then we also won another one from a biotech agency, which also reinforces that in the quarter. So I think the markets are absolutely responding to our platform is best-in-class. Subhalaxmi Nambi: That's great. Any updates you can share on how you're progressing with your China first strategy? What milestones can we expect as we look to growth in that region for you guys? Jerrell Shelton: We have not assumed any growth in China for the -- will not be assuming any growth in 2026. There's no change right now. We do have some efforts underway. It does take time to implement strategies of that nature. And we hope by 2027, it will be -- certainly one thing, we cannot ignore China. It is an advanced country. It has a very big population, and it has resources and it can move very quickly. So we will continue to work on our China strategies, but we don't have anything we can report right now. Subhalaxmi Nambi: Perfect. And last one for me. Is there a potential for a catch-up heading into 2026, just given the environment is improving, something that you touched on previously? Jerrell Shelton: You're talking about a catch-up in terms of--- What are you talking about, Subbu, in terms of catch-up? Subhalaxmi Nambi: Catch-up as in ordering. Just do you anticipate there could be some sort of catch-up orders next year? Thomas Heinzen: I think she's referring to the product side, guys. Robert Stefanovich: Yes. When you talk about the products, I think what we said is it's really stabilizing. I don't think we can speak of that at this point in time. And in general, conceptually, obviously, more and more material is being developed that requires cryogenic storage and MVE being the largest global provider of storage and cryogenic systems, certainly, we will be the first beneficiary of that. But at this point, it's just stabilization of the market that we can see. Operator: Your next question comes from the line of David Larsen from BTIG. David Larsen: Congratulations on another very good quarter. It looks like the number of clinical trials, the growth rate year-over-year was the highest it's been in like 2.5 years. And just any thoughts on The Big Beautiful Bill Act, reductions in Medicaid enrollment, reductions in exchange enrollment, maybe as high as 10% or 30%. Does that matter or not? Any thoughts on payer mix? Are most people getting cell and gene therapies? Are they covered by commercial plans, not Medicaid and exchanges? Just any thoughts there would be helpful. Mark W. Sawicki: Yes. I personally don't think it's much impact at all. The vast majority of therapies, by understanding, are not being covered by public funds. They traditionally are typically private plans that are reimbursement at this point. David Larsen: Okay. And then are there -- do you have any concerns around drug pricing like with price caps due to the Inflation Reduction Act or rebate flow limits on price increases? Has that entered into any conversations at all or not? Robert Stefanovich: No, cell and gene therapies are exempt from all of that, Dave. Mark W. Sawicki: Yes. I was going to say the same thing. As said, yes, I mean, the White House has actually come out in support of cell and gene and their interest in continuing to support it in an aggressive manner. And there is -- they are exempt from some of those pricing constraints that the White House is currently working through. Robert Stefanovich: They're also not impacted by any tariff talk either. David Larsen: Okay. Great. So minimal regulatory risk heading into '26. Fantastic. And then in quarters past, you talked about the growth in number of clients at these bio storage facilities, I think, in New Jersey and also like allogeneic storage. Any color there in terms of like capacity or number of client growth? Mark W. Sawicki: Yes. I mean we're still continuing to onboard a significant number of clients at those sites, both existing and new clients. And so that rate continues to be very robust as evidenced by the sales data that we put forth publicly. So we anticipate continued growth in the Bioservices area into '26 based on that. Jerrell Shelton: By the way, David, this is not a singular thing. It's not a singular strand. I mean our -- we built these on a strategic basis. We built them to support our clients and to create more of a one-stop shop and because clients actually prefer doing business with less vendors and especially one that they can trust. So it's kicking in, and our clients are beginning to take hold of our BioStorage Bioservices operations within Cryoport Systems. Mark W. Sawicki: Yes. We're averaging almost 2 audits a week at this point. So that's obviously a significant volume of new workflow that's coming into the facility. Jerrell Shelton: So you're witness a strategy play out right now. David Larsen: Great. One more quick one. IntegriCell, I get questions on that all the time. Just any more color there would be helpful. It sounds like you're building a new facility. Is that going to support global efforts for . IntegriCell? And do you have revenue coming in for that business yet or not? Just any more color would be helpful. Jerrell Shelton: Well, let me start, and Mark can give you more detail. But IntegriCell is another strategic endeavor, and we do have a network in mind, but we are carefully going into the development of IntegriCell. As Mark said earlier, we have revenue coming in at both locations. But I want to see those locations closer to cash flow to positive cash flow before we add other operations. We do have plans for other operations. They will be added. The network will work. All the information that we've gotten so far is very encouraging. And now we're on the uptick by getting customers, clients and revenue coming through those 2 facilities. And I'll just turn it to Mark after that. Mark W. Sawicki: Yes, Jerry, as Jerry -- what Jerry said is exactly right. We opened those facilities at the end of Q3 last year. And the tech transfer process takes time because it's part of the production process. So there's regulatory activity that needs to occur for adoption. But we have completed our first tech transfers from both biotech and top 10 pharma, and we have started to generate revenue from both sites, both the site in Belgium as well as the site in Houston, Texas. And our expectation is that it will -- revenue will ramp modestly in '26 with a significant ramp, almost in a hockey stick modality post '26. Operator: Your next question comes from the line of Mason Carrico from Stephens Inc. Mason Carrico: Robert, maybe just a quick one on margins. Just as this new facility comes online, can you just walk us through how the start-up costs and the ramp and timing have been factored into your model and just how you expect that to influence margins over the next few quarters? Robert Stefanovich: It's a very good question. And it's again one of those balancing acts because you're absolutely right. We have new facilities going online. [indiscernible] went online, as Mark mentioned. We have a Global Supply Chain Center in Paris by the Charles de Gaulle Airport going online with the official opening being in in a few weeks from now. At the same time, we are seeing some operating leverage already of the existing facilities, and that allowed us to show gross margins reaching 48% and even higher on the service side in particular. We do typically have start-up costs that we run the SG&A. But then as we open the facilities, you'll see some impact on the margins. So while we see operating leverages in some of the existing facilities that are driving higher margins, you'll have some margin depression by these new facilities coming online and starting to see revenue ramp over time. So that's -- as we start and really '26, '27 is really about that operating leverage, really about driving utilization of the existing footprint -- global footprint that we have that will ultimately drive the gross margins. Our target is 55% gross margins overall and a 30% EBITDA margin. And obviously, there's still some time to go to get to the gross margins, but we'll see that operating leverage kick in later in 2026. Mason Carrico: Appreciate that. And just touching on those long-term margins. Can you just highlight your thinking in terms of timing around those as well? I know it's been a longer-dated proposition. I just kind of want to get your updated thoughts there. Robert Stefanovich: Yes. We're not giving guidance on that at this point in time because it's really -- if you look at the cell and gene therapy market, it is still a fairly new market when it comes to actually commercialization of therapies. So we want to see more progression and more therapies come to market. But we're clearly on that pathway, as you can see in terms of the significant improvements to adjusted EBITDA as a first indicator, and we'll certainly drive that further into '26 and '27. Operator: There are no further questions at this time. Turning over back to Jerrell Shelton, your line. Jerrell Shelton: Well, thank you very much, and thank you for your questions and our discussions. In closing, in the third quarter, we continued to see strong momentum in our business. This included double-digit revenue growth in both our core business segments. Our Life Sciences Services segment, the key driver of our future growth, grew 16% year-over-year, driven by 21% increase in BioStorage Bioservices revenue and a 36% increase in commercial cell and gene therapy support. We also continue to see further steadiness in our Life Science product business, where revenue grew 15% for the quarter. Cryoport is positioned as the critical temperature-controlled supply chain company supporting the life sciences that derisk the end-to-end delivery of cell and gene therapies worldwide. Thank you for joining us today. We appreciate your continued support and interest in our company and look forward to speaking with you again when we report our fourth quarter and our full year financial results. Operator: Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Masimo Third Quarter 2025 Earnings Conference Call. The company's press release is available at www.masimo.com. [Operator Instructions] I'm pleased to introduce Eli Kammerman, Masimo's Vice President of Business Development and Investor Relations. Eli Kammerman: Thank you. Hello, everyone. Joining me today are CEO, Katie Szyman; and CFO, Micah Young. Before we begin, I would like to inform you that this call will contain forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in our periodic filings with the SEC. Also, this call will include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles, or GAAP. We generally refer to these as non-GAAP or adjusted financial measures. In addition to GAAP results, these non-GAAP financial measures are intended to provide additional information to enable investors to assess the company's operating results in the same way management assesses such results. Furthermore, these non-GAAP financial measures reflect the continuing operations of Masimo's Healthcare business and includes Sound United business, which is reported [Technical Difficulty] operations for both current and historical reporting periods. Therefore, the financial measures we will be covering today will be primarily on a non-GAAP basis unless noted otherwise. Reconciliation of these measures to the most directly comparable GAAP financial measures are included within the earnings release, earnings presentation and supplementary financial information on our website. Investors should consider all of our statements today, together with our reports filed with the SEC, including our most recent Form 10-K and 10-Q in order to make informed investment decisions. I'll now pass the call to Katie Szyman. Catherine Szyman: Thank you, Eli, and good afternoon, everyone. I just want to do a quick speaker check because we're getting feedback that there is a big echo. Is there any possibility that the echo [Technical Difficulty]. Eli Kammerman: I'm not log to the call... Catherine Szyman: As I completed my first 9 months at Masimo this week, we are pleased to share that once again, we delivered strong results. Our revenue grew 8% in the quarter, driven by strong underlying demand for our Innovative Technology. We also drove 450 basis points of operating margin expansion and we increased adjusted earnings per share by 38% year-over-year. The strength in our margin [Technical Difficulty] is a direct result of higher revenue and the cost efficiencies and product [Technical Difficulty] over the past year. Now let me highlight some exciting [Technical Difficulty] and strong execution from our [Technical Difficulty] this quarter. First, we closed the sale of Sound United to Harman in September, marking a key milestone in our [Technical Difficulty]. Second, we announced the expansion of our strategic partnership with Philips in early September, marking a key milestone in our collaboration. Within the [Technical Difficulty], we remain significantly underpenetrated relative to our overall share [Technical Difficulty] in the market and [Technical Difficulty] represents a compelling [Technical Difficulty]. We expect that the expansion of our share [ position ] over the next 5 years within the [Technical Difficulty] will have the potential to be even greater than what we have seen over the previous 5 years. And [Technical Difficulty] continues to strengthen. This new agreement advances our joint [Technical Difficulty] commitment to innovation and delivering enhanced value to customers and the broader industry. [Technical Difficulty]. I want to call out that our competitor studies have been performed mostly on healthy patients where it's easier to obtain positive results. We are highly encouraged by the 0 undetected hypoxemia event rate seen in this study alongside spot-on accuracy of less than 1% median bias among critically ill adult patients with both dark and light skin under the most challenging real-world circumstances imaginable. We are looking forward to publication of the fully completed INSPIRE study next year alongside other similar prospective real-world skin tone accuracy studies for neonates and separately for pediatric patients. We believe this new data clearly demonstrates our superior performance for all patients regardless of skin tone. Eli Kammerman: We're going to try to disconnect and reconnect. It's good. Catherine Szyman: Sales teams are armed with this new data to continue to drive growth into new accounts. Overall, we're confident in our technology's performance where accuracy matters most at the bedside during motion and low perfusion in the setting of critical illness and procedural care. Now let me recap our strategic and financial goals and the progress we are making. We continue to invest in our core health care business to position for strong, sustainable long-term growth. Specifically, we are focused on driving 3 waves of growth ahead. First, elevating commercial excellence; second, accelerating intelligent monitoring; and third, innovating wearables. In terms of commercial excellence, we are continuing to leverage our leadership position in pulse oximetry to broaden our impact on patients across other advanced monitoring categories. We are consistently winning broader contracts as evidenced by the growth we are seeing in advanced monitoring. Recently, we had a big win for capnography with one of our key accounts in the Southeast region that will drive significant capnography growth within the territory. Collaborations like these exemplify our ability to leverage our portfolio to drive growth and deepen relationships with customers that will create more diversified revenue streams over time. In our second wave, accelerating intelligent monitoring, we are very focused on using AI and machine learning to upgrade our sensors and create next-gen monitors. A key part of this is taking the incredibly advanced algorithms the team had developed for use outside the hospital and redeploying these into sensors for use inside hospitals. One specific example we are working on is to leverage our de novo grant for opioid halo that was cleared in April 2023 for detection of opioid-induced respiratory depression to create a hospital solution that can be integrated into our next-generation of smart sensors and AI-enabled patient monitors that are going to launch next year. In 2026, CMS is going to require hospitals to report opioid-related adverse events as a new electronic quality measure required reporting. Our new technology detecting OIRD with our smart sensors will help hospitals keep these patients safe and meet the reporting requirements. This is one of a number of exciting AI-enabled sensor opportunities that we have and that we are planning to launch in the future. As I covered last quarter, our third wave of growth will come from innovating wearables. We recently announced the finding of a new study from Dartmouth-Hitchcock Medical Center, demonstrating that surveillance monitoring with Masimo SET pulse oximetry and patient safety net is operationally cost effective and save hospitals money. For context, previously published Dartmouth clinical outcome studies have shown a 43% reduction in transfers to higher levels of care and a 65% reduction in patient rescues, in addition to 0 preventable deaths due to opioid-induced respiratory depression over a 10-year implementation period. In the latest study, Dartmouth-Hitchcock calculated that each 10% reduction in rescues and transfers achieved through earlier detection led to projected savings of about $350,000 to $400,000 a year, respectively, for 200 general floor beds equipped with Masimo monitoring, which broke down to over 5,500 per rescue event prevented and about $10,700 per higher level of care prevented. We are confident these findings will apply to the other health systems adopting a curve-to-curve strategy of continuously monitoring all patients inside the hospital. In terms of additional growth opportunities, our diverse portfolio of wearable technology and telehealth solutions continues to be successfully piloted globally to address numerous unmet patient needs. We look forward to sharing more details of our intelligent monitoring and wearable innovations at our upcoming Investor Day on December 3. Before I close, I want to thank our global team for their hard work and commitment this quarter. With our highly innovative technologies, we have a unique opportunity to improve outcomes for millions more patients around the world. Our focused execution once again demonstrates the benefits of our recurring revenue contracts and the durable growth profile of our business. We are looking forward to a strong finish for the year as we realize growth from continued demand and new customer installations throughout this year. As a result of our strong performance, we are pleased to raise our adjusted EPS guidance, which Micah will expand on later in the call. Above all, we are confident in our ability to deliver on our goals for 2025 and beyond and execute on our mission to empower clinicians to transform patient care. With that, I'll turn it over to Micah. Micah Young: Thank you, Katie, and good afternoon, everyone. For the third quarter, we once again delivered strong results with revenue growth of 8%, EPS rising 38% and operating cash flow of $57 million. Healthcare revenue was $371 million, representing 8% growth. We continue to see strong underlying demand trends as evidenced by Trace data, sales pull-through and other metrics we track. Growth rates this quarter are impacted by unusual year-over-year comparison. Consumables grew 1% this quarter compared to a growth rate of 20% in the third quarter of 2024. Capital equipment and other revenues grew 67% this quarter compared to a decline of 33% last year. When looked at on a 2-year or on a multiyear basis, compound annual growth rates in consumables continue to be double digits and growth rates in capital are low to mid-single digits. The incremental value of new contracts secured in the third quarter reached $124 million, marking a robust year-over-year increase of 48%. As we've talked about this before, it's highly dependent on the timing of large contracts that come up for bid throughout each year. This achievement represents the strongest third quarter contracting performance in our company's history, fueled by the outstanding results delivered by our U.S. commercial team. Notably, as of the end of the third quarter, the amount of unrecognized contract revenue expected to be realized within the next 12 months was $507 million, representing a year-over-year increase of 17%. As a reminder, contract-related shipments account for approximately 1/3 of our overall revenue. This quarter, we shipped 66,000 technology boards and monitors, reflecting a strong increase of 8% compared to the 61,000 drivers shipped in the same period last year. This growth underscores the sustained and accelerating demand for our products, which continues to exceed our initial forecast for the year. Moving down the P&L. Our gross margin of 62.2% experienced a decline of 70 basis points compared to the prior year due to tariff impacts outweighing operational improvements. While operational enhancements contributed to a gain of 70 basis points, tariff-related costs caused a margin erosion of 140 basis points. Tariffs increased our cost of sales $5 million this quarter, aligning with our expectations. Our operating margin of 27.1% increased by 450 basis points year-over-year, driven by operational improvements of 590 basis points, partially offset by a tariff impact of 140 basis points. The cost optimization measures implemented late last year have contributed to solid margin expansion this year despite tariff [ pressures ]. Excluding the effects of tariffs, operating margin for this quarter would be 28.5%. We are proud of the substantial margin expansion our team has achieved in recent years and are confident in our ability to continue improving margins going forward. Our margin expansion alongside solid revenue growth was a key factor contributing to adjusted earnings per share of $1.32, representing a 38% increase from the prior year. We generated strong operating cash flow of $57 million and secured net proceeds of $328 million from the strategic divestiture of Sound United in late September. These proceeds were proactively deployed to repay $56 million of outstanding debt and to optimize capital structure through repurchasing $163 million of common stock by the end of the third quarter. The remaining proceeds were further invested in repurchasing an additional $187 million of common stock in the fourth quarter. Collectively, we have returned $350 million of capital to shareholders through the repurchase of 2.4 million shares over the third and fourth quarters, underscoring our disciplined approach to capital deployment and our unwavering focus on enhancing long-term shareholder value. Now moving to our updated fiscal 2025 financial guidance. We are tightening our full year revenue guidance to be in the range of $1.510 billion to $1.530 billion compared to a prior guidance range of $1.505 billion to $1.535 billion. Changes in our revenue guidance are driven by 3 factors. First, we are tightening revenue range by $5 million on the top and bottom end. Second, we are accounting for foreign exchange benefits of $4 million realized to date. And third, we are accounting for the impact of a switchover to a distributor model in some international markets that creates a $6 million headwind to our full year revenue guidance that has no impact on profitability. Please keep in mind that we have an extra selling week in the fourth quarter of this year. This contributes approximately 1 point to full year 2025 growth. As a reminder, this benefit has been primarily offset through this fiscal year by a variety of factors, including revenue loss from discontinuing product lines at the end of 2024, our shift to a distributor model in some international markets, among other factors. In 2026, we will return to a typical 52-week fiscal year and provide more details when we initiate formal 2026 guidance. Moving down the P&L. We are raising our operating margin guidance to be in the range of 27.3% to 27.7%, representing an increase of 25 basis points at the midpoint versus our prior guidance range of 27% to 27.5%. And we are raising our earnings per share guidance to be in the range of $5.40 to $5.55 compared to our prior guidance range of $5.20 to $5.45. This represents an increase of $0.15 at the midpoint, primarily driven by improvements in operating margin contributing $0.05, the benefit from share repurchases adding $0.08 and a reduction in interest expense accounting for $0.02. In conclusion, our third quarter results highlight the strong underlying demand for our products despite challenging year-over-year comparisons. We delivered solid contracting performance, successfully securing new business for our technologies alongside higher-than-expected demand for our technology boards and monitors. Our business' exceptional earnings power remained evident with continued significant improvements in operating leverage. Looking forward, we are confident in our ability to close out the year strong, driven by accelerated growth in consumable revenue and solid execution of contracts. With that, we'll open the call for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Rick Wise with Stifel. Frederick Wise: Great to see the strong performance this quarter. Maybe just it's hard to not start off with the outperformance and the resulting guidance. How do we think about the rest of the year and the potential for -- I mean, what can I say for further outperformance in the short run? What would the drivers be some of the new contracts or new product launches? And maybe -- I know it's early to ask about '26. It's hard to resist. How do we envision this setting us up for '26? Micah Young: Yes. Thank you, Rick. First, I'll start off with -- we're not going to give -- we typically don't give guidance on '26 or the next year on the third quarter call. What I can kind of hit on, and we'll talk about that more later in the year. What I can hit on is where we see the strength in our business. Number one is in the contracting that's picked up in Q3. We expect a strong finish in Q4 to close out the year. We expect that's going to drive a good acceleration in our consumable growth. We talked about unusual comps being in the first or in the second and third quarter this year, and those comps normalize throughout the year. So we expect a very strong finish in the fourth quarter with increased shipments in consumables. And that will set us up well as we move into next year. Catherine Szyman: And as you think about the profitability side, part of it is due to the share buybacks, right... Micah Young: Yes. So if you look at the change in EPS guidance, as I laid out, we're up in the guide at the midpoint by $0.15. $0.08 is coming from share buybacks, but we have about $0.05 coming from the operational improvements that we've been making. We continue to see strong expansion of margins this year. A lot of that was throughout the past year, we've done a lot of optimization of costs, becoming more efficient with our cost structure, and that's paying dividends this year. Frederick Wise: Great. And just as a follow-up, Katie, obviously, thank you for clearly laying out the 3 priority areas. But just to take one of them, you've been very focused on elevating commercial excellence or enhancing commercial excellence at Masimo. Last quarter or you've recently made multiple hires, realigned the sales force structure to be more regionally focused rather than specialized by product. Just maybe at a high level, I know we'll hear more in early December, but where are we in that process? Or are you pleased with where you are? How much more to go? What's the impact going to be? When are we going to see it? Aside from that, I have no questions. Catherine Szyman: Thanks a lot, Rick. So yes, like how you said that, that essentially we focus on enhancing and elevating and it's really focused on our specialty categories to give them more resources to match our success in pulse oximetry. So you see more of a partnership of our pulse oximetry top sales force being able to help pull through the reps in the specialty categories. And we've made strategic investments in capnography, hemodynamics and brain monitoring to give those platforms similar commercial horsepower to what we have in pulse oximetry. And so the question about the timing, we're starting to see small wins, but it's something with kind of the length of our sales cycle here at Masimo. You'll see it really begin to pick up more and more momentum into next year. Operator: Your next question comes from the line of Jason Bednar with Piper Sandler. Jason Bednar: Congrats on a good quarter here. Katie, I want to start with you and I hope you can expand on the comments you made of the share gains in Philips. I think you said being greater over the next 5 years versus what you've seen in the last 5 years. Help us with maybe where you're currently at with Philips share and/or what kind of share gain you've seen in the last 5 years just so we have some kind of baseline. And don't get me wrong, I really like the confidence, but can you give us a bit more on what gives you that confidence to make that statement? I'm assuming this is coming from some of those advanced parameters, maybe building off the question you were just -- or the answer you just gave to Rick, but any additional color you can provide here would be appreciated. Catherine Szyman: Yes. Thanks, Jason, for the question. So with -- we have a duty of confidentiality with Philips, and so we can't disclose our specific position in their installed base. But what we do know is that when the first agreement was signed back in 2016, Masimo had relatively almost 0, very, very low market share in the Philips installed base. And so we've kind of gotten to a runway, but we still see ourselves as disproportionately low on a relative market share position versus what we are kind of for the whole market, right? So if you think about us as globally in the 50-ish, 50-plus percent market share globally, we're still under-indexed in the Philips installed base, and that's what we see as this opportunity to run in the installed base. Jason Bednar: Okay. And I'll ask one follow-up and then a separate question. When you answered that question, I think you emphasized globally. Is that the opportunity more so than advanced parameters with Philips? And then Micah, a question for you here. And sorry, this might be a little long, but I apologize in advance. So the incremental contract figure was really strong. It seems like you're on pace for a normal year or maybe a better-than-normal year for that metric. But you've been focusing this all on the unrecognized contract revenue figure that's going to be recognized over the next 12 months. That was up 17%. I'm sure you're going to say mid-teens plus is a bit hotter than where we should be -- what we should be thinking about for next year. So -- but as we try to aggregate and dissect these data points that we all now have, how would you counsel us to interpret the trend line in that unrecognized contract revenue? Does that give you confidence in delivering on your revenue growth objectives as we look out over the next couple of years? Micah Young: Yes. Let me start there with the contract revenue. If you -- as a reminder, I mean, 1/3 of our revenues are contracted and come through in shipments of those contracts. So that's important to understand. So we're getting good growth, and that's really coming through in our [indiscernible] incremental that's feeding into the growth that we're seeing in our -- what's going to be recognized within the next year. And as you know, I mean, it's all due to timing, size, duration of contracts, so that can ebb and flow. But we are seeing very good strength. And I think that's going to be a good driver for us. It's not to indicate that our overall revenues grow at that level, but it's good strength coming from the contract wins we're getting this year. Jason Bednar: And just a follow-up question on the... Catherine Szyman: Yes. Jason, on the relative installed base, I would say it's hard to be specific. I would say it's about equal between those 2 categories. Operator: Your next question comes from the line of Michael Polark with Wolfe. Michael Polark: I have a question about the third quarter performance, 1% consumables growth. You called out a tough comparison. Capital was quite a bit better from a growth perspective. Can you just remind us on the third quarter last year, what was unusual about that compare and kind of maybe reassure us that the consumables line specifically will return to a more normal rate of Masimo growth in the quarter and year ahead. Micah Young: Yes. Thanks, Mike. So one place to start would be inpatient admission growth last year was running at about 4%. One thing we talked about through the first 3 quarters of last year is we kept seeing a stepped up consumer revenue, and that was being driven by higher ordering patterns from customers. So it's created a tougher comp, 20% growth last year in the third quarter. And -- but if you look at it and what I pointed out to in my prepared remarks is that if you look at it on a 2-year basis or a multiyear basis, you see double-digit growth in consumable revenue. So -- and then very similar, we have another kind of comp going the other direction with last year, our capital and other revenues was down about 33% due to [indiscernible] timing. And on a 2-year stack basis, that growth rate is more in line with low to mid-single digits. So we're seeing things come through as we expected this year. Again, just facing the unusual comp that we've talked about coming into this year, by the time we get to the end of the year, we'll see that normalize out. Catherine Szyman: I was going to say that we expect to see increased shipments associated kind of in the back half -- in the Q4 time frame. So we also see it kind of accelerating as we get into Q4. Michael Polark: For the follow-up, Micah, I just want to ask on the $6 million distributor call out. I just want to understand exactly what that is. So you're shifting from a distributor model to direct and that's creating the $6 million headwind, can you confirm that? And then can you also confirm that, that $6 million that's new news for your guidance that you're absorbing that in today's update. It wasn't in there before. Micah Young: That's correct, Mike. So if you look at it, our guidance does include that $6 million revenue headwind for the full year with a large portion of that coming in the fourth quarter. We are moving to a distributor model in one of our -- some of our international markets that's causing that headwind. We think this is the best decision as we look forward because it will give us more durable growth, and it's neutral to our earnings and margins. So we think this is going to drive more sustainable growth within the region. Catherine Szyman: But it's kind of -- it's going from direct to distributor, not distributor to direct [indiscernible] on the question. Operator: Your next question comes from the line of Jayson Bedford with Raymond James. Jayson Bedford: Congrats on the progress. Just on the last line of questioning on consumables, was there anything kind of onetime-ish in there? Specifically, I guess I'm just looking at the sequential move from 2Q to 3Q. Micah Young: Yes, Jayson. So sequentially, just to remind you that we had a sizable consumer revenue in the second quarter this year, and that was driven by that large international contract. We expect to see higher shipments in the fourth quarter under that contract as well, and that's going to contribute to our increase in consumable revenue in the fourth quarter. So that's given us the confidence to -- in our accelerated growth rate that we expect in Q2. Jayson Bedford: Okay. That's clear and helpful. Katie, I think you called out growth in advanced monitoring. Would love to -- if you could give us a little bit of either the growth rate there or some context as to the growth in 3Q versus the first half of the year. Catherine Szyman: Yes. So thanks for the question. We really don't disclose kind of the details until the end of the year in terms of breaking out the different product line growth rates. But suffice it to say that we are seeing an acceleration in the growth rate in the advanced monitoring categories. It's really consistent with the strategy. So it's -- we have a goal kind of in that double-digit range for those categories. And so we are seeing us deliver an acceleration of that as we implement the cross-selling strategy. Operator: Your next question comes from the line of Mike Matson with Needham. Michael Matson: So just one on the wearables strategy. So is this really based on products, hardware that you already have like the W1, and I think you have like sort of wireless pulse oximeter. Or is it going to require new hardware? And what's with the timing of that, if so? Catherine Szyman: Yes, that's a great question. So we already have launched a product called the Radius VSM. And that product is actually being piloted at 5 major institutions here in the U.S. and then a couple of institutions outside the United States. And honestly, Masimo has been working on perfecting that technology from a pilot basis for the last 2 to 3 years. And so what we're seeing is that over time, we expect to actually go more for a full market launch with that. So we -- that product already exists and is in good shape. Related to the W1, the W1 is used more for what I would call telehealth in the hospital to home category. And for that, we do have some pilots that we're working on outside the United States where you have more centralized health care where it's easier to do that through virtual hospitals, et cetera. So that product is available, but we haven't actually decided yet how we will launch that inside hospitals. Does that make sense? And then the last product we have is a product called Radius PPG, which is a very simple wrist-worn unit that can tap in and WiFi connect that has a pulse oximetry on the patient's hand. That product is also in pilot phase and would be part of what we're going to get a full connection with the Philips monitors. And so we'll be able to launch that. Right now, we've also piloted that in several cases with Philips. But as that actually gets finalized with Philips with the collaboration, we would be able to launch that. Probably -- that's harder to say with the Philips timing, but probably in the next 1 to 2 years. Michael Matson: Okay. Great. That's helpful. And then the -- just on the AI algorithm. So what -- can you give us any more detail on the timing there? And is this something where you've already -- like the opioid monitoring, I think you've already got an FDA clearance or something, but are any of these going to require navigating the FDA? Will it be 510(k)s? And what do you have left to do there, I guess, to commercialize these things? Catherine Szyman: Yes. So thanks. So the first thing for opioid-induced respiratory depression, or OIRD is easier to say, 10x fast. But -- so for OIRD, we actually, as I mentioned, have it a clearance for the algorithm. What we are doing is actually submitting it to get it on to our monitor and onto our new Smart set technology. So we would imagine that launching towards the end of next year. And so all of this will be covered at our Investor Day, the first week of December. Operator: Your next question comes from the line of Matt Taylor with Jefferies. Matthew Taylor: I guess the first one I wanted to ask about was just to clarify on the Q4 guidance. It looks like about 10% growth at the midpoint. So with the extra week days adjusted, would that be roughly 6% to 7% growth? And I guess what are the puts and takes impacting the growth rate in Q4? Micah Young: Yes. So for the fourth quarter growth, we're expecting a stronger or acceleration in growth rate from consumables. Capital, we're expecting that to be lower in the fourth quarter. So that strength should come from the growth that we're expecting in our consumables business. And we talked about how we'll see acceleration part of that coming from that large OUS contract shipping more in Q4. We expect to see the performance coming off the contract than we did in the third quarter and to finish out the year strong in that area. So I'd say outsized growth in consumables, partially offset by the softness more in capital in terms of comparison year-over-year. Matthew Taylor: And then can I ask a follow-up on the Philips agreement actually? So I just remember from 2017, '18 time frame when you struck the first one, I think the commentary was that through the course of that first agreement, you had thought your share would kind of get up to your natural share. But then today, saying it's still well below that and you have an opportunity to gain even more share over the next 5 years. So I just wanted to kind of do a postmortem of sort of what happened over the last 5 years and talk -- maybe have you talk about why the next 5 could be better. Catherine Szyman: Yes. So thanks for the question. I mean -- so I wasn't here, I guess, during that time. But what you have is the fact that when you start at a very low position and how contracts move once every 5 years, it takes a little bit longer to gain your share position inside an installed base than you think. So I would say that what happened is we probably gained a lot of the share that was anticipated, but we still have a gap that we're excited about trying to close. Operator: And your final question comes from the line of Vik Chopra with WF. Vikramjeet Chopra: Maybe just on Sound United, after using the sale proceeds to repurchase stock and pay down some debt, maybe just talk about what your broader capital allocation framework is going forward. Micah Young: Yes. Thanks, Vik. We'll outline a lot more at Investor Day, but at current levels, we would definitely lean into share repurchases going forward. We also -- another important area for us is tuck-in technologies to continue to augment our portfolio in the hospital across whether some of those areas and ways of growth that we talked about earlier. So as we look into wearables or some additional sensors or monitoring capabilities in the hospital, that's another area of capital allocation. So those are kind of the 2 main areas of focus for us, especially with where we're sitting at levels. Vikramjeet Chopra: Great. And then just a quick follow-up. I appreciate all the color you provided on Philips. But I'm just curious at a high level how this expanded partnership with Philips will influence your product road map and perhaps your revenue mix over the next few years. Catherine Szyman: So thanks, Vik, for the question. I think that we -- since the majority of our -- a large portion of our advanced sensors, even the rainbow sensors are sold through the Philips monitors. It's going to, I think, help us to continue with the same product mix. The question is really for advanced monitoring categories, including kind of brain and capnography, et cetera, can we get a stronger presence? And so some of that is still underway. It takes a while to get our sockets out there. So it's one thing if they can add it, but then it's another for us to be able to get our sockets out there. So I would say it's not going to dramatically change our product mix in the short term, but it will be something that just continues to help us drive our growth and presence, but the mix itself will probably stay about the same. Operator: At this time, I will now turn the call back over to Katie Szyman for closing remarks. Catherine Szyman: So first of all, I just want to thank everyone for joining today and really thank you for your interest in Masimo. I'd like to welcome you all to listen to our upcoming Investor Day on December 3, where we look forward to reviewing our strategic focus areas, detailing our product pipeline and outlining our longer-term financial outlook. Thank you all for joining, and have a great day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good afternoon, and welcome to Ascent Industries Q3 2025 Earnings Call. Today's speakers are CEO, Bryan Kitchen; CFO, Ryan Kavalauskas; and the company's outside Investor Relations adviser, Ralf Esper. We will begin with prepared remarks followed by Q&A. Before we go further, I would like to turn the call over to Ralf Esper as he reads the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Ralf? Ralf Esper: Thanks, Dana. Before we continue, I would like to remind all participants that the discussion today may contain certain forward-looking statements pursuant to the safe harbor provisions of the federal securities laws. These statements are based on information currently available to us and are subject to various risks and uncertainties that could cause actual results to differ materially. Ascent advises all of those listening to this call to review the latest 10-Q and 10-K posted on its website for a summary of these risks and uncertainties. Ascent does not undertake the responsibility to update any forward-looking statements. Further, the discussion today may include non-GAAP measures. In accordance with Regulation G, the company has reconciled these amounts back to the closest GAAP-based measurement. The reconciliations can be found in the earnings press release issued earlier today and posted on the Investors section of the company's website at ascentco.com. Please note that this call is available for replay via webcast link that is also posted on the Investors section of the company's website. Now I'd like to turn the call over to our CEO, Bryan Kitchen, to walk you through the third quarter results. Bryan? J. Kitchen: Thanks, Ralf. Q3 was a breakout quarter for Ascent, the strongest earnings performance we've delivered since 2022 and our first full quarter operating as a pure-play specialty chemical company. Revenue grew 6% sequentially to $19.7 million. Gross profit rose 20% to $5.8 million, lifting margins 400 basis points to 30%. Adjusted EBITDA improved by more than $1.7 million quarter-over-quarter, swinging from a modest loss to a 7% positive margin. As a subsequent event to this quarter, these gains aren't episodic. They're structural. They reflect disciplined execution, strategic focus and a business model that's working. Over the past 6 quarters, we've tightened cost structures, optimized mix and built price and margin discipline across every part of our organization. Those moves are now showing up directly in profitability with gross margin improvement tracking ahead of plan. As I've said before, the market didn't do it to us, and it's not going to fix our performance for us. We own our outcomes. Every game we deliver comes from relentless self-help and execution, and that's what's driving the structural earnings power of this platform. We've strengthened the foundation this quarter with successful implementation of our new ERP system on time, on budget and without disruption. It delivers a single source of truth and the visibility to manage growth at speed. Our team turned what's often an enterprise crippling endeavor into an enabler of scale, control and customer responsiveness. Simply put, Ascent has moved well past stabilization to acceleration. Our commercial engine is gaining speed, customer relationships are deepening, and our pipeline is converting at exceptional [Audio Gap] levels. This is the inflection point where stabilization meets commercial momentum and where we begin to unleash our fullest earnings growth potential. In Q3, we welcomed 10 customers across our sites for audits, trials and joint development workshops. That kind of engagement doesn't happen by chance. It's a direct reflection of trust and the capability that we've been building. When customers visit, they meet our operators, our engineers, our chemists, our quality professionals and service teams that drive our success, and they see firsthand what makes Ascent different. This is our Chemicals as a Service model in action, agile, customer [Audio Gap] customer-centric and outcome-driven. We meet customers where they are, helping them solve real-world problems faster with less friction and more flexibility. And that approach is translating to results. Last quarter, I shared that we added roughly $25 million of new projects in Q2. By the end of Q3, nearly half or 49% had converted into customer commitments. That's an incredible success rate and a clear validation of our model and our execution. About 65% of those commitments were related to custom manufacturing opportunities and 35% were product sales, long-term, high-value relationships in key segments like case, infrastructure and water treatment. They represent repeat, trust-based partnerships that deepen our customer relevance and extend the durability of our growth. Of course, the CEO wants all of those commitments to turn into purchase orders and shipments tomorrow morning. And yes, our sales and operations team get more than a few calls from me checking in on exactly that. but we know that implementation timelines vary. We know that customers are qualifying new technologies. They're rewiring their supply chains, and they're working down inventory. What matters is the direction is unmistakable. The commercial flywheel is turning and the earnings leverage is building. And that momentum continues to grow. In Q3, we added another $18.2 million of selling projects into our pipeline, extending a robust base that will fuel growth well into 2026. Over the past 6 quarters, Ryan and I have emphasized the strategic recapitalization of SG&A, rebuilding the commercial and technical engine that drives our growth. Those deliberate investments in sales, marketing and revenue operations have reshaped our go-to-market capability and are directly reflected in the record pipeline activity and customer engagement that we're seeing today. Now we're extending that focus to R&D, making targeted investments in people and capabilities that accelerate product and process development, shorten scale-up cycles and strengthen our technical differentiation. These investments are already delivering results through new chemistries, improved manufacturability and deeper integration with our customers' innovation pipelines. What gives us confidence in this next phase is the strength of our operating platform. Our quality and service have never been stronger. Across every site, teams are debottlenecking processes, boosting reliability and grinding out waste with incredible urgency. That discipline is the backbone of our margin expansion story, and it allows us to grow efficiently, protect profitability and deliver for customers in any environment. Every investment we make, whether in people, processes or technology is deliberate and return-driven. Self-help at Ascent means disciplined capital use, sharper execution and improvements that compound into lasting earnings power. Our priorities are clear: drive organic growth by filling our available capacity with high-margin opportunities; deepen customer partnerships through innovation, reliability and speed and maintain balance sheet strength and disciplined capital allocation to accelerate earnings growth. We're not waiting for the market to recover. We're creating our own. Ascent is stronger, faster and laser-focused, and we're building a company to perform in any environment. Our culture is turning execution into endurance and endurance into compounding value. The numbers tell the story, but our people write it. To the entire team at Ascent, grit, hustle and ownership are what make this possible. You are our unfair advantage. Our foundation is solid. The distractions are nearly gone, and the flywheel momentum is accelerating. And the best part is, we're just getting started. With that, I'll turn it over to Ryan to walk through our financial results in more detail. Ryan? Ryan Kavalauskas: Thanks, Bryan, and good afternoon, everyone. I'll start by echoing Bryan's earlier comments. From an operational perspective, the transition to a pure-play specialty chemical platform is complete. We're now zeroed in on structural margin improvement, capacity and throughput lift and durable growth in target segments. Let me walk through the quarter and how that translated to our results. Revenue from continuing operations was $19.7 million, down 6% versus the third quarter of last year, but importantly, up nearly 6% sequentially from Q2. The modest contraction in revenue was driven primarily by a low single-digit percentage decline in volume, which created the bulk of the shortfall. Pricing was a partial tailwind, reflecting selective increases and product mix contributed incrementally positive gains as higher-value programs continue to scale, though not yet at the level needed to fully offset the volume impact. In other words, while demand softness weighed on shipped pounds, pricing discipline and ongoing portfolio upgrading helped cushion the impact, reinforcing that the earnings profile of the business continues to strengthen even in a softer volume environment. The evidence of that stronger earnings profile can be seen in gross profit increasing to $5.8 million with gross margins expanding to 29.7%, up from 26.1% in Q2 and just 14.4% in the prior year period. For those tracking our progression, Q1 gross margin was 17.2%, Q2 was 26.1% and Q3 is now 29.7%. We have said publicly that 30% was our gross margin target. As utilization improves across our network and we layer operating leverage rebuilt earnings base, we now believe meaningful upside above 30% is achievable on a sustained basis with the right execution. Moving to SG&A. Expenses were $6.3 million compared to $5 million in the prior year period. About $0.5 million of the current quarter's SG&A was tied to residual divestiture and legacy segment activity, partially offset by other income. As Bryan alluded to, we view the modest increase as part of the foundational investments we've been talking about each quarter that ultimately scales and drives growth. With that foundation beginning to produce results, you are beginning to see the earnings power of the business more clearly. Adjusted EBITDA for the quarter was $1.4 million, an increase of $2.1 million year-over-year. Excluding the legacy divestiture noise, adjusted EBITDA would have been $1.6 million. Turning to the balance sheet. We ended the quarter with $58 million of cash, no debt and $13.7 million of incremental availability under our revolver. That is a position of strength and one we intend to preserve. M&A still remains part of our long-term capital allocation strategy. But as we've evaluated what's in market today compared to returns on internal growth, we've been very comfortable being patient. We said before, and I'll say it again, we won't deploy capital simply for the sake of activity. Our capital priorities remain clear and consistent: protect the balance sheet, prioritize free cash flow and deploy only when the returns are undeniable. When the right opportunity comes, whether internal or external, it will compound value over years, not just quarters. The work of the past 18 months, stabilizing operations, rebuilding talent, exiting distractions, sharpening commercial focus doesn't always show up in a single quarter, but it shows up in trajectory. 3 straight quarters of margin expansion, stronger commercial wins, all with meaningful capital and capacity still ahead of us. That's why we're confident in where the business is heading. With that, I'll turn it back over to the operator for questions. Thank you. Operator: [Operator Instructions] Our first question comes from the line of Gregg Kitt with Pinnacle Fund. Gregg Kitt: Bryan and Ryan, congratulations on a great quarter. Can you help me make sure I understood correctly? You said that you added $25 million of new projects in Q2 and that 49% converted into customer commitments. So does that mean that you won approximately $12.5 million of new business in Q3? J. Kitchen: That's correct. So that $25 million was in reference to the pipeline that was built up in Q2 -- in Q3, we won roughly half of that business opportunity. So as I mentioned earlier, from a phasing standpoint, that will be feathered in over time. We're looking forward to that hitting kind of full run rate clip as we get into 2026. Gregg Kitt: And when I think about that win rate or that conversion rate, I think in the past on the Q2 call, you talked about 14% being more like industry average. You had 18% in Q2. So you're betting above average in Q2 and obviously, 49% is excellent. Is there some reason why your conversion rate or your win rate was so high in Q3? Can you give me some color? J. Kitchen: I mean I really think it gets back to the health of the projects that are making their way into the selling project pipeline. So kind of rules of engagement, right? Nothing goes into our pipeline that we can't make, right? So either we've made the product before or we know that we have the capabilities to manufacture it. Underpinning both of those things, though, is a specific customer need. So in other words, there's an expressed requirement from a customer that is driving us to pursue that particular activity. So I think those things, along with just improved execution is really the reason why we were pretty successful in the third quarter. So proud of what the team has done in Q3 and looking forward to continuing to inch that up over time. Gregg Kitt: Is there a way to think about how much of that business is from existing customers versus new? I think the prior couple of quarters, you tried to help give some color around that. J. Kitchen: Yes. It was in the last quarter, so that was about 50-50, 50% custom manufacturing -- sorry, 50% existing customers, 50% new customers. Gregg Kitt: For Q3? J. Kitchen: Yes, for the Q3 wins. That's right. Operator: Our next question comes from Eric McCarthy with InLight Capital. Eric McCarthy: Bryan, Ryan, great quarter. It's really good to see the progress that you have made in such a short while. As I'm looking through the new business that you've added to the funnel and then converted to revenue, what are some of the end-user markets that are really driving some of the new business? J. Kitchen: Yes. I think in this last quarter, if you think about it in the context of that $12.5 million of new business that we were awarded, certainly, case, so coatings, adhesives, sealants, elastomers, water treatment and other infrastructure-related applications. That was kind of the core. Certainly, we gained in other areas like oil and gas, but those 3 are really the driving force behind our wins in the last quarter. Eric McCarthy: And then more on the big picture business side. When I look at the structure of the Board, many of the directors are more tied to the legacy business lines and some have even been actively selling the stock. What are the organization's plans to maybe align the Board more with the future strategy and what we have in place now and maybe even getting someone like yourself on the Board? J. Kitchen: Yes. Look, I appreciate the question. I think a similar question was thrown over the fence in our last earnings call. I mean, look, our Board has been incredibly supportive of Ryan and I. When we came in the door last year, they have done exactly what they committed to do. So for that, we're certainly grateful. But you're right. I mean, as we kind of look forward to the evolution of the business and where we're going as a company, no longer do we have tubular assets, we're a pure-play specialty chemical company. And the Board is actually in the process of reimagining what that future forward complement needs to look like moving forward. They've been kind enough to solicit my input and the input of others. So we're making progress. I think we'll have some information to share in the coming quarters. And yes, that's the short story. Eric McCarthy: Okay. That's great news. I guess in that same vein, is there anything about what you're seeing in the landscape, both operationally and from a corporate perspective that is front of mind for you is giving me any concern that keeps you up at night? J. Kitchen: What keeps me up at night. Ryan, I'll let you jump in on this one as well. I mean I think for me, it's all about retention, right? So you know, right, transformations aren't easy. Done the right way, they're just world-class hard, a lot of tough decisions, a lot of late nights, crazy pace. So for me, it's just making sure that we do everything in our power to retain the talent that has gotten us to this point, and that's going to take us that next phase in our transformational journey. So that's what keeps me up at night. Ryan? Ryan Kavalauskas: Yes. I think as we move into this next phase of growth and we're moving through and past the stabilization phase, it's how do we scale and how do we make those investments appropriately. How do we do that without diluting margins? I think that is really the next phase and challenge for us is how do we continue to make these gains, win new business and scale the organization after we've kind of rightsized the cost structures in a lot of different places, challenged the team, stretch the team as much as we can. So that is really the focus. I think that is really our big challenge coming up is can we operationally execute in pace with the commercial team as they bring these wins. And I think we're doing a good job today, and we've got to keep going. And I think that's really our focus and really what I think if you had to say what keeps me up is how do we do that and how do we do that appropriately in the next few quarters. Operator: Our next question comes from the line of Adam Waldo of Lismore Partners LLC. Adam Waldo: I hope you can hear me okay. J. Kitchen: We can. Adam Waldo: Great. Well, solid quarter, and I wanted to probe and expand on Ryan's prepared remarks, comment a little bit about gross margin. I think, Ryan, you articulated that you felt comfortable with the ability to sustain a 30% gross profit margin going forward on a pure-play business now that you reached that stage of corporate development. Is it fair to say that there may be some additional headroom beyond that on an intermediate-term basis just to the extent that you're comfortable commenting on that? Ryan Kavalauskas: I do. I don't think we're going to see kind of the rapid expansion of gross margins we saw this year. We did a lot of work of purposely repositioning the product portfolio and really attacking costs. So I think for us, we got a lot of those gains early on. Here, I'd expect basis point improvements going forward. As I just alluded to Eric, we have to grow appropriately. And I think as we scale and find where the pain points are, we are going to have to invest in people, both at the operational level and in the back-office level. So I expect there to be some margin expansion, especially with layering on volumes onto this optimized base that we have. So we should see some operational leverage pull through. But again, I don't think it's going to be this 300, 400 basis point increase every quarter, but I do expect some nominal increases as we keep going. So how far up that can go remains to be seen, but we do -- we have a tremendous amount of capacity. We have a lot of room to pull on that operating leverage. And I think if we are mindful of where we make those investments and how we scale, I think I expect to see nominal increases in gross margin throughout the next few quarters. Adam Waldo: Okay. So 30% plus gross margin in the coming 1 to 2 years, modest sequential improvement [Technical Difficulty] modest headroom. [Technical Difficulty] adjusted EBITDA margin 15%, you're already at 7% this quarter. At what level of adjusted EBITDA margin do you need to be to achieve sustainable positive operating cash flow in the business? Ryan Kavalauskas: Yes. I mean we're almost there. So if you kind of pull out some of the legacy Munhall activity and formerly -- former steel assets and you look at just our Chemical segment with corporate layered on, we're right there today. So I feel comfortable that if we can get up to 10%, that should be where we need to be to sustain kind of positive cash flow going forward. Like I said, we're effectively there today. So we just need to keep this kind of improvement going, be mindful of how we're investing in SG&A. But that high single digits, low, low teens is where we effectively are. And I think if we can kind of just keep continuing to not only build off this base, we should see cash flow generating. Adam Waldo: Okay. one more, if you permit me. On the Munhall divestiture, and I apologize, I got on the call late. Did you make any prepared remarks, comments as to the update on your hope for timing on closing that wind down? J. Kitchen: No, I didn't offer any prepared remarks on that. But what I will say is we are efforting to getting this completely off of our books by the close of this year. We're making good progress. We're not over the finish line yet. But I would look for 2026 to be a clean sheet of paper. Adam Waldo: Fabulous. Okay. Last question, if you permit me. [Technical Difficulty] Maintenance CapEx in the business at your current unused capacity. How do you think about the IRRs from share repurchase as you get over that 10% adjusted EBITDA [Technical Difficulty] based on multiples you're seeing in the market right now before any potential [indiscernible] synergies or revenue synergies? J. Kitchen: Adam, I hate to bring it to you, but we could not hear hardly anything that you just said that you... Operator: We're having a hard time hearing you. Yes, I apologize. Do you want to try calling back in or... Adam Waldo: If you can't hear me now, I'll call back in. I apologize. Operator: [Operator Instructions] Our next question comes from Gregg Kitt of Pinnacle Funds. Gregg Kitt: One of the other more encouraging statements that I heard you say, Ryan, was that you're very comfortable being patient on acquisitions right now. And it sounds like in part, that's because you're winning business organically and maybe that's at a rate more than what you previously thought. I think when I talked to both of you earlier this year, my thought was that maybe you'd go look at acquiring some proprietary products like a portfolio that could help accelerate your ramp to that $120 million to $130 million of revenue. It seems like you're winning business organically at a rate where maybe that you don't need to do that. Could you give just a little bit of color around how you're thinking about product -- proprietary product portfolio acquisitions relative to your organic growth? J. Kitchen: Yes, sure. Great. Can you hear me okay? Gregg Kitt: I can hear you just fine. Can you hear me? J. Kitchen: Yes, I can. Yes. Just from -- look, from an M&A perspective, we're certainly active. We're just not -- we're not in a rush to do a bad deal. We were actually under an LOI in Q3. Obviously, that didn't move through, but that just goes back to our patience and how we're going to be good stewards of the capital that we do have. From a product perspective, certainly, we're very interested in acquiring product lines that could then be integrated in within our existing underutilized asset base. Obviously, that's a little bit more difficult to find, but we are efforting that. Gregg Kitt: And so because you have this opportunity to be patient on acquisitions, you have a bunch of cash, which is generating interest income in the meantime. I think maybe to piggyback on some of Adam's question, how do you think about your current balance sheet repurchase activity? And how do you evaluate -- I think you said what's an IRR on your -- a repurchase versus some other use? Ryan Kavalauskas: Yes. I mean what we like is we have the optionality right now. And I think that's a unique position for a lot of people in our industry who are just trying to kind of get by every quarter. So we look at it all holistically, we have been more successful at a faster rate in organic growth. We have a tremendous amount of upside within our own assets. So ideally, that is the safest, lowest risk return if we can find ways to allocate capital internally to growth CapEx, for example, operationally to support growth. That will be our first and foremost point of allocating capital. Like Bryan said, we've been looking at M&A. We've been looking at inorganic growth. But frankly, there's just not been a lot of assets out there that we feel are worth the distraction and that would generate the returns on a risk-adjusted basis to equal what we can do organically. And then we've always had the option to buy back stock. If the stock continues to stay at this level, we'll continue to be active in the market. We are buying back shares daily. It's a small amount. We took quite a bit of shares out of the float earlier this year. So we kind of just look at it holistically, and we're always keeping our ear to the ground on what's out there from an M&A perspective. But with the amount of idle capacity we have today, it doesn't make a lot of sense for us to go buy capacity, right? We have to fill our own plants. If we can find a product line that we can slot in, if we can find a new vertical to go into that's outside of the core ones that we participate in today, we'll look at that. So we do have some IRR benchmarks internally depending on where that investment goes, but we like the optionality point as we continue to kind of evolve and see where this business is taking us and see where we're successful, I think that's where we're going to be able to allocate capital and drive again, like organic first, and then we'll look at the other options. Gregg Kitt: One last question for me. Can you talk about some of the targeted R&D investments that you're making? How quickly can those turn into -- are those new products? You have the capability to manufacture it in your existing equipment and you're looking at how can you develop a new product? Or if you could flesh that out, that would be great. J. Kitchen: Yes. I mean I think first and foremost, it was the -- was hiring Prashanth, our new R&D leader. Prashanth's an industry expert, came to us by way of Olin and prior to that, DuPont. So within literally weeks, Prashanth was helping us crack the code on some product development challenges that we have had. He's leaned in. He's helped us resolve some process R&D-related challenges, so improving the manufacturability of products that we've developed in the lab and helping them scale up more efficiently and effectively in the plants. So he's already making a huge difference. Obviously, from a capability standpoint, we have lab capabilities today. There's probably some targeted investments that we'll be looking at making in 2026 to close a couple of capability gaps that we have from a lab equipment perspective. But really just really pleased with how Prashanth has leaned in and the impact he has made in such a short period of time. Operator: Our next question comes from the line of Adam Waldo of Lismore Partners LLC. Adam Waldo: Apologies for the earlier connectivity issues. I hope you can hear me okay now. J. Kitchen: Yes. Adam Waldo: Great. Okay. All right. So at the kind of 30% gross margin and with some headroom above that going forward over the next couple of years, what kind of variable contribution margins do you think you'll be able to achieve at the adjusted EBITDA margin line as you bring on -- continue to bring on strong levels of new volume? And then related to that, what do you think your current system-wide capacity utilization is presently? Ryan Kavalauskas: I'll speak to the incremental margin. So not to be kind of difficult here, but it's really the way our assets are set up, it's not a straightforward calculation where 1 pound equals x margin or incremental margin. So it's really dependent on the customer, the engagement, the product mix and where we make that product, right? So we have 3 plants today, depending on what it is and where it is, that's how we're able to kind of define that incremental margin pickup. So where we're at today, the business we're bringing in today, again, I think it's going to -- you're going to see incremental margin improvement on top of this going forward. So it's really difficult to say 5 million pounds a week million of margin. It's just really dependent on how this mix plays out, where we determine that it's the best place to fit those products into our current assets. So I would say incremental margin improvements as we keep going. Again, I don't expect tremendous pickups every quarter here just despite the volume growth. So that's kind of how I view the incremental margin gains. Bryan can speak to capacity. J. Kitchen: Yes. Just to add a little bit more color on that, Adam. I mean, so from a manufacturing process, some of the products that we make have a 6-hour cycle time. Some of the products that we manufacture have like a 48-hour cycle time. So obviously, the cost is very, very different from product to product from manufacturing-to-manufacturing locations. So we're not trying to be difficult, but that descriptor, it depends, it really does depend. From a utilization standpoint today, we're right around 50% utilized. So tons of runway for organic growth inside of the existing asset base with minimal capital requirements. I mean if you do a look back over the past 3 to 5 years, our average CapEx spend has been in that, call it, $3 million a year range. Moving forward, there's nothing standing in our way from being able to deliver $120 million to $130 million of top line through our existing asset base without additional material capital required. So tons of runway for organic growth, super excited about the momentum that's being built up from a commercial standpoint. We want to see those wins start hitting the income statement sooner than later. But the momentum is real and it's building. Operator: This concludes our question-and-answer session. I would now like to turn the call back over to Mr. Kitchen for closing remarks. J. Kitchen: Okay. Great. Thank you, Dana. We'd like to thank everyone for listening to today's call, and we look forward to speaking with you again when we report our second quarter -- our third quarter, fourth quarter 2025 results. We'll get that right next time. Thanks a lot, everyone, and have a great evening. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good afternoon. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Astera Labs Q3 '25 Earnings Conference Call. [Operator Instructions] I'll now turn the call over to Leslie Green, Investor Relations for Astera Labs. Leslie, you may begin. Leslie Green: Good afternoon, everyone, and thank you, Eric. Welcome to Astera Labs Third Quarter 2025 Earnings Conference Call. Joining us on the call today are Jitendra Mohan, Chief Executive Officer and Co-Founder; Sanjay Gajendra, President and Chief Operating Officer and Co-Founder; and Mike Tate, Chief Financial Officer. Before we get started, I would like to remind everyone that certain comments made in this call today may include forward-looking statements regarding, among other things, expected future financial results strategies and plans, future operations and the markets in which we operate. These forward-looking statements reflect management's current beliefs, expectations and assumptions about future events, which are inherently subject to risks and uncertainties that are discussed in detail in today's earnings release and the periodic reports filed and filings we filed from time to time with the SEC, including the risks set forth in our most recent annual report on Form 10-K and our upcoming filing on Form 10-Q. It is not possible for the company's management to predict all risks and uncertainties that could have an impact on these forward-looking statements or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statement. In light of these risks, uncertainties and assumptions, the results, events or circumstances reflected in the forward-looking statements discussed during this call may not occur, and actual results could differ materially from those anticipated or implied. All of our statements are made based on information available to management as of today, and the company undertakes no obligation to update such statements after the date of this conference call, except as required by law. Also during this call, we will refer to certain non-GAAP financial measures, which we consider to be an important measure of the company's performance. These non-GAAP financial measures are provided in addition to and not as a substitute for financial results prepared in accordance with U.S. GAAP. The discussion of why we use non-GAAP financial measures and reconciliations between our GAAP and non-GAAP financial measures is available in the earnings release we issued today, which can be accessed through the Investor Relations portion of our website. With that, I would like to turn the call over to Jitendra Mohan, CEO of Astera Labs. Jitendra? Jitendra Mohan: Thank you, Leslie. Good afternoon, everyone, and thanks for joining our third quarter conference call for fiscal year 2025. Today, I'll provide an overview of our Q3 results, followed by a discussion around the current trends within AI Infrastructure 2.0. I will then turn the call over to Sanjay to walk through Astera Labs near- and long-term growth profile. Finally, Mike will give an overview of our Q3 2025 financial results and provide details regarding our financial guidance for Q4. Astera Labs delivered strong results in Q3 with our revenue and profitability metrics coming in above our outlook. Quarterly revenue of $230.6 million was up 20% from the prior quarter and up 104% versus Q3 of last year. Growth within the quarter was broad-based across our signal conditioning, smart cable module, and switch fabric products. Scorpio P-Series continued its initial volume ramp at our lead customer, and we are excited that our P-Series revenue will further broaden with recent new design wins across a variety of AI platforms at multiple hyperscaler customers. Scorpio X-Series is shipping in preproduction quantities with a volume ramp expected throughout 2026. Our Aries portfolio continues to perform well with PCIe 6 solutions contributing robust growth during the quarter. Our Aries 6 products are the industry's first and only PCIe 6 retimer solutions ramping in high volume today. Taurus drove strong growth during the quarter as incremental opportunities began shipping in volume across both AI and general purpose systems, and we expect further growth in 2026 as we expand to 800-gig switching platforms. For Leo CXL memory expansion products, customers are exploring AI inference use cases, especially to offload memory from expensive on-package HPM to large pools of DDR5 memory. This will broaden Leo opportunities beyond the current general purpose compute applications that we continue to support. On the organizational front, we have grown aggressively and plan to exit 2025 with a global team of more than 700 employees, up 60% compared with the beginning of the year. Lastly, we are happy to report that our non-GAAP operating margin of 41.7% marked a new record level for the company. In addition to our strong financial performance and new design wins, we continue to lay the foundation for future growth with the advancement of our technology roadmap and scaling of our team and capabilities. In October, we announced that Astera Labs had entered into a definitive agreement to acquire Xscale Photonics, a provider of leading-edge fiber chip coupling technologies. This acquisition will help enable us to develop photonic scale-up solutions by combining Xscale's fiber chip coupling capabilities with Astera Labs connectivity and signal conditioning expertise. We envision future Scorpio scale-up switches to be enabled with photonic solutions to optically expand rack scale cluster sizes containing hundreds of connected AI accelerators. This acquisition represents an important step within our long-term optical journey to intercept a large additive market opportunity associated with scale-up photonics. The industry continues to see strong momentum with major announcements pointing to ongoing rapid growth in large-scale AI infrastructure deployments. Increasing AI use cases are driving higher monetization and surging demand for compute as evidenced by token generation doubling every 2 months and significant year-over-year increases in LLM user activity. To meet this demand, the industry is rapidly adopting rack-scale infrastructure, which analysts forecasting CapEx at the top 4 U.S. hyperscalers to surpass $500 billion in 2026. This shift to AI Infrastructure 2.0 will require ultra-low latency all-to-all connectivity for large workloads, and Astera Labs is advancing its intelligent connectivity platform to deliver high-performance, energy-efficient fabric switching solutions that maximize AI platform efficiency and productivity. To achieve the goal of providing our customers with a wide choice of innovative, flexible and efficient connectivity solutions, we are building our portfolio based on open standards. Our full portfolio of standard-based solutions was in display at the 2025 Open Compute Project Global Summit with the support of 15 industry partners, all highlighting the importance of an open ecosystem for AI rack-scale infrastructure. We believe the proliferation of open standards-based AI rack-scale platforms will allow the industry to leverage broad innovation and enable interoperability while providing a diverse multi-vendor supply chain. We are particularly enthusiastic about the continued momentum behind the UALink scale-up connectivity standard, which exemplifies the open ecosystem approach by combining the low latency of PCIe and the fast data rates of Ethernet to deliver best-in-class end-to-end latency and bandwidth. UALink was built from the ground up with broad contributions from market-leading AI infrastructure participants to specifically solve the mounting challenges of scale-up networking. We believe UALink delivers the bandwidth efficiency and the ultra-low latency needed to unlock full accelerator performance and enable effective scaling as AI clusters expand. Customer activity around UALink continues to be strong. We are engaged with several leading hyperscalers and AI platform providers in the RFP and RFQ stages to align on the designs and applications that fit best with their technology and business requirements. We continue to expect a portfolio of UALink solutions to be available to customers in the second half of 2026 with early revenues generated in 2027. With that, let me turn the call over to our President and COO, Sanjay Gajendra, to outline our vision for growth over the next several years. Sanjay Gajendra: Thanks, Jitendra, and good afternoon, everyone. Today, I want to provide an update on our recent execution, followed by an overview of the meaningful market opportunities that will fuel Astera Labs growth over the next several years. Astera Labs has a singular goal to deliver a purpose-built intelligent connectivity platform, including silicon, hardware and software solutions to customers for rack-scale AI deployments. The forthcoming evolution to AI Infrastructure 2.0 will not only be defined by faster silicon and larger AI clusters, but also by open connectivity standards and software that promote innovation at scale. In short, standardized high-speed interconnect technologies will be essential to deliver AI open racks that are highly performant while operating as one cohesive unit. During Q3 of 2025, Astera Labs continued its high-growth trajectory and further diversified our overall business to deliver another record quarter. We are excited to report several new design wins at multiple hyperscalers during the quarter for Scorpio P-Series fabric switches across a variety of AI platforms supported by both merchant GPUs, including NVIDIA's GB300 and B300 as well as designs based on custom AI accelerators. Additionally, our Aries PCIe 6 smart retimer business and customer opportunities are now expanding as AI racks built around custom AI accelerators and new merchant accelerators begin to adopt PCIe 6. This dynamic is poised to further accelerate the broader adoption of PCIe 6 across the ecosystem and further drive our dollar content opportunity. Overall, our PCIe 6 solutions contributed in excess of 20% of our Q3 revenues, illustrating our market-leading position. We see a similar dynamic taking shape within the Ethernet market with the transition to 800-gig links putting additional strain on signal integrity. Given faster speeds and larger AI cluster sizes, system architects are turning to Ethernet AEC applications to solve the reach challenges of passive cabling. This transition is expected to drive market growth with increasing overall volumes and a generation over generation ASP lift. While we expect strong continued demand for our 400-gig solutions throughout 2026, we also believe our customer base will diversify with 800-gig solutions, driving a new layer of growth for our Ethernet smart cable modules. We believe our approach to enable multiple cable partners with our smart cable modules, supports the scale and flexibility that is preferred by hyperscalers. Looking ahead, we are gearing up for Scorpio X-Series to shift to high-volume production over the course of 2026. With this ramp of Scorpio X-Series for scale-up connectivity topologies next year, we expect our overall dollar content opportunity per AI accelerator to significantly increase, representing another step-up from a baseline revenue standpoint. Overall, given the extreme importance of scale-up connectivity to AI infrastructure performance and productivity, we see Scorpio X-Series solutions as the anchor socket within next-generation AI racks. Our early engagements are providing us valuable insights in terms of both hardware and software requirements to deploy scale-up switching networks for a diverse set of GPUs and AI accelerators. Beyond the connectivity protocol like PCIe, UALink or Ethernet, there are additional functions, both in the data part and management of scale-up networks that can make or break the performance and deployment of scale-up networks. We are learning this every day, building a competitive moat and ensuring our solutions are ready for real-world deployments at scale. From an implementation perspective, the architecture of our Scorpio X family was built to support multiple platform-specific scale-up protocols and customizations. We are actively expanding our PCIe-based scale-up fabric solutions. And in parallel, we are working on future UALink products for applications that need higher bandwidth. For PCIe, we are engaged with over 10 AI platform providers with opportunities that are expected to drive revenue growth across multiple generations of AI platforms over the next several years. We view UALink opportunities to be meaningfully additive to our PCIe scale-up revenues. Our flexible fabric architecture, hands-on experience with scale-up networks, support for diverse workloads that run on training and inference clusters of various scale and complexity and open approach puts us in an excellent position to win next-generation designs. As we look to 2026 and beyond, our playbook remains the same: one, stay closely aligned with the multigenerational technology roadmaps of our customers and partners; two, innovate exponentially in everything we do; and three, separate the noise from reality and continue to be laser-focused on execution needed for a thriving, durable business. In conclusion, we are motivated by the meaningful opportunity that lies before us, and we will continue to passionately support our customers by strengthening our technology capabilities and investing in the future. With that, I will turn the call over to our CFO, Mike Tate, who will discuss our Q3 financial results and our Q4 outlook. Michael Tate: Thanks, Sanjay, and thanks to everyone for joining the call. This overview of our Q3 financial results and Q4 guidance will be on a non-GAAP basis. The primary difference in Astera Labs non-GAAP metrics is stock-based compensation and its related income tax effects. Please refer to today's press release available on the Investor Relations section of our website for more details on both our GAAP and non-GAAP Q4 financial outlook as well as a reconciliation of our GAAP to non-GAAP financial measures presented on this call. For Q3 of 2025, Astera Labs delivered quarterly revenue of $230.6 million, which was up 20% versus the previous quarter and 104% higher than the revenue in Q3 of 2024. During the quarter, we enjoyed revenue growth from our Scorpio, Aries and Taurus product lines supporting both scale-up and scale-out PCIe and Ethernet connectivity for AI rack-level configurations. Scorpio P-Series demand for PCIe Gen 6 scale-out applications was robust during the quarter. Aries demonstrated solid growth during the quarter for both Gen 5 and Gen 6 solutions. With the transition to PCIe Gen 6, we gained increased dollar opportunities with both our Scorpio and Aries Gen 6 products as demonstrated with our Gen 6 revenues exceeding 20% of our Q3 revenues. Taurus growth during the quarter was driven by increasing shipments for 400-gig scale-out connectivity and AI systems. Q3 non-GAAP gross margin was 76.4% and was up 40 basis points from the June quarter levels with product mix remaining largely constant across higher volumes. Non-GAAP operating expenses for Q3 of $80 million were up $9.4 million from the previous quarters due to higher payroll taxes and the continued expansion of our R&D organization. Within Q3 non-GAAP operating expenses, R&D expenses were $57.2 million. Sales and marketing expenses were $10 million, and general and administrative expenses were $12.8 million. Non-GAAP operating margins for Q3 reached a new record level of 41.7%, up 250 basis points from the previous quarter. Interest income in Q3 was $11.5 million. Our non-GAAP tax rate for Q3 was 18%. Non-GAAP fully diluted share count for Q3 was 180.6 million shares, and our non-GAAP diluted earnings per share for the quarter was $0.49. Cash flow from operating activities for Q3 was $78.2 million, and we ended the quarter with cash, cash equivalents and marketable securities of $1.13 billion. Now turning to our guidance for Q4 of fiscal 2025. We expect Q4 revenues to increase within a range of $245 million and $253 million, up roughly 6% to 10% from third quarter levels. For Q4, we expect growth across our Aries, Taurus and Scorpio product families with particular strength from our Taurus smart cable modules. We expect Aries growth to be driven by a number of end customer platforms where we support scale-up and scale-out connectivity. Strong Taurus growth is expected to be driven by increased volumes on 400-gig designs for AI scale-out connectivity. Scorpio growth will be primarily driven by the continued deployment of our P-Series solutions for scale-out applications on third-party GPU platforms, while we expect Scorpio X-Series to ship initial volumes. We expect Q4 non-GAAP gross margins to be approximately 75% with the increased mix of our Taurus hardware modules in the quarter. We expect fourth quarter non-GAAP operating expenses to be in the range of approximately $85 million to $90 million. Anticipated operating expense growth in Q4 is driven by the expectation of continued investment in research and development functions and also the incremental operating expenses from the Xscale acquisition anticipated to close during the quarter. Interest income is expected to be approximately $11 million. Our non-GAAP tax rate should be approximately 15%. Our non-GAAP fully diluted share count is expected to be approximately 183 million shares. Adding this all up, we are expecting non-GAAP fully diluted earnings per share to be approximately $0.51. This concludes our prepared remarks. And once again, we appreciate everyone joining the call. And now we will open the line for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Harlan Sur with JPMorgan. Harlan Sur: Again, great execution by the team. Post the announcement of UALink 1.0 specification in April, this is the industry's first standard scale-up networking architecture. There have been a plethora of new scale-up announcements, mostly Ethernet-based scale-up architectures. I think the market has been concerned about these competitive architectures, but we know that GPU and XPU chip design cycle times are anywhere from 18 to 24 months and the scale-up architecture associated with these designs have been spec out like way in advance. So in other words, I assume that your design win pipeline and engagements, XPUs or GPUs that either have decided to use Scorpio X or UALink has not changed at all since the last earnings, maybe even expanded, but wanted to get the team's view. Sanjay Gajendra: Yes, absolutely, Harlan. We continue to see our market opportunity grow for our scale-up products, particularly Scorpio X product like you noted. Scale up, as you can imagine, it's a very large market. We estimate it to be in tens of billions of dollars. And like you correctly noted, some of these design wins take last over multiple generations simply because of the investment that goes into developing the software and the hardware required for scale-up topologies. For us, if you think about our business, today, we are getting ready to ramp into production with our PCIe-based scale-up solutions. It's been extremely popular. There are several customers that are using PCIe like protocols for scale-up. A new entrant was Qualcomm that publicly announced their new AI 200 inference racks that feature PCIe-based scale-up. For Astera, we have engaged with over 10 AI platform providers, and we expect that these design wins and engagements that we have will continue to ramp. In fact, we expect this to go 2029 just based on some of the multi-generation nature of these design wins. For us, UALink is also a very meaningfully additive opportunity as customers start adopting it just based on the higher data rate support. The spec has been around, like you noted, for over a year now in terms of the consortium being formed. The spec is stable. The ecosystem is forming. Silicon development is in full gear. And many of these customers, we have currently engaged with RFPs and RFQs. So the momentum is really built up very nicely and continues to grow. So we do expect meaningful revenue from UALink to start coming in, in 2027. There are, of course, other standards being defined, and that is to be expected. This is a market that will have multiple standards that will coexist. But for us, the bottom line is that we are in a good position to address all of the emerging scale-up market opportunities with the engagements we have, the learnings that we have had by being in the trenches over the last, let's say, 9 to 12 months, developing scale-up solutions, understanding what is needed and what is not needed, and with production ramps happening in 2026. So overall, we feel very confident that this is going to present multiple opportunities for us, resulting in a multi business -- multibillion-dollar business on the scale-up side based on all the opportunities that we see in the market. Harlan Sur: No, I appreciate that. And the team has talked about the Scorpio X as an anchor product, right? In other words, customers design your switch fabric solution. This creates the opportunity for additional content pull in, right, whether that's your signal conditioning products, your AEC, optical cable modules. Is this strategy playing out? In other words, if you look at, let's say, all of your Scorpio X engagements, what percentage of these engagements are also using your retimers, your AEC or optical cable module solutions? And do you have a sense of the average content uplift per XPU on these incremental attach? Sanjay Gajendra: Yes. So like you correctly noted, if you are a system designer at a hyperscaler, on day 1, when you decide on building a new platform, you generally think of 2 things. One is the accelerator and other one is the scale-up switch and the topology for it. So fortunately, we get invited to the conversation very early. And some of these conversations are multigenerational. So it gives us a good outlook for not just on requirements that we have in the near term, but also on the long term. We announced the acquisition that we are working towards for Xscale. And that was driven based on similar insights that we've been able to gather in terms of what is needed for us. In terms of content itself, once that we are in the sockets for our scale-up solution, it naturally opens up conversations around other products that we have, whether it's retimers, gearbox devices, controllers and things like that, which we have been able to maximize in terms of how we can service. In terms of dollar content, what I would say is that overall, if you look at some of these future design wins that will ramp up, they scale up to multiple thousands of dollars if you look at it from an accelerator and a rack level. So in general, we do see that having a strong presence in the scale-up network allows us to pull in several other products and technology that we currently have and also working on in terms of future product lines that we intend to offer to our customers. Operator: Your next question comes from the line of Ross Seymore with Deutsche Bank. Ross Seymore: The first one I wanted to follow on to the switch fabric side of things with Scorpio. You talked about more design wins across several platforms and more customers. I guess where I really want to get some more color is on the diversification theme. How are you seeing that business diversify? And when Scorpio X launches, does that naturally come back to some concentration? Or does that further diversify the business? And what I appreciate is a naturally concentrated market. But within that framework, how do you see that business diversifying over time? Sanjay Gajendra: Yes. So in general, the theme that we have been working towards is to ensure that there is a good diversity, both with our product lines and customer base that we have. Like you correctly noted, the hyperscaler market is fairly concentrated. I mean that's the occupational hazard that we all have to deal with. But to your point, today, like we have noted for things like PCIe-based scale-up and in the future, UALink and other protocols. Today, we have over 10 customer platforms that we are engaged with. We have made tremendous progress in the last quarter, making progress in terms of not just design wins, but also for some of the opportunities moving them forward from a technical POC software development and other aspects that are needed to deploy this technology at scale. So at this point, given our presence with the fabric devices, that's truly allowing us to be very broad-based. And this not only includes third-party GPU-based platforms, but also custom accelerator-based products. And that's been an exciting momentum for us right now as we seek to add many more design wins to the customers that we have on Scorpio Series. Ross Seymore: And I guess one for Mike on the gross margin side of things. It's very, very impressive. I understand the mix dynamic and why it might be going down a bit in the fourth quarter, but it's still well above your 70% long-term target. So I think investors are just wondering what would be the puts and takes that would drive it down from kind of the mid-70s to 70% over time, especially if the scale-up architectures and different products are going to become so important to you and as Sanjay said, are relatively accretive on the dollar amount, and I assume even on the gross margin side. Michael Tate: Yes. So on the first order effect, generally, when we sell hardware products and modules versus silicon, that's margin dilutive. So we do see an uptick in tours in Q4. So that's the guidance to 75%. As we look longer term, we are going to greatly broaden our product portfolio and the design cycles are moving very fast. So in doing that, we will have a wider range of margins for our products generally because the market is moving so fast, we can't have very pointed products for every opportunity. So some will have a cost structure which is a little more overburdened for the opportunity set, and that will be part of the mix. So we still encourage people to think about us going to our long-term model. But with that, we do see operating leverage as we grow our revenue dollars at a very good pace. Operator: Your next question comes from the line of Blayne Curtis with Jefferies. Blayne Curtis: Great results. Maybe I just want to start off on just level set. Obviously, you beat by a wide amount. I think you mentioned kind of the first 2 you mentioned was single conditioning and these SCM modules. I'm just trying to figure out if you can kind of -- I know you don't want to break out certain segments, but can you give us a little bit more color as to what drove the beat and what changed during the quarter? Michael Tate: Yes. We saw breadth through all the 3 product lines. We generally want to be conservative because a lot of the revenue growth that we have are from new programs, and these programs are very complex. So we just want to give a little cushion in case there's any delays in the product launches by our customers, but it was a very successful quarter for our customers in their deployments. So that enables us to deliver the upside. Blayne Curtis: And I want to ask you, I mean, obviously, the -- what NVIDIA has done with retimers was a lot of the talking points throughout the year, but you're starting to see these ASIC platforms going to be more material next year. Is there a way to think about that Aries family as these ASICs ramp on a relative basis versus kind of the retimer content you're seeing today? Sanjay Gajendra: Yes. So just to kind of level set, right? So we do expect a significant growth in Aries revenue this year, and we do expect the revenue growth for Aries family to continue to next year as well. So in general, obviously, the ASP of the retimer business is different compared to the Scorpio or the switch fabric business that we have. And we do expect that Scorpio to be our largest product line from a revenue standpoint. And there are obviously several different design wins that we have that -- that are expected to ramp to production volume in 2026. So in general, what I want to say is that the business has transitioned to some of these larger sockets and the higher ASP business that we have, and that trend will continue with the inflection point happening sometime in 2026, when Scorpio will overtake Aries and other product lines from a revenue standpoint. Operator: Your next question comes from the line of Tore Svanberg with Stifel. Tore Svanberg: Congrats on the strong results. So I had a question on the acquisition and you now penetration into the optical scale-up market. Just curious, material revenue time lines. I assume this is potentially the beginning of more to come. And maybe you could also discuss a little bit why you decided to intersect optical now versus perhaps prior or later. Jitendra Mohan: Yes. Thanks, Tore. Maybe I'll begin and then Mike can add on. Look, our vision has always been to deliver complete connectivity infrastructure at the rack scale. We have stated this many times, we call it AI Infrastructure 2.0, and we are laser-focused on building solutions for that. Today, we are focused on copper-based solutions, mainly because this is what our customers ask us to do. However, as data rates increase and scale-up domains go beyond 1 rack, clearly, at some point, you will need optical interconnects for scale-up. And there is already a big market for optical interconnects at a data center scale. So we view our kind of entry into optical as a big additive opportunity, and we will intercept the market with unique solutions that are aligned with our customers' roadmaps in the sense of when they want to transition from copper to optical. So as far as the timing is concerned, why now and why not earlier or why not later? It is part of the plan that we have with our customers on when we want to intercept with an optical solution. It is also important to note that with this acquisition of Xscale, we are adding capabilities to the company that we did not have before. Xscale allows us to get the glass components that are required to deliver a successful optical product, whether it is a CPO or an LPO or an NPO. But this is a technology, that's very complementary to the signal conditioning and switching expertise that we have. So our vision would be to deliver a product line where our Scorpio family is optically enabled with photonic solutions to allow for higher data rates and longer reach in scale-up domains. With the Xscale acquisition, we get a phenomenal team that we can kickstart this development and this acquisition is just again our commitment to enter this market and intercept at the right time. Michael Tate: I'm sorry, Tore, you had a question on the timing of... Tore Svanberg: Yes. As part of my first question, when can we start to expect material revenue coming from optical products from Astera? Is that '27, '28, '29? Michael Tate: More likely, the earliest for scale-up optical connections will be in the '28, 2029 time frame. Tore Svanberg: Very good. And just as my follow-up, you talked about Taurus driving strong growth here in Q4. I think you mentioned 400 gig. Is that also diversified growth? Is this with more than one customer? And when do you see the inflection happening for Taurus for 800-gig in 2026? Sanjay Gajendra: Yes. So the 800-gig deployments, I want to say, are just starting in terms of the market need. So for us, we are engaged with several customers. Our business model for AEC is to offer the smart cable modules that then gets enabled through multiple cable vendors. And generally speaking, there is a little bit of lag between when customers start their initial POC or initial deployment to when they start scaling. So overall, we believe that from an 800-gig standpoint, our business -- our revenue impact would start in 2026. I want to say, early part of '26 as the qualifications complete and start ramping to production. Operator: Your next question comes from the line of Mehdi Hosseini with SFG. Mehdi Hosseini: A couple of follow-ups. I just want to go back to the target that Scorpio would be about 10% of your revenue. And if that's the case, then does it imply that Scorpio would be like closer to 20% of the revenue in the December quarter? Michael Tate: Yes. The 10% was for the full year. It started to launch materially in Q2. So the exit rate would be closer to the 20%. That's correct. Mehdi Hosseini: Okay. And then with the X ramping, let's say, spring of next year, that's when the contribution is going to actually accelerate. Am I thinking about this right? Michael Tate: Yes. P will continue to grow given that we have new designs that will be ramping throughout the year. So P and itself is a nice growing piece of revenue for Scorpio. The X-Series is in kind of low initial volumes right now, but then it starts to ramp materially next year. What we said before is the X is ultimately a bigger opportunity, the scale-up opportunity. So at some point, and we're not saying exactly when, it will be bigger than P, and we're very excited about that potential. Mehdi Hosseini: Sure. And then I have a rather clarification question. I'm new to the name, maybe just me, but when you say you have 10 AI platforms involved with your Scorpio product, what does that mean? Does that mean 10 different CSPs, 10 different customers? The AI platform, if you could just elaborate on it, it would be great. Sanjay Gajendra: Yes. So we refer to the customer base that we have that includes the folks that are developing their own accelerators. It also includes the hyperscalers that are buying some of the third-party accelerators and integrating it into their AI servers. So those are the 2 broad categories to think of in terms of the 10 customers that we noted. Mehdi Hosseini: Okay. So that basically implies the diverse set of customers that are adopting the UALink, the open-source, right? Is that -- would that be fair? Sanjay Gajendra: Yes. So that comment itself is correct. We do believe that there's quite a bit of momentum around UALink based on the fact that it's developed grounds up. But the 10-plus customer comment we made was in reference to folks that are using PCIe-like protocols for scale-up. However, we do believe that the folks that are using PCIe-like protocols would also be looking at UALink as an option to service platforms that require higher data rate, meaning from a physical layer standpoint. So to that standpoint, UALink would be additive to our PCIe customer base. At the same time, it will also provide an upgrade path for folks that want higher speed on specific AI platforms. Operator: Your next question comes from the line of Quinn Bolton with Needham & Company. Quinn Bolton: Let me offer my congratulations as well. I just wanted to come back to the Xscale Photonics acquisition as it's your first entry into the optical side of things. I think this technology looks like it's fiber chip coupling. It seems like you probably need some kind of silicon photonics capability to complete a scale-up CPO type solution. So just wondering, is that something you look to develop in-house? Would that be sort of an acquisition that you would look to pursue in the future? Just how do you complete that full scale-up CPO solution? Jitendra Mohan: Quinn, good question. Yes. So as you have correctly pointed out, in order to build a full optical solution, you need 3 pieces. You need an electrical IC that takes the signals from, let's say, a switch chip or an XPU chip, converts it into a format that's applicable for a photonic chip. So that's the second component that you need, a photonic chip that will now convert these electrical signals into light. And then you need a packaging technology that will couple this light into fibers and so on. And there are very specific requirements for each one of them. With the acquisition of Xscale, we solved 2 of the 3. So they are working on some very cutting-edge technology on package development. Once the acquisition closes, we will be able to reveal more about what that means to us and how we will intend to use it. But they are, as you correctly pointed out, working on packaging technologies that is a very critical part of the equation. We also get a lot of photonics expertise as part of this acquisition as well. So we will look to put a team together internally to work on photonics. But at the same time, photonics is a very complex equation wherein customers also have a lot of say into what photonics to use. So we are open to not only work on our solution, but also use third-party photonics solutions to enable an overall optical solution that is suitable for our customers' requirements. And then when it comes to electrical, we've been doing electrical chips for many years as part of Astera Labs and a long time before that. So we feel pretty confident in building the electrical components. But all 3 of them put together is what makes a compelling optical solution. And we have some great ideas on how to build a unique solution as we enter -- as we contemplate entering this space. Quinn Bolton: And then I guess just wanted to come back to the comment about initial Scorpio X shipments in the fourth quarter. Is that kind of preproduction more sample units? Or are you starting to see the initial Scorpio X design win going to production? Is this the initial build of a production system? Sanjay Gajendra: Yes. So this is the initial build. So we've gone through the qualification stage and all the intermediate stages. So we start shipping into production volumes -- production systems end of the year, but the big ramp will happen in '26. Operator: Your next question comes from the line of Sean O'Loughlin with TD Cowen. Sean O'Loughlin: Congrats again on the results. I wanted to ask maybe a bit of a technical one on the PCIe switch transition to a UALink native switch as we look towards that product's launch next year. How much of a step change is that in terms of silicon complexity and design? Or is it much more on the, call it, firmware or SDK side and the silicon is largely similar since they're both based on memory semantics rather than networking semantics? And then sort of related to that, you talked about your customers taking a look at the UALink protocol, even though they're on PCIe today, how much of a lift is on their side when they're looking at the scale-up communication kernel and what can you do to sort of derisk that transition for them? Jitendra Mohan: Yes. It's a great question. And you are very correct in pointing out that there are similarities between both PCI Express and UALink from a protocol standpoint and also that customers have made good investments into their software stack that is tuned to a particular type of protocol. So let me answer them one by one. So to begin with our Scorpio X family today supports PCI Express and PCI Express like protocol. And when we transition from PCI Express to UALink, it will indeed be a new chip that addresses the future generation of these AI systems. However, when we designed Scorpio X, we took into account future generations of this product where the line rates will go up. So the switching architecture and many of the features that go into the switching product, which are beyond the protocol are already ready for the next generation. So while it is going to be a new development for us to go to a UALink switch, we will certainly leverage the development that we have done for the current Scorpio X generation very heavily, including all of the software features that are part of our COSMOS software stack that are responsible for optimizing, customizing and delivering a lot of diagnostics and telemetry to our end customers. In terms of the similarities between PCI Express and UALink, they are both load store-based protocols. PCI Express has been around for many, many years. It is a memory semantic-based protocol. So from an XPU perspective, the ASIC can simply say, I want to access this memory location, and it doesn't matter whether that memory location is in the same GPU or the same XPU or a remote XPU. This is the beauty of memory semantic-based protocol. And UALink carries forward the same thing. It carries forward the memory semantic-based protocol. It carries forward the lossless nature of the network and the software lift for an end customer is much easier. So we do see UALink as an evolutionary step for our PCI Express customers, as Sanjay mentioned before. At the same time, UALink does a few things that are very much customized for AI scale-up. The data rates are much faster. Obviously, we go from 64 and 128 gig to 200 and then beyond in the future. But more importantly, the protocol was built ground up for AI scale-up. It takes into account the AI workloads, the AI traffic patterns and simultaneously delivers low latency as well as increased throughput. And most importantly, UALink is also an open standard. So it's been around for 1 year now, 1 year officially, which in AI terms is probably a decade. And during this time, the IP ecosystem has become mature. The spec is very solid. And a lot of vendors are working on new silicon to deploy UAL-based switches in the 2026 time frame with revenues coming in, in 2027. Sean O'Loughlin: I really appreciate the color there. And I'll follow up with a quick clarification on the 20% PCIe Gen 6. I believe that was inclusive of both Scorpio P and Aries or was that an Aries-specific comment? Jitendra Mohan: That's inclusive of Scorpio, which is all Gen 6 product -- in our Aries Gen 6 products. Operator: Your next question comes from the line of Suji Desilva with ROTH Capital. Sujeeva De Silva: Hi Jitendra, Sanjay Mike, congrats on the progress here. I know the optical revenue is down the line here. But just wondering in comparing pain points of bandwidth versus XPU density, which one kind of pushes customers faster to scale up using optical? Or is there a way to kind of handicap one versus the other? Jitendra Mohan: Yes. I think what our customers have told us, and you can see this in the product announcements that various AI platform providers and hyperscalers have made is they prefer to stick with copper for as long as possible. And the reason for that is multifold. Clearly, copper is so far proven to be more reliable. It's lower power. It offers better TCO. And so as part of the focus that we have on copper, we'll continue to push copper for as long as possible. And that is copper is not going away anytime soon. However, as the topologies of scale-up networks evolve, you will end up with a practical limitation of trying to provide megawatts of power into one rack. And so as a result, at some point in time, we will have to disaggregate the rack into multiple racks, which will then be beyond the reach of copper. So that is what we are planning for. And in the outer years, as Mike mentioned, in the 2028, 2029 time frame, we expect to see these optical deployments from POC and eventually turning into revenues. Sujeeva De Silva: Okay. Great. So rack to rack. And then just a clarification on the 10 POC customers for PCIe, UALink for scale up. Are any of the customers pursuing anything Ethernet related with you? And are you working on any Ethernet stack efforts in-house yet? Or is it all PCIe to UALink roadmap today? Sanjay Gajendra: Yes. So again, we can't comment on what customers are looking at. But let me talk about what we are doing. Like we have highlighted many times, we are heavily engaged right now on scale up. Today, most of the deployments are PCIe like. And these are engagements that obviously will have -- will live for multiple generations, and that's probably something that perhaps is a little underappreciated. We do expect the revenues to go into 2029. And in terms of like other protocols, what I would say is that think about it this way, we believe in open standards. We believe in doing what's right for the customers. Our Scorpio X-Series is developed today to support PCIe and it can easily upgrade to UALink, especially on the non-protocol-related functions. So overall, what I would say is that if a time comes when customers require alternate implementations, we are well setup for it because one key thing to highlight is that although there is so much a focus on like the physical layer protocol, PCIe or Ethernet or other things, what we are learning is that the most important or some of the most important functionality is required in the data part, in the management side because these clusters are giant and having a link that is nonperforming or a subsystem on the data part not delivering the right performance could significantly impact the overall performance of the cluster. So to that standpoint, what we are seeing is that there are several things that needs to be done at the upper levels, and those are things that will remain constant for us irrespective of the physical layer that we end up supporting based on market and customer requirements. Operator: Your next question comes from the line of Sebastien Naji with William Blair. Sebastien Cyrus Naji: I wanted to ask about the opportunity for Astera in China and in particular, the willingness for Chinese hyperscalers to maybe use more open technologies like PCIe or UALink. Jitendra Mohan: Yes. So there is a difference in the hyperscaler opportunities in the U.S. relative to the hyperscaler opportunities in China. Because of the constraints that are placed on the availability of IP and technology, we actually see a lot of demand in China for PCI Express-based scale-up. And the reason that has to do with that is the IP availability there is limited in terms of the data rate, 200 gig is not readily available. PCI Express Gen 5 and add-in card formats are most common in China. And in order to build a larger scale-up network so that they can address the same problems that you might be able to solve with an 8 GPU cluster here in the U.S. might require 16 or 24 clusters of GPU to address the same problem. So when you have more GPUs, our revenues are typically indexed by the number of GPUs. So when you have more GPUs and more accelerators, it is a bigger opportunity for us to sell both our switching solutions as well as solve our retiming solutions from both chip-down opportunities as well as active cable opportunities. Sebastien Cyrus Naji: Got it. Okay. That's really helpful. And maybe if I could do just one follow-up. Just I'd love to get your thoughts on NVIDIA's shift to more of a cable-less design with their Rubin servers or Rubin rack. Does that design shift change Astera's opportunity with Aries or Taurus at all? Jitendra Mohan: So as we have said before, the opportunity for us for NVIDIA-based designs is when hyperscaler customers customize their design to deploy in their own infrastructure. That has been true of the Blackwell platform, and we believe that something like this will happen for the Vera Rubin platform as well. The choice of using a cable backplane versus a PC board-based backplane has to do with the number of GPUs that are present in the design. And certainly, we should let NVIDIA explain the rationale from going from one to the other. But the opportunity for Astera comes when hyperscaler customers take the very performant high-performance GPU platform and customize it for their use cases. Operator: There are no further questions at this time. I would like to turn the call back over to Leslie Green for closing remarks. Leslie Green: Thank you, everyone, for your participation and questions. And please refer to our Investor Relations website for ongoing information regarding upcoming financial conferences and events. Talk to you soon. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good afternoon. My name is Joe, and I will be your conference operator today. At this time, I would like to welcome everyone to Live Nation's Third Quarter 2025 Earnings Call. I would now like to turn the call over to Ms. Amy Yong. Thank you, Ms. Yong. You may begin. Amy Yong: Good afternoon, and welcome to the Live Nation Third Quarter 2025 Earnings Conference Call. Joining us today is our President and CEO, Michael Rapino; and our President and CFO, Joe Berchtold. We would like to remind you that this afternoon's call will contain certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ, including statements related to the company's anticipated financial performance, business prospects, new developments and similar matters. Please refer to Live Nation's SEC filings, including the risk factors and cautionary statements included in the company's most recent filings on Forms 10-K, 10-Q and 8-K for a description of risks and uncertainties that could impact the actual results. Live Nation will also refer to some non-GAAP measures on this call. In accordance with the SEC Regulation G, Live Nation has provided definitions of these measures and a full reconciliation to the most comparable GAAP measures in our earnings release. The release reconciliation can be found under the Financial Information section on Live Nation's website. With that, we will now take your questions. Operator? Operator: [Operator Instructions] And the first question comes from the line of Brandon Ross with LightShed Partners. Brandon Ross: First, going into 2025, it seemed like it was one where the sun, the moon, the stars were all going to align with stadiums and arenas and amphitheaters all coming together. It's turned out, it seems to be a great stadium year, but there's definitely been underperformance in the other venue sizes. Can you explain what happened with amps and arenas this year? And what can give us confidence that they will rebound strongly in 2026? And I have a follow-up. Michael Rapino: Thanks, Brandon. I'll take it. Just to be clear, we had an incredible quarter, an incredible year so far. We had revenue up 11%, operating up 24%, AOI 14%. These are numbers you pray for every quarter. So we've had an incredible year. One of the things we've always said about Live Nation is the great strength you have in investing in us is we are a global diversified business and both geographically and venue type. And sometimes Europe overdelivers and America underdelivers. Sometimes the amps are having a record year, sometimes the stadiums are having a record year. And that's always been the pattern here. And what's great is at the end of the day, we're going to deliver our AOI 10% growth and had an incredible growth internationally, Mexico, Latin America, a lot of our European businesses and stadiums, up 60%. Now again, we would hope we have this problem every year where stadiums are dominating the business. It just continues to show the strength of the consumer and the buyer. This year, we had a few less amphitheater shows. We're looking towards '26. It looks like it's going to be a great pipeline. We look like amphitheaters, arenas and stadiums are going to have a very strong year next year, and on both International and American basis. Probably be sitting here in a year from now telling you one of those markets overdelivered and that's the strength of our diversified platform. So we don't think there's anything structural. We think there is a lot of content out there. A lot of artists decided not to play or not to play arenas and amphitheaters and go for stadiums. We support that on a global basis, and that helped deliver our global revenue growth of over 11%. We think next year, we'll have the same great combination on a global basis and deliver what we've been delivering for many years. Record attendance, record revenue and record AOI will be in the books again for next year with the combination of international amps and arenas. Brandon Ross: Great. And then on the Ticketmaster side, following the FTC suit, it seems like you've really begun to crack down a lot on ticket scalpers. Can you remind us of the actions that you've taken so far? And what impact you expect each to have on both LYV financials and the broader ticketing industry? And it seems like most of the work that you're doing, most of the changes you're making are concerts only as opposed to both concerts and sports. Any color on why that's the case? Joe Berchtold: Sure, Brandon. I'll get going and Michael can jump in. First, again, as always, just to set the context, secondary is a low single-digit percentage of our revenue. It's a feature to us as we've long talked. We focused on primary and helping content get the tickets priced and sold how they want. First, just to answer sports versus concerts, it's very different. Sports, the teams and leagues use secondary as a distribution platform for disaggregation of season tickets. So the secondary I would think about is being -- it's really heavily a liquidity market in sports. In concerts because they're all sold one-off, there is no liquidity market. It's all a price arbitrage market. So as we look at it, it's a matter of how much are the scalpers taking? How much arbitrage are they getting? And the actions that we're taking, I think, are heavily driven by the fact when we look hard at it, it's just too much. So the pieces first, even though it gets pressed is less important is Trade Desk. It's a tool that brokers use to manage their tickets and simultaneously place them on multiple marketplaces. It started because of sports. It's often confused that somehow it's a tool that the brokers could use to get tickets in some advantaged form relative to fans. It's not this. It's never been this. But just to eliminate the noise, we're shutting it down. We don't expect it to have any financial impact on us or on the market. We expect most of these folks will either do it manually or go to one of the other multitude of platforms that offer this service. More impactful to the industry is the identity verification tools we've started to deploy. So now when our system identifies high-risk accounts based on 100 different signals, we can require validation that the account holder is a person and their government ID matches the account. This is a key tool we've used in canceling over 1 million accounts over the past month. And on a recent high-demand on sale that got some press, we used it after the fact looking at the signals and putting fans through to determine whether they were real fans or it was bought purchase. So that's been helpful. We're optimistic in the short term, this can help rein in some of the excessive abuse that's developed. But frankly, we're also realistic that without legislative and enforcement changes, the scalpers will continue to invest in new tools to fool our systems and mask the fact that they're bots. So it's hard to fully translate into financial impacts. But I think given the low percentage of revenue that secondary accounts for, what we've seen so far in terms of the activity and the volume, we don't have any reason to think it would be more than a low to mid-single-digit impact to Ticketmaster's AOI next year. But I think even more importantly, we don't see this fundamentally impacting our growth strategy given our focus on the primary side. So as we lay out our multiyear strategy tomorrow, this is not going to have an impact on that strategy or on the numbers that we would show you in terms of where we think we can get to. Operator: The next question comes from the line of Stephen Laszczyk with Goldman Sachs. Stephen Laszczyk: Joe, maybe on the concert segment for the quarter. I was wondering if you could help us break down some of the puts and takes to concert segment AOI growth izn 3Q. I think there's a number of factors that investors are trying to better understand. You have growth in Venue Nation attendance and the profitability that might be coming on as you layer on some new capacity there. You have more stadium activity as you called out earlier and then some pressure on amp and arena attendance. I think any color to help us better understand the sizing of some of these drivers would be helpful as we look into next year. I would appreciate any of that. And then I have a follow-up. Joe Berchtold: Sure. I'll give you the detail on the quarter. Overall, for the concert segment we grew AOI by about $40 million with roughly 1 million or just over 1 million fans. So pretty good per fan incremental profitability. It's 120 more stadium shows that really drove the growth, which was pretty well balanced between the U.S. and international. And it was also heavily driven by stadiums that we operate. So [indiscernible] GMP reopening and building back up, the Rogers Stadium in Toronto. So it was a lot of fans that we operate at, which is what drove some of the high profitability per fan. We had about 250 fewer amp shows, as Michael alluded to, just from a cyclical standpoint, fewer shows. And arenas are about flat, but we did grow our activity in our operated arenas with the new Portugal arena coming online and some of our other European arenas. So a big shift to stadiums and overall, in some of the large venues outside of the amps, we had more activity in our operated venues that helped in the context of the few amp shows. Stephen Laszczyk: Great. And then maybe secondly, just as a follow-up on regulatory and some of the commitments you made on the FTC side. Just would love any other color you could provide about where we stand in your dialogue with the FTC? And then maybe related to that, where we stand in the DOJ's process? And to what extent you feel like maybe some of the more recent dialogue you've had, maybe perhaps both agencies has created a framework or common ground with these agencies or lawmakers. Joe Berchtold: Sure. I'll start with the FTC. I think the government shut down pretty much immediately after that came out. So no real action there. What I would say, and we've said this before, when this happened, we feel very good about our case with the FTC. We think it's an extremely expansions view of the BOTS Act. The fact that they would file the suit when we do more to stop bots and to counter a lot of this activity than the rest of the industry combined, we find the very far afield. And from a legal standpoint, we don't believe that they have a strong case. A lot of the changes that we just talked about are friendly things that have been in motion for a while. Obviously, you don't roll out identity verification in 2 weeks. That's a tool we've been building and we're just ready to deploy it. So we have done so. On the DOJ, that case is advanced procedurally. Generally speaking, discovery is complete. Everybody has exchanged expert reports, and we're in the middle of some of the expert depositions. All that's left is a few straggler depositions. So that process continues. The judge reaffirmed the March 6 date for the trial. So we'll continue on that process for now. But the other development that I think is of real note is that we think the remedies decision in the Google search case has very much validated our view that the claims in our case, can't lead to a breakup of Live Nation and Ticketmaster even if the DOJ prevails on one claim or another. So we expected that, but certainly welcome news in that side. Operator: The next question comes from the line of Cameron Mansson-Perrone with Morgan Stanley. Cameron Mansson-Perrone: First, on the ticketing side of the business. You've talked about the competitiveness in the ticketing industry in the past, particularly in the U.S. I was wondering if you could just kind of describe how that landscape has been evolving and how you've been responding to that level of competitiveness? And particularly whether it raises your appetite or the attractiveness of capturing international growth within that segment of your business? Joe Berchtold: Yes. Cameron, I don't think we think of it as an either/or. We look at it as a global business. We're a global platform. We're global in concerts. We're global in ticketing. Were underdeveloped in international markets in Ticketmaster, particularly if you look at Latin America, you look at Asia, even parts of Europe. So there's a heavy focus on building out our presence in those markets. We think we have the best ticketing platform and enterprise tools out there. And that's clearly been helping us win a lot of business as we've given you those numbers over the past several years in international markets. North America is competitive, but that's fine. Most businesses in life are competitive. And I think we continue to win a lot because we can compete effectively on all dimensions, and we've continued to add clients and tickets in North America as well. We'll continue to fight that fight. But we certainly see international over the next several years as a great growth opportunity. Cameron Mansson-Perrone: Got it. And then on the numbers in the release around deferred revenue, some pretty healthy growth both in event-related deferred revs and ticketing revs. Any color you can provide in terms of how we should think about that as indicative of 4Q activity relative to indicative of 2026 activity? Joe Berchtold: Yes. I think most of that will be getting into next year at this point, given the size of those numbers and the fact that Q4 is cyclically one of the smaller quarters. And it goes hand-in-hand with the other things we've given you on the strength of the pipeline for '26 in terms of large venues and the fact that our ticket sales for shows next year are up double digits. Ticketmaster, you'll continue to see some growth in the deferred also as we're adding more venues and the tickets for those venues get deferred. Operator: The next question comes from the line of David Karnovsky with JPMorgan. David Karnovsky: I wanted to see if you could refresh on the venue pipeline that will impact in 2026 in terms of the buildings opening in the second half of this year and those planned for the coming year. And when we look at your fan count growth at Venue Nation, I think you had previously guided this to around 7 million fans. Any reason to think you wouldn't be able to sustain a pace comparable to that next year? Michael Rapino: I was just going to jump. The good news, David, is we're going to take this through our Investor Day tomorrow and get into more detail on the venue stuff. So that's probably the best place for it. But no, we continue to see the same pipeline of growth as we've outlined previously, and we've made great progress this year in getting these buildings either started or opened up this year. And tomorrow, we'll take you through kind of the longer-term vision of it. David Karnovsky: Okay. And then just on the stadium outlook, just wanted to see if you could check in on the pipeline for next year. I know there had been some hope expressed in September that you could get to a comparable year in the U.S. with the growth internationally despite the FIFA factor. I just want to get an update there. Michael Rapino: Yes. I would say the World Cup FIFA, some of those fears that everyone had earlier haven't seem to come to life. We are looking right now at this time of the year, which is early still, but good for stadiums to have a very strong year next year. International, which already had a spectacular year, looks very strong on a global basis. So we look at next year being a very, very strong stadium year again. And going to Brandon's concern, add a few extra shows in amphitheaters and arenas and you're back to your annual higher double-digit fan growth that we've been able to do for the last 15 years or so. So we see that consistency will continue onward for the next few years. Operator: The next question comes from the line of Robert Fishman with Moffett Nathanson. Robert Fishman: I have 2 for either Michael or Joe. Maybe just following up on where you just went. The earnings release calls out the international fan count is on track to surpass the U.S. for the first time. So I'm just wondering if you can shed some additional light on where you see that mix shift going with international fan growth over time? And how much of that factors into your confidence of delivering another year of double-digit AOI growth in '26? I'll start there. Michael Rapino: I'm not sure I got the question right, but I think if you're asking about international, we believe this will be a continued global international business. And most of our growth, both in Ticketmaster sponsorship, venues, concerts will continue to be on a global basis, given there's so many markets that were not very high in market share or haven't entered yet. So that mix will continue to grow and continue to be an international story for many years to come. Robert Fishman: Got it. And then just secondly, can you discuss your recent hire of a new Global President for Ticketmaster and maybe how that -- you expect that to help in the AI transformation of your overall business or at least with Ticketmaster? Michael Rapino: Yes. I think we thought it was time. Mark has done an incredible job growing the business dramatically. Our focus under Mark based out of London originally was to really focus Ticketmaster to be a much more international business, away from being just solely U.S. focused and think about a global platform. We had many different technologies at the time. And Carlos and Mark have done a fabulous job standardizing our global business, launching in many markets. And Mark will continue as Chairman, and that will be his focus to keep running hard on international. But we absolutely wanted to find somebody that had a very strong technical background, engineering AI-based that could look at the platform overall and not just how do we make the enterprise marketplace better. But of course, how do we make sure we are leading the charge on AI from an agent perspective at the front door to all the places that we're adding on the enterprise level. Operator: The next question comes from the line of Peter Supino with Wolfe Research. Logan Angress: This is Logan Angress on for Peter. Just a quick question for me. Your release reiterates your expectations for long-term AOI compounding, but doesn't discuss 2026 specifically. I'm curious given all the strong leading indicators that you've called out, is it fair to assume that you can continue to grow AOI double digits next year? Or are there mitigating factors that we should keep in mind? Joe Berchtold: This is Joe. I think what I would say is no mitigating factors. We've just never sitting in November before the year has started, made that call. I think that's traditionally a conversation that we have in February. I think what we try to give you now, which is what we're looking at is the leading indicators that have to do with our show pipeline, tickets sold, our sponsorship committed, our deferred revenue, a lot of factors that are pointing extremely positively. But I think we all view we'll get to -- and nothing -- no mitigating, no concerns. But we generally want to wait and get to February and have the full data set to make that call. Michael Rapino: But your point is what we've been saying for year after year, the last few is we think this business on a global basis has incredible growth ahead of it that would mirror the history we've been able to deliver. Operator: And the next question comes from the line of Jason Bazinet with Citi. Jason Bazinet: I know you guys have long held that your business is not particularly economically sensitive. But there seems to be growing press reports about maybe the low-end consumer sort of running out of gas. And I just wonder, underneath the hood, are you seeing any sort of signs of sort of maybe sort of bimodal behavior whre the high-end consumer spending more, but you are seeing a little bit of pressure at the low end to offset some of the strength at the high end? Or is that not what you're observing? Michael Rapino: No. We have not seen any of that. We have -- our business is very diverse. It's powered from clubs to arenas, to festival, stadiums, small town to big on a global basis. So we see it all. And we need all levels of consumers consuming to make the show sell out. And we're already on sale for next year for many shows and festivals of certain sizes, and they are selling as fast as ever. So the appetite, the consumption going to that show still seems to be #1 priority for them, and we saw no pullback anywhere yet. Operator: The next question comes from the line of Eric Handler with ROTH Capital. Eric Handler: Just wondering if you could talk about corporate appetite for sponsorships now in terms of what they're willing to do and sort of how much they're willing to spend? Michael Rapino: Yes. Again, our sponsorship numbers, you saw the 14%. They've been growing for double digits for years. And as we grow our business, we provide more inventory. The more arenas, the more international, the more cities we add, the more inventory our team has to sell. So we think that live show continually right now to a marketer is a really good return on investment. They may not have all the other media channels solved, while they're figuring out where to put their dollars. But if you want to absolutely touch consumers on a live location like sports or music, these 2 places are where marketers tend to be spending more money today. So we're matching that with them. We have the best inventory in the world and we see continued growth for a long time in sponsorship and brands that want to be part of that exciting 2 hours of magic. Operator: The next question comes from the line of Ian Moore with Bernstein Research. Ian Moore: I just wanted to zoom in a little bit, hone in on food and beverage spend. I was just wondering if you could stratify the growth that you're seeing a little bit across different venue types and then front of the house, back of the house, VIP, if possible. Michael Rapino: Yes. We've had a strong year again in food and beverage in our amphitheaters, our festivals, owned and operated clubs. We delivered on our growth targets this year again. Continue to be better at diversifying our portfolio, increasing our hospitality, increasing our kind of our offerings across all platforms. So had a strong year. We continue to see year-over-year growth on-site, food and beverage, VIP, hospitality, premium, all of the ancillary revenues. When they come to that show, they still want to find that place to have fun and spend some dollars to enjoy it. Operator: There are no further questions at this time. I'd like to hand the call back to Michael Rapino for closing remarks. Michael Rapino: Thank you, everyone, for your participation, and we'll talk to you tomorrow afternoon at our Investor Day. Look forward to it. Thank you. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings. Welcome to the NGL Energy Partners 2Q ' 26 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Brad Cooper, CFO. You may begin. Brad Cooper: Good afternoon, and thank you to everyone for joining us on the call today. Our comments today will include plans, forecasts and estimates that are forward-looking statements under the U.S. securities law. These comments are subject to assumptions, risks and uncertainties that could cause actual results to differ from the forward-looking statements. Please take note of the cautionary language and risk factors provided in our presentation materials and our other public disclosure materials. NGL had another solid quarter with record water volumes and 30% growth in Grand Mesa volumes. Consolidated adjusted EBITDA from continuing operations came in at $167.3 million in the second quarter versus $149.4 million the prior year second quarter or approximately 12% higher. The increase was primarily driven by the performance of our Water Solutions business segment. On the heels of this strong performance in Water Solutions and additional growth opportunities in Water Solutions that Mike will speak to later, we are increasing our full year adjusted EBITDA guidance range from $615 million to $625 million, to $650 million to $660 million. With this increased guidance and operating cash flow associated with this increase, we project a zero ABL balance at the end of the fiscal year and approximately 4x leverage. Also in the month of October, our Water Solutions segment has averaged over 3 million barrels per day of physical disposal volume. Doug White, EVP of our Water Solutions segment, will be providing a Water Solutions update following my comments. We continue to be focused on our capital structure and remain opportunistic with how we are addressing it. Since April, we have purchased 88,506 units of the Class D preferred, which represents approximately 15% of the outstanding units. Based on the last Class D distribution, the Class Ds purchased represent $10.4 million in annual distribution savings going forward. We have opportunistically taken advantage of the ability to reprice our Term Loan B as permitted in the documents. In September, we launched a repricing and reduced the SOFR margin from 375 basis points to 350 basis points. This was the second repricing of the Term Loan B since February 2024. When you consider the 2 repricings and Fed rate cuts, we have achieved annual interest savings of $15 million on the Term Loan B. Under the Board-authorized unit repurchase plan, we have purchased an additional 4.4 million units in the quarter for a total of approximately 6.8 million units, which equates to about 5% of the outstanding units. The average price for the units repurchased since the inception of the plan is $4.57. With the additional water growth capital projects and the Class D preferred and common unit repurchases, we are demonstrating the optionality we have with our capital allocation. All three of these provide attractive returns to the partnership and our investors. Water Solutions adjusted EBITDA was $151.9 million in the second quarter versus $128.9 million in the prior second quarter, an 18% increase. Physical water disposal volumes were 2.8 million barrels per day in the second quarter versus 2.68 million barrels per day in the prior year second quarter, a 4% increase. Total volumes we were paid to dispose that includes deficiency volumes were 3.15 million barrels per day in the second quarter versus 2.77 million barrels per day in the prior year second quarter. So total volumes we were paid to dispose were up approximately 14%, second quarter of fiscal '26 over second quarter of fiscal 2025. The increase in EBITDA was primarily driven by higher disposal revenues due to an increase in produced water volumes, processed from contracted customers as well as higher water pipeline revenue due to the LEX II pipeline commencing operations during the quarter ending December 31, 2024, as well as higher revenues for skim oil. The increase in skim oil revenue was due to an increase in skim oil barrels sold due to more skim oil recovered from receiving more produced water. Operating expenses for the quarter were $0.22 per barrel, in line with previous quarters. Crude Oil Logistics adjusted EBITDA was $16.6 million in the second quarter of fiscal 2026. During the quarter, physical volumes on the Grand Mesa pipeline averaged approximately 72,000 barrels per day compared to approximately 63,000 barrels per day for the quarter ended September 30, 2024. When compared to our previous fiscal quarter, Grand Mesa volumes are up 17,000 barrels or approximately 30% higher fiscal Q2 over fiscal Q1. Volumes for the fiscal third quarter were strong with October over 80,000 barrels per day for the month. It's early in the fiscal year for the butane blending business, a bulk of their EBITDA generated for the fiscal year is occurring right now. We will have a better read on the fiscal year for this group at our next earnings call. With that, I would like to turn the call over to our EVP of our Water Solutions segment, Doug White. Douglas White: Thank you, Brad. This has been a year of excellent growth, both volumetrically and on an adjusted EBITDA basis. With respect to water disposal volumes during this year, we have recently surpassed 3 million barrels per day of physical volumes for an entire month and over 3 million barrels per day, including deficiency barrels related to volume commitments. We have underwritten new growth capital projects for approximately 750,000 barrels per day of newly contracted volume commitments. These projects are scheduled to be placed into service by the end of this calendar year. As a result of these contracts, we now have 1.5 million barrels per day of total volume commitments going into fiscal 2027. These commitments have an average remaining term of almost 9 years. Regarding our Delaware Basin asset position, we now have over 5 million barrels per day of permitted injection capacity at 131 injection wells and 57 water processing facilities. We have the largest capacity pipeline system in the Delaware Basin with more than 800 miles of pipe, including approximately 700 miles of 12- to 30-inch diameter pipelines. This is a key metric as it determines the volume of water that is able to be transported directly affecting physical volumes and reliable takeaway. With respect to permits and pore space, we have maintained a large inventory of legacy injection well permits in Texas. And this year, we have increased our inventory by almost 1 million barrels per day in Andrews County, Texas, where over a year ago, we secured approximately 4 million barrels per day of pore space that is unburdened by legacy injection, legacy vertical production or seismicity. This sets us apart from our competitors, creating a moat for future growth to more than double our current Delaware Basin volumes. In addition to strategically increasing our pore space portfolio, NGL has been pioneering the effort to bring the Delaware Basin, its first large-scale produced water treatment plant through the Texas Commission on Environmental Quality, TPDES permitting process. We began this effort for a treated produced water discharge permit in 2023. And as of last month, received the first draft permit issued in the state of Texas. Our permit application is for influent volumes of approximately 800,000 barrels per day, which is a material amount of produced water that can be diverted to treatment for beneficial reuse and recharging the Pecos River Basin. This shows our commitment to sustaining our pore space inventory, and adding an alternative disposal option for our producer customers. H. Krimbill: Thank you, Doug. This is Mike. As you've heard from Brad and Doug, NGL is firing on all cylinders, both operationally and financially. First, some of this may be a repeat, but I think it's important. So first, let's discuss the operations. Last 60 to 90 days, we've contracted the 500,000 barrels per day of volume commitments that require in-service dates no later than December 31. Our Water Solutions employees have also exceeded our adjusted EBITDA guidance on the base business in addition to the new business. These two business developments have allowed us to increase our fiscal year 2025 adjusted EBITDA to a range of $650 million to $660 million with potential further increases in subsequent quarters. We began the fiscal year with modest growth expectations as reflected in our initial growth CapEx guidance of about $60 million. The increase in contract volume requires an additional $100 million of growth CapEx, which we are pleased to spend. The majority of adjusted EBITDA will be generated in fiscal 2027 from these new projects. So we are providing initial fiscal 2027 adjusted EBITDA guidance of at least $700 million. So there'll be more to come to that as we progress through this year. I would like to congratulate the entire Water Solutions team, led by Doug White and Christian Holcomb on their strong operational performance and positioning the business to capture new incremental business driven by the confidence producers have in NGL Water Solutions as the most reliable operator with the largest integrated water disposal network in the Delaware Basin. Next, I believe there's been some misinformation and literature published recently. So I would like our unitholders to know that your NGL, a, generates the most adjusted EBITDA annually of any water company, transports the greatest volume of water for disposal of any water company, has the largest volume of water under volume commitments of any water company, operates its water business with the lowest cost per barrel of any water company, provides the most capacity to move water predominantly through the pipes, 12 to 30 inches that Doug mentioned of any water company, and has millions of barrels of pore space, as Doug stated. We are not waiting until calendar '26, '27 or later to grow. Our growth is here today, approximately 10% in fiscal '26, and another 10% estimated next year. So let's jump to our long-term corporate strategy and where we came from and where we sit today. So several years ago, we were settled with leverage above 4.75x and a dividend arrearage obligation that we needed to repay. So our first initiative was to remedy the situation. So we began identifying excess and idle assets that we sold. Next, we sold our crude oil trucking and marine divisions at very attractive multiples. These were not businesses that provide a real competitive advantage or we could grow. Then we sold the majority of our Liquids Logistics business, that was the most volatile business in terms of adjusted EBITDA that fluctuated quite a bit from year-to-year. Not a great asset for an MLP. Finally, we sold our New Mexico Ranches. All of this cash allowed us to eliminate the dividend arrearage and reduce leverage. So our next target were the Class D preferred units. As you've heard, we've redeemed 88,000 shares of them at this time with more anticipated in the coming quarters. Under the terms of the pref, we must redeem them in $50 million tranches unless offered to us in small amounts. Each redemption or purchase should be accretive to our common unitholders. With the increase in adjusted EBITDA, we are deleveraging, which provides greater flexibility to finance our growth capital to attack the capital structure and purchase common units simultaneously. We believe our common unit purchases thus far have been an excellent investment by the partnership. In terms of valuation, we are seeing the market reward pure-play water companies. We have been simplifying our business and focusing on the water business and providing substantial growth capital to this division. We anticipate becoming more and more a pure-play water company as our adjusted EBITDA from water operations continues to grow. Our finance group led by Brad Cooper has done an outstanding job financing NGL and managing these equity purchases, while reducing interest expense when the opportunity presents itself. They are also reducing corporate overhead, not taking their eye off the ball even in the good times. So finally, barring a negative macro event, I believe we're in the final leg of our journey to finish strengthening balance sheet by limiting Class Ds and decreasing leverage to less than 4x. After that, anything is possible. Thank you. Questions. Operator: [Operator Instructions] First question comes from Derrick Whitfield with Texas Capital. Derrick Whitfield: Congrats on a solid quarter and update, guys. Starting with the growth opportunities you're highlighting. As you guys know, [Technical Difficulty] we are focused in the Delaware water kind of backdrop, if you will. Having said that, I would love if you could maybe just offer some color to the macro, micro events that's leading to this increase in activity from a customer acquisition perspective since your last update? Is it fair to assume that you guys are picking up some opportunities now that Aris has been acquired by WES? H. Krimbill: Doug? Douglas White: I'll take that. Yes, this is Doug. Yes. Thanks, Derrick. Where we see a lot of our growth is in our base customer mix. As many of you know, the larger producers have really been segmented mostly between the few different larger water midstream groups. Some of us have split, some of the business between the super majors, but we also have large -- very large customers that are mostly dedicated to our system. We are really seeing from a macro perspective, the immense growth and commitment to growth from our larger customers. I think that speaks a lot to the maturation of the all infrastructure, including pipeline type takeaway, gas takeaway, but also infield processing, power availability, et cetera. The efficiencies that have been created within the basin have really shown to make them more economic. And we're just seeing a greater dependence on focus on economics that's creating lower econs on the cost side that really lend to more development. Derrick Whitfield: Perfect. And then maybe shifting over to pore space. To your point, 4 million barrels of pore space in Andrews County is a tremendous amount of growth opportunity for you guys and not suggesting you're going to spend all the capital at once. But if you were to think about the amount of capital required to access that pore space, can you help frame that? Douglas White: Sure. Much like the LEX system, we see continued growth on the pipeline side out of New Mexico to our pore space in Andrews County. Those projects -- those range in the $50 million to $150 million project, much of that includes infrastructure development on the power side, also anything around just the general development of disposal facilities and the injection wells themselves. So as we access that, we expect to pace that over several years' time, of course. I think the important item to note on that topic is we have secured the pore space and is excellent pore space, as I mentioned, unburdened by seismicity, existing injection, legacy vertical production. That's really important. And then as we continue to grow along with our customers, we'll layer in the capital side of things in order to respond to new deals. Derrick Whitfield: Perfect. And one last, if I could. Just with the increase in growth capital this year, is that largely just for drilling SWD wells? Douglas White: Brad, do you want to answer that? Brad Cooper: Go ahead, Doug. Douglas White: Okay. So with our growth projects that we mentioned, you'll notice that we increased the capital spend from $50 million to $150 million or $160 million. I'm not sure the exact number there. But that addition of the $100 million of capital is all growth related to the water side of the business. Derrick Whitfield: Doug, how many SWDs just give us -- because you have saved these permits for many years, which is why competitors don't necessarily see us applying for permits because we have so many. But is it 10, 15... Douglas White: We have 35 to 45 legacy permits. We're in the process of drilling 15 to 20 new drills this fiscal year. Operator: We have reached the end of the question-and-answer session. And I will now turn the call over to Brad Cooper for closing remarks. Brad Cooper: Yes. Thank you, everyone, for joining us today. Have a safe end of the year, and we'll talk to you guys early next year. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings, and welcome to the Astronics Corporation Third Quarter Fiscal Year 2025 Financial Results. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Craig Mychajluk. Thank you. You may begin. Craig Mychajluk: Yes. Thank you, and good afternoon, everyone. We appreciate your time today and your interest in Astronics. Joining me here are Pete Gundermann, our Chairman, President and CEO; and Nancy Hedges, our Chief Financial Officer. Our third quarter results crossed the wires after the market closed today, and you can find that release on our website at astronics.com. As you are aware, we may make forward-looking statements during the formal discussion and the Q&A session of this conference call. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed with the Securities and Exchange Commission. You can find those documents on our website or at sec.gov. During today's call, we'll also discuss some non-GAAP measures, which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the table that accompany today's release. So with that, I'll turn it over to Pete to begin. Peter Gundermann: Thanks, Craig. Hello, everybody, and welcome to our third quarter call. We feel it was a very positive quarter, and we are pleased to share the results. As is our practice, I'll start off with a summary of the headlines for the quarter, then Nancy will go through the financial fine points, then we will discuss expectations for the future for both the fourth quarter and also we'll take an early look at 2026. Finally, we'll open up the lines for questions. The first headline for the quarter is that we had solid volume with revenue of $211.4 million. This is our second highest quarterly level ever and just marginally below our record. That sales level is a tick up from the first couple of quarters of 2025 and is the result of broad-based demand across our product lines, markets and customers as well as improved performance in our supply chain and better efficiencies in our production system. Our Aerospace segment led the way with sales of $192.7 million, a level consistent with recent periods. Our Test business had sales of $18.7 million, which is down from the third quarter of 2024, but higher than the earlier 2 quarters of this year. The second headline has to do with margins. As one would expect, higher revenue together with efficiency improvements have led to higher margins. Operating margin of 10.9% in the quarter was higher than last year's 4.1%. Adjusted operating margin, taking into account expenses related to restructuring, litigation and acquisitions was 12.3% for the quarter. Our Aerospace segment specifically had operating margin of 16.2%, generating all of our operating income for the quarter. Test operating margin was essentially breakeven at negative 0.1% while no one is happy with 0% operating margin, this actually represents progress and is a testament to the cost reduction initiatives we have put in place in recent periods. To break even on a modest revenue level of $19 million in the quarter promises good things in the future since we expect test sales to increase. Adjusted EBITDA was at 15.5% of sales, our highest since the pandemic struck in 2020. Our third headline has to do with bookings. Even though third quarter shipments were on the strong side, bookings kept right up. Total bookings of $210 million yielded a book-to-bill of 1.0. We ended the quarter with backlog of $647 million, a very high level by historical norms, which sets us up well for the coming periods. Our fourth headline has to do with acquisitions. We have made a couple of smaller acquisitions recently, one early in the third quarter and one just recently early in the fourth. The first one was Envoy Aerospace, which we previously discussed in our second quarter call in August. Envoy Aerospace is an ODA, which stands for Organizational Designation Authority. ODA is a program in which the FAA grants certification approval authority to outside organizations by which the FAA extends its capacity and reach. We believe having an ODA is a competitive differentiator as we are often involved in aircraft retrofit programs and FAA certification is becoming a more important capability in the eyes of our customers. Having certification authority lessens program and schedule risk, both for us and for our customers. Envoy has external sales of about $4 million annually. Prior to the acquisition, we were consistently one of their largest customers. The second acquisition is that of Bühler Motor Aviation or BMA. Located in Southern Germany, BMA is an established manufacturer of aircraft Seat Actuation Systems with a broad product portfolio that includes actuators, control electronics, pneumatics and lighting. BMA competed with our PGA operation in France in the seat actuation market, and now they will work cooperatively with each other to better serve the needs and opportunities of that market. We expect BMA to have sales of $20 million to $25 million in 2026, and we paid less than onetime sales for the acquisition. Much of the costs related to the acquisition, legal and diligence and the like were included in our third quarter expenses. The acquisition's operating contributions will be captured in the fourth quarter and onward. Finally, our last headline, we completed a couple of important refinancing actions in recent weeks, one in the third quarter and one just after its close. These financings lowered our cost of debt, improved our financial flexibility and importantly, reduced future dilution potential. Nancy will cover the accounting treatment, which is a little bit complex, but basically, in the third quarter, we issued a new $225 million 0% convertible bond to buy back a majority of an earlier convertible bond that was significantly in the money, meaning it was already fairly expensive to settle. And if our stock continued to rise as we expect it to do, it would get even more expensive. Using proceeds of the new convert plus some borrowings under our existing revolver and available cash, we successfully repurchased 80% of the previous 5.5% convertible note, effectively lowering our cost of debt while also eliminating 5.8 million shares of potential dilution. As part of the transaction, we also bought a capped call on the new 0% notes that effectively raises the equity conversion price to $83, meaning that there will be no dilution on the new bond unless and until the market price of our stock exceeds $83. So this transaction significantly reduced the potential dilution we would otherwise be facing. The earlier convert had a face value of $165 million. Since we bought in 80% of it, there is now 20% still outstanding or $33 million. We can pay the smaller bond off when it comes due in about 4 years in either cash or stock. We intend to use cash. But even if we use stock, the dilution will be a maximum of 1.4 million shares or about 4% based on our existing share count. This is a significant reduction in the potential dilution risk that existed before the buyback. We also benefit in terms of interest, obviously. The new bond has a 0% coupon, while the older bond is at 5.5%. So we replaced some more expensive debt with much cheaper debt. Our second refinancing step completed just a couple of weeks ago was a transition from the ABL facility we had in place to a cash flow revolver. The size of the ABL was $220 million and the cash flow revolver is sized at $300 million. The interest expense is comparable, but the new facility offers less administrative burden and increased financial liquidity for the future. The financial implications of the new convertible bond and the repurchase of the majority of the previous bond is fully reflected in our third quarter financials. The ABL to RCF transition will be reflected in our fourth quarter financials. Now I'll turn it over to Nancy. Nancy Hedges: Thanks Pete. I'll review profitability and various accounting and other events related to our Q3 2025 financials. We had gross profit of $64.5 million, up nearly 17% compared with the prior year period as the benefits of higher volume, pricing actions and productivity improvements helped to offset the $4 million impact of tariffs in the quarter. Last year's third quarter also had a $3.5 million impact from an atypical warranty reserve. Gross margin of 30.5% reflects the 31.4% gross margin realized by the Aerospace business, which was muted somewhat by the Test segment gross profit of 21.6%. R&D expense declined $2.3 million to $10.2 million or 4.8% of sales based on the timing of projects. We believe we're at a more normalized run rate currently at about 5% of sales. Of course, this can vary based on the timing and opportunity of new projects. The $3.1 million decline in SG&A expense was primarily the result of a $4.3 million decline in litigation expense. While it's been quite a while since we can claim any form of normalcy, historically, we've operated the business with SG&A at about 14% to 15% of sales. Operating income was up over 2.5x to $23 million. We recorded a loss on debt settlement of $32.6 million. I'll cover the details of the accounting treatment for the new 0% convertible bond in the cap call here in a bit. We had a $1.2 million tax benefit as we reversed the valuation allowance for R&D expenses that can now be deducted in the current year for tax purposes as a result of recent tax reform. Notably, we generated $34 million of cash in the quarter and had free cash flow of $21 million, driven by strong cash earnings combined with lower working capital requirements. I should point out that $3 million of the cash from operations was from a tenant improvement allowance reimbursement. This is offset by the CapEx investments in the build-out and consolidation for our new Redmond, Washington facility. We expect an additional approximately $5 million in reimbursement for the project in the fourth quarter. This project is what's driving our fourth quarter CapEx to be around $20 million to $30. Year-to-date, we've generated $47 million in cash from operations and have had $20 million in capital expenditures for free cash flow of $27 million. We would expect to be free cash flow positive for the year. Our fourth quarter cash flows will reflect the purchase of BMA, both in terms of the purchase price and the operating activity from the acquisition date forward. Turning to our balance sheet and refinancing actions. Let me talk a bit about the convoluted accounting treatment for the new 0% convertible notes that Pete discussed. First, I'll point the impact to the income statement. We recognized a noncash loss on the settlement of debt of $32.6 million, which represents the inducement charge for bondholders to redeem the $132 million in principal of the 5.5% convertible notes. Second, let me talk to the source and use of funds related to the new convertible note as well as the implications to the balance sheet. Proceeds from the new convertible bond were $217 million after payment of $8 million in fees and expenses. That $217 million, coupled with an $85 million draw on our ABL revolver plus $11 million in cash on hand were used to repurchase 80% of the old convertible note for approximately $286 million and to purchase the capped call for $27 million. Debt increased about $175 million from the end of the second quarter to $334 million. That's a function of 3 factors. First, we incurred new debt of that $217 million related to the new convertible bond, which is the $225 million netted down by $8 million in issuance fees and expenses, which are required under GAAP to be presented as an offset to the debt on the face of the balance sheet. Second, as I mentioned, we borrowed $85 million on our ABL to fund part of the repurchase transaction. And third, debt was reduced by $128 million, representing the $132 million in principal paid off on the previous convertible, net of $4 million in associated issuance fees that also needed to be written off. Shareholders' equity declined as a result of the transaction. The premium paid of $121 million plus the cost of the capped call of $27 million, plus $4 million write-off of the unamortized debt issuance costs related to the repurchased 5.5% notes resulted in a $152 million reduction in shareholders' equity. The net result is, as Pete discussed, lower cost debt, significantly reduced potential dilution and combined with the refinancing of our revolver to being cash flow based, meaningfully greater financial flexibility. I should point out that we currently have $95 million outstanding on the $300 million cash flow revolver and liquidity of $169 million. And let me hand it back to Pete. Peter Gundermann: Thank you, Nancy. I'll now turn the discussion to the future and what we expect for both the fourth quarter and our initial expectations for 2026. We expect the fourth quarter to be a step change for the company. We have generated average revenue of $207 million over the first 3 quarters of 2025. In the fourth quarter, however, we are expecting revenue to climb to a range of $225 million to $235 million, which is a significant step-up. The increase is due in part to our recent German acquisition, but mostly to the various market forces that are driving our business. The higher volume should mean good things for our income statement as we typically see 40% to 50% marginal contribution on incremental revenue dollars. Further, we think the higher volume expected in the fourth quarter will provide a baseline for 2026. We are not ready yet to issue formal revenue guidance for next year, but we are well along in our budgeting process, and it appears 2026 will be a year of solid growth. Our belief at this point is that we will see 10% growth or better. We are working to refine the range and expect to release initial revenue guidance closer to year-end 2025. You may ask what is driving the growth? Our company has been and continues to benefit from a wide range of industry trends. I'll cover the major ones briefly, and I'll try to be concise. First and most obviously, increasing OEM build rates are a big positive for us. Narrow-body and wide-body production rates are trending up at both Airbus and Boeing and to a lesser extent, across private aviation OEMs also. Our typical content for major aircraft programs is spelled out on our investor presentation, which is available on our website. And quite simply, when OEMs make more planes, we ship more product. Second, we are heavily involved, as you all surely know, in passenger connectivity and entertainment in aircraft, and it is a well-established secular trend in our world today that people want to be connected and entertained at all times, including when they are riding in airplanes. This reality, combined with the fact that the consumer electronics industry is characterized by high levels of innovation and short life cycles, means that adoption rates on new aircraft are increasing and retrofit and upgrade opportunities across the existing fleet are regularly present. We work with more than 200 airlines around the world, along with the broad set of in-flight entertainment and connectivity providers to help ensure that the expectations of airline passengers around the world are met. These expectations are high and getting higher, which provides an excellent field of opportunity for us. Third, we are specialists in developing technically advanced flight critical electrical power distribution systems for smaller aircraft in particular. And our electrical power franchise is gaining acceptance on a wide range of new and innovative aircraft types that are in development today. We started with business jets and turboprops, but today, we are also involved with a wide range of emerging types, including eVTOLs, electric vertical takeoff and landing aircraft, unmanned drones and smaller military aircraft, both rotary and fixed wing. A high-profile example, which is getting lots of attention these days is Bell's V-280 aircraft, now known as the MV-75, which is the U.S. Army's replacement for the Sikorsky Black Hawk. This program is in development currently, and Bell has chosen Astronics to supply the electrical power distribution system. There's a lot I could say about this program, but suffice it now to say it has the potential one day soon to be a very significant aircraft production program for our company and to run for a very long time. Finally, there are some other important new programs, which we expect to come online in short order, particularly for our Test business. One of the most significant is the radio test program that we've talked about before on this call for the U.S. Army called 4549/T. We have been in development on this one for some time and expect production turn on at year-end or shortly thereafter. It's a $215 million IDIQ contract to start that will run for the next 4 to 5 years. Our Test business with all the cost reductions that we've implemented is running at breakeven currently. But when the 4549/T program gets layered on top, the financial profile in that segment will be much improved. We believe these industry trends and opportunities have legs. We've been benefiting from some of them for a while, but others will only begin to positively impact our business in coming quarters. Collectively, we feel they provide an excellent opportunity set as we move into 2026 and beyond. So again, the growth from these drivers should have a positive impact on our earnings as we ramp. And as such, we expect to turn in a strong finish to 2025 and believe 2026 will be a very good year for Astronics. That ends our prepared remarks, so we can open up the lines now for questions. Operator: [Operator Instructions] First question comes from Greg Palm with Craig-Hallum. Greg Palm: Congrats on the results, the execution and probably most impressively, the profitability or operating leverage in the quarter. I wanted to maybe first maybe bridge Q3 to Q4 in terms of the expectation, what is built in for Test relative to the revenue that you achieved in Q3? Peter Gundermann: We expect Test to take a little step up. I don't have that in front of me. I guess it's in the $20 million, $21 million range. They were at $18 million in the third quarter. So that will be a little bit of a step-up, but it will be their strongest revenue quarter for 2025. So it hopefully lays a good foundation as we round the corner to 2026 also. Greg Palm: Okay. So that implies that aerospace should see a bigger step-up even excluding the impact of acquisitions. So I guess it begs the question, what are you seeing there, whether it's increased build rates, whether it's higher retrofit activity, anything in military with the FLRAA program? Just a little bit more color on maybe the step-up there expected in Q4. Peter Gundermann: Yes. I'd say a couple of things. First of all, we are expecting a general ramp between where we were in Q3 and where we will be in the first quarter. I'm getting a little bit ahead of myself because we're still in the budgeting process, but the early look at 2026 is that we'll run a sustained rate that's above what we're forecasting for the fourth quarter. So the fourth quarter we will see, to a large extent, a general ramp across the business, but there are a few kind of significant programs that are in play, hence, the wide range of the revenue forecast for the fourth quarter. We're not sure if a lot of them are going to fall in the fourth quarter and therefore, be 2025 revenue or you always run the risk at the end of the year that things can slip into the new year. So it's a little bit of a wider range than we prefer to have at this point. But basically, it's just scheduling of major point in time -- that's not true. The revenue overtime programs for the most part. Nancy Hedges: It's a mix. Peter Gundermann: It's a mix. Greg Palm: Yes. Understood. Okay. Well, and then I was going to maybe dovetails into my question on fiscal '26, just in terms of the confidence level at this time to provide not guidance, but expectations of that low double-digit growth. And specifically, what is baked in, in terms of the Army test program at this point? And just given the shutdown, I mean, I wouldn't have expected your visibility levels to be all that good. But what -- it still sounds like you expect that ramp-up to begin sort of end of this year, maybe early next. Peter Gundermann: Yes. It's a very good question, and we are guessing a little bit, and that's a little bit why we're hedging. But long story short, we were -- when the government shut down, hoping for production turn on towards the end of the year, it might be this year, it might slip into the next year, but basically either late fourth quarter or early first quarter. At this point, we don't have reason to think that, that's going to slide a whole lot. It's probably reasonable to think it's going to slide day per day with the shutdown. And obviously, the longer the shutdown goes on, the more at-risk year-end turn on becomes. But we've had some unofficial contact with program managers and executives who have reiterated that the funding is secure. The user community really wants to have the product get going. And so it's just not obvious at this point if there's going to be a big delay there or not. So we will have to make a decision there as to what we include or what we don't include. But in general, we're still on a track where we think it's going to be a pretty significant contributor over the course of 2026. Greg Palm: And just to be clear, in terms of that full year '26 expectation, there's some, I guess, presumably significant level of contribution that's baked in or not necessarily? Peter Gundermann: No, there will be, absolutely. It's a -- we expect that program to be an important contributor, both top line and bottom. Operator: Next question, John Tanwanteng with CJS Securities. Jeremy Routh: This is actually Jeremy on for John. Kind of working off of what we were just talking about, how should we think about the FLRAA program revenue and margin over the medium to longer term as it transitions out of development and into production? Peter Gundermann: Well, into production is a little bit early to say because we don't know the ramp, and we don't have pricing ready to go on that one. We don't have pricing agreement with the customer, I should say. And also, I don't know if you're aware, but there is an active debate going on in the industry about when production is actually going to start. The Army is interested in trying to accelerate that program, which would mean production -- the production ramp would start a couple of years earlier than it otherwise would. But closer to home and from what we can tell right now, we had revenue of about $28 million in 2025 we're planning. And we're thinking that 2026 will be closer to 38% to 40%, something in that range. From a margin standpoint, it's worth pointing out that we basically have been doing development work at 0 margin thus far because we're still negotiating a development program. Once that program is developed, we will catch up on margin that we would otherwise have recognized earlier. And so it should be a pretty significant contributor as we turn the corner and go through 2026. Would you say anything? Nancy Hedges: Okay. That's right. Jeremy Routh: Very helpful. And then switching gears a little. Could you just talk more about the Bühler and the capability it brings to the table and the accretion you're expecting over the next year? Peter Gundermann: Well, it's a smaller company. We expect revenue of $20 million to $25 million. At that level, we do expect it to be profitable. So I think it's a reasonable assumption that its margin profile will be consistent with the rest of our company. It's going to report through our PGA operations. So you're basically going to take 2 competitors and have them act as one. And there are certain efficiencies that you might expect there. There's market knowledge and reach that can be beneficial. Their products basically do what a lot of our products do. We're talking about seat motion here, high-end aircraft seats, first-class seats, business class seats where you have a lot of moving surfaces, think lie flat and things like that, reclining seats. So the product lines are complementary, but they are not really interchangeable. So their products are sold to seat companies that are designed around their type of system, and our products are designed into seats and seat customers that use our system. But we'll be able to get some efficiencies. We might have some -- the market concentration might yield some pricing efficiencies. Those are things that will play out over the next few years. It's a smaller market. We don't talk a whole lot about it. But combined, we should be somewhere in the $80 million a year range. Operator: [Operator Instructions]Next question comes from Alexandra Mandery with Truist. Alexandra Eleni Mandery: This is Alexandra Mandery on for Michael Ciarmoli, Truist Securities. Great results, guys. Can you talk about the integration of these 2 recent acquisitions and any additional capabilities you may look for in the future? Peter Gundermann: Sure. Well, the integration of BMA or Bühler will be reporting through our PGA operation in France. So that will -- that's already underway, and we intend to maintain both operations. We think moving and consolidating, it's often easier, in my opinion, to calculate savings than it is to actually achieve them. So that is not our objective. Our objective is to work efficiently from a 2 operation setup, both in Germany and in France. We're early on in that. This thing just closed 2 weeks ago, 3 weeks ago. So we've got a long ways to go, but it's a smaller operation, and so we should be able to get our hands around it pretty quickly. We don't think it represents any systemic risk necessarily whatsoever. Envoy, I think of Envoy as a consulting company. It's basically a bunch of engineers who are well versed in FAA rules and regulations. And we have it reporting through our CSC operation, which is where we do most of our connectivity and in-flight entertainment electronics out of Waukegan, Illinois. So Envoy is essentially part of CSC. The exercise that we're going to go through from an integration standpoint is figure out how we can take the Envoy expertise and apply it more broadly across our company to our other operations. And again, the real advantage of Envoy is it gives us the ability basically if we can maintain the ODA, which is our full intent to certify our own development programs, which is where we get into a competitive advantage with other companies because we can more realistically guarantee program and schedule success to our customers when they know that we can self-certify with the blessing of the FAA. That's the whole idea. And we'll report back on that as time goes by, but we do a fair amount of retrofit work. And to the extent that a company does retrofit work, having an ODA just makes it -- it's like reaching the wheels. It just makes everything go a little bit easier. Alexandra Eleni Mandery: Okay. Great. And then I just had one follow-up. I might have missed it, but can you add more color on 4Q guide for interest expense, CapEx and depreciation and amortization? Nancy Hedges: So in terms of interest expense, like Pete said, the interest rate on the ABL is -- and the RCF are very similar. We are going to have a pretty heavy CapEx quarter in the fourth quarter. So a tick up in the debt is not unexpected under the revolver. We're still carrying $33 million of debt on the convertible -- on the 5.5% convertible bond. So that will contribute as well. But then the remainder of the debt, that $225 million is at 0%. And then in terms of depreciation and amortization, that's -- I don't have those numbers, unfortunately, in front of me. I would expect a slight tick up there as well as the -- we're working through the valuation of the 2 acquisitions, but it's fair to assume that some portion of that is going to be allocated to intangibles, and there will be a life assigned to those as well, and those will start to amortize during the quarter as well. I mean I don't anticipate a material change from what our quarterly run rate has been. Operator: Thank you. This does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines at this time.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic Second Quarter Fiscal Year 2026 Financial Results Q&A Session. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the conference call over to Ms. Chelsea Heffernan, Vice President of Investor Relations. Ms. Heffernan, you may begin. Chelsea Heffernan: Thank you, and good afternoon. Joining me on today's call is John Forsyth, Cirrus Logic's Chief Executive Officer; and Jeff Woolard, our Chief Financial Officer. Today, at approximately 4:00 p.m. Eastern Time, we announced our financial results for the second quarter of fiscal '26. The shareholder letter discussing our financial results, the earnings press release and the webcast of this Q&A session are all available at the company's Investor Relations website. This call will feature questions from the analysts covering our company. Additionally, the results and guidance we will discuss on this call will include non-GAAP financial measures that exclude certain items. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in our earnings release and are all available on the company's Investor Relations website. Please note that during this session, we may make projections and other forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from projections. By providing this information, the company expressly disclaims any obligation to update or revise any projections or forward-looking statements, whether as a result of new developments or otherwise. Please refer to the press release and shareholder letter issued today, which are available on the Cirrus Logic website and the latest Form 10-K as well as other corporate filings registered with the Securities and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from current expectations. Now I'd like to turn the call over to John. John Forsyth: Thank you, Chelsea, and welcome to everyone joining today's call. As you've seen in the press release, Cirrus Logic delivered record September quarter revenue of $561 million, towards the top end of our guidance range driven by demand for components shipping into smartphones. In a few moments, I'll hand the call over to Jeff to discuss the financial results for the September quarter in detail, along with our outlook for the December quarter. Before we get to that, I'd like to make a few comments about the recent progress we have been making across key areas of our business. As we have outlined previously, our long-term strategy for growth at Cirrus is based around 3 principles. First, we seek to maintain a strong leadership position in our core flagship smartphone audio business. Second, we aim to expand the value and range of high-performance mixed-signal solutions with which we serve our customers in smartphones and similar products. And third, we aim to leverage our world-class expertise and IP in both audio and high-performance mixed signal to grow and broaden our business in new markets. I want to say a few words now about the progress we've made in the past quarter in each of these areas. In our flagship smartphone audio business, during the quarter, we experienced strong demand for our latest generation custom-boosted amplifier and first 22-nanometer smart codec. These products introduced in the fall last year, represent years of engineering effort and a deep and collaborative relationship with our customer. We are proud of the crucial role they play in enhancing the power efficiency and exceptional audio quality of our customers' latest products. I think it is also worth highlighting a characteristic of this area of our business that isn't always apparent to those outside of the company. While we ship custom products into many consumer end devices, much of our custom silicon business offers returns over a significantly longer period than is typical of consumer products. For example, these latest generation audio components that I've referred to superseded a codec and amplifiers that have been shipping in high-volume flagship phones for 5 and 6 years, respectively. We consider this longevity a significant strength of our business as it provides solid long-term visibility and sustained revenue contribution, along with the ability to leverage our R&D resources in new areas that can drive further innovation and growth. Outside of our custom audio solutions, we also continue to serve a number of customers in the Android ecosystem. This past quarter, a leading Android OEM introduced its latest flagship smartphone featuring 2 Cirrus Logic boosted amplifiers and a haptic driver. While the majority of our general market R&D investments are focused on developing products for new markets beyond smartphones, we continue to engage with customers on next-generation flagship smartphone products and expect additional designs from various customers to come to market in the future. Looking beyond audio, we continue to diversify our revenue and expand our smartphone content with high-performance mixed-signal solutions. Customer engagement around our camera controllers remains strong, and we were excited to see this technology stand out as a key differentiator in the latest generation of devices. Today, we are engaged on a number of projects that we believe will bring even more feature and performance enhancements to this area in the future. Moreover, we also have several R&D programs that are focused on battery performance and health, and we continue to believe these areas represent an excellent opportunity for our mixed-signal expertise to bring innovation and value to our customers. Our third strategic priority is to leverage our audio and high-performance mixed-signal expertise into new applications and markets outside of smartphones. We're making excellent progress here, especially in the PC market, where we are focused on continuing to grow our share across customers and product tiers. During the quarter, we saw strong design activity across our PC portfolio and expect a range of consumer and commercial laptops featuring our components to come to market over the next year as the adoption of SoundWire device class audio accelerates. After establishing early success in high-end laptops, we are now expanding into mainstream programs to reach higher volume opportunities and capture a larger share of the addressable market. Building on our recent wins in mainstream commercial laptops, this quarter, we were particularly excited to secure our first mainstream consumer design, which is expected to ship next year. This success demonstrates the excellent progress we are making in our long-term strategy to grow beyond smartphones and positions us well for the continued momentum in the broader PC space. Additionally, we are excited about the long-term opportunity that voice represents as a natural way to interact with AI-enabled PCs, and we increasingly see PC OEMs turning to voice as a means to enhance their products. In this area, we are able to leverage our audio and voice expertise, which has been developed and refined in the smartphone market over many years to develop PC-specific products that deliver enhanced voice capabilities and performance, enabling features such as voice wake for AI applications even while the device is in an ultra-low power standby state. Our first product featuring this technology is expected to sample to customers in the December quarter. Finally, in the PC space, we have in the last quarter, deepened and expanded our engagement across multiple PC platform vendors in order to accelerate our customers' time to market. We believe that our ability to provide consistent audio architectures and advanced features across multiple PC platforms is a great benefit to OEMs. Overall, we are very encouraged by the traction we are seeing in PCs and believe there is a meaningful opportunity ahead for us to grow in this market. Beyond PCs, we are also seeing strong interest in our general market products, which serve a wide range of customers across professional audio, automotive, industrial and imaging end markets. These products typically have long life cycles and gross margins well above our corporate average and moreover, can frequently leverage the world-class low-power IP that we have developed in other areas of our business. Our progress in this space was exemplified during the quarter in several areas. First, we gained design momentum with prosumer and automotive customers on all 14 variants of our latest generation ADCs, DACs and ultra-high performance audio codecs and expect new end products utilizing these components to come to market over the next 12 months. Second, we had increased engagement with automotive and professional audio customers on our latest timing product family, which began shipping last quarter. And third, we are now sampling a family of high-performance analog front-end components targeting imaging applications, and the initial response has been positive. We are proud of our execution to date in these areas, and we'll continue to expand our product portfolios in order to drive profitable growth opportunities in these segments. And that concludes the latest progress update on our long-term growth strategy. So let me now turn the call over to Jeff to provide an overview of our financial results as well as the outlook. Jeffrey Woolard: Thank you, John. Good afternoon, everyone. I'll now walk through our Q2 financial performance and provide guidance for Q3, including tax updates. In Q2 fiscal 2026, we delivered revenue of $561 million, which was toward the top end of our guidance range, driven by demand for components shipping into smartphones. On a sequential basis, revenue was up 38% due to higher smartphone unit volumes. On a year-over-year basis, sales were up 4%, primarily driven by higher smartphone unit volumes and sales associated with our latest generation products. Turning to gross profit and gross margin. Non-GAAP gross profit in the September quarter was $294.7 million and non-GAAP gross margin was 52.5%. On a year-over-year basis, the increase in gross margin was largely due to a more favorable product mix. This was partially offset by higher inventory reserves. Now I'll turn to operating expenses. Our non-GAAP operating expense for the second quarter was $127.7 million, coming in below the low end of our guidance range. This was due to lower product development costs, mostly driven by shifts in project time lines. Employee-related expenses were also lower than expected. On a sequential basis, OpEx was up $8.2 million, primarily due to higher variable compensation, product development costs, mostly due to tape-outs and facilities-related costs. This was partially offset by a reduction in employee-related expenses. On a year-over-year basis, operating expense was up $0.9 million, primarily due to an increase in employee-related expenses, which are mostly related to annual merit increases. This was partially offset by lower product development costs. Non-GAAP operating income for the quarter was $167 million or 29.8% of revenue. Turning now to taxes. During Q2, we recorded the favorable tax impact of the One Big Beautiful Bill Act, which reinstated immediate expensing of domestic R&D. This change was retroactive to the start of fiscal year '26 and contributed to our lower non-GAAP tax rate of 14.6% for the quarter. And lastly, on the P&L, non-GAAP net income was $150 million, resulting in an earnings per share for the September quarter of $2.83. Let me now turn to the balance sheet. Our balance sheet continues to be strong, and we ended the September quarter with $896 million in cash and investments. Our ending cash and investments balance was up $48.3 million from the prior quarter as cash generated from operations was partially offset by share repurchases. We continue to have no debt outstanding. Inventory at the end of the second quarter was $236.4 million, down from $279 million in the prior quarter. Days of inventory were down sequentially, and we ended the quarter with approximately 81 days of inventory. Looking ahead, in Q3 fiscal 2026, we expect inventory to decrease slightly quarter-over-quarter. Turning to cash flow. Cash flow from operations was $92.2 million in the September quarter and CapEx was $4.5 million, resulting in non-GAAP free cash flow margin of 16%. For the trailing 12-month period, cash flow from operations was $557.3 million and CapEx was $23.1 million. This resulted in a non-GAAP free cash flow margin of 27%. On the share buybacks, in Q2, we utilized $40 million to repurchase approximately 362,000 shares of our common stock at an average price of $110.55. At the end of Q2 fiscal 2026, the company had $414.1 million remaining on its share repurchase authorization. Now on to guidance. For Q3 fiscal 2026, we expect revenue in the range of $500 million to $560 million. Gross margin is expected to range from 51% to 53%. Non-GAAP operating expense is expected to range from $128 million to $134 million. The fiscal year non-GAAP effective tax rate is expected to range from approximately 16% to 18%. In closing, we delivered strong results for the September quarter. We remain focused on executing to our strategy and delivering long-term value to shareholders. Before we begin Q&A, I would like to note that while we understand there is intense interest related to our largest customer in accordance with Cirrus Logic company policy, we will not discuss specifics about our business relationship. With that, let me turn the call to Chelsea to start the Q&A session. Chelsea Heffernan: Thanks, Jeff. We will now start the Q&A portion of the call. Operator, we are now ready to take questions. Operator: [Operator Instructions] Your first question comes from the line of Tore Svanberg with Stifel. Tore Svanberg: Congratulations on the results. I know you can't obviously talk specifically about your largest customers' business. But this year has been quite unusual from a seasonality perspective. So I was just wondering if you could share any thoughts with us on seasonality going forward. I mean, 2026 potentially be sort of back to normal? Again, anything you could share with us would be really helpful. Jeffrey Woolard: Yes, Tore, this is Jeff. I think if you recall, we talked about last quarter, a change in the seasonality shape of our business, primarily driven by the camera content becoming a bigger portion of the total revenue, which shifts a little earlier as well as, as we talked about some pull-ins at the last quarter call. I think if you look at our results this quarter and our guidance for next quarter, that story remains the same that the shape is a little bit pushed into the first half versus what has been traditionally, and that's driven by just camera content being a greater piece. While we did give some insight last quarter, our view for the year because we thought it was important for everyone to understand that change. That has played out between our results and our guidance. And at this point, we are only giving guidance for the next quarter, but we don't see anything from here out that would change historically what that seasonality looks like for the rest of the fiscal year. Tore Svanberg: Great. That's very helpful. And as my follow-up for you, John, in the shareholder letter, you stated again, there's potential opportunities on the power/battery side in the smartphone market. Any updates there? Again, I know you can't talk about specific design wins, but clearly, battery management is becoming quite crucial for next-generation smartphones. So any updates there would be helpful. John Forsyth: Yes, that continues to be an area that we're excited about. And as you know, we've been investing in for some time. We do think that we have some really compelling IP in that space. And I think we've seen some validation of that from the comments reflected back to us from customers when we've been sharing silicon with them and details on what we've been developing. We've got a number of irons in the fire there. And as you alluded to, the majority of those are related to those areas around the battery where we think we can make a difference to power efficiency as a whole to system performance as batteries go through their life cycle, both on a daily basis and a long-term basis and to battery health, long term as well. So we don't have anything to say today concretely about design wins and how that's going to get commercialized, but we continue to believe that we've got some very valuable IP, and we are obviously itching to get that out into the market. Operator: The next question comes from David Williams with The Benchmark Company. David Williams: Maybe first just on the OpEx side, you kind of mentioned that it was lower in this quarter for some pushouts. And it looks like some of that's kind of coming into the third quarter. Is it fair to assume that all of the OpEx expected in the second quarter is pushed into that third quarter? Or is there anything else maybe funny going on that we should be thinking about there? Jeffrey Woolard: No, I think that's a reasonable take. We are pretty disciplined in our OpEx. And what we saw, we did obviously come in below the guide and some of that was just delays in our spending, not necessarily delays in execution. So that product development cost can be a little lumpy. It's not a miss because it wasn't low because of execution. Some expenses that we had planned, we were just actually able to avoid. And so that came also drove our results, OpEx results being below guide. So a lot of that is just a timing issue. So we will continue to stay disciplined on that. But that being said, it was a push. But if we see other opportunities that we think have. We have high confidence in to create value, we will be comfortable increasing that in the future. David Williams: Okay. Good. And then maybe just on the non-flagship customer, your largest customer revenue, that contribution in the quarter was maybe a little bit lower than we had anticipated. But just trying to get a sense of the progress in the general markets and in that computing space, how we should think about that revenue trending maybe through this year? And just generally, what that growth trajectory should look like outside of your largest customer? John Forsyth: Yes. I think on the picture for this quarter, in particular, there are a number of things going on there. And I think the softness in the Android space is certainly part of it, and that's been widely reported. We don't invest a huge amount in Android as a strategic business area for us, but it still remains a valuable contributor. So to some extent, we saw some impact from that. And then when we look to the rest of our general market business, certainly, the biggest kind of growth area that we see there right now is the PC, as you alluded to. And we're continuing to track the way we expected there or broadly in line with that. We're still kind of early in the ramp for that as regards the business it can become for us in the future. But we've passed a number of really, really excellent milestones this year and then in this past quarter as well, which kind of indicate the great progress we're making there, and we continue to be very excited about what's going on in the PC space. I think one of the things we called out in the shareholder letter that's a particular highlight is the win in mainstream consumer laptop because those mainstream devices, as I've highlighted previously, they really deliver so many more units than the devices in the flagship and premium tiers. And so a big part of our objective is to penetrate down through the tiers and be well penetrated in both the commercial and the consumer mainstream segment and then obviously expand to as much content in those devices as we can get. This year, earlier in the year, we reported that we won our first mainstream commercial laptop and then we've now added to that with success in the consumer space. So I think that proves we can do it, and that's going to be one of multiple drivers that help us continue to accelerate in the PC space. Operator: Your next question comes from Christopher Rolland with Susquehanna. Dylan Ollivier: This is Dylan Ollivier on for Chris Rolland. So for my first question, so last quarter, you said that you didn't have any material changes to your smartphone unit outlook for the year despite your better results. Would you now have any changes to your unit outlook? Or are units still tracking in line? Jeffrey Woolard: Yes. I'm going to stick with sort of that previous answer of -- we obviously had a good quarter here driven by smartphone units, and we explained the shape between the last quarter -- last 2 quarters. And we're only guiding for the next quarter, but we see -- at this point, we think seasonality looks like it historically has. We don't see anything to change our view on the upcoming seasonality. Dylan Ollivier: Great. So secondly, I'd love to hear more about these new products that you talked about that you're developing for AI PCs. So does this expand your SAM? And when can we expect revenue here? Are you getting a lot of initial interest from customers? John Forsyth: Yes. Actually, that's an area which I think has become much more significant in our modeling of our PC SAM more recently rather than -- or at least compared to when we set off down the road of getting into the PC market. The interest across our customer base in voice-related features is really pretty significant as a major enabler for AI. So I mean, I think if you step back just for a second to look at all the drivers, which are currently kind of accelerating our momentum in the PC space. There's one I alluded to in the previous answer, which is just our penetration down through product tiers to get into higher volume segments. There's another factor which we alluded to in the shareholder letter, which is the propagation of the SoundWire device class audio interface and standard. So we're seeing that increasingly propagate across designs that generally is something that's favorable to us, and that's something that we've designed to and that we can deliver a lot of features around. Then as we also mentioned in the prepared remarks, we've also been expanding our support across multiple PC platform vendors. So again, that's kind of expanding our reach and the number of devices that our products can get into and the number of reference designs that enable our customers to pick up our silicon and create products around very rapidly. And then the fourth of these drivers would really be the voice features that we see coming over the horizon. And that's been a more recent topic of conversation with OEMs, but it's a significant one, and it's one where our IP is really best-in-class. We're able to provide significantly better voice and audio capture, noise reduction, voice cleanup, voice detection, speaker detection and so on. And then you combine that with our low-power codec technologies, we can enable features like waking up the entire system, being able to speak to the system even when it's in an ultra-low power standby state and so on. So this is -- I mean, this is all part of the SAM that we model out in the investor presentation out into the future that we think can continue to be really significant for us in the PC space. But I think given where we're at and the IP we have in the voice area, in particular, I would expect us to really benefit from that. Specifically in the last quarter, we started sampling the first device specifically focused on enabling those features to customers. So it will be a while before those start showing up in end products, but we have a great road map around those features in particular. Chelsea Heffernan: Thanks, Dylan. And with that, we will end the Q&A session. I will now turn the call back to John for his final remarks. John Forsyth: Thank you, Chelsea. In summary, Cirrus Logic delivered record revenue for the September quarter while also continuing to make excellent progress on each pillar of our long-term strategy. I'd like to extend my appreciation to all of our employees worldwide for the hard work and commitment to excellence that has delivered these results. And I'd like to thank our customers for their trust and support. We're excited about the opportunities ahead for Cirrus, and we thank you for your continued interest in the company. Before we close, I'd also like to note that we will be participating in the Barclays Global Technology Conference on December 11. Please check our investor website for the details. Thank you, everyone, for participating in our call today. Goodbye. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to today's Coterra Energy Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Dan Guffey, Vice President of Finance, Investor Relations and Treasurer. Dan? Daniel Guffey: Thank you, Greg. Good morning, and thank you for joining Coterra Energy's Third Quarter 2025 Earnings Conference Call. Today's prepared remarks will include an overview from Tom Jorden, Chairman, CEO and President; Shane Young, Executive Vice President and CFO; and Michael Deshazer, Executive Vice President of Operations. Blake Sirgo, Executive Vice President of Business Units, is also in the room to answer questions. Following our prepared remarks, we will take your questions during our Q&A session. As a reminder, on today's call, we will make forward-looking statements based on our current expectations. Additionally, some of our comments will reference non-GAAP financial measures. Forward-looking statements and other disclaimers as well as reconciliations to the most directly comparable GAAP financial measures were provided in our earnings release and updated investor presentation, both of which can be found on our website. With that, I'll turn the call over to Tom. Thomas Jorden: Thank you, Dan, and thank you to all who are listening this morning. Coterra had a strong third quarter and is on track to deliver on the ambitious annual goals that we set for ourselves for the full year 2025. Furthermore, we released a soft guide to our coming 3-year plan update that shows that we remain committed to a long-term path of consistency, profitable growth and value creation for shareholders. I want to give a shout out to our field and office personnel who have worked valiantly to deliver results as promised and to do so safely with environmental integrity and with a relentless focus on maximizing full-cycle returns. We could not be prouder of our organization and their commitment to excellence. We delivered on all fronts during the third quarter. Our volumes on gas, oil and barrel of oil equivalent came in above the midpoint of our guidance. We delivered outstanding returns on invested capital with great capital efficiency. The integration of the Lea County assets that we acquired early in the year has gone well, and we are realizing significant uplifts in asset performance, cost reductions and future inventory. Michael Deshazer will provide further details here. We plan to deliver a comprehensive updated 3-year outlook with our fourth quarter release in February. Last night, however, we provided an early look into 2026, which demonstrates our multiyear commitment to growing revenue, cash flow, free cash flow and profitability. As we see it today, we expect capital to be modestly down year-over-year while still achieving consistent profitable growth. Our low breakevens and deep inventory, coupled with our balanced revenue between gas and oil assets provides the opportunity to deliver through the cycles and maintain a degree of consistency that differentiates us. We view our future entirely through a lens of increasing shareholder value, and we best achieve this by consistently making smart full-cycle investments through the commodity swings. I do want to emphasize that we are providing a soft guide for 2026, and final decisions are a work in progress. We are watching markets carefully. Oil markets have a lot of moving pieces. These include the timing and impact of Russian sanctions, the situation in Venezuela, Chinese and Indian behavior and global economic robustness. While we have the projects and wherewithal to further increase our oil growth, if warranted, we are remaining disciplined and not chasing growth in the current environment. Although capital may modestly flex up or down each year, our sole goal is to consistently grow our profitability and maximize our free cash flow. We are living in rapidly changing times. The increase in LNG exports and growing electricity demand is constructive for the medium- and long-term outlook for natural gas. We are prepared to be patient and not front-run demand increases. Our marketing group is heavily engaged in discussions with counterparties seeking new natural gas supply arrangements to further diversify our portfolio, which already has committed 200 million cubic feet a day to recently announced LNG deals, 350 million cubic feet per day to Cove Point LNG, 50 million cubic feet per day power -- Permian power deal with CPV and our 320 million cubic feet per day of natural gas supply deals to local power plants within the Marcellus. While these deals total approximately 30% of Coterra's gas production, the team continues to bring fresh ideas to the table to further improve and diversify our portfolio. Our marketing team has a mandate to generate value, not press releases. We are confident that patience is prudent and that the future of natural gas will provide tremendous opportunities for Coterra. There is a lot happening under the hood. We are also watching all markets carefully, as I said, the swing between optimism and pessimism here is remarkable. A tiny change in facts can drive huge swings in emotion. Coterra has a deep inventory of oil assets with one of the lowest breakeven portfolios in our sector. Our bias is steady as she goes without wild reactive swings. Before I turn the call over to Shane, you will note that Michael Deshazer will be delivering the operational summary today. Blake Sirgo is with us and will undoubtedly have the opportunity for comments. We recently switched the portfolios of Blake and Michael, with Blake assuming oversight over our business units and Michael taking on our operational and marketing portfolios. This change was entirely driven by a desire to build redundancy in our skill sets and build broader depth of expertise on the executive team. We have a highly collaborative executive team that, by design, is broadly familiar with all aspects of our business. This change will further increase our flexibility, bring fresh eyes on critical issues and provide an ability for both Michael and Blake to enlarge their impact. Every now and then, it is good to repot the plant. Finally, we know that many of you have seen the letter that Kimmeridge released this morning. Although we think that it contains some factual errors, we have great respect for many of the thought pieces that the Kimmeridge team has produced over the years and have had constructive engagement with them in the past. We are disappointed that they have chosen to release a public letter without reaching out to us. Nonetheless, we are open to suggestions that can improve Coterra. And as always, we will listen, carefully consider ideas and be thoughtful in our response. With that, I will turn the call over to Shane for a financial summary. Shannon Young: Thank you, Tom, and thank you, everyone, for joining us on this morning's call. Today, I'd like to cover 3 topics. First, I will quickly summarize a few key takeaways from our strong third quarter financial results. Then I'll provide our fourth quarter guidance and update to our full year 2025 guidance. Finally, I'll provide comments on our balance sheet and cash flow priorities for the remainder of the year. Turning to our performance during the quarter. Performance in all 3 business units exceeded expectations during the third quarter. Coterra's oil, natural gas and BOE production each came in approximately 2.5% above the midpoint of our guidance. Additionally, NGL production was strong, posting an all-time high for Coterra at around 136 MBoe per day. In the Permian, we had 38 net turn-in-lines during the quarter, just below the low end of our guidance range, while the Anadarko and Marcellus had net turn-in-lines of 6 and 4, respectively, in line with expectations. We continue to expect TILs in all areas to be within our annual guidance ranges with the Permian being near the high end of the range. Pre-hedge oil and gas revenues came in at $1.7 billion with 57% of revenues coming from oil production. This is up sequentially from 52% in the prior quarter and was driven by a substantial uptick in oil volumes of 11,300 barrels per day, an increase of above 7% above our second quarter levels. The Permian team continues to drive outstanding incremental production results. Cash operating costs totaled $9.81 per BOE, up 5% quarter-over-quarter due to production mix and higher workover activity, which we expect to moderate during the fourth quarter. Incurred capital in the third quarter were near the midpoint at $658 million. Discretionary cash flow for the quarter was $1.15 billion and free cash flow was $533 million after cash capital expenditures. Both of these figures benefited from negative current taxes for the quarter related to recent changes in U.S. tax law. In summary, our strong third quarter results show continued improvement in capital efficiency as production exceeded expectations and capital remains on track. We continue to run a consistent and highly efficient activity cadence, which we expect will continue to generate strong full-cycle returns in the current price environment. Looking ahead to the fourth quarter and the full year 2025. During the fourth quarter of 2025, oil production is expected to be 175 MBoe per day at the midpoint, an increase of over 8,000 barrels per day or another 5% increase quarter-over-quarter. We expect total production to average between 770 and 810 MBoe per day and natural gas to be between 2.78 and 2.93 Bcf per day. We expect capital for the quarter to be around $530 million, significantly below the third quarter results as we wrapped up frac activity in the Anadarko late in the third quarter. For full year 2025, we are increasing annual MBoe per day production guidance to 777 at the midpoint, a 5% increase from our initial guidance in February. We are maintaining the oil guidance midpoint at 160 MBoe per day while tightening the guidance range. Oil volumes from our acquired assets have been in line to slightly better than expected. Our legacy assets oil volumes are expected to deliver a high single-digit percentage growth rate year-over-year. This is similar to the rate of growth we have delivered during the prior 3 years. On natural gas, we are increasing the midpoint of our volume range to 2.95 Bcf per day, an increase of over 6% from our initial full year guidance in February. As previously indicated, we expect capital for the year to be approximately $2.3 billion, just above the midpoint of our initial guidance range in February as we have maintained the second Marcellus rig into the second half of the year. Our annual expense guidance ranges remain unchanged, and we expect to be near the midpoint of the aggregate expense range for the full year. With regard to our 3-year outlook provided in February, we remain highly confident in our ability to deliver results within those ranges from 2025 through 2027. This outlook is underpinned with a low reinvestment rate and improving capital efficiency and delivers attractive long-term value creation for our shareholders. While we are not prepared to provide specific 2026 guidance, a current snapshot suggests that capital should be down modestly year-over-year while still maintaining production parameters laid out in our 3-year guide we released in February. At the same time, our low breakevens, low leverage and operational flexibility, coupled with our hedge book, have Coterra well positioned in the event of high commodity price volatility in 2026. Turning to shareholder returns and the balance sheet. For the third quarter, we announced a dividend of $0.22 per share. This is one of the highest-yielding dividends in the industry at over 3.5% and demonstrates our confidence in the long-term durability, depth and quality of our future inventory and free cash flow. Additionally, during the third quarter, we repaid $250 million of outstanding term loans that were used as part of the financing of our acquisitions earlier this year, bringing our total term loan pay down to $600 million through the third quarter of 2025. In October, based on the progress we have made in retiring our term loans and the trading levels of our shares, we reinitiated our share buyback program. While we continue to make progress on our debt retirement goals during the fourth quarter, we'll be opportunistic in purchasing our shares. We ended the quarter with an undrawn $2 billion credit facility and a cash balance of $98 million for total liquidity of $2.1 billion. As of September 30, we had total debt outstanding of $3.9 billion, down from $4.5 billion at the closing of the acquisitions in January. We're making meaningful progress in executing on our priority of getting our leverage back to around 0.5x net debt to EBITDA. Coterra remains committed to maintaining a top-tier fortress balance sheet that is strong in all phases of the commodity cycle. We believe this enables us to take advantage of market opportunities while protecting our shareholder return goals. In summary, Coterra's team delivered another quarter of high-quality results across all 3 business units. We continue to enhance capital efficiency through higher productivity and lower cost per foot completed. Our consistent activity has continued to deliver meaningful oil production growth throughout the year while raising the bar on both natural gas and BOE production. In 2025, we expect to generate substantial free cash flow of around $2 billion, an approximately 60% increase over 2024, benefiting from both higher natural gas realizations and higher oil volumes from our acquired assets. While we continue to prioritize deleveraging, we see significant value in Coterra at current share prices and are approaching buybacks opportunistically. In summary, Coterra has never been stronger or better positioned. With that, I will hand the call over to Michael to provide additional color and detail on our operations. Michael Deshazer: Thank you, Shane. Today, I will talk about our third quarter operational results and outlook. We'll provide a business unit update, including the successful integration and upside to our Franklin Mountain and Avant acquisitions, and I will briefly touch on our marketing efforts. The third quarter was another well-executed quarter, and we carried this operational momentum into the fourth quarter. On the activity front, we have a consistent 9-rig, 3-crew program working in the Permian, 1 rig and 1 crew in the Marcellus and 1 rig in the Anadarko. We expect to maintain this activity level during the fourth quarter. To reiterate what Shane touched on earlier, looking ahead to 2026, we expect 2026 capital to be down modestly year-over-year, while still achieving the production ranges laid out in our 2025 through 2027 3-year outlook. While we are focused on consistent operations through the commodity cycles, we are maintaining maximum operational flexibility with no rigs or frac crews on long-term contracts. We expect to provide a comprehensive 2026 guidance and an updated 3-year outlook in February. The integration of our Franklin Mountain and Avant assets is complete, and our teams continue to outperform our expectations for synergies on these assets. I would like to spend a few minutes discussing our progress. When we announced the acquisition, there were many wells that were in various stages of development, and we made estimates of their productivity for our evaluation and for our full year production guidance. In November 2024, we announced a 2025 production estimate for the assets of 40,000 to 50,000 barrels of oil per day, assuming a full year contribution. When we updated our production guidance on our February call after the actual close dates in late January of the assets were known, we maintained our annual production guidance because we liked how the assets were performing. I am pleased to report that we continue to perform in line to above our production expectation for the acquired assets, giving us further confidence that there is upside relative to what was underpinned -- what underpinned the acquisition. On the capital side of the acquisition, we have realized a 10% reduction in our total well costs as measured in dollars per foot by applying our Coterra best practices at scale across the assets. A few of the efficiencies I would like to point out are our optimized and standardized hole size and casing designs, which have reduced our drilling times from 15 to 13 days for a standard 2-mile lateral. And on the completion front, we have seen that implementing our proven stimulation designs that have been evaluated across the basin and tailored for each landing zone as well as our scale in the Permian has allowed us to reduce service costs. In addition to capital savings, we now have line of sight to significant operating cost synergies. We have already reduced the inherited lease operating expense by approximately 5% or $8 million per year. These savings have been seen across most services, but the biggest savings are related to on-pad sour gas treating and electric generation. For example, at our Eagle central tank battery, we acquired a facility that treated sour gas to then be burned in gas turbines to generate power for our field. Working with our marketing team, we accelerated a residue gas connection to the site that allowed us to remove the gas-treating equipment and allow the turbines to burn clean low Btu gas, increasing reliability and saving over $2.5 million per year in expenses. There are many more projects like this one, and we are currently projecting an additional $20 million per year in net operating cost savings related to on-pad sour treatment, taking our projected total LOE savings on the acquired assets to 15% as a go-forward run rate. In addition, we believe that the biggest future savings could come from using microgrids instead of well-site generators to power our assets. We are in the final stages of planning for up to 3 microgrids across our Northern Delaware Basin assets. We think that these projects will have the potential to reduce our current power costs by 50%, saving an additional $25 million a year. But as the asset and our power demand in the area grows, the projected savings will grow as well to nearly $50 million per year. This is all while we continue to work with our utility power providers to bring more grid power into the Permian Basin. Now that we have integrated the assets, we expect not only to demonstrate capital and expense reduction, but also productivity enhancements as we pursue a development plan focused on maximizing capital efficiency. Our subsurface teams have continued to delineate multiple landing zones, and this work has given us confidence that we have 10% more inventory as measured by net lateral footage than we estimated when acquiring the assets. Furthermore, our increased scale in the Northern Delaware Basin has enabled us to make many value-added trades and small-scale acquisitions. We expect our team to prudently add valuable inventory as we continue to develop our highly profitable and low-cost resources in the Permian Basin. Moving on to the Marcellus business unit. This quarter, we drilled a new 4-mile lateral from spud to rig release in under 9 days, averaging 2,400 feet per day. This sets a new high watermark for Coterra. In fact, it's becoming common for many of our recent wells to eclipse 2,000 feet per day. This type of performance and longer laterals reaching over 20,000 feet have driven drilling costs down 24% year-over-year. With these efficiencies, we no longer need 2 rigs to maintain production in our Marcellus asset. Our maintenance activity level over the next few years would require 1 to 2 rigs, so we will manage our rig count to not build excessive DUC backlog. While we hold the option to grow our Marcellus natural gas volumes, we are committed to being patient and expect to hold our production volumes relatively flat until additional demand materializes and the strip solidifies. Should we have a cold winter and prices increased into '26, we will fully participate from our approximately 2 Bcf a day of production in the Northeast and expect to generate substantial free cash flow from our Marcellus region. In the Anadarko business unit, we brought online our last project of the year during the third quarter, the 5 3-mile Hufnagel wells. These new wells, combined with our Roberts project from Q2, continue to drive strong region performance that has exceeded our expectations. Turning to marketing. Our team continues to be active in the hunt for more deals and partnerships that can deliver flow assurance and price uplift for our products across our diverse portfolio. As Blake mentioned last quarter, the long-term gas sales to CPV's new Basin Ranch power plant in Reeves County, Texas was the latest in a line of deals that our company has a history of delivering. As Tom mentioned, our Moxie and Lackawanna power deals in the Marcellus were put in place 10 years ago and have provided value well and above an in-basin price. We will continue to find opportunities to improve the netback of our product and increase the value to our shareholders. A strength of our sales portfolio is a significant diversification, but we are not satisfied and we'll continue to optimize. The teams in all 3 of our regions are firing on all cylinders and have remained focused on solid execution, making decisions to maximize full-cycle returns and creating value for shareholders. With that, I'll turn the call back over to the operator for Q&A. Operator: [Operator Instructions] It looks like our first question today comes from the line of Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: Tom, as always, you're very gracious to hit the 800-pound gorilla right in the head with the comments around the Kimmeridge letter. So I wonder if I could just ask you to elaborate on your perspective this morning. The -- I guess the way I would phrase it is that when you look at the gas-levered E&Ps, particularly your larger peers, EQT and Expand and compare your relative performance, it almost seems like you've been kind of orphaned by the mix of your portfolio. And I guess the basis of the Kimmeridge letter is you're better as a stand-alone pure play in the Delaware and let someone else take care of the gas. That would go 180 degrees against what you tried to build. How would you respond to that? Thomas Jorden: Well, first off, Doug, I don't want to get into a lot of discussion about the Kimmeridge letter. That's for another time. But we've spoken openly. We really believe Coterra is a premier outfit, and we like to see us trade at a premium multiple. But if you look at the trading over the last year, you'll find [ we're ] at the top of the stack of oil companies and at lower level of gas companies. And we think we're seeing benefits of it being a multi-basin, multi-commodity company. But I just think it would be inappropriate for me to get into any more than that, Doug. Douglas George Blyth Leggate: Okay. I understand, and I appreciate you taking a stab at it. My follow-up is an operational question, and it's really related to what you saw in your LOE this quarter. Obviously, it's still elevated, but you also beat on your oil guidance. So my question is, is this related to the workovers in the Harkey? Should we continue to expect your oil production to move up and then ultimately your LOE to move down as those workovers flow through the system? Michael Deshazer: Yes, Doug, this is Michael. Yes, the LOE for the quarter was up a little bit. We have transitioned out of the Harkey remediation program that we talked about last quarter, and we have moved workover rigs into Lea County, where we do have some higher working interest. But overall, we do expect our LOE costs, especially the workover costs to decrease as we head into Q4. Shannon Young: Yes. And Doug, Shane here. Just -- we do expect that number to settle for the year within range on the LOE and expect to be probably in the middle in terms of total cash cost of where we are as well. But Michael hit on really well sort of the reason why it looked a [ touch up ] in the third quarter. Operator: And our next questions come from the line of Betty Jiang with Barclays. Wei Jiang: I want to ask about the cash return strategy just because we would agree that the stock, it does look discounted in our view as well. Shane, last quarter, you talked about really focusing on debt reduction. And then this quarter, Coterra is starting the buyback program again. How do you think about the allocation of your excess free cash flow between debt reduction and buyback going forward? Is there a reason not to think we can get back to that 100% return level into next year? Shannon Young: Yes, Betty, Shane here. Thanks for the question. And as you noted, year-to-date, we prioritized deleveraging or paying off the term loans. And so that's why we leaned in really hard in the third quarter on that. It's interesting. When you're at sort of the last bit of the repayment, your feeling is a little different than when you're at the first bit of the repayment and the ability to sort of feather in both some buyback activity and continued deleveraging is just much more palatable at these states. So as we talked about, we reinitiated the program in this month and -- sorry, last month and expect that we'll continue to be opportunistic, particularly where prices have been over the course of the last 4 to 6 weeks. In terms of the future levels that we get to, look, I would only say, look at our past. And in 2024, we returned roughly 94% of free cash flow through the mix of dividend and buybacks. And the year before that, I think we're around 75% in 2023. And look, that's a place we strive to get back to and think we're well on our way to being there. Is that exactly what it looks like in 2026? We're not going to pin ourselves in. But I think we'll have a robust return of capital program in 2026. Wei Jiang: That's great. And my follow-up is on the overall activity in the Permian. If we look at the Delaware versus your initial expectations, production is -- the guidance is unchanged, while you are now completing wells toward the upper end of the guidance range. I'm just wondering relative to your internal expectations, how is the production profile on the wells tracked versus your initial guide. And with activity now towards the high end, does that change your views on how the shape of 2026 shake out? Shannon Young: Betty, Shane here. I'll take a stab at that. I mean we don't comment specifically on TIL timing within quarters, but we do give how many TILs we expect for the quarters. And you'll note the third quarter and second quarter, we were below -- kind of at the low end of where we thought we'd be to maybe slightly below there. And so that pushed some activity into the fourth quarter. But yes, I think productivity from the TILs that have come online have been as expected or in some cases, maybe a touch better. But yes, as we get into next year, I think Tom was -- noted on the last call that, look, we'll exit the year at 175 MBoe in the fourth quarter. And the expectation shouldn't be that we sort of maintain at that level throughout. That's quite possible, as you've seen in the past, based on the timing of TILs that we end up with a little leg lower and then begin to build from there. Thomas Jorden: Yes, Betty, I would just add to that, that so much of this is timing, as Shane said, and working interest changes. So there's just a lot of moving parts. But we're seeing very, very solid really returns and performance out of all of our assets and particularly in the new assets we acquired earlier this year, they're coming on strong. There's just no question in our mind as we reflect back on the last year, we'll exit the year a much stronger company than we entered the year. And we were able to do that because of our balanced portfolio, our multi-revenue contribution to that balance and our strong and fortress balance sheet. So we're absolutely exiting the year a stronger, better company. Operator: And our next question comes from the line of Arun Jayaram with JPMorgan. Arun Jayaram: Yes. Team, I wanted to see if you could provide any kind of overall commentary on your thoughts on CapEx reduction next year. You mentioned that you think it will be down moderately, but maybe help us fill in the pieces of the drivers of that, perhaps relative to your soft guide of delivering 5% year-over-year oil growth. Thomas Jorden: Yes, Arun, I'll start that, and somebody else may want to comment. We're seeing good asset performance. And as we look ahead to the oil markets, we're kind of watching what happens. I mean I think that one can make a constructive observation about the strip, but some of that is underpinned by cartel discipline, if you will, and geopolitical factors. I think in balance, if you lean back, you say the world is fairly oversupplied if everybody supplied at their full capacity. And so we want to be prudent. I mean part of our ability to lower our capital is driven by our asset performance. We can deliver on our 3-year plan guide handily. We do have the option to increase capital, as I said in my opening remarks, and step that oil growth up. But we really do think about it in terms of cash flow and profitability rather than volumes. And one of the best ways -- if you have price support in your commodity, the best way to grow your cash flow and free cash flow is to see some volume growth. But we're watching the markets thoughtfully. Shannon Young: Yes. Arun, I mean the only thing I would say is, in addition to that is, look, nothing's set in 2026 yet. We've got a lot of flexibility as we see it today. We'd be modestly down. But I think you're going to see us when we come out in February, deliver a highly capital-efficient plan that generates a substantial amount of free cash flow. As I noted in my earlier comments, cash flow this year was up 60% over 2023 on the back of higher oil volumes from the acquired assets as well as higher natural gas price realizations. The 2 of those contributed, and it's a really powerful combination. Arun Jayaram: Got it. And then maybe my follow-up, you highlighted some parts of the Franklin, Avant acquisitions that closed in 1Q, maybe exceeding your expectations. Can you talk about some of the things that you're seeing post your review of those acquisition economics and maybe a little bit more insights on the ground game that you've done. I think you're investing about $86 million in leasehold, which is driving a little bit more of an inventory improvement there. Blake Sirgo: Yes, Arun, this is Blake. Happy to take that one. Frankly, our teams have done what we hope they do. They've taken this asset, and they've made it a lot better. Our subsurface teams are delineating. So we're finding new zones that we didn't account for when we underwrote it, and we're adding net footage across the asset base. Our D&C teams are attacking the program with all of our large efficiencies we built over the years. We're driving down dollar per foot and our production and midstream teams are attacking OpEx, and they're dropping that as well. So we're really just seeing those efficiencies across the board. They're really starting to add up, and this is a great add to our portfolio. Operator: And our next question comes from the line of Neil Mehta with Goldman Sachs. Neil Mehta: I have a couple of gas questions here, Tom. But first, just to expand on your initial comments. I guess one of the questions we get from investors even beyond the letter this morning is what's the value of operating as a multi-basin portfolio versus being a pure play? And so just maybe you could spend some time now that's been a couple of years you've had Cabot under your portfolio. What are some examples of the tangible upsides or synergies that you get from diversification? Obviously, the commodity is one of it -- but -- one of them, but I'm sure there's others. Thomas Jorden: Yes. We're going to need a longer call for that question. One of the advantages, odd as it may seem, even though we're a broad industry, there tend to be regional pockets. And a lot of companies are single basin. And so techniques and operational efficiencies tend to be clustered until they get understood and widely spread. And you saw that in our history over and over. One example is the industry had gone to plug-and-perf completions, while there were still basins that were doing slotted liners way after other areas had abandoned that. You saw that with many completion techniques. And we're actually -- I'll just say, speaking for Coterra, there's a reason why we're recognized as a great operator in every basin we're in. And that's because we're a multi-basin company. We can take best practices from play to play and make our programs better. A particular example I'll give you, and you'll see this, hopefully, in this upcoming winter because we always light a candle and hope for a bitter cold winter, we have made massive advances in winterization in the Permian Basin. We get insights to a lot of our competitors because we have interest in their wells. So when these winter storms pass through, we see the degree to which our competitor's production is knocked offline and decreased, while Coterra tends to sail through with only a wobble. And that's because of the collaboration we've had with our Marcellus team for whom cold, bitter winters are a regular event and our Permian team, and it has made us such a better operator and really strengthened our ability to sell product into winter pricing. The list goes on and on, but I will just tell you that having collaboration among different play types really enlarges technical thinking around problem solving and has made this a better company. Neil Mehta: And then the follow-up is just on scale. I mean, I think in the Permian, Franklin Mountain continued to give you the scale that you need to be competitive against the largest players in places like the Permian. In the Marcellus, we've seen a lot of consolidation here. Do you feel like you have sufficient scale to be first quartile in the Northeast? Shannon Young: Yes. I'll make a quick comment on that. Look, I do think we have the scale there. We produce about 2 Bs a day in a market up in the Northeast itself that's probably closer to 11. But -- and really, one of the things, just kind of building on what Tom said up there, when we negotiate with service providers when Blake and Michael sit down with them, it's not like we're just negotiating a frac crew for that area. So we have one active crew. We're having a one-off negotiation because we have a broader portfolio, we're actually able to drive down costs, get better equipment and better focus from the service providers. And so in a lot of ways, we have plenty of scale up in the Northeast. But frankly, the Northeast benefits from the larger scale of Coterra. Operator: And our next question comes from the line of Scott Gruber at Citigroup. Scott Gruber: I want to come back to your active ground game here. Can you talk about your thoughts around running room to block up your positions in Lea and Eddy counties and the timing of doing so in a competitive market? And just how important is that in terms of compressing your cost structure in the Northern Delaware down towards Culberson? Or do you think you have kind of a good running room to further compress costs on your current acreage position? Blake Sirgo: Yes, Scott, this is Blake. I'll take that. The Franklin Mountain, Avant assets really gave us a great footprint in the Northern Delaware. And what that's allowed us to do is now have a foothold in certain areas where we can start doing trades and additional small acquisitions. And really, what we're just chasing are the biggest DSUs we can get our hands on, more wells per section, longer lateral lengths, that's how we drive efficiencies. And so really just building that footprint up there has kind of turbocharged our land efforts. And I couldn't be happier with the deals the team has brought in over the year. They're very, very busy. We look at all those with a firm economic lens. But like I said, those capital efficiencies we can bring to bear, they make a lot of them really attractive to us. Scott Gruber: And what is your color on the '26 budget reflects the trend in well costs in the Northern Delaware as you gain more experience on the acreage and expand the position? Does that continue to step down? Would that be incremental benefit to the spend in '26? And does the well mix in the Delaware stay broadly the same in '26 kind of as you see it today? Michael Deshazer: Scott, this is Michael. Yes, we -- as I mentioned in my prepared remarks, we continue to drive down the capital costs of all the wells in the Northern Delaware Basin. And so we expect our teams to continue to work hard every day to try to drive that cost down. We don't have a projection that we're ready to discuss here, but I did mention a lot of the same efficiencies that we see across our assets around consistent drilling rigs and frac fleets and being able to drill longer laterals. All of those benefits would be available to us in that Northern Delaware Basin and all the trades and blocking of acreage that Blake talked about really helps. The bigger these pads are and our ability to put more wells into the same facilities really helps us drive down costs on both the production side, the capital side and on our midstream side. Operator: And our next question comes from the line of David Deckelbaum with TD Bank. David Deckelbaum: I wanted to ask perhaps for a little bit more color just on the '26 high-level guide of spending kind of sub $2.3 billion. How the sort of large projects impact that going into next year? Or as we think about this, is it being driven more by reallocation between basins or the inclusion of more Wolfcamp relative to what we saw in '25? Could you add a little bit more color there just on what's contributing to that trajectory the most? Or is it just general optimization? Michael Deshazer: Thanks, David. This is Michael. Yes, as I -- as we discussed earlier, we currently have our operations very steady across the business units, and we expect that to extend into 2026. We don't see a lot of dramatic changes from where we're at right now in Q4 in terms of the way we see the program into '26. I did mention that our Marcellus would be between 1 and 2 rigs. So we'll be making those decisions as we look at frac efficiency and drilling efficiency. And we're really excited to see the recent results of drilling these longer laterals in the Marcellus has allowed us to reduce that rig count. So we're not exactly focused on the resources around rig and frac as much as we are a consistent program within each of these business units from a capital perspective. Thomas Jorden: Yes, David, I want to just add there that I'll be a broken record, but it is a soft guide, not an announced plan. We're still looking at some of our options. I think depending on what happens with commodity markets, though, as we look at that soft guide, probably our bias would be to maybe slightly increase over what we're telegraphing than decrease. But we have the wherewithal, we have the projects, and we have the willingness to step in. We're just watching carefully, and we want to be prudent in how we approach 2026. David Deckelbaum: I appreciate that color, Tom. And maybe just following up a bit on just the cadence of the program into the '26. You talked about sort of this 5% oil growth next year. And maybe, Michael, this one is for you, but the -- can you just kind of refresh us on how you kind of see the shape of the Delaware progressing throughout the year after some pretty aggressive growth what we've seen in the back half of '25? Michael Deshazer: Yes, we're not prepared to discuss any kind of TIL timing or that kind of granularity at this point in time. Operator: And our next question comes from the line of Matt Portillo with TPH. Matthew Portillo: I wanted to start out on the power opportunity in the Permian. You mentioned the microgrids. That seems like a great opportunity for you all to cut costs moving forward. I was curious if you might be able to provide a little bit more color around the timing of when those microgrids might come into service and how many megawatts you're planning on deploying. Michael Deshazer: Yes, Matt, this is Michael. We currently have some smaller scale microgrids that we inherited with the Franklin Mountain, Avant acquisition. I discussed in the prepared remarks that Eagle's central tank battery has turbines located on it that are powering adjacent leaseholds. So we're already in this business, and we're really just looking for opportunities to expand it. As you know, the Northern Delaware Basin and really the Permian on the New Mexico side has been very constrained for power for some time. And many operators are using small reciprocal engines to generate power on a well site-by-well site basis. And where we see value is when we can connect multiple leases to a single permanent station that's run off turbines, we see a dramatic decrease in that electrical cost. So we're going to continue to expand the current microgrids that we have. And like I mentioned in the remarks, we see opportunities for about 3 expanded microgrids across our asset. Matthew Portillo: Great. And then maybe a follow-up on the Northeast. It sounds like the soft guide as it stands today at strip is for relatively flat volumes around that 2 Bcf a day. I just want to make sure I heard that correctly. But maybe over the medium term, I was hoping you might be able to comment on your updated thoughts around power demand growth regionally for Northeast PA? And then any updated thoughts on maybe some of the longer-haul infrastructure opportunities such as Constitution that had been discussed earlier in the year. Shannon Young: Yes. So I'll start with the second one first, which is Constitution and some of the other projects that are up there. And look, that project historically has originated out of our acreage and heads up towards the Iroquois line about 124, 125 miles. And so were something to happen there, obviously, we would be a logical partner in some regard in that. But frankly, until we have better clarity on the other end of that line in terms of markets and buyers and commitments, that's probably one that is going to remain a little bit challenged. Obviously, there's other projects in that part of the world, [ NeSSIE ], for example, that appear to have a little bit more momentum at this point. And we -- while we wouldn't have the same direct linkage to it, we would expect that we would benefit from development in that area as well. I'm sorry, the first question -- the second question [ is something about ] the first part of... Matthew Portillo: Just around the regional power demand growth opportunity specific to Northeast PA, just how you see that market emerging and what that might mean maybe for the opportunity to add some volumes at some point in the future from a production standpoint? Shannon Young: Yes. That's great. So a lot of activity in PA, a lot of announced activity, that's preliminary, not necessarily all with definitive agreements, but with intention, which is a good first step. I think as well, there's a lot of unannounced activity that is up there right now in terms of dialogues that are going on. I think Michael and Tom sort of alluded to our team and being a part of those conversations. And so we're very excited about the potential up there, and we'll continue to work it hard. Some of these projects, whether we're involved or not, take a long period of time to develop and get announced. For example, again, not in the PA, but in West Texas, those are discussions that we have been in with CPV for the better part of 2 years. And so these are just long lead time discussions and negotiations that are ongoing, and we have a history of involvement in all of our business units, frankly, and I would expect we'll continue to be active in those dialogues. Thomas Jorden: Matt, we have a lot of flexibility in our marketing in the Northeast. We're watching carefully the development of these markets. We've talked about a couple of these pipelines that may offer opportunity for us. But our marketing team has done a really nice job of developing a weighted average sales price through a whole host of different arrangements. As we've discussed, some of that's LNG, some of that's direct power and some of it's direct to industrial users. But what we really look at when we ask ourselves about growth is that incremental molecule against the incremental price. And although we study hard what some of our competitors have done, we just don't see that now is the right time to bring on a lot of incremental volumes on that incremental price. We're going to be patient. We think opportunities will come, and we'll be prepared to strike, and we have the opportunity to grow those volumes, both through increased activity, but through some of our existing commitments that roll off give us more marketing flexibility as we go forward. So we're in a pretty nice position. And we're -- as I said in my opening remarks, we think patience and prudence is the right position right now. Operator: And our next question comes from the line of Kalei Akamine with Bank of America. Kaleinoheaokealaula Akamine: I want to start on the Marcellus. The deal with Cabot closed about 4 years ago, and you've made that position better through your operating efficiencies. So maybe you can start by calling out some key operating wins. And then when you look at the Marcellus landscape, do you think that the application of your best practices could create value through M&A? Blake Sirgo: Yes, Kalei, I'll take that -- the first part. I'll let Shane talk M&A. Really, how we have attacked the Marcellus, it was really fun when we got our hands around the asset because we kind of had a greenfield Upper Marcellus bench to go prosecute. And we had over a decade of developing shale basins in Oklahoma, Texas, New Mexico, and we just brought those same skills to bear. And so one of my favorite maps to look at is the inventory at the time of the acquisition and the inventory now. It is dramatically in lateral length across the asset. We've optimized well spacing to increase productivity. And then we've just attacked the entire cost value chain. When we started that asset 4 years ago, we were still trucking the majority of our frac water. I'm really happy to say we pipe all our frac water now. And we've just been able to crush cost across the board. And so it's really a lot of those best practices Tom talked about earlier. We learn all these things through a lot of grit. And once we learn them, they become institutionalized, and we spread them like wildfire. Kaleinoheaokealaula Akamine: The follow-up question just on Marcellus inventory. I think you guys are still calling out 12 years of drilling in the slide deck. And this year, you're doing about 11 wells. Is the inventory math as simple as [ A times B ]? And would that include any of the delineation work that you guys have done in the... Michael Deshazer: So no, the math isn't just the current 2025 TIL count versus that multiple of years. What we're looking at is our 3-year average for how many wells we've drilled and then using that as the main proxy. We're also converting this into dollars and trying to keep the capital spend that we've had over the last 3 years as the metric. As we drive down costs, we are able to drill more wells in a given period of time and keep that production at a given level, so -- for the same amount of capital. So 2 things that are not as simple as what you described. One is we're looking at 3-year average. Two, we are looking at the capital spend and adjusting for our new go-forward costs. Operator: And our next question comes from the line of Derrick Whitfield with Texas Capital. Derrick Whitfield: With respect to the shareholder letter, Tom, I'd like to go a different direction with it and ask for your perspective on how your PVIs compare across the basins, while we all have inverse incremental assessments, our data quality and look-back assessments are less accurate than yours, particularly on a leading-edge basis. Thomas Jorden: Well, I think we've said publicly that in 2025, the highest PVIs in our portfolio coming from our Marcellus project, and we're very happy to say that. And I just want to kind of reinforce comment Blake made in one of the earlier questions. We have made that project. Our team in Pittsburgh has made that project so much better. We've lowered our costs dramatically. We've gone to longer and longer laterals. And in many cases, that's 4-mile laterals that involve fewer pads, fewer intrusion into the community there. And we're seeing historically high well performance. So very pleased to say that the highest return in our portfolio this year is the Marcellus. Derrick Whitfield: Great. And then maybe for my follow-up, I wanted to focus on gas marketing in the Permian. In light of all the recent pipeline announcements that have achieved FID and the flurry of power announcements we're seeing, how are you guys thinking about managing your Waha exposure? And could this amount of incremental egress lead to favorable in-basin exposure if oil prices remain depressed? Michael Deshazer: This is Michael. I'll take that question. We have struggled in the third quarter with low Waha gas prices. I think everyone sees that. And so the long-haul pipes are important to reduce the basis between Waha and NYMEX. And we're a part of all the conversations with the new pipes that are being announced. So we're looking at opportunities to put some of our gas that we can take in kind on those pipes and provide ourselves not only the flow assurance that we want, but also that increase in price at that NYMEX market. Operator: And our next question comes from the line of Phillip Jungwirth with BMO Capital Markets. Phillip Jungwirth: I wanted to come back to some of the major projects in Culberson this year, the Barba-Row Phase 1 and the Bowler Row, see if you had any updates or takeaways as far as cost efficiencies, early time productivity. I think Barba-Row is expecting second half wells online. And I know it's early, but Bowler starting up in the fourth quarter. Blake Sirgo: Yes, Phillip, this is Blake. I'll take that. Everything is coming on as expected, performing well, contributing [ mightily ] to the oil beat we just announced for Q3. Those projects are ramping up throughout the year. And we continue to enjoy the wonderful cost efficiencies in Culberson County, all the things we've highlighted in many previous decks. It is still the crown jewel of capital efficiency. So performing very well. Phillip Jungwirth: Okay. Great. And then we always think of Coterra's kind of cutting edge, willing to implement new technologies. Curious if you've looked at lightweight proppant, something -- is this something you'd consider implementing within your Delaware development? I understand you won't be producing this in your own refineries, but using it more -- buying it more through third parties. Michael Deshazer: Yes. We have a trial ongoing, as a matter of fact, on new lightweight proppant. So we don't have any results to share today, but that's a technology that we're investigating, and we have a lot of hope to see improved productivity as other operators have discussed. Operator: And that concludes our Q&A session. So I will now turn the call back over to Tom Jorden for closing remarks. Tom? Thomas Jorden: Yes. I just want to again thank everybody for joining us. We had a great quarter. We've got a bright future, and we really intend to demonstrate the marketplace that the Coterra model is resilient through the commodity price swings, and we're going to continue to deliver excellence as I hope we're known for. So thank you all very much. Operator: Thanks, Tom. And this concludes today's conference call. You may now disconnect. Have a great day, everyone.
Operator: Good afternoon, and thank you all for participating in today's call. Joining me from Ceribell This approach is are Jane Chao, Co-Founder and Chief Executive Officer; and Scott Blumberg, Chief Financial Officer. Earlier today, Ceribell issued a press release announcing financial results for the quarter ended September 30, 2025. A copy of the press release is available on the Investor Relations section of the company's website. Before we begin, I'd like to remind you that management will make remarks during this call that include forward-looking statements within the meaning of federal securities laws and that these are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our public filings with the Securities and Exchange Commission, including our quarterly report on Form 10-Q filed with the SEC on August 5, 2025. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 4, 2025. Ceribell disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. With that, I'll turn the call over to Jane. Xingjuan Chao: Thanks, Brian. Good afternoon, and thank you all for joining us for our third quarter 2025 earnings call. I'm very pleased to report on another strong quarter as we continue to execute on our key growth initiatives, while solidifying our position as the category leader in the point-of-care EEG. We have continued to expand patient access through new account growth and increased utilization, while advancing our robust product pipeline. We believe the strength of these initiatives is clearly reflected in our results. Total revenue for the third quarter of 2025 was $22.6 million. This reflects 31% growth over the same period last year and marks our 30th consecutive quarter of sequential revenue growth. Our performance is the result of the predictable recurring nature of our business model and continued excellence in commercial execution to launch new accounts and drive increased usage. Given these trends and momentum we built exiting the quarter, we remain confident in our core commercial strategy, and we are raising our full year 2025 revenue guidance. We now expect to deliver $87 million to $89 million in revenue for the full year 2025, which represents 34% year-over-year growth at the midpoint. Our success to date reflects not only strong commercial execution, but also the foundational work we have done to unlock what we believe to be an immediately addressable $2 billion market opportunity. Our primary focus is on establishing point-of-care EEG as a new standard of care for seizure management in the acute care setting. We believe that, every ICU and emergency department should have access to the Ceribell system and the benefits our solution provides. The need is both urgent and profound. There are roughly 3 million patients in the U.S. at risk for seizures in the acute care setting. Many of these patients will face long delays in diagnosis with conventional EEG, spending hours or even days. Others may never receive monitoring at all due to limited access to EEG or lack of clinical awareness. The consequences are significant as prolonged and untreated seizures can lead to severe and permanent brain damage or even death. Comparatively, the SAFER-EEG clinical trial has shown that the Ceribell system reduces the median time to EEG by 19 hours, while reducing patients' severe disability rate by 18%. At the same time, patients who are treated with antiseizure medication without EEG confirming seizures based on observation alone may be exposed to unnecessary risks, including incubation and extended ICU stays. The Ceribell system has been shown to enable a median reduction in ICU length of stay by 4.1 days. Ultimately, patients' lives and their quality of life are on the line, and we believe our platform can enable more timely and appropriate care. Helping these patients receive the care they need starts with working to make the Ceribell system available to hospitals across the U.S. To this end, we have steadily made strong progress in expanding our account base. As of September 30, we had 615 active accounts. This marks an increase of 31 accounts over the prior quarter, which is our largest sequential increase since becoming a public company. In parallel, we continue to broaden our reach across additional sites of care. As part of these efforts, we received FedRAMP High Authorization in the second quarter of this year, providing access to the nearly 200 hospitals within the VA system. We are pleased to report that following a successful recent pilot, we have been informed that the VA system intends to expand the usage of the Ceribell system even further in the coming quarters. As we expand into new facilities nationwide, we are also working with our current customers to drive usage and increase access across departments and patient populations. Our efforts to date have been successful with utilization per account increasing nearly threefold over the past 5 years. Still, we believe we are only 30% penetrated within our active account base, leaving substantial room for continued growth. Our top-performing accounts prove EEG solutions that we believe could what's possible. Usage within our top 10% accounts is roughly 3x higher than in average accounts of similar size, and these top accounts are still growing. These means that were still over 5,000 hospitals that do not have a point of Clarity seizure detection, illustrating the sentiment that we hear from physicians. The more EEG you perform, the more seizures you find. We aim to facilitate the replication and expansion of best practices used by these top accounts through continued training and education, clinical evidence generation, protocol development and expansion to new departments, including the ED. Our CAM team is critical in leading this effort, which is well underway. Finally, beyond the adult population, we continue to invest in expanding access to pediatric and neonatal populations. Earlier this year, we received 510(k) clearance for Clarity in pediatric population, make it the only seizure detection algorithm cleared for patients 1 year and older. We're actively developing this market through our ongoing pilot of pediatric clarity within our existing accounts as well as children's hospitals with full launch anticipated next year. Our confidence is backed by strong clinical data supporting our product. Recently, in September, we are pleased to see an abstract documenting technical validation of pediatric Clarity presented at the Neurocritical Care Society Annual Meeting. The retrospective study evaluated the performance of Clarity in detecting suspected status epilepticus across 645 pediatric patients aged 1 to 17. The results demonstrated a sensitivity of 94.4% specificity of 93.1% and a negative predictive value of 99.8%. These findings suggest that Clarity can accurately monitor suspected status epilepticus in pediatric patients over 1 year old, providing timely and actionable guidance to bedside team. With our AI-driven approach to product development, we expect these already excellent results to continue to improve as we build our database and continually refine our algorithms. We also remain committed to expanding access to our system in the neonatal population, having already developed a headcap that meets the needs of this vulnerable patient group. We remain on track with the development of a neonatal application of Clarity, which we anticipate to bring to market in 2026. In the meantime, we have launched multiple sites using the hardware without Clarity, and are conducting targeted market development efforts to better understand the nuances of the neonatal population. These investments reinforce our mission to helping to establish point-of-care EEG as a new standard of care for seizure detection in the acute care setting, serving all patients everywhere. We also estimated the addition of pediatric and neonate products could expand our current addressable market opportunity of $2 billion by approximately $400 million. We see a tremendous growth runway as we advance our mission. We will continue to invest in evidence generation, product improvements, provider education and the replication of the best practices from top-performing centers. Collectively, these investments combined with our established advantages give us great confidence in our ability to strengthen our reputation as the category leader and a trusted partner for rapid EEG and seizure detection and monitoring. Before I turn it over to Scott, I want to also briefly touch on the second horizon of our vision, making EEG a new vital sign in acute care. This requires developing a multimodal system that can become a routine part of care for all patients at risk of a range of neurological abnormalities. We plan to achieve this by expanding our detection capabilities into new conditions such as delirium and stroke. Our nearest-term area of focus for innovation is advancement of our delirium algorithm. We are pleased to be able to say we remain firmly on track with our development timeline. As a reminder, this is a market where there is no commercially available diagnostic device despite delirium being a pervasive and challenging condition that affects over 30% patients in the ICU. We are thrilled with our progress to date and expect to detail a more comprehensive vision for the opportunity and our associated commercial strategy in the coming quarters. It's important to note that our excitement around potential new indications such as delirium is directly connected to our mission to help establish point-of-care EEG as the standard of care. Broad adoption of the Ceribell system across our market for seizure detection gives us the installed base, data, trust, contractual relationships, security clearances and the sales infrastructure to rapidly develop and deploy new algorithms. We believe these new algorithms will significantly expand our total addressable market by introducing much needed solutions for new patient populations. We anticipate that, we will also create synergistic value by allowing concurrent monitoring for patients at risk of multiple overlapping conditions. As a result, in addition to providing access to new patients, these pipeline products are expected to directly drive utilization within our installed base. We expect they will serve as a strong growth engine for years to come while largely leveraging our existing sales infrastructure. To summarize, I'm incredibly proud of what we have achieved this quarter. Over 600 hospitals have adopted Ceribell, and our team is making meaningful progress in penetrating deeper within these accounts. And still, we remain very early in our journey to establish point-of-care EEG as standard of care in the $2 billion U.S. seizure detection market. We are currently used by roughly 10% of the hospitals that provide acute care service in the U.S. This means that there are still over 5,000 hospitals that do not have a point-of-care EEG solution that we believe could benefit from our technology. Within the customers that we do serve, we estimate we are only about 30% penetrated for patients who need timely seizure detection. Taken together, this suggests that we are only about 3% penetrated into our core market in the U.S. We aim to go deeper and wider to address the unmet needs of the remaining 97%, both through ongoing commercial efforts and by making investments in extending the life-changing benefits of the Ceribell system to additional patient populations. This includes monitoring neonatal and pediatric patients, which represents an incremental market opportunity of approximately $400 million as soon as next year. In parallel, we are working to go beyond seizure. We have made real progress in unlocking delirium and stroke. We believe that these indications represent a multibillion-dollar market expansion opportunity and serve as the foundation of our mission of making EEG a new vital sign. With that, I will now turn the call over to Scott Blumberg, our CFO, to provide a review of our third quarter results and outlook for the remainder of 2025. Scott Blumberg: Thank you, Jane, and good afternoon, everyone. As Jane highlighted, total revenue for the third quarter of 2025 was $22.6 million, a 31% increase from $17.2 million in the third quarter of 2024. The increase is primarily driven by increased adoption of the Ceribell system across new and existing accounts. Product revenue for the third quarter of 2025 was $17 million, representing an increase of 28% from $13.3 million in the third quarter of 2024. Subscription revenue for the third quarter of 2025 was $5.6 million, representing an increase of 44% from $3.9 million in the third quarter of 2024. In Q3, we continue to drive deeper into our accounts, increasing usage per account year-over-year. This was achieved despite abnormally high purchases relative to usage in Q3 2024, which led to excess product revenue during the comparison period. As a reminder, we typically see reduced usage in Q2 and Q3 relative to Q1 and Q4, driven by lower ICU census in the summer months. Gross margin for the third quarter of 2025 was 88% compared to 87% in the prior year period. As we enter Q4, I'll remind you that we will begin to transition to utilizing inventory acquired after the implementation of increased tariffs on products originating in China. Despite this, we expect to maintain gross margins in the mid-80% range in Q4. As we reported last quarter, we took proactive steps this year to establish an additional manufacturing line in Vietnam, which is now fully operational. This reduces our exposure to Chin a-based tariffs and positions us to benefit from potentially more favorable trade policies. Looking ahead, we believe initiatives undertaken this year to strengthen our supply chain and build resilience put us on track to deliver gross margins in the mid-80% range for full year 2026, assuming no changes to the currently proposed tariffs. Total operating expenses for the third quarter of 2025 were $34.6 million, an increase of 39% compared to $24.9 million in the third quarter of 2024. Noncash stock-based compensation expense was $3.3 million in the third quarter of 2025. 5 The increase in operating expense was primarily attributable to investments in our commercial organization, increased headcount to support growth of the business, legal expenses and expenses related to operating as a public company. Sales and weighted marketing expenses increased $1.1 million in Q3 compared to Q2. The sequential increase was driven by salary and our commission expenses associated with headcount expansion in Q3 as well as full quarter impact of headcount additions from Q2. Net loss was $13.5 million for the third quarter of 2025 or a loss of $0.37 per share compared to a loss of $10.4 million or a loss of $1.85 per share in the third quarter of 2024. An average weighted share count of 36.8 million shares was used to determine loss per share for the third quarter of 2025. Our cash, cash equivalents and marketable securities as of September 30, 2025, were $168.5 million. Earlier today, we filed a shelf registration statement on Form S-3 with the SEC as we recently became eligible to do so following the 1-year anniversary of our IPO. This is strictly a matter of standard corporate housekeeping as it allows us to maintain flexibility. But to be clear, we do not have any intention to pursue a financing transaction at this time. We remain committed to achieving cash flow breakeven with cash on hand and the strength of our balance sheet gives us a high degree of confidence that we can achieve this without raising additional capital. Turning now to our outlook for the remainder of 2025. Given our momentum in the third quarter of 2025, we now expect full year 2025 revenue to range from $87 million to $89 million, up from our prior guidance of $85 million to $88 million, which represents annual growth of 33% to 36% over 2024. We continue to add to our base of active accounts and have an extremely healthy backlog of accounts that have issued purchase orders to adopt the Ceribell System. While we do not provide guidance on our account base, it's worth noting that we intend to continue the practice we began in 2023 in which we defer launching new accounts in the second half of December. This approach is grounded in our historical experience that is better to avoid launching during the holidays as we've seen an uninterrupted attention to a high-quality launch is necessary to maximize usage during the first few weeks following launch, which we believe is critical to establishing healthy long-term utilization rates. With that, I'll turn the call back to Jane. Xingjuan Chao: Thank you, Scott, and thank you all for your time today. In conclusion, I'm very pleased with our third quarter performance and our team's ability to continuously advance initiatives that will enable us to realize our broader strategic vision. I'd like to thank our employees, our customers and the patients we serve for enabling us to continue our mission to help save lives while delivering substantial value to our stakeholders. Finally, we appreciate your support and continued interest in Ceribell. We look forward to providing you with updates on our progress in the quarters to come. I will now turn the call over to the operator for any Q&A. Operator? Operator: [Operator Instructions] Your first question comes from the line of Travis Steed from Bank of America. Travis Steed: Congrats everybody. Maybe to start with just on kind of 2026 and curious if you have any early thoughts at this stage, thinking about account adds and utilization and pricing, especially with the NTAP expiring for next year? Scott Blumberg: I can take that. Travis, we're not providing commentary on 2026. We'll, of course, provide guidance in the coming call. I think the fundamentals of the business and the sources of growth in terms of adding new accounts and driving usage will remain our consistent drivers. As it relates to pricing, we've seen a very high degree of consistency in pricing in our Headband this year. We've seen an increase in the Clarity ASP as we've driven more recorders into existing sites and expect to maintain strong discipline as we think about pricing going forward. Travis Steed: Okay. That's fair. And then maybe a question on the neonatal opportunity. I appreciate all the information on the call. But when you think about launching that, maybe just provide a little more color on how the full launch looks for that in '26. And do you need to add new accounts that are neonatal accounts? Or do you kind of go deeper in your own accounts so you can go faster? Just trying to think about how that actually launches and rolls out. Xingjuan Chao: Yes. So the short answer is both in terms of open new accounts through neonatal as well as existing accounts. Out of the about 850 Level 3 and Level 4 NICUs in the country, our existing installed base represents roughly 200 NICUs already. So for those 200 NICUs, that would be more a departmental expansion. So we put that more under the growth category of same-store growth driving utilization. Outside that, there are 2 different market segments. One is the other -- the 280 children's hospital. We currently are barely presented in the children's hospital, not surprisingly because our product is very adult focused. So that represents more new account acquisition. Even beyond children's hospital, we have initially seen strong interest from NICU through especially Level 3 community hospital often have to transfer patients out for lack of EEG. So we also anticipate that NICU can drive new account addition due to strong support from NICU. Operator: Your next question comes from the line of Robbie Marcus from JPMorgan. Robert Marcus: And congrats on a nice quarter. Two for me. First, I really want to ask on just the progress you're making in penetrating accounts, educating the different components of the hospital. And I know last year, you spent a lot of time and focus building the model to make sure that new accounts ramp up in a consistent and sustainable manner. And just your progress there and the traction you're getting? Xingjuan Chao: Yes. I would say, the success there is a continuation of we have seen historically. As you can see, we continue not just driving account acquisition, but also utilization. Specifically, this year, we rolled out a few initiatives that we have been seeing success. One is, as Scott mentioned briefly, that we start to encourage the team successfully team bring more additional recorders to existing accounts that often is leading to additional departments using our device. So, we can see very strong correlation between growth and those initiatives. The second initiative we rolled out, we start seeing impact in this year, and we anticipate seeing even more impact next year is partner with physicians on protocolization of patient population. We've especially seen success of that with cardiac rest or post-hemorrhagic stroke, which are clearly recommended by the guideline. As hospitals do not always update their guideline every quarter, it's often every year. So, as we can -- we anticipate next year, we'll see continued growth there. The other initiative more is about building on continued education to physicians as well as nurses, also continue quarterly engagement to the administrator to not just theoretically show the economic value Ceribell bring, but using their own clinical data to show the economical value. Robert Marcus: Great. Maybe one on expenses. Your selling and marketing and R&D as per the guidance came in above the revenue growth. I respect you'll comment on 2026 on the fourth quarter earnings call. But how are you thinking about revenue versus OpEx growth in the short and medium term? And how do you feel about your progress towards cash flow breakeven? Scott Blumberg: Yes. I think we came into this year with a successful IPO raising more than we intended and a big portion of that proceed was invested in expanding the commercial infrastructure. The nature of our model is that, there's a delayed impact. And so, the kind of the nature of the relationship between sales and marketing growth this year and revenue is a reflection of that, the investment comes ahead of the outcomes. Of course, we'll continue to look for opportunities to grow. But our current thinking, at least on the account acquisition side, is that the size of expansion we saw over the last year would probably be less in the coming year. And so, I'd expect the growth to moderate there a bit. And the investments that will -- that we've made this year should start to generate impact as we get into 2026 here. As far as cash goes, with an 88% gross margin and pretty strong control over our investment, which is tied almost entirely to growth and very little to maintenance, we have the flexibility to continually adapt our investment strategy to ensure that we always stay safe in terms of sufficient cash cushion. Operator: Your next question comes from the line of Brandon Vazquez from William Blair. Brandon Vazquez: Can you start maybe by talking a little bit about utilization growth across accounts by tenure, especially those that you've been talking about some of these initiatives to establish protocols at the accounts where patients versus ID guidelines should be getting EGs. Are those kind of older, more tenured accounts continuously growing in utilization? Just kind of curious, the question is more around your more tenured accounts. Has utilization growth been pretty consistent? Just to know if that's a good signal for growth going forward as your new accounts ramp? Xingjuan Chao: Yes. Thank you, Brandon. There are quite a few drivers under the growth we've seen from more tenured or top accounts, and we see many of these drivers would continue driving both top, or just all the rest of the accounts. The #1 driver is what you already articulated, which is the external guidelines. The stroke -- seizure management for the stroke population guideline came out in 2022 and 2023. The cardiac guideline came out end of 2019. So -- and then there's COVID. So, there's quite a few -- many hospitals still are not fully adopted to this guideline yet. For our top account growth, we often just see the hospitals start to, over time, rolling out one protocol over another, first cardiac rest, then ICH patient. So that's a continuous driver. And even our top accounts, I would say, not every single population group are fully on protocol yet. That's why we anticipate to see the continuous growth there. The second driver is the departmental expansion. Even our most tenured accounts or our top usage accounts are not in every single department yet. They might be in all the ICUs and ED, but they might not be in the step-down units or in the -- on the floor with the rapid response nursing team yet. And of course, as we start to launch pediatric and neonate, there will be further departmental expansion. The third driver, I would say, is more driven by our internal execution. We realize not every providers are trained even though they might miss the initial training during the site initiation turnover, especially during the night shifts. So, our CAM team really put a lot of effort above and beyond and go late hours to train the night shifts, and that's not 100% done yet. So those are some examples, probably the top drivers that we've seen how our tenured accounts growing, and we see the account -- these drivers is not applicable just to tenured accounts, but all our accounts. Brandon Vazquez: Okay. Great. And then as a follow-up to that, I think, Jane, you were just kind of alluding to this, but you made an interesting comment on the prepared remarks that only 30% of accounts or in your current accounts, you're only 30% adopted rather. Is going further into your current accounts driven a lot in putting these protocols? And then I think like you said, going into new wings. Like how do you do that? What is the friction point of getting into these new wings? And then one unrelated follow-up, if I could just throw in there. Late last week, I think you guys got a new 510(k) clearance on the headcap. Any comments on the importance of that clearance? Xingjuan Chao: Yes. I mean, in terms of going to departmental expansion and protocolization, a majority of it is really execution. I think, if we think about what are the potential barriers is both the resource on our end as well as often the resource on the -- or the priority on the hospital end. And sometimes rolling out a new protocol is beyond the capacity of the nursing team, or it's currently they have other priority. For instance, they are updating their Epic system. So those are some practical barriers we run into, but we believe that over time, because of the strong guideline recommendation and this clinical value and evidence will continue to generate, we should overcome those barriers. In terms of the 510(k) headcap, I think you are referring to the neonatal and headcap. The main clearance we have there compared to the previous neonate headcap is that the previous version, we have the label of approved for all ages. And during our pilot, we learned that our physician and nurses would like the FDA clearance to be even more specific that it is cleared for preterm as well as term neonate because they are very protective of this vulnerable population. So, our current latest headcap is cleared for both preterm as well as term the neonatal population. So, this is actually a great manifestation, example of our strategy. As we do pilot, we actually learned things that we didn't anticipate as we rolled out the product. So, we see this recently approved or cleared headcap would be the product that will be ready for full commercialization as we receive the clearance of neonatal clarity. Operator: Your next question comes from the line of Josh Jennings from TD Cowen. Joshua Jennings: Congratulations on another strong quarter. I think, Jane, you've called out that Ceribell point-of-care EEG is kind of penetrated about 10% of U.S. acute care hospitals. The word of mouth according to our checks from the customer base is getting louder, buzz is getting stronger, the library of clinical evidence and the cost-effective data is growing. I was hoping to just maybe lead that intro into a question of, okay, can you add some quantitative or qualitative color just on where the new customer account pipeline or funnel sits today relative to the beginning of the year? And just in terms of giving us up thinking about the potential for account growth in 2026? Scott Blumberg: Yes, Josh, the numbers that are reflected in our active account base is launched accounts, which is when the customer is fully trained and live. Of course, we measure before that, we measure when we receive a purchase order, we measure the various stages of engagement that happen that lead to a purchase order. Without getting quantitative on it, I can tell you that, that number -- the funnel is growing, and it's growing as a direct reflection of both of the investments we've made in our commercial org over the past year, but also, I believe, the appreciation of the need for this technology that's growing by the day. Joshua Jennings: And I just was hoping to better understand how Ceribell is positioned with IDNs or health care systems. And has the company benefited from some IDNs kind of making best practices decisions or standard of care within their network? Or is that opportunity in front of Ceribell? Maybe just help us think about how you're positioned through the number of IDNs that are in play in the United States. Xingjuan Chao: Thank you, Josh. Yes, we definitely have seen that the partnership with hospital systems has been a strong growth engine from previous years, including the current one. And we see potentially even bigger opportunity ahead of us. I think, historically, especially a few years back when we were much smaller, we often do not engage IDN at the headquarter level because we were so small. We were more engaging at the individual hospital level as we're becoming available in 600-plus hospitals in the U.S. We are building our hospital system sales team and also the entire sales team -- train our entire sales team to not only thinking about individual hospital but really thinking about hospital system level sales. So that requires, we call it bottom-up and top-down sales coordination. We more just started doing this systematically this year. So, we anticipate to continue executing and capture the opportunity here, become even better partner for our customers. Operator: Your next question comes from the line of Bill Plovanic from Canaccord Genuity. William Plovanic: And you did a good job on the pronunciation. So, start out with first, just I'm looking at the guidance, and it's pretty broad. Low end is about, I think, 23% year-over-year, high end is 25% or 35% year-over-year. Multiple questions here. First, what drives the lower end versus the higher end of that? I mean it's a pretty broad guidance range considering you're coming into the end of the year. I'm going to start with that and then multiple other. Scott Blumberg: Yes. Bill, I think our philosophy on guidance remains unchanged. We appreciate the importance, especially as a company that's only been public for a year to put forth numbers that we feel very strongly we're able to achieve, and that colors the way we think about guidance. So, when there's things that we know or believe like Q4 seasonality, for example, being stronger than Q3, as we think about the bottom of the range, we think about being extremely conservative and essentially derisking all of the unknowns. So. I think it's -- I would read into the range really as risk calibration and us putting forth numbers that we have a very high degree of confidence in. William Plovanic: Okay. And then I just want to -- post IPO, one of the things you did was you took a lot of that and you invest in the sales force. Just any update on where you are with the TMs and the CAMs today? And then, you saw an uptick, I think, basically 31 net new active accounts sequentially. That's the highest number we've seen in a very long time. It's definitely ticking up. Just is this a function of the new reps that were brought on? Kind of what are the drivers of that this quarter? Scott Blumberg: As far as the commercial infrastructure goes, we haven't made any fundamental changes to our strategy since last quarter. We still have roughly the same number of territories planned in the mid-50s right now on the TM side. We have and we'll continue to invest in the CAM side of the business because that side of the org grows roughly in line with the growth of the account base. So, we're fully staffed on that side, but that will continue to grow. I think, we also are looking opportunistically at areas to invest to accelerate further growth. And James answer to a prior question, I think, is one area where we're looking very closely, which is IDN level systems. As far as the account adds go, we're obviously very pleased with the results this quarter. I know, there's a lot of kind of emotional difference between the 29 we did last quarter, a couple of quarters ago 31. But I'd consider that largely in the kind of range of expected outcomes here, and we fully expected that the hires we make start to become productive as we get into 2826 here. William Plovanic: Okay. And then I think Robbie asked the question, you've been growing revenue pretty strong. We haven't seen leverage in the P&L. And I think one of the questions we get from investors is, is that something we're like -- I know you haven't given guidance yet, but is there a reason we won't start seeing it sometime in the next year? Scott Blumberg: The only reason you would expect -- I would expect us not to see, it is if we make a strategic decision because we see a profound growth opportunity to really invest in the OpEx to capture that growth. And if and when we make that decision, we'll communicate that clearly to the Street so that it's not a surprise. William Plovanic: Okay. And then any update just on competition? The other question we get a lot of is just competition. What are you seeing in the marketplace? Are you losing any more accounts today or winning any more versus where you were 6 or 12 months ago? And then any update on the IP litigation? What are the next steps? Xingjuan Chao: Yes. On the competition front, I would say in Q1, Q2, we saw a significant increase of the competition activity, as we mentioned before. In Q3, I would say, there's nothing substantial change. We see continued growth of competition activities there. However, I would say our performance in 2025 speaks for itself. We have beat and raised our guidance every single quarter, and that shows that the competition is not meaningfully impact our performance. And the reason we are achieving this is not only leveraging the superiority of our product, clinical evidence and cybersecurity, we are also learning a lot about competition and put strategy and plan in execution to address this. And in terms of ITC litigation, as investors or you probably see ITC have outlined the milestones before the shutdown. And at the time, the anticipated decision is September next year and the final ruling of January 2027. With the government shutdown, we anticipate some level of delay there, then we also expect that ITC would update the time line as soon as the government reopens. William Plovanic: Okay. And then just last for me. I think you mentioned the shift to Vietnam with the manufacturing. We'll start to see the impact in Q4. I think you mentioned that will drive mid-80s gross margin. Is 100% of that into the quarter? Or is it kind of we'll see margins ramp down this year in Q4, and then hit that mid-80s for next year? How do we think about kind of cadence there? Your line is live. Scott Blumberg: Hi. This So Q4, we'll be relying for the first part of the quarter on pre-tariff inventory, and then on for the remainder of the quarter only on China inventory Because it's essentially inventory that was acquired before we had Vietnam up and running. So, Vietnam doesn't impact this quarter. As we move into next year, what you'll see is China inventory that we've acquired at a higher tariff rate mixed in with Vietnam inventory at a lower tariff rate currently and that should reflect itself in that continuation of the mid-80% gross margin into next year. Operator: Your next question comes from the line of Jeffrey Cohen from Ladenburg Thalmann. Jeffrey Cohen: First, I wondered if you could dive into the VA channel a bit more and talk about some of the current accounts and some of the expanded accounts and what you may expect, how that implies into fourth quarter and next year as far as the growth specific to VA? Xingjuan Chao: Yes. So, we do not -- even though we cannot and do not disclose the specific numbers on VA or specific hospital system, but I'm really excited and can talk more about what we can share about VA. So, VA has a very rigorous process in terms of piloting first and then systematically roll out at different phases. So, where we are now is the first few pilot has been very successful. Both the physicians and administrators at the VA clearly not only saw and also experience the value our system delivers clinically as well as financially. So, we are now confirmed to roll out the first larger cohort of VA accounts in the next couple of quarters. And so this will be one of the largest top-down rollouts we've ever done at in the Ceribell history. So that's what we are very excited about. It's not only a big win for the company, but also for the veterans who we serve, who are at the risk of seizures. Jeffrey Cohen: Okay. Got it. And then as a follow-up, I know you spoke previously about the headcap and neonatals, but you made a comment about the utilization of hardware without clarity that was happening in Q3. Could you just expand upon that a little bit for us, please? Xingjuan Chao: Yes. We -- it's premature to probably talk about utilization at the account level for neonate at this phase yet, because the pilot we focus on is really on the population discussion, confirming signal quality, confirming ease of use. Because of the nature of that, it does not perfectly reflect what would be the actual commercial clinical usage. However, what we can report is it has been very well received. We already have certain case studies that the physicians and nurses that they significantly help the patient, either detecting seizure early or avoid unnecessary medication for the patient, which is critical for patients' outcome. So, we are excited to potentially bring the entire product from hardware with Clarity to market in 2026. Operator: Thank you, Geoff. Perfect. Your final question, it comes from the line of Jayson Bedford from Raymond James. Unknown Analyst: This is [ Elaine ] on for Jason. So, by our math, you grew utilization year-over-year despite the tough comp from stocking in 3Q '24. So, I was just wondering how much would utilization have grown, excluding the stocking impact? And also, did you see the usual seasonality impact this quarter as well? Scott Blumberg: The quarter year-over-year growth comparison would have looked much more similar to the year-over-year growth we saw in Q1 and Q2 had there not been the purchases, the additional purchases in Q3. As far as seasonality goes, yes, of course, we'll know for sure after we get through Q4. But if you look kind of sequentially, Q1 was really strong and Q2 and Q3 on a sequential basis were less so. And that's been exactly consistent with what we've seen in the last 2 years. We're still obviously only a few years into this commercial journey, but this year has not surprised us in any way in terms of the quarter-to-quarter trends. Unknown Analyst: And for my follow-up, I was wondering, could you share more -- sorry, more color on the utilization trends, are certain departments driving the increased utilization? Are you seeing more in the ICU or the ED, for instance? And I know you talked a little bit about the use cases. Xingjuan Chao: Yes. Overall, we actually see a relatively broad growth driver. So, from departmental expansion to protocolization and even beyond the ICU and ED to the floor to the step-down units. And particularly, we do see a bit of even stronger growth in the emergency department compared to the ICU because EDs are in general, even less penetrated. So that's overall, but we don't see a single driver that accounts for majority of the growth. Operator: That concludes the question-and-answer session. I'd now like to turn the call back over to Jane Chao for closing remarks. Xingjuan Chao: Thank you. Well, thank you, everyone, for your attention and for joining the call. Again, we are very excited and proud of what we have accomplished for Q3 and look forward to sharing our performance of next quarter and quarters to come. Thank you. Operator: This concludes the meeting. You may now disconnect.
Operator: Greetings, and welcome to the Rigel Pharmaceuticals Financial Conference Call for the Third Quarter 2025. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce our first speaker, Ray Furey, Rigel's Executive Vice President, General Counsel and Corporate Secretary. Thank you, Mr. Furey, you may begin. Raymond Furey: Welcome to our third quarter 2025 financial results and business update conference call. The financial press release for the third quarter of 2025 was issued a short while ago and can be viewed along with the slides for this presentation in the News and Events section of our Investor Relations site on rigel.com. As a reminder, during today's call, we may make forward-looking statements regarding our financial outlook and our plans and timing for regulatory and product development. These statements are subject to risks and uncertainties that may cause actual results to differ from those forecasted. A description of these risks can be found in our most recent annual report on Form 10-K for the year ended December 31, 2024, and subsequent filings with the SEC, including our Q3 quarterly report on Form 10-Q on file with the SEC. Any forward-looking statements are made only as of today's date, and we undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances. At this time, I'd like to turn the call over to our President and CEO, Raul Rodriguez. Raul? Raul Rodriguez: Thank you, Ray, and thank you all for joining us today. Also with me today are Dave Santos, our Chief Commercial Officer; Lisa Rojkjaer, our Chief Medical Officer; and Dean Schorno, our Chief Financial Officer. On today's call, I will provide an overview of Rigel's business, along with our accomplishments and financial results for the third quarter of 2025. Starting on Slide 4, you will see an outline of Rigel's corporate strategy. Our strategic objectives are to grow our hematology and oncology business through commercial performance, pipeline expansion, coupled with financial discipline. Our continued execution of this strategy has led to another outstanding quarter for Rigel. For the third quarter, we reported total revenue of $69.5 million, including record net product sales of $64.1 million, a 65% year-over-year increase. Later in the call, Dave will provide more detailed information on our commercial performance for this quarter. Moving to our development pipeline. We continue to fund and advance our programs during the quarter. This includes our ongoing Phase Ib study of R289, Rigel's potent and selective dual IRAK1 and IRAK4 inhibitor that is being studied in patients with relapsed or refractory lower-risk MDS. We have completed enrollment of the dose escalation phase of the study, and we will present data from this phase in an oral presentation at the ASH Annual Meeting in December. In addition, we recently announced the first patient was enrolled in the dose expansion phase of the study, where we will compare 2 doses of R289 to determine the recommended dose for future registrational and other clinical studies. Moving on to olutasidenib. We will have 4 posters with data in patients with mutant IDH1 AML at the ASH meeting, supporting the use of olutasidenib in a range of difficult-to-treat mutant IDH1 AML patient populations. We continue to evaluate olutasidenib in other areas where IDH1 plays a role through various strategic collaborations. A fifth study with MD Anderson opened for enrollment in September. And in October, the first patient enrolled in the CONNECT Phase II TarGeT-D study, evaluating olutasidenib in patients with high-grade glioma. In addition, we are planning a collaboration with MyeloMATCH to evaluate olutasidenib in first-line AML and MDS. Lisa will provide the latest updates on our development pipeline later in the call. In terms of Rigel's own study in glioma, we are continuing to evaluate our options. Along with our commercial and development execution, we continue to pursue additional in-licensing deals or asset acquisitions that are synergistic with our capabilities, strategy and focus, allowing us to add additional avenues to achieve significant growth. Underpinning all our efforts is a continued emphasis on financial discipline, which allowed us to generate $27.9 million of net income in the third quarter and to increase our cash balance to $137.1 million. Now on to Slide 5, which illustrates the growth of our net product sales year-over-year. We have consistently delivered strong top line growth. We are accelerating this trend in 2025, already having generated $166.6 million in net product sales year-to-date, already surpassing net product sales for all of 2024. As a result of our outstanding commercial performance year-to-date, we are raising our 2025 revenue guidance. We now expect total revenue of $285 million to $290 million, an increase from the prior range of $270 million to $280 million. Our new guidance includes net product sales of $225 million to $230 million. This new 2025 outlook reflects anticipated growth of 55% to 59% compared to 2024, exceeding the growth rate that we have delivered over the last 4 years. Rigel has made tremendous progress in our unique approach that combines strong commercial execution, adding additional products through in-license or acquisition and financial discipline, all resulting in our ability to fund a potentially transformative internal development pipeline. We continue to focus on executing on our strategy to achieve significant long-term growth. Now with that, I will turn the call to Dave to discuss our commercial business in more detail. Dave? David Santos: Thank you, Raul. On Slide 7, you'll see our 3 commercial products, TAVALISSE, GAVRETO and REZLIDHIA. Moving to Slide 8. We are thrilled to report another excellent quarter from our commercial portfolio, marked by strong year-over-year growth and an all-time high in revenues in the third quarter of 2025. The slide shows how our quarterly and annual net product sales have increased since 2021. We've grown each quarter's sales over the previous year, and that growth continues. In the third quarter of 2024, we reported $38.9 million. And now for the third quarter of 2025, we generated a record $64.1 million, an increase of 65%. Our third quarter commercial portfolio net sales reflect increased demand through carryover from both improved patient affordability that we started to experience earlier in the year and new patients, which was also augmented by favorable gross to net dynamics. As Raul mentioned, our year-to-date 2025 revenue has surpassed our 2024 full year revenue. And on a trailing 12-month basis, we've exceeded $200 million in net product sales, illustrating that our focus on growing our commercial portfolio is being executed in line with our strategy, a remarkable achievement by the team. Our commercial team has been dedicated to execution and driving momentum for our commercial portfolio, and I thank them for their continued efforts. Slide 9 shows a summary of our commercial performance by product. First on TAVALISSE, the cornerstone of our business, I'm pleased to report a record quarter in which we generated $44.7 million in net product sales, an increase of 70% compared to the third quarter of 2024. This growth was driven by increased demand and favorable gross to net dynamics. For GAVRETO, we delivered $11.1 million in net product sales in Q3, an increase of 56% compared to the third quarter of 2024, the first full quarter GAVRETO was commercially available from Rigel. The year-over-year growth was driven by an increase in new patients and carryover demand. GAVRETO is now a stable business that is consistently generating more than $11 million per quarter. And lastly, for REZLIDHIA, we reported $8.3 million in net product sales, an increase of 50% compared to the prior year period, reflecting record demand. During the quarter, we saw an increase in both breadth and depth of prescribers. We continue to believe there is a significant opportunity for growth because our data in the post-venetoclax patient population is a clear differentiator. Moving to Slide 10. We continue to work on expanding access to our products in markets outside the U.S. TAVALISSE is commercially available in Japan, in Europe under the brand name TAVLESSE, and in Canada and Israel via partners, Kissei, Grifols and Medison. In addition, Kissei’s licensing partner, JW Pharmaceutical Corporation, launched TAVALISSE in South Korea in early July as our partners continue to pursue regulatory approvals for TAVALISSE in new markets. For REZLIDHIA, in 2024, we expanded our relationship with Kissei to include several countries in Asia for all potential indications, and we entered into an exclusive license agreement with Dr. Reddy's for all potential indications throughout Dr. Reddy's territory. We are pleased that access to our products is expanding outside the U.S., and we continue to explore other opportunities for partnerships to bring our products to other markets around the globe. I'll now pass the call over to Lisa to provide an update on our development pipeline. Lisa? Lisa Rojkjaer: Thanks, Dave. I will now provide an overview of our pipeline progress and plans for the remainder of the year. I'm on Slide 12. Our hematology and oncology pipeline strategy is focused on the clinical development of R289, our potent and selective dual IRAK1 and IRAK4 inhibitor in lower-risk myelodysplastic syndrome, or MDS, and the expansion of olutasidenib beyond relapsed or refractory IDH1 mutated AML. Beginning with R289, our Phase Ib study in patients with relapsed or refractory lower-risk MDS is progressing well. Yesterday, we announced that we'll be providing updated data from the dose escalation portion of the R289 study in an oral presentation at the upcoming ASH Annual Meeting. I'll provide an update on the study shortly. As Raul mentioned, we're proud of our strategic collaborations to advance olutasidenib into additional therapeutic areas. With MD Anderson, olutasidenib is now being evaluated in 5 clinical studies in IDH1 mutation-positive AML and MDS and this maintenance therapy in IDH1 mutation-positive glioma by the CONNECT Cancer Consortium. We're also partnering with MyeloMATCH for a planned study in first-line AML and MDS. We're also considering additional Rigel-led studies, and we'll provide further updates on that as we have them. Rigel also remains focused on evaluating potential acquisition and in-licensing opportunities that strategically fit our hematology and oncology portfolio and infrastructure. We're focused on evaluating differentiated late-stage assets in hematology, oncology or related areas that are synergistic with our existing commercial portfolio. Now, we will spend a few moments on R289, our novel dual IRAK1 and IRAK4 inhibitor. First, on Slide 14, I'd like to talk about the treatment landscape for lower-risk MDS. MDS is a clonal disorder of hematopoietic stem cells leading to dysplasia and ineffective hematopoiesis. The main consequences for patients are anemia and transfusion dependence, which adversely impact their quality of life. In addition, infections, iron overload from transfusions and subsequent organ dysfunction all negatively impact the patient. Therapies used in the upfront setting include erythropoiesis-stimulating agents, or ESAs, if patients are eligible or luspatercept. Luspatercept and more recently, imetelstat are also approved for ESA failure transfusion-dependent lower-risk MDS patients. Finally, hypomethylating agents or HMAs are also approved. However, the percentage of patients achieving transfusion independence is low. With 8-week transfusion independence rates approaching 40% with luspatercept and imetelstat, there is still a need for safe, effective therapies for transfusion-dependent lower-risk MDS patients that are relapsed, refractory to or ineligible for ESAs. Now I'll shift focus to the R289 program. On Slide 15, you can see the value proposition of R289 in lower-risk MDS. There are about 12,000 previously treated lower-risk MDS patients in the U.S. As mentioned on the previous slide, there's a high unmet need for therapies in this disease area, particularly for transfusion-dependent patients. Dysregulation of inflammatory signaling is key to the pathogenesis of lower-risk MDS and IRAK1 and 4 mediate this process. Blocking both IRAK1 and 4 may suppress marrow inflammation and leukemic stem and progenitor cell function and restore normal hematopoiesis. R835, the active moiety of R289, blocks toll-like receptor and IL-1 receptor signaling in vitro and was active in various preclinical models of inflammation. Clinical proof of concept of this anti-inflammatory effect came from a healthy volunteer study in which R835 markedly suppressed LPS-induced cytokine release compared to placebo. As a reminder, R289, which is currently being evaluated in the clinic, is the oral prodrug that is rapidly converted to R835 in the gut. From the FDA, R289 has Fast Track designation for the treatment of patients with previously treated transfusion-dependent lower-risk MDS and orphan drug designation for MDS, giving the molecule an expedited regulatory pathway, potential priority review and 7 years of market exclusivity upon approval. Both of these designations underscore the agency's interest in this rare disease, the unmet need of the patient population and the FDA's willingness to collaborate with Rigel in the development of R289. In addition, R289 has thus far demonstrated a promising clinical profile in our Phase Ib study. At ASH in 2024, we presented promising preliminary safety and efficacy data from the Phase Ib study in elderly heavily pretreated patients. And we look forward to sharing updated data from the dose escalation part of the study soon in an oral presentation at this year's ASH meeting. On Slide 16, you'll see the design of our multicenter open-label Phase Ib study in patients with relapsed/refractory lower-risk MDS that are either transfusion-dependent or have symptomatic anemia. The study aims to evaluate the safety, PK and preliminary activity of R289 in this patient population as well as select a dose for future studies. We completed enrollment in the dose escalation part of the study in July, and the first patient in the dose expansion phase was enrolled last month. In this part of the study, up to 40 transfusion-dependent relapsed/refractory lower-risk MDS patients will be randomized to receive R289 doses of either 500 milligrams once or twice daily in order to select the recommended Phase II dose for future clinical studies. Once this occurs, we will evaluate R289 in a cohort of less heavily pretreated patients who are relapsed/refractory to or ineligible for ESAs. We anticipate that we will have sufficient data to make a decision on the recommended Phase II dose in the second half of next year, after which we would plan to have a follow-up discussion with the FDA about a potential pivotal study design. For now, updated dose escalation data using an October 28 data cutoff date will be shared in an oral presentation at the ASH meeting on Sunday, December 7. We're very pleased with the progress we've made this year with our R289 clinical program. Now, I'll transition to our strategic collaborations to evaluate olutasidenib in other cancers harboring IDH1 mutations. On Slide 18, we summarize our strategic alliance with the MD Anderson Cancer Center to advance olutasidenib more broadly into AML, MDS and beyond. A fifth study under the strategic alliance opened for enrollment in September. This study will evaluate olutasidenib in combination with co-targeted therapies in patients with relapsed/refractory IDH1 mutated myeloid malignancies harboring activated signaling pathway mutations. Enrollment also continues in the other 4 studies. On Slide 19, we're also proud of our collaboration with CONNECT, a global pediatric Neuro-Oncology Consortium, which is evaluating olutasidenib in adolescents and young adults with high-grade glioma, an area of high unmet medical need. In CONNECT’s TarGeT trial, a molecularly guided Phase II umbrella clinical trial for high-grade glioma, the Rigel-sponsored arm of the study, TarGeT-D, will evaluate a post-radiotherapy maintenance regimen of olutasidenib in combination with temozolomide, followed by olutasidenib monotherapy in newly diagnosed patients between 12 and 39 years of age with IDH mutation positive high-grade glioma. I'm pleased to report that this study enrolled its first patient in October. We, along with CONNECT, are excited about olutasidenib's potential to provide a much needed new treatment option to this underserved patient population. On Slide 20, I want to share with you our new partnership with MyeloMATCH, which will also evaluate olutasidenib in IDH1 mutated AML and MDS. MyeloMATCH is a group of precision medicine clinical trials for patients with MDS or AML led by the NIH and National Cancer Institute. This initiative is very compelling. Patients with newly diagnosed MDS or AML will go through an initial screening process before being assigned to a clinical trial evaluating targeted therapy for their specific disease mutational profile. Based on the promising data for olutasidenib in relapsed/refractory IDH1 mutated AML, the NCI was interested in studying olutasidenib in combination with other agents in patients with newly diagnosed IDH1 mutated AML and MDS. We're pleased to be participating in this important program and look forward to providing you with updates as the trial advances. Before I wrap up my remarks, I'd like to highlight Rigel's presentations at the upcoming ASH Annual Meeting in December, which you can see on Slide 21. For R289, we're pleased to share updated data from the dose escalation part of our Phase Ib study in lower-risk MDS. In the abstract published yesterday with data as of July 15, you'll see R289 continues to be generally well tolerated in a heavily pretreated patient population, the majority of whom were high transfusion burden at baseline. Preliminary signs of efficacy were observed with R289 doses of at least 500 milligrams once daily and higher. At the meeting, there will be an oral presentation of updated data using an October 28 data cut on Sunday, December 7. Additionally, 4 poster presentations for olutasidenib in patients with IDH1 mutated AML are planned. These presentations contribute to the growing body of data supporting the use of olutasidenib in patients with relapsed or refractory IDH1 mutated AML, including those who have previously been treated with a venetoclax-based regimen. Now, I'll pass the call to Dean to discuss our partnered program with Eli Lilly and our financial results for the quarter. Dean? Dean Schorno: Thank you, Lisa. I'm on Slide 23. I'd like to provide a brief update on our collaboration with Lilly. Ocadusertib, the non-CNS penetrant RIPK1 inhibitor, previously referred to as R552, is currently being studied in an adaptive Phase IIa/IIb clinical trial in up to 380 patients with active moderate to severe rheumatoid arthritis. Enrollment in the Phase IIa study is ongoing. As most of you know, we also have a CNS penetrant program with Lilly, whereby Lilly was considering for preclinical development, a variety of RIPK1 inhibitor candidates pass the blood-brain barrier. In October, Lilly notified us that it will terminate the CNS disease program, which will become effective after 60 days. We continue to be very excited about our collaboration with Lilly as they are an ideal partner to explore the key role the RIPK1 inhibitors play in TNF signaling and pro-inflammatory necroptosis, which could support broad potential in RA, psoriasis and IBD. We also note that we are entitled to receive milestones and tiered royalty payments on future net sales of ocadusertib. Moving on to Slide 25. We reported net product sales of $64.1 million for the third quarter, a growth of 65% year-over-year, including TAVALISSE net product sales of $44.7 million, a growth of 70% year-over-year. GAVRETO net product sales of $11.1 million, a growth of 56% year-over-year. Lastly, we reported REZLIDHIA net product sales of $8.3 million, a growth of 50% year-over-year. Our net product sales were recorded net of estimated discounts, chargebacks, rebates, returns, co-pay assistance and other allowances of $21.6 million. We also reported $5.4 million in contract revenues from our collaborations for the third quarter. primarily consisting of $3.1 million of revenue from Grifols, $1.8 million of revenue from Kissei and $200,000 of revenue from Medison related to delivery of drug supplies and earned royalties. This brings our total revenue for the third quarter to $69.5 million. Moving to the next Slide 26. Our cost of product sales was approximately $4.8 million for the third quarter of 2025. Total cost and expenses were $41 million compared to $41.3 million for the same period of 2024. The decrease in costs and expenses was mainly due to lower cost of product sales as the prior period included a sublicensing fee, partially offset by increased research and development costs driven by the timing of clinical activities related to olutasidenib and R289 and higher personnel-related costs. We reported net income of $27.9 million for the third quarter compared to $12.4 million for the same period of 2024. We ended the third quarter with cash, cash equivalents and short-term investments of $137.1 million compared to $77.3 million as of the end of 2024. Now for our financial outlook for 2025. Based on our strong performance to date, we're raising our total revenue guidance to approximately $285 million to $290 million, an increase from the prior range of $270 million to $280 million. This includes updated net product sales expectations of approximately $225 million to $230 million, an increase from the prior range of $210 million to $220 million, and contract revenues from collaborations of approximately $60 million. We continue to anticipate reporting positive net income for the full year 2025 while funding existing and new clinical development opportunities. With that, I'd like to turn the call back over to Raul. Raul? Raul Rodriguez: Thank you, Dean. Moving on to Slide 27. Our 2025 results year-to-date are a culmination of the successful execution of the corporate strategy that we put in place several years ago, one aspect of which is to grow our commercial business. As you can see, we've reported strong year-to-date sales and the results -- because of this strong performance, we have raised our net product sales expectation for 2025 and now expect to generate growth of 55% to 59% year-over-year as compared to the 32% average growth that we have seen over the last 4 years. Moving on to Slide 28. For the remainder of 2025, we will continue our focus on driving our corporate strategy. We aim to increase sales of our commercial products and deliver on our updated revenue and profit guidance and also allowing -- and so allowing us to fund key development programs in our internal pipeline, and we are advancing these development programs. Enrollment in our dose escalation phase of our Phase Ib study of R289 in patients with lower-risk MDS is complete, and we look forward to presenting updated data at the -- of that study at the ASH meeting in December. Enrollment in the dose expansion phase of the study is now ongoing. For olutasidenib, our strategic collaborations are advancing with enrollment of the 5 MD Anderson studies and the CONNECT studies all ongoing. We continue to support the advancement of these strategic collaborations while working on the initiation of a new study with MyeloMATCH. And we're evaluating our options for a Rigel-led study in glioma. As we've done in the past, we are also evaluating new in-licensing and product acquisition opportunities to expand our product portfolio with synergistic late-stage assets, which could be funded through a combination of internal and external funds. In closing, Rigel has continued to demonstrate the strength of our business in the third quarter of 2025, and we aim to finish the year with a strong fourth quarter, supported by sustained financial discipline. I also want to reiterate our proven strategy has built Rigel into a profitable, growing, sustainable business that is well positioned for growth as we head into 2026. So with that, I'd like to thank you for your interest, and we will now open the call to your questions. Operator? Operator: [Operator Instructions] Our first question today is coming from Yigal Nochomovitz from Citigroup. Unknown Analyst: This is [ Caroline ] on for Yigal. We were wondering how you see the competitive positioning of R289 in lower-risk MDS versus RYTELO. And maybe it's too early to say, but for the potential registrational study, would you do something similar to RYTELO's placebo-controlled study? And would you exclude patients who received RYTELO from your study? Raul Rodriguez: I'll let Lisa to comment. I also have a comment on that. Lisa Rojkjaer: Yes. I think that it might be a little bit too early. Thanks for the question, Caroline. Really good question. I think it might be a little early to speculate on that one. I mean we're -- first of all, now we're in a different patient population than imetelstat was. We're in patients that are much more heavily pretreated and have received HMAs. You'll recall that the patients in the Phase III randomized study for RYTELO had not received prior HMAs. So I would say that we're very pleased with the preliminary activity and safety profile that we're seeing thus far. It's definitely a bit too early to talk about our plans for a registration study, but we will -- I think our plan will be to get through dose expansion, fix the dose. As I mentioned, we will also then be opening a cohort of less heavily pretreated patients that are more akin to the recent luspatercept and imetelstat studies. So we'll have a look at the activity there, and then we'll decide on what our next plans will be. Raul Rodriguez: Suffice it to say, we think that there's a broad range of opportunities for this product in lower-risk MDS after ESAs. And even after ESAs is an area where, as you may have seen in the slide, we tend to explore a bit more once we know the dose because that opens up an even larger opportunity set. So it's exciting to have that range of opportunity with this product, including before and after luspatercept potentially. Operator: Next question today is coming from Joe Pantginis from H.C. Wainwright. Joseph Pantginis: Great to see the launches continuing to be strong. So 2 questions first. So for 289, you mentioned the potential for looking at priority review. So I want to get maybe some profile views out of you guys with regard to maybe the level of data that you feel might be needed, the parameters for the profile of the drug, say, the importance for reducing transfusions. So I wanted to get your views there. Lisa Rojkjaer: Yes. I think I'll take that. Thanks for the question, Joe. I think that given that we have the Fast Track designation, that really opens up potential for priority review, and that kind of underpins the comment there. So again, I think that we're going to have to see how the data continues to evolve in the dose expansion part of the study. Joseph Pantginis: Got it. And then just quickly, this is a very important unmet medical need with oluta for the CONNECT study in glioma. Would you be able to provide some of the benchmarks we'd be looking to be with IDH1 mutations in this patient population? Lisa Rojkjaer: Well, I think that's an interesting question as well. As far as I'm aware, this is a novel approach to taking patients that are post-chemo radiation, and this is more of a maintenance approach. So combined with temozolomide for 12 months initially followed by maintenance therapy. And there will be -- the comparison is versus a historical control. So I don't think there's specific data for -- in this maintenance setting. Joseph Pantginis: So that's helpful in the sense that there might be a -- or considering a low bar of success there. So I appreciate the comments. Operator: [Operator Instructions] Our next question is coming from Farzin Haque from Jefferies. Mohamad Amin Makarem: This is Amin on for Farzin. A couple of questions from us. First, you mentioned improvements in Q3 gross to net. What was the rate by brand and the expected Q1 and Q4 rates, especially for oral products under the Medicaid Part D redesign that has been improving access and affordability. And I have a follow-up. Raul Rodriguez: Yes. I can start and then Dave can layer on top of this. We haven't provided specific guidance with respect to product by product or gross to net. We have said that we've had favorable gross to net dynamics with the patient, patient affordability. And therefore, as we think about our gross to net, there's a variety of factors that factor into it. We've got the mix, the type of patient and payer. We've got the different legislation like the IRA. And so all of those factor into the overall gross to net. It's been favorable the last several quarters now, and that's the level of detail we've given and again, not product by product. I don't know, Dave, do you have anything? David Santos: Yes. The only thing I would add is that our gross to net has a number of different factors like Dean said. But one of the things that we try to do is provide access to patients through patient services. And of course, we want to distribute our products to patients. And we have made significant strides in improving the efficiency of our -- both our patient services and distribution network, and that has also helped to improve our gross to net, which I think goes to what Raul is saying is our strategy is grow our sales and improve our efficiency, and that's exactly what we're doing. So I think all of these things are adding up to just a marvelous year for us. Mohamad Amin Makarem: Okay. Great. Helpful. And how are you setting expectations for the updated data at ASH for R289 in lower-risk MDS patients? How much data beyond the abstract do you plan to present? Lisa Rojkjaer: Yes, I can take that one. Thanks for the question. So we're going to be -- with the October 28 data cutoff date that I mentioned, we will have 16 weeks of follow-up on all of the patients. So all of the patients -- that includes all the patients in the 500-milligram BID dose level. So that's all I'm going to say on that one. Yes. Raul Rodriguez: So really, it's a good data set with that final dose group, having data from that final dose group, which we're eager to share. Operator: We reached the end of our question-and-answer session. I'd like to turn the call back over to Mr. Raul Rodriguez for any further closing comments. Raul Rodriguez: Well, thank you. I appreciate your questions. And thank you, everyone, for joining us on the call today and your continued interest in Rigel. So far, 2025 has been a tremendous year for both our commercial portfolio and advancing our development pipeline. And we look forward to sharing that data at the ASH meeting that we mentioned on R289 in December. To our employees, I'd like to thank you for your continued dedication to the company. It is through your innovation, integrity and your commitment to patients that we've reached this successful place. So I look forward to updating you on our future progress and all have a good afternoon, evening. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
Operator: " Raul Vazquez: " Dorian Hare: " Paul Appleton: " Brendan Michael McCarthy: " Sidoti & Company, LLC John Hecht: " Jefferies LLC, Research Division Richard Shane: " JPMorgan Chase & Co, Research Division Operator: Greetings, and welcome to the Oportun Financial Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dorian Hair of Investor Relations. Thank you. You may begin. Dorian Hare: Thanks, and hello, everyone. With me to discuss Oportun's third quarter 2025 results are Raul Vazquez, Chief Executive Officer; and Paul Appleton, our Treasurer, Head of Capital Markets and Interim Chief Financial Officer. I'll remind everyone on the call or webcast that some of the remarks made today will include forward-looking statements related to our business, future results of operations and financial position, included projections, adjusted ROE attainment and expected originations growth, planned products and services, business strategy, expense savings measures and plans and objectives of management for future operations. Actual results may differ materially from those contemplated or implied by these forward-looking statements, and we caution you not to place undue reliance on these forward-looking statements. A more detailed discussion of the risk factors that could cause these results to differ materially are set forth in our earnings press release and in our filings with the Securities and Exchange Commission under the caption Risk Factors, including our upcoming Form 10-Q filing for the quarter ending September 30, 2025. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events other than as required by law. Also on today's call, we will present both GAAP and non-GAAP financial measures, which we believe can be useful measures for the period-to-period comparisons of our core business and which will provide useful information to investors regarding our future financial condition and results of operations. A full list of definitions can be found in our earnings materials available at the Investor Relations section on our website. Non-GAAP financial measures are presented in addition to and not as a substitute for financial measures calculated in accordance with GAAP. A reconciliation of non-GAAP to GAAP financial measures is included in our earnings press release, our third quarter 2025 financial supplement and the appendix section of the third quarter 2025 earnings presentation, all of which are available at the Investor Relations section of our website at investor.oportun.com. In addition, this call is being webcast and an archived version will be available after the call, along with a copy of our prepared remarks. With that, I will now turn the call over to Raul. Raul Vazquez: Thanks, Dorian, and good afternoon, everyone. Thank you for joining us. Our third quarter results were strong, marking our fourth consecutive quarter of GAAP profitability. We met or exceeded all of our guidance metrics, reflecting continued operational discipline and strong execution across the business. The 4 key headlines from the quarter are: continued GAAP profitability, improved credit performance, ongoing expense discipline and an enhanced capital structure. Let's start with profitability. We were GAAP profitable once again in Q3 with net income of $5.2 million, reflecting $35 million of year-over-year improvement. Our ROE was 5%, up 40 percentage points year-over-year. We achieved these results through continued disciplined expense management, improved credit performance and growth in originations. Based on our performance through the first 3 quarters, we remain confident that we'll deliver on our promise of full year 2025 GAAP profitability as we committed to at the start of the year. This includes our expectation to be GAAP profitable in the fourth quarter. Turning to credit performance. Our annualized net charge-off rate was 11.8%, a modest improvement from 11.9% in the prior year period. Our 30-plus day delinquency rate also improved year-over-year by 44 basis points to 4.7%. On the expense side, we reported $91 million in operating expenses, down 11% year-over-year. That represents our second lowest quarterly expense level since becoming a public company in 2019 and our lowest ever on an adjusted basis. Thanks to our planned reduction of second half 2025 marketing and other expenses, we now expect full year 2025 GAAP operating expenses of approximately $370 million, a $10 million improvement from our prior outlook and a $40 million improvement from 2024. Finally, we took meaningful steps during and after the quarter to further strengthen our capital structure. We executed ABS financings at weighted average yields below 6% in August and October and proactively repaid higher cost corporate debt. Additionally, we expanded our warehouse financing capacity in October by adding a new facility and modifying an existing one, extending average maturity and reducing our average cost of capital. Our debt-to-equity ratio was 7.1x at the end of Q3, down significantly from the 8.7x peak level in the prior year quarter, and we remain on track toward our target of 6x. With our Q3 highlights covered, I'll now review how we're executing against our 3 strategic priorities. improving credit outcomes, strengthening business economics and identifying high-quality originations. Starting with credit outcomes. On our last earnings call, we shared that the first half of the year saw a higher mix of new members than expected and that we were recalibrating originations more toward returning members. Our efforts were effective. 70% of Q3 originations went to returning members, up from 64% in the first half. Although our third quarter 30-plus day delinquency rate of 4.7% came down by 44 basis points year-over-year, it was at the higher end of our internal expectations. Observing this trend, we took additional credit tightening actions during the quarter, which are ongoing. This included leveraging a new early default model to enhance predictiveness in using our bank transaction model to lower loan amounts and enact hard declines where needed. While these actions help protect portfolio quality, they led to slightly lower originations in Q3, and we expect continued impact in Q4 origination levels. Accordingly, we now expect full year 2025 originations growth in the high single-digits percentage range, slightly down from our prior expectation for growth of approximately 10%. Turning to business economics. We continue to make strong progress on efficiency and operating leverage. Our risk-adjusted net interest margin ratio improved 231 basis points year-over-year to 16.4% -- as a reminder, that metric includes portfolio yield, net charge-offs, cost of capital and loan-related fair value impacts. Our adjusted OpEx ratio improved 133 basis points year-over-year to 12.6% of our own portfolio. That's a new record for cost efficiency and within 8 basis points of our 12.5% target. Together, these improvements drove strong operating leverage, lifting ROE by 40 percentage points year-over-year and sharply increasing adjusted EPS from $0.02 to $0.39. Finally, on identifying high-quality originations, even as we maintain a conservative credit posture, we grew originations by focusing on members with higher free cash flow and on channels that deliver the strongest results. Q3 originations were $512 million, up 7% year-over-year, marking our fourth consecutive quarter of growth under a disciplined credit approach. Our referral program continues to perform well, driving 25% growth in referral-based originations to $31 million in the quarter. And expanding our secured personal loans portfolio remains a key pillar of our responsible growth strategy. SPL originations increased 22% year-over-year, and our secured portfolio grew 48% year-over-year to $209 million, now 8% of our own portfolio, up from 5% a year ago. Through the first three quarters of this year, secured personal loan losses have run over 500 basis points lower compared to unsecured personal loans. Altogether, these actions reflect our commitment to balancing growth, credit quality and efficiency, an approach that's driving consistent improvement in Oportun's profitability and overall momentum. With that, I'd like to now preview our updated 2025 outlook. We continue to closely monitor key indicators such as inflation, unemployment, fuel prices and evolving government policies alongside our internal performance metrics. Our members have remained remarkably resilient despite ongoing macro uncertainty and our third quarter results reflect that resilience. With that being the case, our 30-plus day delinquency rate did come in at the high end of our internal expectations, as I mentioned earlier. While we tighten credit accordingly, we do anticipate these trends to result in a slight increase at the midpoint of our full year 2025 annualized net charge-off rate by 20 basis points to 12.1%, reflecting approximately $5 million in higher anticipated losses. This includes a 12.45% annualized net charge-off rate expectation at the midpoint of our guidance for the fourth quarter. We expect this elevated loss rate to be temporary, impacting early 2026 before easing by next year's second quarter as recent tightening actions take hold. Finally, we've raised our full year adjusted EPS guidance to a range of $1.30 to $1.40 per share, up 4% at the midpoint, reflecting strong year-over-year growth of 81% to 94% -- this increase is driven by continued expense discipline and a lower cost of capital, which together strengthen our profitability outlook for 2025. Oportun itself has become far more resilient with sustained GAAP profitability, improved operating efficiency and a clear path toward our 20% to 28% target ROEs. Looking ahead to 2026, we plan to stay focused on our 3 strategic priorities, which gives us confidence that we'll continue to grow adjusted EPS next year. With that, I will turn it over to Paul for additional details on our financial and credit performance as well as our guidance. Paul Appleton: Thanks, Raul, and good afternoon, everyone. Turning to Slide 5. We delivered a strong third quarter, coming in $2 million or 6% above the top end of our adjusted EBITDA guidance, driven by lower operating expense and lower interest expense. In addition, we met guidance for total revenue and net charge-offs and delivered another quarter of strong GAAP and adjusted EPS performance. Turning now to Slide 6. We continued our momentum with our fourth consecutive quarter of GAAP profitability, generating $5.2 million in net income and diluted EPS of $0.11 per share. This marks our seventh straight quarter of adjusted profitability with adjusted net income of $19 million and adjusted EPS of $0.39 per share. While maintaining credit discipline, originations of $512 million were up 7% year-over-year, slightly below our prior expectations due to the credit tightening actions Raul mentioned a moment ago. Total revenue of $239 million declined by $11 million or 5% year-over-year. This decline was primarily due to the absence of $9 million of credit card revenue in the prior year quarter. As a reminder, we completed the sale of our credit card portfolio in November of last year, a transaction that has been accretive to our bottom line. Net decrease in fair value was $77 million this quarter, primarily due to $80 million in net charge-offs, which declined 3% from the prior year quarter. In addition, sustained lower ABS funding costs drove a favorable $7 million mark-to-market adjustment on our portfolio. Third quarter interest expense was $57 million, up $1 million year-over-year as sub -3% pandemic era ABS issuances continue to pay down. However, cost of debt was lower sequentially, decreasing from 8.6% in the second quarter to 8.1% in the third quarter, closely aligning with our 8% unit economics target. This improvement reflects the positive impact of recent lower cost ABS issuance, the refinancing of higher cost ABS debt as well as the repayment of corporate debt, which I'll cover more in detail shortly. Net revenue was $105 million, up 68% year-over-year, driven by improved fair value marks and lower net charge-offs more than offsetting lower total revenue. Operating expenses were $91 million, down 11% from the prior year, reflecting our ongoing cost discipline. Year-to-date, we've reduced operating expenses by $43 million. As Raul mentioned, with additional cost-saving measures identified, we now expect full year 2025 operating expenses to be approximately $370 million, including approximately $92 million in the fourth quarter for a 10% full year reduction from 2024. Adjusted EBITDA, which excludes the impact of fair value mark-to-market adjustments on our loan portfolio and notes was $41 million in the third quarter. This reflected a year-over-year increase of $10 million, driven by cost reductions and credit performance improvement. Adjusted net income was $19 million, up $8 million year-over-year, driven by our reduced operating expenses along with improved credit performance. Adjusted EPS increased sharply year-over-year from $0.02 per share to $0.39 per share, while our adjusted ROE improved 19 percentage points to 20%, which I will discuss further when I review our unit economics progress. GAAP income before taxes of $14 million increased $54 million year-over-year. This was our highest level of pretax income since the first quarter of 2022. I'll note that while our GAAP net income of $5 million increased sharply by $35 million, it was approximately half of what it would have been due to a $5 million unfavorable revision to tax expense from an annual R&D tax credit study. The revision primarily drove our effective tax rate up to 64% compared with 24% in the prior year period. Despite the higher rate, diluted EPS of $0.11 per share also impacted by the tax revision still increased by $0.86 per share year-over-year. Next, I'd like to provide some additional color on our credit performance in Q3. Our front book of loans originated since July 2022 continues to perform quite well, while our back book of pre-July 2022 loans continues to roll off. As you can see on Slide 7, our more recent credit vintages have generally outperformed their predecessors. And as a result, the losses on our front book 12 months after disbursement are now running approximately 700 basis points or more lower than our back book. Furthermore, you can see our annualized net charge-off rate for the quarter by front book versus back book on Slide 8. In Q3, the front book had an annualized net charge-off rate of 11.7%, near the 9% to 11% net charge-off range that we target in our unit economics model. The back book continues to decline, representing just 2% of the loan portfolio at quarter end, but accounting for 7% of gross charge-offs. We still expect the back book to further diminish to just 1% of our portfolio by the end of 2025. Finally, as you can see on Slide 9, our net charge-off rate was 11.8% in the third quarter, which was 7 basis points better than last year's rate. Our Q3 net charge-off dollars declined by 3% year-over-year. While we reduced our 30-plus day delinquency rate year-over-year for the seventh consecutive quarter, it was at the higher end of our internal expectations, as Raul talked about. Turning now to capital and liquidity. As shown on Slide 11, we've taken significant recent steps to enhance our debt capital structure by reducing debt outstanding and lowering our cost of capital while bolstering our liquidity. We deleveraged during Q3 by reducing our debt-to-equity ratio from 7.3x to 7.1x quarter-over-quarter, supported by GAAP profitability and $99 million in operating cash flow, of which $31 million was used to pay down debt. Our leverage is down markedly from the 8.7x peak level a year ago. Much of our focus on reducing debt outstanding has been on repaying higher cost corporate debt, which carries a 15% interest rate. We proactively repaid $20 million of corporate loan principal during the third quarter and another $17.5 million following the quarter end. We've now repaid a total of $50 million since the facility's inception in October 2024, reducing the original $235 million balance to $185 million, resulting in an annualized run rate reduction in interest expense of $7.5 million. Since the end of the second quarter, we have continued to demonstrate our ability to consistently access the capital markets at favorable terms. In August, we issued $538 million in ABS notes at a 5.29% weighted average yield, which was our lowest cost ABS issuance since October 2021. Following the quarter end, we completed another ABS issuing $441 million in notes at a 5.77% weighted average yield. Both transactions achieved a sub -6% funding cost, a AAA rating on their senior notes and freed up warehouse capacity for future originations. Also, following the quarter, we increased our total committed warehouse capacity from $954 million to $1.14 billion, increased the weighted average remaining term of our combined warehouse facilities from 17 months to 25 months and reduced the aggregate weighted average margin across our warehouse facilities by 43 basis points. We did so by closing a new $247 million 3-year revolving term committed warehouse facility and improving the terms of existing facilities. Following the end of the quarter, we purchased $115 million of the Opportune service loan portfolio held by our bank sponsorship partner, Pathward. We expect some profitability benefit from the acquisition, driven by the lower funding cost of owning the portfolio in comparison to the prior agreement with Pathward. Finally, as of September 30, total cash was $224 million, of which $105 million was unrestricted and $119 million was restricted. Turning now to our guidance, as shown on Slide 12, our outlook for the fourth quarter is total revenue of $241 million to $246 million, annualized net charge-off rate of 12.45%, plus or minus 15 basis points and adjusted EBITDA of $31 million to $37 -- our Q4 total revenue guidance reflects a $7 million year-over-year decline at the midpoint, largely due to the absence of the prior year period $4 million in credit card revenue. Our Q4 adjusted EBITDA guidance of $34 million at the midpoint also reflects a $7 million year-over-year decline, driven by lower total revenue and higher net charge-offs, partially offset by lower interest expense. Our Q4 annualized net charge-off midpoint guidance at 12.45% reflects 3Q's 30-plus delinquency rate being at the higher end of our expectations. We tightened our credit standards during Q3 and expect this uptick in our net charge-off rate to be temporary. Our revised full year 2025 guidance includes total revenue of $950 million to $955 million, annualized net charge-off rate of 12.1%, plus or minus 10 basis points, adjusted EBITDA of $137 million to $143 million and adjusted EPS of $1.30 to $1.40. I'll note that our recent credit tightening actions imply a high single-digit year-over-year decline in originations for the fourth quarter. For context, 4Q '24 originations of $522 million were our highest level since 2022. We've maintained the midpoint of our full year revenue guidance at $952.5 million while narrowing the range by $10 million. We've also maintained the midpoint of our adjusted EBITDA guidance at $140 million, reflecting 34% year-over-year growth while narrowing that range by $4 million. We've increased our adjusted EPS midpoint by $0.05 per share or 4%, supported by lower operating expenses and reduced cost of capital. Together, these actions more than offset the impact of slightly higher charge-offs and reinforce the continued strength of our profitability trajectory. Before I turn it back to Raul, let me conclude with a brief summary of our unit economics progress. While our long-term targets are GAAP targets, I'll use adjusted metrics because they remove nonrecurring items and provide a better sense of our future run rate. It's clear on Slide 14 that we continue to make significant progress in Q3. Adjusted ROE was 20%, which was a 19 percentage point year-over-year improvement, driven principally by cost reductions and improved credit performance. Our North Star continues to be delivering GAAP ROE of 20% to 28% annually, driven by reduced annualized net charge-offs to 9% to 11%, lowering operating expenses to 12.5% of our own portfolio and attaining annual growth of 10% to 15% in our own loan portfolio. We also intend to return to our 6:1 debt-to-equity leverage ratio by reducing our debt outstanding and continuing to grow GAAP profitability. With that, Raul, back over to you. Raul Vazquez: Thanks, Paul. To close, I'd like to emphasize 3 key points. First, we're pleased with our third quarter results, achieving GAAP profitability for the fourth consecutive quarter, a GAAP ROE of 5% and adjusted ROE of 20%, both significantly improved from a year ago. Second, we made important progress in strengthening our capital structure, lowering leverage and reducing our cost of capital, improvements that position us well for the years ahead. And third, we're raising our full year adjusted EPS guidance expectations again to a range of $1.30 to $1.40, reflecting strong year-over-year growth of 81% to 94%. We expect to grow our adjusted EPS further in 2026. Our disciplined execution across credit, efficiency and quality growth has delivered consistent progress over the past 2 years. Oportun is now a more resilient business even amidst ongoing macro uncertainty, supported by our dedicated team and loyal members. We look forward to speaking with you early next year to share our Q4 results and provide our full set of 2026 expectations. With that, operator, let's open up the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Rick Shane with JPMorgan. Richard Shane: Look, the delinquency trends and charge-off trends are apparent and the credit tightening is having the impact as intended. I am curious, you guys have a lot more insight into the behavior of your consumers, whether it's frequency of payment, size of payment, loans that they're taking. Can you share some insights that you're seeing behaviorally beyond just sort of delinquencies and net charge-offs to help us understand what is going on at the consumer level for pluses and minuses? Raul Vazquez: Yes, Rick, thanks for the question. As you can imagine, people's financial lives are quite complex. I've enjoyed the conversations we've had over the years about things that can go well. For example, there have been years where wage growth has been positive and then certainly the things that are challenging. I think right now, I'll start with kind of what we're doing to try to generate this improvement that we've seen in our trends, right? One of the things that you've heard us talk about over the last few quarters is really focusing on average loan size. So for example, in Q3, average loan size for our owned portfolio, on the unsecured personal loans, we took average loan size down 5% year-over-year. Even for the secured personal loan portfolio, where we're very pleased with performance. You heard in our comments state that losses year-to-date for secured are 500 basis points better than for unsecured. We're still taking loan sizes down there as well. So loan size was down for the secured personal loans 7% year-over-year, right? So we think that right now in this economy, it's important to try to decrease loan size and really focus on making payments affordable. And that's because though we think that the consumer today continues to be very resilient, there are certainly pressure points, right? The latest inflation rate at 3% year-over-year was the highest year-over-year increase since January. As you know, we recently found out that for the first time in over a decade, wage growth for the lowest quartile, right, is now below wage growth for the highest quartile of earners in the country. And fuel prices here in California are higher than they were -- modestly higher than they were a month ago, but they are higher than a year ago, right? So right now, we think there's still resilience in the consumer, but there are these points of pressure. There's also the potential impact of the government shutdown, if that continues. So right now, we continue to be focused on having a conservative credit box, decreasing average loan size and really trying to keep our loans as affordable as possible. Richard Shane: Got it. That makes a lot of sense and I think it's pretty consistent with our world view as well. Operator: Our next question comes from the line of Brendan McCarthy with Sidoti. Brendan Michael McCarthy: I just wanted to circle back to the consumer behavior point. I know in Q2 this past quarter, repayments were elevated. Just curious as to how repayments trended in the third quarter. Raul Vazquez: We're still seeing similar trends of slight repayment rates. Again, we think that really has to do with the fact that we've made our loans smaller, so they're just easier to pay off, Brendan. It's not an area of concern for us right now. And in fact, as you know, right, we're always happy to have loans paid off. Brendan Michael McCarthy: Great. That makes sense. And pivoting to OpEx, I think it's solid to see another -- the expectation for $10 million in OpEx to come out for the rest of the year. Just curious as to what line items you're taking OpEx out of the business. Raul Vazquez: Yes, there have been several. I'm really pleased with the focus throughout the organization on staying lean and reducing OpEx. So for example, we saw sales and marketing go down about $1 million in the quarter relative to last year. Personnel expenses were down $2 million year-over-year. G&A was also down about $2 million year-over-year. The tech team continues to find efficiencies, continues to find ways to use technology and innovation to lower OpEx. So really across the board, nice efforts throughout the organization. Brendan Michael McCarthy: Understood there. And last question here from me on the net charge-off rate. I know you're looking for a temporary increase. I think you mentioned into the first quarter of 2026, but you're expecting it to kind of come back down perhaps in the second quarter of 2026. What's ultimately backing that expectation there? Raul Vazquez: Yes, that's a great question. So we talked about some of the tightening that we did in the quarter. And I would point to 2 things that really give us confidence when we think about the shape of the curve. Number one, when we think about the tightening we did in the quarter, the first payment default rates that we saw in Q3, right, those right now look quite good, and they make us feel that the tightening that we did was effective. Second thing was, as we shared during the call, in the first half of the year, we had about 64% of originations going to our returning members. That meant that we had that higher percent of originations in the first half going to new members. We were able to focus more on returning members. So we saw 70% of Q3 originations going to returning members, right? So that makes us feel like the originations are at a better balance. And then finally, to add one more, when we look at the early delinquency trends right now in the business, those also indicate that the impact that we're seeing right now should be in Q4 and Q1, and then we should start to see it come back down in Q2 through Q4 of 2026. Operator: Our next question comes from the line of John Hecht with Jefferies. John Hecht: Apologize if this -- there's some redundancy. I've been bouncing back and forth between different calls. I'm talking about the -- I'm interested in the characteristics of the secured personal loan customers. Maybe discuss the resell or maybe graduation of this from a different product versus where you're identifying these opportunities in new channels and how that mix looks going into 2026. Raul Vazquez: Yes. So secured is certainly one of the areas where we've been quite pleased with the growth that we've seen, John. So the secured portfolio now is $209 million. It's up 48% year-over-year. and it represents 8% of our portfolio, and that was 5% last year. One of the things that the team has been able to do is, number one, really focus on how do we present the product during the application flow, how do we make it just a much more efficient experience so that, that way we can increase conversion. So the product teams, the engineering teams and the risk teams have done really good work there. The marketing team also for the first time this year, started to focus on campaigns that were specific to trying to attract people that would be interested in secured personal loans. Historically, it's been just kind of a side-by-side offer with unsecured. So we were focused on getting unsecured customers and then presenting the opportunity for a larger loan if they owned their car. But now we have dedicated marketing campaigns that really are focused on trying to acquire someone that does own their car -- and those are the types of campaigns that we're really focused on in 2026 as we think about secured personal lending as one of the pillars of growth that we really want to lean into next year and in coming years. John Hecht: Second question is just the -- you've talked about the delinquencies in the quarter. I'm wondering if you're seeing any changes in roll rates. Is there anything, whether it's at the product level or income cohorts that you're seeing roll rates change in any direction that gives us a perspective on what we should expect going into 2026? Raul Vazquez: Well, I mean, throughout the year, there are certainly puts and takes in terms of roll rates among different parts of the portfolio, John. But when we think about a very modest increase in this case of just 20 basis points at the midyear for full year guidance, -- it's the sort of thing that we think we've absolutely made adjustments for in the business by looking for reductions in OpEx, right, looking for reductions in marketing spend. So nothing that's really concerning to me at this time. John Hecht: Okay. And then you guys have done a good job in delevering the balance sheet. I think it was closer to 9. It's now almost back to 7. I know I think your goal is 6. Maybe can -- based on the trajectory of the business and your outlook, when do you hit 6? And when you hit 6, I'm sure you're going to be focused on maintaining a good balance sheet. I guess what -- does that increase any optionality for you at that point in time? Paul Appleton: Yes, John, thanks for the question. Yes, we're really pleased with the trajectory in leverage coming down, as you pointed out, from a high of 8.7x third quarter last year to now 7.1x. And even quarter-over-quarter, right, we saw the decrease from 7.3x to 7.1x. And so we expect that trajectory to continue. We haven't guided anyone yet to a number time line as it were for the 6x. But clearly, we're on a good path towards that. So that's kind of the outlook. Operator: And we have reached the end of the question-and-answer session. I would like to turn the floor back to CEO, Raul Vazquez for closing remarks. Raul Vazquez: We want to thank everyone once again for joining today's call. We appreciate your continued interest in Oportun, and we look forward to speaking to you again at the beginning of next year. Thank you. Operator: Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings, and welcome to the DMC's Global Third Quarter Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Geoff High, VP of Investor Relations. Thank you, Geoff. You may begin. Geoff High: Hello, and welcome to DMC's third quarter conference call. Presenting today are President and CEO, Jim O'Leary; and Chief Financial Officer, Eric Walter. I'd like to remind everyone that matters discussed during this call may include forward-looking statements that are based on our estimates, projections and assumptions as of today's date and are subject to risks and uncertainties that are disclosed in our filings with the SEC. Our business is subject to certain risks that could cause actual results to differ materially from those anticipated in our forward-looking statements. DMC assumes no obligation to update forward-looking statements that become untrue because of subsequent events. Today's earnings release and a related presentation on our third quarter performance are available on the Investors page of our website located at dmcglobal.com. A webcast replay of today's presentation will be available at our website shortly after the conclusion of this call. And with that, I'll now turn the call over to Jim O'Leary. Jim? James O'Leary: Thank you, Geoff, and thank you to everyone joining us for today's call. While challenging market conditions continue to impact each of DMC's businesses during the third quarter, we made significant progress on the most important strategic objective within our control, the continued deleveraging of our balance sheet. By the end of the third quarter, our net debt had been reduced to $30.1 million, down 47% since the start of the year and the lowest level since we purchased the controlling interest in Arcadia at the end of 2021. DMC's consolidated third quarter sales were $151.5 million, down 1% versus the third quarter a year ago, while adjusted EBITDA attributable to DMC was $8.6 million, up 51% year-over-year. At Arcadia, our Building Products business, third quarter sales totaled $61.7 million, a 7% year-over-year increase, but down 1% from the second quarter. Adjusted EBITDA attributable to DMC more than doubled to $5.1 million from the year ago quarter, reflecting improved operating performance and better absorption of fixed manufacturing overhead due to the sales increase. Adjusted EBITDA was up 27% sequentially. The efforts to stabilize Arcadia's business during the past year have helped mitigate the impact of stubbornly high interest rates and generally soft commercial construction activity in Arcadia's core Western region, where architectural billings have declined every month since May according to the Architectural Billing Index. At DynaEnergetics, our Energy Products business, third quarter sales were $68.9 million, down 1% year-over-year and up 3% sequentially. The third quarter was marked by declining activity in DynaEnergetics core U.S. onshore market, where well completions were down 8% year-over-year and 6% sequentially. At the end of the quarter, active frac crews, a key indicator of demand, were down nearly 20% from the 2025 peak in March. DynaEnergetics reported third quarter adjusted EBITDA of $4.9 million, up from breakeven in the year ago quarter, but down 46% sequentially. The sequential decline reflects lower product pricing and higher costs due to tariffs as well as certain receivable and inventory charges. At NobelClad, our composite metal business, third quarter sales were $20.9 million, down 16% year-over-year and down 21% sequentially. The declines reflect the delayed impact of lower U.S. bookings during the first and second quarters when customers move to the sidelines as they monitor fluctuating U.S. and reciprocal tariff policies. Adjusted EBITDA was $2.1 million, down 64% from the prior year and 53% sequentially, reflecting lower absorption of fixed manufacturing overhead on reduced sales and a less favorable product mix. During the third quarter, NobelClad booked a $20 million order associated with a large international petrochemical project. After quarter end, we received an additional $5 million order related to that same project. Together, these bookings, which ship at the beginning of next year, reflect the largest order in the 60-year history of NobelClad. NobelClad's backlog at the end of the third quarter was $57 million, up 53% from the second quarter, not including the $5 million follow-on. I'll now turn the call over to Eric for a closer look at our third quarter results and our outlook for the fourth quarter. Eric Walter: Thank you, Jim. I'll start off with a closer look at third quarter profitability. As Jim mentioned, consolidated adjusted EBITDA attributable to DMC was $8.6 million. Inclusive of the Arcadia noncontrolling interest, adjusted EBITDA was $12 million or 7.9% of sales, up from 4.6% in the third quarter last year and down from 10.4% in the second quarter. The year-over-year increase in EBITDA margin principally reflects improved results at DynaEnergetics, which was impacted by $5 million in inventory and bad debt charges in last year's third quarter as well as price-driven top line growth at Arcadia, leading to improved absorption of fixed manufacturing overhead. The sequential decline in adjusted EBITDA margin was primarily due to lower pricing and higher costs at DynaEnergetics as well as reduced activity levels at NobelClad. Arcadia's third quarter adjusted EBITDA margin before noncontrolling interest allocation improved to 13.8% from 5.8% in the year ago quarter and 10.9% in the second quarter. Dyna's adjusted EBITDA margin improved to 7.1% in the third quarter compared to less than 1% in last year's third quarter. EBITDA margin was down from 13.4% in the second quarter for the reasons previously mentioned. NobelClad's third quarter adjusted EBITDA margin was approximately 10% and was impacted by the tariff-related bookings slowdown earlier in the year. Adjusted EBITDA margin was down from 23.2% in the third quarter last year and 16.5% in the second quarter. Third quarter SG&A expense was $26 million or 17.1% of sales versus $28.2 million or 18.5% of sales in the third quarter last year. Third quarter adjusted net loss attributable to DMC was $1.6 million, while adjusted loss per share attributable to DMC was $0.08. With respect to liquidity, we ended the third quarter with cash and cash equivalents of approximately $26.4 million. Total debt was $56.5 million, down 20% from the end of 2024. And as Jim mentioned, net debt was $30.1 million, down 47% from the end of last year. And now on to guidance. We expect fourth quarter sales to be in a range of $140 million to $150 million, while adjusted EBITDA attributable to DMC is expected in a range of $5 million to $8 million. Our guidance reflects the lag of converting recent record bookings at NobelClad into sales, which are expected in 2026. Our guidance range also anticipates continued headwinds in DynaEnergetics core North American market, which has been significantly impacted by both tariffs and declining well completion activity and may experience a seasonal slowdown late in the quarter as has been the case in recent years. Although Arcadia is expected to experience a normal seasonal fourth quarter slowdown, it expects continued year-over-year improvement in profitability due to better operational execution. Our guidance is heavily influenced by macroeconomic concerns, volatility and visibility issues created by the current state of energy markets and tariff policies and is subject to change either upward or downward as market conditions evolve. With that, I'll turn it back to Jim for some additional comments. James O'Leary: Thanks, Eric. In an environment marked by volatile and declining energy prices, elevated interest rates and shifting tariff policies, we continue to focus on what's in our control. DynaEnergetics is containing its costs while pursuing international opportunities and navigating an extremely challenging North American oil and gas market. As discussed and based on direct customer feedback, we expect the oilfield services market to face continued headwinds during the fourth quarter. Accordingly, we remain focused on the self-help measures within our control. As mentioned earlier, NobleClad secured a record order that its commercial team worked nearly 5 years to win while it rebuilds its order book and looks globally for new business opportunities. And finally, at Arcadia, we've stabilized operations after a challenging 2024 and are positioning the business for an eventual recovery in its commercial and residential markets. Arcadia has now had several quarters of stability since we brought Jim Shladen back, and we believe we've successfully reset the business while we wait for market conditions to improve. Collectively, we've made substantial progress on our most important initiative, deleveraging our business. This remains our principal corporate objective as we work through generally challenging markets for each one of our operating companies. Our progress would not be possible without the hard work of our DMC associates, and I want to thank them for their continued contributions. And with that, we're ready to take any questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Gerry Sweeney with ROTH Capital Partners. Gerard Sweeney: Start off with Arcadia. I know you -- Jim, I know you mentioned the ABI was down, I think, out in the West, et cetera. But 2 questions on that front. One, are you seeing any green shoots? And then two, are there opportunities for additional operational improvements at Arcadia? Or is that level set for now? James O'Leary: Okay. So we're seeing green shoots, but remember, that's very specific to us. We had, when I think the industry was still doing okay, and I would say just okay, both residential and commercial. We would turnover and some self-inflicted issues, we had a challenging 2 or 3 years after the acquisition. So a lot of our year-over-year improvement, our month-over-month improvement, a lot of the things we're seeing are just introducing stability with Jim Bact, bringing back some employees who might have looked for green pastures, repairing some of the relationships that might have gotten a bit fray, both on the supplier side and the customer side. So we're seeing some Arcadia-specific green shoots, but I wouldn't read too much into that. And from everything you can see, it's observable and anecdotal, whether it's our public peers, even one like JELD-WEN today, which is far more residential than us. But it's a data point. If you subscribe to any of the credit agencies, you can see companies like Oldcastle and Pan Air. We're all struggling with exactly the same issues, persistently high interest rates, overall cost and affordability, and that applies to commercial as well. And I think that's starting to -- that should start getting better, but I wouldn't say you see the green shoots industry-wide. A Board of a company I'm on, I mean, we're in every MSA in the country. If you put a gun to my head, I couldn't tell you what MSA in the country is really doing well, maybe 1 or 2 in the Carolinas. So all of our year-over-year improvement and green shoots that you categorize that, all very Arcadia specific and all because we brought back stability and some self-help measures. Now on what we can do specifically, stabilized things, brought back some key players, repaired relationships, really soft -- the soft skills, which Jim is fantastic at. Jim would have a longer list of things that we can do next than I would. And a lot of it is we can still do better in terms of professionalization, maybe bringing some new skills in, maybe looking at -- we've been underspending CapEx for a while on things that we're going to have some decisions to make as to whether or not -- where and when we want to put it in. There's capital we might have put in, in 2021 that we've -- we have to do, but whether or not you do it now, if you think you're still going to be bouncing along the bottom is a really important question. But we both have a very long list of things we can do that would be -- and I wouldn't say it's -- I would say it's past self-help. It would be, okay, now we're at the point where professionalization, bringing some new skills. We're getting there now on the ERP implementation, some of the improvement to data quality for the first time in a while. So there's a long list of things we work on, including on capacitization. The question is when is the right time? You don't want to add it early if the market just doesn't doesn't fill up a paint line or fill up an anodizing line, right? Gerard Sweeney: Yes. Understood. Yes. Got it. Switching gears, NobleClad large order. It sounded like it was going to ship in my words, first quarter, but I'm not sure how you exactly characterized it. But what would be the cadence of the shipping of that order? And over how many quarters, if more than one would this sort of take place? James O'Leary: Yes. So I said 2026, but Eric will give you the particulars. It's more back-end loaded than first quarter. Eric Walter: I don't have... James O'Leary: I misspoke. Eric Walter: No, I don't have much to add to that other than, like Jim said, it will be second half of 2026 is where you're going to see the bulk of the revenue from that order. Gerard Sweeney: Got it. And just sticking with NobelClad, obviously, that's a large international order. U.S. is facing some headwinds, but I think there's a lot of opportunity in the Gulf at some point for some of this petrochemical stuff, but I'm just curious if you're seeing any additional orders unlock? Or are they still tied up because of tariffs and other issues and just uncertainties? James O'Leary: Well, we agree, and we hope you're right about further petrochemical orders. But right now, if you asked the division President there, how he categorize the state of things, and we've went through his budget a couple of times in the last few months. If you have the choice of order or wait, people wait. And it's -- the tariffs were a big issue that impacted us early, particularly on 1 or 2 really big ones that we know we probably didn't get because of tariffs. Right now, I think it's just a general level of economic uncertainty. Outside of tech and a couple of really fare haired favored sectors, if you're very capital intensive, if you're very consumer-driven, if you're very -- in consumer, meaning the ultimate end markets, it can include automotives in there. I mean nobody is rushing to do capital projects unless you're bringing stuff back under some of the Trump policies, factory building, major CapEx, you're going to wait before you order until you start to be a little bit more comfortable with the overall economy. Operator: Our next question comes from the line of Katie Fleischer with KeyBanc Capital Markets. Katie Fleischer: I wanted to dig into the tariff impacts in Dyna a little bit. How should we think about that impact in coming quarters? And is there any opportunity to push price within that market? James O'Leary: Yes. So the impact to Dyna in the quarter was roughly $3 million. And to answer your question, to try to push price in the market, that's extremely challenging right now. All of the players in the market are pretty much going through the same type of issues with importing steel and some other components that are used in their perforating systems. So what we're doing right now is trying to figure out ways we can be more efficient with how we manufacture our products and being smart about the automation that we put into our manufacturing line. But to increase price is very difficult in the market right now. Katie Fleischer: Yes, makes sense. Just any other details that you could give around the margin progression within Dyna and NobelClad for next quarter? Like does the midpoint of guidance assume that both of those are going to see a sequential decline? James O'Leary: Well, I think for -- just taking them one at a time. With Dyna, they're going to continue to have the pressures that we talked about from a pricing standpoint. There may be some seasonal slowdown. And to the extent that there is, that puts additional pressure on margins because there's less sales and less volume to absorb their fixed manufacturing overhead. And the same would be true of NobelClad. The large order that we talked about will ship in 2026. So we're probably not going to get much of a benefit for the next good few quarters. And there, same thing. It's going to be -- to the extent that the sales are a little soft in the quarter, it's going to put pressure on them because they're not going to be able to absorb that overhead. So you can take that into your modeling, and it should show you that the margins will be pressured quarter-over-quarter. Eric Walter: I'd add to that. I would add, if your assumption -- whatever your assumptions are on end markets, will probably be right ahead, whether it's lead by a couple of months, lead by a quarter, it will be right ahead of our margin progression because everything at NobelClad for the most part, has been absorption driven. A fair amount outside of the tariffs, which Eric just went through, there's a little bit of mix, but it's the pricing issue and the fact that the Permian is so challenging right now. When you think both of those end markets get better, you'll see our margins pick up maybe disproportionately. I'd like to think we have some operating leverage, but it will be very end market dependent because I think we did the self-help things early, but you're still -- in NobelClad is the best example. You're down $5 million of sales. That's all throughput and that all comes through as overhead absorption. Katie Fleischer: Got it. And then just one last question here. I know visibility is very limited. But just looking ahead, when you think about the recovery of these end markets, how much more downside is there from here? And what would you really need to see to give you some confidence that some of these demand trends are starting to pick up? James O'Leary: Well, look, I mean, the first thing you need is stability. I am encouraged, and I would think the stability in the order book at NobelClad is a precursor. We won't see that for a quarter or 2 or 2 or more as it's mostly back-end weighted. But the fact that the order book picked up, we got a major biggest in our history order is a real positive. In the building industry, I think we have more self-help and more benefits just from being stable, but it's still a really, really tough market. And the fact that the Fed has started cutting interest rates, some appropriate consternation as to whether or not the next move will be up or flat after Powell's last couple of comments. You got a Fed that seems more favorably disposed, particularly with the recent appointees. But it's not clear that you're going to see 3 or 4 cuts the way people might have been thinking a month or 2 ago or that will be dragged out over a longer period. And that is absolutely critical to get things going. I'd like to think we could see some green shoots sooner but I still think you got a grand total of 20 permits issued in some of the parts of Southern California that we're most long-term excited for, but there's just not a lot of activity. They're continuing to keep a lid on permits. The activity is not there the way -- honestly, the way some of these poor homeowners would like to see. But when that starts to loosen up, that will be a little bit divorced from interest rates. But building, if we get 2 or 3 cuts, building could start picking up in the back half of next year. But I would say, if you listen to homebuilder calls, some of the larger distributors like Builders FirstSource, Beacon, anybody that's out there, I wouldn't say they've written off next year, but they're very, very conservative about it because we've been burned a few too many times. So that's -- I think middle end of next year would be optimistic on housing, but I think we have some specific things that are Arcadia and Arcadia dependent. And honestly, the market I'm least knowledgeable about is obviously Dyna just from past history. But that's the one where the volumes have held up, but a couple of industry prognosticators out there, they do comment on how consolidated our customers and our customers' customers have gotten. We're still at the point where we probably had the brunt of the tariffs that we've had to eat. Once the markets take off and we get the opportunity to be selling the value that we bring, I think we'll get some of the margin and price back, but that's probably quarters away. But if you wake up and the Saudis decide they're not going to keep the spigots open, that could change tomorrow. Operator: Our next question comes from the line of Jawad Bhuiyan with Stifel. Jawad Bhuiyan: I guess just based on what we've been hearing around a lot of these U.S. pressure pumping companies, it seems like activity levels are kind of bottoming and that's kind of where we're -- I guess, the direction that we're heading. And I guess more specifically, can you talk about or elaborate expectations for 2026, specifically within the perforating gun business and maybe also what current pricing looks like in that business? And then I just have a quick follow-up. James O'Leary: Too early to talk about 2026. We're one quarter at a time for good reason. The visibility is terrible. And we don't comment on pricing other than if the market picks up and it's a little less competitive, we should see some relief, but we're nowhere near there right now. Jawad Bhuiyan: Got it. And I guess just more specifically for oriented perforating guns. We've kind of heard that it's been having a positive impact on production levels. I guess, could you maybe talk about what you're seeing in the field? James O'Leary: That's true. We have a product. Yes, we have a product out there that's self perforating gun as well. Yes. Technology is what's driven a lot of the incredible production increases in the Permian for -- in the last 10 years. We've been a leader there and continue to be. Operator: There are no further questions at this time. I'd like to pass the call back over to James O'Leary for any closing remarks. James O'Leary: We appreciate your patience. We are doing everything we can under the category of self-help and positioning ourselves for the eventual recovery. We didn't get a chance to talk about except in the prepared remarks, but getting the balance sheet in shape, having your cost structure in shape, being ready for whether it's opportunities or just the things we got to deal with next year and having a clean balance sheet, plenty of cash flow and a cost structure that will accommodate us are the things we're working on. So we appreciate your patience. And for any employees listening, we appreciate your hard work and dedication. So thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: " Jeffrey Korn: " Jon Brinton: " Ron Vincent: " Doug Gaylor: " Unknown Executive: " Joshua Reilly: " Needham & Company, LLC, Research Division Mike Latimore: " Northland Capital Markets, Research Division George Sutton: " Craig-Hallum Capital Group LLC, Research Division Eric Martinuzzi: " Lake Street Capital Markets, LLC, Research Division Matthew Maus: " B. Riley Securities, Inc., Research Division Operator: Greetings. Welcome to Crexendo's Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Jeff Korn, Chairman and CEO at Crexendo. You may begin. Jeffrey Korn: Thank you, Paul, and good afternoon, everyone. Welcome to the Crexendo Q3 2025 Conference Call. I'm Jeff Korn, Chairman of the Board and CEO. On the call with me today are Doug Gaylor, our President and COO; Ron Vincent, our CFO; and Jon Britton, our CRO. In a moment, Jon will read the safe harbor statement. After that, I will give some brief comments on our performance and strategy. Ron will then provide more details on the numbers before handing the call over to Doug to provide a business and sales update. After that, we'll open up the call to questions. Jon, would you please read the safe harbor statement? Jon Brinton: Thank you, Jeff. I want to take this opportunity to remind listeners that this call will contain forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. All statements made in this conference call other than statements of historical fact are forward-looking statements. Forward-looking statements include, but are not limited to, words like believe, expect, anticipate, estimate, will and other similar statements of expectation identifying forward-looking statements. Investors should be aware that any forward-looking statements are based on assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company's filings with the Securities and Exchange Commission, including the Form 10-K for the fiscal year ended December 31, 2024, and the Forms 10-Q as filed. Crexendo does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. I'd now like to turn the call back to Jeff. Jeff? Jeffrey Korn: Thank you, Jon. I am incredibly pleased and proud of our entire team. who work tirelessly every day to make sure we have the best products, services and support in the industry. The exceptional results we announced today show that their efforts are paying off. Crexendo delivered another blockbuster quarter, highlighted by 12% year-over-year revenue growth, $1.5 million in GAAP net income and $3 million in non-GAAP net income. Our 28% growth in software solution underscores the strength of our platform and the increasing value we provide to customers and partners. I'm also very encouraged by our 8% increase in service revenue, which I have great confidence will continue to grow. With expanding margins, robust cash generation and continued innovation, we are executing exceptionally well on our profitable growth strategy. We are just getting started. Our investments in AI-driven capabilities, Oracle Cloud infrastructure and next-generation collaboration and contact center solutions are creating powerful momentum across our ecosystem. We see a long runway for organic growth, enhanced by strategic M&A opportunities, and we are fully committed to delivering sustained value for our shareholders. We are delivering profitable growth today while building an even stronger, smarter and more innovative Crexendo for tomorrow. One of our large investors recently suggested to me that I take a few minutes today to tell our story, explain where we came from and why I'm so confident in the future. Our DNA is telecom. We started our telecom journey roughly 15 years ago with our own homegrown switch and deep commitment to customer support. Growth was steady, but then about 4 years ago, the opportunity to acquire NetSapiens became available. We recognized immediately that their software was superior, their engineers were exceptionable and their potential profit was strong, but they needed a sales and marketing strategy and a plan for growth that was a perfect fit for Crexendo to provide. The combination of our marketing and retail expertise with their engineering excellence was a perfect match. Together, we have built a company that understands both sides of the business, platform engineers who think about scale and reliability, working alongside customer-facing engineers who understand what end users truly need. The synergy has made us better, faster and more innovative than any competitor in the market. This past month, that success was on full display at our annual user group meeting, UGM in Miami. It was our most successful UGM in our history with record attendance, over 550 registered participants and 65 sponsors and an energy unlike anything we have seen before. We gave demonstrations on innovations we are making, continued improvements in our look and feel on the platform and a significant discussion on our AI applications. The entire community was excited about our innovations and improvements. The highlight for me personally was being able to announce that we surpassed 7 million end users on our platform. That is an incredible milestone for our company and a clear validation of the strength and scalability of our technology. The excitement in the room was electric. The management team even got a champagne to shower, and I might add, somebody spilled an entire bottle of champagne over my head and got into my eyes. I still don't know who did it, but I'm still trying to figure out. But the closing Gayla was a tremendous opportunity for us to interact with our licensees who are every bit as excited about our milestone as we were and excited about our future as we were. It was a moment that perfectly captured the enthusiasm, pride and sense of community we share with our licensees and partners. Our licensees are energized and growing faster than ever, driving new adoption and innovation across the platform. Their success is our success. And together, we are redefining what is possible in cloud communications. We continue to invest in every area of the business that fuels our growth and differentiation. In engineering, we are strengthening our core platform and accelerating the rollout of AI-driven tools that improve both productivity and user experience. Through our EVP program, which is the ecosystem vendor partner program, we are expanding the applications and integrations available to our customers and licensees, creating new revenue streams and even greater value. We are also enhancing customer service and security, ensuring we maintain our industry's leading reputation for reliability and responsiveness. We have the secret sauce in retail, and that is our customer service. G2, an independent review company that speaks only to verified customers, ranks Crexendo #1 in 18 different customer satisfaction categories. No one else in the industry comes close, and that is because our culture is built around white glove service. Especially in the SMB market, that is essential, where many of our customers do not have large IT departments. Our responsiveness and personal attention truly sets us apart and creates value for our customers. On the wholesale side, our NetSapiens platform continues to be the fastest-growing platform in North America. Our session-based billing model remains a clear differentiator. Our partners only pay for what they use, unlike the outdated per seat model still used by many competitors. Combined with our open APIs, our partners can fully customize solution for their customers. Our new marketplace, which was introduced at the UGM, where we and our licensees can sell applications is already generating excitement and revenue. I am confident that it will continue to grow. Our partnership with Oracle Cloud Infrastructure continues to open global opportunities. We can now deploy new instances in days rather than months. And we have expanded internationally, including onboarding our first customer in Africa. While international revenue still represents less than 10% of our total revenue, it is growing rapidly, and I see enormous potential across EMEA and beyond the world. We remain active on the M&A front. We are currently reviewing several strategic acquisition opportunities and are optimistic we will close one by early next year. Combined with our strong organic growth, these initiatives will help us scale even faster and expand our capabilities in key growth areas. I was recently asked why I said last quarter that I'm more excited about our future than ever before. The answer is simple. It's because of the people around me in this room and the people in our entire organization. We have the best products and the best platform and the best opportunity. The enthusiasm and energy from our UGM made it clear, Crexendo's best days are ahead. We have a world-class team, the best partners in the industry and a technology stack that delivers proven results. I could not be prouder to lead this incredible group of people who pour their hearts and soul into building the best telecom software and customer experience in the market. Our future is bright, and we are just getting started. I continue to expect that we will have double-digit growth through next year. I remain very optimistic in our future, our people and our results. With that, I'll turn the call over to Ron for more details on the financials, and he will then turn the call over to Doug to discuss our sales and operations and give a deeper dive into our AI initiatives. Ron? Ron Vincent: Thank you, Jeff. Our financial results for the third quarter are as follows: Consolidated revenue for the quarter increased 12% to $17.5 million. Our service revenue for the quarter increased 8% to $8.6 million. Our software solutions revenue for the quarter increased 28% to $7.5 million. Our product revenue for the quarter decreased 25% to $1.4 million. However, I would not let the percentage change alarm you. Historically, using our 8-quarter look back, our average product revenue is $1.3 million per quarter. Therefore, for the quarter, product revenue is slightly higher than our historical average. Product revenue for the third quarter of 2024 was unusually high for the company. Our service revenue gross margins decreased 100 basis points to 57% year-over-year. Our software solutions revenue gross margins increased by 300 basis points year-over-year to 74%. Our product revenue gross margins decreased [indiscernible] basis points to 35% and our consolidated revenue gross margins increased by 200 basis points year-over-year to 63%. Our remaining performance obligations increased to $87.9 million as compared to $83.5 million at the end of June and $77.3 million at the end of September of '24. Our operating expenses for the quarter increased 5% to $16.2 million. The operating margin for the quarter was 7% compared to 1% for the same period of the prior year, a 600-basis point increase. Net income of $1.5 million for the quarter or $0.05 per basic and diluted common share as compared to net income of $100,000 or $0.01 per basic and $0.00 per diluted share for the third quarter of the prior year. Our non-GAAP net income was $3 million for the quarter. That's $0.10 per basic and diluted common share compared to non-GAAP net income of $1.7 million or $0.06 per basic and diluted common share for the third quarter of the prior year. EBITDA for the quarter was $2.1 million compared to $1 million for the third quarter of the prior year, and our adjusted EBITDA for the quarter was $2.9 million or 17% of total revenue. Cash, cash equivalents at September 30, 2025, was $28.6 million. That's compared to $18.2 million at December 31, 2024. Cash provided by operating activities for the 9-month period of $7 million. Cash provided by financing activities for the 9-month period was $3.4 million, primarily related to $4.1 million of net cash received from stock option exercises, offset by $300,000 in taxes paid on net settlement of stock options and RSUs and $400,000 in notes payable repayments and finance lease payments. I'll now turn it over to Doug Gaylor, our President and COO, for additional comments on sales and operations. Doug Gaylor: Thanks, Ron. We had a very strong quarter on both the top and bottom line, and we are excited about our momentum as we finish the year. This is our 9th consecutive quarter of GAAP profitability and 28th consecutive quarter of non-GAAP net income, and the results were a direct result of our focus on growing organically and profitably. Our GAAP profitability continues to be positively affected by managing our costs and driving synergies within the business. After successfully migrating our international data centers to OCI, Oracle Cloud Infrastructure in Q2, we have been focused on completing the remaining migrations of our U.S. data centers to OCI and anticipate additional cost savings from completing that migration beginning in early 2026. In addition, we are nearly complete with our classic to VIP migration, which will add additional cost savings beginning in Q1. We continue to see tremendous organic growth from our Software Solutions segment of the business, which grew 28% organically over Q3 of 2024 and has seen a 31% organic growth rate year-to-date. We had a very strong quarter with 12 upgrade orders from our existing licensees, combined with winning 6 new logos that chose Crexendo for their platform of choice moving forward. Of the 6 new logos, we won 1 new logo from Metaswitch, and we continue to see opportunities created by uncertainties created by our 2 largest software solutions competitors, Cisco's BroadSoft and Metaswitch. Our unique pricing and support model for our software solutions platform, combined with our robust feature set and open APIs that fuel AI applications and integrations allow us to differentiate ourselves from the rest of our competition at a much stronger price point than they might currently be paying. Our Telecom Services Retail segment grew at 2% organically for the quarter, and our telecom service revenue was up 8% organically, offset by a reduction in our product revenue to reach the blended 2% increase. As previously stated we proactively reduced selling some lower-margin product opportunities to maintain margins, thus [indiscernible] product revenue. We continue to see strong demand for our offerings from our channel partners and our master agent technology service distributors and expect retail segment revenue to continue to grow at a faster pace. The master agent technology service distributors saw a 28% increase in sales bookings year-over-year, and we expect that momentum to continue. We will continue to focus on profitably growing the segment of the business and will not be pursuing low margin or unprofitable retail opportunities as we've stated in the past. Our remaining performance obligation, also referred to as our backlog is now at $88 million, an increase of 14% from Q3 of 2024. Our remaining performance obligation number is the sum of the remaining contract values for all of our telecom services and software solutions customers that will be recognized on a sliding scale over the next 60 months, and that's a very strong indicator of our future revenue stream. Consolidated gross margin for Q3 was 63%, up from 61% in Q3 of 2024. We continue to see strong gross margins in our Software Solutions segment, where Q3 gross margins were 74% compared to 71% for the same quarter last year. For the 9 months of the year, our Software Solutions gross margins were 76%, highlighting the scalability and operating leverage we have on the software segment of the business. Our Telecom Services segment gross margin was 55%, which was flat with Q3 of 2024. And our telecom services gross margin are affected by our product gross margins, which declined year-over-year as a result of a decline in our product revenue as we concentrate on higher-margin UCaaS sales and less on low-margin product sales. We are confident that we will continue to see gross margin improvements in both segments of the business in the future as we start to recognize cost savings from our ongoing consolidation of our data centers to Oracle Cloud infrastructure as well as our plans to sunset our legacy classic offering. Crexendo's engineering team continues to enhance and improve our award-winning platform. We recently released version 45 on our platform as well as preannounced at our user group conference in Miami last week, the exciting enhancements planned for our version 46 release in 2026. The NetSapiens cloud-native platform is designed with open API integrations that allows us to enhance our offerings with both in-house and third-party developed solutions. Right now, the biggest game changer in our industry since the onset of the Internet will be artificial intelligence. And for Crexendo, AI is leading the charge in these developments with many new and planned releases that will make small and midsized businesses more efficient and productive. Crexendo's AI solutions are focused on helping businesses make more money as opposed to saving money. Our AI solutions are targeted at making small and midsized businesses more successful and more profitable. We currently have a variety of AI solutions already available for end users, including our Voice AI Studio, our AI call recording with sentiment analysis and our contact center AI powered by ChatGPT. In addition, in our most exciting release shared, we introduced Crexendo's AI receptionist orchestrator or code named Kairo at our UEM last week to rave reviews. This new application will be available later this month for new and existing customers to leverage the power of an AI receptionist to answer all incoming calls, answer frequently asked questions, schedule, reschedule or cancel appointments, access customer records and other applications. For the typical SMB customer, this technology will allow their business to be more effective, more productive for a minimal cost, while at the same time allowing Crexendo to significantly increase our average revenue per account. During the quarter, we announced multiple partnerships with our new vendors in our EVP program that Jeff mentioned earlier, which is our ecosystem vendor program, and we are now up to 41 official partners in that program. These partners provide products, software and solutions to our platform that allow Crexendo and our partners to benefit from selling solutions to end users that will make their businesses more efficient, more productive and more profitable. As this program continues to gain momentum, we will benefit from additional revenue streams. Crexendo's performance for the quarter and year-to-date has been very strong, and I couldn't be more excited about the future direction and opportunity for Crexendo. We continue to see strong double-digit organic growth combined with increasing GAAP profitability and strong positive cash flow. We are positioned perfectly with the combination of strong demand for our product offerings along with great solutions with a disruptive pricing model and the best and most talented workforce in the industry to continue our strong growth and success. We're excited about the additional opportunities to drive growth and innovation that AI will infuse into our business and are very optimistic that applications like our AI receptionist will drive demand and revenue. We are committed to delivering the best UCaaS, CCaaS, which is Contact Center as a Service and CPaaS, Communication Platform as a Service offerings in the sector to our customers and partners and best returns for our shareholders. As the fastest-growing platform solution in the country and now supporting over 7 million end users, we are laser-focused on growing our business, enhancing our solutions and improving our efficiencies and continuing to return strong results. With that, I'll turn it back to Jeff for any further comments. Jeffrey Korn: Thank you, Doug. I don't have any further comments at this time. So, Paul, I'll open the call up to questions. Operator: [Operator Instructions] And the first question today is coming from Joshua Reilly from Needham. Joshua Reilly: Nice job on the quarter here. Maybe just starting off in terms of the pipeline for new licensees. How should we be thinking about the setup for Q4 and maybe over the next few quarters? And are there any comp issues that we should be considering in terms of the number of licensees and users on the platform that you added last year in Q4 that we should be considering for the coming quarter here in Q4? Jeffrey Korn: I think, Josh, you can do -- going backwards from forwards, you can do the math and see what our growth is on a monthly basis from when we went from 6 to 7. While I expect that to accelerate somewhat, that's a good rule of thumb to look at how fast we'll be growing the amount of users on the platform. In regard to how many logos we expect -- new logos we expect or upgrades for Q4, still a little early for us to tell. As you know, Josh, we always have somewhere between 15 and 20 sandboxes out, and they take various times for people to continue testing and working and looking at the platform. So it would be hard for us to give you a number at this point. Joshua Reilly: Got it. And then on the new AI products that you've been launching and now have with Kairo, which is pretty compelling demo that we saw at the conference there. How are you going to be measuring the success of the broader launch of these products in terms of attach rates or any other metrics that investors should be considering? And how will the go-to-market work in terms of going back to your base of licensees and building awareness with them? I saw some of that at the conference recently, but just wanted to get your take on that. Jeffrey Korn: Yes. I think, obviously, we'll be monitoring that on a take basis from all of our customers out there. I mean if you think about that release, that release is going to really affect small and midsized customers to allow them to be more efficient and more productive, as I mentioned. So I think we're going to have a tremendous take rate on that, but we're going to have a very aggressive program for not only our existing base customers to easily be able to adopt that technology and add it into their infrastructure, but it will also be a key marketing point for us for all new customers when they're considering our solutions versus our competitors. So we'll be tracking that. We don't have obviously any measurements to compare it to at this moment, but I anticipate a strong uptake from our existing customers and new customers as well. Joshua Reilly: Got it. And then I think it would be helpful to discuss the progress that you've been making in migrating the customers to the OCI infrastructure that are hosted with you? And can you just remind us kind of the relative mixes of how many licensees are hosted with you versus in their own cloud and how that's kind of progressed over the last couple of years? Jeffrey Korn: I don't think we have off the top of our heads the record of how many host their own and how many are on OCI. But I can answer your question regarding the migration of our old cloud onto OCI. We expect that to be completed by the end of Q1 and be off our old legacy data centers. Operator: The next question will be from Mike Latimore from Northland Capital Markets. Mike Latimore: Congrats on 7 million users. That's a big number. In terms of the services growth getting to 8%, nice improvement there. I guess, can you talk a little bit about what drove that improvement? And then when you say you expect the growth to continue or even be faster, I guess, is your thought that, that 8% kind of moves up even in the fourth quarter? Jeffrey Korn: I'm going to let Jon answer that because he knows kind of the sales pipeline. Jon Brinton: Yes. So yes, it's a great question. And I would just say it's continued positive acceptance of the offers in the market and execution on our retail teams specifically, and we're seeing solid bookings growth and also, I would say, a slightly faster conversion to implementation and recurring revenue from the pipeline that we're bringing in. So, the team continues to drive the revenue there. We continue to see good success. We're focused on profitable growth, but they continue executing, and we're looking forward to continuing to see the growth there. Mike Latimore: Great. And then the suggestion that the growth continues, does that mean it sort of moves up from this 8% level over time? Jeffrey Korn: That would be my expectation, Mike. As you know, UCaaS is highly commoditized. And as I discussed in my comments, we make a concerted effort to have the absolute best service in the industry, and that's a strong competitive advantage for us aside from the fact that I think our offerings are amongst the best, if not the best in the industry. So that -- the better offerings together with the top customer service by far is a strong competitive advantage for us, and I expect that to accelerate our growth. Mike Latimore: Got it. And then in terms of the software pipeline, how would you characterize it as you look to the next couple of quarters here? Is there any shifting going on more to new versus installed or into larger deals versus higher numbers of deals? Like how would you characterize the software pipeline? Jeffrey Korn: Well, Mike, as you understand, larger deals tend to take longer because the analysis by the customer takes some time. So, we've had people play with our sandbox for 4 years before making a decision. People play with the sandbox for 2 months before making a decision. So it's fairly difficult for us to tell you on a Q-to-Q basis how many new logos we're going to get. But as I said before, we have a number of sandboxes out. People are very excited. Engineers are working with them. So we expect the growth to continue. I don't know if Doug or Jon have a little more color they want to add. Doug Gaylor: Yes. I don't see a lot of slowdown. There's a tremendous amount of pipeline of opportunities out there, and we're more optimistic now than we've been in a long time with the opportunities that are out there. So as Jeff said, a lot of these decisions take a lot of time and evaluation on the end users' part, but we know that we're the best solution for them. So the fact that we've got a number of opportunities out there in the queue, we know they're all going to come through enduring places and times, but we're confident we're going to win the high majority of those. Jeffrey Korn: Yes. To be clear, not all are going to come through, but a great majority of them will. Mike Latimore: Sounds good. Last one, just on the receptionist, AI receptionist. Can you talk a little bit about the opportunity there? Do you think like every one of your customers would have interest in that? Or is this geared more towards larger customers? Just how do you think about that opportunity a little bit? Jeffrey Korn: Yes. I think it's really an opportunity for every customer to take a look at it and find out if it's good for their business. So I think that we feel that the high majority of small and midsized customers will be very open to an AI receptionist type solution just to help make their business more efficient. If you think about our average sized customer out there being in the range of 18 or 20 stations, they can much easily deploy resources internally to help grow their business while they've got an AI receptionist that's answering frequently asked questions and doing a lot of the repetitive type functions within their business. So it allows them to redeploy assets within their organization to help them grow their business. So we think that our take rate is going to be extremely high, and we think that's going to increase our average revenue per account upwards by 40% or 50%. So will it be the right solution for every business? Probably not, but will it be a high take rate from the majority of our customers? We're feeling pretty optimistic that we're going to get a lot of customers that are going to fall in love with this technology and be able to grow their business with it. Operator: The next question will be from George Sutton from Craig-Hallum. George Sutton: Congrats on the results. So I wondered if we can go a little bit more into version 46. And it sounded like it's a complete rethinking of the platform. And I'm just curious, I certainly heard good feedback from the licensees. But I'm curious as you begin to go to market with that, when can you start going to new potential customers with this newer version of the platform actively? Jeffrey Korn: We're thinking Q1, George, obviously, I'm dealing with engineers, so I forgot to ask which year, but I'm assuming they meant Q1 of 2026. Jon Brinton: Yes. So I'll fill in some more color on that, George. This is Jon here. And it's actually -- we called that Project Horizon at our Expand Your Horizons partner event. So it's obviously a key theme for us. More than a rethinking of the platform, it's a rethinking of the interface in the way people interact with the platform. I think if you step back and think about it a little bit, we've talked about one application in this call, which is the Kairo, the Crexendo AI reception as an orchestrator. But at our code fest that we had at UGM, we had 10 different AI applications demonstrated, many of which the partners built on top of our platform. And what version 46 does is it really allows them to have a modern way to express how customers can view that, interact with it and deal with it. And we did give Q1 as a time frame for, I would say, previews and first looks and things of that nature. The actual GA date will probably be a little later than that. So, we don't want to front end the expectations too much. But just think of it as same underlying technology. I mean, with many of these AI applications, our platform underneath them is the engine that's powering all the communications behind them. So it's how customers want to look at it, interact with it, how it can be put into other vertical applications and extrapolate it externally in a way that people are more likely to use and naturally interact with the platform. So, think of it the underlying engine plumbing and all that will be the core NetSapiens platform, which has just been a great winning hand for us. This is just a better way for people to consume it. Jeffrey Korn: George, we had invested most of our money up to this point in making sure that the platform was bulletproof, and we are providing the best software telecom platform in the industry. If there was one thing we weren't doing as well as the basic engineering, it would have been the look and feel. And this improves the look and feel and puts us at a complete competitive advantage to any of our competitors. I think it's now going to be the best look and feel in the industry masked with the best engineering in the industry, and that makes a hell of a combination. George Sutton: So, on the other side of innovation, the Metaswitch/Alianza group meeting did not sound like it moved anything forward. It was a marketing layer message but really maintaining all their platforms. At what point does that lack of movement start to really accelerate your opportunities with those licensees? Jeffrey Korn: George, I don't believe in trashing the competition. I think our best way of selling is by showing that we have the absolute best products, people and performance in the industry. Allianz is a smart company. They're going to figure out what they have to do. We're not worrying about them. We're worrying about staying competitively ahead and rolling out the best products in the industry and the best price point in the industry. All in all, I think it gives us a superior advantage to anybody. Jon Brinton: But I will add, there is a nuance there... Jeffrey Korn: Not everybody agrees with me. Jon Brinton: [indiscernible] There is a nuance there that at our event, we focused on things that people either could walk out of the event, add to their offer and sell today or before the end of 2025. So, things that will be released here before the end of the year primarily with one exception that was the preview of the Horizon interface project. Everything else people can take and monetize in the near-term future. So, there's no architecture here where we're talking about what's going to happen way down the road. This was real exciting products that people can take and add to their platform today and grow their revenue tomorrow. Jeffrey Korn: George, I pointed out at the last UGM, which I think you're at too as well as this one, I'm there to listen, not to talk. And a lot of the feedback I got last year was incorporated in the release we had this year. A lot of the feedback I got this year will be incorporated in the releases we do next year. We listen carefully to our licensees. We understand what they need, and we make sure we provide it. Operator: [Operator Instructions] The next question is coming from Eric Martinuzzi from Lake Street. Eric Martinuzzi: My congratulations on the quarter as well. I wanted to ask you just along the lines of M&A, there was an acquisition yesterday by a competitor of yours, Ooma, and they went kind of outside their own technology architecture to pick up FluentStream. I just wanted to know your thoughts on -- is that something that you all might pursue if you could find something for the right price, a product running outside of the NetSapiens architecture. Jeffrey Korn: Well, Eric, as you've heard Doug talk about our stock fishing pond. We have over 220 licensees on our platform who are already on our technology. That would be our preference to start with. While we're excited to see any movement in the industry, we think that's a good thing. Our preference would be to pick up our own technology in an acquisition. Nonetheless, if something compelling came wrong at the right price, will we look at it, of course. But we've got a lot right in front of us where there's no migration required because they're already on our platform, and that makes the most sense to us. Eric Martinuzzi: Okay. And then I think historically, you've talked about acquisitions at revenue run rates in the neighborhood of $5 million to $10 million. The opportunity that you outlined in your prepared remarks Jeff, the early next year -- hoping to close one by early next year. Does that fit into that bucket? Jeffrey Korn: One of them fits in that bucket. One of them is a little larger. We're going to have to narrow down on one, but I'm quite confident we will do it. As you know, Eric, we're a small integration team here. So, if we're doing something in the $20 million range, that would probably be the only acquisition for the year. If we did something in the $5 million to $10 million range, we'd probably look for a second one. Operator: And the next question is coming from Josh Nichols from B. Riley. Matthew Maus: This is Matthew on for Josh. I guess to start off, it looks like the Oracle Cloud migration seems to be unlocking some good opportunity internationally with the ability to deploy in days versus weeks like you mentioned earlier. So, my question is, how quickly do you expect that international revenue mix to inflect from current levels? And what's kind of gating that pace of expansion here? Jeffrey Korn: Our growth internationally [indiscernible] is larger than our growth domestically, but it's a small part of our business. So, at this point, it's still a rounding error. I had spent part of the summer at our office in London meeting with customers and potential customers, and they're all very excited. Jon does it on a regular basis. Others do it on a regular basis. I expect international to continue to grow at a faster clip than domestically. But considering world issues, it's hard for me to give a number or specific guidance on it. Matthew Maus: Got it. And I guess switching over to, I guess, AI-related question. You're building out a comprehensive stack with Power launch this month and [indiscernible] for Agentic AI and so on. But I'm wondering what else can you layer into the platform from here? And are there additional capabilities you're evaluating or planning to roll out? Jeffrey Korn: There's always additional capabilities we're analyzing, but I'll let Doug answer the AI stack question. Doug Gaylor: Yes. As I mentioned, we've got 41 vendors in our EVP program now. As Jon mentioned, 10 of those in our code fest. We're showing AI solutions. The best part about our platform today is it's an open API platform. And so that means that anybody that is writing code out there, anybody that has a technology stack that they want to bring to our platform, it's easily integrated. So when we look at the opportunity for selling AI solutions, we highlighted 3 or 4 that we currently have, but we've got a number that are being in development as we speak. We've got applications that as we saw at our UGM last week with 65 sponsors, applications that range anywhere from texting to messaging to faxing, you name it. We've got those solutions that are developed and available for any and all of our licensees to sell to their end user customers. So there's a tremendous amount of monetization still to be had with third-party development applications. Matthew Maus: Got it. That was helpful. And I guess just one last quick question. So regarding the product gross margin, it dipped to the high 30s in Q3, which is softer than the low to mid-40s of historical average. I'm just wondering what drove that? And how should we expect that to change going into Q4 and 2026? Doug Gaylor: Can you repeat that one more time, Matt? We're having a little bit of hard time, a little echo there. Matthew Maus: Yes. So regarding the product gross margin, it dipped to the high 30s in Q3, which is softer than the low to mid-40s historical average. I'm wondering what's driving that and how we should expect that to change in Q4 and 2026? Unknown Executive: Yes, we would expect that to improve and go back into the low 40s range. We had some lower margin sales in that -- in the quarter that drove down the overall gross margin that we had in the quarter. Operator: And that does conclude today's Q&A session. I will now hand the call back to Jeff Korn for closing remarks. Jeffrey Korn: Well, I want to thank everybody for their attention. I want to thank everybody in the room here with me and everybody who is listening to the call, who works with Crexendo. It was an amazing quarter, an amazing team effort, and I'm very, very excited for our future and for the next time we get to talk. So until then, thank you, and thank you for your attention. Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Welcome to the Colliers International third quarter investors conference call. Today's call is being recorded. Legal counsel requires us to advise that the discussion scheduled to take place today may contain forward-looking statements that involve known and unknown risks and uncertainties. Actual results may be materially different from any future results, performance, or achievements contemplated in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the company's annual information form as filed with the Canadian Securities Administrators and in the company's annual report on Form 40-F as filed with the U.S. Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is Tuesday, November 4, 2025. And at this time, for opening remarks and introduction, I would like to turn the call over to the Global Chairman and Chief Executive Officer, Mr. Jay Hennick. Please go ahead, sir. Jay Hennick: Thank you, operator. Good morning, and thank you for joining us for the third quarter conference call. As the operator mentioned, I'm Jay Hennick, Chairman and CEO of Colliers. And with me today is Christian Mayer, CFO. This call is webcast and available in the Investor Relations section of our website, along with the presentation slide deck. Colliers delivered excellent third quarter results, highlighting our momentum across all segments of our business. In Engineering, which includes project management and program management, we achieved impressive growth this quarter. This was driven by both strategic acquisitions, 7 completed so far this year, as well as robust organic performance. With a strong pipeline ahead, we are well positioned for continued expansion. In just 5 years since entering the Engineering sector, we have established a significant multidisciplined global platform. This business now generates over $1.7 billion in annualized revenue and employs more than 10,000 professionals. Our unique partnership philosophy and decentralized operating model sets us apart and enables us to continue to capitalize on compelling growth opportunities in this rapidly expanding industry. Real Estate Services also delivered excellent results, marked by a surge in leasing and capital markets transactions. While capital markets recovery has been gradual, we anticipate an increase in business activity as interest rates stabilize and investor confidence builds. This brings positive tailwinds to our business. We're excited about unifying our operations under the Harrison Street Asset Management brand. And while meaningful change takes time, our plan will strengthen our business and deliver meaningful value to our shareholders. Operationally, our Investment Management business is highly resilient. Over 85% of our funds are held in long-dated or perpetual investment vehicles, generating long-term and predictable earnings for our shareholders and top-tier investment returns for our investors. Assets under management finished the quarter at $108 billion, a 10% increase from last year, reflecting the success of our acquisition strategy and solid fundraising momentum to date. Harrison Street has multiple products in the market with new vintages of our flagship funds launching later this quarter and into 2026. These initiatives are expected to drive ongoing revenue growth through next year and beyond. With $9 billion in dry powder across the organization, we are well positioned to deploy significant capital on behalf of our investors. Colliers with 30 years of visionary leadership and 3 powerful growth engines has become a resilient and highly differentiated professional services and asset management company, a company that is well positioned to continue to seize opportunities and deliver lasting value for our shareholders. Now let me turn things over to Christian for his financial report, and then we'll open things up to questions. Christian? Christian Mayer: Thank you, Jay, and good morning, everyone. As a reminder, all non-GAAP measures referenced today are defined in the materials accompanying this call. Revenue growth figures are presented in local currency terms. Our third quarter revenues were $1.46 billion, up 23% year-over-year. Our Engineering and Real Estate Services segments led the increase from a combination of internal growth and recent acquisitions. Overall, internal growth for the quarter was 13%. Adjusted EBITDA was $191 million for the quarter, a 24% increase from last year. Real Estate Services segment revenues increased 13% overall. Capital markets were up 21%, reflecting sales growth in all geographies and in all asset classes with particular strength in the U.K., Japan, and Canada. Debt finance activity was also strong, particularly U.S. multifamily originations. Leasing revenues were up 14%, also led by the U.S. and driven by industrial and office as well as data centers. Outsourcing revenues increased 8% for the quarter with our valuation and advisory practice leading the growth. Segment net margin was 11.3%, up 180 basis points year-over-year on solid operating leverage from higher transactional revenues, partly offset by continued investments to strengthen our geographic and asset class capabilities. Engineering net revenue was up 36%, fueled by acquisitions and internal growth of 6%. The infrastructure and transportation end markets delivered notable revenue gains in the quarter. The net margin was 15.2%, slightly lower than last year, mainly due to service mix. Our backlogs continue to be solid across our geographic markets, giving us visibility and confidence as we look ahead to 2026. Our Investment Management net revenues increased 5% due to the favorable impact of the RoundShield acquisition and higher fee-paying assets under management. However, the net margin declined slightly to 42.3%, primarily due to additional costs incurred as we integrate operations under the Harrison Street Asset Management brand. We expect these costs will continue for the next 2 to 3 quarters and will modestly impact our margins as a result. In the third quarter, we raised $1 billion in new capital commitments. Since quarter end, we have raised an additional $1.2 billion, bringing total year-to-date fundraising to $4.4 billion. As Jay mentioned, we have several funds currently in the market, including one significant new vintage launching in the coming weeks. For the full year, we expect to come in near the midpoint of our $5 billion to $8 billion fundraising target. Assets under management totaled $108.3 billion as of September 30, up 5% from June 30, driven by the recent acquisition and new capital raised, partially offset by asset sales in older vintage funds. Turning to our balance sheet. Our leverage ratio was 2.3x as of September 30 and includes the impact of several acquisitions completed during the third quarter. We continue to expect our leverage to decline to just under 2x by year-end. This assumes no significant additional acquisitions. We are maintaining our full year consolidated outlook. In our Real Estate Services and Engineering segments, we may exceed our previous full year guidance, while in Investment Management, we expect to be off slightly given the timing of fundraising and costs associated with unifying our operations under the HSAM brand. Putting it all together, on a consolidated basis, we remain confident we will meet our full year outlook. That concludes my prepared remarks. Operator, can you please open the line for questions? Operator: [Operator instructions] Your first question comes from the line of Stephen MacLeod from BMO. Stephen MacLeod: Just wanted to circle in on a couple of things. Just with respect to the Engineering margins in the quarter, you noted some service mix headwind. And I'm just curious if you could give a little bit of color around sort of what you saw in the quarter and how that weighed on your numbers or weighed on the margin, I suppose? Jay Hennick: Well, Steve, you got to look at this on a net revenue basis. We have a lot of pass-through costs in Engineering, and those are at low or very low margins. So on a net basis, our margin was down very slightly. We're talking 20 to 30 basis points. And it really just is some service mix across our geographic markets. Stephen MacLeod: And then just on the Investment Management business, obviously, strong fundraising on a year-to-date basis, and you guided to sort of being in the midpoint for your target for 2025, which is great. Just as we think about the additional costs, again, sort of weighing on the net margin this quarter. Can you talk a little bit about sort of how you see that evolving as you get into 2026? Or is it maybe too soon to talk about 2026 margins at this point? Jay Hennick: Well, look, Steve, we don't want to talk about 2026 until year-end. We'll give a full outlook for 2026 at that point. But as it relates to Investment Management, in my prepared remarks, I did reference that we will have 2 or 3 quarters of headwinds from cost to unify the segment. So that will be a modest impact on the margin. Christian Mayer: And let me add something to that, Steve. We are a public company. We have, over the years, brought together some pretty exceptional Investment Management platforms. And now we're taking steps to bring some of them together to really create a powerhouse under the Harrison Street brand. That takes costs, that takes time, that takes effort, and it will definitely translate into shareholder value over time. And other people just leave things alone. You've seen us do this before. And so we're doing some pretty interesting things to really solidify that business for the long term. And you'll see fundraising growth, which is wonderful. But that comes on new programs, new strategies, and a lot of that has to do with unifying the teams and sharing the best of the best across the board. So if we were a private company, you would never see this. But in a public company situation, which we've done before, there's some modest impact on margin here or there as we invest in our business, and we're going to continue to do that because for Colliers, it's about creating long-term value for shareholders. Operator: Our next question is from Tony Paolone from JPMorgan. Anthony Paolone: Just on Engineering, can you talk about what you think organic growth has looked like? It's a little hard to see just given all the acquisitions and such in there. And along the same lines, like when you do underwrite on these acquisitions, how do you think about what you expect from, say, the producers that you're bringing on in terms of growth in the top line there? Jay Hennick: Tony, our year-to-date organic growth in Engineering is around 8%. And I think for the year, we guided to sort of mid-high single-digit area. So we're fully on track with our organic growth ambitions for the year, and we expect that to continue. We play in rapidly growing markets, infrastructure-oriented markets, transportation, energy, communications, public sector investments that are being made by governments, frankly, around the world. So when we look for acquisitions, we look for businesses that are playing in these sectors and where there are long-term tailwinds for growth in this highly fragmented industry. So that's the way we think about it. Anthony Paolone: And then just a follow-up on that as it relates to the investment pipeline. Can you talk about just how that looks, sizes of the deals, like any larger type of transactions? And is it still skewed towards Engineering? Or are there other areas that you're seeing activity in? Jay Hennick: Well, so far this year, we've made acquisitions in each one of our segments. But Engineering by far has been in terms of number of transactions, not necessarily size, but in terms of number of transactions. And Christian made a point, this is a massive, massive industry that's highly fragmented, multiple areas of specialty. And even our most mature businesses, we have white space -- we might have white space in one part of the country and strong expertise in that same area in a different part of the country. All of those create opportunity for acquisition. So for a company like Colliers that has been in the internal growth and acquisition or consolidation business for 30 years successfully, this is exactly what we look for in terms of a segment that we can grow. And so our philosophy, as you've seen and others have seen over the past 5 years has been to enter a market in a dominant way as one of the top players and then to fill out and strengthen that platform as we've done in Canada, as we've done in the U.S., and as we've done and continuing to do in Australia. So there's a whole big world out there in the Engineering space that creates just staggering amounts of opportunity in that area. And I'm hopeful over the next few years that we can double this business again in terms of both revenue and profitability. And our -- and I'm going on too long, but our unique way of operating with our partnership philosophy and decentralized operations, which we apply across the board and have forever, is really a difference maker for the targets. So we're excited about this space. And we think it will provide us with a huge growth opportunity in the years to come. Operator: Our next question is from Himanshu Gupta from Scotiabank. Himanshu Gupta: So just on IM fundraising, I mean, you have done almost $4.4 billion this year. What is the mix of that, like open-ended versus close-ended? And is that also impacting the margins apart from the integration cost? Christian Mayer: Hello, Himanshu, that's a good question. And you're talking about fundraising and the mix of open-ended funds versus close-end funds. And then we also have now credit, which is a much bigger part of our business. And when you raise close-end capital, the fees turn on immediately and typically at a higher fee rate than an open-ended fund or a credit vehicle would. So that type of fundraising has more immediate impact on our revenues, and we are seeing that a little bit in 2025 as we have been very successful raising open-ended fund capital this year. We've also raised some pretty significant credit capital. And that open-ended and credit capital does not start generating fees until such time as we deploy that capital, which can take 3 to 6 months. Day referenced, we have $9 billion of dry powder, and that is capital that's ready and waiting to be deployed. So our teams are focused on that. And once that capital is deployed, it will start to earn fees. Himanshu Gupta: And the next question is you're working on the integration of IM under this Harrison Street platform. Have you received any initial client feedback so far? I mean, as you integrate Rockford versus the Harrison Street? And I know it's early days, but still wondering if any client feedback on this process. Jay Hennick: Yes. The client feedback has been terrific. In fact, that's been a major part of the efforts in bringing these operations together. What it really means is we can now use our debt capacity in areas that we have expertise in seniors and students and so on to -- so there's a lot of opportunity to do more with the same investments. So client reaction has been great. Also what the clients like is a more streamlined fundraising capability. They want to understand what are the investment opportunities for them. They'll choose which ones they have interest in, and then we can bring in the expertise to help satisfy their investment desire. So feedback has been very good to date, and our investors are responding by increasing the amount of capital they're allocating to us. It's never enough, as always, but it's a lot better than it has been in past years. Himanshu Gupta: And clearly, it's in the right direction. And then just switching gears, on the leasing side. I mean, it looks like industrial leasing was strong. Any particular geography which is impacting that? And how much is tariff discussion now compared to first half of the year? Jay Hennick: Well, Himanshu, leasing was led by the U.S. in the third quarter. Industrial and office, particularly strong. And if you recall, in the first half of the year, leasing was challenged. We had some tariff and trade impacts in the second quarter, which caused clients to pause, particularly on the industrial side of things. So we're feeling good about our leasing trajectory, and we expect leasing to be up nicely year-over-year as we finish the year in Q4 here. Operator: Our next question is from Julien Blouin from Goldman Sachs. Julien Blouin: I just wanted to go back to Investment Management. I mean, you touched on all the work you're doing to integrate the back office and the market-facing brands within Investment Management. I guess beyond the 2 to 3 quarters of margin pressure ahead from the integration costs, do you still feel like you can get to that 45% to 50% margin that we've talked about in the past? And will you wait until you get to those margin levels before considering any of the strategic options you've talked about in the past for realizing the value of that segment? Jay Hennick: Well, to be honest, for us, what's more important is growing out this platform and making it as strong as possible. So we -- over the next couple of quarters, we sort of have a clear view of where our margin may go to. But we're going to continue to invest in our platform to make it as strong as possible. We are open -- we continue to be open for acquisition opportunities in this segment. There's tons of white space, and there's tons of opportunity right now, as you probably know, with lots of players in this particular segment talking to each other about potential hookups in one form or another. So we're active all over the place, and we'll have to see how the next few quarters roll out. But from my perspective, we're building this business for the long term. And if we have to give up a few points of margin to continue to build our business and generate 20% plus growth internally, we're going to do it. It's just that simple. So I don't know if that answers your question, but that's sort of the way in which we would be looking at that business going forward. Julien Blouin: And then maybe digging into capital market, can you give us a sense of how October and the fourth quarter is shaping up and maybe where pipelines of activity stand versus this time last year? Jay Hennick: Yes. Good question, Julien. We had last year a very strong quarter in capital markets. And this year, the pipelines are looking solid, and we feel confident at this point in our prospects for the fourth quarter, and we should be able to exceed our performance of last year, which, as I said, will be a relatively tough comp compared to the comps we've seen so far year-to-date. Julien Blouin: And when you say exceed your performance from last year, you mean just that it should grow year-over-year? Jay Hennick: Absolutely. Operator: Our next question is from Erin Kyle from CIBC. Erin Kyle: I just wanted to tag on to that last question there and see if you can maybe elaborate a bit more on the pace and breadth of the capital market recovery. And if there's any particular regions, I know you called out the U.S., or asset classes that are leading the improvement? Christian Mayer: Yes. I think the capital markets recovery is broad-based. And we highlighted a few asset classes where sales brokerage has been strong, or sorry, a few geographic markets where capital markets growth has been strong. But Erin, I really would make the comment that this is a multiyear recovery. It is really a global recovery. If you recall, 2023 was a very challenging year in Europe, in particular. Our European business is really well positioned to capture the rebound in activity, and that's been evident in the numbers year-to-date, and that's going to continue as we look ahead to Q4 and into 2026. So I think it's really, as I said, broad-based across all geographies. Jay Hennick: But I would also say, Christian, if I could add something there. Capital markets isn't back yet anywhere. There's strength, as Christian said, in the U.S. But I would say, in Europe and Asia and even to some degree in Canada, there's more transactions happening, but it's taking time. I don't think there's the stability yet around interest rates, debt costs, et cetera. And investor confidence is not where it needs to be. All of that is, to my way of thinking, tailwinds because even in our own fund business, Christian made a point of saying that we've sold a whole bunch of assets, which is a normal -- it's normal course in the fund business. You redeploy assets and to investors on an ongoing basis when it's opportune to do it. So there's a lot of pent-up demand around capital markets, but we haven't seen it yet. We've seen some of it. It has not come back to where it used to be. And that to us is just upside for our -- for the future. Erin Kyle: And then you started answering my second question there, but I just -- in Investment Management, could you remind us how many funds are going through the disposition phase? And then what percentage of those funds are typically recycled? Jay Hennick: Well, most funds are always looking at disposing of assets at opportune times. Usually, you'll see the older funds, the older close-end vehicles selling out their assets faster. But it's a function of what they can generate in terms of returns. If a particular asset is not yet fully developed, not yet fully leased, upside still to be gained, you won't see our asset managers wanting to sell those assets because they know there's inherent value in them. So it's really part of the art of managing and delivering top-tier returns to investors. When is the opportune time to sell? Which assets within the portfolio do you want to sell? Do you want to put together 2 or 3 assets so that you're actually selling a portfolio so that a larger player can buy it and get -- and hopefully pay a higher price? Of course, netting our funds and investors more in returns. So it's really the art of the asset managers, and we have -- one of the unique advantages we have, and it really applies across our business is that our key players own an equity stake in the business. So not only are they incentivized to deliver great returns for their investors, they also are incentivized to deliver great returns for shareholders. So that's how I would answer your question. Operator: Our next question is from Mitchell Germain from Citizens Bank. Mitch Germain: Jay, I'm curious, you've done some M&A across the services platform. I think Greystone and Triovest were a couple of deals that you've announced in the last couple of months. How do you kind of -- how does that fit in the puzzle when you consider hiring as well? I'm curious about the pace of hiring that you're doing? Or is it really just more on the M&A side that you're investing there? Jay Hennick: Well, each of our businesses are active recruiters of top talent. And I know on these calls, we talk about M&A. But in our numbers, and you probably know this, and I'm sure you've discussed it with Christian over the years, we have significant expenditures around recruiting top talent to fill white space in different geographic regions, which has an impact, a negative impact on our margins. And so I would say -- and we have specific goals. We have a large group of -- a large department within each of our regions that are, we think, very good at what they do. And so recruiting and retention, especially in areas of white space is a key part of what we do and gets lost somewhat in the discussion around internal growth. So internal growth, for example, in the residential business this quarter was 8%, I think. 13%. So it was actually much higher than that, but we would have borne some of the cost of recruiting in that 13%. Christian Mayer: No, that was the revenue number. So -- but I would add that in terms of our margin, it does impact our margin, Mitch, on an ongoing basis. And we've seen that year-to-date. In the third quarter, we had tremendous operating leverage from higher revenues. But notwithstanding that, we still have a margin pressure from recruiting, and that's a cost we're prepared to bear because we're recruiting top professionals and adding new capabilities in asset classes and in geographies, and that's something we're going to continue to do. Jay Hennick: Yes. I was thinking margin. I'm sorry, Mitch. I was thinking about margin and the impact on the margin. So thanks, Christian, for clarifying that. Mitch Germain: Yes. And Jay, I understood where you were headed there. A lot of your peers, Jay, talking about capturing this enormous data center opportunity. You cited it in your earnings release. I'm curious if -- say it differently, I'm curious how you're positioning Colliers to potentially benefit down the road from this growing sector? Jay Hennick: Well, that's a great question, and I'm glad you asked it because I've been listening to some of the other players in the real estate services space who've been very vocal about data centers, portraying them as some sort of new major growth engine. And for most of these players, data centers is just another asset class. They help clients buy, sell, lease, finance data centers when they're able to do that. At Colliers, we do much more than that. In addition to those services, which are significant for us, Colliers also designs. We entitle land for development. We do project management and program management on both construction and maintenance through our Engineering group. And through our Investment Management segment, we also invest in data centers, creating really a full cycle capability. And so while data centers are getting a lot of attention these days, and they're strategically important to us at Colliers because for us, it's not just the Real Estate Services piece of it, it includes so much more. And as I listen to some of our other peers, I smile because they're really just providing traditional Real Estate Services around another asset class that happens to be hot right now. There are only a few, Colliers included, that are actively involved in the entire life cycle of data centers and so much more than just data centers. So a big part of our business, it's strategically important. It will continue to grow. It's probably our rapidly growing -- our fastest-growing segment across the board, although still not material to us from a percentage of revenue point of view. I hope that sort of puts it into perspective for you, but that's how we see it. Operator: Our next question is from Daryl Young with Stifel. Daryl Young: Just one question for me related to commercial real estate services. I wanted to get a sense of whether you're seeing any green shoots on construction activity or we're still early in the cycle. And I guess, just the magnitude of what you would see as upside from that over the next couple of years? Jay Hennick: Well, it depends on what construction activity you're talking about and in what markets. So I would say that the construction of condominiums in Canada and the U.S. is soft. You're seeing some construction in multifamily or build-to-rent. There's obviously lots of activity around data centers and related infrastructure assets. And it's a little bit the same in Europe, although it's smaller numbers. So new construction is really at a pause from our perspective right now, which is creating a lot of pressure for companies that were traditionally focused on this type of construction from the ground up. Operator: Our next question is from Jimmy Shan from RBC Capital Markets. Khing Shan: Just a couple of questions on the operating leverage within real estate services. So this quarter we did see roughly $100 million of year-over-year revenue growth, and then we saw EBITDA grow by $23 million. So I think that's the leverage math that you've spoken about before. Is that how we should be thinking about the leverage as we look out to '26, I guess, #1? And then secondly, maybe if you could speak generally about sort of the excess capacity that you see within the organization. If volume continues to come back the way it has been, how well staffed are you today? Jay Hennick: Well, Jimmy, the operating leverage math that you quoted there is absolutely correct. So we had about 22% operating leverage on an incremental revenue dollar in Q3, and that's in line with what was telegraphed over the last several quarters in terms of what our expectations are. And as revenues continue to grind higher here, and this is a gradual recovery in capital markets and leasing is also on a growth trajectory. As those revenues increase, we should hopefully continue to see that 20-plus percent operating leverage through 2026. Khing Shan: So in general, would you say there's a lot of excess capacity still? Jay Hennick: Yes. I mean we have a tremendous amount of productive workforce on the ground, 4,500 productive brokers around the world. And we continue to invest and add new brokers and new geographies and new asset classes. So these folks are primed and ready and highly, highly motivated to generate additional commissions for themselves and for the firm. So we expect that these folks will contribute more and become more productive as the market improves. And as I said earlier, I mean, the market hasn't even returned to where it used to be. And the number of brokers that we have in the organization is up probably 15% from our high capital markets production number globally, I'm talking about. So I think as capital markets continues to gain strength, we'll be able to do substantially more revenue at high margins with a workforce that's larger today than it was at the high. Khing Shan: Right. And then just on that topic in terms of kind of future tailwind, with respect to office leasing and capital markets, the recovery so far, it seems to have been a little bit more weighted towards the major markets in the U.S. And I could be wrong here, but I think your footprint in the U.S. tends to be a little bit more secondary markets. So is it fair to assume that to the extent we see the same sort of recovery in those non-coastal, non-major markets, we should expect a little bit better upside in the future? Jay Hennick: So first of all, let me put our business in the U.S. into perspective. We are 1, 2, or 3 in virtually every market, large, small, with 1 or 2 exceptions in the U.S. So we're one of the top players everywhere. And so from the standpoint of where the revenue will come from and where we can translate it. Yes, major markets generally generate higher revenues in part because the lease rates within those markets are significantly higher than they might be in a secondary market. So it's really all over the map. For those -- for those of our competitors that might have a much bigger business in, say, New York City than we do in terms of number of brokers, they would obviously generate more revenue on leasing in New York when leasing revenues are up versus us relative to size. But I think we're -- Colliers is 1, I would say, 1 of 2 well-balanced globally real estate services firms with strong market positions everywhere. We would like to be bigger in certain markets, of course, but we're a well-balanced business. And if you look back over the past couple of years, at a time when real estate services has gone through some very soft times, Colliers continued to perform quarter after quarter after quarter, which has just shown the resilience of our business. And we're waiting for -- and we're continuing to strengthen making our business better. And as markets continue to get stronger, we expect our results to follow. Operator: Our next question is from Stephen Sheldon from William Blair. Unknown Analyst: You've got Pat on for Stephen today. My first one, with the relative strength you're seeing in leasing and capital markets. Can you just touch on the puts and takes in terms of maintaining your real estate services revenue guide for the year? Were there any overly significant deals that came through this quarter? Or any dynamics we should be thinking about across those 3 services subsegments heading into the fourth quarter? Christian Mayer: No, there's nothing -- no lumpy transactions in the third quarter of note. And to achieve our full year guidance, we do want to see an increase in capital markets activity year-over-year. And as I mentioned, capital markets had a very strong fourth quarter in 2024. So it is a tougher compare, but we do see the pipeline there for continued growth. Leasing should trend positively for the fourth quarter as well. That's really a global thing across all of our services. And in our outsourcing business, that's the recurring part of our real estate services business. We've got a very strong trajectory in our valuation and advisory business, and we expect that to continue as well as increasing property management and loan servicing revenues. So we feel pretty good about all of these services, and there's nothing lumpy or unusual to note. Unknown Analyst: And Jay, just to piggyback off of a prior question and your prior commentary on data centers. I understand you all have significant capabilities across the portfolio there, including in the Investment Management business. But I wanted to ask, as you expand your platform through continued M&A, is it of interest to build out more technical capabilities on the services side? And as you think about that, what are you seeing in terms of the valuations for that type of asset? Jay Hennick: Well, first of all, across the Engineering segment, which is, as I mentioned, it's about $1.7 billion now on a global basis. We do a lot of technical services today as do most engineering firms. So I don't know how many data centers we're doing globally now in some form or another, but it's a substantial number. Having said that, the acquisition costs of any firm that is around data centers right now, whether they're constructing them, whether they're project managing them, et cetera, servicing them or managing after the fact are very high. And from our perspective, we are -- we can't see a return in investing at those kinds of valuations. We're very happy continuing to build out our Engineering segment that serves it and continuing to look for more opportunities to finance and own data centers because that creates opportunities for us to potentially do more in the future. But valuations are high in that space, as you would expect. Unknown Analyst: And if I could just ask one more quick clarification, Christian, unless I'm looking about -- I am looking at this incorrectly, I think the guidance for Engineering implies that the 4Q growth takes a step down organically unless there's some sort of volatility in the pass-through costs there. Am I looking at that correctly? Or is there anything we should be thinking about there? Christian Mayer: Yes, you're looking at that correctly. There could be a small step down in organic growth in the fourth quarter. I'll remind you that we did indicate on a full year basis that organic growth would be in the mid to high single-digit range, and we'll be firmly in that range for the full year. And we've been outperforming to that for the first 3 quarters. Operator: Our next question is from Maxim Sytchev from National Bank Capital Markets. Maxim Sytchev: Jay, I wanted to go back to your prepared remarks. And I think you made a comment, and unless I misunderstood, but the $9 billion of dry powder across the organization, do you mind maybe expanding a little bit on that figure unless I, again, misinterpreted it? Jay Hennick: I didn't really hear that. I didn't hear. Christian Mayer: He was asking about the $9 billion of dry powder we have across the organization and if we have any more details on what that is. Jay Hennick: We do. We have all the details. But I think it's an aggregate number that we feel comfortable giving you. It's made up of all of the available capital across the funds, including alternatives, including debt, et cetera, et cetera. So it's an amalgam of all the capital available. And even if I gave you the breakdown, it wouldn't add much value because it's when you deploy that capital that it translates into returns. So as Christian said, in the debt space, our fee structure is lower than it is in our open-ended and close-ended funds. So it really depends upon putting that money to work and in what area and what kind of revenue we'll generate once that money is put to work. So I think $9 billion is a good number way back -- way more than it was last year. And we're just looking for the right opportunities to deploy that capital virtually across the board. Maxim Sytchev: And I apologize for my connection. And another question I had in relation to the Australian foray on the Engineering side. Do you mind maybe talking a little bit about the reason why you went into that geography? I mean it has been a bit sluggish. So is the thought process that right now, you're kind of picking it up on a trough? Maybe any color would be very helpful there. Jay Hennick: Max, the acquisition we announced last night is a well-established urban development consultancy and engineering firm operating in Adelaide. It's a market that is of significant size in the Australian sort of geography and a place we want to expand to. It's a relatively small firm, with 65 staff. So we were able to do this transaction, add these folks to our established platform, which I think, I believe we've got well north of 500 people now in our Australian engineering business, and these folks will tuck in to that business, and they will be nicely accretive for us. And we're able to do these tuck-in acquisitions, as you know, at very attractive valuations. So that makes this all the more compelling for us. Operator: Question is from Frederic Bastien from Raymond James. Frederic Bastien: On Max's question on engineering. Really excited to see this segment perform strongly, and you continue to partner with industry leaders, both you saw that in Canada and Australia, but it really feels like it's the real deal here. And it feels like you're only scratching the surface. You've got good scale right now in Canada with Englobe. But can you comment on the potential for additional growth in the U.S., Australia, and Europe? Europe seems like there's massive opportunity there that you're still waiting to tap. Jay Hennick: You've sort of summed it up beautifully. The U.S., we'd like to be growing faster. We're growing nicely there, but we'd like to be growing faster. So that's a big opportunity for us. Canada, we're doing phenomenally well there, and we're excited about that. Australia, Australia is doing nicely. As you can see, a lot of these smaller deals. There's not a lot of big players in Australia. So we're putting together our platform one step at a time. Europe is a big opportunity. We're spending a lot of time there. And there are some very interesting platforms that we've been considering. And again, our partnership philosophy and our decentralized operation is attractive to large partnerships that don't really want to be acquired 100% by somebody else. They want to continue to own an equity stake in the business and be part -- participate in the future growth in this segment and take advantage of relationships that we might have across the platform, whether it's in real estate or it's in investment management. So we -- as you've seen so many times, Fred, over the years, as you followed other engineering firms, the segment is so massive. It's bigger than I even thought initially, and the white space keeps expanding. So we think that this is a great growth engine for us for many years to come, and we're just going to continue to build. We don't have to be the biggest. We just have to be one of the best, and we have to have a unique differentiated strategy, and we believe we have that. So one step at a time got us to $1.7 billion in 5 years. Hopefully, we can follow the same format and double the size of it over the next couple, 3 years. Frederic Bastien: Last question for me. Regarding the Astris and Triovest deals that you completed on the RES side. They've only been contributing for a few months, but I was wondering if you could provide an update on how these businesses are performing under the Colliers umbrella? Jay Hennick: Still too early to say. Triovest has been an asset that we've sought after for a lot of years. It's highly -- it's almost entirely recurring revenue. And we're in the process of integrating that into our Canadian property management operations. Interestingly, there are some clients -- Canadian clients that have assets in the U.S., that have asked us to take over some of those assets. So that's in process. So we're quite excited about Triovest, and we're also in the process of rebranding it. And just to make the point one more time, whenever you do these things, it takes cost, it takes time, it takes effort. When you make acquisitions, you have to integrate those acquisitions. And somebody commented on our engineering margin down 20 basis points in the quarter, like it's 20 basis points. Give me a break. So Triovest, as I said, is going well, and we're excited about what that can do for us. And there was another acquisition in real estate, a company called Astris, which has so far been overperforming. We had a bit of an advantage with that acquisition because they had already had relationships with our investment management platforms in a couple of different areas. So we had a good sense for the quality of the professionals. And we're seeing increased potential opportunity around financing infrastructure, mid-market infrastructure businesses through the Astris professional. So we're cautiously optimistic that that will be another successful business and service offering that we can build over the next few years. Operator: There are no further questions at this time. I would now like to turn the conference back to Mr. Hennick. Please continue. Jay Hennick: Well, thank you, operator, for passing it back, and thank you to everyone for participating, and we look forward to speaking again in our -- at our fourth quarter results in February. So thank you. Have a great day. Operator: Ladies and gentlemen, this concludes the conference call. Thank you for your participation, and have a nice day.
Craig Marshall: Welcome, everyone, to BP's Third Quarter 2025 Results Call, which today we're hosting in Abu Dhabi. We'll be focusing today's call on the third quarter results and the contents of the video that I hope many of you will have seen by now. But before we move to Q&A, let me firsthand over to Murray for a few brief opening remarks. Murray? Murray Auchincloss: Thanks, Craig, and thanks, everyone, for joining the call today. We're now 3 quarters into our 12-quarter plan and have delivered another strong quarter of operational performance and strategic progress. Earnings and cash flow generation was good with underlying pretax earnings of $5.3 billion and underlying net income of $2.2 billion. And with $7.8 billion of operating cash flow delivered this quarter, we are making good progress in delivering on our growth target for adjusted free cash flow growth of 20% CAGR over '25 to '27. Our operations teams are doing a great job in running the assets well with upstream production increasing by around 3% quarter-on-quarter, supported by upstream plant reliability at around 97%, leading to upgraded full-year underlying production guidance and refining availability also close to 97%, the best quarter in 20 years for the current portfolio. Looking ahead, we're also making strong strategic progress. We've started up 6 new oil and gas major projects in 2025, 4 of which were ahead of schedule. And we've had 12 exploration discoveries so far this year, including Bumerangue in Brazil, where the latest analysis and results gives us even further confidence. This performance is also showing up in the downstream as well. Underlying earnings in the first 9 months were around 40% higher than the same period in 2024. In customers, we delivered our highest 3Q on record and refining captured a better margin environment. We're making good progress on derisking our $20 billion divestment proceeds target, today upgrading our proceeds guidance underpinned by proceeds completed and announced this year that are expected to be around $5 billion. We're staying disciplined with our capital investment with organic CapEx on track to be below $14 billion. And we remain confident in the momentum we are building in support of the delivery of the cost and net debt targets we have laid out. In summary, while there remains a lot of volatility, we are staying focused on what we control, underpinned by a laser-like focus on performance across the company. We have world-class assets and capability with operations delivering strongly. We have a deep resource base and are building high-quality options for growth in the future, the focus of our ongoing portfolio review. We're continuing our momentum to drive -- in our drive to reduce costs. we're making good progress in growing cash flow and returns and our plans to strengthen the balance sheet. And of course, we have more to do. All of this is in service of growing shareholder value and returns. With that, I'll hand over to Craig to take us through the Q&A. Craig Marshall: [Operator Instructions] So I think we'll start there with taking the first question from Al Syme at Citi. Alastair Syme: Murray, I got a question on Bumerangue. I'm really intrigued by the decision rather to publish the map on Slide 9. Clearly, there's a lot of market interest in the discovery, but at the same time, it's quite early days to be publishing a map. Can you talk about the confidence in that geological map based on the data you've got? And I'm also intrigued to know whether that sort of image looks any different to the predrill assessment that you had in the field. Murray Auchincloss: Yes. Great, Al. Thanks very much. Yes, we're feeling pretty good about Bumerangue right now. As we disclosed recently, 1,000-meter column, 100 meters at the bottom of oil and 900 meters of rich gas condensate. We've evaluated about 2/3 of the samples in the labs, and we continue to evaluate them. The map we've produced is off the predrill seismic. There's a lot of technology that's changed over time, and the pre-drill and post-drill are pretty close to each other. The guys were able to image the top and bottom of the reservoir within a couple of feet based on the quality of the seismic we had. So we're feeling pretty good about it. It's a pretty good aerial view of it, 30 -- at least 300 square kilometers, at least 1,000 meters of column height, and we continue with the lab sampling. We will update the market in due course once we understand the gas oil ratios fully and once we understand the volumes in place. And we've secured a rig to drill the next appraisal well and do a flow test on it as well, which we expect to happen once the equipment is available near the end of next year. So good news on Bumerangue. Thanks for the question. Craig Marshall: We'll take the next question from Alejandro at Santander. Alejandro Vigil: The question is about Castrol, the process, the strategic review of this asset. If you can give us some color about how the process is going. Murray Auchincloss: Great. Thanks, Alejandro. I'll take that one again. First, just a small note of congratulations to Emma and Michelle, who run the business. It's 9 quarters in a row of increase in earnings, very strong performance out of that business, and it's going very well. It's a commercial process, so I won't talk much about it other than to say there's strong interest. We are moving at pace, and we'll update you in due course. You'll remember that any proceeds that come from the strategic review will be dedicated to the balance sheet. But strong interest. We're moving at pace, and we'll update the market when we have something to say to the market directly about it. Craig Marshall: We're going to take the next question from Irene Himona at Bernstein. Irene Himona: Congratulations on the numbers. Murray, can you give us an indication of an approximate timing for making concrete announcements to the market on the further portfolio simplification and restructuring, which you referred to in your comments, please? Murray Auchincloss: Great. Thanks, Irene. Thanks for your kind words. On the portfolio review, Albert New Chair is on board now. We're starting to work with him on thinking about the portfolio. Of course, this comes about because we've had such tremendous success inside exploration. When we set out our plans in February, we didn't imagine that we'd have 12 exploration discoveries in a year. We certainly didn't imagine we'd have a discovery like Brazil as well. So that's all good news. We, of course, as a corporation, are very focused on making sure that we drive for value and returns and allocating capital to the highest quality opportunities. And that's what we're commencing now. We plan to update the market as we go along. So if you think about what happened in the third quarter, you saw that we made a sanction decision on Tiber in the Gulf of America, which we're very happy with. You saw that we decided to divest the Culzean field in the North Sea. We feel that it would have more value in other people's hands. And you saw that we stopped the Rotterdam biofuels refinery. It just didn't -- it didn't compete on a returns basis in our portfolio. So we'll update as we go along, Irene, and you should expect us just to update us as we go along through time and the decisions that we make. Thanks for your question, Irene. Craig Marshall: We're going to take next question from Lydia Rainforth at Barclays. Lydia Rainforth: So can I just come back to Bumerangue, if I could. Just on -- what I'm getting back is a lot of, well, it might not be 300 square kilometers, you may only be able to access half of that, the CO2 content. And like every is trying to talk it down. So just to take a step back and just on your earlier answer, Murray, the idea of the commerciality, that was really the main message that you wanted to share with us some update last week. And then secondly, just a very different topic on AI and the cost base. We've seen lots of examples here in APAC around just agentic AI, what we've seen there. Can you just talk us through what -- how you think the deployment is going within BP? And you talked about wanting to reduce the complexity of BP, improve the simplicity. So can you just walk us through where you think you are on that journey? Murray Auchincloss: Yes. Thanks, Lydia. Just on Bumerangue, I think the principal thing to focus on is that there's an awful lot of oil and condensate in the column. It's a large column. We've updated it from 500 meters to 1,000 meters based on the logs and the strong response we've got inside the logs and the samples. We do have the 100 meters of oil. We do have the 900 meters of rich gas condensate. That makes the CO2 manageable, although you might need a little bit more money for metallurgy. Obviously, you're going to get an awful lot better flow with CO2 in an oil condensate column. So we feel comfortable. We continue to think of it as the largest discovery in 25 years. We've obviously secured a rig to go appraise it and test it, and we feel that we're increasing the quality of this with the results that we're seeing out of the lab moving forward. And we'll, of course, update you on gas oil ratios and volumes when we're ready with it, Lydia. I think on AI, I do think we're making decent progress. A couple of quarters ago, I had Emeka talking to the sell side about what we're doing in AI. And all of you know that we've partnered with Palantir more than a decade ago inside the upstream to really get going on structuring our data and experimenting first with linear programming and then moving into AI more recently as that technology has emerged. I think the first thing to say is we feel well progressed on the data foundations, which is critical to making AI work. We've said that we'll have a unified data platform, not just across the upstream, but across the downstream, across trading, across finance, where working with Palantir and Databricks, we'll have an entire unified data structure sometime around the middle of next year that then allows us to use AI and the LLMs against all the data we have. That's quite exciting that we'll be in that position. It's all cloud-based, so accessible everywhere. And I think that will make us distinctive for having that type of data structure on topology. The actual examples of AI that we've got going around the company, I feel good about as well. Last quarter, I talked to you about kit detection, where the teams have worked with the LLMs to be able to predict kits ahead of meeting them while drilling in wells like far south in the Gulf of America, and we're at about 98% detection on kits. As well, you saw in these results, production is high. We've upgraded our production guidance for the year. Why? Because we're at nearly 97% availability in the upstream. That's the AI helping us predict faults before they occur, repair them before they occur along with all the investment in the hydrocarbon kit we've done. That 97% is a record across since merger time. So outstanding result. And we're also seeing that inside the wells. Wells are failing at a far less frequency than they were as the AI helps us manage pressure depletion inside our well stock. Another great example is well planning. The AI is enabling us to knock down well planning by 90% as it catalogs all the data, provide suggestions to the experts, and that's significantly increasing the speed with which we can plan wells. not only safely, but more efficiently. And then it's not just contained to the upstream. We're working very hard with Palantir and Databricks to work our way through refining in a few of our refineries. And in the customers business, there's an interesting example of an AI agent that's helping us in our service stations in Germany. We've trialed it with 20 service stations in Germany. It's been designed to help us manage our stock levels there to make sure that food isn't wasted, that we follow customer preferences for what they like to purchase and what they don't like to purchase. And that after 3 months in those 20 locations, they've knocked down waste by 45%. So we can see tremendous examples of improved uptime, improved performance, better capital efficiency through AI. And we're very excited about the opportunity this has as our data foundations get firmly in place. Thanks for the question, Lydia. Craig Marshall: We're going to move to the U.S. to take the next question from Doug Leggate at Wolfe. Douglas George Blyth Leggate: Murray, I guess I've got a couple of parts to this related to your production guidance long term. You're already over 2.3. BPX is knocking it out of the park, frankly, versus its more than 600 end-of-decade kind of guidance. And now you've got multiple discoveries and potentially an early production system from Bumerangue. So my question is, how do you see the risk to your production guidance? And maybe a kind of part B to that, would Bumerangue early production system be included in the CapEx guidance that you've given us over the current plan as well? Murray Auchincloss: Yes. Thanks, Doug. I'll hesitate to give a ton of guidance forward. We've set out our plans to 2027 as principal guidance, and then we gave an indicator of volumes at the end of the decade as well. I think it's probably premature until we work our way through more of the portfolio review to understand where we'll be headed. We do have choices on short-term versus long-term. So of course, we can pivot more capital into BPX and drive-up production near term or we can pivot more to things like the Paleogene and Brazil to drive longer-term resource production. I think if I step back from it, I think the thing I'd say is that I feel we now have the potential to grow long-term organic oil volumes for long duration. And I'm not sure I've been able to say that over the past 25 years with BP that we've been in a resource position like that. It's a nice problem to have. And what we're tightly, tightly focused on is staying within our capital frame and deciding what the right thing is to do to grow shareholder returns and value on behalf of the shareholders. So I think where I'd wrap that question is I'm very pleased to have been able to improve the guidance for 2025 after only 3 quarters, tremendous performance from the teams, as I said earlier. We'll update you on 2026 in February with what our viewpoint is of production then. And I would say we have more potential to grow, especially in oil now. And I feel we're in a better place than we've been in my career with BP, which is a nice thing to have. I hope that helps. Craig Marshall: We'll take the next question from Lucas Herrmann at BNP. Lucas Herrmann: A couple of -- well, a couple, if I might. Just going back or staying with BPX, Murray. Just trying to understand the CapEx profile. I mean, I appreciate the growth is very good. But the rig count kind of held. And I guess my understanding was always that as you came to complete on the processing facilities, bingo, so on and so forth, that we see a step down in spend, which doesn't really seem as though it's happening. So some explanation as to the developments there. And then if I can, just a simple one for Kate on the pension fund, if that's ever simple. Can you just talk around the buy-in that you've arranged with Legal & General and why you -- why sort of stopped where it has at this point? Should we be expecting you to sell down or to allow Legal & General to buy in a greater proportion of the U.K. fund into the future? Murray Auchincloss: Thanks, Lucas. I'll let Kate talk, and then I'll come back on BPX. Katherine Thomson: Yes. Lucas, thanks for the question. So yes, I mean, it's been a conversation inside the Pension Trustee Board for a while in terms of derisking. You can see a number of other companies have stepped into this in similar ways, some to a bigger degree than we have. I think the transaction that's been executed is a good one to date. But of course, it's not our decision as a sponsor as a company. It rests fully with the Pension Trustee Board. And I think they will continue to evaluate how they feel with regard to further derisking as we go through the coming months. But I have nothing further to be able to say in terms of guidance on that at the moment, Lucas. Murray Auchincloss: Great. Thanks, Kate. On BPX, Lucas, the way that we think about BPX is about $2.5 billion a year into it. Of course, we have the opportunity to flex that up and down. So this year, we'll spend around $2.5 billion in BPX. And as guidance, I think we guided around $2.5 billion through the next couple of years as well as we talked about the shape out to over 650 kbd in 2030. I think a few things I'd say about BPX. The productivity improvement we've seen from the team is very high. They've had 30% productivity improvement in completions and 15% in drilling over the past 12 months. They're now at top quartile in each of the basins we operate from a drilling days per 10,000 and they're at top quartile on NPV per dollar spent, which are fantastic metrics to continue to push and congratulations to the team on doing that. Another little advertisement for them would be they've drilled the best well in the Haynesville now ever, a 4-mile lateral completed and now producing 80 million standard cubic feet a day, which is a record for the Haynesville. So congrats to the team for doing that. As far as where do we go from here with BPX, we see continuous drilling inside the oil windows. You'll notice quite a large liquid growth 2Q on 2Q, '24 -- that's as we fill up the Permian, and we're doing an awful lot in the Eagle Ford as well. There's strong growth in the Eagle Ford from the infill spacing, the downspacing I've talked about before and from the refracs I've talked about before. So very strong liquids growth across that business. And the natural gas, the drilling and natural gas, we're running 8 rigs across. We'll have a conversation as we head into 2026 about do we keep running at 8 rigs? Do we move it up to 9 rigs inside the gas window? But the productivity improvements are so strong that they've actually drilled 13 wells basically for free this year relative to what our plans were. So I think count on 2.5 until we give you additional guidance. Obviously, more drilling than infrastructure as we finished off the infrastructure -- the major infrastructure program, as you mentioned. And we see the chance for a strong growth moving in BPX moving forward, and we're happy to support the U.S. in growing production. Thanks, Lucas. Craig Marshall: We're going to take the next question from Chris Kuplent at Bank of America. Christopher Kuplent: Trying to stick to the one-question rule, but a wider one. beyond Castrol, Murray, could you maybe let us know where you're at on Gelsenkirchen, on Lightsource? And if I may just ask, you've done the TANAP stake disposal now in BPX. How many of those midstream opportunities do you still see when you look across your portfolio for potentially more noncontrolling interest stakes? Murray Auchincloss: Yes. Great, Chris. Thanks very much. We laid out a program of $20 billion. Pleased to report that we've announced $5 billion now. I think $1.7 billion of proceeds in the door case and obviously, another $3.5 billion to come in the door to help the balance sheet as we complete these transactions as we get to completion and approval. I think what I would say is there's a strong interest in Castrol, and we continue to move forward with that. We'll update you. Same for Gelsenkirchen, strong interest, and we'll update you. And on Lightsource, we started strategic conversations with counterparts, and we're at an earlier stage on that than we are on both Gelsenkirchen and Castrol. So you should expect something that takes a bit longer to disclose on Lightsource. But we're making strong progress on all 3 of those things. And we'll update you as the commercial processes, I don't want to say much more than that. We'll update you when we have news to tell you. I think on the infrastructure stuff, Kate, why don't you take that, please? Katherine Thomson: Yes, Chris. So as we look out in terms of the delivery of the rest of the $20 billion program, we don't see any other significant infrastructure deals in the pipeline. So in terms of how you should think about NCI, the way I would suggest you hold it is it's not going to increase beyond this. And actually, next year, as we redeem the hybrid that we prefinanced, there's about $1.4 billion left of the 2026 maturity that we prefinanced, if you remember, then that will start to bring NCI down. And then should we choose to take advantage of the 25% of the hybrid stack that we could taper under the S&P rules, should we choose to step into that space, then you'd see NCI reduce further. So the way I would suggest you hold it is it's where it is and from here, it will go down. Craig Marshall: We're going to go back to the U.S. taking the next question from Ryan Todd at Piper Sandler. Ryan Todd: Bumerangue is rightfully getting the bulk of the attention right now, but you've had quite a bit of success across the drill bit across the portfolio. Can you talk about what are some of the other discoveries or opportunities this year that have been particularly exciting and maybe in particular, in Namibia, what you've seen so far, how it's comparing to expectations and the timeline of next steps? Murray Auchincloss: Yes. Thanks, Ryan. Let's see. I think maybe -- so we're -- I think we're 12 out of 14 right now, if my math is right, on discoveries. So congrats to the explorers for such a great year. It's probably the best year in our history. Particularly interesting has been the convergence of seismic technology with big -- with new chips from companies like NVIDIA and the emergence of AI. It's allowing us in places like Egypt, Trinidad, Brazil to see below salt much better than we ever have. And I can remember looking at the seismic on Egypt where you could actually see the channels. So there's -- we're seeing a change in technology that has helped exploration this year. I don't want to say it will necessarily do that next year as well, but that's been part of the story of the excellent exploration we've had. I think Trinidad offers up 2 good discoveries for development. Egypt offers up 2 good discoveries for development. Brazil, we've talked about. And if I then move to Namibia, again, we're very excited. That's been done through Azule, our joint venture with Eni. We've had effectively 3 discoveries. The third one, Volans, came this -- in the third quarter. We've got a nice reservoir in Capricornus is the second one, 38 meters, a very high Darcy rock, good oil properties. And then we have Volans discovery, 28 meters if memory serves, rich gas condensate, only 14 kilometers away from Capricornus. So Namibia is looking like a very good block. We continue to test the samples in the lab through the operator of the exploration phase Rhino, and we're quite optimistic about it. I think the Namibian Energy Minister called it the best block in the nation. So we're really pleased with that and looking forward to further appraisal and an update from the operator, Rhino, in due course about how we take the development of this block moving forward. But thanks for recognizing it. A very good year for exploration, and we're proud of the teams for what they've delivered. Thanks, Ryan. Craig Marshall: We'll stay in the U.S. and take the next question from Paul Cheng at Scotia. Paul Cheng: Murray, I want to go back into exploration. You guys definitely have a very good year. In addition to the -- maybe that combining AI and seismic to allow you to be able to see through the rock better. Is there any processes or the personnel changes that can lead to this great success? And how repeatable are they? From that standpoint, going forward, if you do believe that you have better success rate, should you deploy more capital into the exploration going forward to be able to use it as maybe a larger source of replacing your resource going forward? Murray Auchincloss: Thanks, Paul. I guess there are a few things happening, first of all, inside exploration. We have a great experienced team who have been high graded over time, and they've built on the track record of their predecessors and built up a very good base of knowledge around the world. So we have great people with great deep knowledge, I would say, of the basins in which we operate. I think the second thing is technology is changing. The NVIDIA chips that we're now using inside our supercomputing are just incredibly fast and allow incredible iterations of theories. I'm kind of dumbing it down, all the geologists on the call, please forgive me for dumbing this down. But it enables much faster interpretation ideas, thinking about how one can think about the subsurface. And that, of course, is converged with wide as seismic, full waveform inversion algorithms. So you've got this real thing of very good, experienced people with incredible horsepower in compute, much better than anything in history, along with dramatic technology steps from the service providers. And then I think the magic we have right now is the team is very engaged on the digital side and very engaged with using the technology and the AI to test new theories and see what else is there. So that's a little bit about the magic. Is it repeatable? I'm never going to say that with exploration. My father was a geologist, and I know you curse yourself if you say that. So I don't think I'd necessarily bank on that. But we've certainly had a good year. We have some very good prospects next year. And as far as increasing capital in the space, the lesson for life from us is always quality through choice. Create as many opportunities you can, high grade down to the very best ones, and that gives you a higher chance of success than you otherwise would. So that, to me, is what's so important is you keep quality through choice. I think we're spending around $600 million a year right now on exploration. I would not want to push that up despite the success because it forces quality. So thanks for the question. Congrats to the explorers for a great year, and we just need to remain capitally disciplined and make sure that we're pursuing only the very best opportunities. Thanks, Paul. Craig Marshall: Thank you, Paul. We will go to Michele at Goldman Sachs next. Michele Della Vigna: Congratulations again on the strong delivery this quarter. I wanted to come back to the CapEx budget. So you reiterated the guidance for this year, and you've got a relatively wide range for '26, '27 of 13% to 15%. I was wondering, in an uncertain macro environment, if you were forced or decided to go to the low end of that range, where would you find the levers of flexibility to lower the budget effectively from the 14.5% of this year? I find it's an interesting time to start to think about some of those moving parts. Murray Auchincloss: Kate, why don't you take that one? Katherine Thomson: Yes, I will. Thank you. Michele, yes, so we have got a decent range around the frame for the next couple of years. So that gives us plenty of space to maneuver, I think, in different price environments. As you look at this year, we've guided to around 14.5%. If you take out of that the final bullet on our BP Bioenergy and organic, then you're actually sub 14% on an organic basis. If prices were to dip, we've got plenty of opportunity to take ourselves down to the bottom of that frame. And we'll continue to be very careful as we deploy every dollar if prices are strong and we choose that we actually want to drift up towards the top of that frame. I don't see any need for us to let go of the tight discipline that Murray and I have put around capital. I think it forces the right conversations in terms of the value and returns focuses that we're pushing into every investment decision that we are now stepping through. And you can -- you've heard us talk about this on previous calls that, that discipline and that approach to our capital investment is so critical to us. As we seek to drive improvement in the operating cash flow going forward and making sure that we're choosing the very, very best of the opportunities at our disposal. We've got probably one of the richest sources of opportunities to consider that we've had for a very long time right now, which is a great position to be in. And I'm very comfortable with the range and the flexibility that we've got, and we've talked before where we would go if we needed to take ourselves down to the bottom of that range, and there's plenty of opportunities around some of the onshore drilling, which we could choose to slow down. There's a little bit around the exploration playing at the edges, depending on how much of our rigs are committed over the next 12 months. But we have space and we have flexibility within that 13 to 15. Craig Marshall: We're going to take the next question from Henry Tarr at Berenberg. Henry Tarr: I wanted to ask about Iraq. Can you give us any more details on the sort of economics for BP of the contract in Kirkuk? And then obviously, others have entered into the country and there's a sort of large program planned. How material from a macro perspective, do you think the overall impact could be for production growth in Iraq if we look out sort of 3 to 5 years? Murray Auchincloss: Thanks, Henry. I have to be careful on economics. The nation has not yet published the production sharing agreement. And until they do that, it's very difficult for me to say anything under the restrictions that we have. What I will say is progress since I last talked to you. We've done the initial production test and agreed that with the nation. That's 328 kbd of black oil is being produced. And the teams on the ground now, 45 people on the ground in Kirkuk, starting to work on well work jobs, acid jobs, compressor rewheels, getting procurement contracts in place, et cetera. And we look forward to helping the nation ramp up that field over time. I think the stuff that I can say on the terms are -- they're obviously better than the first-round terms. We're on round 8, and each round has been incremental is my understanding across time based on what's been published publicly. And we do have price upside in this one. We do have the ability to take price on gas as well, which has not happened in previous rounds. We have exploration rights on the acreage as well, both surrounding and deeper. So it's a much better enhanced contract than we saw in the Phase 1 terms of Rumaila, kind of, gosh, how many years on is that now, almost 20 years on. So that's probably all I can say about the commercial terms of Kirkuk, but we're very happy with it. And in due course, when we're allowed, we'll happily share the details. with the marketplace. I think on the overall capacity for Iraq, there is a lot of oil there. And obviously, we've seen a few other deals being signed recently. And I guess my response is it's what the world needs. We continue to see oil demand moving forward strongly. We see strong demand for that oil. We perceive that some of the non-OPEC Plus is pretty much tapped out after February, March, April next year, and then we see flat to declining production outside of OPEC Plus. So it's going to be dependent on places like Iraq to help fill the demand that's coming forward. So I think the world is going to need it, but it wouldn't be right for me to talk into Iraq's production capacity. That's something that the nation will have to talk about as opposed to myself. Hope that helps, Henry. Craig Marshall: We're going to take the next question from Kim Fustier at HSBC. Kim Fustier: I wanted to ask about the Venture Global case. You've won the LNG arbitration case unlike one of your peers. Why do you think your case was successful? And when do you think you might receive the $1 billion of damages that you've asked for? Murray Auchincloss: Yes, Kim, I'm obviously not going to comment on any other cases. I'm not familiar with them, and it would be inappropriate for me to comment on that. As far as our case goes, we're very pleased with the result. Congratulations to our lawyers and our traders for having achieved this. The next phase on damages is being organized with the arbitration panel. A date has not yet been set. I'm sure there will be an update when that occurs. And as far as the damages themselves, that's not a number that is our number. That's -- we don't recognize that number. So all I'd say is we're pleased. We look forward to the next stage. We'll update you when we're aware of when that's happening. And I'm very pleased with the result from the arbitration. Congrats to the team. Craig Marshall: We're going to go to Josh Stone at UBS, please. Joshua Eliot Stone: A question for Kate on the balance sheet. I'm curious as to how much attention you're paying to your gearing ratio on either a net debt to capital or equity basis because the reason I ask is as you get more of these cash proceeds in from asset sales, you will -- you're effectively selling parts of BP, your asset base will be coming lower and that's also before the impact of impairments. So maybe just talk about how you're thinking about these ratios because I appreciate you've got like an absolute net debt target, but I think the gearing ratio is also relevant here. So maybe some comments on that would be helpful. Katherine Thomson: Yes. Josh, thank you for the question. Let me step through how we think about our balance sheet because I think if you just bear with me, and I'll take you through my thinking because I think it's quite important context. So financial resilience is really important to us as an organization as we move forward. It allows us to execute on the opportunities that we have as they present themselves. And it's comprised of a number of things. And the first thing that everyone can measure us against is net debt, and we've now put a target against a material reduction in net debt by the end of 2027, and we've put a $14 billion to $18 billion, which we will deliver. If you think about where we stand today at '26, that would be a $10 billion reduction in terms of the net debt stack. But of course, I think if you remember some of the slides that I used to talk about balance sheet and financial resilience at the Capital Markets Day in February, I was trying to be pretty transparent that we understand our total liabilities and the drain on our operating cash flow, those type of commitments is not just around debt. If I think about some of the other big components, we have over $1 billion a year going out on Deepwater Horizon. So another 2 of those will go before the end of 2027. So that's $2.2 billion. We've got a level of prefinancing of the '26 hybrid I referred to earlier, that's $1.4 billion. So even if we do nothing else, where we stand right now, our liability stack will reduce over the next 2 and a bit years by $13 billion to $14 billion. And that's how we think about it as opposed to contemplating gearing. We haven't got a gearing target. We've got a target on net debt. That's the first priority. That's what we will deliver. But I hope you can hear from my language that we think about the totality of our liabilities, and we're cognizant on the total cost of all of those. Craig Marshall: We'll take the next question from Jeff in TPH, please, back over in the U.S. Jeoffrey Lambujon: We were hoping to also ask about the structural cost improvements, which look to be progressing quite well, especially based on the supplement disclosure, the roughly $400 million improvement quarter-on-quarter there. But I'll actually gear my loan question here to follow up on BPX, if you could dig into basin-specific plans a bit more and maybe give us a sense for how you plan to pace activity adds in the Haynesville specifically over the next 12 to 18 months or so and maybe how the Eagle Ford may play a role, if at all, as part of that. Murray Auchincloss: Yes. Great. Thanks, Jeff. Thanks for the kind words on cost progress. I'm sure Kate would like to update somebody if they want to ask a question on that one. As far as BPX, our plans in the Permian as we built out the infrastructure, we, of course, want to keep that full now that we've built that out. So 2 to 3 rigs to continue to keep that full for time. In the Eagle Ford, we continue to be very excited with the downspacing inside the oil window of the Blackhawk and the refrac programs. The downspacing wells are doing better than the motherbore than the original wells simply because fracking technology has moved on so much from when they were drilled a decade ago. And the refracs, similarly, we're seeing much higher production on refracs than we did in the original wells from a decade ago that Petrohawk would have drilled. So those are places that we'll continue to push and push the liquids side over time. And then on the gassier window, of course, we've got the associated gas from the Permian. But equally, we have a fantastic Hawkville gas, which is in the Eagle Ford, and we have fantastic Haynesville positions as well, the core of the core. On the Haynesville itself, we'll follow the infrastructure is the way to think about it. As I said earlier, the teams have been doing a fantastic job on driving capital efficiency inside that basin, setting record after record on production capacity from the wells now up to 80 million a day on this latest 4-mile horizontal. And what we -- through our trading and marketing organization, we've been busy establishing offtake points. So we'll just gradually continue to grow the Haynesville in line with the infrastructure build-out, really infield gathering rather than any main export issues. And we'll be contemplating 2 versus 3 rigs as we head into 2020 -- into the fourth quarter -- into the end of the fourth quarter and into 2026, and we'll update you from there. But tremendous resource, tremendous performance by the team and good gas prices, obviously, as well that we hedge out, and we look forward to growing that part of the business. I hope that helps. Craig Marshall: We're going to go to Alice at Morgan Stanley. Alice, I know you're deputizing for Martijn, who's also here in Abu Dhabi. Over to you, Alice. Unknown Analyst: I have a question about downstream. So you printed a pretty strong results sequentially, but also with a number of moving parts. So of course, there was the successful delivery of the cost reductions, but also supportive macro for refining and then on the other hand, weak trading. So could you please give some insight into the contribution of each of those elements? And then on balance, what could we expect the run rate to look like? Murray Auchincloss: Kate, over to you. Katherine Thomson: Yes. Thank you. Alice, let me try and break out the components of the improvement in the downstream. I would say it's been a 9-month period of really good performance across pretty much all of the business, actually in terms of the way that we've seen the organic improvement coming through, firstly, on the customer side, a number of things. We've seen improvements, I would say, in almost every area of the customer side, whether it's aviation, Castrol is up 21%, I think now year-on-year for the 9 months. We've got stronger performance coming through the tight integration that we've got between fuels and midstream. That's something we've been working really hard on that's coming through. And we've got really good cost reductions. So structural cost reductions delivered for the 9 months so far inside customers is about $0.5 billion. And then the other component of the improvement in the downstream operating cash flow from customers is around the BP Bioenergy. So as you recall, we consolidated that now. So you're seeing an improvement in terms of the consolidated earnings versus just [indiscernible] about $300 million. And then if I look at the product side of it, the refining portfolio is delivering superbly now. We've got refining availability year-to-date at 96.4%. That compares to the 96% that we set ourselves as a target back in February. That's a result of conscious investment and systematic improvement in the maintenance and integrity of our kit. And as a consequence, it's running well. And as the refining margin improves, as it has done in the last quarter, we're able to capture the maximum of that. I would also say that refining have done pretty well on their business improvement program as well in terms of reducing their costs. They've reduced their cost by about $200 million further 9 months. And then finally, perhaps on trading. Trading had a weaker quarter this quarter, but they had a very strong quarter in 2Q compared to others. We were very pleased with that. But as I look at the 9 months year-to-date, trading is pretty much in line with where it was last year. So very comfortable with where trading is. So that's quite a long answer. Hopefully, that's broken it down to enough detail for you to be able to follow the various component parts, Alice. Craig Marshall: We're going to take the next question from Peter Low at Rothschild Redburn. Peter Low: Maybe one just on the Gulf of America. Now that you've taken FID on the Tiber-Guadalupe project, does that open the door to a potential farm down of your Paleogene positions? Or what's your current thinking on the optimum time to do that kind of within the development of those assets? Murray Auchincloss: Yes. Thanks, Peter. Yes, very, very happy to have taken sanction on Tiber. It's obviously the second sanction inside the Paleogene, Kaskida a year ago and now Tiber, 280 kbd boats. We own them 100% with tremendous resource recovery potential sanctioned and potential moving forward. And I was really pleased with the projects team. They were able to knock $3 a barrel off the development cost on Tiber by effectively photocopying what we've done on Kaskida. So build -- design one, build many. So that's all very good. We are in conversations with counterparts about the potential farm down in the Paleogene, and we'll do this for value. That's all that we have in our minds is how do we do this for value. And we want to make sure that it's accretive and that it's in the shareholders' interest to do that. But we continue the conversations -- and like all other divestments, we'll update you when we have something to tell you. Thanks for the question, Peter. Craig Marshall: Thanks, Peter. We'll turn to Mark Wilson at Jefferies. Mark Wilson: I will bring it back to Bumerangue. Again, still got a lot of data you mentioned and that appraisal will take a flow test. The release a few days ago spoke to an early production system. It sounds to me like a flow test there would have to be for a prolonged period of time to test multiple areas of a large column and fully understand the CO2 mix. That also sounds quite costly within a $600 million exploration budget if that includes appraisal. So first, I'd like to ask if I'm visualizing that work scope correct for, say, 2027 in terms of what flow testing is needed? And would you appraise that at 100%? Or would we expect overall exploration cost to go higher to accommodate the Bumerangue appraisal? Murray Auchincloss: Yes. Great question. It's a pretty good reservoir. So we think the flow test, where we're drilling the second appraisal well will give us a pretty strong indication of what the rest of the reservoir will perform like. We, of course, could be surprised as we go through that. But given the strength of the seismic, what we're seeing on the logs, we think that is the case. As far as -- so we'll do that somewhere around 4Q '26, early 2027. And we do have a team working in early production scheme. Of course, it will depend on how the flow test goes. The flow test is really focused on productivity of the wells, to be honest, and how many wells we're going to need to drill. That's the primary focus that we'll have on that as we've done all the sampling in the sidewall core already from the initial appraisal well. So it's mainly about how many wells we need to produce the reservoir over time. As far as timing of partnership, that's something in time, we will bring in a partner for sure. You probably don't want to do it until you're through the appraisal well and the flow test because that will have an awful lot more information that's derisked. But that's, of course, a decision that we'll think about with the Board as we move forward. And the exploration, I'm not quoting an exploration number, including appraisal at this stage. We're somewhere around $500 million or $600 million on exploration. We're drilling about 15 wells a year right now, and we'll update you as we work our way through this as we enter '26 and '27. But we will stay inside that $13 billion to $15 billion capital frame that Kate talked about. That's very important. So I hope that helps, Mark. Craig Marshall: We're going to go to Bertrand at Kepler next, please. Bertrand Hodee: Yes. Coming back on the Venture Global arbitration. Murray, you've just mentioned that the $1 billion plus in damages that were in the press was not your numbers. Can you elaborate a bit? Or are you seeking a higher number? Murray Auchincloss: Bertrand, thank you for the question. Look, this is -- you're quoting a number that was in a press release from Venture Global. We have not disclosed anything to the public markets around our viewpoint on this. And as it's a commercial process, I cannot disclose anything because it could impact the arbitration process, and I'm not going to do that. So I'm afraid I'm just going to have to say that, that was their number, not ours. And in due course, we'll file our claims with the arbitration panel. And when the arbitration panel decides, they could make their views public. But I have to be very careful in the process, and I can't talk about anything commercially. Sorry, Bertrand. Craig Marshall: We're going to move to the U.S. again, Jason Gabelman at TD Cowen. Jason Gabelman: I wanted to ask just on the equity affiliate portion, given you have quite a few of them at this point. And as you think about what the overall net contribution of those affiliates to your cash flow is, I'm wondering if that's changed at all given the JERA Nex BP joint venture and Beacon Wind within that joint venture being canceled and perhaps less cash infusions into that joint venture, but conversely, the success at Azule with the Namibia explorations resulting in perhaps less cash distributions from that entity in the near term? And just how that kind of rolls up into your overall views on distributions moving forward. Katherine Thomson: Yes. So shall I -- I'll take that, if you like. In terms of JERA Nex, the way to think about that is it's about creating for us in the future optionality, but in a very, very capital-light way. So JERA Nex will make their own decisions in terms of the projects that they execute and the sort of hurdles that they're testing against. But from our perspective, it will be very capital-light and capital that we -- if we were required to put capital, it's going to have to compete with the other calls on capital in our portfolio, which is a pretty high hurdle. In terms of Azule, a very different type of joint venture. It's been a very good quality joint venture for us so far. I think we've got about $7 billion of distributions from it year-to-date -- sorry, in total since inception. It's now self-funded. It's got a PXF and it's also issued its first bonds externally. So in terms of its being able to finance itself going forward and its growth, that's how we think about it right now. It has the ability to do more with regard to external financing. So we're not expecting it to be a drain on our capital. Of course, to the extent that it is recycling its own cash flow to invest in opportunities like Namibia, then you would see a slight reduction in terms of the dividends that we receive from that organization, but it's too early to be able to scale that for you. Murray Auchincloss: Yes. And if I just added a few things on Azule, we don't often talk about it, but it's had tremendous success, Jason. Agogo came online earlier this year, 8 months ahead of schedule. So congratulations to the team for doing that. MGC is the next major project that's going to come online shortly. And they, of course, have the exploration discovery near the LNG plant of TCF and a couple of hundred million barrels of associated condensate. So in Angola, it's doing fantastic. I was down there recently to celebrate the Agogo start-up and Gordon was offshore on it. So just a tremendous joint venture with Eni that's doing very, very well for us, and we're very pleased to have expanded that into Namibia and the success we're seeing in Namibia. So I hope that helps, Jason. Craig Marshall: I think we are probably at the final question given time. We're going to take that from Maurizio Carulli at Quilter Cheviot. Maurizio Carulli: Well done for the positive results. Can I have a bit more color on the 20% increase in Castrol earnings and what has driven it? And also, if I may squeeze in an additional question. Is it possible to have more detail on your recent strategic investment in the electronic cooling solutions? Katherine Thomson: So maybe you want me to take that one. Yes. So this is a consequence of very deliberate progress that Michelle has been executing now for -- I think this is the ninth quarter where we've seen quarter-on-quarter progress. They have a strategy of onward upward forward, and it's deliberately seeking to make their organization as cost-competitive as it can be and grow volumes, which they've managed to do systematically over the last couple of years in almost every part of the business. The other part of the improved delivery in Castrol, of course, is a consequence of the fluctuations that we've seen in base oil and additives and they hit a high post-COVID, those have tapered off a little bit. So that's also coming through, which is helping. But it's about very deliberately growing volumes, driving costs down to improve their overall operating cash flow delivery inside the organization. So that's doing really well. Do you want to talk about the liquid? Murray Auchincloss: Yes. The liquid cooling for data centers is an interesting opportunity. They've signed a couple of deals with counterparts. It's commercially sensitive, so I can't name the names, and they're in trial on that with a few companies. It's a long-term growth potential for the business. that looks quite interesting. It's quite a competitive space, and we -- we're hopeful that, that starts to develop and at a faster pace moving forward. But thanks very much for the question, Maurizio. Nice to hear your voice. Craig Marshall: We are going to finish promptly on the hour. Irene, Chris, I know you are still pulling. Maybe please follow up with the IR team in London. Happy to do so. A big thanks on behalf of Murray, Kate, myself, thank you for listening. Thank you for the continued interest in BP's results today, and we'll stop the call there. Thank you again.
Operator: Good day, and welcome to the Match Group's Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Tanny Shelburne, SVP of Investor Relations. Please go ahead. Tanny Shelburne: Thank you, operator, and good afternoon, everyone. Today's call will be led by CEO, Spencer Rascoff; and CFO, Steven Bailey. They'll make a few brief remarks, and then we'll open it up to questions. Before we start, I need to remind everyone that during this call, we may discuss our outlook and future performance. These forward-looking statements may be preceded by words such as we expect, we believe, we anticipate or similar statements. These statements are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. Some of these risks have been set forth in our earnings release and our periodic reports with the SEC. Also, during this call, we will discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the published materials on our IR website. These non-GAAP measures are not intended to be substitutes for our GAAP results. With that, I'd like to turn the call over to Spencer. Spencer Rascoff: Good afternoon, everyone, and thank you for joining us. Since joining Match Group in February, my focus has been clear: Confront challenges directly, move with urgency and rebuild the company around product, excellence and long-term growth. The work on our three-part turnaround is well underway and focused on reset, revitalize and resurgence. We've successfully completed the reset phase, instilling a culture of speed, accountability and outcomes, and this shift has come to life across our products, teams and users. That progress is reflected in this quarter's results. We delivered on our revenue expectations and exceeded our adjusted EBITDA goals, excluding a legal settlement. At Tinder and Hinge, momentum continues to build as we make progress in our revitalization phase. We're starting to see green shoots and believe continued progress will come from delivering experiences that solve user pain points, deepen engagement and improve user outcomes. We believe our business model thrives when user outcomes improve. Better outcomes, driven by higher quality experiences, better matches and more meaningful connections, build confidence in our product and drive new users through positive word of mouth. User success builds trust in the category and in Match Group's apps. By getting the user experience right, we will further deliver real success stories, which we use in marketing to amplify growth by driving new user acquisition and reactivations. Our marketing strategy, especially at Tinder and Hinge, is focused on fueling category consideration bringing in new and lapsed users through product-led storytelling that reflects real experiences happening across our brands. We estimate there are roughly 250 million actively dating singles worldwide, not currently on dating apps. Reengaging the 30 million lapsed users and attracting the 220 million potential first-time entrants expands our user base, building a healthier, more efficient growth engine that compounds over time, and we are investing to capture this large addressable market. Hinge continues to prove that with the right product experience and brand positioning, we can win with Gen Z and drive real growth at scale. Soon, we believe Tinder will too. We'll walk through 3 proof points today: First, our product progress, where our obsession with outcomes is showing up across our brands, especially at Tinder and Hinge; second, the essential work we're doing to strengthen trust and authenticity across the ecosystem; and third, the financial discipline and operational rigor that are now showing up in how we execute. Starting with product. Across Match Group, our brands share one goal, delivering better user outcomes. I want to highlight the progress at our 2 flagship brands, Tinder and Hinge, and how each is building affinity with users in different segments. At Tinder, our focus this year has been to accelerate innovation, to rebuild trust and to ship great products so we can reintroduce Tinder in 2026 to our core audience of Gen Z. Our new mission statement, Tinder is the most fun way to spark something new with someone new, captures the energy and the sense of possibilities we want every user to feel. Guided by new personas, prototypical user archetypes, that reflect real people and their motivations, we're creating experiences that feel more personal and more aligned with what users want. We've clarified what Tender stands for and who we're building it for, and that focus is already paying off. Users are seeing and feeling the difference through updates that are reshaping the Tinder experience in the following ways: First, we're building a product and design-led culture. Our new liquid glass refresh planned on iOS this quarter will make the app more modern, fluid and visually appealing, further bringing our mission to life every time you open the app. Second, Chemistry is redefining how people connect. Powered by AI, this interactive matching feature, now known as Chemistry, is a major pillar of Tinder's upcoming 2026 product experience. It gets to know users through interactive questions and with permission, learns from their camera roll to better understand their interests and personality. Using deep learning, Chemistry combats swipe fatigue by surfacing a few highly relevant profiles each day, driving more compatible matches and engaging conversations. Chemistry is now live in New Zealand and Australia with plans to expand to additional countries in the coming months. Third, Modes are powering a new social energy on Tinder. Our new Modes navigation gives users more choice in how they use Tinder, from meeting new people with a friend to connecting with their college community. Since launching Modes in September, Double Date adoption is up 30% in the U.S., while College Mode is gaining traction with 1 in 4 eligible students using it and over 8% engaging daily as of October. Modes makes the fun part of our mission real, giving new ways to spark something together and redefining Tinder as a fun, social and low-pressure way to meet new people. We're also seeing this momentum reflected in our marketing. The Double Date Island campaign across Europe drove the highest brand consideration lift of the year, boosted downloads and particularly resonated with Gen Z. It proved that when we connect product innovation with authentic social-first storytelling, we can reignite excitement and bring new energy back to Tinder. Fourth, evaluating profiles is becoming more meaningful and holistic. We've started testing several new features resonating with Gen Z by giving users more information to evaluate and connect with potential matches. Bio information now appears on the first photo card, and prompts content is integrated into the photo carousel. These improvements let users learn more about a potential match before deciding to Swipe Right. We've also started testing features like contextual likes and open messaging, and we fully rolled out prompts on photos to let users share why they swiped right, making interactions more intentional and authentic. Finally, app performance is a major focus and a key driver of user experience. On Android, Tinder startup times are now 38% faster and crash rates are reduced by more than 32%. On iOS, app stability is up more than 57%. We're also removing long running tests and unused features to make the app leaner. As we bring load times closer to one second on iOS and Android, Tinder already feels faster and smoother. Our app performance work on iOS and Android is in service of the fun part of our mission because no one enjoys a slow buggy app. You can feel the energy across Tinder. During our Hack Week last week, teams brought incredible innovation and creativity, building some of the most exciting products and prototypes we've seen in years. The company feels electric. Meanwhile, Hinge continues to be one of the best and most undiscovered stories in consumer tech, powered by a clear mission, a motivated team, a leading product experience and sustained momentum. Hinge's Designed to be Deleted philosophy drives a focus on user outcomes, specifically helping people go out on great dates, our North Star. This clarity of purpose has resulted in category-leading growth in both users and revenue. Hinge is leading the way on AI innovation in dating with category-first AI features that drive better connections and more real-world outcomes. This quarter brought both wins and learnings. Conversation starters, which offers personalized prompts for first messages, was a clear win, driving approximately 10% more likes with comments and stronger engagement overall during the test, particularly with women. Updates to our recommendation system improved matching quality through rigorous testing and provided valuable insights that are already refining our approach. Warm intros, designed to surface compatibility cues, didn't resonate, and we won't move forward with it. While understanding compatibility remains a key focus, Hinge continues to prioritize user outcomes over simply launching new tools, reflecting our principled approach to innovation. As we look ahead to the next few quarters, Hinge has an exciting slate of category-first features that showcase our leadership in product innovation and user experience. First impressions help daters lead with personality. This new feature introduces prompts above photos, giving users more ways to express who they are and add depth to their profiles. A similar experience in the standouts section earlier this year was well received, and we're eager to see how users respond as we continue making Hinge more personal and expressive. Preferences will also become more meaningful at Hinge. Reimagined preferences will take a new look at how daters express what they're looking for, capturing compatibility with greater nuance and intentionality. This update addresses key user pain points, helping people share what truly matters and find better matches faster. These are just a few of the ways that Hinge continues to drive innovation in service of user outcomes. The next pillar of our strategy is centered on deepening trust in the category. So turning now to trust and authenticity and the ways in which it strengthens the foundation of our ecosystem. In dating apps, everything depends on the integrity of the ecosystem. No matter how many new features we launch, people use our apps to meet other new people, and that only works when they feel safe, respected and confident in being themselves. Building and maintaining that trust is core to our long-term success, which is why we're doubling down on trust and safety across our platforms. Nowhere is that more evident than at Tinder, where we're integrating safety directly into the product experience like never before. The centerpiece of this effort is Face Check, our new facial verification feature that helps confirm users are real and match their profile photos. It's now required for all new users in California, Colombia, Canada, India, Australia and Southeast Asia, and will roll out to additional U.S. states and countries in the coming months. Face Check sets a new standard for authenticity. Using only a short video selfie, it helps confirm a user is real and matches their profile photos. We built this technology with care, ensuring it delivers meaningful improvements to trust and safety, while keeping the user experience seamless. Early results are strong and reinforce our confidence in the long-term benefits to the broader ecosystem. We have seen a 60% reduction in user views of profiles later identified as bad actors, and a 40% decrease in reports of bad actor activity. Our ongoing optimization efforts have resulted in only low-single-digits impact to monthly active users and revenue in test markets, which lessens over time. Early Net Promoter Score results show a clear and sustained improvement in user trust and satisfaction in test markets, with scores up roughly 10 points for men and 5 points for women in key markets where Face Check has launched. This is just the beginning. We plan to expand Face Check across the portfolio, with testing on Hinge beginning in the next few months. We're also expanding safety beyond verification into everyday user interactions. Tinder and Hinge have introduced new fairer enforcement tools to educate users and promote better behavior through faster and more consistent moderation. This approach calibrates responses based on severity, helping create a safer and more respectful community. We are also enhancing our Are You Sure? feature, which prompts users to pause before sending potentially offensive or disengaging messages with large language models to make it smarter and more effective at encouraging better conversations in real time. Originally developed at Tinder and later enhanced by Hinge, this LLM-powered version improves accuracy and tone. Now Tinder is incorporating those learnings back into its own experience, a great example of how our portfolio of brands innovate together, share insights and make each other stronger. Within Hinge, these principles come together through our product design and user experience. Beyond moderation, Hinge continues to refine the onboarding experience to build confidence and trust early in the user journey. Recent updates include clear guidance during setup, refreshed community guidelines at help center and the introduction of an AI-powered chatbot that quickly answers commonly asked questions. Together, these updates reinforce Hinge's position as a dating app grounded in authenticity and safety, where people can show up as their true selves and form meaningful relationships. Let's now turn to our financial and operational rigor and how it translates into results. The same discipline driving product innovation is also reflected in how we execute day-to-day. We are operating with sharper focus and accountability across the company, hitting deadlines, shipping Match Group-wide features such as alternative payments faster and acting like a more nimble and decisive company. These improvements are creating operational momentum and financial optionality as we plan for 2026. You can see this strategy in action through Project Aurora, our large-scale test in Australia that brings together many of Tinder's biggest advancements into a faster, safer and more personal experience. As part of this work, we're overhauling the recommendations engine to better align with user outcomes, improving both Match quality and overall satisfaction. We're being thoughtful with our tests prioritizing user trust, outcomes and long-term impact over quick wins. We may see some short-term revenue and adjusted EBITDA impacts from these tests, which we've included in our guidance, as we trade short-term monetization for a better user experience and improve user outcomes. These tests will help us refine our strategy and further validate that improved user outcomes will drive more sustainable user and revenue growth over the long term, which in turn will drive increased shareholder value. We'll share more of these results next quarter. At Hinge, momentum continues to build as the product delivers meaningful outcomes for users. Revenue, adjusted EBITDA and user growth remain strong, supported by continued innovation and disciplined execution. Hinge's international expansion remains on track with the successful Mexico launch in September and with Brazil planned for Q4. The team is actively working on plans for new expansion markets in 2026 as well. Hinge launched alternative payments testing ahead of schedule in Q3 with strong early results. We plan to fully roll out alternative payments across our major apps, including Tinder and Hinge in the U.S. in Q4. Strong initial performance at Hinge and ongoing optimizations at Tinder and E&E have increased adoption of web payments, and we now expect to generate approximately $14 million of savings in Q4 2025 and approximately $90 million in 2026. We have seen some impact to gross revenue in some of our tests at Tinder and Hinge, which we're continuing to optimize for. We're also seeing early success from our recent acquisition of HER, which expands our reach among queer women and gender-diverse communities. The team has already delivered strong results with algorithmic improvements and monetization optimizations driving over 20% revenue increase in test markets. This success highlights the opportunity to scale high-potential brands across our portfolio and deepen our presence in key segments of the dating market. That same disciplined approach to growth is reflected in how we manage the business. Our financial discipline earlier this year generated approximately $100 million of annualized savings, allowing us to reinvest approximately $50 million across the portfolio to test user-first features, strengthening marketing and expanding our international footprint. The early results from our Q3 investments are instilling confidence in our strategy, and we're executing well against our Q4 plans. The learnings from these investments and the ongoing benefits of the cost-savings efforts will help inform how we prioritize and deploy capital in 2026. Together, these steps are setting the foundation for the next phase of the turnaround and the resurgence that we expect to take hold in 2026 and 2027. We're entering this next chapter with real progress and a clear path forward. At Tinder, our new measure of success, Sparks, tracks 6-way conversations, meaning at least 6 total messages exchanged between 2 users. This has become one of the clearest indicators that a genuine connection is forming. While the total number of Sparks is lower year-over-year due to a smaller monthly active user base, Sparks coverage or the proportion of users in the ecosystem having these deeper conversations continues to improve and is up year-over-year. This shows that more users are having better experiences on the platform, an early but encouraging sign that our focus on improving product quality and user outcomes is taking hold. Match Group holds a unique position in solving one of the most important challenges of our time, helping people connect in a world that increasingly feels disconnected. Our focus is on fostering genuine human connection, while ensuring technology strengthens relationships and is the social fabric that brings people together. And with that, I'll turn it over to Steve to walk through more on the financials. Steven Bailey: Thanks, Spencer. We're pleased with our Q3 results, as Match Group total revenue was in line with expectations for the quarter and adjusted EBITDA meaningfully exceeded our expectations excluding a $61 million charge to settle the Candelore v. Tinder, Inc. case on a class-wide basis. Candelore is a 10-year-old case involving Tinder's former age-based pricing. The parties are preparing a long-form agreement reflecting the settlement terms and will then seek approval of the settlement by the court. In Q3, Match Group's total revenue was $914 million, up 2% year-over-year, up 1% year-over-year on a foreign exchange neutral basis. FX was $4 million better than expected at the time of our last earnings call. Payers declined 5% year-over-year to 14.5 million, while RPP increased 7% year-over-year to $20.58. Indirect revenue of $18 million was up 8% year-over-year, driven primarily by strength in our third-party advertising business. Moving to total company profitability. In Q3, Match Group's adjusted EBITDA was $301 million, down 12% year-over-year, representing an adjusted EBITDA margin of 33%. Excluding the $61 million settlement charge and $2 million of restructuring costs, included in the $25 million of restructuring costs announced in May, adjusted EBITDA would have been $364 million, up 6% year-over-year, representing adjusted EBITDA margin of 40%. Tinder direct revenue in Q3 was $491 million, down 3% year-over-year and down 4% year-over-year FXN. Q3 direct revenue includes an approximately $3 million negative impact from user experience testing in the quarter. Payers declined 7% year-over-year to 9.3 million and RPP increased 5% year-over-year to $17.66. Adjusted EBITDA in the quarter was $204 million, down 23% year-over-year, representing an adjusted EBITDA margin of 40%. Excluding the legal settlement charge, adjusted EBITDA would have been $264 million, representing an adjusted EBITDA margin of 52%. Hinge continued its strong momentum in Q3 with direct revenue of $185 million, up 27% year-over-year and up 26% year-over-year FXN. Payers increased 17% year-over-year to 1.9 million and RPP increased 9% to $32.87. Adjusted EBITDA was $63 million, up 22% year-over-year, representing an adjusted EBITDA margin of 34%. E&E direct revenue in Q3 was $152 million, down 4% year-over-year and down 5% year-over-year FXN. Payers decreased 13% year-over-year to 2.3 million, while RPP increased 10% year-over-year to $22.22. Adjusted EBITDA was $47 million, up 14% year-over-year, representing an adjusted EBITDA margin of 30%. Match Group Asia delivered direct revenue in Q3 of $69 million, down 4% year-over-year on both an as-reported and FXN basis. Excluding the exit of our live streaming businesses, Match Group Asia direct revenue in Q3 was flat year-over-year on both an as-reported and an FXN basis. Azar direct revenue was flat year-over-year and up 2% year-over-year FXN. Azar direct revenue was negatively impacted by an estimated $3 million after Azar was blocked in Turkey by Turkish regulators in late August. We're pursuing all available legal remedies and working with Turkish regulators to get Azar unblocked. However, it is unclear at this time when that may happen. Pairs direct revenue was down 1% year-over-year and down 2% year-over-year FXN. Across Match Group Asia, payers increased 6% year-over-year to 1.1 million, while RPP declined 10% year-over-year to $20.73, partially due to the exit of Hakuna mid-last year. Adjusted EBITDA was $15 million, down 14% year-over-year, representing an adjusted EBITDA margin of 22%. Looking at costs, including stock-based compensation expense, total expenses were up 1% year-over-year in Q3. Cost of revenue decreased 2% year-over-year and represented 27% of total revenue, down 1 point year-over-year, driven by reduced variable expenses from the shutdown of our live streaming services mid-last year, lower web services costs and lower employee compensation expense from our restructuring efforts. Selling and marketing costs increased $12 million or 8% year-over-year and represented 19% of total revenue, up 1 point year-over-year, primarily due to increased marketing spend at Tinder, Hinge and Match Group Asia, partially offset by lower employee compensation expense from our restructuring efforts. General and administrative costs increased 42% year-over-year, up 5 points year-over-year as a percentage of total revenue to 16%, driven primarily by the legal settlement charge, partially offset by lower employee compensation expense from our restructuring efforts. Product development costs increased 1% year-over-year and were flat year-over-year as a percentage of total revenue at 11%. Depreciation and amortization decreased by $44 million year-over-year to $24 million due to impairments of intangible assets at E&E and Match Group Asia in the prior year quarter and lower internally developed capitalized software costs, primarily at Tinder and Match Group Asia. Turning to the balance sheet. Our trailing 12-month gross leverage was 3.4x and net leverage was 2.5x at the end of Q3. We ended the quarter with $1.1 billion of cash, cash equivalents and short-term investments on hand. In August, we issued $700 million of 6.125% senior notes due 2033. The proceeds from these notes will be used to repay all of the exchangeable senior notes coming due in 2026 on or before maturity and for general corporate purposes. In September, we repurchased $76 million of the 2026 exchangeable senior notes at a discount to par. Year-to-date through Q3, we delivered operating cash flow of $758 million and free cash flow of $716 million. We repurchased 17.4 million shares at an average price of $32 per share on a trade date basis for a total of $550 million and paid $141 million in dividends, deploying nearly 100% of free cash flow for capital return to shareholders. In October, we repurchased an additional 3 million shares of our common stock for $100 million on a trade date basis and at an average price of $33 per share. As of October 31, 2025, we reduced diluted shares outstanding by 8% year-over-year. We maintain our commitment to target returning 100% of free cash flow to shareholders through buybacks and the dividend. Now turning to guidance. We expect Q4 total revenue for Match Group of $865 million to $875 million, up 1% to 2% year-over-year. This range assumes a nearly 2.5 point year-over-year tailwind from FX. FXN, we expect total revenue to be down 1% to 2% year-over-year. We expect Match Group adjusted EBITDA of $350 million to $355 million in Q4, representing a year-over-year increase of 9% and an adjusted EBITDA margin of 41% at the midpoint of the ranges. Q4 total revenue guidance reflects continued strong performance at Hinge and Tinder performance that is in line with the expectations we had at our last earnings in August, including an expected $14 million negative impact to Tinder direct revenue from user experience testing. It also reflects weaker-than-expected performance at E&E and assumes the continuation of Azar's block in Turkey. E&E saw weaker trends in Q3, which we are working quickly to address, and we no longer expect Emerging brands' direct revenue growth to offset Evergreen brands' declines in 2025. We expect an estimated $9 million negative impact to Match Group Asia direct revenue from Azar's block in Turkey. We expect indirect revenue to be approximately $15 million in the quarter. Our Q4 adjusted EBITDA guidance includes $4 million of restructuring-related costs, included in the $25 million of restructuring-related costs announced in May, and an $8 million positive impact from an expected sale of one of our 2 office buildings in L.A. that was not fully utilized. We are increasing our 2025 full year free cash flow guidance to $1.11 billion to $1.14 billion, which assumes the Candelore settlement will not be paid until Q1 2026. We now expect our 2025 full year tax rate to be in the high-teens. Now let's open it up to Q&A. Operator: [Operator Instructions] Our first question comes from Cory Carpenter with JPMorgan. Cory Carpenter: Spencer, you mentioned in your prepared remarks that the early investments -- sorry, the early reinvestments are giving you confidence in your strategy. Could you expand a bit on the green shoots you're seeing across the broader company and then also at Tinder specifically? Spencer Rascoff: Yes. Thanks, Cory. Let me start with Tinder and then if we want to expand from there, we will. At Tinder, we now have a clear mission statement, which we understand. So we know why we're building what we're building. We have clear consumer personas, so we know who we're building them for. And now we have a clear metric, 6-way conversations or what we call Sparks so that we know how to measure whether we're driving good user outcomes. And Sparks, we think, are a good measure of product efficacy. Globally, they're down in the low single-digit range year-over-year, but they're improving and close to flat. And it's actually quite a bit better than now, which has kind of stabilized in the 9%, 10% kind of high single-digit year-over-year range. Sparks coverage. As I said just a moment ago, Sparks coverage is actually up year-over-year, but it's up the most among U.S. Gen Z. So all this by way of saying the product is working better today to help Sparks something new with someone new than it was a year ago. That's encouraging. There are a couple of reasons why that the product is having -- has improved efficacy. The first is a lot of our recommendations tests are bearing fruit. So at any point in time, we have dozens, sometimes hundreds of different recommendation algorithms in the market. And we ended up finding one of them, it actually improves women matches by 4% and improves Sparks and improves retention, with no revenue trade-off, which is really uncommon. Usually, when we have recommendation improvements that improve user outcomes, it comes at some revenue hit. And in this case, it did not. So we've rolled this out globally. Our work is not done on [ REX ]. We are always continuing to improve them, but I'm encouraged by where we're headed. The second -- so moving from REX is #1. Number two, I'll turn to Double Date. So Double Date continues to resonate really well with our target users. As I think I mentioned just a moment ago, adoption for Double Date is up quite a bit. The stat I don't think I shared yet is that about 17% of U.S. users age 18 to 22 now have a Double Date pair. And that's a big deal. If you think about that, think about a Gen Z 18- to 22-year-old American user of Tinder, almost 1 in 5 of them are now using Tinder with a friend to swipe on Pairs of people. So that's changing perception of what Tinder is and how they use it, and that's critical for us to drive reconsideration and ultimately, MAU growth. Finally, I will just hit on a basket of features at Tinder, which, in the aggregate, help people assess the whole person rather than just quickly assessing the attractiveness of the photo. These are features like contextual likes, which Hinge pioneered, features like putting biographical information on the first photo. And the good news here is those types of features have improved user outcomes like Sparks without impacting revenue. So we were prepared to accept the small revenue hit for these types of features, but many of them actually just improved user outcomes and have not impacted revenue. Let me sort of pause there. I'm happy to elaborate on the road map and kind of where it's going, but that brings you pretty current with what we've shipped on Tinder over the last couple of months and the early positive results that we're seeing on user outcomes. Operator: And the next question comes from Nathan Feather with Morgan Stanley. Nathaniel Feather: Really encouraging to see the faster product velocity at Tinder. I guess any way to get a sense if that's also accelerating the curve as you think of user outcomes and underlying metrics? And connected to that, as you start prioritizing user outcomes, you mentioned a negative Tinder revenue headwind in 4Q. I guess to what extent should we expect that to continue into next year as you continue to make these product improvements? Spencer Rascoff: Thanks, Nathan. It's probably a little too early for us to know the answer to your question about 2026. What we're in the midst of right now is evaluating all these tests in key markets, including in Australia, where we're kind of throwing the kitchen sink in terms of user outcomes and marketing efficiencies in order to see what it takes to turn around user outcomes and audience in a couple of key markets so that we can decide how we want to run the company in 2026 with respect to profitability. What we -- what Steve, I think, highlighted in his prepared remarks were a potential $14-ish million impact on Tinder revenue, which is baked into guidance for Q4. This comes from features like different recommendation algorithms that we're testing still to try to improve user outcomes even further, rolling out new Modes. So of course, today, we have College Mode and Double Date Mode, but there are several more Modes on the way, and those might come at small cost to revenue. Building out open messaging and giving more free user outcomes like letting users see a couple free see who likes you pairs and redesigning certain aspects of Tinder, building out chemistry into the main card stack and rolling that out into more geographies, rolling face checkout across the whole United States by end of year, which I don't think I mentioned that in the prepared remarks, but now we're targeting face check through the whole U.S. by end of year and globally with the possible exception of the EU and the U.K. by spring. All of this is taking us towards a product event in spring 2026 for the media, for influencers, for investors and hopefully, we'll see many of you there, where we'll show the world what we've been building at Tinder over the last -- I guess, by that point, it will be around 6 months-or-so and also what's coming. And that's a real catalyzing event, which has the Tinder team rallying with urgency around building product as much as products as we can to improve user outcomes by that spring 2026 event. Operator: And the next question comes from Jason Helfstein with Oppenheimer. Jason Helfstein: So just maybe follow up a little bit. I mean you did elaborate in the letter that you plan to unlock $40 million of payment savings. Is the idea that like if you do decide to lean in more into these, I guess, kind of cleanup initiatives or however you want to describe them, that $90 million could help potentially offset that revenue headwind next year? And I guess, like to that point on Project Aurora and like if you did go kind of fully roll this out, like, I guess, should investors assume like how dramatically would you be willing to let like revenue come down to kind of end up with like the right place from a user experience standpoint? Steven Bailey: Why don't I take the first part of that question. Here's the way I think about the $90 million. The $90 million gives us clear flexibility, right, and optionality. And as Spencer just said, the $14 million Q4 impact from Tinder user outcome testing is an estimate, right? These are tests. So it's probably premature to speculate on whether we'll need the $90 million to offset the revenue declines or whether there will be revenue declines at all until we see how these tests play out. And so the plan is to continue testing throughout the rest of the quarter, to go through our annual planning process like we always do and then we'll give clear guidance on 2026 in a lot more detail on our investment strategy and the outcome of these tests and all the learnings we've gathered at that time. That's the plan. Operator: And the next question comes from Ben Black with Deutsche Bank. Kunal Madhukar: This is Kunal for Ben. A couple on Hinge. And right from the beginning, Hinge was designed to be deleted or meant to be deleted. Has the engagement profile of the users kind of changed since the beginning? And then you talked about how Hinge is expanding into Mexico and Brazil in the coming months. How does that change the addressable market? Spencer Rascoff: Yes. Thanks, Kunal, good questions. Yes, Hinge is really meant to be the last dating app that you'll ever use and Tinder is meant to be the first dating app that you'll ever use. So that positioning is clear in terms of how we think about marketing the 2 apps and in terms of the product road map and focus of the teams at Hinge and Tinder. That positioning for Hinge hasn't changed since Match Group purchased it. It's been very consistent. And I think that consistency is one of the reasons for Hinge's continued success. Hinge just launched in Mexico a couple of weeks ago. It's off to a faster start in Mexico than when Hinge launched in Europe several years ago. So that's extremely encouraging. Brazil will launch in the next few weeks. And when you look at Hinge's success in the markets that it's in or even this recent fast start in Mexico, it gives me a lot of optimism that the total addressable market for Hinge is massive, that this customer segmentation or psychographic segmentation between Tinder opening a world of possibilities at the kind of fun spontaneous side of dating and Hinge being for more serious and intentional daters, that duality should be true globally. And I don't -- it's hard for me to imagine there would be a country where there wouldn't be an opportunity for an intentional dating app like Hinge to be a category or a leader in that segment. As we go through the annual planning process that Steve mentioned over the next couple of weeks, we'll be thinking through which markets to expand Hinge to in 2026. We already have integrated certain areas of our go-to-market such as Asia, where Match Group now provides shared services for all of our brands as we expand to new markets in Asia and that allows us to even more efficiently and effectively and intelligently expand to new markets in a coordinated manner, so that's the type of thing that only our multi-brand scaled portfolio as the category leader can provide and I think should be an even greater tailwind as Hinge launches into new markets in 2026. Operator: The next question comes from Eric Sheridan with Goldman Sachs. Eric Sheridan: I think based on the early learnings in Australia, how do you think about the philosophically going to market with a wider array of offerings and changes to Tinder all at once relative to looking out towards next year and thinking about being more strategic and sort of directed in the way certain enhancements go global, either by country by country or by geo? Just curious how you think about that. Spencer Rascoff: Yes. It's a good question, Eric. The interesting thing about this category, which can easily be forgotten by people that aren't in it day to day, is that the company and the brands build products and then we market them. But ultimately, we're in the service of introducing strangers to strangers. And so the success of the products really rely on the quality and behavior of those in our community. So one of the reasons that we're doing Project Aurora is to try to not just improve the actual feature set, but increase the marketing, focus on trust and safety there, kind of turn that whole market around with vigor in the aggregate, so -- because the ecosystem hangs together in these products in a way that e-commerce really doesn't have that experience. So in terms of how we roll this out, these types of changes in 2026, I do want to be clear that we're not standing still. So for example, the REX algorithm that I mentioned that's in Australia, we've also rolled that out in other markets. Face Check, which we've rolled out in Australia, we've also rolled out in a handful of other markets. So we're certainly not waiting for a clean read from a single market, but it is helpful for us as we decide what the answer is to, I think it was Jason's question, about 2026 and profitability for next year. We will benefit from having greater insight into how the product investments and the marketing hang together to improve the whole ecosystem, and that will help us articulate what the plan is for 2026. Operator: The next question comes from Ygal Arounian with Citi. Ygal Arounian: Spencer, you mentioned MAU is kind of stabilizing in this down 9%, 10% range. And as we think about the initiatives you're rolling out all the way from kind of the single stuff in certain markets, the whole kitchen sink like you said in Project Aurora, how do you think about the time line for -- you're seeing some of these KPIs and green shoots, like what's the time line to when you think MAUs can start to turn around and start to move in the other direction? And then on the in-app payment, the upside to the savings that you're seeing now versus what you called out last quarter, can you talk about what's driving that? What you've seen that's driving more savings? Spencer Rascoff: Yes, I'll take the first question. So a number of the product initiatives that we've been doing to improve user outcomes actually have the effect of hurting monthly active users. For example, Face Check hurts monthly active users by a little bit, at least initially, a couple of percentage points. And the recommendation algorithm also can have the effect of hurting male monthly active users. It improves female retention, the female experience, but that can have the effect of pulling female attention away from certain male users and then we sometimes lose their visits. And that's okay. So the fact that MAU is hanging in there in the high single-digit year-over-year, even while we're improving user outcomes is a good sign, just as the fact that we're able to improve user outcomes at minimal impact to revenue with a couple of the examples I cited, that's also a good sign. I'll let you talk to the IP. Steven Bailey: Yes, I can take the IP, sure. Yes, we've made a lot of progress over the last few months on alternative payments. And you're right, the expected savings in 2026 has gone up quite a bit. So let me just give you a little bit more detail. Basically, back in August, Hinge had yet to start testing. We said it was going to start testing in September. That happened, and we were sort of extrapolating Tinder and E&E results and seeing about a 30% shift to web payments, of course, in the U.S., and we extrapolated that out to about a 10-point increase in net revenue, which equates to about $65 million in savings in 2026. Now as of October, actually Tinder, Hinge and most of the E&E apps are now fully rolled out. So we've rolled these apps out faster than we sort of originally planned, which is good and Hinge saw really strong results out the gate better than E&E and Tinder we're seeing. And since August, Tinder has also done a really great job, as has E&E in continuing to optimize. So now with all -- with most of our apps, including Tinder and Hinge, rolled out 100% in the U.S., fully optimized, we're seeing a 40% to 60% shift to web depending on the app, which translates into a 15-point increase in net revenue and $90 million of savings. So the net of it is strong results at Hinge out the gate and continued optimization at Tinder and E&E has resulted in more of those payments going to web, which is resulting in more savings. And the other thing I'll just mention, I don't know if you caught this, but Google mid-last week updated it to Play Store policy, allowing for web payments as well in the U.S. without fees similar to the Apple situation, and so we plan to test there, too. That's a smaller opportunity. We have less Android users in the U.S., and we have Apple users and also the fee we pay Google for in-app purchases is more like 18% versus the 27% we pay Apple. So there's less savings to be had from shifting to web. But if you sort of pencil it out, our early estimate is about a $10 million to $15 million additional savings through Google on an annualized basis. So we're excited about that opportunity, too. We'll start testing and confirm those initial estimates. Operator: And the next question comes from John Blackledge with TD Cowen. Logan Whalley: It's Logan Whalley on for John. Could you talk about any traction or the traction that you cited from recent marketing efforts? And then kind of maybe how you approach the opportunity with last daters versus those that have never used the app before? And then sticking to marketing on the cost side, maybe how you're thinking about marketing spend and the traditionally more expensive 4Q advertising season? Spencer Rascoff: Yes. So I'll take the very first -- the very last part of that first, which is we do go lighter on advertising in Q4. Our seasonal peak tends to be after Christmas, kind of people make a New Year's resolution about starting to date a new, and we benefit from that and we spend into it. But between Thanksgiving and Christmas, the media market is more expensive and -- because of e-commerce and other consumables, and we tend to pull our marketing spend back. In terms of overall marketing, we just completed Project Prism, which was Match Group's first ever attempt to put marketing spend on an apples-to-apples basis across all of our brands to create a shared framework to assess the efficacy of marketing spend so that we'll have a point of view now about going into 2026, if we were going to put $5 million or $10 million against brand X, what is the likely number of downloads that it would acquire? What's the user and gender mix? What's the user retention? What's the cost to generate a Spark or contact exchange or other KPIs that we track across our different brands? So we now have a rubric that puts every -- all our brands on the same footing. This is something that we worked with an outside resource on a marketing, an executive, a person that used to run marketing for me at Zillow Group; and before that, we worked together at Expedia Group. So she has created shared marketing frameworks in several multi-brand Internet companies before. And that project has been really illuminating in order to inform our 2026 decisions. So if you take all these different things together that we've mentioned, the Tinder user tests, the Tinder testing in Australia, a shared understanding of what marketing efficacy is across all of our brands, the IAP savings that Steve just talked about, and now you have a little window into what the next couple of weeks are going to be for us as we go through business unit by business unit, creating our annual plans for 2026, rolling them up, discussing them with the Board, making final decisions about how we're going to operate the company by the end of the year and then communicating it with all of you in early February at earnings. But it's great to be going into that process with the work done on Project Prism, so we understand marketing efficacy by brand. And with the work kind of still in flight on the Tinder front in terms of the different testing that we've been doing, but much more well informed than we were even a couple of weeks ago now that we have a lot of these features in flight, and we're starting to see the impact on user outcomes as well as revenue and expenses. Operator: The next question comes from Shweta Khajuria with Wolfe Research. Shweta Khajuria: Spencer, you mentioned you'll assess next year's growth and investment opportunities as you think about how your product and marketing is trending. I guess my question is, what are -- what will you be looking at? Is it predominantly the inflection in top of the funnel that will give you more confidence in your product road map working and/or marketing initiatives working? And if it is somewhat slower than expected, is it fair to assume you'll reinvest to the degree that it makes sense? How should we think about that as we think of next year? Spencer Rascoff: Yes. I'm solving for or maximizing against what I think will make the stock price higher 3 years from now. And -- so I mean, there are hundreds of puts and takes that go into that from user outcomes to revenue to audience on Tinder market expansion on Hinge. I mean there are so many different variables that impact that. But if there's a single North Star to try to explain how I'm bringing it all together and the way the leadership team is bringing it all together, that's the one. I think with -- I think the big question marks going into 2026, of course, are going to be what level of profitability do we choose to run Tinder at? I mean to date, Match Group has chosen to run Tinder at a much higher level of profitability than Hinge. And the 2 components of that are how much benefit users get? In other words, if we decide to give more value to users and what type of cost of acquisition we choose to deploy against Tinder? So those are some of the key questions that we'll face going into planning. And now you understand how I'm making the decision is what do I think the stock price will be a couple of years from now. Of course, the key components of the stock price are -- I mean, you know this better than anyone, stock prices at net present value of stream of future cash flows ultimately divided by the shares outstanding, which, of course, we've -- as Steve mentioned, we bought back 8% of our shares year-over-year, which is pretty extraordinary and is worth highlighting. Operator: And the next question comes from Youssef Squali with Truist. Youssef Squali: Spencer, can you please talk about the state of the broader dating market in the U.S., how it's performing, given the macro environment, competitive intensity and any early read or impacts from Facebook Dating? And then Steve, just quickly, what does the Q4 revenue guide imply in terms of payers growth and RPP? Spencer Rascoff: Yes. We've always had competitors. I'm sure we'll always continue to have competitors, whether they be big tech companies or startups. I like our brands. I like the network effects that the brands provide. Our biggest challenge as a company is growing category acceptance. I think there was a prior question, which I only answered partially about bringing new people into the category. There are 250 million people globally that are single and dating in countries that we serve that are not on dating apps, 250 million; and only 30 million of those have used dating apps and they're not currently using data apps. 220 million of them have never been in the category. So to the extent that Meta and Facebook or any competitor educates people that they can use a dating app, they can use the power of technology to safely meet people and get up off the couch and go out on dates and form human connections that benefits Match Group as the category leader, especially because this is a category with multi-app usage. So we welcome any and all initiatives, whether they've come from Match Group, such as our Face Check initiative, which we think brings new people into the category as we improve trust and safety in the apps or others such as Meta to raise attention and awareness to the power of technology to drive human connections. That's what we're here for. Steve, you can do the second one? Steven Bailey: Yes. Let me touch on macro first. The way I would describe it is we continue to see the same trend that we've seen. Earlier this year, we've talked about the last couple of calls, where it's some -- a little bit of weakness, not a lot, but a little bit of weakness on ALC amongst younger users on Tinder, that trend hasn't gotten any worse, but it also hasn't gotten any better either. So a little bit more of the same. We're not seeing it on any other part of the Tender business. We're not seeing it on the subscription revenue and we're also not seeing it across any of our other brands or at Hinge. So we'll keep looking at it closely, but that's what we're seeing today. And then on payers and RPP, we don't typically guide to payers and RPP. Specifically, we're focused on revenue and user growth. But those metrics have been -- the trend of those metrics has been relatively stable, just like MAU trends have been relatively stable and I expect something similar in Q4. Operator: The next question comes from Chris Kuntarich with UBS. Christopher Kuntarich: Maybe just one on Face Check. You mentioned it being fully rolled out in the U.S. by the end of the year. I just want to clarify, does that include existing users? And if it doesn't, could you just give us a bit of an update on your thinking about rolling out to that cohort of users for Tinder? And then maybe just one follow-up. Any early read on the level of inefficient marketing spend that you've been able to identify with Project Prism? Spencer Rascoff: Yes. Face Check only applies to newly created accounts because that's the vector that bad actors use to attack us. So spam accounts from bad actors create brand-new accounts, and therefore, if we can stop those with Face check and that's exactly what's happening. So as I've mentioned, 60% reduction in interactions with spam accounts. And I don't remember if I mentioned -- I think I mentioned it vaguely, but to give a little more detail on the perceived improvement in trust and safety from Face Check, we survey users and we say, do you believe the profiles that you see on Tinder are real? And in Face Check markets, 5% to 10% more folks are saying, yes, they believe that the profiles they see on Tinder are real. So it's not just improving safety and authenticity, it's actually improving perceived authenticity, which is so critical to driving category reconsideration. Marketing. Yes, I guess what I would say there is, unsurprisingly, Hinge's marketing drives new registrants, new downloads or Sparks at a lower cost per than Tinder's does and that makes sense for a couple of reasons. First of all, Hinge is a newer brand. Hinge's product is better at taking users and kind of moving it down the funnel in that way. And more of Tinder spend is focused on brand marketing than direct response user acquisition. The reason for that is Tinder is trying to drive reconsideration and change user perception, whereas Hinge has a pristine user perception. And so therefore, most of their spend can be focused on user acquisition. And user acquisition spend is always going to be more effective on paper than brand spend will be. So that's not surprising. And as we go into 2026, and we think about the marketing levels that we want to run the company at and the allocations between the brands, we'll have to weigh that, of course. But boy, it feels good to be going to that decision actually having some levers to look at. And previously, we were kind of flying this plane without an altimeter and now we actually can see some metrics across different brands and start making informed decisions based on that. Operator: And the last question comes from Robert Coolbrith with Evercore ISI. Georgia Anderson: This is Georgia on for Rob. Thanks for the color on Sparks and MAUs. I guess, last quarter, you noted some encouraging movement at the top of the funnel. Can you provide an update on that so far? Spencer Rascoff: Yes, we're -- thanks for the question, Georgia. We -- our Tinder monthly active users at the top of the funnel is basically down high single digits, similar to where it's been for the last couple of months. It moves around a little bit based on different tests that we're running, as I already mentioned, initiatives like Face Check and recommendations can improve user outcomes, but can and sometimes do hurt mostly active users. But it basically stabilized kind of in that range. And it's worth noting Tinder revenue is down 3% year-over-year this quarter and last quarter, it was down 4%. So revenue also has stabilized. Obviously, we don't want it to stabilize down year-over-year, but it's nice to see that we're starting to see some stabilization for some of those metrics. And of course, as I think I said last call, the first way to -- the first thing you have to do if you're trying to turn around the line that's slipping down is you've got to get that line to flat. So it's nice to see some of those lines starting to flatten. Thank you very much, and we look forward to talking to you next quarter. Thanks, everyone. Have a great day. Operator: This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: " Nathan Elwell: " Mark Van Genderen: " Sarah Lauber: " Gregory Burns: " Sidoti & Company, LLC Timothy Wojs: " Robert W. Baird & Co. Incorporated, Research Division Operator: Good day, and welcome to the Douglas Dynamics Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Nathan Elwell, Vice President of Investor Relations. Please go ahead. Nathan Elwell: Thank you. Welcome, everyone, and thank you for joining us on today's call. Before we begin, I would like to remind you that some of the comments that will be made during this conference call, including answers to your questions, will constitute forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters that we have described in yesterday's press release and in our filings with the SEC. Please note, in addition to our earnings release, we issued another press release yesterday afternoon regarding the acquisition of Venco Venturo. We also published a one-page fact sheet on our IR website that summarizes our results for the quarter. Joining me on the call today is Mark Van Genderen, President and CEO; and Sarah Lauber, Executive Vice President and CFO. Mark will first discuss the acquisition of Venco Venturo before providing an overview of our performance for the quarter. Then Sarah will review our financial results and guidance. After that, we'll open the call for questions. With that, I'll hand the call over to Mark. Please go ahead. Mark Van Genderen: Thanks, Nathan, and welcome, everyone. We had another solid quarter, which Sarah and I will discuss shortly. But I'd like to start by thanking the employees of Douglas Dynamics for their continued focus and resolve. This team truly cares about keeping people safe and communities thriving, especially important as we head into winter. I'd also like to take a moment to highlight 2 changes we recently announced regarding our Board of Directors. After 13 years of dedicated service, Margaret Dano decided to retire. We wish her the very best and want to thank her for her many meaningful contributions to Douglas Dynamics over the years. Always collaborative and thoughtful, her guidance will have a lasting positive impact on Douglas Dynamics for many years to come. Second, we are pleased to welcome Jennifer Ansberry and Brad Nelson as new independent directors. Jennifer is the Executive Vice President and General Counsel of Lincoln Electric. Her extensive legal and M&A experience and deep understanding of the industrial sector will be invaluable as we advance our strategic priorities. Brad possesses a strong track record and significant leadership experience in manufacturing from companies such as Oshkosh Corporation to his current role as CEO of MasterCraft Bolt Company. Both Jennifer and Brad bring valuable experience and fresh perspectives that will be essential to support our future progress. As a result of these changes, our Board has now expanded from 7 to 8 members, 6 of whom are independent. Turning to the business and our announcement we made last night. Over the past several months, we've shared with our employees and with you, our shareholders, the Optimize, Expand, and Activate strategic pillars. On our last quarterly call, I focused mostly on Optimize and Expand. So as you may have guessed, today, I'll talk to Activate, which refers to the restart of our M&A efforts as we look to build our portfolio of attachments over the long term. Today, I'm pleased to confirm that Venco Venturo has officially joined the Douglas Dynamics family. Adding this well-established and highly respected provider of truck-mounted cranes and dump hoists is a meaningful first step as we look to diversify and balance our portfolio over the long term. Sarah and I returned from Cincinnati last night after an energizing visit with a 70-person team at Venco Venturo. Brett Collins, Mike Stridholt, and the entire group in Ohio have built an exceptional business, and we're extremely proud to become the new stewards of the Venco Venturo brand. We're thrilled to welcome Venco Venturo's employees to our team and look forward to learning from their expertise, collaborating closely, and growing this great business with them. With access to Douglas Dynamics' operational capabilities and continuous improvement processes, we believe there's a strong opportunity to build on Venco Venturo's success, driving profitable growth. Now that the deal is complete, the real work begins to fulfill that goal. Our integration team has been working diligently to lay out a clear plan to ensure a smooth transition and to start realizing the benefits of this partnership. This marks our first acquisition in more than 9 years, and I want to emphasize that our approach to M&A remains disciplined and strategic. Over time, we're committed to building a diversified portfolio of complex attachments that require professional upfitting to work vehicles. This acquisition represents an excellent first step and a great example of the types of high-quality brands and businesses that align with our long-term vision. We're excited about the opportunities and look forward to partnering with the Venco Venturo team and to all that we will accomplish together in the years ahead. A heartfelt thank you to everyone involved in making this deal happen, including Sarah, Jon Sisulak, and the finance team for leading the charge with the financial analysis and legal review, plus Shannon Zleger, Chris Burnuer, the Work Truck Attachments team, and the Venco Venturo leadership team for making this a straightforward transition. Stepping back, I'm pleased to report that 8 months into my tenure as CEO, our team is working collaboratively and effectively. This has been clear to me over the past few months as we pursue the Venco Venturo acquisition and with success of our established divisions. Speaking of, let's turn to our current operations. Needless to say, we are pleased with our results. The improvements this quarter were primarily driven by the excellent performance of Work Truck Solutions, which delivered growth of over 30% and record third-quarter results again. And Attachments preseason shipments were in line with expectations. In fact, let's review the segment results, starting with Work Truck Attachments. Results improved this quarter, mainly due to the timing of preseason orders and ongoing cost control measures. The ratio of preseason shipments was a more typical 60-40% between the second and third quarters this year versus the 65-35% split in 2024. Remember that 2024 was unusual, as higher finished goods inventory at the end of Q1 last year drove a stronger shipment mix in Q2. That wasn't the case this year as the Attachments team significantly decreased its inventory, with it currently down $11 million on a year-over-year basis. Additionally, based on our recent channel checks, dealer inventories are now back below the 5-year average after being elevated for quite some time. This is healthy news, and when coupled with positive dealer sentiment and financial health means we are ready for winter. Our operations are on the front foot, and we are primed and ready to respond to demand shifts, snowfall, and ice event trends as they occur. We're proud of the way our team has adapted and prevailed over the weather-driven challenges over the past few years. Assuming we receive a somewhat typical amount of snow and ice events in our core markets this winter, we are well aligned and well positioned for the season to come. Turning to Work Truck Solutions. The teams exceeded expectations and produced record third-quarter results yet again. With both net sales and adjusted EBITDA up over 30%, it's clear the strong demand and higher volumes are also being met with improved efficiencies. Our teams at HENDERSON and DEJANA are really knocking it out of the park. This is even more impressive now that the comps are much tougher and we're being compared to a record third quarter last year. Our municipal business continues to grow, thanks to the team's continuous improvement work in the recent years, which is now paying off as we'd hoped. When combined with the strong competitive position in a dynamic market, we are in a formidable position today. In our commercial business, after seeing softer order patterns in the local dealer markets in recent quarters, an overall reduction in economic and tariff concerns led to a stronger-than-expected performance in the third quarter. We hope these trends continue, but also understand that dealers still have inventory on the ground. And despite interest rates starting to come down, smaller customers are more price-conscious and slower to make decisions. The commercial fleet business remains generally positive. Fleet buyers are less influenced by near-term issues, instead managing their business more for the medium term. So really a fantastic performance in the Solutions segment. Overall, we're still seeing strong demand from municipal customers and solid demand from commercial customers. Our teams are receiving the chassis and components they need, allowing them to flex their DDMS muscles, driving greater efficiency and deliver improved profitability. From an operational standpoint, we are executing effectively across the segment. And when you add in our solid backlog, Solutions is set to have another fantastic year. In summary, this was an excellent quarter for Douglas Dynamics, characterized by important wins and strong execution. Work Truck Solutions continues to experience encouraging fleet business and substantial demand and backlog from municipal customers. Attachments preseason came in as expected, and the team is primed and ready for winter. We have launched our strategic pillars internally, and the teams are building the specific divisional plans aligned with the Optimize, Expand, and Activate strategic pillars. We are confident in both the direction we are taking and our ability to execute and deliver sustained impact in the years to come. With that, I'd like to pass the call to Sarah. Sarah Lauber: Thanks, Mark. Before I begin, unless stated otherwise, all the comparisons I'll make today are between the third quarter of 2025 and the third quarter of 2024. Also, please remember the third quarter of 2024 included a one-time gain of $42.3 million from the sale-leaseback transaction. I want to start by congratulating everyone on their performance this quarter, with all teams either meeting or exceeding our expectations. This strong work has allowed us to increase our guidance ranges again, which I will get to. But first, let's look at the third quarter. Overall, results were very encouraging. Solutions produced another record quarter with top and bottom line growth of over 30% and preseason shipments were in line with expectations at Attachments. On a consolidated basis, net sales increased 25% to $162.1 million, and gross profit grew 23% to $38.1 million, primarily driven by higher demand plus improved throughput at Solutions and the timing of preseason shipments at Attachments. SG&A expenses were $22.5 million. The change this quarter, excluding the 2024 sale-leaseback transaction costs, was driven by higher stock and incentive-based compensation on higher earnings, somewhat offset by lower CEO transition costs. Interest expense decreased 16% to $3.8 million for the quarter due to lower interest on the term loan and revolver from lower borrowings and a lower interest rate, which was partially offset by floor plan interest on higher chassis inventory. Adjusted net income and adjusted earnings per share both increased more than 60% for the third quarter to $9.5 million and $0.40, respectively. Adjusted EBITDA increased 31% to $20.1 million, and margins increased 60 basis points to 12.4%. Okay. Let's look at the results for the 2 segments. Attachments, our preseason orders ended in line with our forecast. Net sales increased 13% to $68.1 million, and adjusted EBITDA increased 29% to $10.5 million based on the timing of preseason shipments and ongoing cost control measures. Importantly, the ratio of preseason shipments was a more typical 60-40 split between second and third quarter this year versus the more unusual 65-35 split we saw last year. As Mark already noted, as we look towards winter, the team is primed and ready to respond to a variety of weather conditions, and our operations are as efficient and effective as they've ever been. Turning to Solutions, and I don't mind sounding repetitive when I say that combined, our municipal and commercial teams produced record third quarter results again, despite facing tough comparisons to a record-setting quarter last year. Net sales increased 36% to $94 million, which includes approximately $8 million of incremental chassis sales. Adjusted EBITDA increased 34% to $9.6 million, which produced margins of 10.2%, higher than our initial expectations. The strength of the performance stems from strong demand, higher throughput volumes, and improved efficiencies following a solid performance across all locations. With our overall backlog still well above historical norms, the full-year outlook remains positive. As the timing of deliveries and business mix shift from quarter to quarter, our overall results will continue to fluctuate, but we do expect to show annual improvement in solutions for the fourth year in a row. With the results for the quarter covered, let's look at our balance sheet and liquidity. Total liquidity at quarter end was $70.1 million and was comprised of $10.6 million in cash and $59.5 million of borrowing capacity on the revolver, which is more than ample for our needs this year. On a year-to-date basis, net cash used in operating activities decreased 36% due to improved earnings, which were partially offset by an increase in accounts receivable. Year-to-date, free cash flow improved 21% to negative $29.3 million. Inventory fell approximately 5% to $138.7 million compared to the same quarter last year. Attachments has done a great job reducing its inventory over the past year, which was partially offset by a planned increase in chassis and components in the Solutions segment, which are needed to address the robust backlog. As expected, capital expenditures increased to $8.1 million year-to-date. We now expect total 2025 CapEx to be at the lower end of our traditional range of 2% to 3% of net sales. We are happy with our current debt levels, and the leverage ratio at the end of the quarter was a very manageable 1.9x. At this point, we expect to stay close to 2x through the end of the year, which is well within our goal range of 1.5 to 3x. And finally, we paid our quarterly dividend of $0.295 per share at the end of the quarter. Finally, let's review our improved outlook. In short, our year-to-date performance has outperformed our expectations. The combination of exceptional results at Solutions and Attachments preseason shipments in line with our forecast means we have been able to raise our guidance ranges again. We now expect net sales to range from $635 million to $660 million, from the previous range of $630 million to $660 million. Adjusted EBITDA is now predicted to range from $87 million to $102 million versus the previous range of $82 million to $97 million. And adjusted earnings per share are expected to be in the range of $1.85 per share to $2.25 per share, up from the previous range of $1.65 to $2.15. Finally, the effective tax rate is still expected to be approximately 24% to 25%. The outlook assumes relatively stable economic and supply chain conditions and that core markets will experience average snowfall in the fourth quarter. We are being prudent in our assumptions given the weather we've seen in recent winters and the elongated replacement cycle, which is reflected in our guidance. We believe our inventory and cost control efforts mean we are ready for whatever weather conditions we see later this year, and we are monitoring reorder patterns closely as winter weather begins. We executed effectively across the company this quarter and are very pleased with our year-to-date results. We feel well prepared as winter weather approaches and look to support solutions as they push to close out another excellent year. Finally, I'll just mention a couple of points related to the Venco Venturo acquisition. The deal is expected to be modestly accretive to earnings and free cash flow in 2026, with a minimal impact on the fourth quarter of 2025. We funded the acquisition through our revolver, and we do not expect it to materially change our leverage ratio. We look forward to working with the Venco Venturo team longer term on operational synergies and profitable growth initiatives. With that, we'd like to open the call for questions. Operator? Operator: [Operator Instructions] The first question comes from Greg Burns from Sidoti & Company. Gregory Burns: Would you be able to share maybe a little bit more detail about the acquisition? Maybe how much revenue Venco was generating, what type of margins, and maybe what multiple you paid for the business? Mark Van Genderen: Yes, Greg, I'll start and then turn it over to Sarah. Maybe I'll start qualitatively, and she can get into more of the quantitative questions. But this is a business that we've been talking to and looking at for the last several years. The owner of the business, Brett Collins and I have developed a relationship during my time at Douglas, and we realized it was just a great fit for us. And with a lot of the discussions that Sarah and I have had over the last several months with our shareholders and the investment community, and as we kind of thought about our strategic pillars, an area of focus was, hey, it's great that you're looking at additional M&A opportunities. But it's been a while since you've done one, look to find something maybe a little bit on the smaller side, something that fits in really well strategically with the company. And the list of kind of the boxes that we wanted to check went on and on, and Venco Venturo really hit every one of those. So Brent and I started talking in earnest, probably 6 months ago. And again, he's been fantastic to work with and his team have, and we couldn't be more excited about it. Again, the grand scheme for us may be on the small end of the scale of what we've done historically, but certainly, as we've kind of said, small but mighty small and strong internally as we look to the future and really get excited about the opportunities there and the synergies that can be built between our attachments team and between -- maybe I'll turn it over to Sarah to add a little more color on the quantitative. Sarah Lauber: Yes. So Greg, we can't get into the specifics on the terms of the deal. I guess what I can say is we've been talking -- since we've been turning on this Activate pillar, we have been talking about focusing on small- to medium-sized deals, which for us would be $25 million to $75 million, call it. I would say this one is on the very low end of that scale. For 2026, we talk about it being modestly accretive to earnings per share and free cash flow. I would estimate that their sales are in the $30 million to $40 million range. And currently, pre-synergies, their margins are closer to our solutions business margins, with plenty of opportunity for us to get in there with our DDMS and our sourcing and our operational synergies to work on margin improvement longer term. Gregory Burns: And then just one more on Venco. Is DEJANA currently -- are they a supplier to DEJANA? Is DEJANA using them in their upfits? And what kind of opportunities are there for you to leverage the solutions business to maybe increase the demand or the growth for Venco? Sarah Lauber: Yes, you hit it spot on. This is why it kind of hit all of the boxes that Mark was describing, because it is a complex attachment that we do upfit. DEJANA is a purchaser of Venco Venturo cranes and hoists. It's certainly an opportunity for us to grow that also in future for the future upfit of DEJANA. Mark Van Genderen: Yes. As we started the integration work in earnest, it's been good to see our sales team down there working with the sales organization at Venco Venturo and really looking to see, hey, where could this take us in the future. And again, in upcoming quarters, as we really settle in, I'm sure we'll have plenty of updates on how that's going. Operator: [Operator Instructions] The next question comes from Tim Wojs from Baird. Timothy Wojs: Maybe just the first question I had, Sarah, I guess, if you could kind of maybe kind of outline maybe what you're expecting in each segment in the fourth quarter? And I guess, most specifically in attachments, just given we haven't really seen like, I guess, a normal snowfall in the fourth quarter for a long time. So just kind of curious if you could delve deeper into kind of what you're expecting in the fourth quarter in both segments. Sarah Lauber: Certainly. When you look at our new guidance and you focus in on the midpoint, I would say for attachments, that would be back to the '23 levels in volumes, which is, like I said on the call, it's still a conservative approach for us. We are focused on average snowfall, but we are not pinpointing average volumes at this time. From a margin perspective on attachments, I would say right now, our expectation at that volume level would be that that would be flattish margins to last year and where we landed last year. Timothy Wojs: And then I guess on the Solutions side, really good growth there. I guess, kind of how did the muni business perform kind of relative to the kind of commercial DEJANA businesses, in terms of maybe the pace of revenue growth between the 2 businesses? And then I guess, just given the growth, I thought there might be a little bit more leverage from a margin perspective. So if you just walk through kind of the margin expectations and kind of what you saw there in the third and fourth quarter? Sarah Lauber: Yes, absolutely. From the perspective of commercial and municipal, both of them had record top-line quarters. So we really did see good growth across both. It wasn't one versus the other. From a margin perspective, both performed very well, which led us to outperforming our expectation in the third quarter. The leverage when we look at that quarter-to-quarter can be a little bit choppy for solutions, just the way the Truck flow is. So when you think about incremental margins for solutions, you really need to look over a couple of quarters and/or a year period. I do expect for the year that solutions will be close to 25% incremental margins, which is pretty much where I've had them. Operator: [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Mark Van Genderen, President and CEO. Mark Van Genderen: Thank you. We appreciate your continued interest in Douglas Dynamics, and we look forward to seeing some of you at the Baird conference in Chicago next week. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.