加载中...
共找到 15,153 条相关资讯
Operator: " Evan Smith: " Ronald Williams: " Jeffrey Schwaneke: " Hua Ha: " Robert W. Baird & Co. Incorporated, Research Division Jack Slevin: " Jefferies LLC, Research Division Jailendra Singh: " Truist Securities, Inc., Research Division Ryan Langston: " TD Cowen, Research Division Justin Lake: " Wolfe Research, LLC Craig Jones: " BofA Securities, Research Division Daniel Grosslight: " Citigroup Inc., Research Division Andrew Mok: " Barclays Bank PLC, Research Division Matthew Shea: " Needham & Company, LLC, Research Division David Larsen: " BTIG, LLC, Research Division Amir Bani: " Operator: Good afternoon, and thank you all for attending the agilon Health Third Quarter 2025 Earnings Conference Call. My name is Brika, and I will be your moderator for today. [Operator Instructions] I would now like to pass the conference over to your host, Evan Smith, Investor Relations at agilon Health. Thank you. You may proceed, Evan. Evan Smith: Thank you, operator. Good afternoon, and welcome to the call. With me is Executive Chairman, Ron Williams; and our CFO, Jeff Schwaneke. Following our prepared remarks, we will conduct a Q&A session. Before we begin, I would like to remind you that our remarks and responses to questions may include forward-looking statements. Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with our business. These risks and uncertainties are discussed in our SEC filings. Please note that we assume no obligation to update any forward-looking statements. Additionally, certain financial measures we will discuss in this call are non-GAAP financial measures. We believe that providing these measures helps investors gain a better and more complete understanding of our financial results and is consistent with how management views our financial results. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures is available in the earnings press release and Form 8-K filed with the SEC. And with that, let me turn the call over to Ron. Ronald Williams: Thank you, Evan. Good afternoon, everyone, and thank you for joining us. I'm pleased to be with all of you today. For the third quarter, we reported revenue of $1.44 billion, medical margin of negative $57 million and adjusted EBITDA of negative $91 million. We are also reinitiating 2025 guidance. While the quarter benefited from the execution of our clinical and quality programs as well as cost discipline, we nevertheless were impacted by lower-than-expected in-year RAF contribution as well as continued high costs from exited markets. As we look forward, we believe 2026 is shaping up to be a strong stepping stone in our transformation with positive development in the first half, the enhanced financial data pipeline ramping to 80% in membership and Part D exposure potentially moving below 30% we believe we are establishing a solid 2026 baseline. We expect to have improved forecasting and lower volatility as well as significant internal and market-driven tailwinds. These tailwinds include our burden of illness and clinical pathways initiatives driving broader identification and diagnosis of high-risk conditions, increased incentives for our quality performance and more disciplined and favorable contracting. This is further supported by more favorable payer bids, including increased premiums, maximum out-of-pocket and deductibles, benefiting agilon's financial performance. And last, we believe we are establishing a more efficient platform to drive additional operating leverage and have reduced our operating costs by $30 million. With increased visibility, we have reinstated our 2025 guidance. At the midpoint, we expect revenue of $5.82 billion, medical margin of $5 million and adjusted EBITDA of negative $258 million, which includes the impact of lower-than-expected risk scores for 2025 and costs related to exited markets, partially offset by positive development in first half medical costs, strong performance in ACO REACH and continued operating cost discipline. Jeff will provide more detail in a moment. Our focus is on executing a strong finish to 2025, and a quick start in 2026. Our organization is executing with precision and purpose. Our strategic initiatives are tightly aligned with our mission and partners and centered on embedding urgency, focus, operational rigor, clinical excellence and data-driven executional accountability across the enterprise, which we believe will translate into improved performance in 2026. Through investment in technology and efforts to expand our access to richer and more timely data, agilon is leveraging data analytics and AI-driven insights to support delivery with a focus to improve the visibility and predictability of our financial performance. Through our enhanced data pipeline, which went live in the first quarter, we now have more timely direct payer data feeds with validated and highly correlated member level clinical and claims data, as well as member level risk scores on approximately 80% of our members. We expect the increased visibility and alignment of our financial and operational data will enable us to more quickly identify and drive improvements. We remain extremely focused on the performance optimization initiatives we previously laid out. These are centered on improving the near-term profitability of the business, allowing us to drive improved medical margin, adjusted EBITDA and cash flow performance in 2026. With respect to improved contract economics, we are currently in active negotiation with our payer partners for 2026. Based on our discussions to date, we are making strong progress on several fronts. First, further reduction in Part D exposure; second, an expansion of quality incentives; third, improved economic terms for Part C. And fourth, we expect a continued narrowing of risk from supplemental benefits through better information. Based on the public commentary and initial review of payer bids, we expect more favorable bid design, focus on MA profitability, including improved pricing, reduced benefits, increased deductibles and maximum out-of-pockets, which is expected to have a positive impact on agilon's medical margin in 2026. We are also taking a very disciplined approach to contracting. And for those payers with benefit designs and pricing that are inconsistent with market dynamics, we are prepared to take decisive action. While this may result in reduced membership, we are focused on profitable growth and earning the appropriate economics for the value we are delivering. With respect to quality or stars, approximately 75% of health plan star ratings are directly impacted by the PCP, making our success in delivering 4 stars in the majority of our markets critical for payers. Our programs enable Care gap closure rates that exceed the overall MA average on key star measures, such as cancer screening and chronic condition management. To further enhance our Stars performance, we are leveraging our enhanced analytics capabilities and collaborating with our partners to further improve condition identification, diagnosis and screening, leading to documenting and closing of gaps in Care through treatments such as medication adherence. In early October, CMS released the 2026 Stars ratings, which will impact 2027. Approximately 75% of agilon members are expected to be in 4+ Star plans, an increase from 71% in 2026 payment year. This also compared favorably to 65% in the overall Medicare Advantage market. In addition, with the 2026 star ratings, agilon achieved a consolidated average of 4.2 stars across our markets. This supports our efforts for improved payer economics that are better aligned with agilon's strong quality performance. Our BOI program is also contributing to improvements in early and accurate identification, assessment and documentation of a patient's comprehensive health conditions. By connecting the burden of illness assessment to our quality and care delivery programs, we can more effectively manage high-acuity chronic disease categories like heart failure. We are on track for our palliative program and clinical pathways. Based on the performance to date, we believe this will positively contribute to our financial results in 2026. As a reminder, these patient-focused, physician-driven and technology-enabled clinical pathways have been developed in collaboration with our physician partners and national experts. They enable our teams to close Care gaps by looking at some of the highest prevalence chronic conditions, which affect our patient population. With respect to our heart failure pathway, we are seeing encouraging results by identifying and diagnosing these conditions earlier in the outpatient setting. Our physician partners are better able to manage the progression of each illness and improving the quality of care for the patient. We have reduced new inpatient heart failure diagnosis rates from 18% in 2024 to 5% in 2025 across our MA population. In markets where our virtual pharmacy solutions are active, about 50% of patients with heart failure and reduced ejection fraction are receiving Guideline-Directed Medication Therapy. This is approximately 30% higher than the national average. Similarly, when virtual pharmacy solutions are combined with transitions of Care cardiology, we have seen 30-day readmission rates fall below 5% as compared to the national average of approximately 20%. This performance is expected to continue as we expand the program and we move into 2026 as more partners fully implement the program. With respect to our Palliative Care Program, we continue to make progress in our education, market penetration and enrollment. By focusing on providing care in a hospice or home setting, we see better Care satisfaction for the member and their families and less hospital admissions. As we move into 2026, in addition to existing programs, we are beginning to expand our COPD and dementia pilots and anticipate further adoption. In the quarter, we have also taken steps to optimize our cost structure to align with current market dynamics, including a more balanced near-term growth outlook. The leadership team is working to strategically realign our organization structure. We have made thoughtful decisions to streamline certain teams while simultaneously investing in other areas that will help drive our next chapter of innovation. Through the centralization of certain functions, implementation of technology and alignment with our PCP partners, we have reduced our headcount and streamlined our capital requirements and third-party costs, all to gain greater operating leverage from the platform and support our growth objectives. These operating expense initiatives are expected to reduce our costs by approximately $30 million in 2026. Finally, while we are making progress in our search for a CEO, the skills, experience and relationships that are aligned to our new path, we remain committed to moving decisively now to enhance performance and agilon's position for sustainable value creation. Thank you for your continued support during this transition period. With that, I'll turn it over to Jeff. Jeffrey Schwaneke: Thanks, Ron, and good afternoon. As Ron touched on, 2025 is a transformational year. We are advancing strategic initiatives that we started putting in place last year to improve our contract economics, reduce our risk and optimize our cost structure. We believe the increased visibility gained from the enhanced data pipeline, advances we have made in our BOI and clinical pathways programs, a $30 million reduction in operating expenses and a more disciplined approach to growth is expected to have positive impact in 2026. For today's discussion, I will cover 4 key areas: First, I will walk through our third quarter results. Second, I will provide details on our reinstated 2025 guidance and a bridge to our jumping off point for 2026. Third, I will provide color on the significant number of tailwinds we believe will support improvement in our 2026 performance. And finally, I will discuss the strength of our capital position based on our expectations for 2026 and a more disciplined near-term growth outlook. Moving to our financial performance for the third quarter. Starting with membership. Medicare Advantage membership at the end of Q3 2025 was 503,000 members compared to 525,000 members in Q3 2024. Our ACO REACH membership for Q3 was 115,000 members compared to 132,000 members in the same period of 2024. As we discussed previously, our decision to take a measured approach to membership growth has resulted in a slight year-over-year decline driven by previously disclosed partner exits in a smaller 2025 class. Total revenue for the third quarter of 2025 was $1.44 billion compared to $1.45 billion in the same period of 2024. Our year-over-year revenue comparison continues to be impacted by lower-than-expected risk adjustment as well as the impact from market and payer contract exits. During the third quarter, we received the remainder of the 2024 risk adjustment data and substantially all the midyear 2025 risk adjustment data from our payer partners. This indicated the 2025 risk adjustment for the remaining 28% of members we did not include in our prior results was lower than the average. The third quarter reflects the impact of lower-than-expected revenue associated with 2025 risk adjustment scores of $73 million, including a 9-month true-up of approximately $50 million for the remaining 28%. We now estimate the full year impact to medical margin for lower-than-expected risk adjustment is approximately $150 million. The larger-than-average impact for the remaining 28% was primarily driven by one payer representing a new market in 2024, where we also did not have data for 2023. This payer is now in our data pipeline, which provides us with confidence in establishing our risk adjustment baseline and potential for 2026. In addition, exited markets negatively impacted the quarter by $20 million. First half cost trends continue to develop favorably and were approximately 5.7%. We took a prudent approach in the current quarter and recorded cost trends at a little over 6%. As we have previously stated, we have limited paid claims visibility at this point post quarter close. Medical margin this quarter was negative $57 million compared to negative $58 million in Q3 2024. The current quarter reflects continued elevated cost trends in line with our expectations for the year. In addition, this includes the previously mentioned risk adjustment and exited market impact. Adjusted EBITDA for the quarter was negative $91 million compared to negative $96 million in the third quarter of 2024. The third quarter reflects the items I already highlighted, partially offset by lower geography entry costs and benefit from continued operating cost discipline. We are very pleased with our strong ACO REACH performance during the quarter, including our final 2024 reconciliation. Adjusted EBITDA related to this program this quarter was ahead of expectations at $18 million. ACO REACH continues to demonstrate the value creation agilon can deliver and is shaping the way we are transforming our MA business, reducing our exposure for things outside of our control like Part D and supplemental benefits while focusing on improved economics and incentives for agilon's quality, clinical and medical cost performance. On the balance sheet, we ended the quarter with $311 million in cash and marketable securities and $172 million of off-balance sheet cash held by our ACO entities. Next, let's move to our medical cost trend outlook and reinstated 2025 guidance. Managing medical cost trends remains a top priority. For the first half of 2025, medical cost trends have been stable but elevated in areas such as inpatient and Part D oncology drugs and restated favorably relative to our expectations. We anticipate the medical cost trend to remain in line with our expectations. Now moving to guidance. With greater visibility as we head into the year-end, we are reinstating our full year 2025 guidance. I will also provide some color on our expectations for 2026 based on our actions to date and initial review of payer bids and contracting efforts. For the full year 2025, we expect Medicare Advantage membership in the range of 503,000 to 506,000 with ACO model membership projected to be between 113,000 to 115,000. We expect revenue for 2025 to be in the range of $5.81 billion to $5.83 billion, reflecting the impact of membership shifts and improved revenue yield from payer contracts. The revenue outlook also reflects lower-than-expected 2025 risk adjustment performance of approximately $150 million, prior year development to date of $70 million, and exited markets of approximately $60 million. Full year medical margins are projected to be between negative $5 million to $15 million and adjusted EBITDA guidance range of negative $270 million to negative $245 million. We expect to end the year with approximately $310 million of cash on our balance sheet, including approximately $65 million held off balance sheet by our ACO entities. We have provided a bridge in the earnings presentation we issued today that walks from the current guide for 2025 to our jumping off point for 2026. The expected $135 million medical margin jumping off point for 2026 includes approximately $150 million of lower-than-expected risk adjustment contribution for 2025. Now let me provide some color on 2026. While we are not prepared to provide specific 2026 guidance at this time, I want to walk through why we are optimistic about next year as illustrated on Slide 7 of our earnings presentation. We see several tailwinds, including macro factors like the 9% benchmark rate increase, better aligned payer contracts and the disciplined cost actions Ron outlined that we believe will both drive material improvement in our performance in 2026 and establish a path for consistent improvement as we move beyond next year. First, in the third quarter, we completed restructuring actions to improve our operating expenses. We rationalized other medical expenses, including better alignment of incentives with our PCP partners, reduced overhead and vendor costs in line with our current revenue run rate and more balanced growth outlook. We estimate that this will drive $30 million in cost and adjusted EBITDA benefit in 2026 with additional opportunities for savings in 2027. Second, we have taken a more disciplined approach to payer contracting, which includes incremental percentage of premium and enhanced quality incentives from payers for the value we deliver. This is expected to drive revenue growth on a PMPM basis potentially greater than the 9% CMS final rate notice for 2026. We have reviewed payer bids across our markets. And on average, we see payers bidding for profitability with benefit design changes, including increases in premiums, deductibles and maximum out-of-pocket expenses and a reduction in supplemental benefits. This is expected to be a positive offset to cost trend in 2026. As a reminder, 2025 included a 1% benefit from payer bids. As part of our disciplined contracting strategy, we are taking decisive action market by market with payer contracts that do not meet a minimum threshold for profitability. While our contracting for 2026 is not final, if we cannot come to appropriate economic terms in certain markets, we may not contract with specific payers in these markets. As part of our discussions, we may also transition some of these members to a Care coordination fee with additional performance incentives. Depending on the outcome, this may reduce our overall membership in 2026, though this impact may be mitigated if a member shifts to another payer with more favorable economics for agilon or moves to a coordinated Care fee arrangement. This disciplined approach is expected to be favorable to medical margin and adjusted EBITDA in 2026 and beyond. Our contracting efforts also include additional steps to reduce variability in our performance by effectively managing multiyear contract terms to reduce our exposure to macro cost trend volatility, interim payer benefit design changes and pricing that may be detrimental to our capitated economics. This includes reducing our payer contract term length if needed or adding additional material adverse change clauses to the contract. In addition, while our exposure to Part D in 2025 was primarily related to carved out or exited markets, we are continuing to further reduce our exposure. With respect to BOI, we are confident that the enhanced data pipeline, which now includes the outlier payer from the remaining 28% of our members, AI advances for high-risk member identification and diagnosis in our BOI program, and execution on clinical pathways will deliver results over and above the final year of V28. Our confidence is based on a review of validated codes in our data pipeline and our ability to deliver results above the impact of V28. Last, on our cash outlook, with the anticipated performance improvement in 2026 from our initiatives and the macro factors I just walked through, combined with our focus on working capital management, we expect to end 2025 with approximately $310 million in cash and 2026 with at least $100 million in cash on our balance sheet, including cash held in our ACO REACH entities. Before I close, given our current stock price, we anticipate pursuing a reverse stock split and expect to seek stockholder approval at our Annual General Meeting in 2026. In summary, while we continue to operate in a challenging environment, the actions we are taking to refine our strategy, improve operational execution and financial visibility and strengthen our financial position are expected to have a positive impact on our performance in 2026 and beyond. We remain confident in the value we bring to our members, PCP partners and payers and our ability to navigate the near-term headwinds while positioning agilon for long-term success. With that, operator, let's move to the Q&A portion of the call. Operator: [Operator Instructions] The first question we have from the phone lines comes from Michael Ha with Baird. Hua Ha: I see on your slide that you have ACO REACH as a negative impact for next year. And I know the risk corridors are narrowing next year to 10% savings rate. I think agilon is at 13%. If, on our back of the envelope math, we're getting somewhere around $10 million to $15 million of EBITDA impact. Is that the right ballpark to frame it? Is that what you're highlighting in your slide? Are you able to offset it? Does this narrowing of the savings rate create any friction with your ACO REACH partners? Just thoughts there would be great. Jeffrey Schwaneke: Yes. Thanks, Michael, for the question. This is Jeff. I actually think the re-baselining of the risk adjustment is actually more meaningful for us. And so yes, what we are reflecting here is that there were several changes to the ACO REACH program. And I think we've commented about this before that we do expect lower economics from the program while still contributing, I would say, very good margin. And we're reviewing our ACOs right now and determining what model is actually better. And I think we've made the decision on some of our ACOs to move them to the MSSP program as we think about 2026 because the economics would be better in that program. Not going to really size the impact right now. We're getting a little ahead here on the '26 guide. But you are correct, it's really driven by those changes. Operator: We will now move on to the next question. We have Jack Slevin with Jefferies on the line. Jack Slevin: I appreciate all the color included in the deck in the release. I guess this might be a little high level because I acknowledge it's a bit early, but I just wanted to frame some of your commentary around potential further exits from payer contracts. And maybe I'll just broaden it out to say, are you contemplating, I guess, one, market exits on the table at this point? Or is it really just specific payers? And then two, if there's any way to get a sense of the order of magnitude that might be at play here? Just trying to frame out sort of what we might be looking at going forward. And any thoughts or sort of qualitative color would be really helpful. Jeffrey Schwaneke: Yes. Thanks, Jack, for the question. You're right, it is a little early. We're kind of midstream on the contracting here as we think about 2026. I think the takeaway for you would be, listen, we are taking a very disciplined approach and where the economics don't make sense for the value that we're delivering, ultimately, we don't have to do business with that payer. Some of those members may move to another payer in that market; and, or we may enter into a Care management deal, a Care coordination fee with upside for quality and things like that. I think the point I would take away is any potential reduction in membership would be beneficial to the medical margin and the EBITDA for agilon. And that's really what we're focused on. So unfortunately, I can't size it for you right now, but any reduction would ultimately be to the benefit of the bottom line. Ronald Williams: Yes. I would just add, Ron here, that we have been very clear with the payers about the value that our physician partners create, both in terms of the Stars Program as well as closing gaps in Care. And I think we've been very clear that we are contracting for tomorrow and not the historical relationship that we've had in a more normalized trend, more normalized utilization. I think the good news is that we've been working with some of our partners who understand this, who are exhibiting an attitude that's supportive of the kinds of objectives that we have. But we're very clear, this is about being profitable and achieving the kind of margin that we want, and we're committed to working through that. Operator: We now have Jailendra Singh with Truist Securities. Jailendra Singh: This is [Indiscernible] on for Jailendra. I guess just to start, is there any type of update you can provide on the CEO search and how that's going? And if you guys have made a decision between like internal and external candidates? Ronald Williams: Yes. I would say that I've been spending a good deal of time. I think I'm pleased to say that we have some very good candidates coming forward. The process is open to all candidates who are interested in applying for the opportunity. And I would say that we feel good about where we are in pace and timing. I certainly wouldn't forecast a conclusion here. I think the most important thing for you to know is that while we don't have a permanent CEO, I am 100% focused on what we need to do to improve performance in the business. I meet regularly on a daily basis. The office of the Executive Chairman meets every day. We focus on the critical priorities and objectives with the goal of having a very strong finish to the year and a strong start for next year. So, while no time line on the process, this is not caretaking. This is active engagement and focused execution. Jailendra Singh: And if you don't mind, if I could squeeze in just a quick follow-up. Thank you for all the color on the medical cost trends. Is there just anything to call out in terms of what you saw in Q3 in areas that were maybe high or cooling off a little bit? And then also if there's any color you can provide into Q4? Jeffrey Schwaneke: Yes. I think it's the same issues we've highlighted in the past quarters, really, its in-patient Part B drug spend, specifically oncology; In-patient continues to run a little bit high as well. I think those have been consistent over the last several quarters. So, nothing new here. I would say that the first half medical cost trends have all restated favorably. So Q1 has come down. Q2 has come down since we last spoke, which is good, and it's just a little bit over the mid-5% range. And again, for Q3, we just took what I call a relatively conservative approach in the low 6s. Ultimately, we don't have a lot of paid claims for that. And so, we'll have to see how that estimate plays out as we get into the fourth quarter. Operator: Your next question comes from Ryan Langston with TD Cowen. Ryan Langston: I think I heard you say there's about $65 million currently at the ACO entity level. I guess, is there a minimum amount of cash you need to have allocated to the REACH entities? And in the year-end 2026 balance for cash, what's contemplated at the ACO REACH level? Jeffrey Schwaneke: Yes. So actually, at the end of the quarter, we had $172 million in the REACH entities, and there's cash settlements that happen in the fourth quarter. And so, the way we think about it is once those settlements are processed in Q4, we'll roughly be at the $65 million. And as you think about the year-end balance, the $310 million we quoted, it includes that $65 million. So, we expect to end the year at roughly $310 million. That includes $65 million from REACH. I would say there's no requirement to hold those dollars in the REACH entities. It's more from a tax perspective because they're outside of our consolidated umbrella. There's some tax efficiencies gained by leaving it there and then monetizing that over time. But we have access to that if we needed it. Ryan Langston: Okay. Great. And then on the sort of higher-than-average impact on the risk revenue for the remaining 28% of the enrollment, I guess, was there any particular reason you expected these members to have higher scores? Was it accrual driven incomplete coding? Just trying to understand the potential implications for 2026. Jeffrey Schwaneke: Yes. I think we highlighted that in the prepared remarks. It's really, I would say, the higher than average is really driven by one payer that was new to us in 2024. We did not have data for them in 2023. So, I think that made the estimation, I would call it, more challenging, obviously, because you have to have '23 and '24 to really determine the increase in actual risk scores. The good news is that, that payers now on our enhanced data pipeline. And what I will say is sitting here today, we actually have the ability to calculate member level risk scores. We did not have that ability a year ago. And so, as you think about what happened in the second quarter, we were able to calculate member level risk scores that tied or that agreed highly correlated with the midyear data from CMS and the final year risk scores as well. And so, we're in a much better position this year to calculate member level risk scores. That's all been driven by the process change associated with the enhanced data pipeline. So, we feel pretty good that we have a solid foundation in order to, I would say, set a foundation for this year and obviously project forward as we think about a 2026 guide. Operator: We now have Justin Lake with Wolfe Research on the line. Justin Lake: This is Dean Rosales on for Justin. Is there any color you can give on what CMS is estimating for fee-for-service trend in '25 within the ACO REACH program? And then my second question is in your earnings presentation, you stated that you expect payer bids to act as a tailwind in '26. Is there any color on the benefit designs that you're seeing that you could share? Would you say reduction of benefit is largely consistent across your payers? Jeffrey Schwaneke: Yes. First, I'll handle the REACH question. The latest data, I think we have is fee-for-service cost trends are 8.5%, and so that's the latest information we have on the cost trends in the fee-for-service business. And then as far as the bid detail, it is different by payer is what I would say. And obviously, everybody kind of reads the public announcements from all of our payer partners. But generally, I would say it's different. But broadly across our network, what we've seen is really pricing for margin. And it's maximum out of pockets, it's all of the things and the levers that the payers have in the bid design. And so, across our book, generally, I would say what we see is pricing for margin, which we believe is going to be a tailwind for us as we head into '26. So not all payers are the same, but across our footprint and our network, it's going to be a positive for next year. Operator: We now have a question from the line of Craig Jones with Bank of America. Craig Jones: So looking at your Palliative and Heart Failure Program, I think you've rolled those out about most of your geographies now. For 2025, what kind of savings do you expect from those, either PMPM or millions? And then as we think about these test programs going forward, once you kind of get installed in all your geographies, is this sort of like a onetime boost that then kind of oscillates up and down based on participation? Or is it sort of an annual continued margin accretion? Jeffrey Schwaneke: Yes. I would say, just to go back, we implemented a lot of these clinical programs, I would say, late in 2024, early in 2025. So there certainly is a ramp period, and some of that benefit will accrue to 2026, given the long-tail nature of our business. We're not going to get into any specific PMPM savings, but I think Ron highlighted in his prepared remarks, some of the outcomes that we're seeing from those programs. They have been very successful. Ultimately, it is reducing medical expense and improving, I would say, the identification of disease burden for our members so that we can get them into the appropriate treatment programs. And so, we look to, I would say, continue the evolution of these programs as we exit '25 into '26. And they will be permanent programs. So, they will continuously drive value, and we would continue to iterate on these programs to continue to make them successful. Ronald Williams: Yes. Probably the only thing I would add is that we will continue to enrich the data sets and the AI algorithms that we use to identify potential suspects and the burden of illness in patients that has not yet been detected along with other diagnostic techniques that our medical groups have invested in, and we've supported. So, I think you can expect that this will continue some level of progression into the future, while at the same time, we expect to ramp up other programs that our medical groups have determined represent good clinical care for their patients. Operator: We have Daniel Grosslight with Citigroup Daniel Grosslight: I think you've covered the changes you're making to payer contracting well. But correct me if I'm wrong, I may have misheard this. I think I heard in your prepared remarks that you're also altering how you're contracting on the provider side. Can you just provide a little bit more detail on how, if at all, your provider contracts are changing, particularly with regard to risk sharing and how this may shift receptivity on the provider side to contracting? Jeffrey Schwaneke: Yes. On the provider side, we're not changing any of the contracts on the provider side. I think what you're referring to is there was a comment about the $30 million of operating savings really executed on for next year. I think part of that was aligning the incentives with our physician partners. So, we did take a fresh look at incentive alignment, and that was a component of that $30 million. Daniel Grosslight: Okay. Can you provide a bit more detail on what that means in practice with incentive alignment, how incentives are changing? Jeffrey Schwaneke: Probably not here. I mean it wasn't a substantial piece of the $30 million is what I would say. And so, as you think about that $30 million, I would say half was generally corporate, what I'd call corporate overhead costs. And then the other half would have been, I would say, more market operating costs that we are looking at. So the physician incentive piece was relatively small. Operator: We now have a question from Andrew Mok with Barclays. Andrew Mok: I wanted to follow up on the payer contract discussion. When you see benefit misalignment with your payer partners, is that concentrated more in small regional health plans or large national carriers? And how much of your current membership is already contracted for next year? And how much is still outstanding? Jeffrey Schwaneke: Yes. I guess what I would say is it's a market-by-market item, right? So it's not just broadly across one payer or this payer. You have to go into each specific market and understand the benefit designs that impact us. And ultimately, as part of our contracting process, we get the bid information, we analyze that, and that is a key component of our request on economics, as you can imagine. And so I would say it's a little more nuanced than kind of what you're saying. And then the second part of your question, what was that? Andrew Mok: How much of your membership is already contracted for next year when you think about what's left outstanding? Jeffrey Schwaneke: Yes. I would say it's kind of hard to put a pin on exactly how much is where the ink is dry, if you will. I think we've come to general business terms with; remember, we had about 50% of our contracts open for renewal. We've come to, I'd say, relative agreement on a substantial portion of that. But obviously, you have to dot the I’s and cross the T’s and that matters. And so I would hesitate to say right now at this point how much. But obviously, we're going to work through the bulk of this in the fourth quarter, and we'll have an update for you when we do our year-end call. Ronald Williams: Yes. The only thing I would add is that the negotiations have really been extensively supported by our physician partners because they are in that community. They have the relationship with the patient. And so they have been really actively at the table with us in markets to assist in delivering the important messages to payers who may not have heard us as clearly as we had hoped. Andrew Mok: Great. And if I could sneak in one additional question. I would love to follow up on Stars. I appreciate the comment that bonus year 2027 Star scores will increase. But as we think about bonus year 2026 and some of the volatility there, to the extent some of your payer partners have a reduction in Stars, can you help us understand whether this headwind flows downstream to you? Or are you getting a fair premium increase to offset that Stars headwind? Jeffrey Schwaneke: Yes. Obviously, that's another key component of what we're talking about when we're doing our contracting. So again, I would say we are looking for total overall economics that makes sense for our partners in agilon, and that's what we're focused on. And that's when we said we're taking a disciplined approach, that would be part of that equation. Operator: We now have Matthew Shea with Needham on the line. Matthew Shea: I wanted to hit on the clinical programs again and the broader COPD and dementia rollout. What is the staging or timing of going from a pilot to permanent program look like? And based on your success with palliative, how long do these broader launches tend to take to ramp towards meaningful savings with that, I guess, given the early success from your existing programs and some of your commentary, do you plan on rolling out incremental programs or piloting new specialty areas in 2026? Or how should we think about clinical programs sort of evolving from here? Jeffrey Schwaneke: Yes. I would say you're heading down the correct path, meaning the first thing we typically do is pilot some of these programs and validate that ultimately, it's improving the Care for the member. And so we would pilot those. You have to have enough data, obviously, to make sure that, that's happening. So I'd say the pilot phase is relatively 6 to 8 months could be longer. But then ultimately, we would roll that out. And of course, it's, you can't roll it out to everyone at all times, right? And so we roll it out market by market, starting with the markets that we believe would provide the most value. And so yes, I would say we plan to take the pilots of COP and dementia. I think we're going to roll those out to more markets in 2026. And then yes, obviously, potential new pilots are on the table, and we're thinking about those as we think about our 2026 guide and what we're planning on doing for next year. Ronald Williams: Yes. All of these programs are developed in consultation with our partners, and we have network Advisory Board where the leaders of the principal medical groups come and advise, review the evidence and support and endorse these types of initiatives as good patient care for their members. And so we do have some teed up, as Jeff described. And we feel like as we've implemented congestive heart failure, we've learned a lot about that process of diffusion of both the clinical evidence technology, training and support of the physicians. Operator: We have the next question on the line from David Larson with BTIG. David Larsen: This is Jenny Shen on for David. I just wanted to ask about the Big Beautiful Bill Act. Do you expect that on the Medicare side to have any impact on your business at all? And if you do, what do you expect those impacts to be? Jeffrey Schwaneke: Yes. We don't expect it to have a meaningful impact on the business. And I guess we'll just leave it at that. Operator: [Operator Instructions] And we now have Amir Bani with Evercore on the line. Amir Bani: So Humana is one of your largest payer partners, I believe, and it looks like they're focused on benefit stability for '26. So I guess I'm trying to get a sense for how you think this impacts your medical costs for next year. Some numbers around that would be very helpful. And if I could squeeze in a quick follow-up. What do you see as minimum working capital for your business? Jeffrey Schwaneke: Yes. So real quick, I think we've kind of covered this maybe the first question as far as Humana. I think we've kind of covered this in the contracting phase, which is ultimately, we get the benefits for each of our markets. We get the plan designs, and we analyze that, and that's part of our overall contracting efforts looking for the economics that we think makes sense for us. And so I would say that's just one, you're just talking specifically about one payer, but the process is the same across all payers. And so I think that's where we are from that standpoint. It's part of the overall contracting process and the economics we look for. And your second question on minimum working capital, I don't know what you're trying to really get at there. I don't have a number off the top of my head for what you're trying to pinpoint, but we can certainly follow up. Operator: [Operator Instructions] I can confirm that will conclude the question-and-answer session here. And I would like to hand it back to Ron Williams for some final closing comments. Ronald Williams: Well, thank you for joining us today. agilon will post 2025 with a sharpened focus and momentum driven by a suite of high-impact initiatives that are fundamentally reshaping our operating discipline and executional rigor. I want to thank our employees and our partners who may be listening and I also want to thank you for your dedication and partnership with us. You're playing a crucial role in the health care industry, helping to transform health care to our employees and empowering our primary care physicians to focus on the entire health of their patients. We will continue to fulfill this mission with our employees. Thank you. Have a good evening. Operator: Thank you. I can confirm that does conclude the agilon Health Third Quarter 2025 Earnings Conference Call. Thank you all for your participation. You may now disconnect, and please enjoy the rest of your day.
Operator: Good afternoon, and welcome to Tarsus' Third Quarter 2025 Financial Results Conference Call. As a reminder this call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to David Nakasone, Head of Investor Relations, to lead off the call. David, you may begin. David Nakasone: Thank you. Before we begin, I encourage everyone to visit the Investors section of the Tarsus' website to view the earnings release and related materials we will be discussing today. Joining me on the call this afternoon are, Bobby Azamian, our Chief Executive Officer and Chairman; Aziz Mottiwala, our Chief Commercial Officer; and Jeff Farrow, our Chief Financial Officer and Chief Strategy Officer. I'd like to draw your attention to Slide 3, which contains our forward-looking statements. During this call, we will be making forward-looking statements that are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. I encourage you to consult the risk factors contained in our SEC filings for additional detail. With that, I will turn the call over to Bobby. Bobak Azamian: Good afternoon. And thank you for joining us. This quarter, Tarsus delivered exceptional results that continue to raise the bar for what a successful product launch looks like. XDEMVY is now one of the best-selling prescription eye drops in the market, setting a new benchmark for launch performance across the pharmaceutical industry. We delivered more than 103,000 bottles of XDEMVY to patients and recognized approximately $119 million in net revenue. These results reflect the strength of our category-creating blueprint, the increasing physician engagement and the profound impact we are having on patients. What's more, we strongly believe we are just scratching the surface on the full potential of this launch. More than 20,000 doctors have already prescribed XDEMVY. And once they see successful patient outcomes, they start proactively looking for more patients that can help, broadening utilization across multiple patient segments and bringing us closer to our goal of serving millions of patients. Not only are we seeing this in the numbers, we hear it directly from eye care professionals or ECPs. Recently, I was at 2 of the most impactful medical meetings in eye care: the American Academy of Optometry; and the American Academy of Ophthalmology. Three key themes stood up: first, ECPs consistently described XDEMVY as one of the most meaningful therapeutic advances in eye care in decades; second, even our top prescribers say they haven't come close to reaching their full potential; and third, doctors are changing their practice patterns and broadening their use of XDEMVY across a wider range of patients, particularly in light of our recent meibomian gland disease data in Demodex blepharitis patients. That data has been a catalyst for them to look more proactively for Demodex blepharitis, or DB, across patients coming in for complementary conditions like dry eye, cataracts and contact lens intolerance. "That third point hits very close to home as both of my parents were prescribed XDEMVY after recent visits for 2 different conditions. My dad came in for a cataract surgery and my mom with a stye." During their visits, they were both diagnosed with DB. This expanding clinical recognition is being further amplified by our direct-to-consumer or DTC efforts, which are bringing new patients into offices, many of whom are asking for XDEMVY by name. With patients proactively asking to be screened for DB, broad access and a best-in-class platform and sales force, these strong tailwinds are propelling the next frontier of growth, and we are just getting started. Aziz and Jeff will share more proof points later in the call, but suffice it to say, we are very pleased with the ongoing depth of adoption across multiple DB patient segments. Turning to our pipeline, the progress we've built with XDEMVY gives us tremendous confidence in the trajectory of our next potential category-creating opportunity, ocular rosacea. This is yet another area of uncharted territory that ECPs emphatically told us was a significant area of unmet need. Listening and working closely with ECPs to fully understand the needs of the patients has been foundational to our success at Tarsus, and that partnership is guiding the design of our Phase II trial, which we plan to initiate by year's end. Additionally, we see ample opportunity to expand globally, including in Europe and Japan and to advance our Lyme disease prevention program, which represents yet another opportunity for category creation. We have built remarkable momentum and as you will hear from Jeff, we continue to outperform the eye care market, and we believe Tarsus is positioned to become the next leader in eye care. I am so proud of our team for setting a new standard in treating Demodex blepharitis, and we're applying that same innovation mindset to conditions that have been underserved for far too long. We know what it takes to create a market, shift behavior and deliver long-term value, and this is just the beginning. As we look ahead into 2026 and beyond, we expect this powerful momentum to carry forward as we continue to expand our pipeline and increase our impact, setting us up for years of potential tremendous growth. With that, I'll now turn the call over to Aziz. Aziz Mottiwala: Thanks, Bobby. Echoing Bobby's comments, it's incredible to see our evolution and truly inspiring to know we've helped nearly 400,000 patients with XDEMVY, and we're just getting started. With an estimated 25 million Americans living with Demodex blepharitis, we believe we've only just begun to unlock the full potential of XDEMVY. As more physicians move from monthly to weekly and from weekly to daily prescribing, we're seeing a true waterfall of utilization that demonstrates increasing confidence and expanding reach across patients. I'll share more specific metrics in a moment, but the traction we're seeing gives us great confidence in the durability and scale of this launch and the blockbuster plus potential of XDEMVY. In the third quarter, we recognized approximately $119 million in net sales and delivered more than 103,000 bottles to patients, both up double digits from the second quarter. That kind of growth really stands out in a quarter when most eye care products experienced softer volumes as evidenced by the sequential declines in new prescriptions seen across several other branded interior segment medicines. Our results this quarter reflect not only strong execution, but continued validation from the field, a sign that XDEMVY is becoming a trusted part of daily eye care practice. So let's get into the details. Last quarter, we shared that more than 20,000 eye care professionals have now prescribed XDEMVY and that approximately 5,000 were prescribing weekly. This quarter, I'm thrilled to say that the number of weekly writers has increased by approximately 20% and the number of ECPs prescribing more than once a week has increased by approximately 30%. This significant prescribing depth highlights how effectively XDEMVY is being integrated into changing practice patterns. Underpinning this increased utilization is an easy-to-diagnose disease, a best-in-class therapy, exceptional patient access and affordability, and educational efforts, that are empowering patients to ask for XDEMVY and ECPs to screen every patient. ECPs continue to tell us the same thing. XDEMVY is one of the biggest eye care breakthroughs in the past 2 decades. That comes down to 2 key factors: first, XDEMVY delivers outstanding clinical results; and second, our high-quality access is making it easier for them to prescribe and streamlining access for patients with many paying less than $30. We're equally as excited about our DTC campaign. It's delivering a positive return on investment that continues to grow. Furthermore, we've seen a 90% increase xdemvy.com website visits and a 42% relative growth in unaided awareness since last quarter. This engagement and awareness are correlating to more office visits, more physician diagnosis and more patients receiving XDEMVY. We're also seeing a positive trend in retreatment behavior, which is steadily building. More than 10% of weekly prescriptions are now refills, and that number climbs into the mid- to high-teens amongst our earliest patient cohorts. While ECPs report the consistent efficacy they see with XDEMVY, we know that might can return over time and as many ECPs are now beginning to set clear expectations that XDEMVY is part of long-term patient management, we continue to expect retreatments will stabilize around 20% over time, providing another important contributor to our sustainable and strong growth. This kind of momentum gives us real conviction that we're building one of the best launches in history. When you zoom out, our progress is striking. Demodex blepharitis is now recognized as a mainstream condition. Physicians are screening for DB more broadly and treating more confidently across the various patient segments. Retreatment is growing as XDEMVY becomes part of ongoing care and Tarsus has established a new standard in eye health. Our commercial engine is firing on all cylinders with awareness driving diagnosis, diagnosis driving treatment and positive treatment outcomes reinforcing confidence. It's a virtuous cycle fueling XDEMVY's path to our expectation of blockbuster plus success. In closing, I want to thank our incredible sales team. Their focus and execution is constantly setting a new bar and has been a key driver of our success. It's one of the largest and most experienced teams in eye care. And as Bobby mentioned earlier, it's just the beginning. With that, I'll turn it over to Jeff to walk through our financials and pipeline updates. Jeff? Jeffrey S. Farrow: Thanks, Aziz. Q3 was another tremendous quarter with XDEMVY generating $118.7 million in net product sales. To put a finer point on our results, we delivered double-digit growth in both prescription volumes and revenues in what, as Aziz mentioned, is typically a softer quarter across eye care due to holidays, vacations and fewer office visits. In the third quarter, we shipped more than 107,000 bottles to distributors and dispensed more than 103,000 bottles of XDEMVY to patients, above the top end of our guidance. Distributor inventory levels remained steady at around 2.5 weeks. As a reminder, we recognize revenue when XDEMVY is shipped from our warehouse to the distributors, not when bottles are dispensed to patients. Our gross-to-net discount was 44.7%, in line with the top end of our guidance and essentially flat to Q2, driven by 2 main factors: one, an adjustment to our accrual estimate for the Medicare Manufacturers Discount Program, or MDP, which was implemented earlier this year and added approximately 0.7% to the discount; and two, we saw an increase in Medicare patients entering the catastrophic category of coverage, where manufacturers bear a greater share of costs, a dynamic we expect to continue through year-end. Importantly, this gross-to-net performance reflects broad coverage and rising demand across a broader set of patients, especially Medicare patients, a key indicator of healthy, sustainable growth. It's clear our growth drivers are working in harmony, resulting in steady, weekly prescription gains, driven largely by new patient starts. For the fourth quarter, we expect XDEMVY net product sales to be in the range of $140 million to $145 million. While we continue to expect increases in weekly dispenses as compared to Q3, it is important to remember that fourth quarter demand is affected by several major conferences and holidays. Our Q4 guidance represents annual revenue of $440 million to $445 million, an amazing accomplishment at this stage in the launch. We also expect inventory levels to be consistent with Q3 at about 2.5 weeks; gross-to-net discounts to be in the range of 43% to 45%, driven by ongoing Medicare mix dynamics. Looking beyond 2025, we expect the gross-to-net discount to stabilize in a similar range. We are also expecting Q4 operating expenses to be higher than Q3, reflecting variable costs, tied to increased volumes and demand and an increase in our quarterly DTC investment, bringing our full year DTC investment to the top end of our provided range of $70 million to $80 million. Now, turning to our pipeline. Progress continues across all programs. We remain on track to initiate the Phase II study for TP-04 for ocular rosacea this year, with top-line data anticipated in 2026. We are excited about the potential to bring another category-creating medicine to millions of underserved patients. We anticipate beginning a Phase 2b study for TP-05, our oral, on-demand prophylactic for the potential prevention of Lyme disease in 2026. And we're continuing to evaluate strategic options, including partnerships that will enable us to advance the program efficiently and maximize long-term value. Likewise, we remain on track with international progress. Discussions with regulators in Japan are ongoing, and our preservative-free formulation in Europe remains on track for expected submission in 2026 with potential approval in 2027. Both represent sizable markets with significant unmet need and we're considering flexible commercial strategies from direct sales by Tarsus to partner models, leveraging third-party distribution. In summary, Q3 was another momentum-building quarter with strong execution, deeper adoption and meaningful impact across both commercial and clinical fronts. We anticipate this to continue into 2026 and beyond with a clear line of sight to blockbuster plus potential. Tarsus remains well-positioned to advance commercial growth, deliver key clinical milestones and pursue strategic opportunities that reinforce our leadership in eye care. We're proud of what we're building and even more excited about what's ahead. I will now turn the call back to Bobby for final remarks. Bobak Azamian: Thank you, Jeff. This quarter was a standout in every way, operationally, financially and most importantly, in the impact we had on patients. Doctors are changing how they practice. Patients are finding real relief and XDEMVY is now part of everyday care for Demodex blepharitis. As we look ahead, our priorities are clear, execute with excellence, broaden our pipeline, further our impact and continue building a company that defines what's possible in eye health. Operator, please open the line for questions. Operator: [Operator Instructions] While we are waiting for the Q&A roster, I will pass the call to Bobby. Bobak Azamian: Thank you. I'd just like to highlight a couple of things before we get into the Q&A. First, I am so proud of our progress to date, 8 quarters of growth, 147% year-over-year growth in Q3 is just phenomenal, and we see no end in sight to this growth. And that speaks to the power of category creation, which is what Tarsus is all about. We've talked about 2 pipeline programs already that have the potential to do that in ocular rosacea and Lyme. Looking forward to your questions. Operator: And our first question coming from the line of Andreas Argyrides with Oppenheimer. Andreas Argyrides: Congrats on the impressive progress in the quarter. You mentioned in the prepared remarks that doctors are changing their practice patterns and broadening their use of XDEMVY across a wider range of patients and partly due to the meibomian gland disease data. Can you just elaborate on what changes you're seeing and how broader use translates to the lift you are seeing in prescriptions? Aziz Mottiwala: Yes. Thanks for that question. Really insightful when we talk about how the evolution of prescribing has progressed over the last several months. I think there is a few things to look into here. One is the broad base of prescribing that we highlighted last quarter that continues to grow modestly. I think the real opportunity here is the depth of prescribing we're seeing, which we highlighted in the prepared comments, where you're seeing the increase of 20% in our weekly prescribers, 30% of those who are writing multiple times a week and I think that's great evidence that they are changing their patterns. And we do see the MGD data as one of those drivers. I think it underpins almost every single patient that comes through the door, because what the doctors think about now is who should I be screening for Demodex blepharitis. And as they start their journey, they typically think about the obvious patient. But when they get more experience, they start thinking about other patients, their dry eye patient, their cataract surgery patient, their MGD patient, their contact lens patient. And MGD is such a prevalent disease that it helps the doctor think about the value of treatment beyond just MGD, but also in patients that have DB and other comorbidities. So for example, one of the data points there is fluctuating vision. So, if a doctor says, "Wow, DB can impact fluctuating vision, I might want to think about screening my cataract patients where post surgically, I want to avoid those visual fluctuations." So that's an example where doctors will have that progression. And then what will happen is they'll start to screen, say, their premium cataract patients, and then they'll expand to all of their cataract patients. And that's an example of how you see a doctor progressing from trial to weekly prescribing to being in that 30% growth bucket of writing multiple times a week. And as Bobby mentioned, we're at the conferences lately, and that's something you hear pretty, clearly from the doctors that that's the progression. I try it here, I see great success and then as I get that experience, I look for other opportunities as well. Bobak Azamian: Yes. And I would just add to what Aziz said, I mean, what I heard from both optometrists and ophthalmologists is just that doctors are finding that XDEMVY works great, they find more and more reasons to treat patients with DB based on the data and the different comorbidities and I'm just really astounded by the 20,000-doctor figure. We've really broadened the audience for this, and I hear new doctors saying, "Wow, this is one of the best medicines I've seen." And so it's wind in our sails, and it's reasons why we think the growth is going to continue for a long time. Operator: Our next question coming from the line of Eddie Hickman with Guggenheim. Eddie Hickman: Congrats on the performance this quarter. Just a few questions for me. With regard to the refill rates, do you have any sense of the average time between initial filling and first refill? Is this within your expectations that these patients are coming back the next year, or are they coming back sooner? And what are you doing to keep those early adopters coming back at a minimum year after year? And then in light of the growth trajectory that you're seeing and guiding for, are you updating your internal peak sales estimate for XDEMVY? Aziz Mottiwala: Yes, Eddie, thanks for that question. I'll take the first part, and I'll let Jeff handle the second. When it comes to refills, I think, we're seeing a real positive trend here. We highlighted this last quarter and we provide a little bit more color this quarter, right? So when you look on a weekly basis, we're seeing just over 10% on a weekly basis in terms of what's a retreatment or refill versus the total volumes. And when you look on a cohort basis, meaning if you look at patients that were treated, say, a year ago, what they're getting, it's about in the mid-teens in terms of the retreatment rate. Both of those numbers are progressing positively and in line with our expectation that we could get to a 20% annualized retreatment rate. So, right where we think it should be and progressing nicely towards our expectations. What are we doing to maintain that and to continue that trend? There is a couple of things. I'd say, first and foremost, is education with the physicians and the patients that this is a chronic disease, XDEMVY works exceptionally well at getting rid of the disease acutely, but these might they do come back, and we do share with them the data of recurrence from our pivotal trials. And that encourages the doctors to put together a protocol where they're bringing the patients back. What that behavior looks like for each patient is a little different, some doctors are a little bit more proactive and they may say, I'm going to bring you back every 6 months. Some doctors will say, I'll wait until your annual exam. So I don't know if we can give you a precise average time, we look at different metrics, but that metric is moving as more doctors establish their protocols. I think the takeaway there is that it's moving in the right direction and in line with expectations. The other thing that we are doing is ensuring that our pharmacy distribution network is really helping those patients stay on therapy. So there is reminders that go out that second script is typically easier for the patient because they already have a report established at the pharmacy, they've already got all their information in the database, et cetera. So we've really streamlined the process, not just for patients to get the initial treatment, but also for those follow-up retreatments that are inevitable. So physician education, streamlined patient experience is going to continue a positive and in line trend that we expect. Bobak Azamian: And I'll just add to that. I mean what I heard at the conferences was there's all sorts of different reasons people are getting refills, some patients, the doctor deems that they need a refill when they follow-up after the first treatment, of course, course of treatment. Others like my mom, they come back a year later and they have a new stye and they're seem to have DB again. So that is one thing that I think we can elucidate further through evidence among other areas, we're going to continue to study to fully describe what XDEMVY can do. Jeffrey S. Farrow: Eddie, it's Jeff. Just to address your question on the peak. Look, we are thrilled with how we performed this third quarter, particularly when we look at some of our peers who were flat to down in terms of growth. We saw very robust growth in the third quarter, and we continue to expect to see fourth quarter growth. We're constantly evaluating our peak potential here, and I think, we still believe that this is a blockbuster plus potential. We're not ready to quantify that at this point, but we're continuing to see the sort of continued growth of this opportunity, and we expect next year to be a nice robust growth as well. Operator: Our next question coming from the line of Bhavin Patel with Bank of America. Your line is now open. Jason Gerberry: This is Jason on for Bhavin. With respect to TP-04 in the Phase II ocular rosacea, do you still need an FDA meeting before you start that trial? Just wondering where you stand with FDA alignment before starting that. And then just thinking to 2026 and just the general operational spending needs of the business, I wonder if you can give a little bit of insight there, that would be helpful. Seshadri Neervannan: Jason, this is Sesha. Thank you for that question. With regards to the TP-04 study, no, we don't need another FDA conversation. We had a very robust and productive conversation with the FDA on the program sometime back as we had reported. And we are progressing towards starting a trial later this year. More details to come on the study itself. Jeffrey S. Farrow: And Jason, with regards to your OpEx for 2026, we more or less think about it being in line with what we had spent here in 2025 in terms of the SG&A spend. We expect OpEx to reflect the $70 million to $80 million DTC spend. The only thing I would highlight is there is a variable component, the more we sell, there's a certain aspect that will drop to the SG&A line there. The second aspect is the ocular rosacea program that you talked about, we previously guided to $7 million to $10 million between 2025 and 2026. We still believe that's the right amount. And then the other area that could potentially add some OpEx spend that we're still evaluating whether we're going to move forward whether or not is the Lyme disease program Phase IIb study. So stay tuned on that one. But right now, I would think about those as the key components for OpEx for 2026. Operator: And our next question coming from the line of Andrea Newkirk with Goldman Sachs. Andrea Tan: Sesha, maybe another question for you, just following up on the last one regarding the TP-04 study in ocular rosacea. Can you just provide an update where things stand with developing the assays? And then do those need to be validated with the regulatory agencies before you're able to initiate the Phase II study? Seshadri Neervannan: So the study preparations are ongoing as we expected. We are developing the scales in collaboration with our strong partnership with the ECPs. At this point, the FDA doesn't require validation per se, but we are obviously in conversation with the FDA and FDA gave us input earlier, as we had reported in our previous conversations. And so, we are progressing as planned. Operator: And our next question coming from the line of Lachlan Hanbury-Brown with William Blair. Lachlan Hanbury-Brown: First one, maybe, Jeff, just curious on the change from guiding to revenue from bottles. What was the thinking of the rationale behind that? And then second, maybe for Aziz, you've talked about wanting to see multiples of ROI on DTC, and it sounds like over the past few quarters, you've been seeing that, you've been seeing a pretty good impact. So kind of curious to think or to hear how you think about where you are in sort of reaching the peak effect of DTC and how much more impact is left there? Jeffrey S. Farrow: Lachlan, it's Jeff. We evaluate, and I think we've mentioned this in the past on a quarter-by-quarter basis whether and what we're going to provide for guidance. And I think one of the reasons we held back on providing revenue guidance in the sort of past has been there has been some data points that we wanted to see evolve. And I think we've seen those data points evolve and in particular, the DTC impact. And so, I think we've got that behind us now. So our decision was to provide revenue guidance granted in the fourth quarter here understandably makes it a little bit easier, but we did feel it was the right time to do it. Aziz Mottiwala: And in regards to DTC, I think, this has been a really exciting part of the launch, it had a really profound effect. I think before getting into the mechanics here, I think, a couple of things to highlight are the impact it's having, right? You're seeing the growth in awareness, the growth in website visits. Those are directly translating into prescriptions. Patients are getting more easily identified. You're hearing from doctors at all the meetings that patients are coming in proactively asking to be screened. When doctors make the diagnosis, that discussion with the patient is more streamlined. So there's a lot of color that's happening there that's really enabling us to have such an impact. And what we stated in the prepared comments is we're now experiencing a positive ROI. And I'll remind you, in the past, we've said that it takes a handful of quarters to get to that ROI point. So we're progressing really nicely. I go so far as to say that we're even ahead of schedule from what we expected early on. In terms of reaching the peak potential, I think, there is still a lot of room to see increased ROI from the DTC, right? We have a very high threshold. We want to see multiples, and we're seeing a positive ROI, we're trending slightly ahead of what we'd expect in terms of that impact, and that's reflected in the results here. And I'd expect that impact to continue to scale into next year as we get more and more time with these patients getting exposed to the ad multiple times, the doctors enhancing their experience and I think when you stack that on with the physician experience being so positive, the access being great, our sales force being continuously in these offices, I think, there is a lot of room to grow our impact with DTC. And I'm really excited to see how that takes hold into next year. And I think as Jeff mentioned, we expect it to be a good growth driver for us into the next year as well. Operator: [Operator Instructions] Our next question is coming from the line of Cory Jubinville with LifeSci Capital. Cory Jubinville: Congrats on the update. I guess just sticking with the DTC ROI math, you said it was positive and growing ROI with a plus 90% site traffic, plus 42% unaided awareness quarter-over-quarter. Can you just translate that at all to what an estimated customer acquisition cost or payback period might be? And then sticking with that as well, you mentioned that you're likely going to approach the top end of the range for DTC spend in 2025. How should we be thinking about that in 2026 and beyond? Is there a point at which you dial back DTC spend? And if so, what goes into that decision? And how should we be modeling out that time line? Aziz Mottiwala: Thanks for the question, Cory. Yes, when it comes to DTC ROI, you can imagine we look at a lot of different metrics, and we're really thoughtful about what we share. I think the metrics that you're highlighting are really important ones. But as you can imagine, the ROI here is scaling and things are moving pretty quickly, right? So we're not giving a point estimate on those right now, because they'd evolve in the coming weeks, and we've seen the DTC ROI impact scale. When we say it's growing, it's scaling on a week-to-week basis as we make our investments. I think our focus right now is to continue to sharpen those investments. So you learn, right, which programs are the best, where do you get the best placements, where do you see the best response to these patients. So we're continuing to do certain things to drive and catapult that ROI and scale it even further. And I think as we get more to a steady state, we can provide some of those detailed metrics over time. But right now, I think, the emphasis is on really making sure that that investment is driving direct diagnosis and treatment, which we're seeing, which is fantastic. And I think the plan is to continue to invest in that space. I would expect for 2026, a similar level of spend to this year. And I think beyond that, we're going to evaluate it. I think as you get to a certain level of education where patients become aware to a certain extent, doctors are really establishing their protocols, you can think about maybe pulsing this seasonally or having a different schedule where you might be able to do this even more efficiently. But right now, I think it's still a great opportunity to invest in this to find that education and get those patients into the office, because we're still relatively early in the journey. We've only treated about 400,000 patients out of 25 million Americans that are out there. So still some good work to do, and I'm excited that the ROI is as positive as it is now, and I think we have a clear path to continue to drive that growth. Bobak Azamian: And I would just add, coming off the conferences, there were 2 themes of ROI at the clinic level that I heard. One was some patients are coming in asking for XDEMVY by name or asking, do I have mites? And the second, I think that's a real ease for the doctor as well as the conversation around mites has become more straightforward. Patients have heard of this disease. They say, okay, I saw that commercial. I know what you're talking about. So on the ground, tangible impact, and I think, the ECPs are pleased with the progress of that as well. Operator: Our next question coming from the line of Dennis Ding with Jefferies. Yuchen Ding: I'm going to ask a bit of a longer-term question, and that's on ocular rosacea. So what's the clinical, meaningful benefit on erythema, et cetera., in Phase II? And what are the various pushes and pulls on the magnitude of benefit either through disease severity or how refractory patients are to standard of care? And then number two, remind us what you saw in Phase II for papulopustular rosacea, if that could in some way help derisk ocular rosacea specifically, how similar are the underlying drivers of the inflammation seen in both that you feel like can be addressed with TP-04? Bobak Azamian: Ding, could I just clarify that before I pass to Sesha. The first question was what aspect of clinical meaningful benefit? Could you clarify, please? Yuchen Ding: Yes on erythema and whatever other endpoints that you guys decide to include in the Phase II? Bobak Azamian: The question is what level would be a clinically meaningful level? Yuchen Ding: That's correct. Bobak Azamian: Okay. Great. Sesha please. Seshadri Neervannan: Thank you, Bobby. And thank you for that question. So on the first point of the endpoints, talking to the ECPs and listening to our ECPs, the key hallmark features of the disease are prominent blood vessels that you see that we call telangiectasia in eyelids and eyelid margin. That is one of the key discerning and prominent feature of ocular rosacea as well as redness on the lids and the area around the eye, around the lids and it is called preocular region. So those are the key hallmark features of the disease, and we are really looking to establish the measures around those 2 particular aspects. And so these are features that develop over time, and we are looking to reduce the severity of these 2 measures, and that's our approach at this point. And in terms of the papulopustular rosacea, yes, papulopustular rosacea, we did a study, as you correctly pointed out, some time back. And we had very good results in the key measures for papulopustular rosacea. In fact, the approvable endpoint -- the regulatory endpoints for that indications are lesion improvement, as well as a composite endpoint of investigator-grade assessment. And we actually had very robust, statistically significant improvement in both those measures over vehicle in that particular study, which gives us a lot of confidence, as you mentioned. And we also measured erythema in that study where we also saw a reduction in erythema. And coupled with that, as you may recall, in our Saturn studies with XDEMVY, we also saw significant and meaningful cures, erythema cures, lid margin erythema cures for XDEMVY. So, we know the drug works in reducing redness. And so that is propelling our confidence in going into the study. Bobak Azamian: And I'll just add from conversations with the doctors, I think, from their perspective, any level of improvement in ocular rosacea is going to be meaningful. The telangiectasias can easily be seen by the doctors and the redness on the lids is what brings patients in. So as Sesha said, these are new measures, a pioneering study, and we're hopeful to see those type of reductions that will make a difference for doctors in these patients. Operator: Our next question coming from the line of Matthew Caufield with H.C. Wainwright. Matthew Caufield: Great to see the XDEMVY and pipeline progress. And thanks for taking our question. I was curious if there's any further granularity on the traction you're getting between optometrists compared to ophthalmologists and if the greatest untapped market and focus is among that optometrist population for potential prescriptions? Aziz Mottiwala: Yes, it's a great question. We see great traction with both ophthalmology and optometry. Historically, and even currently, we're seeing about 65% or so of the volume coming from optometry and the balance from ophthalmology. So a good mix, and that's been relatively consistent through the launch. In terms of the opportunity, I think, both audiences are really important to us. I think optometrist does a lot of the in-clinic work, there are some practice dynamics that are very favorable to optometrists here that, I think, they're capitalizing on in terms of being able to have patients stay in the practice, switching to medical insurance to treat a medical condition with Demodex blepharitis. So these things are really important factors for the optometrists. We obviously focus a lot of our sales time and educational efforts with those optometrists, but we also spend a lot of time talking to the ophthalmologists. And for ophthalmologists, cataract patients are their bread and butter. And that is a core segment for us where we see a high prevalence of Demodex blepharitis, and we know that, that inflammation and irritation of the disease can impact their surgical outcomes. So they're very motivated to screen these patients, to find these patients and to make sure that they're getting a clean, healthy eyelid around that surgical outcome. So I think great trends on both. When you look at top prescribing, there is a good mix of both ophthalmology and optometry. And our focus going forward will continue to be educating the optometrists directly and also providing that right emphasis on ophthalmology as well. So I think they go hand in hand. And I think the great thing here is that we're seeing great results from both. And as Bobby mentioned, we just came back from back-to-back academy meetings. And I can tell you, while the practice dynamics might be a little different, the one thing that you hear consistently from both ophthalmologists and optometrists is, one, the top users are saying they're still finding incremental opportunities to utilize XDEMVY. And 2, sort of rank-and-file users are having a great experience, and they're very encouraged with the ease of access, which is really opening their aperture to think about a broader set of patients. Both of those types of feedback are really encouraging for the future potential for the brand going forward. Operator: And there are no further questions in the Q&A queue at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Hello, and welcome to Ouster's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] The call today is being recorded, and a replay of the call will be available on the Ouster Investor Relations website an hour after the completion of this call. And with that, I'd now like to turn the conference over to Chen Geng, Senior Vice President of Strategic Finance and Treasurer. Chen, please go ahead. Chen Geng: Thank you, operator, and good afternoon, everyone. Thank you for joining our third quarter 2025 financial results call. Today on the call, we have Chief Executive Officer Angus Pacala; and Chief Financial Officer Ken Gianella. As a reminder, after the market closed today, Ouster issued its financial news release, which was also furnished on a Form 8-K and is posted in the Investor Relations section of the Ouster website. Today's conference call will be available for webcast replay in the Investor Relations section of our website. I want to remind everyone that on this call, we will make certain forward-looking statements. These include all statements about our competitive position, anticipated industry trends, our business and strategic priorities, the development and expansion of our products and our revenue guidance for the fourth quarter of 2025. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause actual results and trends to differ materially from those contained in or implied by these forward-looking statements are set forth in the third quarter 2025 financial results release and in the quarterly and annual reports we file with the Securities and Exchange Commission. Any forward-looking statements that we make on this call are based on assumptions as of today, and other than as may be required by law, Ouster assumes no obligation to update any forward-looking statements, which speak only as of their respective dates. In today's conference call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures discussed today is included in the financial results release that was issued today. I would now like to turn the call over to Angus. Charles Pacala: Hello, everyone, and thank you for joining us today. I'll start with a brief recap of the quarter and review our strategic priorities. Ken will cover our financial results in more detail before I close with some final thoughts. Our third quarter results reflect the continued growth we are seeing across our business with revenue of $39.5 million, representing our 11th straight quarter of revenue growth. We set a new quarterly record with over 7,200 sensors shipped, bringing physical AI to life across multiple applications, including yard logistics and traffic intersections. Gross margin remained strong at 42%, and we ended the third quarter with $247 million of cash and equivalents and no debt. This performance further demonstrates our ability to convert pilot programs into large volume orders as we deepen our relationships across our diverse customer base. In our Smart Infrastructure vertical, we expanded deployments of Ouster Gemini and REV7 at logistics yards around the country, helping our customer improve throughput, efficiency and safety. We continue to progress with testing new Gemini AI algorithms at key customer sites during the quarter with the potential to expand use cases and more than quadruple the number of sensors per logistics yard. We also won new deals to bring Ouster BlueCity to additional intersections across Utah to enhance traffic flow, safety and operational efficiency. In our industrial vertical, we shipped a significant number of REV7 sensors to a leading global technology company as it continued to expand the use of autonomous mobile robots across its warehouse floors. Ouster's sensors are mounted on a variety of warehouse equipment, including AMRs, forklifts and tuggers, enabling our customers to detect and avoid nearby objects and helping heavy machinery to work safely in unstructured environments. We also secured a substantial order to supply REV7 to a large European industrial equipment manufacturer, which is upgrading the sensor stack on its next-generation electric mining trucks. These trucks are part of an autonomous haulage solution that increases safety, productivity and efficiency while producing 0 greenhouse gas emissions during operation. During the quarter, we delivered REV7 sensors to support the continued expansion of Serve Robotics last-mile delivery fleet across the United States. Last month, Serve announced its 1,000th robot deployment compared to an average of 57 active daily robots in the fourth quarter of last year and expects to reach 2,000 robots in service by the end of this year. Serve is a prime example of Ouster's engagement with companies that are rapidly accelerating from initial testing to commercial deployment. Turning to our 2025 strategic priorities. We progressed across all 3 key focus areas: one, scaling the software attached business; two, transforming the product portfolio; and three, executing towards profitability. Our software attached business gained traction during the quarter. Yard logistics was a key driver of demand, and we also won a deal to deploy Gemini for crowd management solutions at major tourist sites and large events in South Korea. More customers are recognizing the benefits of our Lidar solutions, and we won pilot deployments for intelligent perimeter security, spanning energy and industrial sites, Tarmac, data centers and defense facilities across the world. In September, we announced a strategic partnership with Constellis, which now offers a unified security solution enabled by Ouster Gemini and Ouster Digital Lidar. By investing in AI perception, Ouster has built a core platform to enable our customers to develop targeted market-specific applications. With Gemini, Constellis can provide real-time analytics, threat classification and automated response protocols to bring physical AI to advanced security operations. Constellis' operational expertise and global network positions us to rapidly advance Gemini for critical and large-scale security operations. In the ITS market, I'm excited by the continued growth of our Ouster BlueCity solution, where we won large deals in the U.S. and Canada. We continue to expand our distribution network and signed 7 new exclusive partnerships to bring BlueCity to additional states, including Illinois and Missouri. We are proving the value of AI-powered Lidar to state and local governments across the nation, and our Blue City partnership network now covers the majority of a nationwide market of over 300,000 signalized intersections. We also brought on a transportation integrator in Europe following a successful pilot deployment in Brussels. These partnerships in conjunction with expanding our BlueCity bundles to provide customers with more setup options are key actions to support the continued growth of our software solutions. Moving to the product portfolio. We continue to make major investments in retraining our AI algorithms on an ever-expanding corpus of field data. In the third quarter, these efforts delivered better detection accuracy at longer ranges and higher vehicle speeds to support use cases like tolling and highway monitoring. We also released real-time localization or RTLS, in our Ouster SDK. RTLS empowers our customers to understand the position of their assets with centimeter level accuracy, enabling features like geofencing, automatic speed limit enforcement and custom go/no-go zones. In addition, Lidar-powered RTLS significantly reduces the investment and infrastructure required by legacy sensors. Our team continued to progress with testing and validation of our next-generation L4 and Cronos custom silicon. These investments will unlock major performance, security and reliability improvements for our OS sensors and become the backbone of our solid-state digital flash line. The innovations from this next phase of our product roadmap are expected to more than double our current addressable market and are the most profound investment in our product roadmap to date. Finally, I am proud of our team's consistent execution towards profitability as we deliver record results in the third quarter as we remain on track to meet our long-term financial framework. I'll now turn it over to Ken to cover our financial results in more detail. Kenneth Gianella: Thank you, Angus, and good afternoon, everyone. I want to open my comments by noting that since joining the company in May, I have witnessed firsthand the incredible dedication and laser focus on execution towards our 2025 company goals that Angus discussed, and I'm excited about the opportunities in front of us. Now turning to third quarter financial performance. As Angus noted, our results reflect the underlying strength in our business. Revenue of $39.5 million was a record, representing growth of 41% year-over-year and 13% sequentially. We delivered more than 7,200 sensors, which also represented an all-time high. As a reminder, we do expect a level of fluctuation of volumes on a quarterly basis as it is largely dependent on meeting our customer delivery and timing needs. Smart Infrastructure was the largest contributor to the third quarter revenue, followed by roughly equal contributions from our robotics and industrial verticals. GAAP gross margin of 42% increased by 4 points compared with the third quarter last year and reflects the benefits of steadily increasing revenues and product mix, offset by continuing tariff headwinds. While our gross margin performance has been strong this year, we maintain that 35% to 40% is an appropriate long-term annual gross margin target for the business. Next, GAAP operating expenses were $41 million in the third quarter, up 7% over the prior year. The increase was primarily driven by investments in R&D to support the new product development cycle. As I mentioned last quarter, we remain focused on managing our operating expenses, but anticipate there will be variability on a quarterly basis, largely due to the timing of investments in our innovation and go-to-market expansion. Adjusted EBITDA was a loss of approximately $10 million, flat year-over-year and a decline of $4 million sequentially. The sequential decline is primarily due to a favorable employment tax refund we received in the prior quarter. We are pleased with our ability to drive growth and have the operational capacity to meet our customers' needs. Creating strategic and operational flexibility for the company to innovate and grow as we continue to execute towards profitability remains a top priority. Our balance sheet is one of the strongest in the industry, which is important for our customers as they depend not only on the long-term support of our products, but also our long-term financial security as a key supplier. We ended the quarter in a stronger position with cash, cash equivalents, restricted cash and short-term investments of $247 million. This includes approximately $35 million of net proceeds from our ATM. At September 30, we had approximately $4 million of authorization remaining on our ATM. Moving to guidance. For the fourth quarter, we expect to achieve revenue between $39.5 million and $42.5 million. Thank you for your continued interest in Ouster. I'll now turn the call back to Angus for his closing remarks. Charles Pacala: Thanks, Ken. Ouster has a strong financial foundation, a robust distribution and partner network and a diverse customer base of emerging and world-class companies. Ouster is at the forefront of technology that is reshaping how the world engages with the physical environment. Our physical AI solutions are helping deliver improvements in safety and efficiency across a wide range of industries. All of this, coupled with our cutting-edge product roadmap positions us well to further accelerate the adoption of physical AI. With that, I'd like to now open up the call for Q&A. Operator: [Operator Instructions] Our first question today comes from the line of Colin Rusch with Oppenheimer. Colin Rusch: Can you talk about where you're at in the testing process with the Rev8 and the Cronos offerings? Would love to get a sense of kind of how that testing is going. Any sort of concerns or kind of accelerations that you're thinking about with the platform given the potential growth and addressable market here? Charles Pacala: Colin, thanks for the question. So we really try not to talk ahead of the release of our next-generation products other than to make sure that it's clear that we remain incredibly committed to the investments we're making in the digital Lidar portfolio. So our L4 chip, the Chronos going into the DF platform, these are things we talk about each and every earnings call because they're still the biggest source of investment that we have at Ouster and because of all the promise, the importance of these products to the future expansion of Ouster's business. So the points that we've made in the past and we continue to make on this earnings call, a doubling of the overall TAM the most significant set of products -- hardware products in Ouster's roadmap in Ouster's history, all remain true. We're incredibly committed and focused to getting these products out as soon as humanly possible. But beyond that, I'm going to just leave it at that. Colin Rusch: Okay. Fair enough. And then as you work through the design cycle with your customers, and we know that there's an awful lot of customers you guys are working with. There's a lot of innovation happening in industrial hardware design. Can you talk a little bit about the cadence of those programs moving forward? We know that you have a number of wins and moving from kind of smaller volumes into more series production, particularly with some of the off-road vehicles. But what you're seeing in terms of just the cadence of design cycles, the adoption rates, any sort of win rate data that you can share? I would love to get a sense of how that's evolving here. Charles Pacala: Yes. I mean so we have over 1,000 end customers. And one of the points that we've made and one of the kind of bright spots about Ouster's promise of the future is that there's a small minority of all of the high-quality customers that we have that have actually reached full-scale production and commercial release of their products that are built with an Ouster Lidar inside. And so that means there's immense opportunity in our existing latent customer base for tranches of these customers to go from development all the way to commercial lease. And we mentioned on the call, Serve Robotics, a great example of a customer that shows how the volumes shift from a kind of development, small-scale pilot style production where they had 57 robots deployed with our technology, if you look back a year or so ago. Now they're on track to have 2,000 robots deployed with our technology in the next couple of months. So that kind of fundamental order of magnitude shift is a big part of our growth strategy for the foreseeable future. And a small fraction of our overall customer mix under 10% is actually in that full-scale production. So -- and -- but one of Ouster's core kind of muscles that we've built on the commercial side is our ability to support our customers developing these challenging new technologies and close gaps that maybe we have better expertise closing than our customers do, either on the hardware or the software that processes our Lidar technology so that we're getting customers to market faster and they're seeing that we're a valued partner in that process versus just a hardware supplier. So I think there's a lot of -- yes, there's a lot of kind of goodwill and deep partnerships that we've built along the way. And we're continuing to do that. It's something that our customers value at this point. Operator: And our next question comes from the line of Andres Sheppard with Cantor Fitzgerald. Anand Balaji: This is Anand on for Andres. Congrats on the quarter. With the rapid acceleration of self-driving vehicles, both passenger and commercial vehicles, do you guys expect to pursue this vertical a little bit more aggressively going forward? I know it wasn't as much of a focus this quarter. But are you looking for any major OEM agreements? And what would be an ideal candidate? Because it seems like most companies with the exception of Tesla are really reliant on Lidar for this. Charles Pacala: Yes. Thanks for the question, Anand. So I mean, it's -- first, it's great to see the renewed kind of resurgence and interest around self-driving vehicles. A lot of this is because of the advancements that Waymo has made in really providing commercial service to customers out here on the West Coast and in Texas and Arizona and then also some of the advancements from Tesla. So -- it's great to see this. Ouster already has some really strong partners in this area. We're talking about robotaxi specifically, Motional and May Mobility, both are strong Ouster partners. We've seen a lot of great partnerships that May Mobility has been inking with -- to build their customer base and actually expand their commercial robotaxi deployments. So Ouster already has some of these great customer relationships. When it comes to the OEMs and kind of direct OEM integration of this technology into a car you and I can buy, that's where I have tempered expectations in the past, just basically because of the long time horizon for OEMs directly integrating self-driving technology into the cars that you and I can buy. That's largely because of technology difficulties on the OEM side versus like the readiness of compute and sensor technologies that Ouster is responsible for. So -- but on that latter point, we're absolutely interested in this space. What I've always said is it's important to have the right products with the right -- at the right point in time for that adoption to happen. I think a lot of things are converging. We have put a lot of investment into the DF and the future products on that internally at Ouster so that, again, we have the right product at the right time for this massive opportunity in direct OEM integration. So definitely interesting to us in the future, something I've tempered in the past, but I think the stars are aligning in the next couple of years here. Anand Balaji: Got you. That's helpful. Just switching gears a little bit. I guess, for the past few months, the elephant in the room has been the Blue UAS certification. So I was wondering what are maybe some of the most recent updates related to that? And if you could potentially give us any granularity on sensor shipments? Or if not, do you continue to believe that you have a moat in this segment? Or are you seeing more competitors pursuing this now? Charles Pacala: Yes, specifically asking -- so for those listening on the call, the Blue UAS certification was really -- it was a certification for using Ouster's Lidars on defense DoD use cases and payloads, specifically for drones. So the common use case here is -- or the traditional use case for Lidar on drones is a surveying payload, surveying and surveillance payload. Ouster is a robust business as a surveying payload on drones already and the UAS announcement made us the first DoD Blue UAS certified company in the mix. And it's definitely a boost for our business. We're not splitting out specific sensor volumes, but we do see inbounds from customers that are interested in making sure they're operating certified payloads. And whether or not, sometimes it's because the end customer is a DoD customer. And sometimes the end customer isn't, but values the fact that we're using a certified American-made technology. So definitely a bunch of benefits there. I think we do have a moat. We're the first -- we're certainly the first mover in this space. And we have a great set of products that apply really well, small form factor, super high resolution, robust Lidars that don't weigh a lot. And all those things make sense if you want to put these on a small form factor drone like the Blue UAS certification is positioned for. So yes, not splitting out any specific numbers, but definitely a benefit to our business. Operator: [Operator Instructions] And our next question comes from the line of Madison de Paola with Rosenblatt Securities. Madison de Paola: This is Madison calling on behalf of Kevin Cassidy. I was just wondering with so many customers moving from prototype to production, what steps are you taking to mitigate potential supply chain constraints that could impact growth? And just as a follow-up, what's the long-term target for BlueCity's attach rate? Charles Pacala: Well, let me start with the latter first. Thank you, Madison. The bigger thing is we're not breaking that out and giving the long-term target. It is part of our overall robotics and industrial outlook that we have already. So if you just stick with those growth rates that we talk about, that's the majority of what would be covered there. Turning to your first part about capacity. One of the things we've done very well. And if you look at the growth just these last 2 quarters, we set 2 record quarters of shipments pretty much quarter-over-quarter, our sensors grew year-over-year for this quarter alone was 85% and quarter-over-quarter from last quarter to this quarter is a 31% growth. So having that capacity is very important to us as we continue our growth journey. So part of the capital investments we make aren't just strategic. It's also financial flexibility. What's important for us is meeting our customers' scheduled demands because while we pride ourselves on the continued growth, our customers are growing just as fast. And so, we have to have the capacity to deliver their needs so they can meet their customers' needs. So we will always be investing in capacity to ensure that we can meet the customer demands. Operator: And our next question comes from the line of Richard Shannon with Craig-Hallum Capital Group. Tyler Perry Anderson: This is Tyler Anderson on for Richard. So Amazon has been talking about adding a lot of robots in the future and including the humanoid robots, do you think there's going to be a benefit to you from this? I have seen some pictures of robots that look similar to yours. And how would they show up in bookings when that starts moving forward? Is this something that takes a long time that needs to be built out? Just any way to think about that would be helpful. Charles Pacala: Yes. It's a good question, Tyler, because this is a fast-evolving space. I'm amazed how many humanoid robotics companies have been announced in the last year. Overall, definitely a great thing for us. Humanoids need sensing technology like any other robot and Lidar is the best possible sensor you could put in the mix. And we already have some customers that are using our Lidars in their humanoid robotics platform. So definitely good news there. You would see -- the way that's going to impact our business is it would boost our robotics vertical, right? That's where this would fall into the financials or the financial performance of the company. I'd say it's still early days, like there aren't thousands of humanoid robotics -- humanoid robots that are deployed at end customer sites right now. It's a prototyping environment. So I don't expect it to be a big impact, positive impact on Ouster's business for the next year or so, foreseeable future. But this is all about laying the groundwork for a future tranche of customers to reach commercial deployment just like what we've seen with some of our other verticals happening all the time. So we love investing in new customer sets. I think the humanoid thing is interesting, but I think it's going to take a couple of years to play out. Tyler Perry Anderson: Great. And then you mentioned something about a majority of intersections, about 300,000 in the U.S. Is this the total addressable market that you're speaking to? Or is this something that you already have plans and that's moving forward with business in hand? Just want to get a look at that. And then also, is there any way that you could categorize the attach rate for your traffic data? Charles Pacala: Yes, absolutely. So what I said was that we had signed exclusive partnerships and distribution partnerships that covered regions for the majority of signalized intersections in North America. There are about 300,000 signalized intersections in North America. That's the total addressable market. But I think it's a market that we can largely go after aggressively today. BlueCity is a best-in-class intersection -- intelligent intersection product. It can cover a wide swath of the use cases today. We haven't quantified exactly how many of those 300,000 intersections exactly that BlueCity can go and capture, but it's a significant fraction. And a major impediment to going and addressing that market is just having regional partners that we can sell through that can support the end customers, not just in installing the technology upfront, but also supporting them for the long term. It's important that a municipality has support on their traffic infrastructure for many years to come. So we have a lot of inertia there. We announced 7 new exclusive partnerships. And so overall, we are -- we have partnerships that cover the majority of the North American market. When we're talking about attach rates, BlueCity is by default, a software-attached product. You cannot just buy sensors and you cannot just buy software. You have to buy the whole complete solution that goes turnkey onto your intersection. So I wouldn't -- every BlueCity cell has an attach rate of 100% for Lidars, has an attach rate of 100% for a software component. So it's more -- what we're seeing is that we're growing pretty fast in this market. Smart Infrastructure was our biggest vertical this quarter. And so my goal is instead of looking at attach rates per se for BlueCity, it's looking at the growth rate for BlueCity versus the rest of our business. I think there's some early signs that there's some really positive fast growth happening there. Operator: [Operator Instructions] Our next question comes from the line of Casey Ryan with WestPark Capital. Casey Ryan: Great quarter. We've talked a little bit about defense. I just wanted to get your perspective on that as a vertical because I think there's a lot of focus on drones. But as a company, do you guys define it as maybe being service-wide, meaning potentially all vehicles could sort of use automation? And as part of that, do you see sort of a retrofit opportunity as being potentially significant in addition to new weapons platforms and vehicle platforms? Charles Pacala: Thanks, Casey. It's a thoughtful question. So the defense market is incredibly diverse. I think that's the first thing to acknowledge. And there's legacy vehicles already deployed in the DoD. There are traditional defense contractors. And then there's this new tranche of kind of faster-moving start-ups in the space. Ouster is really focused, I would say, on the non-retrofit opportunities, working with the traditional defense industry or the new players. And yes, I think that the retrofit opportunity may be not something that we're tracking. But overall, like there's a big opportunity here, but with, I would say, an unclear timeline to the scale where this is deployed universally on these vehicle platforms. I do think that that's where it goes. Automation is good in this -- no matter what in this industry. But it's going to take quite a while, I think, to field this technology in a big way. But there's some promising first -- places where this is useful even today. So Blue UAS surveying platforms, great example. It's not automation, it's surveying. That use case ready today, being widely deployed and used, great for Ouster's business. Automated systems operating in the field in life or death situations, there's a very high bar for fielding that. And I think it's going to be a couple of years before that's a major impact on Ouster's business. But Ouster is as well positioned for this industry as anyone in the world. Casey Ryan: Okay. Terrific. That's a very thoughtful and helpful answer. Very quickly, there's the potential for DJI to be blocked, I guess, for U.S. shipments. Could you see that having an impact to your commercial opportunities because I think DJI obviously dominates market share in the U.S. for people who are using commercial drones for businesses and things like that. But I wonder if we should associate sort of a blocking as being positive somehow for Ouster in terms of serving domestic manufacturers. Charles Pacala: Yes. I think that maybe there could be a positive impact on just the general awareness on where customers are sourcing critical technology in their supply chain. So the scrutiny of DJI, it's an adjacent market to us. But I think more would be around the general kind of perspective on strategic supply chains and knowing who you're buying from and maybe there's some bleed over that benefits our business. So net-net, a little bit of benefit for Ouster. Operator: And our next question comes from the line of Tim Savageaux with Northland Capital Markets. Timothy Savageaux: Congrats on the results. I might have dropped off there for a second. So sorry about that. My first question is you called out Serve Robotics as a kind of an example of the deployment of technology and volume. I wonder, we've seen some work. You obviously just did a deal with DoorDash for Los Angeles. There are some estimates that L.A. by itself could take 10,000 robots. As you look at the scale of this opportunity, is that something that's significant in terms of potential growth drivers, whether it's last mile delivery in general or Serve in particular that you're focused on? Charles Pacala: Yes. Serve Robotics is -- I think they're having their Waymo moment, right? It's been many years of wondering, is this market -- is last mile delivery viable as a business, is it ready technologically for the prime time. And they've stuck to their game plan of making the technology and the commercial strategy work. And here we are with them now moving to orders of magnitude greater deployments. So kudos to them. I think that they're -- that's the best evidence that this is a real market with -- well, not just a real market with real demand, but that it's a viable market now. So it's easy to be skeptical and pessimistic and people were of Waymo and then they kind of scaled by orders of magnitude and now everyone is a true believer. I think that's what's happening with Serve, and I'm happy for it, both because they're a customer and because it also is like a harbinger of good things to come in the rest of the last-mile delivery market. Kenneth Gianella: I think I just want to add on there, too, Tim. It's a great proof point for our strategy of go-to-market, right? We across multiple verticals. It's just not a one vertical play. And Serve is just one of our thousands of customers who were in these early stages who scaled to success with their business plan and prevailed and gave us the opportunity to grow with them. So not just betting on one sector and riding that but having the foresight to go across multiple sectors and really work with these companies through their success, it's paying off for us now. Timothy Savageaux: Okay. And that's a good segue to my follow-up, which is, Angus, I think you mentioned sub 10% of your customer base having scaled into full production and I don't know how far sub-10%. But I guess if we look a little bit forward, I don't know whether it's a year or 2 and that number is 25% or 50%. What are the implications there for your overall revenue opportunity? Charles Pacala: Yes. I mean I'm pointing straight to our model of the 30% to 50% growth, right? When you look at how we're progressing with that and with that going into production, I mean, we've had some good tailwinds with margin lately, but I think that would keep our margins in that 35% to 40% on a GAAP basis we looked at. But we fully are looking at that ramp-up. That's where you can get towards the higher end of that 30% to 50% range. Kenneth Gianella: Yes. And I would say this is exactly the sub 10% in production is why we talk about Ouster being in the early innings or I think last quarter, we said we're still in the dugout. We're not even playing the game yet. So there's a long way to go and a lot of growth for Ouster to grow into our TAM numbers. We've put out TAM numbers. I think those are real in the long term. And -- but it just speaks to the confidence we have in hitting our 30% to 50% revenue growth for the foreseeable future. Operator: And I believe we have Tyler from Craig-Hallum with a follow-up question. Tyler Perry Anderson: Just a quick one. So thinking about your software business, are you -- or are customers able to use other sensors with your software? And essentially, could you be just overlaid in different use cases with your software for what people have already purchased? Charles Pacala: So short answer, no, you cannot use a different sensor with our software, and that's why it's a software attached business. We really always focus on the fact that we're selling systems BlueCity and Gemini combine our sensors with our software and in most cases, our compute as well. So software attached business. There are cases, though, where you can buy -- we have some customers, distributors that used to sell just Ouster Lidars, and now they're selling Gemini on top of those Lidars maybe after the fact to a certain set of customers. Maybe a customer thinks that they can write their own software for our sensors and realizes that after trying for a little while that Ouster has something more mature and they can sidestep a bunch of difficult technical issues by purchasing the Gemini software themselves. So we do have some cases there. But again, the end result is that the customer is running a software attached product solutions product from Ouster. Kenneth Gianella: Yes. And Tyler, I think the goal here for us is that software attach is buying the full system and perception and sensing fusion from us. The goal is that you would use an Ouster product set for your sensor and perception. And then once that software is integrated into your software stack, they can grow with us for generations because our -- we write this, so it's forward and backward compatible on the hardware elements that we sell. So regardless of the generation we're on, it gives us the flexibility. The other thing I would just add to that is if you start thinking about into the future, having that software attach rate, that makes us extremely sticky to our customer bases. So once you get in there, you want to provide not just quality service and quality products, but if you can provide a whole system and a platform that they can grow generation over generation, that's the ultimate goal of this play. Tyler Perry Anderson: Awesome. Just one more for me. So just thinking about the software and the model training, this is all traditional machine learning, correct? And is there any way -- or are there any customers that they're pulling for some kind of LLM or visual model capability that isn't traditional machine learning? Charles Pacala: I don't know if we've ever used the term traditional machine learning. I would definitely say that for this type of Lidar perception, we are using cutting-edge models, but they're not text models. So LLM is almost a misnomer for this industry. But we are using cutting-edge deep learning models in our products, trained on giant corpuses of annotated data that we've collected from the field. So true kind of cutting-edge fleet learning, true cutting-edge deep learning models used best-in-class in the perception space for Lidar. So yes, I think that there are ways we could augment our products with things like LLMs or maybe that the perception space will transition to transformers and LLMs. But the cutting edge is actually what we're using, and that's deep learning. Tyler Perry Anderson: Got it. And I meant traditional and non-transformer models coming from a data background. I was just trying to differentiate from that. Charles Pacala: Yes. Chen Geng: And with that, I would now like to say that Q&A is concluded. So I will hand it back to Angus for closing remarks. Angus? Charles Pacala: All right. Well, with that little discussion on LLMs, thank you all for joining the call, and have a great rest of your day. Cheers. Operator: And again, ladies and gentlemen, that concludes today's conference call. You may now disconnect. Have a great day, everyone.
Operator: Good day, everyone, and welcome to the Lumentum Holdings First Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] Please also note today's event is being recorded for replay purposes. [Operator Instructions] At this time I would like to turn the conference call over to Kathy Ta, Vice President of Investor Relations. Ms. Ta, please go ahead. Kathryn Ta: Thank you, and welcome to Lumentum's First Quarter of Fiscal Year 2026 Earnings Call. This is Kathryn Ta, Lumentum's Vice President of Investor Relations. Joining me today are Michael Hurlston, President and Chief Executive Officer; Wajid Ali, Executive Vice President and Chief Financial Officer; and Wupen Yuen, President, Global Business Units. Today's call will include forward-looking statements, including, without limitation, statements regarding our future operating results, strategies, trends and expectations for our products and technologies that are being made under the safe harbor of the Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations, particularly the risks set forth in our SEC filings under Risk Factors and elsewhere. We encourage you to review our most recent filings with the SEC, particularly the risk factors described in our 10-K for the fiscal year ended June 28, 2025, and in our most recent 10-Q to be filed by Lumentum with the SEC. The forward-looking statements provided during this call are based on Lumentum's reasonable beliefs and expectations as of today. Lumentum undertakes no obligation to update or revise these statements, except as required by applicable law. Please also note that unless otherwise stated, all financial results and projections discussed in this call are non-GAAP. Non-GAAP financials have inherent limitations and are not to be considered in isolation from or as a substitute for or superior to financials prepared in accordance with GAAP. You can find a reconciliation between non-GAAP and GAAP measures and information about our use of non-GAAP measures and factors that could impact our financial results in our press release and our filings with the SEC. Lumentum's press release with the fiscal first quarter results and accompanying supplemental slides are available on our website at www.lumentum.com under the Investors section. We encourage you to review these materials carefully. With that, I'll turn the call over to Michael. Michael E. Hurlston: Thank you, Kathy, and good afternoon, everyone. In Q1, revenue surged more than 58% year-over-year, while operating margins expanded by over 1,500 basis points. $533 million represents the highest revenue achieved in a single quarter in the company's 10-year history by significant margin. Our growth is powered by AI demand spanning our laser chips and optical transceivers inside data centers as well as the interconnect and long-haul networks that link them. In fact, we estimate that over 60% of our total company revenue now comes from cloud and AI infrastructure, driven both directly by hyperscale customers and indirectly through network equipment and optical transceiver manufacturers that embed Lumentum components in their solutions. There is a growing convergence between telecom infrastructure and AI data center-driven networking as our customers align traditional network equipment with the needs of intensive inferencing workloads. Having built the company on telecommunication subsystems, Lumentum has evolved into a leading provider of optics for scaling AI compute. On our last earnings call, we projected crossing $600 million in quarterly revenue by the June 2026 quarter or earlier. Today, our Q2 outlook shows that we expect to surpass this milestone well ahead of schedule, with the guidance calling for a revenue midpoint of approximately $650 million, 2 quarters earlier than we previously targeted. As a reminder, we have identified 3 major drivers of future growth: cloud transceivers, optical circuit switches and co-packaged optics. Of these, within our Q2 outlook, we are not yet expecting meaningful contributions from optical circuit switches and co-packaged optics. In cloud transceivers, we are set to resume sustained growth in fiscal Q2, and this upward trajectory should accelerate over the next 4 to 5 quarters. Before discussing our first quarter results in more detail, I want to address an important change in how we report our financial results. We will now discuss our financials as a single reportable segment, aligning with our current organizational structure. After several months with the company, I decided to reorganize in order to react more quickly to market and technology changes and move resources to the highest value opportunities. In that context, Wupen Yuen, who many of you know, is now the Head of Global Business Units, owning all product road map decisions. While this shift simplifies our reporting framework, it also gives investors more insight into our numbers by breaking the cloud and networking business down a bit. In that vein, we will provide revenue breakouts in our quarterly reports and commentary for 2 product types, components and systems. We define components as the individual building blocks that enable larger solutions such as laser chips, laser subassemblies, line subsystems and wavelength management subsystems. Systems in contrast are complete stand-alone products that deliver full functionality to the end customer, including optical transceivers, optical circuit switches and industrial lasers. We provide historical views of those 2 product types in our earnings deck that can be found on our Investor Relations website. Using this breakout, components revenue in the quarter was $379 million, which was up over 18% sequentially and up 64% from the same quarter last year. Our components products delivered strong broad-based growth across our laser chip, laser assembly and line subsystem product lines, driven by robust demand inside the data center and from data center interconnects and long-haul applications. We achieved another record in EML laser shipments, driven primarily by 100-gig line speeds and supported by an increase in 200-gig shipments. We also initiated CW laser deliveries for 800-gig transceiver manufacturers, marking an important milestone in our product road map. As we've shared before, our indium phosphide-based wafer fab has been fully allocated due to robust customer demand. However, I'm pleased to report that we have made better-than-expected progress on yields and throughput and now see line of sight to add approximately 40% more unit capacity over the next few quarters, setting the stage for calendar 2026 to be another breakout year for laser chip shipments and solidifying our leadership in indium phosphide-based light sources for the data center. Although still small in absolute terms, we saw sequential growth in our ultra-high power laser shipments as we continue the initial phase of our production ramp. we still expect a significant increase in shipment volumes in the second half of calendar 2026 as adoption continues to accelerate, and we are seeing opportunities to expand our customer base. We are seeing strong sustained momentum in our data center interconnect or DCI components, which support not only optical links within campuses, but also connections spanning up to 100 kilometers in scale across architectures. Shipments of our narrow line width laser assemblies for DCI transmission grew for the seventh consecutive quarter, rising over 70% year-over-year, demonstrating both robust market demand and our continued success in scaling manufacturing capacity. Shipments of our line subsystems for data transport also delivered strong sequential and year-over-year growth, benefiting from the same macro trend. We also saw sequential and year-over-year growth in coherent components for long-haul data transmission and achieved a record quarter for pump lasers supporting subsea and terrestrial networks. Finally, we saw a sequential rise in 3D sensing products, consistent with the seasonality of a new smartphone launch. Even in our Q1 historically peak shipment quarter, these products contribute less than 5% of total company revenue, underscoring that the broad strength of our components portfolio is driven almost entirely by the accelerating global build-out of cloud infrastructure and highlighting Lumentum's essential role in powering that expansion. In Systems, revenue was $155 million, down 4% sequentially, but up 47% year-over-year. Cloud transceiver revenue was roughly flat to the prior quarter as we used the quarter to increase manufacturing capability in Thailand to meet increasing customer demand. From this point forward, we expect to see the end of the fits and starts in production capability we have experienced in this product area, and we now forecast a period of sustained revenue growth. Our guidance into Q2 provides our first proof point that as new 800 gig and 1.6T products ramp in future quarters, we expect to see the revenue layering benefits that our larger transceiver competitors have experienced. Our initial ramp of optical circuit switches from Thailand is progressing well, and we remain on track for a rapid acceleration in manufacturing expansion over the coming quarters. As expected, we saw a sequential decline in industrial laser shipments, reflecting the continued softness in the broader industrial market. Looking ahead to the fiscal second quarter, we expect approximately half of our sequential revenue growth in absolute dollars to come from our components products, driven by broad-based strength across product lines serving cloud applications. The other half is expected from our systems products serving cloud customers, primarily reflecting the ramp of high-speed optical transceivers for data center applications and to a lesser extent, the early phase of our optical circuit switch ramp. As I highlighted at the start of my remarks, we are only at the beginning of our growth journey in cloud and AI infrastructure. Lumentum story has many chapters ahead, and we are entering a period of sustained expansion, fueled by the accelerating adoption of AI and the optical technologies that enable it. Our components products will remain the cornerstone of both revenue growth and profitability, while our systems products are scaling rapidly with cloud transceivers, optical circuit switches and other high-performance solutions. With expanded manufacturing capacity and the ramp of new products, we are confident in our ability to drive continued top line growth, margin expansion and long-term shareholder value. Now I'll hand the call over to Wajid. Wajid Ali: Thank you, Michael. First quarter revenue of $533.8 million and non-GAAP EPS of $1.10 were at the high end of our guidance ranges. GAAP gross margin for the first quarter was 34%, GAAP operating margin was 1.3%. GAAP net income was $4.2 million and GAAP net income per share was $0.05. Turning to our non-GAAP results. First quarter non-GAAP gross margin was 39.4%, which was up 160 basis points sequentially and up 660 basis points year-on-year due to better manufacturing utilization and favorable product mix as a result of increased data center laser chip shipments. First quarter non-GAAP operating margin was 18.7%, which was up 370 basis points sequentially and up 1,570 basis points year-on-year, primarily driven by revenue growth in components products. First quarter non-GAAP operating profit was $99.8 million and adjusted EBITDA was $127.6 million. First quarter non-GAAP operating expenses totaled $110.5 million or 20.7% of revenue, an increase of $1.2 million from the fourth quarter and an increase of $10.1 million from the same quarter last year. This year-over-year growth reflects annual employee cash incentives tied to company performance, along with ongoing investments to scale our operations in support of expanding cloud opportunities. Q1 non-GAAP SG&A expense was $41.5 million. Non-GAAP R&D expense was $69 million. Interest and other income was $3.7 million on a non-GAAP basis. First quarter non-GAAP net income was $86.4 million and non-GAAP net income per share was $1.10. Our fully diluted share count for the first quarter was 78.3 million shares on a non-GAAP basis. During the first quarter, our cash and short-term investments increased by $245 million to $1.12 billion. Our cash position benefited from a convertible notes transaction completed during the quarter, which contributed $306 million in net proceeds. Our inventory levels increased sequentially to support the expected growth in our cloud and AI revenue. In Q1, we invested $76 million in CapEx, primarily focused on manufacturing capacity to support cloud and AI customers. Turning to revenue details. First quarter components revenue at $379.2 million increased 18% sequentially and 64% year-on-year. Our first quarter systems revenue at $154.6 million was down 4% sequentially and up 47% year-on-year. Now let me move to our guidance for the second quarter of fiscal year '26, which is on a non-GAAP basis and is based on our assumptions as of today. We anticipate net revenue for the second quarter of fiscal year '26 to be in the range of $630 million to $670 million. The midpoint of this range would represent a new all-time quarterly revenue record for Lumentum. Our Q2 revenue forecast reflects the following expectations: Components expected to be up sequentially with strong growth across our portfolio of products addressing cloud and AI applications and systems to also be up sequentially with strong growth from cloud transceivers and progress in the early phases of our optical circuit switch ramp. We project second quarter non-GAAP operating margin to be in the range of 20% to 22% and diluted net income per share to be in the range of $1.30 to $1.50. Our non-GAAP EPS guidance is based on a non-GAAP annual effective tax rate of 16.5%. These projections also assume an approximate share count of 83.5 million shares. With that, I'll turn the call back to Kathy to start the Q&A session. Kathy? Kathryn Ta: Thank you, Wajid. [Operator Instructions] Now Kevin, let's begin the Q&A session. Operator: [Operator Instructions] Your first question comes from the line of Samik Chatterjee with JPMorgan. Samik Chatterjee: Just making sure. Can you hear me? Wajid Ali: Yes, we can hear you. Samik Chatterjee: Sorry, getting used to the new system. So thank you, strong results. Congrats on the outlook as well. Maybe on the transceiver side, high confidence in relation to sustaining that growth going forward, and you're calling for a pretty sizable growth into the next quarter as well. Maybe just talk a bit about what's driving that confidence, maybe more in addition to the capacity ramp that you talked about? Is there more diversification on the customer front as well. That's giving you visibility into that consistent growth? And what's in particular driving the strong increase of about $60 million or so, I think that's what you're guiding to for the quarter-over-quarter sort of into the next December quarter? And I have a follow-up. Michael E. Hurlston: Yes, this is Michael. I think we've highlighted this for the last couple of quarters. Our improvements in execution is beginning to bear fruit. If you remember, we said that we've been really missing the front part of customer ramps due to some execution challenges. And that seems to have corrected off where we now are participating in the very early part of customer ramps. We have expectation to be shipping 1.6T transceivers sometime middle-ish of next year. and those will be at the early part of the customer ramp as well. So for the first time, we're getting this layering effect where we're not seeing a dip in revenue as we sort of see one cycle ramp down and the next one ramp up. We're getting this layering effect that I talked to in the call. That's predominantly with our largest customer, but we are seeing revenue from the 2 customers that we've talked about previously as well. But pretty much the majority of all of this is coming from our largest customer. Samik Chatterjee: Got it. Got it. And for my follow-up, Michael, you talked about the 40% increase in capacity for datacom chips. Wondering if you can just help me think through what that means on a revenue basis? I would assume the mix would tilt more towards 200-gig EMLs, but what is generally the plan in terms of usage of that capacity? And how should we translate that maybe into terms of what it means for revenue increases? Michael E. Hurlston: Yes. I think you have 2 effects, and those 2 effects will ultimately layer on top of each other. One is just the raw output, and we'd expect to see this 40% increase over the next couple of quarters. But then to your question, we also see a second effect, and that is that the 200 gig lasers will start to layer in. We talked about shipping 200 gig lasers in the last quarter. There's more in the guide. We'd expect to see about 10% of our mix in the early part of 2026, calendar 2026 be from 200 gig lasers. So you're going to get those 2 effects now sort of adding to one another, the fact that our capacity is increasing. And then the second issue is the fact that we would expect to see 200-gig lasers become a much more meaningful part of our mix in calendar 2026. Kathryn Ta: Kevin, I think we'll take our next question. Operator: Your next question comes from the line of Ryan Koontz with Needham & Co. Ryan Koontz: I wanted to ask about the continuous laser output, how -- that's a new product for you, how you think about that market opportunity. Is that something you're targeting for your own optical transceivers and what sort of customers lined up for that? Michael E. Hurlston: Yes, Ryan. I mean, we've talked about the CW lasers for a bit here. We have a 70-millowatt CW laser that really started meaning shipping in this quarter will be a reasonable part of our mix next quarter. We've characterized that as sort of a pipe cleaner, shipping to other customers in an effort to eventually bring CW lasers into our own transceivers. So we have a 100-millowatt CW laser that we'd expect. We're actually sampling it this month. We'd expect to be in full production in the middle of the year of 2026. That 100-millowatt CW laser is what we're going to use really in our internal transceivers. So as we've stated in previous discussions, we'd expect to be manufacturing the CW laser specifically to use it in our own transceivers, and that should happen sometime second quarter-ish of calendar 2026. Ryan Koontz: That's great. Exactly what I was hoping to hear. So -- and then shifting gears maybe to narrow line width lasers for the DCI element. Is that a different set of competitors? Obviously, a different set of customers, but can you kind of educate us a little bit on the competitive environment for the narrow linewidth lasers for Coherent? Michael E. Hurlston: Yes. I'll maybe give some comments and then throw it to Wupen. We are -- we have very strong market share here, right? I think our competitive landscape is more limited perhaps in this area than many of those we participate in. To your point, Ryan, the customer base is different. These are more of the traditional telecom guys that now have shifted and pivoted their business toward the hyperscalers. And so we're providing solutions to all of those guys in our narrow linewidth offering. But we have, Wupen correct me if I'm wrong, very, very high market share there and a strong competitive position. Wupen Yuen: Yes. Thank you, Michael. I think that's definitely true. I think that's a business we've had for the last 10, 15 years as a company. And then the challenge that laser capacity is not easy. And we have actually mastered that over the last 10 years or so. And you can see our continued progress in our revenue quarter-over-quarter. We're strongly positioned there. We do see some competition there, but again, the technology is going to be difficult. So we expect we're going to continue the strong market share position going forward. Operator: Your next question comes from the line of Mike Genovese with Rosenblatt Securities. Mike, your line is open. Please go ahead. You may have to unmute yourself. Michael Genovese: So as you increase indium phosphide capacity, the output of that, how should we think about the split between that going into components or that going into systems? Like what's the framework there? Michael E. Hurlston: Yes. No, the vast majority of our output will be sold into the external market. We are shifting our mix toward 200-gig EMLs. Wupen has been in the middle of that. And as I said, about 10% of our mix in the first quarter of calendar 2026, the March quarter, we'd expect to see at 200 gig. We will continue to sell the majority of our capacity out to external customers. The small amount of capacity that we've allocated to CW lasers just to prove that we can do it and as I say, pipe clean a little bit, we will probably end up reallocating that to internal consumption. And that percentage, again, is relatively modest, right? We'll sell most of our capacity into the external market. Michael Genovese: So I guess given that, and I realize this is a tough question to answer, but $1.40 outlook for EPS at the midpoint, it's a really impressive number. But it also -- could it even be higher I mean if we've got a really high-margin product leading to growth? Michael E. Hurlston: Yes. Look, I mean, we feel like we have a very dominant position here. I think in our last call, we talked about being sold out. That is absolutely the case. The demand far exceeds even as we continue to add laser capacity, demand is far outstripping our ability to supply. And so our challenge right now is making these allocation decisions. We're trying to allocate the capacity to the highest dollar value components we have and the highest margin components we have to your point, Mike. And that in order is 200-gig EMLs, 100-gig EMLs and then CW lasers for internal consumption. And we're going to mix as much as we can to 200 gig. The demand is certainly there. 100-gig EMLs. We're going to continue to allocate as much as we can to that. And then to the extent we can cleave a little bit off to improve our transceiver business, we'll do that as well. Wajid Ali: And Mike, just -- it's Wajid here. Just to add a little bit to that. So that 40% increase in indium phosphide capacity is focused on laser chips, which has, as you know, higher gross margins than many more of our other product lines. So as that flows through in the coming quarters, that will have a positive effect on our earnings per share. What you're seeing this quarter is without that increased capacity and increase gross margin contribution from the indium phosphide capacity we talked about in our prepared remarks. Operator: Your next question comes from Christopher Rolland with Susquehanna. Christopher Rolland: So congratulations, particularly on the guide, that was -- that's pretty incredible. And congratulations to Wupen couldn't have happened to a smarter guy. But in terms of the transceivers and that market, it's my understanding that 102 switches are not really ramping until next year. In fact, they won't have like qualified ASICs in a box until early next year. That's the precursor to qualifying 1.6T transceivers. So perhaps for Michael, as you see this playing out, I guess my first question is, are you going to strategically use your -- what seems like market-limited EML supply to drive new customers and new qualifications on the transceiver side. It sounds like maybe yes. And secondly, on the EML side, as in the first half of the year, would you expect customers to stockpile these ahead of these qualifications? Is this something that you see in the first half even before 1.6 starts ramping? Michael E. Hurlston: Yes, Chris, first, thanks for the kind words, and I fully agree. Wupen is the smartest guy in the industry. We're very lucky to have them. Look, a couple of remarks. Maybe first on the last piece of it, which is the stockpiling for right now, what we're seeing happen is demand, as we said on the last call, is far outstripping supply. Even as we add this extra capacity, we're in a situation where we are making allocation decisions almost on a daily basis. And it's really putting a lot of strain both on the business unit and on Wupen as we try to make those calls. In that regard, honestly, Chris, we're actually probably shedding customers rather than adding. We're trying to make our bets on the folks that we think are going to be good partners. We've gone out and worked a series of long-term agreements and the folks that are willing to step up and help us, we really want to help them. And so what we've actually tried to do is maybe counter to your question a bit, and that's consolidate supply and consolidate our customer base around a couple of folks that we think are going to be long-term winners. Those customers in return have given us multiyear commitments that give us a lot of confidence that our business is going to be sustainable even as we continue to ramp capacity through the next probably 6 or 8 quarters. So that's kind of the dynamic. Do you want to speak a little bit about 200 gig and the dynamic there because not all of it is 1.6T. Wupen Yuen: Correct. Thank you, Michael. Again, thanks for the comments. I really appreciate your kind words as well. So on the 1.6T front, right, you're correct, 102.4 switch until really, I would say, late Q2 next year calendar. And today, applications are actually mostly to the customers or through the customers who do not rely on that switch to take place. And there are 2 customers today can use the 200-gig EMLs optics in their systems today. And certainly, I think you have a good point there that are we going to leverage our laser supply position to increase our 1.6 module opportunities. We will say that the customer already know that we have such a laser in our portfolio. And therefore, I believe that they will have thought about it when they engage us on the module side. But again, like Michael said earlier, we will allocate our laser capacity based on the profitability metric more than to try to broaden our transceiver opportunities in 1.6T using our laser. Christopher Rolland: Very helpful, Wupen. And back to you, Michael, at OFC, I remember you were somewhat reticent to put on more indium phosphide capacity. And so as I think about the industry more largely, ,competitors are ramping 6-inch indium phosphide kind of as we speak. And it does seem like the early market is going to be for EMLs here, which are a large die because you put the modulators on there. But as we move to CW, it's a smaller die. And I'm just wondering do you think we might end up in an overcapacity situation, particularly when we -- competitors ramp and eventually we move to SiPho and CW. And what do you think the timing might be around that? And just putting all of this together into your decision to put more capacity on, what made you change your mind? Michael E. Hurlston: Yes. I mean, look, I think there's a couple of things, Chris. One, we're actually been able to squeeze more out of the capacity we have and the remarks that we had in the prepared remarks, we talked a lot about improvements in throughput and improvements in yield. And that's really what's helped us. We are still transitioning between our 3-inch and 4-inch. We made a decision to really focus on 4-inch as a sweet spot here at least in the near term. And that's what's led to most of the improvements you can see here. So we've not put a lot of additional capital into our fabs to expand output, that's number one. Number two, I think on the battle between CW and EML, it appears to us that CW is going to ramp with 1.6T but so will EML. And so the slope of the 2 ramps was hard for us to call but it looks like no matter how you slice it, the numbers will increase. So even if the mix shifts away from EML-based transceivers at 1.6T, the absolute numbers seem to be stratospherically high. And at least in the near term, we see no end in sight. We watch it every day, Chris, just like you're sort of cautioning but I think for the next 6 quarters, we're completely sold out, and we have long-term agreements, as I said, that we've worked out with our customers to ensure that they're going to take any capacity -- that the additional capacity we've got online. So we obviously think about it every single day, but I'd have to say, right now, our concern is not when will this roll over. It's how do we get and service the customer base that we have and the demand profile we're looking at. Wupen Yuen: And just one last comment in addition to what Michael said, right? The capacity we have in place are interchangeable between lasers and EMLs. No matter how the market share of these lasers change over time, we're able to serve the overall market. So that's also part of our investment decision in fab and kind of implementation decision along the way. Christopher Rolland: Yes. understood. Thank you guys, good strategy and congrats. Michael E. Hurlston: Thanks, Chris. Operator: Your next question comes from the line of Simon Leopold with Raymond James. Simon Leopold: I wanted to first ask about the OCS opportunity. I know you said that it's currently a fairly small market. But coming out of the ECOC show, it certainly sounded like the industry as a community was more upbeat. And I've heard second or third hand that you've suggested that this could be $100 million by your December '26 quarter. Now I don't know that, that's true. So I wanted to hear directly from you how you see this market evolving? And then I've got a quick follow-up. Michael E. Hurlston: Yes, Simon. Look, I would say, if anything, our confidence has increased that we will ramp through the calendar year to that $100 million a quarter target in December of 2026. Our engagement level with customers on this product is super high. Wupen and I are spending probably more time in this product category than any other. The number of use cases we're seeing coming from customers and potential customers is growing. And the virtues that you and I have talked about on a number of different occasions are really playing forward. So we are -- make no mistake, we are more confident in this market than we were probably last quarter at this time, and that confidence is building every single day. Simon Leopold: And then just as a follow-up, in the prepared remarks, you described the outlook for the December quarter as broad-based improvement. I would like to see if you could rank order, what does the biggest dollar increase come from sequentially in December versus September relative -- thinking about the datacom transceivers, the telecom devices, the datacom chipsets, where is the biggest dollar contribution coming from in your forecast? Michael E. Hurlston: Yes. Look, this is broad-based. I mean I think the thing that probably caught us flat-footed is the width of the customer demand. It's touching everything. We talked about pump lasers. We talked about narrow linewidth. We talked about the transceivers. We talked about even coherent components. So it is very, very broad-based. And every single one of our segments is up. Every single one of our segments is contributing to the growth that you see. If I was to specifically answer the question, Simon, I would say it is the transceivers. The transceivers are coming off the mat. We had, as we characterized, I think in the prepared remarks, fits and starts of the transceiver business. We finally see that turning a corner. I think last reported quarter, we got back to the level that we had when we bought Cloud Light in the guide, that number is up significantly. But the thing that we expected people to ask is just given not only exceeding $600 million, but doing so by a pretty wide margin in the guide, we had expected more questions on, hey, what happened here? Why are you guys so surprised? And what really did happen was just the width of the demand that we saw -- and our ability to service it, quite frankly, our execution has improved. I think Wupen's team has done a really, really good job getting in there and figuring out how to deliver these products. As we think about the forward look, that's going to be a challenge. Supply chain will be a big challenge. But it is -- has been a surprisingly, surprisingly broad-based demand signal. Operator: Next question comes from the line of Papa Sylla with Citi. Papa Sylla: Congrats on the very strong results. I just wanted to kind of -- it was asked differently, but I just wanted to double check on the supply-demand imbalance for EML specifically. I think it's very clear kind of demand is running ahead of supply. But I guess, how would you characterize the supply-demand this quarter versus last quarter, for instance? I understand you kind of increased investment and yield improve. But on the other side as well, it seems like CapEx is going up across the board. Just if you could help us understand kind of how has that balance changed from last quarter to now? Michael E. Hurlston: Yes. I mean I'll have Wupen give some color, pop-up. But I would say the following. I mean, in our -- in the guide our supply is going up more than 10%. So we definitely have some pretty good additive supply even into the guide. What I'd say, though, is the demand signal has -- the demand supply imbalance has increased. Last quarter, I think we characterized it as roughly a 20% shortfall relative to total customer demand even with this add, even with the add in supply, I would say that number has increased to 25% to 30%. We are quite a bit short right now relative to the customer demand. And again, we'll kind of have you talk to it a bit, right? You're making bets on who you think is winning and trying to consolidate through LTAs and other vehicles who our customer base will be as we look out in the next 6, 7 quarters. Wupen Yuen: Yes. Thank you, Michael. Absolutely true. I would echo that the demand and supply mismatch has increased in the last 3 to 4 months. It's getting worse. And we're seeing that all these newly announced projects that you see throughout the last several weeks, that results in extended horizon of the supply-demand mismatch as we can see. And that's the reason why we're able to sign up the long-term agreements with our leading customers. And we're also trying to be very careful in making sure that our devices are supporting the key hyperscaler customers, too. So those are the key kind of thoughts going into the allocation process. And we realize that we cannot make everybody happy, but we try to make sure that we strategically maximize our shipment to the most important customers. Papa Sylla: Got it. No, that's very clear. And just for my follow-up on margins. obviously, this quarter kind of very strong improvement. But I guess going into the December quarter, and if my math is right, given the sales guidance you provided and the operating margin you provided, you could be very close to what you gave out previously in terms of your longer-term target. I guess, is that kind of the right way to think about it going into the December quarter? And just for kind of a quick follow-up to the supply-demand imbalance, we've now kind of demand further outstripping supply, kind of what's your approach in terms of pricing at this point? Do you have now more levered to even increase further pricing on EML and further expense margin as well? Michael E. Hurlston: Yes. Let me have Wajid talk to the gross margins. I mean, in short, you're right. I think we're moving the margin line up. Pricing, obviously, is a lever. And when you look at that very, very carefully. I think what you see in the guide is sub-pricing, very targeted price increases happening. I think as you look out next year in 2026, our agreements with customers will include more pricing, more broad-based price increases, just given the supply-demand imbalance. We're still obviously trying to do we can to work with customers and make sure that they are happy with us as a supplier. But we are using this demand, supply imbalance to impact of the pricing. Wajid, do you want to talk a little bit about the margin? Wajid Ali: Yes. So I mean, our margins are certainly benefiting from the improved manufacturing utilization that comes with the increased revenue base. As we move into Calendar '26, we're expecting margins to continue to nudge up in line with the OFC model that we had provided, not just the pricing impact, but also what Michael talked about earlier with 200G EMLs becoming a larger proportion of our overall unit mix as our capacity improves on indium phosphide. And then as our growth drivers come into play in Calendar 2026, 1.6T, OCS and CPO, all of those product lines will contribute to improving our gross margins once again. So we're set up very nicely as revenues are expected to improve next year with these new product lines and increase capacity to further improve our gross margins and our non-GAAP operating margins. Operator: Your next question comes from the line of George Notter with Wolfe Research. Unknown Analyst: This is [indiscernible] on for George. I just wanted to double click on CPO. What do you guys see in terms of the demand outlook there? I mean, compared to the last few quarters? And then how is -- how or if -- how is that customer and market expanding, if at all? Michael E. Hurlston: Yes. Let me take it and again, I'll have Wupen add a little color. What -- I think between our last discussion and this one, 2 things are true. One, I think demand is stronger than we initially forecast. So we feel pretty good about the numbers in the second half of Calendar 2026. Remember, the ramp that we basically talked about is early stages Q3 of the calendar quarter -- calendar year. And then a more meaningful contribution in the fourth quarter of the calendar year. So the demand, the forecast seems to be getting better, timing is same, so no real change in the timing, but the forecast is better. The second thing that I'd say is that our customer conversations have magnified and multiplied. So we're getting engaged now not only with the priority customer, right, that's launching our Switch product, really taking advantage of CPO, but other customers as well. So we feel really good about the demand signal, no change in timing signal and the number of customer engagements has gone up since we last talked. Wupen, just overall on the technology, how are you seeing things? Wupen Yuen: Yes. Thank you, Michael. Definitely, we feel that the demand and interest has really increase in last quarter. Most recently in the OCP, that's a couple of weeks ago, that was a major topic of conversation during that conference. And to facilitate our engagement with our customers, we've been using this pluggable module or tunable SFP module, to conveniently engage also different applications or different customer sets across the supply chain to kind of broaden our visibility and engagement into that portfolio. And we're seeing now much heightened interest in that area, which we believe that later will translate into even more demand for our ultra-high power laser chips going forward. And we are more optimistic than last quarter on the general or industry-wide adoption of the CPO solution, including our lasers. Operator: Your next question comes from the line of Meta Marshall with Morgan Stanley. Meta Marshall: Maybe following up on Simon's question. Just as you guys ramp the OCS business to kind of that $100 million. Just trying to get a sense of kind of what are some of the milestones you're looking for. Or the -- is it kind of getting through their labs? Is it testing the hardware? Is it the software? Just kind of what are some of the key milestones we should be looking at over the next year? Michael E. Hurlston: Meta, let me just give you restate sort of how we see the revenue and then talk technically a little bit about the milestones. We've outlined sort of a revenue ramp of kind of mid-single-digit millions here in the December quarter, getting to double digit -- very, very low double digits in the March quarter and then accelerating to kind of mid $50 million, $60 million in the middle of the year and then getting all the way to that $100 million mark in the December quarter. As I said to Simon, we feel increasingly confident just given the level of customer engagement that, that revenue ramp will be there and perhaps there's even upside to it. What's going on right now? I mean the hardware is generally qualified. We've got -- we talked about 3 different customers with our OCS products. In all 3, that product is in their labs. We feel very good about the hardware piece of it and being through all the major gates relative to hardware qualification. Software is more difficult, right? There's a lot more software with this product than there is with anything that we've done in the past. We are on multiple, multiple calls with our customers working side by side to get the software in. But I would say that's the thing that keeps me up at night more than anything else is just getting our software right and getting that software qualified by the customer. We would expect to be qualified probably fully by both of our major customers in the first quarter, in the March quarter and then the third customer probably in the middle of the year. So we've got some more work to do on software, but that shouldn't [indiscernible] the revenue ramp that I just laid out. Meta Marshall: Got it. And then -- just in terms of the transceiver business, understanding kind of the ramp of that is primarily going to the first and major customer. But just is the expectation that kind of the vast majority of this ramp going forward will only include that kind of primary customer? Or just how should we think about any of the ramps of the additional customers of Cloud line at this point? Michael E. Hurlston: Yes. Look, I think we're still ramping the second and third customers as we've talked about. We're engaged with more customers now. But what we're really trying to do is bound this business. And when we talk about this, again, we've sort of said, hey, we see this being a $250 million a quarter opportunity for us -- and we think we can do that with reasonable margin by being somewhat selective. So Wupen's team is out talking to a good handful of customers looking for the most margin-rich opportunities that might be TRO type where the technical challenge is higher. 1.6T, obviously, the technical challenge is higher. And we think we can build on the success that we've had with our primary customer, add on here and there where we need to. But to sort of get to $250 million a quarter, we have line of sight to that. And we think we can do that more profitably than we have in the past simply by choosing the most margin-rich opportunities to go after. Wajid Ali: Yes. Meta, 1.6T margins are going to be significantly better than 800G margins. That's our expectation. And so a lot of that $250 million a quarter that Michael is talking about is going to come from the ramp of 1.6T products, which will have a materially better margin profile than our 800G products. So that will help us from both ends. Kathryn Ta: Kevin, I think we have time for just 1 more analyst question. Operator: Okay. Your last question comes from the line of Karl Ackerman of BNP Paribas. Karl Ackerman: Michael or Wajid, you noted that your growth of transceivers should accelerate over the next 4 to 5 quarters. Is that comment sequential or year-over-year? And then is there a way to frame the quarterly opportunity of transceivers among your 3 hyperscaler providers versus your initial expectations of $250 million a quarter? And how does your fab capacity build out in Thailand support that? Wajid Ali: Yes. I mean we obviously have line of sight to the opportunities in front of us are -- certainly lead to the $250 million a quarter. So we can see that. And what we're trying to do, as I said, is really balance it out now among the customer opportunities, which one to choose such that we can really get the highest margin profile out of the business. There's no question that the leading customer today will be the leading customer tomorrow and into the future. They really partnered up with us well. We're better understanding that working cadence and understanding the road map and really trying to gear our road map to that. But that doesn't preclude us from continuing to look and engage customers 2 and 3 and actually beyond customers 2 and 3. But Karl and you and I have had this chat a couple of times, I don't expect this business to run away, right? We don't expect this thing to grow unbounded. We want to grow in a margin-rich profitable fashion, and we have enough other growth drivers and the confidence in our co-packaged optics and our optical circuit switch is increasing at this point. So yes, we want to grow our transceivers. We think there's a great opportunity to do that. We think we can do that profitably as why you just said to the last questioner. But we're not -- we could take on a lot more of this business than we have if we went after it in an unbridled fashion. You asked in the last part of your remarks on sort of our fab capacity. The transceivers, as you know, is really manufacturing capacity. And we've added manufacturing capacity in Thailand to support that kind of sort of bounded number. We could add a lot more, as I said, the customer opportunity we're seeing is not dissimilar to the lasers is very, very strong. But our general view is let's limit it for now and let these other major growth drivers play out. And that -- the 3 growth drivers are on top of this broad-based growth you're seeing in all facets of our business. I mean everything seems to be firing right now. And I think we're not being given credit for the additional growth drivers that will layer into just the fact that the broad-based business is doing so very, very well. Operator: And this concludes the Q&A session. I will now turn the call back to Kathy Ta for closing remarks. Kathryn Ta: Thanks, Kevin. Thank you. That is all the time we have for questions. We look forward to connecting with you at upcoming investor conferences and at meetings this quarter. With that, I would like to thank you for joining us today. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Veracyte Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Shayla Gorman. Shayla Gorman: Good afternoon, everyone, and thank you for joining us today for our discussion of our third quarter 2025 financial results. With me today are Marc Stapley, Veracyte's Chief Executive Officer; and Rebecca Chambers, our Chief Financial Officer. Dr. John Leite, our Chief Commercial Officer; and Dr. Phil Febbo, our Chief Medical and Scientific Officer, will join us for Q&A. Veracyte issued a press release earlier this afternoon detailing our third quarter 2025 financial results. This release and a copy of the presentation we will review during the call today are available in the Investors section of our website at veracyte.com. Before we begin, I'd like to remind you that statements we make during this call will include forward-looking statements as defined under applicable securities laws. Forward-looking statements are subject to risks and uncertainties, and the company can give no assurance they will prove to be correct. Additionally, we are not under any obligation to provide further updates on our business trends or our performance during the quarter. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Veracyte files with the Securities and Exchange Commission, including the most recent Forms 10-Q and 10-K. In addition, this call will include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures are included in today's earnings release accessible from the Investors section of Veracyte's website. I will now turn the call over to Marc Stapley, Veracyte's CEO. Marc Stapley: Thank you, Shayla, and thank you to everyone for joining us today. I'm pleased to share details of our third quarter performance as well as provide updates on our key growth drivers. We delivered another outstanding quarter. Our core testing business achieved 18% revenue growth year-over-year after adjusting for Envisia, driven by volume growth of 26% in Decipher and 13% in Afirma. This strong performance resulted in total revenue growing 14% year-over-year to approximately $132 million, even after the expected dilutive impact of removing the biopharma and other revenue tied to SAS. In addition to our robust revenue performance, our adjusted EBITDA margin reached a record 30%, representing a 650 basis point improvement from the prior year and far exceeding our expectations. As you know, we had set a goal of consistently achieving a 25% adjusted EBITDA margin on an annual basis, and it now appears that we will reach that milestone this year, more than a year ahead of our internal plans. This best-in-class profitability profile is a significant accomplishment, which we attribute to our disciplined portfolio focus. It enables us to continue to invest in our robust pipeline to serve as many patients as possible. The foundation we have built at Veracyte will enable sustained near- and long-term growth through a focused set of strategic drivers. I'm excited to share progress across several of these initiatives today. Starting with Decipher. We delivered approximately 26,700 tests in Q3, marking the 14th consecutive quarter of over 25% year-over-year volume growth. With the highest number of quarterly ordering providers and the highest number of orders per physician, Decipher's clinical utility is increasingly recognized by physicians for patients across all risk categories. This year, we have especially highlighted the clinical evidence for advanced disease, including high-risk localized and metastatic patients, where Decipher's predictive power has been shown to improve outcomes. With Decipher now available for metastatic patients, physicians can better assess the benefit of intensifying treatment with androgen receptor pathway inhibitors or chemotherapy. For example, recent analysis from the STAMPEDE trial published in Cell showed a high Decipher score predicts docetaxel benefit in metastatic patients and abiraterone efficacy for those with metastatic and high-risk localized disease. During the quarter, our volume of tests in this high-risk localized group grew more than 30%, demonstrating new traction in this category. We believe there remains significant opportunity to expand Decipher's use in this segment. Consistent with our established formula for evidence generation as the key to broad adoption, we continue to support extensive research in prostate cancer. For example, at ASTRO in September, research collaborators presented the first validation data from the BALANCE trial, demonstrating the PAM50 molecular signature predicts hormone therapy benefit in men with recurrent prostate cancer using data from our research use only Decipher GRID. This signature, well known in the breast cancer oncologist community and the backbone of our Prosigna test has now been shown to be able to stratify prostate cancer patients based on subtype, providing confidence in hormone therapy benefit for those with the Luminal B subtype. In addition to demonstrating the power of GRID and driving new important research in prostate cancer, this trial also builds on research presented earlier this year from the SSPORT trial, which showed the biochemical recurrence or BCR post-surgery patients with a high Decipher score received greater benefit from the addition of pelvic node radiotherapy and short-term ADT. These BCR patients represent a potential incremental opportunity for Decipher as we believe the majority never received a Decipher test when they were initially diagnosed with prostate cancer and would now be appropriate candidates for testing post-surgery. The complex treatment decisions faced by physicians and their patients dealing with advanced disease requires robust actionable information. As research empowered by GRID establishes clinical utility for new signatures, we are working to add such additional molecular features to the Decipher report to enhance clinical insights. Signatures like PORTOS and PTEN will be available in the optional Molecular Features Report when it launches next year. PORTOS predicts which patients with prostate cancer are likely to benefit from differing dosages of salvage and definitive radiation therapy. PTEN used alongside the Decipher score showed promise in determining whether metastatic patients would benefit from chemotherapy in the STAMPEDE study. These additions will further extend Decipher's application across indications, treatment decisions and various health care specialists. These studies represent only a selection of the extensive ongoing research related to Decipher. This quarter, we saw 23 new abstracts and publications on Decipher Prostate and GRID, bringing the total to 240 publications. Notably, at ASTRO 2025, of the 9 Decipher-focused abstracts, 2 compared the results of the Decipher test to the on-market DPAI solution and found marginal correlation. Investigators concluded that the 2 tests are measuring different biological processes, something we have asserted for a while based on prior studies. Further, there was meaningful discordance between the 2 tests across risk categories with a bias to low and therefore, potential undertreatment from DPAI. These findings support our view that digital pathology may complement molecular analysis by providing additional data points based on a more comprehensive analysis of tumor histology, but further research is needed to determine optimal use and to protect patients. To support this, we made our digital pathology services and associated AI models available to research collaborators earlier this year and have now implemented slide scanning as a standard production workflow. We've made tremendous progress in the third quarter and have now scanned over 115,000 slides from over 80,000 de-identified patients with outcomes data and expect this database to grow meaningfully as we continue building our digital image repository. Looking forward, the expanding clinical evidence supporting Decipher gives us confidence in its long-term growth prospects. With data consistently demonstrating its clinical utility and impact on patient management, Decipher is increasingly becoming the standard of care in prostate cancer. We see a long runway ahead, further bolstered by ongoing prospective studies to drive broader physician adoption, resulting in durable double-digit growth for years to come. Turning to Afirma. We were incredibly pleased with the 13% volume growth in Q3. This outstanding performance was driven by a steady pipeline of new account wins and yet another quarter of increased utilization per account. We also had a strong showing at the 2025 American Thyroid Association meeting, where we supported the presentation of 12 Afirma-related abstracts, including 4 independent studies utilizing data from Afirma GRID. Our operational efficiency program for Afirma is progressing nicely as we have transitioned over 1/3 of samples onto our new v2 transcriptome in the lab and having received New York State approval are on track to complete the transition of all incoming Afirma samples to the new workflow by year-end. While the data is early, we are pleased to see a side benefit in that the lower RNA input required by the new workflow has enabled even more patients to get a test result. Moving to our commitment to serve more of the patient journey through MRD and recurrence testing, we are excited about the opportunity for our whole genome-based MRD platform. Multiple studies are already completed in muscle invasive bladder cancer or MIBC, colorectal cancer or CRC, lung and other cancers with a robust pipeline, including 10 studies in testing and/or analysis, 13 in contracting and 10 in the active planning stage. This includes additional studies in MIBC as well as in breast, lung, CRC, kidney, immune therapy treatment response and others. The enthusiastic engagement by collaborators at leading institutions, along with the early results we are seeing reinforce our bullish expectations of our ability to capture a meaningful share of the pan-cancer market with our differentiated approach, which we have branded as TrueMRD. We are now receiving samples for the first phase of the NEO-BLAST trial. With growing enthusiasm over the efficacy of combination therapies like enfortumab vedotin and pembrolizumab or EV Pembro, there is keen interest in moving towards therapy de-intensification. The NEO-BLAST trial has the potential to help inform which patients can be de-intensified following standard of care neoadjuvant therapy. MIBC patients are being tested with standard staging MRI and TrueMRD. If they achieve a complete clinical response and are undetectable by MRD, they will be randomized to definitive local therapy or bladder-sparing active surveillance. We are excited to advance this trial and further the understanding of when a physician can safely de-intensify treatment for these patients. Our commercial success in MRD will begin with our proof of concept in MIBC in the first half of 2026, which we plan to launch with reimbursement. We expect to leverage our Decipher channel, which we believe reaches approximately 70% of MIBC patients who are seen in the urology and radiation oncology setting. Beyond MIBC, we plan to deliver indication expansion annually in order to serve more patients across more indications. Moving now to Prosigna. We are on track to launch Prosigna as an LDT for the U.S. breast cancer market in the middle of 2026, given the tremendous opportunity we see ahead. The clinical outcomes data from the 10-year OPTIMA PRELIM study presented in May suggested Prosigna had higher prognostic accuracy in high-risk patients compared to the test initially used to assign patients to treatment groups. We're excited to see the readout of the full OPTIMA trial, which is the first prospective study to specifically address Prosigna's ability to identify clinically high-risk patients who do not benefit from chemotherapy and can safely avoid the toxicities associated with treatment. New studies also continue to highlight the use of Prosigna for guiding preoperative therapy. An IMPACT study led by Dana-Farber Cancer Institute investigators and recently published in ESMO Open demonstrated a change in therapy in 35% of patients based on Prosigna results. At ESMO last month, investigators reported preliminary results of the RIBOLARIS study in which patients with clinically high-risk ER-positive breast cancer were treated with preoperative endocrine therapy plus Ribociclib, a CDK4/6 inhibitor. Prosigna was used to identify patients who achieved a low-risk molecular profile post therapy, allowing a mission of adjuvant chemotherapy. Additional follow-up is required for definitive results, but this study and other preoperative studies underway demonstrate how Prosigna enables precision medicine. As you can see, we have continued to advance our robust pipeline, having launched Decipher Metastatic in June, completed our NIGHTINGALE lung cancer trial enrollment of 2,400 patients in August and deployed our v2 transcriptome assay. We are making good progress on our MRD, Prosigna and IVD products. With so many new products and capabilities in these 2 years alone, I couldn't be prouder of the Veracyte team who are working tirelessly on behalf of our patients. Looking ahead, we will be accelerating our investments into our critical projects while maintaining the best-in-class financial profile we've consistently achieved. The strong momentum we have seen this year, together with the impact we expect to make with our upcoming product launches gives us confidence that we will continue to deliver comfortably durable long-term double-digit growth as we relentlessly pursue our mission of improving cancer care for patients all over the world. With that, I will now turn to Rebecca to review our financial results for the third quarter as well as our updated outlook for 2025. Rebecca Chambers: Thanks, Marc. Q3 was another exceptional quarter with $131.9 million in revenue, an increase of 14% over the prior year period. We grew total volume to approximately 45,900 tests, an 18% increase over the same period in 2024. Testing revenue during the quarter was $127.8 million, an increase of 17% year-over-year, driven by Decipher and Afirma revenue growth of 26% and 7%, respectively. Total testing volume was approximately 43,700 tests, an increase of 19% over the prior year period and included 17,000 Afirma tests. Testing ASP was $2,925, a decrease of 2% compared to the prior year, primarily driven by the impact of higher prior period collections in Q3 2024 as well as the Afirma Laboratory Benefit Manager impact previously discussed. Adjusting for the impact of approximately $2.5 million of prior period collections in the quarter, testing ASP would have been approximately $2,875, flat to the prior year period. Third quarter product volume was approximately 2,200 tests and product revenue was $3.3 million, up 4% year-over-year. Biopharmaceutical and other revenue was $800,000, a decrease compared to the $3.1 million in the third quarter of 2024, given the Veracyte SAS restructuring and liquidation proceedings. Moving to gross margin and operating expenses, I will discuss our non-GAAP results. Non-GAAP gross margin was 73%, up approximately 150 basis points compared to the prior year period. Testing gross margin of 74% exceeded our expectations, driven by improved lab efficiencies and was roughly flat to the prior year. Product margin was approximately 800 basis points higher than the prior year at 52%. We still expect product gross margin to decline in Q4 with our transition to a contract manufacturing model. Biopharmaceutical and other gross margin of negative 36% was down year-over-year due to the restructuring proceedings of Veracyte SAS. Non-GAAP operating expenses were up 2% year-over-year to $58.6 million. Compared to the prior year, research and development expenses decreased by $2 million to $14 million, driven primarily by the deconsolidation of Veracyte SAS. Sales and marketing expenses increased by $1.5 million to $22.4 million, given higher personnel costs supporting Decipher and Afirma. G&A expenses were up $1.5 million to $22.3 million, primarily due to project-related expenses within our support functions. Moving to profitability and cash metrics. We recorded GAAP net income of $19.1 million, including a $6.7 million loss upon deconsolidation of Veracyte SAS. This is onetime in nature and puts the France accounting impact behind us. Adjusted EBITDA was $39.7 million or 30.1% of revenue, well above our expectations given the benefit of prior period collections, lab efficiencies and the timing of some project investments, which are now forecasted to occur in the fourth quarter and into 2026. We generated $44.8 million of cash from operations and ended the quarter with $366 million of cash and cash equivalents. Turning now to our 2025 outlook. We are raising our 2025 total revenue guidance to $506 million to $510 million from our prior guidance of $496 million to $504 million. Due to our strong year-to-date performance, we are raising testing revenue guidance to $484 million to $487 million from our prior guidance of $477 million to $483 million. This reflects a raised Decipher outlook and continued Afirma volume strength. As a result, testing revenue growth is now estimated to be 16% as compared to the prior guidance of 14% to 15%. We are also raising adjusted EBITDA margin guidance for the year to exceed 25% from our previous guidance of 23.5%, which was already meaningfully higher than our original 21.6% 2025 guide. This reflects our year-to-date profitability outperformance and expectations for accelerated investment in the fourth quarter in support of our strategic growth drivers. We expect adjusted EBITDA margin to be approximately 25% in the fourth quarter and in future years, barring any specific incremental investments we decide to make, which we would, of course, communicate as appropriate. In closing, I am thrilled with our progress over the course of 2025. As Marc shared, we delivered on our product goals this year, including the launch of Decipher for metastatic patients and the transition of Afirma to the v2 transcriptome. With strong momentum heading into year-end, I'm excited to close out a successful 2025 and have confidence in our trajectory for '26 and beyond. We'll now go into the Q&A portion of the call. Operator, please open the line. Operator: [Operator Instructions] Our first question comes from Doug Schenkel at Wolfe Research. Douglas Schenkel: So I want to ask, I think -- I guess, 2 for Marc, and then I guess if I can take the liberty to ask a financial question of Rebecca. So on Marc, digital pathology, there were several presentations as you talked about in your prepared remarks at the ASTRO Annual Meeting showing weak correlation between multimodal AI scores and Decipher. As you talked about, it suggests these assays are complementary. Just on that topic, I'm curious, how do clinicians manage discordant results? Do you see this as being a concern for Decipher? Or is this something that you think actually leads folks to maybe kind of prioritize Decipher over some of the emerging competitors? And then maybe while we're on the topic, could you just talk a little bit about your own internal digital pathology efforts and kind of what the time lines are there? Marc Stapley: Yes. Happy to, Doug, and then we can get to your financial questions. And actually, I'll answer these questions, and then I'll turn a little bit to John on the commercial aspects and Phil on the DPAI internal digital program. But I think the way to think about this is if you think about new technologies, including genomics of 10 or a dozen years ago, there's a lot of excitement and new tests come out. And I think what's really important is to go at an appropriate pace, develop the clinical evidence and make sure that evidence supports the utility and most importantly, the patients aren't getting harmed by the wrong decisions and the physicians aren't getting confused. This is kind of the formula we took with Decipher and letting the research community help drive the research behind Decipher, which is what we believe has resulted in it being so popular. I think we're at that stage now with DPAI-based models, right? It's exciting technology. It's new, but enough evidence hasn't been generated yet. And then -- and so you do get discordant results. And there isn't anything to tell the physician what to do in that case. And so what they do is pretty logical. They focus on the gold standard, which, frankly, is Decipher. So if you've got a Decipher high and you have a DPAI-based low result, you certainly wouldn't want to undertreat that patient. And so you would focus on the Decipher result, treat accordingly, but the DPAI, the new technology loses credibility. And I think that's a bad thing for the industry as a whole. So our approach of making sure that we are really focused on developing the evidence and letting the research community do that is what we think will ultimately drive success for a technology that should have its place if done the right way. Let me turn over to John on the commercial side, what we're hearing from physicians. John Leite: Yes. Thanks, Marc, and thanks, Doug. It's a good question. It's difficult for us to firmly lean into this concept of complementarity while we are seeing significant rates of discordance. And while it leads to physicians ultimately then being confused as to how to interpret the results and how to proceed with the patient. And so on the commercial side, we're spending a lot of time or revisiting the wealth of evidence substantiating the clinical validation and utility of Decipher versus that of emerging technologies. And ultimately, physicians and based on the results of a survey that we've run, they heavily lean on the evidence that's currently substantiating Decipher and they see it as the current standard of care. Moving forward, we would hope that complementarity becomes more defined around how are insights to be developed in the best platform that ultimately associates a result with a clinical outcome and that will inform the right patient management decision. To do that, as Marc mentioned, we're working very closely with our current network of collaborators, key opinion leaders. Ultimately, we will curate and develop new signatures that will land on GRID. Ultimately, those will make their way into an equivalent of Molecular Features Report, such as we're doing now with the current GRID. And that's what true complementary in my mind, looks like. It's the rounding of clinical decisions aggregated and curated by an actionable report. Marc Stapley: And then maybe, Phil, anything to add standpoint of the internal development program? Phillip Febbo: Yes. Happy to, Doug, and thanks for the question. So being a custodian of over 200,000 transcriptomes and incorporating pathology scanning of whole slide images into our research program, we are in a very -- we have probably the best and most comprehensive data set where we can dig into that interface that John was talking about and figure out how to take the best of both the transcriptome, which is represented the Decipher commercially and the emerging excitement around DPAI. That is in full steam. We're digging in with collaborators as we've done with transcriptomes through the GRID. We're working with external -- some of the top investigators to drive that research forward and as well as both developing a model under -- as a DPAI model as well as understanding the interface and the biology that's measured there. We also have looked at that and see that it can help some of the prognostic, but we're also really understanding that through the GRID work we've done, we see a lot of opportunity, as Marc mentioned, on the molecular features that are coming out of the GRID and the different signatures. And we're excited about the LUM-B, non-LUM-B distinction that we saw presented at ASTRO. We're excited about the P10 activity, that's STAMPEDE activities. And we're seeing a number of the signatures that are predictive for therapeutic benefit. And so we are in an excellent place to look at the interface between the 2. Right now, we're driving forward with the molecular features because they're predictive, and we're in the best position of anybody to bring digital pathology into the clinic in a complementary and in a rigorous way. Marc Stapley: Thanks, Phil. Okay. And Doug, you had a -- sorry, hopefully, we answered that question and you had a question on financial. Douglas Schenkel: Yes. No, that was fantastic, and I appreciate all the detail. And in an effort to be respectful to my sell-side peers, I'm going to try to make the follow-up a much quicker one. I think for Rebecca, you're a year ahead of plan on margin targets, which is fantastic. There are areas you've talked about planning to invest in next year, like I think building up the breast channel is one example. How are you contemplating balancing the margin trajectory and the upside that you're generating with maybe the opportunity to opportunistically maybe pull forward some investment in a period of strength to drive future growth? Would be curious to just get your thinking and obviously, that helps us as we're contemplating the model updates. Rebecca Chambers: Yes, absolutely. Thanks, Doug, for the question. And you're right, we're in a very privileged position that we've gotten to based on really solid portfolio management and planning and quite regimented project prioritization. And I don't expect that to change. We have also a number of different initiatives that we're undertaking. As we did our strategic plan this year, we actually thought that the number of opportunities we had to invest in was almost embarrassing. It was a wealth of riches. And we remain in an incredibly fortunate position in terms of being able to help patients across the cancer care continuum with those investments. And so we are accelerating them to your point. This Q4 guide implies we hire a number of heads that we're working on hiring. We spend some money on clinical trials that we're hoping to spend and also, we start to scour the landscape for the best breast sales leader. And so all of those things will happen in 2025 are implied in the approximately 25% Q4. As we have talked about previously, looking ahead, we really do plan on managing to that approximate 25% adjusted EBITDA target going forward. We have a number of tailwinds on the gross margin side next year that we will benefit from, including the full year of the v2 transcriptome. And we have obviously the benefit of no longer having the burn of the French entity. Those will be -- those kind of good guys will be offset by incremental spend on the breast channel, incremental spend on MRD and incremental spend on the Prosigna launch in general and the development to get there. So I think -- think about that 25% is our goal in any given year. And we're going to do our best to manage the P&L to that, and we will be bringing forward spend into 2025 to accomplish this. Operator: Our next question comes from Puneet Souda at Leerink Partners. Puneet Souda: I'll try to wrap both of my questions in one, hopefully not too long. On the prostate side, you're well above 25% volume growth for Decipher. My question is, given the penetration that you have today, how should we think about the 2026 growth? Can you still grow more than 20% in volumes here for Decipher in '26? And then on the MRD side, I would love a perspective from Phil and the folks in the room as well. I appreciate you're getting closer to the launch here on MRD. But we have seen data so far from competitors where we have moved from observational trial to not prospective data sets that are getting published in NEJM. We saw the [ Tece ] data with the IMvigor011 MIBC trial. And there are other data sets that are coming from CRC, lung, other competitors entering the market. So how should we think about Veracyte's MRD position? And more importantly, what's the market strategy here? How do you differentiate? And how do you go to an oncologist and say, here is a test that you ought to employ in your practice, just given the competitive landscape? Marc Stapley: Yes. Thanks, Puneet. On the first question, let me take that real quick. And I'll actually cover this as a company as a whole, including Afirma and Decipher. You kind of -- this question of durable long-term growth has been a question that we've dealt with for quite a while, understandably. And if you actually take a look back and look at Afirma has grown year-over-year for the last 13 quarters. Decipher has grown over 25% in volume for 14 quarters in a row. And if you think about where they both were coming into the year when we looked at the market numbers, Afirma was about -- we had about 1/3 of the TAM and Decipher, we had about 25% of the TAM. So in both cases, there's significant growth opportunity ahead, which is why we've said we feel that the market penetration and market share opportunity and the tailwinds we have and frankly, the lack of headwinds given everything we've done around evidence and NCCN guidelines and so on is what's going to help us get -- comfortably get double-digit growth durably for the foreseeable future, and that includes 2026. So that isn't a concern of mine. When you actually take those 2 core ones alone and you get double-digit -- comfortable double-digit growth and you add to that MRD and Prosigna in the nearer term and international and nasal swab in the longer term, you can see we've got a pretty well mapped out. Since you brought up MRD on that one, I mean, we've had data published for our MRD test, including in bladder for quite a while. And as I mentioned today, we've got a lot of publications that are in the works. We've talked about UMBRELLA before. We've talked about NEO-BLAST today. I'll let Phil talk about his excitement around some of the clinical studies very, very briefly. But essentially, we are very much doing our bit to make sure that we're part of the evidence generation journey. Phillip Febbo: Yes, Puneet, thanks for the question. And I really feel quite confident that between the performance of our test, the strength of our clinical evidence portfolio and our commercial channel, we're going to be a leading competitor in muscle invasive bladder cancer with our MRD test. It's incredibly exciting to see the prospective trials come out like IMvigor011. It was incredible to see the NIAGARA trial to talk about in the neoadjuvant setting. These are foundational trials that are really demonstrating that MRD status is a new disease state and a state that we can take full advantage of the medical oncologist. I'm extremely excited to be able to manage patients more precisely and earlier with a compendium of therapies that are more effective. We will have to demonstrate with confidence the performance of our tests and I have confidence in our portfolio. What I've seen already, as Marc said, we've already published. We're already in prospective trials. And to cross back to a question that Rebecca had, our clinical trial portfolio will -- we do have opportunities to use some of that margin on our clinical trial portfolio, and we are doing so. Veracyte, I came to Veracyte because of the consistent history of investing in evidence, and this is no exception. Rebecca Chambers: And just one last thing to add to Marc's response on 2026, Puneet, just to sum it all up, we are -- as we're sitting here in our budget planning season, our early look at 2026 revenue is above the Street just to be blunt about it. So we're obviously not guiding today. We'll guide either early in the first quarter at a competitor's conference or shortly thereafter on our Q4 call. But given the trends we're seeing year-to-date, quarter-to-date in Q4, we're extremely excited about 2026 and beyond. And that even is taking into account the around $10 million headwind from biopharma and other revenue that we won't have next year. So I think as we're sitting here, we're -- the playbook is working, right? What we've invested in is demonstrating the evidence, which is demonstrating the utility, which is demonstrating the guidelines and coverage and growth and penetration. Marc Stapley: Thanks, Rebecca, thanks Puneet, for the question. Operator: Our next question comes from Kyle Mikson at Canaccord. Kyle Mikson: Congrats on the awesome quarter. Maybe, Rebecca, on your point there, when you look at the Street estimates for '26, I mean, when you look at like what Decipher is expected to do, what we think Afirma can do, where are people underappreciating Afirma, for example? Just curious what you think about that. And then maybe for John or for Phil, the molecular features for Decipher, just could you talk about how much of the unmet need those signatures are and if there's a pipeline beyond PORTOS and PTEN? Rebecca Chambers: Yes, I'll take the first one. Effectively, the range is pretty wide on each, Kyle. So I don't want to make a statement that's general in nature and have it be expounded or extrapolated into something that is wide in nature. So I would say, in general, we're above the average, but I don't want to go beyond that given I don't have the ranges in my mind for each. So I think the statement can just be applied to the average for both. Marc Stapley: And then we'll let John talk about the commercial opportunity for molecular features and why it's important. John Leite: Yes. So molecular features are a response to the evidence that's emerging as these collaborative groups use Decipher more and more as a selection enrichment randomization tool. And the evidence from STAMPEDE, from PORTOS, from BALANCE were designed to meet a need in the market, which necessarily is treatment of and management of high-risk and metastatic patients is becoming more and more heterogeneous. There are clearly differences in response to a variety of these therapeutics. And so the need for a biomarker is exceptionally high. You can look at the results of those studies to see the benefit of using Decipher in those studies, and we're meeting that need by providing these signatures now in a consolidated report with these predictive biomarkers. Marc Stapley: And Kyle, think of this as a repeatable formula. It's enabled by GRID and whole transcriptome approach. And you'll see us at these signatures when the clinical utility evidence is there and there's an unmet need in our customer base. Operator: Our next question comes from Lu Li at UBS. Lu Li: Congrats on the quarter. First question, I wanted to dig into a little bit on the 2025 guide. It does seem like the Q4 would seem to be roughly flat as of Q3. Any days impact or maybe just like holiday season? Please correct me if I'm wrong on this one. Rebecca Chambers: No, it's a great question. So recall, we had $2.5 million of prior period collections in the quarter in Q3, and that isn't necessarily implied in the guide. So that would be one thing. The other thing is the way the holidays do fall is a little bit more challenging than prior years, but those are the 2 things I would take into consideration. The third thing I would say is we did have a little bit of French revenue in Q3 that won't repeat in Q4. Lu Li: Got it. Appreciate that. And then I wanted to dig into the breast investment in 2026. Possible that you can size like how big of the channel that you're planning to build? And then also the kind of like the spend related to the Prosigna launch? And then second, also related to kind of the margin question. On Afirma v2, I think it's not fully transitioned yet. I wonder how much of the cost benefit that we've already seen in the quarter? And then how much left that we can potentially see the margin benefit in 2026? Marc Stapley: Thank you for the question. I'll ask John to talk about the commercial scale-up strategy. John Leite: Yes. Thanks for the question. I mean we're excited about Prosigna. We're excited about in anticipation of the release of the OPTIMA trial results at ASCO 2026 and we're excited about the potential launch. To do that, we will have to build a sales channel specifically focused on breast cancer oncologists. We will do that in a very measured way. It's always been our approach to not get over our skis from a spend standpoint and to build the sales team as we see the demand emerging. The plan here is fairly prescriptive. All you got to do is look at how we launched and have led the field in Decipher with prostate cancer to understand how we will approach the market in breast cancer. We will lean into the GRID. We will lean into collaborations with key opinion leaders. We will lean in with buy-in from market leaders on the HCP side and drive the demand from the top down and build the sales team accordingly. Rebecca Chambers: Yes. And in terms of the gross margin in the quarter and the v2 transcriptome, so think about the gross margin dynamic on testing as a quarter -- I'm sorry, a month of goodness from the V2 transcriptome for 1/3 of the Afirma volume. Obviously, as we transition throughout Q4, that will -- by the end of Q4, that will go to 100%, but I would really think about that only being at 100% for '26. We also had the benefit of $2.5 million of prior period collections in the quarter. And then we did have a decently sized write-off associated with v1 transcriptome reagents. And so those all kind of netted out with regard to the testing gross margin trends on a sequential basis, if that helps. We're not going to quantify the v2 transcriptome benefit because effectively, it's one of our levers for fueling the investments across the rest of the portfolio and don't want folks to get ahead of themselves on profitability. We will be managing our P&L to that 25% in '26 and beyond, and that gives us ample room given the programs we have in hand to invest for continued revenue growth while also delivering a best-in-class financial profile. Operator: Our next question comes from Subha Nambi at Guggenheim. Subhalaxmi Nambi: There have been a lot of updates throughout the year when it comes to competitive landscape for Decipher. In your view, in what ways have things played out as you expected? And what has surprised you the most? Marc Stapley: Yes, great question, Subha. Thanks for that. There have been a lot -- and there will continue to be competitive updates, I think. And I think similar to what we talked about for MRD, there's a rising tide here, and we were able to benefit from drafting on others to pave the way for molecular diagnostics in prostate cancer. And through evidence development and having a strong test and ultimately NCCN guidelines, we've been able to benefit from that. It's played out maybe better than we thought, frankly. I think Decipher has taken more share than I would have guessed it would coming into the year. And the NCCN guidelines are kind of an unknown quantity. It's hard to quantify the benefit you're going to get from those. And then obviously, there's been a fair bit of noise around DPAI, and we addressed that question extensively at the beginning, and that's turned out to be a lot of noise and not a lot of substance in terms of the market share and the growth rate that we're seeing in Decipher. Subhalaxmi Nambi: And then do you still expect to have a commercial Prosigna LDT midway through 2026? And if yes, could you provide some color on the time leading up to then? Like what should we expect to see LDT performance data and so on and so forth, I think the [ OPTIMAS ] data? Marc Stapley: Yes, we do expect to have a commercial Prosigna LDT halfway through 2026. You're not going to see a ton of data from us there because we're -- obviously, you've seen the OPTIMA PRELIM data. We're waiting for the final OPTIMA data. That's the key evidence behind that test. And then actually generating that test in our lab is a pretty straightforward process for us with a tech assessment, validation, bridging, New York State approval, all those things, which are fairly normal processes for us to follow. Operator: Our next question comes from Mason Carrico at Stephens. Benjamin Mee: This is Ben on for Mason here. On MRD, would you be able to provide some color on the overlap of urologists that are treating prostate cancer and our Decipher targets and are also those treating muscle invasive bladder cancer that are going to be targets for your MRD assay. What's the overlap here? And really just what does that Venn diagram look like of those 2 urologists? John Leite: I mean it's an exceptionally high overlap. Thanks for the question. We expect to be able to serve upwards of 70% of the TAM based on the channels that we currently control. These are primarily going to be a combination of urologists and oncologists. We feel confident we can serve the market. Benjamin Mee: Okay. Great. And then I appreciate the color that you gave on Decipher's growth in high-risk patients this quarter. Are you able to go a little deeper there and maybe comment on how ordering patterns have trended in localized patients after urologists have adopted the metastatic offering? Is this a fairly immediate impact to orders that you're seeing? Marc Stapley: Maybe I'll take that just in terms of stratifying the Decipher market that we're going after. Obviously, we added 30,000 patients when we launched metastatic and now we have the full TAM addressable by Decipher. We also mentioned BCR-based patients, which could be part of the prevalent population, hard to size it, but that's a potential upside. Of course, you've got incidence growth as well. When you kind of subdivide the localized disease population, we've said over 20% in low. So that's actually quite a high penetration for us. We said that the high risk is actually one of our highest growers this quarter, and that's driven a lot by the metastatic data that's come out as well. And so while intermediate has always been the highest penetrated and maybe even the highest growing area in the past, it's clear that we are making great traction in every single risk category of prostate cancer patients and metastatic really helped that. And GRID and everything else, NCCN guidelines help that as well. Operator: Our next question comes from Andrew Brackmann at William Blair. Andrew Brackmann: Maybe just on TrueMRD here. I appreciate all the color on the studies in the pipeline there. But can you maybe just sort of talk about some of the considerations that you have when you sort of think about choosing which indications to expand sort of each year as we sort of look at it, some of those indications are a bit crowded and there's others where Veracyte has a great channel. And so how do you sort of think about building out that annual road map of additional indications? Marc Stapley: Yes, it's a great question. And Andrew, thanks for referencing our brand, TrueMRD. We're excited about that product. Obviously, we fix muscle invasive bladder cancer for the reasons John just highlighted in terms of the Venn diagram and the overlap there with our existing customer base. You can imagine us really potentially going after any market with TrueMRD because it is a pan-cancer platform. But we will go after markets where we have an inherent advantage, for example, where we have an existing channel or building a channel. It's really great for us to build out the entire care continuum. I think it will really help in MRD to be a company that is able to support that patient and that physician right at the upfront in their diagnostic journey with a prognostic test or a diagnostic test or a predictive test as they're being treated and then an MRD test post treatment. And so obviously, covering that whole spectrum there will be an important advantage for us. And then beyond that, it will be subject to things like cohort availability, existing published data that we've already got. We won't shy away from competitive markets. We believe our whole genome-based approach is a differentiator. And so that will certainly -- some markets will be harder to go after than others, especially where they're already well penetrated. And let's face it, most MRD markets are not well penetrated today. So plenty of opportunity. But we won't shy away from it. We'll just be thoughtful about how we do that and the timing. Andrew Brackmann: Okay. That's perfect. And then somewhat related to that, another great quarter of cash generation here. So how should we sort of be thinking about your appetite for maybe expanding the portfolio through some acquisitions to maybe round out that care offering? Marc Stapley: Yes. I mean, absolutely. We've -- I'm very pleased with the performance of the business, especially the cash generation as well this quarter. And as Rebecca said, we're going to -- first and foremost, we look at investing in our business, clinical trials, product development, some of the stuff in infrastructure. We're really building an incredibly efficient engine here at Veracyte, and we have the opportunity to be able to do that. M&A, of course, is on the list. And if there's something that makes sense, then we would go after it. But our narrative on this hasn't changed one bit. The funnel isn't huge. We look at everything. We kick the tires, and we're very diligent, and we're not -- this cash doesn't burn a hole in our pockets, far from it. It doesn't change the VC approach that we take. And then beyond that, other capital allocation opportunities, none of which are top of mind for us right now. Anything you want to add, Rebecca. Rebecca Chambers: No, you covered it quite well. Operator: Our next question comes from Andrew Cooper at Raymond James. Andrew Cooper: Maybe first, just one on some of the numbers. I think in the script, you called out a little bit of timing of spend on the 30% EBITDA margin this quarter, but you do have EBITDA up, I think, around $10 million or so at the midpoint. So when you think about those prior plans versus where we are now, what was timing? What was operational performance? And then maybe in the guide, is there any incremental spend that you're pulling in that wasn't expected in '25 in the first place? And how do we think about sort of the jumping off point as we head into next year from an OpEx perspective? Rebecca Chambers: Yes, fair question, Andrew. So effectively, what was good news was the revenue outperformance versus our commentary plus prior period collections, which obviously flowed on 100%. I would say there was a little bit of v2 Afirma goodness in there, a little bit further ahead of kind of the transition than we would maybe have expected, though that's a rounding error. With regard to the 2025 spend, I would say there -- I wouldn't call it anything specifically material that would fold in. I would say maybe a couple of heads here and there, but we just try to derisk it as much as possible. And the jumping off point for next year, I think you've effectively quantified it decently well. You can effectively back into whatever you think the revenue number is with getting to that 25% adjusted EBITDA for 2026. Andrew Cooper: Okay. Helpful. And then already asked, maybe just a little bit more on the Molecular Features Reports. Help us frame how that fits in from a competitive perspective and what you think that can do? Is there any opportunity to kind of go out and monetize that a little bit more directly? How does it compare to something like Promoter Score that you've added on Afirma and what that's helped kind of enable with that platform? John Leite: Yes. Great question. No, there isn't a way to monetize it directly. But I believe it's yet another way that we continue to improve self-disrupt, add evidence, prove to each one of our HCP customers that they are using the best tool to make the most informed clinical management decision on behalf of their prostate cancer patients. This is just one more thing that we will continue to do. Phillip Febbo: Just to add from a medical perspective, adding these features to our report underscores the value of the biology. And so the treatment of men in that high-risk group and that biochemical occurrence in the metastatic group where we're seeing some very good growth because of our coverage -- recent coverage in metastatic and increased interest in the high risk is getting more complex. We have hormonal therapy. We have chemotherapy. We have radiation therapy. We have a whole slew of therapeutics, adding predictive signatures to complement the best-in-class prognostic signature will really help clinicians, urologists as well as some of the radiation therapists and medical oncologists in that space. And so it's part of the Decipher report, but it really helps drive a lot of and inform some of the increasingly complex decisions managing those higher-risk patients. Operator: This concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, and welcome, everyone, to the Purple Innovation Third Quarter Earnings 2025. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Stacy Turnof. Please go ahead. Stacy Turnof: Thank you for joining Purple Innovation's Third Quarter 2025 Earnings Call. A copy of our earnings press release is available on the Investor Relations section of Purple's website at www.purple.com. Before we begin, I'd like to remind you that certain statements made in this presentation are forward-looking statements. These statements reflect Purple Innovation's judgment and analysis as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. You should not place undue reliance on these forward-looking statements. For more information, please refer to the risk factors outlined in our filings with the SEC. Additionally, today's presentation will reference non-GAAP financial measures such as adjusted gross margin, adjusted operating expenses, adjusted EBITDA, adjusted net loss, and adjusted net loss per share. A reconciliation of these measures to their most comparable GAAP measures can be found in our earnings release available on our website. With that, I'll turn the call over to Rob DeMartini, Purple Innovation's Chief Executive Officer. Robert DeMartini: Thank you, Stacy. Good afternoon, everyone, and thank you for joining us. The third quarter unfolded largely as we anticipated, reflecting the continued execution of our strategic priorities. We delivered revenue of $118.8 million, up slightly compared to last year, marking an important inflection point following consecutive periods of year-over-year declines. We also achieved positive adjusted EBITDA, consistent with what we anticipated. Our results demonstrate ongoing progress towards strengthening the business and building a foundation for sustainable growth. As we move into the final months of the year, we're encouraged by the early traction we are seeing across our core initiatives and remain focused on driving improved operational performance and long-term profitability. Gross margin improved nearly 700 basis points sequentially to approximately 43%, even with tariff-related headwinds. Importantly, we remain on track to deliver positive adjusted EBITDA for the year. These results reflect solid execution across each of our strategic priorities. Our Mattress Firm rollout is progressing well with Purple products now being represented in nearly 9,200 slots today, keeping us on pace for 12,000 slots in 2026. Our Rejuvenate mattress collection, Rejuvenate 2.0, also continues to outperform our initial expectations. As we continue to catch up with second quarter backlog, sell-through remained strong and drove 6.5% showroom sales gains, marking an acceleration from the prior quarter. Meanwhile, wholesale revenue grew 8% during the quarter, supported by the ongoing expansion of our Mattress Firm partnership. E-commerce was down 10%, but showed early signs of improvement following our site refresh and growing traction with Amazon. It's been just over a year since we initiated the restructuring program in August of 2024, and it's important to reflect on how far we've come. At this time last year, we made the difficult but necessary decisions to consolidate our manufacturing footprint, to streamline our corporate structure and to realign our distribution network. These changes were not easy, but they were essential to strengthen the durability of our business for the future. Importantly, we accomplished this transformation while maintaining uninterrupted customer service levels. The early results are clear. We have reduced our fixed costs and expect to deliver $25 million to $30 million in savings annually. We're on track to achieve positive adjusted EBITDA and our gross margins have improved from the low 30s to more than 40% today. We're improving our operating efficiency and creating a business model that can deliver more consistent performance even during difficult market conditions. As we look forward, this leaner and more agile Purple is allowing us to redirect resources back into what matters most, innovation, marketing and our strategic partnerships. That's what's fueling the Rejuvenate 2.0 and the expansion with Mattress Firm, Costco, and others, and we see new opportunities to continue expanding our presence with new retail partners. Having made significant progress in stabilizing the business and improving the underlying profitability, we're increasingly focused on positioning our business for future growth. With a strong foundation firmly in place, our next chapter is centered on accelerating innovation and marketing investments. While there's still work to do, I am confident that Purple is on the right path. Now let me turn to our three strategic pillars and update you on our progress during the third quarter. Innovation remains at the heart of Purple's competitive advantage and continues to define our leadership in comfort technology. In the second quarter, we launched Rejuvenate 2.0, one of the most successful product introductions in our history, featuring our new DreamLayer gel grid technology. In our showrooms, Rejuvenate 2.0 has sold more than twice the number of units, doubling net revenue compared to Rejuvenate 1.0. Through our direct channels, we've sold more than 3,000 units at an average sales price of approximately $5,800, underscoring the strength of our premium positioning. We're also encouraged by the early performance of our GridC Pillow, which is outperforming expectations and demonstrates the versatility of our proprietary grid technology across new comfort categories. Our focus on differentiation continues to resonate with our customers across each of our channels and reinforces Purple's position as the leader in premium comfort. Starting with our showrooms. We delivered strong performance in the quarter. Net revenue grew 6.5% to $22 million, reflecting the strength of our premium positioning even in a softer traffic environment. Our showrooms remain a key driver of brand experience and sales conversion across all channels. Our new selling model has empowered our teams to more effectively communicate Purple's technology and value proposition, driving 12% comparable sales growth in the quarter. These results demonstrate the value of the showroom as both a brand experience and a growth engine. Showroom four-wall profitability reached an all-time high with record mattress order values of about $4,500, further validating the success of our path to premium sleep strategy. Momentum within our luxury mattress assortment also remains strong. Rejuvenate mattress sales nearly doubled year-over-year and 76% of showrooms are now profitable year-to-date versus 56% last year. E-commerce business is central to the shopping journey, and our website is often the first stop. It plays a critical role in building consumer confidence and guiding them towards the right products. While revenue in the channel remains pressured, we're encouraged by the recent signs of improvement. During the quarter, we enhanced our digital experience to reinforce Purple's premium positioning and highlight the less paying, better sleep benefits of our GelFlex and DreamLayer technologies. Our refreshed website with simplified navigation and richer video content has helped shift demand towards higher-priced mattresses. We also saw promising results in our Amazon channel as a growing share of sales moved to fulfilled by Amazon, improving both conversion and delivery speed. While there's still work ahead, we're pleased with the sequential improvement and positive consumer response to these initiatives. The wholesale channel grew 8%, driven by the rollout of Rejuvenate 2.0, and our expanding partnership with Mattress Firm. Momentum accelerated through the quarter and trends we are seeing early in Q4 point to sustained growth with our key wholesale partners. Today, Purple products are now in Mattress Firm's full store network, representing approximately 9,200 slots today, and we are on pace to reach 12,000 slots by March of '26. This expansion represents roughly $20 million in incremental revenue this year, and we anticipate approximately $70 million next year. We're working hard to unlock benefits for both partners through continued collaboration and execution. Beyond Mattress Firm, we're expanding with other partners as well. We're testing our entry into the Florida market with Mattress Warehouse, building on our existing 140-store footprint and broadening our reach through partners like Costco and QVC. Our Costco partnership is performing exceptionally well. We are currently in 54 Northwest stores and later this year, we'll participate in Costco's Q4 Furniture event in a minimum of 450 clubs, nearly double last year's footprint. And on October 2, we tested our first Purple Mattress program on QVC, offering another opportunity to share our technology with a wider audience in a live interactive format. For the new Rejuvenate mattresses, our non-Mattress Firm slot placement have now increased by 68% compared to last year, also highlighting Purple's growing relevance across the channel. Finally, turning to marketing. Our Less Pain Better Sleep campaign launched in the third quarter continues to perform well and has been expanded across digital and social media platforms. The message is simple but powerful, and it focuses on real sleep benefits and connects directly to our GelFlex Grid technology story. We also leaned into our expanded Mattress Firm partnership through joint campaigns, including their recent Sleep Easy promotion, which exceeded expectations and contributed to a strong Labor Day sales period. Across every touch point from our showrooms to our website, to our retail partners, we're driving consistency and message, look and feel. Our differentiation has always been rooted in innovation, but how we communicate it is what turns that innovation into brand preference. We're confident this focus on differentiation will drive stronger engagement, higher conversion, and sustained growth across our channels in the quarters ahead. Turning to our third strategic pillar, prioritizing gross margins. Our margin discipline remains firmly intact. Gross margins recovered to approximately 43% in the third quarter from 36% in the second quarter. This improvement reflects direct material cost savings, the completion of the restructuring plan, and continued progress in warranty and scrap reduction initiatives. Tariffs only impacted us by roughly $2 million this quarter as mitigation efforts continue to pay off. While April and May were challenging as the new rates took effect, our sourcing shifts and pricing actions have meaningfully reduced the overall impact compared to initial expectations. Looking ahead, we expect fourth quarter gross margins will remain at roughly 40%, albeit lower than the strong third quarter result, and we continue to be confident that we'll end the year above the 40% level. This progress highlights the operational discipline we've built into the business and the structural improvements that position Purple for sustained profitable growth moving forward, supported by our full Mattress Firm rollout and the sustained momentum of Rejuvenate 2.0 and anticipated holiday momentum. We are reiterating our full year 2025 guidance, expecting revenue in the range of $465 million to $485 million and adjusted EBITDA between breakeven and $10 million positive. Looking forward into 2026, we see a clear path to positive cash generation. Our capital priorities will focus on reinvesting in showroom expansion and innovation while maintaining flexibility to reduce debt as appropriate. Before I close, I'd like to briefly address the Board's review of strategic alternatives. This process remains ongoing. We have engaged with multiple parties about a broad range of opportunities to maximize shareholder value, including, but not limited to a merger, a sale or other strategic or financial transaction. We will continue to evaluate a range of options and provide further information as appropriate. We will not be commenting further or taking questions on this topic during the Q&A portion of today's call. Now I'd like to turn it over to CFO, Todd Vogensen. Todd Vogensen: Thank you, Rob, and good afternoon, everyone. As Rob discussed earlier, we're pleased with our performance this quarter, which demonstrated our continued ability to deliver against our strategic initiatives. I'll now walk you through the financial metrics for the third quarter, starting with the top line. Net revenue for the 3 months ended September 30, 2025, was $118.8 million, up slightly versus $118.6 million last year, driven by the timing of Rejuvenate 2.0 shipments and the expansion of our Mattress Firm relationship. We saw strength in both showroom and wholesale that was partially offset by softness in e-commerce. By channel, direct-to-consumer net revenue for the quarter was $67.2 million, down 5.1% versus last year. Within DTC, net revenue for showrooms in the third quarter was $22 million, up 6.5% compared to last year despite 4 fewer stores opened this year. Last quarter, we experienced timing issues related to Rejuvenate 2.0 launch as demand for Rejuvenate 2.0 has significantly outstripped our ability to supply customers. Those issues have since been resolved. Our delivery schedule has normalized, and we've seen continued momentum in showroom sales trends. E-commerce continued to see softness and was down 9.8% during the third quarter, but was a sequential improvement from the prior quarter. We also experienced a notable increase in our wholesale segment, where net revenue of $51.5 million was up 7.9% versus last year, driven by strength in our Rejuvenate 2.0 launch and our expansion with Mattress Firm. As we look toward the fourth quarter, we're encouraged that the sales trends should continue to improve even further. Gross profit for the third quarter increased to $50.9 million or 42.8%, compared to $35.2 million or 29.7% in the prior year period. Adjusted gross margin, which excludes restructuring and related charges, expanded to 42.8% in the quarter compared to 40.5% last year. With the restructuring now complete, we also benefited as we delivered greater manufacturing efficiencies and direct material cost savings in addition to improved warranty trends. While we expect some of those short-term benefits to moderate as we move into the fourth quarter over time, we do expect to continue realizing sustainable structural improvements as production continues to scale at our Georgia facility, and we also see greater manufacturing efficiencies and direct material cost savings opportunities in the future. Now turning to operating expenses. Operating expenses were $63 million, down 23.2% versus $82 million last year. The improvement was largely driven by a reduction in restructuring and impairment costs in the current year in addition to benefits from the restructuring and other cost savings initiatives that we've completed over the past few quarters. Excluding restructuring and impairment-related charges, adjusted operating expenses were $57.7 million, down 8.6% versus last year. Our adjusted net loss for the third quarter was $8.6 million compared to an adjusted net loss of $13.8 million in the prior year. And third quarter adjusted loss per share was $0.08 compared to an adjusted loss per share of $0.13 last year. Adjusted EBITDA for the third quarter was a gain of $200,000, an improvement from the loss of $6.4 million last year, driven primarily by our gross margin expansion and disciplined cost management. Now turning to the balance sheet. We ended September with cash and cash equivalents of $32.4 million compared with $29 million on December 31, 2024. Net inventories on September 30, 2025, were $65.8 million, up 9.8% compared to September 30, 2024, and up 15.7% compared to December 31, 2024. We were pleased to exit the quarter with cash over $30 million again as we move into the fourth quarter, which is traditionally a period of cash generation. We believe that we're well positioned from a liquidity perspective to drive expected growth from our Rejuvenate 2.0 launch and the Mattress Firm expansion. Finally, guidance. As Rob discussed earlier, we are reiterating our full year outlook. We continue to expect full year revenue in the range of $465 million to $485 million and adjusted EBITDA between breakeven and $10 million. As we move into Q4, we anticipate continued top line growth driven by the seasonal lift in direct-to-consumer sales during the Black Friday, Cyber Monday holiday, an expansion of business at Costco, as Rob described earlier, our Mattress Firm expansion and sustained momentum of our Rejuvenate 2.0. In addition, we expect a sequential acceleration in EBITDA that is fueled by our revenue expansion and the continued momentum from our restructuring initiatives and sourcing improvements. With that, I'll turn the call over to the operator for questions. Operator: [Operator Instructions] We'll take our first question from Bradley Thomas at KeyBanc Capital Markets. Bradley Thomas: Congrats on the improvement in the business that you all are driving here. Rob, that's actually where I wanted to start off with my first question. Just as you see the acceleration in sales in the business, I guess, could you speak to what, if anything, are encouraging green shoots that we might be seeing in terms of the industry overall versus how much this is coming from the multitude of initiatives that you all have underway right now? Robert DeMartini: Thanks, Brad. And hard to put my finger exactly on it. I think most of the people in the category, ourselves included, in Labor Day thought the market was starting to show signs of improvement and then the back half of September was pretty mixed and soft. I think we're the first reporting company in the category, but I'm expecting kind of flattish overall category results. So I think we own both the parts of our business that are working well and then the parts that still need a little bit of work. But wholesale is clearly growing behind expanded distribution. And I'd point out that we're encouraged on our performance because we've had a pretty significant expansion of slots and slot productivity has remained about the same. It's down a little bit in Q1 or Q3 because of all the flooring that we did. But since then, we're seeing it pick back up. So that's the first point. The second is the showroom performance: 6.5% up, 12% comps. I think 12% comp is going to stand up against any retailer, and we're encouraged by that. And even in e-com, as Todd talked about, we were down about 10% in the quarter. But during the quarter, each month got a little bit better, and we're starting to see the new marketing show some real early signs of success. Too early to declare anything, but we're encouraged on the direction. Finally, on the market, it doesn't feel like it's getting a lot better. It also doesn't feel like it's getting worse. So I think we're probably at the bottom, and we're certainly well positioned to capitalize if the market gets better in Q4 and early 2026. Bradley Thomas: Maybe I could ask a question just on the margin front or the business front financially more broadly. Clearly, a number of the revenue initiatives that you have underway are going to wrap into 2026 and be a nice boost through the first half of the year. Can you talk to how you think about flow-through to the bottom line and any other margin opportunities for you as we think to 2026? Todd Vogensen: Sure. So as we look at gross margin, we really are starting to see all of those benefits from the plant consolidation and our restructuring efforts. As we look at it, we've been hitting that 40% gross margin level pretty consistently. And with the 42.8% this quarter, I think we've shown that we've been able to capture those efficiencies and would expect to be at around that 40% level going forward. From a breakeven perspective, we used to talk about the business needing to be at $55 million to $60-plus million a month in revenue. We're down to the point where basically at $40 million or even a little under that per month, we're able to break even and then scale from there to generate profitability very rapidly. The cash just flows through the bottom line very quickly with the model we've developed at this point. Operator: We'll go next to Matt Koranda at ROTH Capital Partners. Unknown Analyst: It's Joseph on for Matt. I just wanted to see if you guys can kind of bridge us on your adjusted EBITDA guide here. Implied EBITDA in the 4Q is roughly high single digits. Can you bridge us as we exit 3Q on a flattish margin? Todd Vogensen: Sure. So a big part of what we're looking at in Q4 is the continued revenue acceleration from all the factors that we talked about, moving into what is traditionally our highest revenue quarter of the year. We are on the backs of continuing our expansion in Mattress Firm, the Rejuvenate 2.0 launch, continuing to pick up steam. We also have strong plans as we go into Black Friday and Cyber Monday from our direct-to-consumer channel. So a lot of things really pushing towards the positive on the top line. And while we do that, we're still able to maintain that 40%-ish level of gross margin and strong cost control. So that incremental revenue flows through very quickly. Unknown Analyst: Then as we kind of approach like the 1,200 mark in -- the 12,000 mark, excuse me, on your Mattress Firm slots, how should we think about it going into 4Q? And then obviously, you guys stated that, that 12,000 should be hit in March 2026. Should it be an even split? Or should we ramp up most of those slots early 1Q '26? Robert DeMartini: No. I think -- I mean, just to be clear, we're working on a specific collection of Rejuvenate. So a product that's already performing well in the market. And I think that incremental 2,800 slots or something in that neighborhood will happen at the end of Q1. Operator: We'll move next to Bobby Griffin at Raymond James. Robert Griffin: Rob, just quickly on just how the quarter played out. I think we were -- we entered the quarter or at least when we spoke last like up, I think, mid-single digits in revenue. and then we finished flat. Was that just a function of the softness of the last couple of weeks? Or did some of the timing of the rollouts change a little bit where there was some expected revenue that just shifted into 4Q? Robert DeMartini: No, we were chasing Rejuvenate all through the second quarter and into the third. But I think the difference when the first half of the quarter looked like it was developing more strongly and was pacing at a stronger development. And then post Labor Day, the market was just -- for us, at least, was really soft. The discussions I've had with others is it was mixed at best. So I don't think we were unique there. But luckily, we've seen kind of a return to the strength we were hoping in October, but it was after Labor Day. Robert Griffin: Then I just wanted to clarify, the gross margin, you guys ended 3Q at, call it, 43 round numbers, 42.8%. You expect it to be down sequentially and that would be down pretty meaningfully year-over-year. And is that just -- what exactly is driving that? It's just the mix going more to wholesale with these launches? Or what exactly is driving that? Because you talked kind of about 42.8%, and then 40% as a round number. So just wanted to kind of clean up where we actually expect grosses to be at in the fourth and what is a sustainable gross margin given the changing mix here of Purple's customer base? Robert DeMartini: Yes. Let me come at that backwards and see if it gets you what you're looking for. I mean I think 40% and north is clearly sustainable. Period. We think that I don't want to pin a number to it yet, but we can get and stay north of that with our current wholesale mix because the mix hurt DTC to wholesale is being offset by the premium positioning of the product and the way the mix is changing both in wholesale and in e-commerce and showrooms towards the premium product. So I think that's the mix. The down in Q4, what we're planning is a pretty competitive environment, and you spend a lot of the quarter on promotion. And I think that's the biggest drain to that gross margin. Robert Griffin: Then it does seem like, look, you got the wholesale business outgrowing with some accounts, nice comp in showrooms. There's still some work to be done on showroom profitability. So I'd be curious to kind of see you unpack -- if you could unpack kind of that aspect of the stores that are not EBITDA profitable. I think you gave some statistic. I missed it on the call. Then the second part of the question is just maybe it's more strategic, but as this business kind of continues to evolve, you got 2 of the parts of the house growing, e-commerce remains pressured. Just kind of what do you think of the long-term e-commerce opportunity here for Purple? Has it changed now given some of the success with wholesale and what you're seeing out of some momentum in the showrooms? Just curious thoughts there, Rob. Robert DeMartini: Yes. No, Bobby, we're still very bullish on e-com, and we think we've had a bit of a communication problem that we refreshed the website at the end of September and early October. The early signals of that are that we are moving in the right direction. The mix is improving in e-com as well, not as rapidly as showrooms, but it is improving. So we're not stepping away from e-com at all. And we also are recognizing that as we expand our distribution footprint, e-com as a stand-alone channel will continue to have to work very hard to make the sales that they make, but we're not going to step away from it. And the second -- first part of your question was on showroom profitability. The numbers I quoted is 76% of them were profitable in Q3 versus 56% last year. This channel is going to be profitable. Showrooms is going to be profitable for us. We've made nice progress. And I would suggest that we probably always have somewhere between 5% and 10% of stores that just either aren't working the way we hoped or are structurally going to be a challenge because of high rent. But it's going to be a vibrant channel that we will go back to investing in, in the future, and we're encouraged by the profitability that they're driving right now. Robert Griffin: Very good. Well, I appreciate the details and congrats on some of those moving parts, especially the showroom comp and getting the launch going. So best of luck here in fourth quarter. Operator: We'll move next to Daniel Silverstein at UBS. Daniel Silverstein: Maybe just to start, if we want to unpack the third quarter a bit, how much of the improvement in the wholesale segment was driven by the additional Mattress Firm slots? And maybe a different way of asking is just how is productivity in other retail partners trending today? Robert DeMartini: Thanks, Dan. So a couple of things. I talked about our Costco business. That continues to grow very nicely. We've been online broadly for them for about almost 2 years. We're now in permanent -- permanent is wrong. We're in in-aisle distribution in 54 of them. And then the year-end year start event, their furniture mod will be in 450. So that's a nice piece of growth that has a lot of upside. On mattress productivity, the Mattress Firm launch actually hurts your productivity in the short run as you load in all of those floor samples. But we are seeing that the overall productivity held with a significant increase in slots. So to me, that's encouraging. And then we've got other -- a number of other customers that are doing well and maybe a couple that are not doing as well as we want. So it's better than a mixed bag, but there is a mix of performance across our wholesale network. Daniel Silverstein: Then just one follow-up. So to your point, it seems like there's some pretty good visibility into the sales building blocks next year. Specific to the $70 million from Mattress Firm, what's in your control to drive that number potentially higher? And then if the mix skews a bit more to wholesale next year, how might that impact profitability from a margin standpoint? Robert DeMartini: All right, Dan. I think the wholesale growth doesn't concern me on a margin basis. I think the performance of the premium business will continue to be able to offset that degradation. And the Mattress Firm forecast is built on us performing at levels we've been at. We have not assumed improved slot productivity, but we have held it. So you could build an argument that there's a little bit of risk in that. But we've got to work with them to make sure we're getting the most. And we also have to compete to perform in those slots that we're in. So we're spending more money at retail with them. We're spending more money on marketing and demand creation. And we have a lot of excitement behind the Rejuvenate product that they'll put in, in the first quarter. So it's a difficult environment. They're a challenging partner, but all for the good. We've got to perform and make sure we grow their business. If we do that, ours will develop as we outlined. Operator: That concludes our Q&A session. I will now turn the conference back over to Rob DeMartini, for closing remarks. Robert DeMartini: I'd just like to close by saying thank you to the Purple employees all across the country that have worked so hard to stabilize this business and get it more durable. And I think we're incredibly well positioned as the market eventually improves. And I want to say thank you to our partners who have stayed with us and showed faith in our efforts. So with that, I'll close the call, and thank everybody for attending. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Hello, everyone, and welcome to SSR Mining's Third Quarter 2025 Conference Call. This call is being recorded. At this time, for opening remarks and introduction, I would like to turn the call over to Alex Hunchak from SSR Mining. Please go ahead. Alex Hunchak: Thank you, operator, and hello, everyone. Thank you for joining today's conference call to discuss SSR Mining's Third Quarter Financial Results. Our consolidated financial statements have been presented in accordance with U.S. GAAP. These financial statements have been filed on EDGAR and SEDAR, and they are also available on our website. There is an online webcast accompanying this call, and you will find the information to access the webcast in this afternoon's news release and on our corporate website. Please note that all figures discussed during the call are in U.S. dollars unless otherwise indicated. Today's discussion will include forward-looking statements, so please read the disclosures in the relevant documents. Additionally, we will refer to non-GAAP financial measures during our discussion and in the accompanying slides. Please see our press release for information about the comparable GAAP measures. Rod Antal, Executive Chairman, will be joined by Michael Sparks, Chief Financial Officer; and Bill MacNevin, EVP, Operations and Sustainability on today's call. I will now turn the line over to Rod. Rodney Antal: Great. Thanks, Alex, and good afternoon to you all. Our third quarter results have us tracking to close out the year in the lower half of our production guidance, where we continue to expect a stronger fourth quarter. Our full year all-in sustaining costs are trending towards the high end of annual guidance, and this is largely due to the impacts of higher gold prices on royalties as well as the share price performance over the year-to-date impacting share-based compensation calculations. Generally, the third quarter results were in line with our expectations. Before working capital adjustments, we generated $72 million of free cash flow, and we maintain a very healthy cash and liquidity profile to support the continued investment in growth opportunities across the business. We also made great progress on a number of other initiatives in the quarter. The Cripple Creek & Victor technical report should be ready for publication in the coming weeks. This will provide our initial view of the potential at Cripple Creek, where the technical report will feature mineral reserves that are aligned with the already in progress Amendment 14 expansion permit. At Hod Maden, we have now spent $44 million advancing the project this year and remain on track for our full year growth capital guidance of $60 million to $100 million. A key milestone of the work this year will be the comprehensive update included with the new technical report. This will form the basis of the project and construction decision in the coming months. To this end, Hod Maden remains one of the most compelling undeveloped copper-gold projects in the entire sector and work completed to date reinforces our view of extremely attractive asset returns. Across the rest of the portfolio, we have continued to make great progress in advancing organic development projects, including Buffalo Valley at Marigold, Porky at Seabee and Cortaderas at Puna. We're seeing some very encouraging results from the summer drill campaigns across all of these targets, where we hope to emulate the initial success of adding the initial 3 years of mine life extension at Puna. Bill will speak more of this later in the call. And lastly, we continue to make good progress at Çöpler and remain fully committed to a restart. We are in close communication with the relevant government authorities as we seek approvals to bring the mine back online. Overall, it was a solid quarter and as expected with good progress made on a number of initiatives across the portfolio. So now I'm going to call -- turn the call over to Michael to bring you through the quarter 3 financials, starting on Slide #4. Michael Sparks: Thank you, Rod, and good afternoon, everyone. In the third quarter, we produced 103,000 gold equivalent ounces at an all-in sustaining cost of $2,359 per ounce or $2,114 per ounce, excluding costs incurred at Çöpler during the quarter. For the full year, production of 327,000 gold equivalent ounces is in line with plan, and we are on track to finish within our full year guidance of 410,000 to 480,000 gold equivalent ounces, albeit in the lower half of that range. As Rod noted, higher-than-forecasted royalty costs and share-based compensation, coupled with production in the lower half of guidance is pushing our AISC towards the top end of our full year cost guidance range. We ended the quarter in a strong financial position with $409 million in cash and total liquidity of over $900 million. Our strong balance sheet ensures capacity to fund our numerous growth initiatives across the portfolio, which includes Hod Maden, where we incurred another $17 million in capital during the quarter. We are very excited about the progress of Hod Maden and look forward to sharing an updated life of mine plan and construction decision for the project in the coming months. Let's move on to our quarterly financial results on Slide 5. In the third quarter, we sold 105,000 gold equivalent ounces at an average realized gold price above $3,500 per ounce. Net income attributable to SSR Mining shareholders was $65.4 million or $0.31 per diluted share, while adjusted net income was $68.4 million or $0.32 per diluted share. As highlighted in the table, free cash flow in this quarter was impacted by working capital movements, particularly inventory movements at Marigold and CC&V as well as prepayments associated with development activities at Hod Maden. Accordingly, free cash flow before changes in working capital was $72 million, highlighting our strong margins despite continued investment in growth initiatives across the portfolio. Now over to Bill for an update on the operations, starting on Slide 6. William MacNevin: Thanks, Michael. I'll first start with EHSS. We continue to advance initiatives aimed at ensuring our purpose and values are reflected in everything we do. I'll share some examples of this. We've seen improvements in how we're applying risk review and mitigation in both our planning and field execution. There's also been great progress on integrating progressive closure into our life of mine plans, which has the potential to reduce overall cost to the business. Now on to Slide 7 for Marigold. In the third quarter, Marigold produced 36,000 ounces of gold at an AISC of $1,840 per ounce. These results were in line with plan, and we continue to expect a strong fourth quarter, albeit slightly below our initial expectations for the period. As we have advanced mining at Red Dot Phase 2, we have encountered a consistent grade profile aligned with our internal models. However, the ore has had more fines than expected, resulting in the need for additional blending to ensure pad recovery performance. Our technical teams at both Marigold and CC&V have been working collaboratively this year to improve ore body knowledge, focusing on processing planning. Through these efforts, we're improving our approach to ore blending at Marigold to ensure that we appropriately deal with the final ore we are encountered. With respect to growth, we're advancing work on Buffalo Valley deposit with the goal of fully integrating the project into the Marigold life of mine plan. This work is progressing positively so far, and we expect Buffalo Valley will provide a meaningful mine life extension opportunity for Marigold and potentially complement our Mineral Reserve growth at New Millennium. Now on to Slide 8 for CC&V. CC&V had a solid quarter, producing another 30,000 ounces of gold with an AISC of $1,756 per ounce. Key to highlight is the mine has now generated nearly $115 million in asset level free cash flow since acquisition, an incredible result given the $100 million in upfront consideration we paid to the asset earlier this year. The CC&V technical report is well on track for completion within the fourth quarter, and we're excited to showcase the initial mineral reserve life of mine plan. for which CC&V has clearly established itself as a core operation in our portfolio. We expect this technical report will showcase a 10-plus year life of mine and also highlight significant mineral resource upside to further extend the mine life. The key bottleneck to converting these mineral resources to reserves is the advancement of permitting for additional heap leach capacity. And our teams are working hard to set up -- set us on the right path for success for decades to come. Now on to Seabee. Seabee had a challenging quarter, producing 9,000 ounces at an AISC of $3,003 per ounce. These results reflected our continued focus on underground development as we noted in quarter 2 as well as some lower grade-than-expected grades. We expect production to improve incrementally in the fourth quarter, but we remain focused on prioritizing underground development into year-end as we aim to improve available stope inventory moving forward. Work at Porky targets continues, and we had some good success with the drill this summer as we aim to improve confidence in the existing mineral resources at the project and also test further opportunities for growth. We're excited about the potential here and look forward to providing updates to the market next year. On to Puna on Slide 10. Puna continued its track record of solid performance in the third quarter, producing 2.4 million ounces of silver, an AISC of just $1,354 per ounce. With the initial extension to Chinchillas operations announced in the third quarter, we are working to advance other opportunities to extend mining at Chinchillas while also continuing to evaluate the Cortaderas target. We're excited about the potential here, and we'll provide further updates as warranted. On to Slide 11. Lastly, at Hod Maden, we spent $17 million on engineering and site establishment work in the quarter. Year-to-date, we have spent $44 million advancing preconstruction activities of the project and remain on track for our full year guidance range of $60 million to $100 million in growth capital. Our technical teams have continued to advance an updated technical report for the project as we move towards a construction decision in the coming months. And the results continue to demonstrate an incredibly compelling project that could represent one of the highest margin projects in the sector once in production. We look forward to providing more detail on these initiatives to the market in the coming months. Now I'll turn back to Rod for closing remarks. Rodney Antal: Great. Thanks, Michael. Thanks, Bill. Progress in the quarter was solid on a number of fronts, and we're well positioned for a strong close to the year with consolidated production aligned to our full year guidance. We're making great progress at key projects across the portfolio and with updated technical reports for Cripple Creek & Victor and Hod Maden on the horizon, where we are keen to showcase a bright future for each of those assets and their upside potential. And of course, with continued efforts towards a restart of Çöpler, we firmly believe SSR Mining still represents a compelling value proposition moving forward. So with that, I'll turn the call over to the operator for any questions. Operator: [Operator Instructions] The first question comes from Ovais Habib with Scotiabank. Ovais Habib: Congrats on a pretty good quarter. A couple of questions from me. Just first one, starting off with your expectations of Q4. As you guys said, Q4 is expected to be a strong quarter. Is this basically strength coming from Marigold and CC&V. And then just a follow-up question to that, in terms of Marigold and the fines you are encountering at Red Dot, based on how much you can blend, could some of that production expected in Q4 spill into Q1 of next year? Rodney Antal: Thanks, Ovais. Look, I'll answer some of the questions and Bill and Michael can go ahead and add any other color if they feel. The answer to your first question around the quarter 4, yes, that was right. Predominantly, it was coming from Marigold. As we've talked about before, a stronger fourth quarter was always sort of set up that way to be the primary difference to quarter 3. And I think Cripple Creek itself will be more of what you've seen. And then from the answer to your question around the fines, yes, it certainly presents us with the necessity to handle them differently in terms of their placement and having available more durable material to be able to blend. So that is what we're working through at the moment on how we get the best result for Marigold for the last quarter by managing through the ore placement. In some regards, where we don't have durable ore available, we'll stack that ore on the higher portions of the leach pad. But where we do, we're obviously stacking on the new leach cell that Bill mentioned last quarter that we completed. So that's the -- that will be the key to finishing strongly at Marigold for quarter 4. Ovais Habib: And then just at Seabee, obviously, grade came in lower than expected. Again, was this a negative reconciliation issue? Or were you not able to access the stope or stopes that you were expecting to mine from in Q3? I was a little bit -- I didn't really understand the justification of the lower grade. Rodney Antal: I'll hand that one over to Bill. William MacNevin: Yes, Ovais, Seabee in the quarter had a good quarter increasing the amount of development we were doing, which is our focus. So we do have more available stope material. At the same time, we did have some of the material -- we had an increased proportion of material from the Gap Hanging Wall and some of that material came in at lower grade than we had expected. So that was -- that happens at some times, but they were the drivers. Ovais Habib: And based on the development that you've done, obviously, you're expecting a better kind of Q4 and better understanding of the stopes that you have in hand kind of going into 2026? William MacNevin: Yes. We still have some more -- a lot of development focus ahead of us for Q4 as well. And we will continue to work diligently in both Gap Hanging Wall and Santoy to get the best out of the ore body that we can. There was no surprises in what we found, so to speak. Ovais Habib: And then just my last question, I guess, on Çöpler. Rod, you mentioned you guys are having discussions with the regulatory bodies and things seem to be progressing. Any kind of -- again, is it more on the remediation side or on the restart side that the focus has been -- and obviously, I'm guessing you guys are pushing pretty hard on the restart side. But what I'm trying to understand is also, is there any community support that you guys are getting right now that is, let's say, pushing the regulators to make some sort of a decision moving into 2026? Rodney Antal: Yes. It's less about the last point of your question, Ovais. I think if you sort of take a step back since the incident itself, the early work was on -- and I'll say it again because it's important on securing the site, returning the -- our lost folks back to the families. We moved into remediation, which really focused on the clearing out of the Sabirli Valley, which was done and completed. And then remember, in the last sort of 6 months, the efforts have been around providing the -- all of the technical aspects to the regulators for approval of the storage facility and the closure of the -- the final closure of the heap leach pad. So it's sort of been a normal sequence of events that you would expect to go through. And we've been in constant dialogue with regulators. It's not a new occurrence. This has been going on since day 1 of the incident itself. But we're closing off some of those technical aspects for the regulators to approve it. And that will be the key to getting the approval to start the operations. But as it happens, more recently, and particularly you've seen it in the press, so it's nothing that is not public. There has been definitely a higher level of public support for a reopening, very, very marches, a lot of senior local folks supporting a reopening in the press and on TV and within the media more generally. So that actual uptick is actually more naturally occurred because of the fact that the community, the local community, in particular, are hurting around economic activity with the mine shut. So it's probably a coincidence in timing, but it really doesn't have a bearing on the -- it helps, but it certainly -- it's not the driver of getting the government to give us the approval. Operator: The next question comes from Don DeMarco with National Bank Financial. Don DeMarco: First off, yes, encouraging to hear what you just mentioned about the high level of public support for the reopening. But to my first question, I think I'll turn to Hod Maden. Of course, as you mentioned, there's a go-forward decision that's pending in the coming months. Looking at the guidance, you've reiterated guidance, but it seems like you might be tracking the low end of the range. Is there any items that may have been in the scope this year that's going to be carried into 2026? Rodney Antal: You're talking in particular in terms of the spend of Hod Maden. Don DeMarco: Yes, that's right. You're at $44 million year-to-date. I think guidance is $60 million to $100 million. So it seems that you're on a pace to kind of hit the lower end of that range. Rodney Antal: Look, I think -- sorry, Michael is going to say something, but I'll jump in. He pause for a second. We'll actually probably be more towards the midpoint of that guidance range. It's sort of a ramp-up, a normal type of -- as you would expect, there's a ramp-up of spend. But the committed spend that we have for the work that we wanted to get through this year is well advanced. So we're on track to spend what we had allocated to the project. It just happens to be the timing of the cash out the door. Don DeMarco: Was there anything else on that? Rodney Antal: The work has actually gone along very well. The effort that we put in this year was all predicated on using that information for the comprehensive update to the tech report, which is all coming together. And that is really the basis of what we'd be using to make a project approval decision to move forward. So everything is moving along on track in those regards and very pleased with the work that's been done at the site. Don DeMarco: So we'll look forward to that go-forward decision. Will there be a mine plan that's published at around the same time? And is the go-forward decision tied into Çöpler in any way? Like do you first want to see the Çöpler mine restarted before you commit to building another mine in the country? So just 2 parts to that question asking about the report and the potential connection with Çöpler. Rodney Antal: Yes. Well, look, it will be a comprehensive refresh of the technical report, Don, which will publish. And we haven't -- remember, when we acquired the asset, there was a tech report available at the time that we said that we wanted to do the work to ensure that what was contained therein is a project that we could actually deliver to. So the effort around the time since we acquired it has been going through all of the technical components around flow sheets, process flow sheets, all the met models, the geomet models, the geotechnical work around the site. It's a complex site from that perspective. And then moving forward with the early stage, some of the earthworks and civil works that are going on right now to ensure when we look at the critical path tasks to get the project underway and on schedule once we finally release the new schedule, we've got a head start on it. So as I mentioned, all of that goes into the update as well as then the sort of market work around going out to market and getting new pricing in today's dollars for the project itself. So all going very well, as I mentioned. In terms of the dependency, I guess, around the project decision itself on Çöpler, I've said all along, we're treating them as mutually exclusive from that point. It's an entirely different project in an entirely different region of Turkey. It has a completely different set of stakeholder groups. If you remember, the project is fully permitted, and that's really important. So we're not waiting on any permits. And the efforts on the ground around ensuring we have good community relations and good social support have been going along with the project development itself because they're a completely different group. So we're not attaching a dependency on Çöpler to the Hod Maden decision. Don DeMarco: And then just as a final question, if we just take a step back, a question about your strategy. I mean, certainly, you've got a lot of organic opportunities within the portfolio and then there's potential other growth levers with respect to M&A. Can you share any bias whether for potential growth or how your strategy looks ahead over the next, say, 5 or so years? Rodney Antal: Really no change, Don. I think we've always been fairly transparent around the criteria that we look at from an M&A perspective. And M&A can be everything from strategic to bolt-on acquisitions like we had with Cripple Creek & Victor. There is a number of criteria that we look for, and it needs to fit within those criteria for it to be a strategic fit, and we've always been very true to that. And we'll continue to follow that because I think it does provide a discipline to the way we look at the business. So no change at all, building on the core jurisdictions we have, building on the platforms that we've got in Canada, U.S., Argentina and Turkey is sort of a first order of priority for us, and then looking for those value-accretive opportunities that might be available from time to time. So look, we'll stay true to that. I think it's good practice. And it means that when we bring something to market that we like, you know that it has gone through a fairly rigorous due diligence process, and it fits on strategy. Operator: This concludes the question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Mark Flynn: Good morning, everyone, and welcome to Nova Eye's Investor Webinar for the September quarter. And thanks again for all of you joining, and some great interest in our recent results. Tom and I will cover the quarter's trading, the reimbursement update, the new 24-month clinical paper on the iTrack Advance, our guidance again for FY '26 and also an update on the drug delivery work stream. Very happy to take your questions. Please use the Q&A box. I have received some already from shareholders, and I will be asking those, but please submit the questions any time via the Zoom function. With that, we can kick off, and we'll get started and pleased to introduce Nova Eye's Managing Director, Tom Spurling. Over to you, Tom. Thomas Spurling: Thanks, Mark. Yes, over 50 people on the webinar. That's really pleasing that we always get good numbers. I want to, as I promised him, a particular shout out to Bilal Khan at New World Medical. He tells me that he listens intently to our story and reads everything we put up. I only wish that he was not a private company so that he could reciprocate the favor. So welcome, Bilal. Now just recapping our business, I'd like to remind everybody -- just to remind what we do have. So iTrack Advance is a leading minimally invasive glaucoma surgical device. We have FDA approval, we have CE approval, and we're nearly through our MDR process. And we're excited to announce this quarter NMPA, the Chinese government approval. And we've got strong reimbursement in the U.S. and in other major markets. There is 170,000 patients that have been treated with iTrack Advance. That is a lot -- I mean, you can say that's not that many, but that is -- there's longevity associated with our treatment, that means that it's safe and there's long-term safety data now. We are a participant in a large established global market that's growing. Now we only have 3.5% as we assess of the U.S.A. market. And -- but -- which means -- imagine if it became 7%. That's an exciting concept to me. We have a direct sales force in the U.S. and Germany. I know there's some questions about that. We have a large distribution partner in China. But in the U.S., we choose and very importantly, it's a major asset that we've got a strong footprint in the United States, dealing direct with doctors, which drives good gross margins. We have trailing revenues of nearly $20 million growing at -- growing more than 20%, and we're on track to be EBITDA positive. There is a lot of really good things happening with our business. Next slide. This is a reminder to us all, and a lot of you have seen this slide before about why doctors choose iTrack Advance. People ask, how do you separate iTrack from the rest of the field? It's this slide that is central to our pitch, particularly in the United States, but globally, as our sales team go out and talk to doctors. And as I say to everybody here that reads this, yes, well, of course, this is an Nove Eye deck, of course they're going to have green ticks across everything and where are the red ticks -- where are the red crosses? Well, if we had a red cross, the red cross would be on the right-hand side, it would say global footprint or footprint in the U.S., number of sales reps, number of investment in marketing and sales. We are carefully limiting that investment. We are not taking advantage of all those green ticks at the moment. We are progressing in accordance with what our shareholders demand, which is to improve the bottom line and grow the top line, and that's a balancing act I'm involved every day. FDA approved doesn't do any damage, a light to provide navigation and preserves tissue for future treatments. It is a wonderful procedure. Next slide. The wonderful procedure I described has most recently been put together in a 24-month results paper by our good customers, Simon Ondrejka and Dr. Norbert Koerber in Germany, where it was just recently published. The paper describes a study of 98 eyes, which is a good, as they say, end followed for 24 months. And the treatment with iTrack Advance showed high -- about a 20% reduction in IOP and near elimination of medication over the 24 months. We remember our pitch is, let's get you off drops a patient. A doctor says let's get you off those drops. And because the drops are what the manifestation of glaucoma to a patient is having to daily put drops in their eyes. Getting patients off drops is what patients are happy to do. And we've got some great data here that we are putting in the hands of our sales teams, and it will drive further adoption. Next one. The revenue, which we reported, it's now the -- so we have nearly got quarter-on-quarter growth in our direct markets. I highlight there the fact that Chinese revenue can materially change the amount in a quarter. Our delivery to China took place in October rather than September as scheduled, which is not unusual. It can be very lumpy. And our sales growth was good. I mean it was creditable, but it is a little lower than what we planned. Our commercial expansion of new salespeople in the Southeast of U.S.A. has been slower, and Canada was slower than we expected. They seem small matters, but every dollar, every sale, every day counts when we -- as we continue on our mission to grow our sales in accordance with the guidance we provided and in accordance with our mission of improving the bottom line and improving our operating cash flow. I'm really pleased to report that October 2025 was the biggest month in the history of the company. We will provide more color at the AGM, but that is a great milestone. Next slide. U.S. Medicare reimbursement over the years, the shareholders have been watching this, and we wait and there has been scares in this area. I wrote here during the third week of July that we got the proposed rates. And I write these rates are usually finalized in November. They were actually finalized yesterday. And well, the professional fee, there's 2 parts to reimbursement. One is the amount the doctors are paid and the amount that the facility is paying. And the doctors are paid depending on how they quote, either $542 for their labor or $724 for their labor. And doctors choose which one. And they don't always choose the highest one, believe it or not. But what's important is that, that proposed -- those professional fee rates, the doctors' rates were confirmed yesterday. We have not yet got the facility fee. So they were confirmed in accordance with the proposal, which is great news. We are halfway through making sure that -- more than halfway through, that our reimbursement for 2026 is solid. Facility fee will be expected any day now. Next one, Mark. Trading revenues are important. You can see we're up nearly $20 million. Our quote around across the globe, we're around that $1.3 million, $1.4 million per salesperson across the U.S.A. and Germany where we have sales team. And we -- our research indicates that this is a leading -- industry-leading statistic. Direct sales channels continue to deliver superior margins versus markets with distributors. I know we get questions about that all the time. Why don't you hand it over to a distributor? And I think I've used the term rather colloquially, distributors have no love. They will not look after you the way they will when they present to you at a nice dinner. They will lose interest. Our own sales reps owe us their time, their dedication, they deliver what we want. Next slide. Our FY '26 guidance, we can all study that. Our sales revenues are between $21 million and $24 million. We've got our trailing revenues nearly up there anyway. We expect breakeven in FY '26. That is a slippage against what we hoped, which was the first half, and we attribute that to the slower than below planned sales still ahead of everything, but just below where we wanted to be. And I've got to say that the timing and size of sales into China, which can be difficult to predict, and the timing, both timing and size, we're working on that, can impact breakeven as well. And cash flow from operations is expected to improve. Cash flow, of course, is impacted by working capital, not just EBITDA. So we will provide a little bit of story on that in a minute. Next one, Mark. A lot of questions about drug delivery opportunity. Now just let me recap what we're really here for. The primary mission of the business is to grow revenues and improve the bottom line of our interventional glaucoma business. We were approached by a large pharma, we are approached by large pharmaceutical, plural, companies and to talk about whether this catheter could do other things. We talked about -- we have had some feedback that during some -- feedback that the results are not any -- the results we got do not provide any definitive decision for us on timing. Just remember that because we're not spending our own money, it is not just about our device that's important. It's also about the drug efficacy that the pharmaceutical company wants to put into someone's eye. So the success of the project is not in our hands. The success of the project is in the hands of whether or not that drug -- that particular drug, and there's more than one involved, is important. So we'll continue to work with potential partners on this project, but we are not spending our own money on it. We are responding to requests because our mission is to -- I get lots of questions about your costs is to get bottom line in performance on our interventional glaucoma business. That's just to reiterate. Last slide, I think. Working capital facility. Some of you have noted that we now have working -- an unused working capital facility to fund inventory and accounts receivable. Our business has high-quality accounts receivable. It is nondilutive. It's secured by accounts receivable and the tangible assets of the company, not the intellectual property. We manage our cash very carefully. And before this meeting, we had our weekly working capital meeting. We look at inventory levels, accounts receivable, collections for the prior week, old accounts receivable and average daily collections and the payables that we need to make to keep our business going. That's a meeting that it's not just devolved to the lower levels of the Nova Eye business. We have a very thin management team. I'm directly involved in that working capital management. So I want to reiterate that this is a positive thing. We have sufficient funds to meet our objectives and the working capital facility is part of that. So that's what I wanted to present. There are some questions, Mark. Did you want to ask those? Mark Flynn: Some good questions coming through, Tom, and I've got a couple here, but I'll -- some received earlier and then some through the webinar now. So one question was, "What caused the Q1 expenses to be higher than in other quarters?" Now you may have answered this, but -- and a couple of these, but I don't think it's expenses, but can you answer that one? Thomas Spurling: Yes. We have never released expenses for the quarter. We have reduced cash. And I must admit that what I do know is that our company ratios are changing all the time because our sales are growing and there's leverage with our operating expenses against those sales. And there's nothing special about Q1. But all we really focused on was the key ratio of improving the EBITDA to sales ratio and ultimately cash flow from operations. We have highlighted our cash flow from operations, it continues to decline. And so I -- individual expenses in each quarter is we manage it on a ratio basis, I guess. Anything else? Mark Flynn: One through from Michael Youlden at MST, "What drove the strength in the record October sales?" Thomas Spurling: Well, October is a good month because it is, in ophthalmology, there is some trade shows. It's the end of summer. It's just a period in autumn before doctors want to get some surgeries done, in the northern autumn. And we just keep -- there's some seasonality to it. But we actually -- every month, our sales team has out in the -- and some of them have been here a long while and others haven't. And as the message gets across, the growth keeps happening. So there's no particular reason apart from the investments that we've been making, and the plan is to do that. And so we are just achieving what we plan to achieve. Mark Flynn: Okay. Where is the iTrack Advance gaining share? And who are our main competitors? Thomas Spurling: Well, I think our main competitors are listed on iTrack who -- on that slide I put up before that says why do we -- why is an iTrack-- why does a doctor choose iTrack? We're gaining share across general ophthalmologists and increasingly cataract surgeons. We had a good following with or we have a good following with glaucoma surgeons. The versatility of the device means that it's able to be used in a number of stages of the disease. Glaucoma surgeons tend to be treating patients with later-stage disease, cataract surgeons with earlier-stage disease and comprehensive kind of both. So as our mission, as our reps get into all the territories, and we are underpenetrated in those because we don't have enough reps to truly get to everywhere, we are increasing sales. And the market is growing. So it's not just about share. Mark Flynn: Continued questions on the U.S. sales strategy and potential partnerships. So again, I know you've answered this, but it's probably just a little bit more is, have we considered using partners to accelerate? Or is there any large direct sales teams that could benefit from a glaucoma treatment product portfolio? Thomas Spurling: Yes. So in one of our decks, we talk about -- in the deck I put out in August that we put out in August, we talk about the current cataract and glaucoma. 1 in 5 patients that have -- that need a cataract surgery also have glaucoma. That makes it interesting to those large cataract companies that I've cited in that list. But the direct sales model remains central to our strategy because it ensures we get proper engagement, proper take-up and good gross margins. It is expensive, and I get pointed out every day about why are the expenses so high, why are the expenses? It's because professional sales teams in America cost a lot of money. Now we're getting there. Our sales team is expanding. Partnerships, we have never -- we have not been able to locate somebody that could do a better job than our own sales team. And I think I've said before, we have a small company that helps us sell into the large states west of Minnesota and east of Seattle, east of Washington, D.C., those so-called big sky states because it's very sparse. But apart from that, it's our own sales teams, and that's why we think it's best for our shareholders. Mark Flynn: Something we've put out today, and what is the impact has the new 24-month clinical study had on adoption recently? Thomas Spurling: Yes. Well, I mean, I haven't -- that was released just a couple of days before our quarterly report. And so it's basically been in the hands of our sales reps, and we expect to have -- expect it to be positive. We think our German people because Germans like other German doctors. And so our German sales team have really grabbed it and they're out there doing something about it right now. Mark Flynn: China is obviously a big market opportunity for Nova Eye. What is the outlook now following that NMPA approval of the iTrack Advance? Thomas Spurling: Well, that NMPA approval was a hard one, and it's a major milestone. We had a really good approval in a very large market. Our investment in that market is still very low. To be really honest, it's a single person, helped by Kate Hunt and helped by me, where we are pushing our distribution partner, not pushing. We're working with our distribution partner. The ratio of cataract surgeries in -- to population in the United -- in China is very, very low compared to the ratios of cataract surgery to population in the United States. As health care improves in China, cataract surgeries will rise and the interventional glaucoma, which is mostly about concurrent cataract and glaucoma surgery, will become a bigger business, much like it is in the United States. In the United States, we're delivering 14,000, 14,500 units a year -- surgeries a year. We're currently at about 2,000 -- 2,500 in China. It is a large market opportunity, and it's a long-term value-creating market for us. Mark Flynn: Okay. Just on some research and development and obviously pipeline, but wrapping a couple of questions that have just come through now on IP and our patent strategy. So what's next for that R&D and how are we protecting that patent. Thomas Spurling: Yes. So we've got a constant work on issuing patents, freedom to operate, all those boring things that we have to do to make investments to protect our IP, both with patents and with first-to-market activities. But it's fair to say that our product development focus, and I would not call it research, it is development. We are not a research company. We're a company trying to -- we're a company that has a viable product that is working to increase sales and generate EBITDA. Having said that, the idea of the differentiation of our product to the rest of that space that is highlighted on the why surgeons choose iTrack slide is the central theme of our product development. All those things that make us better is where we see the investment and improvement in the product, giving us the opportunity to increase sales further. Mark Flynn: Sales across the rest of the world outside the U.S. ex China as well, but more around Germany or Europe, obviously moved around a bit. The reasoning behind that lumpiness of those sales in Europe? Thomas Spurling: Yes. So the sales in Germany are relatively smooth because of -- we have our own sales team. But in outside of Germany and the U.S., we use distributors. Obviously, we talk about how lumpy China is and that's its own case because it's materially lumpy. But the rest of the world markets can be lumpy. They're relatively small numbers. So just imagine if our distributor in the U.K. buys 50 catheters in September and then doesn't buy another one -- well, buys 50 catheters on the 29th of June and then buys another one on the 1st of October. It could miss a whole quarter. Now I'm making that number, it's more than 50 catheters, but $50,000 makes a difference on that slide. So it is about the timing of deliveries to our distributor markets. Mark Flynn: Okay. Probably a final question is, and back to China, which is obviously a growth market for Nova Eye, does Nova Eye -- is it the same competitors in the Chinese market as per our comp slide? Thomas Spurling: No. We're aware that Glaukos has a presence in the market. But apart from that is that's the main one that we come across. Mark Flynn: Okay. Thank you, Tom. With that, thank you very much. As Tom said, another record attendance on the webinar. If any further questions, there's a number have come through, and we'll look to answer those directly to others, but please e-mail Tom and I, and we'll endeavor to get back to you. But thank you very much for joining, and thanks, Tom. Thomas Spurling: Thank you. Thank you, everybody. Appreciate your attendance.
Operator: " Kurt Gustafson: " Matthew Foehr: " Michael Almisry: " Leerink Partners LLC, Research Division Unknown Analyst: " Alexander Xenakis: " Truist Securities | Matthew Hewitt: " Craig-Hallum Capital Group LLC, Research Division Brendan Smith: " TD Cowen, Research Division Unknown Analyst: " Operator: Good afternoon, and welcome to OmniAb's Third Quarter 2025 Financial Results and Business Update Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. And I would now like to turn the call over to Kurt Gustafson, OmniAb's Chief Financial Officer. You may begin. Kurt Gustafson: Thank you, operator, and good afternoon, everyone. This is Kurt Gustafson, OmniAb's Chief Financial Officer, and thank you all for joining our third quarter 2025 financial results conference call. There are slides to accompany today's prepared remarks, and they're available in the Investors section of our website at omniab.com. Before we begin, I'd like to remind listeners that comments made during this call by OmniAb's management will include forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from any anticipated results. These forward-looking statements are qualified by the cautionary statements contained in today's press release and our SEC filings. Importantly, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, today, November 4, 2025. Except as required by law, OmniAb undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. Joining me this afternoon is Matt Foehr, OmniAb's President and CEO. During today's call, we will provide highlights on the company's business and operations, partner and technology updates as well as our recent financial results and outlook. At the conclusion of the prepared remarks, we'll open the call to questions. And with that, let me turn the call over to Matt. Matthew Foehr: Thanks, Kurt. Good afternoon, everyone, and thanks for joining our Q3 call. Starting now with Slide #4. We continue to have nice deal flow throughout the third quarter, and the number of new program additions this year is far outpacing last year. Our program adds as of the end of Q3 already equaled the program adds we had in all of 2024. We've also grown and diversified our base of active partners, reaching a record high level, now exceeding 100. We see this as further validation of our differentiated proprietary technology platforms and their proven value to enable the discovery of next-generation therapeutics for our partners. We're building the foundational momentum for our recently launched xPloration partner access program, which is designed to put our high-throughput single B-cell screening platform in the hands of our partners. The xPloration sales funnel continues to grow, generating strong interest and new opportunities for us. And as the latest example of our commitment to pioneering innovations and sector leadership, in December, we'll be launching a brand-new technology to add to our stack. We're excited to share a little preview today of OmniUltra, which is the first transgenic chicken that produces cow-like antibodies with ultra-long CDRH3s. OmniUltra has the potential to open new markets and new business opportunities for us and to expand our reach into enabling the discovery of novel peptide therapeutics. I'll provide more on this technology in a moment. While we continue to grow the number of partners and programs, we also realigned staffing levels in Q3 and further reduced operating expenses to drive efficiencies in our lean yet scalable operating model. In addition, we enhanced our financial flexibility and strengthened our balance sheet with the closing of a $30 million private placement in late August. I want to welcome our new shareholders and thank the existing shareholders who participated in the transaction for their support. Moving to a review of our key business metrics now starting with Slide #5. We ended Q3 with 104 active partners. During the third quarter, we've highlighted that we completed new license agreements with A*Star and the University of Leeds. The distribution of our active partners by type, including discovery, commercial and academic continues to hold steady. And the same holds true for our distribution of partners on a geographic basis with just over half of our partners based here in the U.S. And I note that our international reach has continued to grow as we make a concerted effort to expand and diversify our partnership base. With regard to new partnerships, increasingly, we also think there are innovative ways in which we can create value in a variety of time horizons, leveraging our technologies or assets that come out of our novel technology development and validation work. On Slide 6, the number of Active Programs leveraging our technologies increased to 399 as of the end of Q3. This includes a net addition of 36 programs year-to-date, of which 18 were added during the third quarter as we continued to see strong program addition momentum. During the third quarter, there were 6 programs that were terminated. And as I've said before, and I say often, program attrition is a normal part of our business and will continue to be due to shifts in partner priorities as well as budgetary and technical factors at our partners. The graphics on Slide #7 highlight growth of our post-discovery stage programs that are in our portfolio as well as the advancement of these programs into and through clinical development. The number of programs in the post-discovery stage increased by 15% year-over-year. A number of new programs progressed to the preclinical stage of development. And in Q3, one program moved to the registration phase. These 61 post-discovery stage programs have contracted remaining potential milestones to OmniAb of approximately $1.3 billion, including $700 million from small molecule ion channel programs. Slide 8 shows the number of active clinical programs and approved products, which totaled 32 at the end of Q3. As of September 30, 2 new partner programs had entered the clinic in the year and 2 came out. We are proud to report that subsequent to quarter end, the first OmnidAb -derived program entered into human clinical trials. As we launched the OmnidAb single-domain discovery platform less than 2 years ago, this is a significant milestone for a new technology, especially within such a short period of time. We also received confirmation that another bispecific antibody derived from our rodent platforms entered human clinical trials just last week. We'll talk more about both of those new clinical programs after our partners have disclosed more details publicly. Overall, given our latest discussions with our partners and our line of sight into their work, we see the potential for a total of 5 new entries into clinical development for novel OmniAb-derived programs this year. This is at the lower end of our previous range of projected clinical starts, primarily resulting from select partners simply shifting timing of clinical program initiations into early 2026. Also in regard to clinical programs, I note that we have multiple partners who will be presenting data at the ASH Annual Meeting in early December. So we're looking forward to that as well. Turning now to Slide 9. Here, we've highlighted select recent updates for partner programs that are leveraging our technologies. At the Annual Meeting of the American Thyroid Association, Immunovant presented 6-month durability data from its Graves' disease study showing sustained remissions with batoclimab. Their next-generation candidate, IMVT-1402, is advancing in 2 potentially registrational Phase III trials in Graves' disease with top line results expected in 2027. Moving to the right on this slide at ESMO, Arcus Biosciences reported median overall survival of 26.7 months from its Phase 2 EDGE gastric trial. The study combines domvanalimab with OmniAb-derived zimberelimab and chemotherapy in advanced gastric cancer, clearly reinforcing the potential for this treatment approach. Salubris Bio announced that China's NMPA accepted its NDA for SAL003, which is a recombinant fully human anti-PCSK9 antibody for dyslipidemia. So this program moved from our Phase III bucket to the registration stage in Q3. And lastly, Rondo Therapeutics abstract on its first-in-class CD28 and Nectin-4 bispecific antibody was accepted for presentation at the Society for Immunotherapy of Cancer Meeting, which is taking place this week. Turning now to Slide 10. Here, we highlight our clinical and commercial stage partner pipeline for Active Programs that carry downstream economics to OmniAb. Placement in this graphic is based on a program's most advanced status in any geography or indication. Our partners continue to advance OmniAb-derived antibodies into and through the clinic. And this latest update shows Salubris Bio's SAL003 moving to the registration phase, as I just mentioned. On Slide #11, I'd like to take just a quick moment to highlight progress with our xPloration partner access program. The early feedback we're getting from partners using the instrument is that xPloration is performing extremely well and that it's driving efficiencies in discovery workflows. We're really pleased with the response so far as xPloration continues to gain traction since its launch in Q2 with a strong demand for lab demos from partners throughout Q3. The efficiency and ease of use of xPloration are significant differentiators. This platform complements our core technology licensing business as we expect xPloration to be accretive to earnings and cash flow in both the short and the long term. As we grow our installed base of instruments, we expect to broaden our revenue channels with recurring single-use consumable sales, annual subscription services for software and maintenance contracts. Ultimately, we're clearly seeing that xPloration deepens engagement with partners, has the potential to drive new program growth and showcases OmniAb's innovation in integrating automation, AI-powered methods and discovery. Turning to Slide #12. Our internal innovation engine continues to strengthen our differentiation, especially with our growing suite of genetically engineered chicken-based discovery platforms. We've had an established history of pioneering the development of advanced discovery technologies that the industry needs. We talk a lot about the advantages that a chicken immunization host presents for novel molecule discovery as about half of all therapeutic targets are more than 90% conserved in mammals. So using a chicken as an immunization host species for discovery can be really important and really valuable in many instances. Our OmniChicken technology shown on the lower left of this slide remains the world's only validated humanized transgenic chicken for antibody discovery. Leveraging the evolutionary distance between birds and mammals, OmniChicken delivers robust immune responses and generates highly diverse antibody repertoires. This platform has become foundational to many of our partners' discovery pipelines. Building upon this, OmniClic incorporated a fixed light chain design, enabling seamless combinations of antibodies for bispecific and multi-specific applications. And OmnidAb, our single-domain antibody framework extends the utility of chicken-derived antibodies into small, stable therapeutic formats and opens up opportunities across a range of modalities. Molecules from OmnidAb are well suited for modular and multi-specific architectures while maintaining advantages in terms of manufacturability and stability. And as I mentioned, OmnidAb was launched less than 2 years ago, and it's attracted a lot of new partners and already has generated a program that has entered the clinic. And now as the latest entry in this stack, in December, we're launching our newest transgenic chicken platform, which we are branding as OmniUltra. Moving to Slide #13. OmniUltra represents the next evolution of discovery tools as it's the first and only transgenic chicken producing ultra-long CDRH3s, which is a structural feature of antibodies typically seen only in cows. Put another way, OmniUltra chickens are engineered to create antibodies with the physical characteristics that are found in cows, but with human features to make them suitable as human therapeutics. These ultra-long CDRH3s are designed to enable antibodies to reach unique heat or recess binding pockets and previously inaccessible epitopes, potentially unveiling therapeutic opportunities beyond the reach of conventional antibodies or conventional modalities. What's especially exciting is the potential ability of these ultra-long CDRh3s to be isolated as novel or autonomous binding fragments known as Pico bodies, which are the smallest known functional antibody fragment, roughly 1/3 the size of an antibody. Pico bodies could open up entirely new therapeutic applications and modalities. Turning now to Slide 14. So OmniUltra is not only expanding the boundaries of antibody discovery technologies, but also potentially opens up entirely new opportunities for us in peptide-based therapeutics. Along with its novel architecture, OmniUltra is engineered for in vivo optimization, allowing for the generation of molecules to essentially be preselected for specificity, affinity and structural stability. This process enhances the discovery of antibodies with unique binding domains with the potential to target previously inaccessible epitopes. And importantly, as I said, OmniUltra is also leverageable for peptide therapeutic discovery. Now peptides are obviously a class of molecules that have seen a substantial increase in attention by the industry, in large part as a result of the GLP-1 drugs that have been so important to patients and to the industry globally. That's led to significant growth and investment around peptide therapeutics from a discovery, development and downstream capacity and infrastructure perspective. And that's part of why we think OmniUltra is really well timed. Unlike traditional peptide discovery methods, OmniUltra uses a transgenic chicken host to biologically produce optimized structured peptides on a validated scaffold. This capability could establish new classes of biologically derived therapeutics with potential applications across modalities. OmniUltra highlights our team's innovation leadership and extends our platform advantage into new therapeutic spaces, further differentiating our technology platform and reinforcing our long-term growth potential. Slide 15 sets the stage for OmniUltra's formal launch, which is planned to be at the Antibody Engineering & Therapeutics Conference down in San Diego next month. At AET, we have 2 podium presentations and 2 poster presentations. There's a lot more to say about OmniUltra beyond today's little preview. So while at AET, we'll be holding an investor webcast related to the OmniUltra technology, discuss the potential market use and applications and review the potential business impact of this highly innovative and pioneering technology. The tech validation work that we completed with OmniUltra included a broad array of therapeutic targets, and we will touch on that work as well. We'll be announcing details of the webcast as we get closer to the event. But for now, please mark your calendars for Monday, December 15, at 5:00 p.m. Eastern Time. Moving now to Slide 16. We're excited about the prospects for OmniUltra as it significantly increases our potential universe of partners into the peptide discovery space and also obviously opens up new doors and opportunities in the antibody discovery space as well. As most of those who follow us know, our technology license deals generally have several components, including collaboration and service revenue, milestone payments and royalties upon commercialization of a program. I want to highlight that OmniUltra builds on our established transgenic chicken capabilities, which require a service contract as our partners cannot perform the discovery service work on their own. And we think the new OmniUltra platform can drive higher collaboration and service revenue in the near term. And with that, let me turn the call over to Kurt for a discussion of our Q3 financials. Kurt? Kurt Gustafson: Thank you, Matt. So on Slide 18, I'll start with a review of revenue. For the third quarter of 2025, we reported revenue of $2.2 million, and this compares to $4.2 million for the same period in 2024. The decrease was primarily related to a reduction in milestones achieved and lower service revenue. Service revenue declined primarily due to the completion of a couple of small molecule ion channel programs earlier this year. And as a small offset to this decrease, the 2025 third quarter included xPloration revenue derived from the sale of consumables and a modest increase in royalty revenue. On Slide 19, we show our cost and operating expense for the third quarter of 2025, which decreased to $20.4 million from $23.9 million for the prior year period. We saw decreases in both R&D and G&A expenses compared with last year, and this quarter also included a nonrecurring charge of approximately $800,000 related to a headcount reduction we made earlier in the quarter. Turning to Slide 20, I'll focus on a few of the operating expense line items, starting with R&D expense, which decreased to $10.4 million from $13.3 million in the year ago period, primarily related to lower headcount and stock-based compensation as well as a decrease in external expenses due to the completion of certain ion channel programs earlier this year. G&A expense was $6.8 million for the third quarter of 2025 compared with $7.1 million for the same period in 2024, with the decrease primarily due to lower legal fees and stock-based compensation expense. Net loss for the third quarter of 2025 was $16.5 million or $0.14 per share compared to a net loss of $16.4 million or $0.16 per share for the same period in 2024. On Slide 21, we have our balance sheet as of September 30, 2025. We ended the quarter with $59.5 million in cash. And as Matt mentioned, during the quarter, we completed a $30 million private placement of common stock, which netted the company $28 million. I'll conclude with Slide 22 with a discussion of our 2025 financial guidance. We've recently received information that a few of the milestones that we were expecting in the second half of 2025 will now be pushed to 2026. We also identified further efficiencies in our operating structure. And as a result, we're updating our guidance for this year. We now expect that 2025 revenue will be between $18 million and $22 million and operating expense will be between $82 million and $86 million. As a reminder, approximately 40% of our operating expense is noncash, mostly due to stock-based compensation and the amortization of intangibles, primarily from historical company or technology acquisitions. We continue to expect that our cash used in 2025 will be lower than the cash used in 2024, excluding financings in both years. and we expect our year-end cash balance to be between $52 million and $56 million. And finally, our guidance on the tax rate remains unchanged at approximately 0% due to a valuation allowance. And with that, I'd like to open up the call for questions. Operator? Operator: [Operator Instructions] Your first question is from Puneet Souda from Leerink. Michael Almisry: You have Micheal Sonntag on for Puneet. Congrats on the quarter. I just want to start my first question on the private placement. I was curious if you could offer some color on what motivated the timing of the placement and if you have any thoughts on the cash runway this now gives you if you expect this to get you to where you're consistently cash flow breakeven? Kurt Gustafson: Yes. Maybe I'll provide some additional or some thoughts and then maybe Matt can jump in there. These are conversations that we have with our Board. We took a look at our forecast and decided it was the right time to sort of bolster the balance sheet. Markets seem to start becoming a little bit more favorable. And so we took that opportunity to strengthen the balance sheet. We don't provide any sort of long-term guidance. I kind of gave you the guidance that we have for this year with regards to cash burn and cash balance. But I think this puts us in a good position. I feel like the company is now well capitalized. I don't know, Matt, anything else to add? Matthew Foehr: Yes. I mean I'll add as well. Again, this provides us a level of flexibility for the business and made sense. And as Kurt said, we think the business is well capitalized. As we look out into the coming years, we'll provide further guidance, but we feel good about where we are. Michael Almisry: Okay. Great. And then on xPloration, I was wondering if you could provide some, I guess, additional color on customer conversations. What kind of customers in your partner base are you seeing some more interest? And if you have any thoughts on, I guess, bookings or order timelines? Any color you can provide there would be helpful. Matthew Foehr: Yes. Yes, Michael. Yes, it's been very busy on the xPloration front and interest has been very strong. I would say, generally, now we've got obviously a partner base or a partner universe now of 104 partners. It is definitely the higher tier of partners who are the ones who are the most active and likely the ones who will benefit the most from xPloration. We've been very busy with demos here at our Emeryville site as well as at some partner sites as well. So I think that bodes well for how things are lining up. Obviously, xPloration itself in terms of the instrument purchase is a capital expenditure, and we feel like our timing of launch was quite good and being very busy in the demo space in Q3 and into Q4 is very good timing as partners develop their budgets for 2026 and their capital spend plans. So we feel good about where we're placed. The feedback has been very positive around the efficiency of the instrument, the ease of use and kind of the broad user base from a lab perspective that xPloration can enjoy. So we're feeling good about that. Operator: Your next question is from Joseph Pantginis from H.C. Wainwright. Unknown Analyst: Can you hear me? This is [ Sara ] on for Joe. Sorry if it was muted. Matthew Foehr: We can hear you now, Sara. Unknown Analyst: Yes. Just had one regarding OmniUltra. And just wanted to get a sense of launch readiness and if you're able to, at this point, elaborate on the readiness of OmniUltra for launch? Has there been any beta or pilot projects completed or any potential partners that you already have lined up to adopt the platform once it goes live next month? Matthew Foehr: Yes. Yes, Sara. We've done a substantial amount of validation work around OmniUltra with many, many targets that we know are of interest to the industry. So that's work we've been doing here internally. And part of why we're launching the technology with 2 podium presentations at the AET conference. So we'll talk in a lot more detail about that specific work at the scientific conference at the time of launch. So we have a really good sense of the breadth of applicability of this technology and I think are really well positioned for the launch in December. So hopefully, that answers your question. Operator: Your next question is from Kripa Devarakonda from Truist. Alexander Xenakis: This is Alex on for Kripa. We also have a question on xPloration. It sounds like the conversations have been going really well. And do you have any update on the new thinking as to how much revenue can be generated from xPloration and over what time period? Matthew Foehr: Yes. It's still early days in the xPloration launch, obviously. We have said we expect xPloration to be accretive to both earnings and cash flow in both the short and the long term. That has a lot to do with kind of how the technology has been designed and how we're implementing the launch. There are multiple revenue streams that are associated with xPloration. Of course, the instrument sale itself, which will bring revenue, and we have a nice margin on the instrument. And then we also have single-use proprietary consumables as well as service contracts and maintenance contracts. So we've not given precise guidance at this point. I think as we progress through the launch, as we get additional instruments sold and deployed, we'll have more visibility there, but we're feeling really good about how it's positioned. Alexander Xenakis: That makes sense. And a little bit of a follow-up. Are there other trade shows that you're also demonstrating the technology and partnerships with? Or is it done mainly through the conversations directly with the company? Matthew Foehr: No, we are also present at trade shows where we know our partners will be. Actually, in addition to launching OmniUltra at AET, for instance, we'll also have a substantial xPloration presence there as well. And then we have some other ones lined up as well where we'll have demo units and be doing either virtual or planning in-person demos with partners. Operator: Your next question is from Matt Hewitt from Craig-Hallum. Matthew Hewitt: Maybe first up, it sounds like you had -- and I realize this is just part of the business, but you had a couple of customers that pushed out programs until 2026, milestones that you had anticipated later this year got pushed to '26. Are you seeing any improvement? We've heard from several companies this earnings season that between the M&A activity that's been pretty active as well as the funding environment that's been improving for small and midsized pharma that the R&D budgets are kind of coming back online, that they're starting to spend. And I'm just curious if this is just kind of a one-off with a couple of partners? Or are you seeing a little bit more of a broad trend that things are getting pushed to 2026? Matthew Foehr: Yes. Thanks, Matt. I mean, broadly, and we kind of noted this really starting late in Q4 of last year with strong program addition momentum, right? We are seeing continued momentum in program additions that has been sustained through this year, which is very good to see. And I think we're continuing to see momentum there. The connection or the element of milestones being pushed into 2026, I would, in this instance, categorize that as more what I consider standard development stuff, right? So it's timing of clinical batches or processes in clinical start-up, things like that. In some instances, these were programs where partners had communicated to us their plan to start in Q4 and also had committed that plan publicly, but just with kind of standard development items had drifted into early 2026. So a variety of factors. But we are seeing similar to what you were describing in terms of industry momentum, we're seeing that in the form of strong program additions. Interestingly, we're also seeing with some of our academic partners an increased focus on forming spin-out companies around assets and being much more focused on monetization of programs and assets that have come or can come out of our technology. So that's kind of another interesting thing we're starting to see as well. But hopefully, that gives you some color. Matthew Hewitt: No, that's very helpful. And then maybe kind of a similar line here, but -- and I realize it's early, it's October. But as you're having these conversations with your partners, what are you hearing as far as '26 R&D budgets are concerned? I think there was a lot of, I guess, excitement that 2025 budgets look pretty good relative to '24. And I realize there's been some fits and starts during the year, but it does feel like maybe those budgets are going to get spent. Are conversations kind of indicating that we might see an increase in R&D budgets? And I guess, tied to that, with xPloration, do you anticipate that the feedback that you're getting is that this is a Q1 purchase decision? Or could you still see some of these boxes sold already this year? Matthew Foehr: Yes. Matt, so probably our -- one of our best barometers is in the form of program starts, right? That's really what we see is that when you see a new program start for a novel target, right, a lot of work in terms of novel biology goes on upstream of that by the partner. They've obviously committed a project team, and they're starting a program. So that, again, we've seen really nice strong program addition momentum this year, and that's been good to see. So I think that's a good indicator. Most of our specific discussions around budget and budget planning more recently have been centered around xPloration, and that's really just in the capital realm. And then downstream exact timing of orders can obviously be dependent on a variety of factors at the partner in terms of what work they're doing when and how they're gating out their capital spend in 2026. So yes, that's kind of what we're seeing. Operator: Your next question is from Brendan Smith from TD Cowen. Brendan Smith: Maybe just a quick one first on OmniUltra. Again, I fully appreciate it's early, but can you maybe just help us understand how you all are thinking about the potential economics of some of those partnerships, maybe just relative to some of the other offerings that you guys have or ones on the books? And if you're envisioning maybe there could be different terms based on how they want to use it, whether for antibodies or peptides or what have you? And maybe just if you anticipate any of those could potentially replace some of the existing partnerships in any instances? Matthew Foehr: Yes, Brendan, I think we see OmniUltra as additive to the business, right, broadly applicable and opening up new fields for us. Obviously, our stable and large ecosystem of antibody-based partners now at 104. Many of those have -- or will have or already have expressed interest in OmniUltra for things like bispecifics or CAR-T therapies. We have a number of partners in the radiopharma space, which is also a space that is growing rapidly as well, and I think we'll continue to expand. But this really also adds an entirely new set of potential partners who are interested in peptide discovery. For some of our larger partners, they also are working in peptides as well as antibodies, but then there is a completely new set of partners who are more peptide focused. And that has really increased over the last couple of years with the successes of the GLP-1 drugs, et cetera. So there's a lot of investment going on in the peptide space. So we see it really as additive. In terms of your question of agreement structure, I think this does open new opportunities for us to drive service revenue in the near term for a variety of reasons. There's also a lot of precedent out there for peptide-related discovery deals that follow the frameworks that we've built around upfront payments, service payments, milestones and royalties. But precise terms will obviously be an interplay of a variety of factors associated with each license. Brendan Smith: Okay. Got it. And then maybe just quickly, if I could, just a follow-up. Just on the partner pipeline -- can you just speak a little bit to how you all are thinking about maybe the initial ramp in some of these royalties? Just I know it's kind of a range of different spaces you all are partnered in between FcRns and PCSK9 and PD-1. So just kind of wondering where you maybe see the fastest opportunity for some of those royalties to grow versus others that might just take a little bit longer to get up and running? Matthew Foehr: Yes. Yes. I mean maybe I'll talk generally about some of the programs, and then Kurt can maybe talk a little bit about kind of the revenue generally modeling around how milestones and royalties come into play. But now obviously, we have 2 drugs that are in the registration bucket, both of those currently in China. The newest is the SAL003, which is the anti-PCSK9 you referred to. So that was news here just from 4 weeks, 5 weeks back from Salubris. And they reported they submitted their NDA submission. It was accepted in China. They mentioned in their public disclosures that the NDA aligns with China's accelerated approval framework for high-impact biologics. So that was generally good to hear. And then they've stated publicly they're positioning for market entry in 2026. They've also kind of highlighted comparable or superior efficacy to other anti-PCSK9 therapies and one that will be -- that was developed domestically in China. So we'll continue to keep an eye on that. That's a drug that came originally out of our early partnership with WuXi for our rodent platforms, and it has a 3% global royalty associated with it. So that's probably the newer one. And then as you look at the Phase III assets and Phase II assets, there are a number in there that folks are rightly paying attention to. Immunovant is doing great work around IMVT-1402 and has a couple of expected data events next year that we're obviously keeping an eye on. Acatilimab with Genmab is in Phase III trials as well. That's another one that folks are paying attention to. And then now we're starting to see growing attention around Teva's 53408, which is an IL-15 for celiac, and they're also pursuing some other indications. They've been really moving that quite aggressively and highlighting the program. So we're cheering that on as well. But Kurt, maybe you want to talk through the... Kurt Gustafson: Yes. I mean I think in terms of how we think about the royalty ramp, we typically take a look at what analyst consensus are for these drugs. So both acasunlimab and the 1402 compound, I mean, Genmab has been out there, said that they expect to launch in 2028. When I take a look at analyst estimates, that's sort of what they're projecting as well, and there's a ramp associated with that. It's similar with -- similar timing for 1402. So we take a look at those analyst expectations in terms of how we model the royalties that we might ultimately get. And they're pretty nice ramps and people have pretty nice forecast associated with both of those compounds. They're expected to be very large drugs. Operator: Your next question is from Stephen Willey from Stifel. Unknown Analyst: This is [ Josh ] on for Steve. I just had a quick question on OmniUltra and how it differs from OmniTaur. I think I remember the OmniTaur platform sounded very similar with this generation of these ultra-long CDR3s or CDRH3s. Could you maybe just provide some color on how these platforms actually differ? Matthew Foehr: Yes. Great question, Josh. And I'll try not to get too geeky and technical. OmniTaur actually leverages cows, right? So these are sequences that are derived out of cows. And also, we've developed some downstream workflows and other things that drive value in OmniTaur. And we actually have a number of active OmniTaur programs, some of which are now at the preclinical stage approaching IND. OmniUltra leverages a chicken host to get that advantage of the evolutionary distance, right? So you're able to leverage that distance of chickens from mammals to elicit a stronger immune reaction. And we've also engineered in some other features that have increased kind of the broad applicability of OmniUltra into a variety of spaces, including opening up opportunities in the peptide space. So at the core, the difference is the host, but there are obviously a number of other kind of finer technical details that broaden the applicability of OmniUltra. Unknown Analyst: Okay. Great. And then just another question on the xPloration revenues. Is there any color you can maybe offer as to the breakdown between maybe the consumables versus the software versus the hardware? And do you think -- do you anticipate maybe in the future providing any kind of metrics around the breakdown of sales related to the xPloration platform? Matthew Foehr: Yes. No, it's a good question. I think there's not really a breakdown that we'll have for you this quarter. It wasn't a huge amount of revenue. It was -- I guess I would say it's mostly related to consumables. I think it's still early days with the xPloration launch. As we get more into it, I think we'll probably be able to provide some -- a little bit more color on sort of what the average consumable usages per instrument and put out some other metrics like that. But at this point, it's still pretty early. So stay tuned for that. As we see the launch continue and progress, hopefully, we'll be able to provide that type of color. Operator: Thank you. There are no further questions at this time. I will now hand the call back over to Matt Foehr for the closing remarks. Matthew Foehr: Great. Thank you, operator. I'd like to thank everyone for joining us today on today's call and for your questions and engagement. We look forward to discussing our fourth quarter financial results early next year. In the meantime, we'll be participating in a number of investor conferences later this month, including Truist's BioPharma Symposium this week in New York, Stifel's Healthcare Conference that is next week and the Jefferies Global Health Conference in London. So as I mentioned, on December 15, we'll also have -- we'll be formally launching OmniUltra, and we'll have an investor webcast that day as well. And we look forward to providing additional details on that webcast next month. So thanks again, and have a great afternoon. Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.
Operator: " Jennifer Hutcheson: " Colin Reed: " Mark Fioravanti: " Cooper Clark: " Wells Fargo Securities, LLC, Research Division Aryeh Klein: " BMO Capital Markets Equity Research Patrick Chaffin: " Bennett Rose: " Citigroup Inc., Research Division Charles Scholes: " Truist Securities, Inc., Research Division Daniel Politzer: " JPMorgan Chase & Co, Research Division Duane Pfennigwerth: " Evercore ISI Institutional Equities, Research Division Chris Woronka: " Deutsche Bank AG, Research Division David Katz: " Jefferies LLC, Research Division Jay Kornnerbreg: " Cantor Fitzgerald Chris Darling: " Green Street Advisors, LLC, Research Division John DeCree: " CBRE Securities, LLC, Research Division Operator: Welcome to Ryman Hospitality Properties' Third Quarter 2025 Earnings Conference Call. Hosting the call today from Ryman Hospitality Properties are Mr. Colin Reed, Executive Chairman; Mr. Mark Fioravanti, President and Chief Executive Officer; Ms. Jennifer Hutcheson, Chief Financial Officer; Mr. Patrick Chaffin, Chief Operating Officer; and Mr. Patrick Moore, Chief Executive Officer, Opry Entertainment Group. This call will be available for digital replay. The number is (800) 839-3516 with no conference ID required. [Operator Instructions] It is now my pleasure to turn the floor over to Ms. Jennifer Hutchison. Ma'am, you may begin. Jennifer Hutcheson: Good morning. Thank you for joining us today. This call may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements about the company's expected financial performance. Any statements we make today that are not statements of historical facts may be deemed to be forward-looking statements. Words such as believes or expects are intended to identify these statements, which may be affected by many factors, including those listed in the company's SEC filings and in today's release. The company's actual results may differ materially from the results we discuss or project today. We will not update any forward-looking statements, whether as a result of new information, future events, or any other reason. We will also discuss non-GAAP financial measures today. We reconcile each non-GAAP measure to the most comparable GAAP measure in the exhibit to today's release. I'll now turn the call over to Colin. Colin Reed: Thank you, Jen. Good morning, everyone, and thanks for joining us today. We're pleased to report third-quarter results in line with our expectations in what continues to be a somewhat volatile operating landscape. On the hotel side of our business, our group business actualized a bit better than we had anticipated, with a stronger short-term pickup in corporate group meetings. In addition, the leisure hotel market in Nashville improved as the quarter progressed. And in September, transient ADR growth for the upscale and luxury hotel segment turned positive for the first time since February of '25. Overall, our same-store hospitality portfolio meaningfully outperformed the industry in the third quarter, achieving a RevPAR and total RevPAR index relative to our Marriott-defined competitive set of approximately 141% and 195% of fair share. In our entertainment business, our recent investments in Category 10 and Block 21 continue to perform well, while some of our downtown Nashville venues saw some impact from the surge in new bar and restaurant openings on Lard Roadway. Similar to what we're seeing in the hotel market right now, the rising popularity of country music and Nashville as a destination has attracted new live entertainment supply into the market. Despite this near-term period of absorption, we continue to be extremely bullish on the long-term trajectory of Nashville. Progress on the new Derm Titan Stadium and the East Bank development continues. Construction on Oracle's new headquarters there is expected to begin soon, following recent approvals by the Metro Council. Soil testing on the initial launch site of the boring Company's Music City loop has commenced. And just last week, the Airport Authority outlined more details for the demolition of the current Concourse A and rebuilding of a new 16-gate terminal. Today, with Concourse A out of commission, Nashville has 54 gates in operation and enough capacity to accommodate about 28 million travelers. When the new concourse opens in, I think it's early 2029, Nashville Airport will be able to accommodate up to 40 million travelers. These long-term demand drivers are arguably some of the strongest amongst large cities in this country. And our iconic portfolio of brands is well-positioned to continue to induce and capture more of our fair share of incremental demand. From a brand perspective, the third quarter was a major milestone for our entertainment business. The Opry traveled to the Royal Abbott Hall in London for its first-ever international performance, which was also broadcast on BBC2 in the U.K. The show garnered over 1.2 billion media impressions, and the broadcast was BBC2's highest-rated program of the day. As an aside, the former Chair of the Royal Albert Hall Board told us that in all of his years, he's never seen an audience so engaged at a performance like he did at the Opry Show; folks were bouncing in the aisles at the Royal Albert Hall. That's never normally done. The music that has made Nashville Music City is becoming so incredibly popular across Northern Europe. Now, to give you some idea of what's going on in this incredible feeder market, a couple of weeks ago, our business partner, friend, and country music superstar, Luke Combs, announced a series of stadium dates for next year across Europe. And here's an illustration of why I say this genre is exploding in this region. He announced 2 nights at Wembley Stadium and an 85,000-seated stadium; both nights sold out. And now they've announced the third date. The stadium in Glasgow, again sold out. And Slane Castle, look it up, an incredible festival site north of Dublin, catering to about 80,000, again sold out, and they've now arranged a second date. And what Luke told me was that there's only ever been one band that has played 2 consecutive nights at Slane Castle, and that was U2. This is extraordinary stuff, creating Pilgrims who will make their way to Nashville and to our businesses. As we had anticipated, through the investment we're making behind Opry 100, the brand is reaching far more fans than ever before. And we are continuing to expand the platform. A couple of weeks ago, we, together with Luke, announced a second Category 10 development in the heart of the Las Vegas Strip. Construction is already underway. And once open in the fourth quarter of '26, it will be 1 of only 2 country music live entertainment venues with Frontage on the Strip, the other being, of course, Old Red, which has performed incredibly well since opening early last year. As we look ahead, our businesses are in great shape. The amount of group business we have on the books remains healthy, and we continue to generate good returns on the investment we're making in our hotel portfolio. Our expanded entertainment platform contains more avenues for growth than ever before, and we look forward to building on the momentum of the Opry brand and Country Music more broadly in the years to come. As always, we appreciate your interest and support. And with that, let me turn over to Mark to discuss the quarter, our positioning in more detail. Mark? Mark Fioravanti: Thanks, Colin, and good morning, everyone. I'll review our third-quarter results and also provide some color on how we're thinking about 2026. I'll start with our hospitality business. Our same-store hospitality segment delivered results towards the high end of our expectations due primarily to short-term corporate group pickup in the quarter for the quarter. As a result, the year-over-year group mix shift was not as significant as we had anticipated, with corporate group room nights down only about 20,000 room nights from last year, about half the magnitude we saw in the second quarter. With the decline in corporate group rooms, banquet and AV revenue declined approximately $14 million, but as has been the case all year, contribution per group room night, a proxy for catering spend per group guest, continues to exceed our expectations, so groups continue to spend at healthy levels. Food and beverage outlet performance was a bright spot in the quarter, driven by a combination of higher leisure demand, better-than-anticipated corporate group volumes, and our recent capital investments. Outlet sales per occupied room increased nearly 13% and performance was particularly strong at Gaylord National, Gaylord Rockies, and Gaylord Palms, where we've made significant investments in recent years, both in the quality of the offerings as well as our capacities. In fact, total revenue for Gaylord National and Gaylord Rockies was a third-quarter record. And for Gaylord Rockies, the second-best total revenue quarter of all time, behind the second quarter of 2025. Our leisure business was another bright spot in the quarter, including at Gaylord Opryland. Leisure room nights at Opryland increased more than 5% compared to last year, and leisure ADR, while still modestly lower year-over-year, actualized a few percentage points better than our expectations as of last quarter. Finally, the JW Marriott Desert Ridge delivered third-quarter results right in line with our expectations. The existing meeting space renovations wrapped up at the end of September, bringing the multiyear comprehensive property refresh that was initiated by the prior owner to a conclusion. As a value creation opportunity post acquisition, we have begun the work to convert 5,000 square feet of existing vacant office space into sellable carpeted breakout meeting space. As we learn more about this property, we continue to be very bullish on its long-term potential under our ownership. Looking ahead to the fourth quarter and the next couple of years, we're pleased with the amount of business we have on the books. Same-store group rooms revenue on the books for the fourth quarter is comparable to the same time last year, and early ticket sales for our holiday programming are pacing ahead of the same time last year. Despite some of the macroeconomic uncertainty in government policy weighing on the broader lodging industry, the visibility we have into our group business for 2026 and beyond continues to be encouraging. We're continuing to book more room nights at higher room rates. In the third quarter, same-store gross group room nights booked for all future years were up 9% compared to last year, bringing room nights on the books for all future years to a third-quarter all-time high. The ADR on those bookings was also an all-time high, up nearly 3% year-over-year. Our group pace for 2026 and 2027 remains healthy. As of the end of September, same-store group rooms revenue on the books for '26 and '27 were up approximately 8% and 7%, respectively, compared to the same time last year for '25 and '26, with ADR growth continuing to pace in the mid-single digits, while the number of new leads and late-stage opportunities remain at near record levels. Certainly, we've seen elevated cancellation activity this year due primarily to the government sector, but we've also responded with strong in-the-year-for-the-year bookings production and disciplined margin management while continuing to pursue long-term value creation through enhancements and additions to the portfolio. Turning now to our Entertainment business. OEG delivered third-quarter revenue of approximately $92 million and adjusted EBITDAre of approximately $25 million. Growth from Category 10 and Block 21 behind our recent investments was partially offset by softer volumes at our downtown Nashville venues as the local live entertainment industry absorbs the cumulative impact of recent new supply. As a result, and as Jennifer will review in a minute, we've narrowed our range of expectations for full-year adjusted EBITDAre in our entertainment business with a new midpoint of $112 million, which represents approximately 6% growth year-over-year and approximately 12% annualized growth since 2019. Before I turn it over to Jennifer, let me also provide some color on some of the building blocks for 2026, with the caveat that we're still working through the budgeting process with Marriott and expect to provide formal guidance when we report fourth quarter results in February. From a macro perspective, we are optimistic we'll see an increase in group demand given expectations for lower interest rates and a more favorable business and regulatory environment. However, even if the current uncertainty persists, we still expect our business model to outperform others in our sector and the broader group industry. As I mentioned earlier, the group rooms revenue we have on the books for 2026 for the same-store hospitality segment is pacing approximately 8% ahead compared to the same time last year for 2025. From a mix perspective, corporate group bookings are pacing ahead of association group bookings. Should this trend continue, we would expect it to be a modest tailwind for group outside-the-room spending levels in 2026. On the cost side, recall that the collective bargaining agreement for the Gaylord National became effective in November of 2024, so we will lap the initial wage and benefit increases in the fourth quarter of this year. Regarding capital, we anticipate that the sports bar development at Gaylord Opryland will open in April of 2026, and the Texas rooms renovation will finish sometime in the second quarter. We also expect the meeting space conversion at the JW Marriott Desert Ridge to come online in the second quarter. The ongoing meeting space expansion at Opryland will continue through 2027, and we expect to kick off a room renovation at the JW Marriott Hill Country beginning in April 2026. And finally, on entertainment, we expect our 2025 investments behind Opry 100 and the new amphitheater addition to our portfolio to be a modest tailwind to growth in 2026. As Colin mentioned, Category 10 Las Vegas will be under development for much of the year, opening sometime in the fourth quarter of 2026 with full-year contribution in 2027. As with all our ROI projects, we expect to generate at least mid-teens unlevered IRRs on the estimated project cost of approximately $35 million. We look forward to providing more details on how we expect the year to shape up on our fourth quarter call in February. And now I'll turn it over to Jennifer to run you through our guidance revisions and review our financial position. Jennifer Hutcheson: Thanks, Mark. Regarding our outlook for the full year 2025, we are narrowing our guidance ranges now that much of the year is behind us. And in our Entertainment segment, we are lowering the top end of our guidance range for adjusted EBITDAre to reflect softer volumes in our downtown Nashville venues related to new supply in the market. On a consolidated basis, we now expect adjusted EBITDAre in the range of $772 million to $802 million, AFFO in the range of $509.5 million to $538 million, and AFFO per fully diluted share in the range of $8 to $8.38. Turning to our balance sheet. We ended the third quarter with $483 million of unrestricted cash on hand and our revolving credit facilities undrawn. Total available liquidity was nearly $1.3 billion. We retained an additional $33 million of restricted cash available for FF&E and other maintenance projects. At the end of the quarter, our pro forma net leverage ratio based on total consolidated net debt to adjusted EBITDAre, assuming a full year contribution of adjusted EBITDAre from the JW Marriott Desert Ridge, was 4.4x. Finally, let me comment on our anticipated major cash outflows for the year. Regarding our outlook for capital expenditures in 2025, we are narrowing the range of our expectations to $375 million to $425 million based on our latest construction timelines for projects currently underway. As we mentioned in our earnings release, these estimates include modest investments at the JW Marriott Desert Ridge, accelerated material purchasing for the planned 2026 rooms renovation at the JW Marriott Hill Country, and initial project costs for the development of Category 10 Las Vegas. Regarding our dividend, it remains our intention to continue to pay a minimum of 100% of our REIT taxable income through dividends. And with that, Mickey, let's open it up for questions. Operator: [Operator Instructions] We'll take our first question from Cooper Clark with Wells Fargo. Cooper Clark: Curious if you could provide us with updated thoughts on the entertainment market in Nashville, acknowledge that drove the guidance reduction in the quarter. Just curious how you're thinking about that business over the next couple of years, as it seems like supply headwinds are persistent. Colin Reed: Should I start, Patrick? Yes. This is Colin Reed. So the issues that we saw within this city over the period of time, February of this year through June, were that the more budget-conscious consumer pulled back a little. And we saw it in other markets, too, like Las Vegas. But it happened here. And I think a lot of it was created by the overhang on what the hell was going to happen with the big beautiful bill and tariffs, and the media was saying the world was going to fall apart. But what has actually happened as the year has progressed is that obviously, things have stabilized very, very well. The market, the New York Stock Exchange, and the S&P at all-time highs right now. Trade agreements are being confected, and interest rates are moderating. Corporate profits seem to be in good shape, and airline traffic is up. And I'll give you a statistic that was relayed to me last night by the CEO of the Nashville Airport. October traffic into Nashville was up 10% over last year. And the amount of traffic that the airport received in October was the best October Nashville has ever had. We've been, I think, a little cautious in what is going to play out in the months of November and December, and that is reflected in our guidance. But as we look forward to 2026, 2027, we have this new stadium opening that is going to dramatically increase big, big concerts. We have a whole bunch of new developments taking place on the East Bank. We have a greater capacity to put more traffic through this airport. We have folks, I can tell you, every one of the 3 large airlines that are flying in from Europe has increased the capacity of their airlines over the course of the last couple of months. So as we look forward to '26, '27, '28, I think we're going to see a surge in tourism in this city, and I think it's going to be long-term, really good for these iconic assets that we own. Cooper Clark: And then I guess, how should we be thinking about a potential spin of OEG? Are there more bolt-on acquisitions within the entertainment business or additions you need to make to the leadership team that you want to get done first? Colin Reed: Well, the opportunity we have with this business with the acquisition of Southern, what we've done in Austin, the expanding into markets like Las Vegas, I would be very surprised if you don't hear from us over the course of the next few months in other markets that we will potentially move into markets that are very country music-centric so we can intercept those consumers in their source markets. The great thing about this business is I think we have more opportunity to grow it today than we've ever had. And I would suggest that over the course of the next 12 to 24 months, you'll hear from us more on the growth of this business. Operator: We will move next with Aryeh Klein from BMO Capital Markets. Aryeh Klein: Maybe first on cancellations, which ticked up in the quarter. Can you provide a little bit more color on recent trends? What have you seen here in October? And is this still mostly government-related or any other sectors where you've seen an uptick? Patrick Chaffin: Aryeh, this is Patrick Chaffin, and good to hear from you. Yes. So cancellations were up in the quarter. We were expecting that as a result of the tariff situation that began in the second quarter of this year. I would tell you that as we look across the year, if you look at the Smith Travel Research information, U.S. group monthly occupancy started to decline in April of this year with the tariff situation emerging. And while our group business has fared really well through that tariff situation that's characterized Q2 and Q3, the overall U.S. group monthly occupancy has continued to decline and appeared to trough roughly in August based on Smith Travel information. And it has been recovering in September and potentially in October based on what we've seen so far. So it's too early to tell how cancellations are going to fare in the fourth quarter, but it appears that while it's still down, it's starting to move in the right direction. For us we have seen elevated cancellation activity. We have also seen group leads and group demand in the corporate sector increase at the same time. So we've been able to mitigate some of that impact. But cancellations have been elevated. They've been mostly in the government and government-related sectors, but we have seen some impact from corporate layoffs that have been occurring across the country. But again, I would stress corporate leads and corporate booking volumes continue to be very, very strong. So we've been able to mitigate some of that. So we'll see how the fourth quarter goes. But we do feel like, while overall U.S. monthly occupancy and demand are still down, it is moving in the right direction. Aryeh Klein: And then curious if you can touch on some of the underlying leisure assumptions for the fourth quarter. Last year was a bit of a challenge, and I think you made some changes to the ICE programming. Any early feedback on either bookings or expectations? And then I believe you're also bringing ICE to Hill Country. How is that shaping up? Colin Reed: Good questions. Pat, do you want to deal with that? Patrick Chaffin: Yes. So Hill Country will have ICE for the second year in a row. We'll bring ICE to Desert Ridge next year. But we are expecting improved performance in ICE and in leisure in the fourth quarter of this year versus last year, about a 5% improvement. I would tell you that we're cautiously optimistic. It's still early, but we have some really positive trends occurring right now. Our ICE tickets are up. We've booked about 300,000 tickets to date. It's only about 21% of what we expect to actualize for the full holiday period. But the 21% we have on the books is about a 6-point improvement over what we had booked at this point the same time last year. So we're up about 95,000 tickets over the same time last year. So we're moving in the right direction to achieve that improved performance year-over-year, and we're in a good spot. From a transient room night perspective that's associated with the leisure holiday bookings, we booked about 127,000 room nights to date. That represents about 60% of what we expect to actualize for the 2025 holiday period, and that's an improvement over what we had booked same time last year as well. So we're up about 11,000 leisure room nights. So we've forecasted an improvement both in tickets and in leisure room nights, and we appear to be on pace to make that happen. I would remind you that we still have about 79% of our ICE tickets to book, and about 60% of those book within a 10-day travel period. So still a lot of wood to chop, but we are moving in a very encouraging direction, and we're cautiously optimistic. Operator: Our next question comes from Smedes Rose with Citi. Bennett Rose: I wanted to just ask a little bit about, I guess, the relationship between gross definite room nights that you show quarterly and the net definite room nights. Obviously, the gross improved nicely year-over-year. The net declined for the second quarter sequentially. I'm just wondering, do those 2 go together? Should be looking at the flow-through of one to the other? Or maybe you can just speak to what those numbers are telling you? Patrick Chaffin: Hi, Smedes, it's good to hear from you. Let's talk about gross versus net on the group side. So the main difference between those 2 is -- let's talk about gross first. As I mentioned earlier, we're seeing really great production from the sales team. We believe we have the best sales team on the planet on the group side, and they continue to perform. Corporate leads are up, and corporate bookings continue to be up. And so they're doing a great job of really taking advantage of the opportunity, even though we are losing some of the cancellations and revals. So on the gross side, we see really good production on the corporate side. To your question on net, the difference between gross and net is essentially cancellations and revals. And when I say revals, that's groups who have previously contracted for, let's say, 1,000 room nights in their block who then call in and say, "Hey, due to tariffs, we're pulling back down to 800 or 700 rooms from our originally agreed upon block. So you have your gross number, which is booked by the sales team. And then if a cancellation or reevaluation of that room block occurs, that's the difference in the net. And so that all the nets together produce the net production in the month or in the quarter. So if you think about what's going on, as I mentioned, corporate room nights continue to be strong, and the folks who are booking right now have already taken into account the impact of tariffs and everything else that's going on within their business. And so they're contracting at a more realistic level based on what they know is going on in the economy. The room nights are on the books previously that are calling in and reducing their blocks are just taking into account now what's going on in the economy. So we continue to see really strong gross results, offset somewhat by what's happening on the netting side with reevaluation of the blocks from groups already on the books and the cancellation that has been occurring. Bennett Rose: And then you mentioned in your opening remarks that corporate bookings are outpacing association bookings. Do you attribute that largely to the context of tariffs that you were just speaking to? Or is there something that you might think might, I guess, fuel association bookings going forward over the next few quarters? Patrick Chaffin: Yes. I mean, there's definitely some impact from the tariffs without a doubt. The other thing I would point to, though, is where we stand at this point in the year. We currently have 7.9 million group room nights on the books from a same-store perspective for all future periods. At this point in the year, that's the highest level we have ever seen, and it has a really strong rate associated with it as well. So there's the impact of tariffs, but there's also the impact of the fact that we just have less availability on the books for selling into the future than we've ever seen in our history, which is a good problem to have and will help us further compress group ADR going forward. Colin Reed: Smedes, my hope would be that, that this shift towards the corporate mix will become more systemic over time because as we've talked about in the past. One of the things that we're trying to accomplish with the capital investments we're making across these hotels is to improve the quality of the rate and improve the quality of the group, and lean more into that corporate customer versus some of the lower-rated SMERF and association business. Operator: We will move next with Patrick Scholes from Truist Securities. Charles Scholes: Question for you specifically on the D.C. National. Are you seeing any impact from the government shutdown as it relates to 4Q expectations or just forward bookings in general? Patrick Chaffin: Yes. Patrick, this is Patrick. Yes, we have seen a few groups that have pulled back or canceled as a result of the shutdown. But it has been pretty isolated, honestly. And it's not really been material in terms of the number of groups that have called in and said, "Hey, we're having to pull back or cancel. So there has been some impact, but it has not been very material. It's pretty isolated thus far. Colin Reed: But it's fair to say National's performance was terrific. Patrick Chaffin: Yes. National is right on plan for the year, doing a great job. And as we look to 2026, we look for additional ways to offset the impact of the collective bargaining agreement, but the property is in a really good position. Colin Reed: And some of that you're seeing from the capital we deployed coming out of COVID, around food and beverage, and the room renovation that we did. Those investments are paying off. Patrick Chaffin: Yes. And we're booking a bunch of business. So it's pretty good. Operator: Our next question comes from Dan Politzer with JPMorgan. Daniel Politzer: Group, it's pacing up nicely for 2026, up 8% and 2027 up 7%, I believe you said. Can you maybe talk about how the conversations with group and meeting planners ex ex-government, obviously, have evolved? Like, have they meaningfully improved versus 3 or 6 months ago, that gives you maybe increased confidence as you look out to that '27 guidance that you still have out there? Colin Reed: Do you want to take it? Mark Fioravanti: Sure. Yes. I mean, you saw what happened in our third quarter results. There was a bit of an overreaction in the second quarter to the tariff situation, and folks significantly reduced their expectations for the third quarter. As we actually moved through the third quarter, things improved somewhat, and we actually ended up beating our expectations on the banquet contribution per group room night. The fourth quarter is more dominated by the transient side. And I don't want to give any guidance on 2026 right now, but we feel like we're well-positioned for 2026, and we're hopeful, as I was alluding to earlier, that while, again, U.S. group demand is currently still down, it is moving in the right direction. So we see meeting planners pausing somewhat in some of their decision-making around when to book, but we're not seeing them wholesale pull back and make any changes. It's really just, hey, the environment is volatile. We're watching it, and we may delay our decision-making a little bit, but we feel like we're in a great position for 2026 as we look towards that and start planning for it. Colin Reed: Hi, Dan, this is Colin. I want to make one observation. And we've been in this business here, certainly, Mark and I, Patrick, almost 25 years running this business here. And we've seen these periods where we have volatility in the mindset of the group consumer. But Mark said it 5 minutes ago, the group is not vanilla. Different companies that are focused on group operate in very different ways. And what we have done is, I think, we put together a pretty good management team in these hotels. We have world-class physical assets. We generate really good levels of service. And as a consequence, we have a high degree of loyalty amongst these meeting planners. And that is one of the reasons why you see us booking the living daylights out of this business and why going into 2026 with the numbers that we have on the books. And it's something that's taken a long time to perfect. And we will go through these periods. Tariffs will create a problem in the mindset of many companies. But at the end of the day, these companies have to meet and the associations have to meet, and they choose to meet in the places that deliver the best levels of value for them, and we believe that is our company. Patrick Chaffin: Yes. And I think an important aspect to keep in mind as it relates to '26, that 8% revenue increase year-over-year, was about 2/3 of that premium was from rate. The durability of that rate premium versus an occupancy premium at this point of the year is much stronger. And that's really driven by the fact that we have been investing capital and we have been focusing, as Colin was talking about, on these higher-quality corporate customers. So you're seeing that strategy play through into the numbers. Daniel Politzer: And then just pivoting to entertainment. It sounds like there are a couple more investments coming in, obviously, Category 10 in Las Vegas. What's your appetite at this point, or thoughts around monetizing that? Is there a certain EBITDA number you guys have marked internally that you want to get to? Or is it just that you're seeing how it evolves over time? Mark Fioravanti: Well, Dan, you're a sophisticated analyst. The EBITDA is one measurement. The growth characteristics are another measurement. Companies that are able to articulate that they have a growth rate of whatever it may be, whether it's 5%, 10%, 15%, or 20%. As you go up the scale, invariably, the investment community is far more receptive to companies with higher growth rates than lower growth rates. And so it's a combination of things. And as we are plowing the field and sowing the seeds, we've got a lot of stuff that will come out of the ground here over the next 12 to 24 months. But here's what I do believe. And I know Patrick Moore, you believe this, too, that this is an extraordinarily valuable asset that we have. And we want to pick a moment in time. And at that moment in time, we will create a lot of value for our shareholders. This is a very valuable business. Operator: Our next question comes from Duane Pfennigwerth with Evercore ISI. Duane Pfennigwerth: Within your corporate group bookings, are there any specific industries you would call out from a recovery perspective? Mark Fioravanti: That's one of the beauties of our business. We don't have one segment that operates over 5%. So how would you answer the question, Patrick? Patrick Chaffin: No, I would completely agree with what you just said, Colin, which is that corporate is strong for the most part across the board. And I would call out any one sector as being stronger. I mean, we've obviously been shifting our guns towards fintech quite a bit. So that's an area that we've been expanding in, but I wouldn't say there's greater growth in any one segment right now. Colin Reed: It's fair to say that the impact that we've seen this year, obviously, from the government shutdown as well as all the devil's work It's we're really seeing weaknesses in the government-related large consulting groups, segments that rely on government contracts. Duane Pfennigwerth: And then just with respect to Desert Ridge and some of the groups booking into that, broad brush, how many are existing rotational groups versus new to your portfolio? Mark Fioravanti: So I would tell you that we've only begun to scratch the surface on that. We actually just hired 2 new sales resources who focus on lead generation, who are going to be solely focused on increasing the overlap between Gaylord and JW, as well as increasing the rotational opportunity between the JWs that we own. So it's really too early because they honestly have just been hired in the past 45 days, but we're really encouraged because we believe that we've seen immediate impact in the collaboration and communication between the teams. And I think I'll be able to talk to you in February about some really interesting and encouraging results as a result of those hires. Operator: We will move next with Chris Woronka from Deutsche Bank. Chris Woronka: I want to ask, as you look out, this is more of a multiyear, longer-term question, if that's okay. When you look at the composition of groups, and I'm really talking about by size, but also maybe a little bit corporate versus association. Is there any desire to maybe reduce your mix of the smaller short-term groups that can be more unpredictable? And are you seeing greater, I guess, growth in demand from the larger groups on the corporate side or from the smaller groups that like to book closer in? And then I have a follow-up. Patrick Chaffin: Let me start. The last time we did a big, big, big piece of research, and the last time we observed the research that Smith Travel did, large groups are the groups that are growing in this country. And we are uniquely positioned because of the scale of our assets and our ability to accommodate these large groups. And it's one of the things that I know I look at every month, Patrick, when we get our sales report, is the way the room nights how they fall between 10 to 300 and larger. So we're seeing good growth in the large groups, but how would you answer that question? Mark Fioravanti: Yes. Chris, I was actually looking at that last night, and it was interesting to see that for 2026, we have a higher mix of the larger groups on the books versus the same time last year, as we looked into 2025. So, as Colin has been talking about for a few years now, we continue to see that growth in the larger groups. But I do want to say the small groups are always essential to what we do. They have a higher rate, they book short term, and they allow you to really top off your group business with the remaining patterns that may be open. And so they come along at the last minute and help you fill out that piece of business, and then you put on top of that any leisure opportunities that you might have. So we're increasing the mix towards the larger group, but the small group will always be essential to finishing off the business. Chris Woronka: The follow-up is maybe for Colin or Mark. I mean, you guys have a lot of perspective. You've been in Nashville for a long time. Colin, I think many years ago, I'm not going to hold you to this, but I think many years ago, there was a thought to maybe doing something around your Opryland with some of the parcels that might be available or you already. My question today is, really, how do you see that little submarket near Opryland evolving? There's kind of a lot of retail stuff across the street. I know you guys at one time were partners in the development across, I think, Briillley. Is that submarket of Nashville something where you think that could become a new little market aside from downtown, and you can kind of create your own buzz there aside from obviously what Opryland already has? Colin Reed: Yes. So here is my belief. And I spent a lot of my time talking with the elected political leaders of this city and the state on this issue. My perspective is, and some of it has been shaped by Mark's and my history in the early '90s, shaping casino gaming throughout the country and particularly in Las Vegas. My view is that the demand for the product that originates in this city is blowing up right across the planet. And the opportunity for this city is extraordinary. And the question becomes how do we do it, and the form in which we do it. So we own a lot of land out here on the eastern side of the city. And I think we've proven to the world that we don't have a geographic problem here because we've created with Opryland, the most successful convention resort in America that doesn't have a casino. There's not another convention resort that comes close to what we have built over here. And then you look at the Grand old Opry that puts 0.75 million people through it every single year. And my view is that we have a big-time opportunity to change the campus and make it more compelling over time for the consumer that I believe will turn up in this city in droves over the course of the next decade. And I think the other thing that using the parallel to Las Vegas, you think about Vegas and gambling. And 10 years ago, the notion of putting professional sports in that city was crazy. Nobody would have thought it was possible. Now you have professional sports in that city, and that city has become arguably the sports capital of America. We're going to be building here a state-of-the-art city, a state-of-the-art stadium here. And we're going to be attracting Super Bowls, final bowls, college playoffs, WrestleMania, as Las Vegas has that didn't exist. The notion of putting a Super Bowl in Las Vegas a decade ago was crazy. But we have a product here that people want, and it is absolutely blowing up right across the globe. And I do believe that the potential for Nashville is extraordinary. Operator: We will move next with David Katz with Jefferies. David Katz: This may or may not be top of mind today. But just curious what your appetite is and what the boundaries would be for potentially more acquisition. One of my go-to issues is always, as you know, I've followed the property in Chula Vista for many years. And that's underlying a more general question. Colin Reed: Shall I start? Yes, go ahead. So, David, the way we've known each other for a long, long time. And I think you would appreciate that the way we think about acquisitions is purely how do we create value for our shareholders? How do we generate really high-quality return on invested capital? So as we sit here today, we have 7 of these beautiful babies, these great hotels in great markets, 2JWs, 5 Gaylords. And here's the thing. We have, I don't know, right now, $1 billion, $1.5 billion in capital in some way, shape, or form under construction that will happen over the next 1, 2, 3 years, and we believe that the majority of that capital is going to generate mid-teen type returns. And all of that is going to create value for our company. So the issue for us is, is there a market that we can plug an asset into? Is there a market that Patrick Chaffin was talking about a second ago about plugging in Desert Ridge into our system and moving customers around? Is there a market that we're not in that we'd like to be in? And the answer is there may be 1 or 2 markets left in the country. But the issue is the asset that we would acquire, the price at which we would acquire it for and how we create real value for our shareholders by doing that. My personal view is I think that if I were a betting man, I would say over the next 1 to 2 years, I think the deployment of capital will be focused internally versus externally, but who knows? The internal rates of return on these incremental investments are pretty hard to compete with if you've got to buy existing assets at market rates. Yes. But we did the bridge a few months ago, and we've been at that one for, I don't know, 10 years, looking at it and trying to get it. And it's simply because of the belief that we can rotate customers into that top 10 group market, Phoenix, Scottsdale, and that over time, we can expand that property and generate really high returns on that incremental capital. So we'll see. But if I were a betting man, I bet you we'd be more likely focused on deploying capital internally than externally. Operator: We will move next with Jay Kornnerbreg with Cantor Fitzgerald. Jay Kornnerbreg: Last quarter, I believe you guys had commented on the expectation for RevPAR in the third quarter to be down mid-single digits and reverse for the fourth quarter. And so I guess just curious now that the third quarter came in ahead of those expectations and yet the annual guidance was maintained, I guess where are you maybe seeing some 4Q softness? Is it really just related to government or anything else that's worth calling out? Jennifer Hutcheson: We've mentioned several times throughout the call already, Jay, that we are seeing government, government-related weakness. That's not a surprise as it relates to the shutdown that's still ongoing. But certainly some bright spots in terms of how leisure is pacing. So all of that's coming together to where I think we are cautiously optimistic about how the fourth quarter will pan out. We're in as good a position, I think, as we can be with all the headlines that are ongoing. Certainly pleased with how the third quarter turned out relative to our expectations, and feel very comfortable being able to reiterate that full year guidance on the hotel segment. Mark Fioravanti: I think the other part of it is the thing that we don't know that we're being cautious about is how long this dam shutdown lasts. And as the shutdown prolongs, do we see an acceleration in negative behavior by the consumer? And we don't know the answer to that question. Nobody does. And if these politicians can get their act together and get this country back to work, I think our fourth quarter should be pretty decent. But the big unknown is the craziness of what is taking place in Washington right now. Jennifer Hutcheson: Yes. But Mark mentioned we've got a comparable number of room nights on the books from a group standpoint in the fourth quarter. Patrick mentioned that at improving rates. And ticket sales, while a small proportion of the total complement that we would expect for the full holiday season has transpired this early on, given the short booking window for leisure, it's pacing ahead. Colin Reed: I'm encouraged by what we saw in October here in Nashville in the amount of airline arrivals, which is material. So we'll see. Patrick Chaffin: And I would point out, this time last year, it was very clear that folks were very distracted by a national election. That is not the case this year. We believe that's going to bode well for leisure. But to Colin's point, it's just a question of how much this government shutdown is a distraction to the groups of the country. Jay Kornnerbreg: And then maybe just one follow-up, moving just to the renovation side with a number of renovations being completed and others ongoing. As we look towards 2026, do you expect the EBITDA lift from completed projects this year in 2025 to outpace the EBITDA displacement from renovations that will be ongoing next year in '26? Jennifer Hutcheson: Yes. Jay, I appreciate the question. We're going to give guidance in '26 as we finish out our budget. We'll be meeting with Marriott here in the next week or 2 to review what that's going to ultimately look like. We can certainly give you the building blocks, which are very consistent with what we've talked about all year. Certainly, we've already shown that the capital that has come online from the projects we did last year, if you look at the Rockies, has started to return. Performance has been great there, related to the Grand Lodge work that we did there last year. So you're seeing that. So certainly, as things come online like the Opryland Sports Bar, which will be completed early in the year in 2026, you will start to see returns from that. But as Colin mentioned, we've got a lot of things in the pipeline, a lot of good things that are going to return well, and those are going to be ongoing. So we'll just see how that can shape up in terms of improvements from what's coming online and then continued investments as we continue down the multiyear path. Patrick Chaffin: It would be fair to say that we don't expect any incremental headwinds from a disruption perspective next year? Colin Reed: No. And I would give a shout-out to our design and construction teams, who are really getting all of this renovation and construction work down to a science and doing a phenomenal job with minimizing the impact on the business and trying to pull back on the displacement that we've already projected. Mark Fioravanti: We have 3 minutes from the top of the hour. Maybe take one more question. Got a couple. We'll shorten our answers. Let's try to get through all these. Go ahead. All right. Operator: We will move next with Chris Darling with Green Street. Chris Darling: Colin, you mentioned that in all likelihood, OEG will expand into other markets in the coming years, or at least you have the opportunity to do so. How do you think about the international opportunity for OEG? Any thoughts on growing overseas? Or were you primarily referencing new U.S. markets? Colin Reed: It's funny you asked that question. Patrick Moore, Mark, and I, 2, 3 weeks ago, had dinner with Luke over in London, Luke Holmes, who was with us on the Opry show that we did at Royal Alber Hall. And Luke would love to do a category over there simply because of the popularity that, that man has. It's extraordinary. I think it's something that we'll be looking at, but it's not something that I would say, no, we're not going to do that. The popularity here is music. And I think the product that we deliver would be well sought after. The issue is finding a partner to do that in that neck of the woods. Doing business in the U.K. is difficult. And so we'll see. But the good news is, I think we've got lots of other opportunities to grow this business domestically. Mark Fioravanti: And we do have content airing in the U.K. now for the Opry show. Yes. So the brands are present. We just don't have a physical presence in those markets at this point. Operator: We will move next with John DeCree with CBRE. John DeCree: Maybe just one on that same theme about international next year, the World Cup in North America. I know there's only a handful of games in Dallas, but how do you think about given Country Music's penetration in Europe, follow-on trends? Is there any programming that you're thinking about doing? Have you seen any early bookings yet? I know it might be early, but I think it dovetails with our conversation on country music expansion in Europe, given there might be some customer overlap. Curious if you have any initial thoughts. Colin Reed: Well, we're going to see a lot of international travel in the summertime next year for the World Cup. And unfortunately, our stadium here will not be complete. And I can tell you, I've spent quite a bit of my time with other folks in the city, quoting FIFA to try and get the 2026 World Cup here in Nashville. But there are going to be markets where there will be some lift, like, for instance, Orlando is a market, I think that we'll see lift because of the World Cup next year. But the interesting thing is, we're very active, not we, Ryman, but we, the city, are very active in quoting FIFA for the Women's World Cup here because we will have a beautiful stadium. And so this is a consumer base that we think could be potentially very valuable for international sporting events. We just announced, I think it was last week, that we secured the Olympics for the physically disabled folks. What are we, Special Olympics? Yes, Nashville has secured that here. So this is a consumer base that we are very interested in. All right. I think, Nikki, that's it. I appreciate everyone being on the call this morning. A lot of good questions. Our business is in good shape, and we're looking forward to this fourth quarter. And I know I'm looking forward to seeing how '26 plays out because I think it could be a good year for our company. Thank you, everyone. Operator: Thank you. And this concludes the Ryman Hospitality Properties Third Quarter 2025 Earnings Conference Call. Thank you for your participation, and you may now disconnect.
Operator: Good afternoon, and welcome to Cumberland Pharmaceuticals Third Quarter 2025 Financial Report and Company Update. This call is being recorded at the company's request and will be archived on its website for 1 year from today's date. I would now like to turn it over to Emily Kent from the Dalton Agency, who handles Cumberland's Communications. Emily, please proceed. Emily Kent: Hello, everyone, and thank you for joining us today. This afternoon, Cumberland issued a press release announcing its third quarter financial results. The release also provided an operational update, including key developments during the quarter. The release, which includes the related financial tables can be found on the company's website at www.cumberlandpharma.com. During today's call, management will share an overview of those financial results. They'll also provide an overall company update, including recent developments, along with the discussion of Cumberland's brands, pipeline and partners. Participating in today's call are A.J. Kazimi, Cumberland's Chief Executive Officer; along with Todd Anthony, Vice President, Organizational Development; and John Hamm, Chief Financial Officer. Please keep in mind that their discussions may include some forward-looking statements as defined in the Private Securities Reform Act. Those statements reflect the company's current views and expectations concerning future events and may involve risks, as well as uncertainties. There are many factors that could affect Cumberland's future results, including natural disasters, economic downturns, international conflicts, trade restrictions, public health epidemics and others that are beyond the company's control. Those issues are described under the caption, Risk Factors in Cumberland's annual report on Form 10-K and any subsequent updates filed with the SEC. Any forward-looking statements made during today's call are qualified by those risk factors. Despite the company's best efforts, actual results may differ materially from expectations. So information shared on this call should be considered current as of today only. Also, please remember that the company isn't responsible for any -- for updating any forward-looking statements, whether as a result of new information or due to future developments. During today's call, there will be references to several of Cumberland's marketed brands. Full prescribing and safety information for each brand is included on the individual product website and you can find the links to those sites on the corporate site at www.cumberlandpharma.com. The company will also be providing some non-GAAP financial measures with respect to its performance. An explanation and reconciliation to GAAP measures can be found in the financial tables of the earnings release noted earlier. If you have any questions, please hold them until the end of the call at which point, we'll be happy to answer them. Management is also prepared to hold a follow-up conversation with shareholders after the call, if you prefer. With that introduction, I'll turn the call over to Cumberland's Chief Executive Officer, A.J. Kazimi. A. Kazimi: Thank you, Emily. Good afternoon, everyone. We appreciate you joining us today. As Emily mentioned during the call, we'll provide a review of our financial results for the third quarter this year and we'll also cover key operational developments that occurred during that period. In addition, we'll discuss several recent updates that continue to underscore our optimism about the company's future. So let's get started. Today, I'm very pleased to announce a new addition to our commercial product portfolio. We've entered into arrangements with RedHill Biopharma to jointly commercialize Talicia which is an FDA-approved and leading treatment for helicobacter pylori infections, provided in a single capsule that contains Omeprazil, amoxicillin and rifabutin, Talicia is now recommended as a first-line therapy for aged pylori infections in the American College of Gastroenterology clinical guidelines. The product is patent protected through 2042 and also received 8 years of U.S. market exclusivity under its qualified infectious disease product designation. We believe Talicia is an excellent strategic fit for our company. It was FDA-approved based on two large successful clinical studies, and it features an outstanding safety -- excuse me, an outstanding profile of the three 3 key advantages: a high eradication rate exceeding 90%, the convenience of an all-in-one capsule containing three medicines and minimal antibiotic resistance. We formed a new company with RedHill called Talicia Holdings, Inc., and RedHill has contributed to worldwide rights to Talicia, as well as the product assets to the new company. Cumberland will invest $2 million this year and $2 million next to participate in the new company's joint ownership. Through a joint commercialization agreement, we'll assume responsibility for the distribution and sale of Talicia in the U.S. and will equally share Talicia's net revenues. In 2024, net sales of Talicia totaled $8 million. Cumberland will also assume responsibility for product promotion through our field sales division, which currently details Kristalose, another gastroetrology product. And we'll provide an annual investment of up to $2 million to cover certain distribution, marketing and sales costs associated with the brand. Meanwhile, during the third quarter, we announced international developments, including the launch of our Vibativ product in Saudi Arabia. The launch follows an agreement with to book pharmaceutical manufacturing company, to introduce Vibativ into the Middle East. To book had obtained the final approvals needed to commercialize Vibativ in Saudi Arabia, and we're pleased the product is now available for patients in that market. In October, we announced the regulatory approval of our ibuprofen injection product in Mexico. We worked to secure that approval through our partnership with PiSA Pharmaceutical a well-established Mexican pharma firm. Under the terms of the agreement, PiSA is responsible for both the registration and commercialization of the product in their country, while we provide regulatory support and the product supply. Additionally, we previously shared that our antibiotic batter received approval from the regulatory authorities in China earlier this year. That milestone provides us with access to the world's second largest pharma market, and we're now preparing to support the launch of Vibativ there. Here in the U.S., we announced the availability of our Vibativ starter pack through a new supply arrangement with Vizient, making it accessible to their health care members nationwide. And we also announced that Vibativ was added to a national purchasing agreement with Premier Inc. Meanwhile, we've continued to progress our Phase II clinical programs evaluating our ifetroban product candidate in patients with Duchenne muscular dystrophy, systemic sclerosis and an idiopathic pulmonary fibrosis. Turning to the third quarter financial results. Our portfolio of FDA-approved brands delivered combined revenues of $8.3 million during the quarter. Year-to-date revenues for the first 9 months of the year totaled $30.9 million, while third quarter sales were impacted by a delay in some Kristalose and Caldolor shipments our year-to-date revenue has grown 12% over the same period last year. Furthermore, as a reminder, the fourth quarter is often our strongest as customers tend to increase their product purchases towards the end of the year. And therefore, we continue to believe our financial performance is best evaluated on an annual basis. The adjusted loss for the third quarter was $0.8 million or $0.06 a share, and our year-to-date adjusted earnings were $1.9 million or $0.13 a share. In addition, our business continued to generate positive cash flow from operations, which increased to nearly $5 million through this year through September. At the end of the third quarter, we held $66 million in total assets, including $15 million in cash. Liabilities totaled $40 million and shareholders' equity was $26 million at the end of the third quarter. And please note that our total debt has been reduced by $10 million since the end of 2024. With those developments and overview, I'd now like to turn to Todd Anthony, Cumberland's Vice President Organizational Development to further discuss both our brands and our sales organization. Todd? Todd Anthony: Well, thank you, A.J. I'll start by sharing an update on each of our major brands. Vibativ is our intravenous antibiotic designed for difficult-to-treat infections, such as hospital-acquired and ventilator-associated pneumonia, as well as complicated skin and skin structure infections caused by certain gram-positive bacteria, including those that are multidrug resistant. Unlike many antibiotics that are losing the battle to fight bacteria, Vibativ's unique dual method of action was specifically designed to address these drug-resistant bacteria. We, therefore, believe it has lifesaving potential to help many patients amid this growing antibiotic resistance crisis, which faces a very fragile pipeline of new antibiotic development. Recall that to reinforce the message, we are conducting a series of infectious insights. These are discussions with infectious disease experts that we are disseminating across the country. These video vignettes share the opportunity to use Vibativ as a solution for select patient types where other products have failed. In June, a comprehensive new pharmacokinetic analysis of Vibativ was published in antimicrobial agents and chemotherapy. The analysis utilizes data from over 1,200 patients across varied demographics and comorbidity profiles. The findings support optimized dosing strategies for patients with different infection severities and renal function levels, which reinforces Vibativ's critical role in treating life-threatening gram-positive infections. We recently announced the availability of the Vibativ 4-Vial Starter Pak through a new supply arrangement with Vizient, making it accessible to their health care members nationwide. As the country's largest provider-driven health care performance improvement company, Vizient serves more than 65% of the nation's acute care providers, including 97% of our country's academic medical centers. Through this agreement, Vizient members now have access to Vibativ's new 4-vial configuration, which supports flexible treatment initiation in both inpatient and outpatient settings, again, for this life potentially life-saving therapy. Vibativ was also added to a national group purchasing agreement with Premier, Inc., an alliance of approximately 4,350 U.S. hospitals designed to drive transformation across the health care system. The product's addition provides Premier's members with a cost-effective solution to treat resistant gram-positive infections. Moving next to Kristalose, which is our prescription strength laxative provided in a convenient premeasured powder dose that dissolves quickly in just 4 ounces of water, resulting in a clear taste-free and grid-free solution. While our field sales division has been able to generate prescriptions of Kristalose through their promotional efforts, we have always faced substitution by pharmacies in favor of generic alternatives. That substitution has increased this year with the arrival of additional generic competition. We have taken appropriate action and implementing strategies to protect and grow our business. Let's shift now to Caldolor, our intravenous ibuprofen product. With its new pediatric labeling cleared with the FDA, Caldolor is now the only non-opioid product approved to treat pain in infants that's delivered by injection. As a reminder, we are featuring Caldolor through sales and marketing initiatives, highlighting this new indication, resulting in growing use of the product in our country's children's hospitals. We previously announced the publication of our study investigating Caldolor in clinical therapeutics, demonstrating the product's safety and efficacy for managing postoperative pain in patients 60 years of age and older. This analysis encompassing over 1,000 patients from our comprehensive post-surgical studies represents the first such evaluation in this vulnerable population where traditional pain management options such as opioids, carry increased risk. Turning to Sancuso, our transdermal patch FDA approved for the management of chemotherapy-induced nausea and vomiting. We continue to see favorable sales results following the expansion of our oncology sales force. We have also launched a new Sancuso website along with promotional marketing resources and digital marketing campaigns to further support awareness and access to this product. Recall, our Vaprisol product is the only intravenously administered vasopressin receptor antagonist. It's used to raise serum sodium levels in hospitalized patients with hyponatremia, which is the most common electrolyte disorder among these patients. Our new manufacturing and distribution partner for Vaprisol has successfully begun producing the product in their facility and are now awaiting FDA's GMP certification for this site. Once they receive regulatory clearance we will file for approval to manufacture branded Vaprisol there. Well, that completes my updates for today. And so I'll turn it back to you, A.J. A. Kazimi: Thank you, Todd. I'd now like to provide an update on our ongoing clinical activities. We continue to progress our pipeline of innovative products designed to improve patient care and their quality of life. Our ifetroban product candidate just a potent and selective thromboxane receptor antagonist is being evaluated in several clinical programs for patients with a series of unmet medical needs. Ifetroban has now been dosed in nearly 1,400 subjects and has been found to be safe and well tolerated in those individuals, resulting in an outstanding safety database. Earlier this year, we announced positive top line results from our FIGHT DMD trial. The study evaluated ifetroban as a therapy for Duchenne muscular dystrophy and its heart disease, which is the leading cause of death in DMD patients. The study and its results mark a breakthrough for these patients, as is the first successful study, specifically targeting the cardiac complications of their disease. The trial enrolled 41 DMD patients who received either a low dose of ifetroban, a high dose of ifetroban or a placebo. The study's primary efficacy end point was an improvement in the heart left ventricular injection fraction or LVEF and key findings associated with the patient's LVEF included high-dose ifetroban treatment resulted in an overall 3.3% improvement and the high-dose ifetroban showed an increase of 1.8%, while the placebo group showed the expected decline of 1.5%. And when those are combined, you get the 3.3% overall improvement I mentioned. Now when compared with propensity matched natural history controls, the difference was even more pronounced, with the high-dose treatment providing a significant 5.4% overall improvement as the control patients experienced a 3.6% decline. And both doses of ifetroban were well tolerated with no serious drug-related events. These top line FIGHT DMD study findings were selected for a late-breaking presentation at the Muscular Dystrophy Association Clinical and Scientific Conference in March and were then presented at the Parent Project Muscular Dystrophy Annual Conference in June. We completed the comprehensive analysis of the study results. We've prepared our clinical study report and then we submitted it to the FDA along with a request for an end of Phase II meeting. We held that meeting in September, and we began interaction with the FDA to determine their remaining development requirements. The FDA recommended a follow-on meeting, which we are now planning is the next step in that process. Meanwhile, we've been evaluating our ifetroban product candidate, in a clinical program in patients with systemic sclerosis or scleroderma. Enrollment in the study was completed this year, and we've been monitoring the clinical study sites in preparation to lock the database and begin evaluating the study results and we look forward to announcing those findings from this study. In addition, we have a Phase II clinical study, the finding fibrosis trial underway in patients with idiopathic pulmonary fibrosis, the most common form of progressive fibrosing interstitial lung disease. Patient enrollment in that study is moving rapidly. It's well underway and medical centers across the country. The study design includes both an interim safety analysis as well as an interim efficacy analysis, and we'll look forward to reporting on both of those findings. Additional pilot studies of ifetroban are also underway through several investigator-initiated trials and following completion of our ongoing studies and with the FDA feedback will then determine the optimal regulatory pathway for development of ifetroban, our first new chemical entity. So with that update on our clinical activities, I'd now like to turn it over to our Chief Financial Officer, John Hamm, to review our third quarter financial results. John? John Hamm: Thank you, A.J. For the 3 months ending September 30, 2025, net revenue from continuing operations was $8.3 million. Revenue for the first 9 months of the year totaled $30.9 million. Net revenue by product for the third quarter of 2025 included a $1.2 million for Kristalose, $3.2 million for Sancuso, $2.6 million for Vibativ and $0.9 million for Caldolor. Year-to-date, product revenues totaled $7.4 million for Kristalose, $8.6 million for Sancuso, $6.7 million for Vibativ and $3.8 million for Caldolor. Turning to our expenditures. Total operating expenses for the third quarter were $10.3 million. Year-to-date expenses totaled $32.3 million, the net loss for the quarter was $1.9 million. Year-to-date net income loss was $1.4 million, and when noncash expenses are added back, the resulted adjusting earnings for the first 9 months of 2025 or $1.9 million or $0.13 a share. Cash flow from operations during 2025 was $5 million. Also, please note that the adjusted earnings calculations do not include the additional benefit of the $0.1 million of Vibativ cost of goods during the third quarter. Those goods were received as part of the Products acquisition. We're pleased to see that the additions of Vibativ and Sancuso to our portfolio continue to positively impact our financial performance. As a result of the Vibativ acquisition, a total of $34 million in new assets were added, including approximately $21 million in inventory, $12 million of intangible assets and $1 million of goodwill. The estimated value for those assets was $10 million at the end of the third quarter. The financial terms for the Vibativ transaction included a $20 million payment upon closing and a subsequent $5 million milestone payment. We also continue to provide royalties tied to product sales. Sancuso added a total of $19 million in new assets, including approximately $4 million in inventory, $12 million of intangibles. The estimated value of those assets was $9.5 million at the end of the third quarter. We provided $13.5 million at closing for the Sancuso acquisition, and we paid $1.5 million in milestone payments. There are ongoing royalties that we pay based on the brand sales. Turning to our balance sheet as of September 30, 2025, we had $66 million in total assets, including $15.2 million in cash and cash equivalents. Liabilities totaled $40 million including $5 million on our credit facility. Total shareholders' equity was $26 million at the end of the quarter. We continue to hold a bank line of credit, which provides up to $20 million in capital. The interest rate is based on benchmark term SOFR and is subject to a financial covenant determined on a quarterly basis, and we were in compliance at the end of the third quarter. We are also continuing the process of implementing new trading plans for our Board members who are purchasing Cumberland shares throughout the year to increase their holdings in the company. Lastly, I'd like to note that Cumberland continues to hold over $53 million in tax net operating loss carryforwards, primarily resulting from the prior exercise of stock options. And that completes our financial report for the third quarter of 2025. Back to you, A.J. A. Kazimi: Thank you, John. Well, overall, it's been a successful year-to-date, and we're encouraged by our progress. The addition of a new product marks an exciting next phase of growth for our company. We remain dedicated to our mission of working together to provide unique products that improve the quality of patient care. And we pursued our mission by building a portfolio of FDA-approved brands with the outstanding safety and efficacy profiles that can make a difference in patients' lives. We continue to support our product portfolio through our three dedicated sales divisions, each focused on strategic segments of the health care market. And we're encouraged by the progress of our ifetroban clinical programs as we continue to progress, as we continue to pursue therapeutic solutions unmet medical needs. Looking ahead, we expect continued momentum across our approved brands, increased international contributions, further progress in our clinical pipeline and new opportunities to select product additions. We have a lean, highly productive organization and the achievements outlined today were made possible by the dedication and fine efforts of our outstanding team, and we look forward to providing updates on further developments as the year progresses. Now let's open the call to any questions. Operator, please proceed. Operator: [Operator Instructions] A. Kazimi: Well, if there are no questions, I'd just like to thank everybody for joining us for today's call. We understand that many of our shareholders prefer a private discussion with management. And if so, please just reach out and we'll be happy to get a call scheduled with you and hold such a discussion. As always, we appreciate your time and interest in our company and look forward to providing updates in the coming months. Operator: Thank you, sir. Ladies and gentlemen, that concludes today's call. If you would like to listen to a replay of the discussion, please visit the Investor Relations section on Cumberland's website. I would now like to thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the Synchronoss Technologies Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Ryan Gardella of Investor Relations. Thank you, and you may proceed. Ryan Gardella: Thanks, Claudia. Good afternoon. Welcome to the Synchronoss Technologies Third Quarter 2025 Earnings Conference Call. Joining us from Synchronoss today is President and CEO, Jeff Miller; and CFO, Lou Ferraro. By now, everybody should have access to the company's third quarter 2025 earnings press release issued this afternoon, which is available on the Investor Relations section of our website. Today's call will begin with remarks from Jeff and Lou after which we'll host a question-and-answer session. Before we conclude, we'll provide the necessary cautions regarding the forward-looking statements made by management during this call. I would like to remind everyone that this call will be recorded, made available for replay via a link in the Investor Relations section of the company's website. Now I'd like to call -- turn the call over to Jeff Miller, President and CEO of Synchronoss. Jeff? Jeffrey Miller: Thanks, Ryan. Welcome, everyone, and thank you for joining today's call. While revenue in the third quarter was slightly below our expectations, primarily due to subscriber growth weakness among certain customers and delayed timing of new customer contracts, we are pleased with our profitability performance, including strong EBITDA results, net income of $5.8 million and diluted earnings per share of $0.51. The sustained growth of our cloud-based business model was evident with recurring revenue representing more than 93% of total revenue. Our disciplined execution of key initiatives across the organization continues to enhance the company's financial strength and supports sustained progress in the profitability of our more predictable and stable business model. While we continue to operationalize our costs, we reflect rapidly in the changes of the economic environment, we have further focused on solidifying our balance sheet to enable greater operational flexibility for our future. This year, we completed a strategic $200 million 4-year term loan refinancing, retiring our senior notes and prior term loan, strengthening our capital structure and extending our debt maturities to 2029. This was followed by the completion of our CARES Act refund process, resulting in the receipt of $33.9 million of total outstanding balance of the refund owned to the company. This long-awaited refund enabled us to make a $25.4 million prepayment at par on our term loan, adding to the total of $100 million of debt reduction over the past 4 years, and we placed an additional $8.5 million of cash -- inorganic investments to accelerate our growth. Among those potential avenues, we are exploring new product adjacencies to maximize our total addressable market outside the core mobile market. Turning to Q3 results. Revenue for the quarter was $42 million, consistent with results in Q1 and Q2 and included a year-over-year subscriber growth rate of approximately 1% across our global customer base. While our subscriber growth count was lower than we expected in the quarter, we believe that new customer contracts, combined with the strategic changes to how some of our key existing customers are intending to regain market share, should have a positive impact on our subscriber and revenue growth going forward. As I mentioned in the past, our service is extremely profitable for our carrier partners in their efforts to increase ARPU should ultimately be a positive net for Synchronoss. We delivered $12 million in adjusted EBITDA, which resulted in an adjusted EBITDA margin of 28.5% in the quarter. Those results, combined with our year-over-year reduction in operating expenses, further demonstrate the resilience of our high-margin SaaS business model and our team's disciplined approach to cost management, even while facing some revenue headwinds. Our recurring revenue grew to 93.8% of total revenue, underscoring the stability and predictability of our business model. Plus, with more than 90% of our projected revenue under long-term contracts with Tier 1 carriers, we continue to operate from a position of fundamental strength. We also remain focused on adding new global customers to our cloud platform. And while we've reached the contract negotiation phase with prospects, those opportunities did not contribute revenue in the quarter. Next, I'd like to provide some context on our key customer relationships. At AT&T, we continue to see positive momentum in subscriber growth. AT&T has seen a meaningful lift in their value-added service revenue growth, enabled by the streamlined digital onboarding processes that jointly we've put in place, which continue to drive improved take rates. We're still less than 2% penetrated within the total subscriber base of AT&T and growing ahead of our expectations, leaving a long runway for continued growth in 2026 and beyond. At Verizon, we continue to navigate the ongoing transition of their bundled cloud users migrating to their myPlan Perks portfolio. While this transition has created some near-term subscriber growth pressure, which has been slightly compounded by weakness in the carrier's overall subscriber growth, we believe Verizon's focus on positioning our cloud solution, as a premium perk, will ultimately strengthen the value proposition and drive more sustainable growth as their customers migrate on to those individual perk selections. Further, we have several joint initiatives with Verizon that we believe will further accelerate growth, including expanded leverage of their direct and indirect retail channels, where we're seeing healthy uplifts in cloud take rates in both Q3 and early signs in Q4. We're also capitalizing on new SMB cloud perk to continue momentum with the SMB segment. And we're seeing promising subscriber adoption within the value segment, represented by brands such as Straight Talk, Total Wireless and Simple Mobile. At SoftBank, we've kicked off the development work of our digital integration to their My SoftBank app, through our software development kit. This will allow us to expand the discoverability across a broader base of software -- SoftBank subscribers, which we expect to lead into increased adoption once fully implemented. We expect contribution from this digital channel expansion to begin next year. We're also below 2% penetration across SoftBank's mobile brands, with significant room for growth and expansion throughout 2026 and beyond. With Capsyl, our own branded solution, we're seeing digital marketing initiatives with our carrier partner, Telkomsel, begin to generate tangible momentum. While this launch is still in small scale, we're encouraged by the focus and the results of their promotional efforts. We're also using this success story at Telkomsel to pitch Capsyl to a variety of other deep pipeline opportunities with other carriers, and we're seeing meaningful progress in those conversations. It's still early but we're pleased directionally and expect to see progress accelerate in 2026. On the new business front, we continue to make progress across all channels, including our current partner, Assurant, who has helped us expand our reach into new customers. We intend to continue to leverage this partnership for new customer launches in the fourth quarter and throughout 2026, while seeking additional channel partners, which will expand our customer base. We're also making meaningful progress with several new potential customers moving to the contracting and onboarding phases in preparation for launches in 2026. Also, Synchronoss continues to make and achieve significant milestones in our AI-driven transformation. We successfully developed complex features like end-to-end encryption for desktop clients using AI development automation and advanced AI capabilities by promptimizing tuning large language models to generate user stories and test cases. Our teams leverage AI to enhance product features, improve security and streamline development, including generating code that met stringent security and compliance standards with minimal refactoring. We also accelerated innovation through open source AI model adoption, fine-tune models for greater accuracy and deployed hybrid retrievable augmented generation approaches to meet our customers' requirements. These advancements have enabled us to deliver secure, scalable solutions posted on private networks, enhance our user engagement with AI-powered features and lay the groundwork for continued growth in operational excellence. Additionally, we made a significant step forward with our core personal cloud platform by successfully completing and deploying a hybrid cloud AI model for advanced content intelligence which also continues to focus on our cost optimization by enabling in-house photo tagging and image embedding to be dynamically distributed across both company-owned and public cloud environments. This capability is a foundational pillar for next-generation features, including the new memories feature with integrated highlights and personalized genius style content, reinforcing the commitment to driving monthly engaged users and delivering superior value to our service provider partners. Our enhanced platform capabilities, large global cloud subscriber base and talented software development teams are creating a recipe to introduce capabilities and offerings to drive revenue and complement the expansion of our current cloud customer base. We believe these strategic initiatives will drive accelerated growth in the years ahead. Now I'd like to give some color around our guidance for the remainder of 2025. With anticipated continuation of subscriber headwinds among some customers in the fourth quarter and anticipated revenue contributions from new customer contracts, we're adjusting our full year revenue guidance to be between $169 million and $172 million. Due to this revision and expectations on the top line, we are also lowering our adjusted EBITDA guidance to between $50 million and $53 million and free cash flow of between $6 million and $10 million. These adjustments are a reflection of slightly lower expected revenue contributions and steady performance in operating expenses. Our recurring revenue is still expected to be at least 90% of total revenue and our adjusted gross margin is expected to remain between 78% and 80%. Looking ahead, we see the softness in subscriber growth for the quarter as a temporary weakness, and we're building momentum across multiple fronts that we believe will drive improved performance in 2026. We're diligently working to drive accelerated growth through our core offering, while exploring additional adjacencies to expand our total addressable market without losing sight of what makes Synchronoss unique. We're seeing the pace of development increase, and we internally develop new tools for AI initiatives across the technical side of our organization as well. Our strengthened balance sheet, operational discipline and expanding customer relationships provide a solid foundation for growth. And while we recognize our results for the quarter were slightly below our expectations, we believe our healthy business model, combined with our disciplined approach to cost management and expectations for new customer launches, positions us to deliver improved growth performance in 2026 and the years to come. We remain confident in our strategy, our market position and our ability to drive long-term value for shareholders. Now I'd like to turn it over to Lou for a detailed review of our financial performance. Lou? Lou Ferraro: Thank you, Jeff, and thank you, everyone, for joining us today. First, I'll review our key financial metrics for the third quarter of 2025, which we believe serve as critical benchmarks for our performance, and then we'll provide an update on our financial results and outlook. Starting with our key performance indicators. Quarterly recurring revenue was 93.8% of total revenue, reflecting our stable cloud business model, which was driven by cloud subscriber growth of approximately 1%. Turning to our financial results for the third quarter ended September 30, 2025, total revenue was $42 million, down slightly from $43 million in the prior year period due to delay of anticipated customer contracts and lower-than-expected subscriber growth at certain customers. Adjusted gross profit was $33.4 million or 79.5% of total revenue compared to $34.2 million in the prior year, which amounted to 79.6% of revenue. The slight decline was due to lower revenue in the quarter. Income from operations was up 6.4% year-over-year from $5.5 million to $5.9 million, driven by further reductions in operating expenses. As a reminder, we paid down $25.4 million of our existing term loan at par last quarter from the proceeds of our CARES Act refund. Therefore, we do not foresee having to make another scheduled amortization payment prior to 2028. This should provide us with more free cash flow going to the bottom line over the next 3 years. Moving down the income statement. Our total operating expenses decreased 3.5% from $37.4 million to $36.1 million. Cost of revenues and sales, general and administrative costs were down year-over-year while research and development and depreciation and amortization were up slightly. We're going to continue to be focused on disciplined cost control to support our profitability. As part of our cost-reduction initiatives, we're seeking benefits in productivity and cost savings from AI deployment, including the optimization of multiple open source models used in our products. We'll continue to evaluate every avenue to mitigate additional cost, including deploying AI and machine learning, both internally and externally as appropriate. Net income was $5.8 million or $0.51 per diluted share. This result was driven by a $5.2 million onetime interest income event from our tax refund as well as noncash foreign exchange that was slightly positive in the quarter. As a reminder, foreign exchange is a noncash paper gain or loss that has no impact on the financial viability of the business nor does it reflect on the fundamentals of our performance. Adjusted EBITDA was $12 million, representing a 28.5% margin, consistent with our high-margin model and supported by cost control, including a 3.5% year-over-year reduction in operating expenses on a year-over-year basis, as we've mentioned previously. Moving to the balance sheet. Cash and cash equivalents were $34.8 million as of September 30, 2025. This includes approximately $8.5 million in cash that was not used for the prepayment of debt from the tax refund, which we intend to use to fund new growth initiatives. The remainder of our proceeds from the tax refund were used to materially reduce our total debt balance, resulting in net debt of $139.8 million, which is approximately 2.7x our anticipated 2025 adjusted EBITDA, a significant reduction from the year ago period. As Jeff mentioned, this also reduced our annual interest payments by approximately $2.8 million at current interest rates. Free cash flow was $36 million, driven largely by the receipt of our tax refund in the quarter and adjusted free cash flow was $4.2 million. Due to the factors mentioned today, we have adjusted our guidance to reflect the following for 2025: Revenue of between $169 million and $172 million, adjusted gross margin of between 78% and 80%, recurring revenue of at least 90% of total revenue, adjusted EBITDA of between $50 million and $53 million and free cash flow of between $6 million and $10 million. The company's free cash flow guidance excludes proceeds of $33.9 million from the federal tax refund as previously communicated. As discussed last quarter, the guidance also excludes approximately $4.4 million of transaction fees from the 2025 term loan. These fees resulted from the company's recapitalization in which $75 million term loan and a portion of the senior notes were considered modified under accounting principles when replaced with a new $200 million term loan due to participation by existing lenders. I'll now turn the call back over to the operator for questions and answers. Thank you for joining us today. Operator: [Operator Instructions] The first question comes from Anja Soderstrom from Sidoti & Co. Anja Soderstrom: So I'm just curious with the growth that you are seeing, is that mainly then driven by higher wallet share rather than the subscriber growth, which seems to be a little bit challenged? And how should we then think about overall growth when the subscriber growth comes back, if you are adding more value to the existing customers? Jeffrey Miller: Yes. Anja, I'll give a start. Thank you very much for joining us. First off, we had a slight growth in our subscriber and subscription growth revenue category this quarter. One of the major contributors, as I mentioned, has been a little bit of a long sales cycle that we have experienced on getting new customer contracts and therefore, getting new customer growth to contribute to our overall results. We are seeing those conversations progress very well with new customer prospects, it's just taking some additional time to get through the contracts. On the subscriber side, we believe the initiatives that we have in place with our existing customers and the momentum that is already in existence with AT&T, in particular, will allow us to get back towards mid-single-digit types of subscriber growth, complemented by bringing in some new customers to try to help drive our growth for 2026 and beyond. Anja Soderstrom: Okay. And you're talking about 2 rather important customers in the pipeline that you think you're going to sign one by the end of the year and one early next year it sounded like. But how does the rest of the pipeline look like? Jeffrey Miller: Well, the pipeline, you should look at our business, obviously, in 2 dimensions. Number one, continued growth with the subscribers that we -- or the customers we already serve. And as mentioned, with -- for example, at AT&T, less than 2% penetration of subscriber growth today across their broad subscriber base, we have a lot of growth that will be driven through that. In addition to that, the pipeline for other customers both looks good for, I'll call it, branded clouds, not unlike what we do today for AT&T, Verizon and SoftBank, but also for our Capsyl. And we have those opportunities in the United States, in Asia, in Europe and even other parts of the world. So we are continuing to see a broad and very healthy pipeline of opportunities. And the guidance that we've given, as I mentioned, yes, we expect to have a new customer launch this year, and an additional one launch in 2026. Anja Soderstrom: Okay. And just one last for me. With the improved balance sheet and your positive cash flow, how should we think about capital allocation priorities, and are you -- and potential share buybacks? Jeffrey Miller: Yes. Maybe I'll ask Lou to address that question on behalf of the capital plan. Lou Ferraro: Sure. So Anja, the first thing that we're looking at is our ability for a change to be a little bit more on the offensive with our additional cash that we have from the tax refund. And that really before we get into stock buybacks, we look at that as a two-pronged potential opportunity for the company. Number one is additional investment in our current products or expansion of our platform to serve our current and new customers with additional products or potentially some inorganic growth opportunities that prior to this point, we haven't been able to take the advantage to look at and evaluate strategically. So that's really kind of where our capital allocation mindset is right now. Operator: [Operator Instructions] Our next question comes from Jon Hickman from Ladenburg Thalmann. Jon Hickman: Can you elaborate a little bit on the 2 line items, the expense -- the interest income and the interest expense? Both of those were affected by your IRS payment. Is that what you said? Lou Ferraro: No, so our interest... Jeffrey Miller: Go ahead, Lou. Lou Ferraro: So Jon, our interest income is a result of the interest that we received related to our federal tax refund. And our interest expense is related to the interest on the term loan and issuance costs related to it. Jon Hickman: Okay. So -- okay. So going -- how much of that was like onetime on the interest expense side? Lou Ferraro: $1.7 million. That was the deferred issuance cost as it relates to that line item. Jon Hickman: $.1.7 million, okay. And then the interest from -- so when you got the $39 million or whatever, you had -- part of that was just a refund, but part of it was the interest and that's where the interest -- that was like earned interest that you had been... Lou Ferraro: Right. So if you look at the... Jon Hickman: You had to take it all at once. Lou Ferraro: Yes, if you look at the $33.8 million, Jon, $28.6 million was the pure refund amount that was the remaining balance of the $42-plus million that we had filed for under the CARES Act. And then we received $5.2 million going back retrospectively for all the years that were open under the investigation. So the total proceeds of the company were $33.9 million, inclusive of the interest. Jon Hickman: Okay. So then -- so you said you had 1% subscriber growth year-over-year. What happened between Q2 and Q3, sequentially? Jeffrey Miller: We went from 3% subscriber growth, I believe, as we reported last quarter to 1% this quarter, impacted by some of the things I had described. Yes, go ahead. Sorry. Jon Hickman: Well, was there a loss of subscribers... Jeffrey Miller: No, that year-over-year total subscriber growth on a -- we look at it year-over-year to be able to provide full visibility through gross adds, net adds, churn and everything else. So we look at it on a year-over-year basis. Each quarter, we are growing. So we grew hundreds of thousands of subscribers in the quarter, but by virtue of our 11-plus million subscriber base, that represented 1% on a year-over-year basis. Jon Hickman: Okay. So why -- so can you explain -- I mean, let's see. So revenues were actually down sequentially. Can you elaborate on that? Jeffrey Miller: We had -- in the second quarter, if you look at the line item detail, actually, the revenue makeup, our subscription growth actually grew, as I mentioned, on a slightly Q3 over Q2, but what we saw less of were a onetime license or professional services fees. That is a reflection of the fact that we had a contract with SoftBank that we closed in Q2 for the license associated with the SDK deployment that we're doing. And while we saw some new business revenue in the third quarter, it was not as large as the second quarter performance. Operator: There are no further questions at this time. I'd like to turn the floor back over to Mr. Jeff Miller. Thank you, sir. Jeffrey Miller: Thank you. Once again, to all of those who participate in the investment community, we thank you for continuing to take time to invest your time and understanding and learning more about our business and the prospects for our future. To the Synchronoss team, once again, very strong performance by the team to help deliver tremendous advancements in our AI functionality to improve not only our product capability, but also our operational efficiency and for continuing to maintain very disciplined control that give us the strong financial foundation upon which we have to grow the business in the future. So thanks to the Synchronoss team. I wish the rest of you a very good afternoon, and thank you for taking the time to join the call. Back to you, operator. Ryan Gardella: Thanks, Jeff. Before we conclude today's call, I'd like to provide Synchronoss' safe harbor statement that includes important cautions regarding forward-looking statements made during this call. During this call, management discuss certain factors that are likely to influence the company's business going forward. Any factors that are discussed today that are not historical, particularly comments regarding our prospects and market opportunities are considered forward-looking statements within the meaning of applicable securities laws. These forward-looking statements include comments about the company's plans and expectations about future performance. Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially. All listeners are encouraged to review the company's SEC filings, including its most recent 10-K and 10-Q for a description of these risks. Statements made during this call are as of today, and the company does not undertake any obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or changes in expectations or otherwise. Please note that throughout today's call, management discuss certain non-GAAP financial measures such as adjusted EBITDA. Although the non-GAAP financial measures are derived from GAAP numbers, adjusted EBITDA is not necessarily cash generated by operations. This does not account for such items as deferred revenue or the capitalization of software development. Today's earnings release describes differences between the company's non-GAAP and GAAP reporting measures and presents a reconciliation for the periods reported and not released. Thank you for joining to Synchronoss Technologies Third Quarter 2025 Earnings Call. You may now disconnect.
Operator: Good afternoon, everyone, and welcome to the Arteris Third Quarter 2025 Earnings Call. Please note, this call is being recorded and simultaneously broadcast. All materials contained in the webcast is sole property and copyright of Arteris, Inc., with all rights reserved. For opening remarks and introductions, I will now turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead. Erica Mannion: Thank you, and good afternoon. With me today from Arteris are Charlie Janac, Chief Executive Officer; and Nick Hawkins, Chief Financial Officer. Charlie will begin with a brief review of the business results for the third quarter ended September 30, 2025. Nick will review the financial results for the third quarter followed by the company's outlook for the fourth quarter and the full year of 2025. We will then open the call for questions. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements are based on management's current expectations and assumptions and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. Additional information regarding these risks, uncertainties and factors that could cause results to differ appear in the press release that Arteris issued today and in the documents and reports filed by Arteris from time to time with the Securities and Exchange Commission. Please note, during this call, we will cite certain non-GAAP measures, including, among others, non-GAAP net loss, non-GAAP net loss per share and free cash flow, which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are presented as we believe they provide investors with the means of evaluating and understanding how the company's management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from as substitutes for or superior to financial measures prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to the nearest GAAP measure can be found in the press release for the quarter ended September 30, 2025. In addition, for a definition of the key performance indicators used in this presentation such as annual contract value, confirmed design starts and remaining performance obligations, please see the press release for the quarter ended September 30, 2025. These key performance indicators are presented for supplemental informational purposes only should not be considered as a substitute for financial information presented in accordance with GAAP and may differ from similarly titled metrics or measures used by other companies, security analysts or investors. Listeners who do not have a copy of the press release for the quarter ended September 30, 2025, may obtain one by visiting the Investor Relations section of the company's website at ir.arteris.com. In addition, management will be referring to the third quarter 2025 earnings presentation, which can be found in the Investor Relations section of the company's website under the Events and Presentations tab. Now I will turn the call over to CEO, Charlie Janac. Karel Janac: Thank you, Erica, and thanks to everyone for joining us on our call today. In the third quarter of 2025, we achieved yet another record annual contract value plus royalties of $74.9 million, resulting in 24% year-over-year growth. We saw increased product adoption in chiplets and SoCs across multiple vertical markets. AI applications accounted for over half of our licensing dollars in the third quarter reflecting the growing adoption of Arteris system IP technology from data centers to the smart edge. We continue to see growing adoption of our product portfolio by top technology companies. An example of this is Altera, which selected Arteris technology portfolio to streamline design workflows, optimize data movement and enable intelligent computing across data center, communications, vision, industrial applications, robotics, aerospace and defense applications. This includes our network on-chip IP products, including Ncore and FlexGen and the management platform for IP block integration and hardware, software integration automation, which Altera plans to use in designing their next generation of FPGA and SoC FPGA solutions. Speaking of FlexGen, last quarter, we announced that AMD licensed the Smart NoC IP to provide high-performance data transport in AI chiplets across AMD's broad portfolio from data centers to edge devices. I'm happy to note that in the third quarter, AMD has ordered additional incremental licenses. In addition to the Altera and AMD relationships, we added 4 other new FlexGen customers in the third quarter. Within the automotive sector, FlexGen was deployed by Dream Chip, a custom SoC design house for high-end automotive semiconductor design. Additionally, a leading automotive OEM adopted FlexGen for next-generation EVs. Within the industrial sector, NanoXplore, a provider of radiation hardened silicon technology serving the aerospace, defense, avionics and industrial markets, licensed FlexGen's Smart NoC IP to address the demanding mission-critical computing requirements in space while supporting their product performance, team productivity, device reliability and meeting the underlying area and cost targets. This represents another example of our products being used not only for applications on Earth, but increasingly in terrestrial orbit, where performance, safety, reliability and security are essential. These examples illustrate the broad applicability of our new FlexGen Smart NoC IP, helping design teams deliver on expanded needs of chiplets and SoCs. Additionally, we expect demand to scale with rising design complexity and the move to advanced foundry nodes, particularly 5-nanometer, 3-nanometer, 2-nanometer and as we head into the Angstrom era of silicon. As the semiconductor industry accelerates efforts to increase performance and efficiency, especially driven by AI workloads and data centers and the edge, we are continuing to see a growing shift from traditional monolithic chips toward chiplets for multi-die SoC architectures, particularly for AI infrastructure and data center applications. One of the key chiplets is the IO Hub chiplet, which controls data movement across heterogeneous multi-die SoCs. 2V Systems licensed our Ncore and FlexNoC interconnect IPs to develop just such an IO Hub chiplet where Arteris technology serves to control multi-die data traffic meeting the high bandwidth, low latency energy efficiency and total cost of ownership objectives while meeting the needs of enterprise computing in data centers and cloud infrastructure. In the quarter, we also saw increased adoption of chiplets for high-end automotive applications, including our recently expanded multi-die solution. For example, one of our advanced automotive semiconductor customers shifted from a single chip to multi-die SoC architectures for their next-generation ADAS design, leveraging Ncore FlexNoC IPs for underlying data movement. Aside from various automotive semiconductor companies, we also saw expanded adoption of Arteris technology by automotive OEMs. Two of the top 5 EV automotive OEM companies expanding their use of silicon proving Arteris technology with functional safety for their next generation of vehicles, which increasingly include a wider array of advanced electronic functionality. Given the accelerating demand for increasingly advanced chiplets and chips from the AI surge in the high end to the growing needs of advanced microcontrollers, the needs for more specialized computing is becoming increasingly evident. This trend drives a broad range of specialized processors or XPUs, for a growing number of applications by providers who increasingly rely on Arteris technology for their underlying connectivity and data movement. With our growing ecosystem, we recently announced an expanded collaboration with Alibaba Damo Academy, enabling better integration and optimize performance between the risk 5 CPU cores and our data movement system IPs. This collaboration is intended to further enable mutual customers to more efficiently design AI server communications and automotive chips. Such ecosystem collaborations help enhance support for end customers, enabling them to accelerate their pace of innovation, with recent example being Axelera AI, a provider of purpose-built hardware acceleration technology for AI inference. They recently expanded the use of Arteris to help accelerate computer vision for edge devices using our technology to help achieve high bandwidth, low latency and scalability requires to optimize their next-generation inference products. The need for ecosystem collaboration is also evident as industry standards continue to evolve. In particular, AI data center infrastructure needs are rapidly evolving, driving demand for purpose-built solutions that can better support rapidly expanding AI workloads. To better meet the associated demand from customers, Arteris joined the Ultra Accelerator Link Consortium, or UALink. The goal of this organization is to establish an optimized, scale-up ecosystem across multiple AI accelerators with Arteris NoC IP serving as data movement transport in chiplets and SoCs. We joined with other companies in the consortium, such as AMD, Astera Labs, AWS, Cisco, Google, HP Enterprise, Intel, Meta and Microsoft, all of whom deal with high-end computing and some of whom are requesting the related support in our products. Lastly, I'm proud that Arteris continuous innovation was recognized with yet another award this time as the winner of the most innovative technology company of the year by the 22nd Annual International Business Awards, while also being recognized for new FlexGen Smart NoC IP and Magillem registers integration automation software product, both announced earlier this year. We believe the scale and scope of our opportunity remain robust, supported by our current products, and strong pipeline of new data movement system IP technologies as well as growing relationships with the largest and most advanced electronics companies in the world in collaboration with a broader ecosystem. Our customers continue to innovate in exciting high-growth areas across multiple applications from AI data centers to the edge, autonomous driving, advanced communications, consumer and industrial use cases. Many of these customers are increasingly turning to our products and solutions to support their innovative designs. With that, I'll turn it over to Nick to discuss our financial results in more detail. Nicholas Hawkins: Thank you, Charlie, and good afternoon, everyone. As I review our third quarter results today, please note that I'll be referring to GAAP as well as non-GAAP metrics, reconciliation of GAAP to non-GAAP financials is included in today's earnings release, which is available on our website. Also, as a reminder, I will be referring to the 3Q 2025 earnings presentation which can be found in the Investor Relations section of the company's website under the Events and Presentations tab. We had a strong third quarter meeting or beating our guidance on all financial measures. Turning to Slide 5 of the presentation. Total revenue for the third quarter was $17.4 million, up 5% sequentially and 18% year-over-year and above the top end of our guidance range. Notably, trailing 12-month variable royalties was 36% higher year-over-year. At the end of our third quarter, annual contract value plus royalties was $74.9 million, up 24% year-over-year, above the top end of our guidance range and at a new record high. Remaining performance obligations, which is our contracted future revenue at the end of the third quarter was $104.7 million, representing a 34% year-over-year increase, a new high and exceeding the $100 million milestone for the first time. Non-GAAP gross profit for the quarter was $15.9 million, representing a gross margin of 91%. GAAP gross profit for the quarter was $15.6 million, representing a gross margin of 90%. Now turning to Slide 6. Non-GAAP operating expense for the quarter was $19.5 million. We continue to reinvest a portion of our top line growth into technology innovations, solution support and our global sales team. Total GAAP operating expense for the third quarter was $24.4 million. We believe that our ongoing investments will help accelerate our top line growth in the coming years. At the same time, we are delivering operating leverage by controlling G&A spending, which has now remained broadly flat on a non-GAAP basis for over 3 years. This has resulted in a 15% improvement of non-GAAP operating expense as a percentage of revenue for the year-to-date compared to the same period in 2023. Non-GAAP operating loss in the quarter was $3.5 million, in line with our guidance. GAAP operating loss for the third quarter was $8.7 million compared to a loss of $7.9 million in the prior year period. Non-GAAP net loss for the quarter was $3.8 million or diluted net loss per share of $0.09 based on approximately 42.7 million weighted average diluted shares outstanding. GAAP net loss in the quarter was $9 million or diluted net loss per share of $0.21. Moving to Slide 7 and turning to the balance sheet and cash flow. We ended the quarter with $56.2 million in cash, cash equivalents and investments, and we have no financial debt. Free cash flow, which includes capital expenditure was positive $2.5 million for the third quarter, above the midpoint of our guidance range. I would now like to turn to our outlook for the fourth quarter and the full year 2025 and refer now to Slide 8. For the fourth quarter 2025, we expect ACV plus royalties of $74 million to $78 million, revenue of $18.4 million to $18.8 million with non-GAAP operating loss of $2.3 million to $3.3 million and non-GAAP free cash flow of $0.2 million to $3.2 million. For the full year, 2025, our guidance as follows: ACV plus royalties to exit 2025 at $74 million to $78 million, an increase of $1 million compared to our prior guidance. Revenue of $68.8 million to $69.2 million, also an increase of $1 million compared to our prior guidance. Non-GAAP operating loss of between $12.5 million to $13.5 million and non-GAAP free cash flow of $2.5 million to $5.5 million. We remain encouraged by our strong deal execution witnessed by the 34% year-over-year growth in RPO at the end of the third quarter. We are seeing promising signs of accelerated interest by some major customers to increase their outsourcing of system IP products to Arteris, which we believe will help accelerate growth in our license and royalty revenue, ACV plus royalties and positive free cash flow. With that, I will turn the call back to the operator for the Q&A portion of the call. Operator? Operator: [Operator Instructions]. Your first question is from Kevin Garrigan from Jefferies. Kevin Garrigan: Charlie and Nick, congrats on the results in the Altera announcement. Can you just talk a little bit more about Altera? Are they fully away from using internal interconnect teams? Or is there still more opportunities for you guys to expand there? Karel Janac: I think there's more opportunities. Basically, the application is for FPGAs and FPGA SoCs. So Altera is using their own interconnect in the FPGA matrix, and then we are used essentially in the SoC part. But Altera business is going to continue to evolve and grow and we believe that there's future opportunities, but this is a major milestone because Altera, as they spun out of Intel chose to go with Arteris for their primary system IP requirements. But yes, there is more potential going down the road. Kevin Garrigan: Okay. Perfect. And then since the initial discussions with AMD and the initial order announcement, it seems like it took about 1 quarter, maybe a little bit longer for them to expand the use of your products. So what were they kind of most impressed with that led to increasing usage in such a short time frame? Karel Janac: Yes. I mean, AMD is a big company. The deal in the second quarter was for their -- basically their central engineering group. And this -- the third quarter deal was basically for another group. And Altera is -- I'm sorry, AMD has many groups to -- for us to work with. And so there are also additional opportunities at AMD, and we're very much looking forward to helping them accelerate their chip deliveries. Kevin Garrigan: Got it. Got it. Okay. And just one more if I can. You talk -- can you just talk a little bit more about the importance of reliability and safety when it comes to interconnects and the importance of it in some end markets like space as you guys mentioned? And I think you guys have done a very good job on this front, but do you see this as this focus as really a competitive advantage for you guys? Karel Janac: Absolutely. I mean, basically, all the important data goes through our network on chips. And basically, if that has problems or doesn't work, the chip doesn't work. So customers are very risk averse in choosing system IP solutions because any problems there can cause major delays in tape-outs and field problems. So we're being recognized as very much a silicon-proven company. I think now our installed base has shipped something like 3.9 billion SoCs and they all work. And probably some of the stuff used daily, probably has our Arteris Interconnect in it. So yes, we are very much focused on reliability. We're very much focused on quality because if the system IP doesn't work, the chip doesn't work. Operator: The next question is from Kevin Cassidy from Rosenblatt Securities. Kevin Cassidy: Congratulations on the great momentum. Just on the UALink consortium, what kind of timing can we expect for licenses to come out of that consortium and some of the players there? Karel Janac: Well, some of the players are already customers. But basically, the objective of the UALink consortium is to essentially scale up data center solutions. And so we're basically developing technology to support that, and we're already involved in some of those designs, but we're basically following that consortium's protocol in order to support the data center scale up efforts that they are pioneered by the companies that we mentioned. Kevin Cassidy: Okay. Great. And with the penetration you're getting within AMD and combining it with the Altera announcement, is there opportunities for Xilinx? Or is that already included in your AMD discussion? Karel Janac: Well, Xilinx is an important part of AMD. And in fact, Xilinx was the first customer that was involved with us prior to the AMD acquisition. So Xilinx has been a long-time user of Arteris. Operator: Your next question is from Gus Richard from Northland. Auguste Richard: Real quick, you've had a number of design wins for a while. And just wondering the royalty relative to most mature IT companies is relatively low. Just wondering when do you expect that to start to accelerate? Karel Janac: Nick, do you want to take that one? Nicholas Hawkins: Yes. I will. Yes. Gus, welcome to the call. So the -- it's a great question because as you and I have discussed in the past, the -- an increasing rate of customer design starts is a great indicator of future royalty growth because typically, there's somewhere between a 3- to 6-year lag between start of the design and mass production and scale, and it can take even another couple of years to get up to full scale after the mass production starts. So it is definitely a heavy link between the 2. The -- we're already seeing that, and we're already seeing the beginning of the inflection on royalties. And there's one you'll see in our investor, like our Q3 Investor Day, there's a new additional piece of information on royalties. And what's very interesting is number one, the growth of royalties is quite -- a variable royalties is quite impressive. And in fact, the growth year-over-year for the variable royalties in the trailing 12 months to the end of September compared to the prior 12 months ending September 30 2024 was up 36%, which is in line with what we've been saying in terms of the royalties growing at roughly 2x the rate of licenses. And what's particularly interesting in that chart you'll see in the investor deck, is that we -- if you go back to 2020, which is quite an interesting start point because that's when we were dominated in royalties from HiSilicon, which has now, of course, gone to 0, we now have a higher rate of variable royalties in fact we have all year since the days of HiSilicon back in 2020 and now instead of being a one-trick pony where we had one customer making up 90% of our variable royalties. We now have 5 customers who between them have a greater royalty stream than the one HiSilicon. So we've got more diversity. We've got more people who are now the majors. So it's 5 majors and then another 50 smaller players. And so it's all up and to the right and growing very nicely. So we are starting to see that. I do see there's an increasing inflection point as we go through the next couple of years. So by 2028, you'll see an even faster rate of acceleration. Auguste Richard: Got it. That was super helpful. And then, Charlie, for you, you guys talk about the top tech companies that you've penetrated, I was wondering if that's just for everybody to find what those companies are and then how many you've, at this point, penetrated? And then specifically in the AI ASIC crowd, are you starting to penetrate those, both U.S. and Taiwan? Karel Janac: Yes. I mean we basically, we define the large company to sort of top 20 semiconductor companies and then basically, another 20 of the largest system electronics companies, right? So that's -- we're kind of jokingly referring to that as the Arteris index. And we have, I would say, more than 50% of those companies as customers but not all of them are huge customers, right? So there's still a long way to go in terms of expansion of our business. But obviously, with the AMD and Altera announcement, and there's a couple of others who don't let us announce who they are. One of which we also closed in the Q3. We did our best to be able to announce them, but they did not let us. So I think our progress in the top 40 largest technology companies is quite good. But there's a long ways to go. It's about a $1 billion, $1.2 billion market and we're about $68 million this year or something like that. So there's a long way to go. Auguste Richard: Okay. Got it. And then the Lord Baltimore questions. When I go through cash flow on balance sheet, blah, blah, and it looks like bookings were in the ZIP code of $32 million in the quarter, book-to-bill about $1.8 billion. So Nick, am I in the right ZIP code? Nicholas Hawkins: Yes. I don't want to comment on bookings otherwise, we open up a Pandora's box of future disclosure. So bookings, as you know, fairly lumpy. And so -- because we have very large customers these days. And so that can really create a false precedent if we start if we start disclosing that. So I'll have to allow you to do your own math on bookings, Gus. Operator: Your next question is from Joshua Buchalter from TD Cowen. Joshua Buchalter: Charlie, I thought your comments in the prepared remarks about more -- seeing more traction from AI applications and specifically in the data center were interesting. Obviously, a lot's happened in the AI space over the last few months. Could you maybe level set us on how much of your opportunity over time you see coming from actually in data center versus edge device edge and edge embedded devices where I think that's been your bread and butter for a while? Karel Janac: Yes. I mean, basically, our thesis is that, over time, pretty much all electronic endpoints or edge devices are going to be connected to the data center. And so for each end point or edge device, there is some ratio of blades in the data center. And as everything becomes connected to the data center, these the number of chips that's actually in these data centers goes to a very large number. So we're sort of following customer demand. And we are -- there's just a lot of attention on AI workloads in the data center. There's a lot of project starts. Obviously, NVIDIA is a very, very major player and it will continue to be a major player. But some of these system houses are also designing some of their own chips for specific data acceleration of specific workloads. They're working on specific AI workloads and those kinds of things. So we see as a major opportunity, and we're working with those customers, and we're increasingly starting to pivot our engineering to address the issues that are important to these data center companies, hyperscaler companies that are handling the high-end AI workloads. So over time, I mean, I think data center will be somewhere between 25% to 30%, maybe 35% of our business. But right now, AI is -- represents about 50% of all the design starts that we're involved with. So right now, there's a bit of a design start bonanza. But on a long-term basis, I would expect it to be about probably 35% or so. Joshua Buchalter: Maybe, Nick, could you provide any comments or color on -- it seems like you're getting a lot of good traction from FlexGen, which comes with higher ASP on the royalty and I'm guessing the licensing side as well. When should we expect that to start being a sort of meaningful needle mover in the model? Nicholas Hawkins: Josh, just to be clear, are you asking that question specifically regarding royalties or more generally on license revenue? Joshua Buchalter: It was more on the royalty side. Nicholas Hawkins: Yes. So I mean FlexGen is accretive to both ASP and therefore, license, but it's also accretive to royalties because it has more competence as a product than it's -- the more junior the FlexNoC 5 that doesn't have the automation feature. So yes, if you look at somebody, for example, in who've just kicked off a FlexGen cycle or FlexGen deal with us, and most of those have come from the mid of this year onwards. And now you saw we had another 4 in addition to Altera and AMD in the third quarter. So it very much depends on the use case. There are some -- most of the use cases right now are more in the server and FPGA environment which don't have huge volumes, as you know, there are some which are more involved in higher volume. We're early stages yet. We do expect a lot more penetration from FlexGen into some of the other areas that are perhaps higher volume. And of course, the biggest royalty area for us, which is about half of our total royalties is actually from the automotive market. And so from a -- if you use FlexGen in automotive, for example, in automotive design today and you start the design, it would be 2030 to 2031 before we started seeing the royalties from that. So there's a lot of pipe stocking going on in royalties from this. Operator: There are no further questions at this time. Mr. Janac, please proceed with closing remarks. Karel Janac: Well, thank you, everyone, for your interest in Arteris. We're very excited about the current quarter, and we look forward to meeting you -- with you in the upcoming non-deal road shows and investor conferences in the quarters ahead and updating you on our business progress. Thank you very much. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Good morning, everyone, and welcome to the Gibson Energy Third Quarter 2025 Conference Call. Please be advised that this call is being recorded. [Operator Instructions] I would now like to turn the meeting over to Beth Pollock, Vice President, Capital Markets and Corporate Development. Ms. Pollock, please go ahead. Beth Pollock: Thank you, Jill. Good morning, and welcome to our third quarter earnings call. Joining me today from Gibson Energy are Curtis Philippon, President and Chief Executive Officer; and Riley Hicks, Senior Vice President and Chief Financial Officer. The rest of our senior management team is also present to help with questions and answers as required. Listeners are reminded that today's call refers to non-GAAP measures, forward-looking information and is subject to certain assumptions and adjustments and may not be indicative of actual results. Descriptions and qualifications of such measures and information are set out in our investor presentation available on our website and our continuous disclosure documents available on SEDAR+. With that, I will turn the call over to Curtis. Curtis Philippon: Thanks, Beth. Good morning, everyone, and thank you for joining us today. The third quarter was a strong period for our customers and the Gibson team. Our customers delivered a number of throughput records this quarter, including an all-time high across our Canadian and U.S. terminals of 2.2 million barrels per day, up 8% from last quarter and 27% higher than the third quarter of 2024. In Edmonton, throughput reached a record level of over 330,000 barrels per day, 14% higher than last quarter and more than double the volumes from the same period last year. Year-to-date, in Edmonton, we have handled roughly half of the heavy crude volumes shipped to TMX. At Hardisty, volumes remained strong at over 1.1 million barrels per day, marking the highest quarterly throughput at the terminal since TMX came online and tracking toward a potentially new all-time record for annual throughput for Hardisty by year-end. At our Moose Jaw facility, following the successful completion of the turnaround last quarter, we increased third quarter throughput by 7% over the same period last year and delivered a new monthly throughput record for the facility in September. At our Gateway terminal, the completion of dredging supported a new quarterly throughput record of 717,000 barrels per day including a new monthly record of 775,000 barrels per day of loadings in August alone, and we have maintained that this momentum into Q4. The terminal also saw a record number of vessel loadings during the quarter with 85% of those vessels being VLCCs and Suezmax's. These Gateway volumes represent a 20% share of total U.S. crude exports and 44% of the Ingleside market. And finally, in support of our Gateway customers, we've achieved record monthly volumes at Wink in September, exceeding 55,000 barrels per day. This impressive performance contributed to third quarter throughput of approximately 52,000 barrels per day, up from 43,000 barrels per day in the same period last year. We get asked sometimes why do we care about the volume throughput records. The vast majority of Gibson's infrastructure revenue is fixed in nature, so the records do not always directly impact quarterly revenues. But we care about these records because they are a great indicator for us as we look forward. These throughput numbers highlight the strength and growth of our customer base and reinforce the essential role our assets and teams play in safely and efficiently delivering energy to global markets at the best possible netbacks for our customers. On top of these records, I'm pleased with the progress made in the quarter on our 5 strategic priorities: safety, Gateway execution, growth, building high-performance teams and cost focus. We're very proud of the outstanding safety culture and program at Gibson. The team is achieving best-in-class safety performance. In the third quarter, Gibson hit record levels for total recordable incident frequency for our employees and contractors. We have now surpassed 9.8 million hours without a lost time injury. A great safety culture that is focused on continuous improvement is the foundation for our success as an organization. This week, we will achieve a key milestone on our strategic priority at Gateway -- on our strategic priority of Gateway execution with the completion of a major capital project. The Cactus II connection at Gateway has finished construction and is being commissioned this week with oil expected to flow as early as tomorrow. The addition of this connection provides our customers with access to an additional 700,000 barrels a day of Permian supply, effectively increasing their supply options by 1/3 and now providing access to 100% of the supply in the region. We remain fully confident in achieving our 15% to 20% Gateway EBITDA growth run rate milestone in Q4 and the record-breaking performance of Gateway post completion of the dredging project, now combined with the supply capabilities provided by the Cactus II connection will enable sustained elevated throughput volumes. On the growth and building a high-performance team strategic priorities, we had an important addition to the leadership team in the quarter. We continue to strengthen the Gibson growth muscle with the appointment of Blake Hotzel as Senior Vice President, Chief -- Senior Vice President, Commercial Development U.S. based in our Houston office. Blake brings more than 20 years of energy infrastructure experience, including senior commercial and business development roles at Tallgrass and Phillips 66. As we expect infrastructure EBITDA per share growth of more than 5% over the next 5 years, Blake's leadership will be instrumental in advancing our U.S. strategy and driving continued growth across the platform. Following the quarter, the construction and commissioning of the infrastructure supporting our long-term strategic partnership with Baytex was successfully completed, an important step that adds stable long-term cash flow under the 10-year take-or-pay and area dedication agreement. The production is now flowing to our Edmonton terminal. On our cost-focused strategic priority, we continue to advance our -- we are all owners cost focus initiative. We are on track to exceed $25 million in run rate cost savings by the end of 2025, driven by strong engagement from teams across every area of the business. During the quarter, we captured onetime an ongoing cost savings contributing $9 million to distributable cash flow. On financial highlights, the business delivered a solid quarter that was in line with our expectations. Infrastructure continued to perform exceptionally well this quarter with near record EBITDA of $154 million and marketing contributed $7 million of EBITDA as expected. Distributable cash flow was $86 million during the quarter. In summary, the third quarter once again demonstrated the strength and resilience of Gibson's business model. We delivered consistent operational and financial performance, advanced key growth projects on both sides of the border and maintained our unwavering commitment to safety. As we look ahead, with Gateway running at record levels, the construction and commissioning of Cactus II complete and our Duvernay project with Baytex on schedule, we are well positioned to continue generating stable growing cash flows. At the same time, our high-performing team, continued focus on cost discipline and an ownership-driven culture ensures that we remain aligned with our shareholders and well prepared to deliver on our long-term growth and return objectives. With this, I'll pass it over to Riley, who will discuss our financial performance in more detail. Riley Hicks: Thank you, Curtis. As discussed, the third quarter was another strong quarter for our core business. Our Infrastructure segment continues to deliver solid results with third quarter adjusted EBITDA of $154 million, an increase of $4 million over the same period last year and in line with the record that we set earlier in 2025. Infrastructure EBITDA also accounted for over 95% of adjusted EBITDA before G&A during the period, emphasizing the high-quality, stable nature of our cash flows. This performance was driven by record throughput across our assets. In Canada, quarterly volumes rose by 26% year-over-year, while in the U.S., throughput rose by 30% over the same period. These positive results reflect the critical nature of our assets and their value to our customers. Our Marketing segment delivered EBITDA of $7 million for the quarter, consistent with both our prior guidance and the previous quarter results. For the fourth quarter of 2025, we expect the macro environment to remain relatively consistent. And as such, we anticipate marketing EBITDA for the year to be around $20 million, within our previously communicated range. As we look towards 2026, we anticipate a stable commodity price environment with marketing performance expected to remain consistent until egress tightens. As such, our focus will continue to be on supporting our long-standing infrastructure customers as they execute their development plans and grow their production around our critical asset base, positioning Gibson for continued stability, growth and long-term value creation. On a consolidated basis, third quarter adjusted EBITDA of $147 million was $4 million lower than the same period in 2024, primarily driven by lower contributions from the Marketing segment and offset by strong performance through our Infrastructure segment. Turning to distributable cash flow. We generated $86 million in the third quarter, a $3 million decrease from the third quarter of 2024. During the quarter, we captured onetime and ongoing cost savings contributing an impressive $9 million or $0.05 per share to distributable cash flow. Approximately 80% of these savings came from 4 main drivers: lower interest expenses, reduced property taxes, decreased operating costs and the one that I am most proud of, our grassroot cost savings efforts. This area made up a significant portion of our total savings through many small initiatives implemented across the company and supported by the participation of 80% of our employees. This is a great example of our culture of ownership and engagement and highlights how individual contributions have meaningfully strengthened our financial performance. Quarter-over-quarter, our debt to adjusted EBITDA ratio improved from [ 4x ] to 3.9x, though it remains above our long-term target range of 3x to 3.5x, while our consolidated payout ratio for the quarter was 85%. On an infrastructure-only basis, our debt-to-adjusted EBITDA ratio was 4.1x and our payout ratio was 80%. As expected, leverage and payout are temporarily above our long-term targets. However, we have clear visibility to returning to our target range in the first half of 2026. We remain fully committed to our financial governing principles. Our balance sheet remains a key strength of our business, supporting both disciplined growth and a sustainable growing dividend. Supporting our conservative financial profile and our continued commitment to our investment-grade rating, both DBRS and S&P have reaffirmed Gibson's BBB low and BBB- ratings, respectively, each with a stable outlook, underscoring their confidence in our long-term financial plan. With this, I will now pass the call back to Curtis for a few closing remarks. Curtis Philippon: Thank you, Riley. To close, the third quarter further demonstrated Gibson's ability to deliver strong results through disciplined execution and a clear strategic focus. We continue to advance our priorities, maintaining top-tier safety performance, executing at Gateway, delivering growth, building high-performance teams and driving cost efficiency across the business. We'll be holding our Investor Day in Toronto on December 2 and look forward to seeing you there where we will walk through our long-term strategic plan. I'd like to take a moment to thank all of our employees for their continued commitment and exceptional performance. Their dedication to safety, operational excellence and our ownership culture continues to drive Gibson's success. Thank you again for joining us today and for your continued support in Gibson. Operator: [Operator Instructions] Our first call comes from the line of Jeremy Tonet with JPMorgan Securities. Jeremy Tonet: Just want to pick up with one of your last points there with regards to the upcoming Investor Day in December. Just wondering if you might be able to provide a little bit more color, I guess, on what type of topics we could be discussing there. Specifically, I guess, growth initiatives as you see at this point, any foreshadowing color you could provide at this juncture? Curtis Philippon: We want to make sure you come to the Investor Day. So we don't want to get too far ahead of ourselves there. But what I would say is the -- I wouldn't come to it expecting that you're going to hear big individual project FIDs. Like we're not intending to announce a significant sort of $100 million-plus project FID in the meeting or even announce any sort of significant change or improvement in marketing outlook. How we look at the world today is how we think it looks like for the front half of the year. And we think we see from a capital project perspective, a lot of very good projects, but a lot of projects that are more in the sub-$100 million range that we'll be working through. So I wouldn't come expecting a specific project FID announcement. What you can expect to hear is we're going to be introducing the team. So we've got a number of new faces around the table and want to give people a chance to meet them in person. So you'll meet our senior team. You'll hear a little bit more about what we've been working on over the last year, and you'll see us lay out the specifics of our 5-year plan. And I think for me, that's the important step that we lay out some of those specifics and give a bit of a step-by-step of how we're thinking about growth and something that our investors can hold us accountable to. And then lastly, we're going to spend a fair bit of time talking about what I believe is a pretty compelling return proposition in Gibson that is backed by an outstanding dividend. Jeremy Tonet: That's helpful. And maybe picking up on one of your comments there, expectation for kind of a static environment through the first half of next year. Around the middle of next year, do you see the egress tightening at that point and supporting better marketing? Or any other thoughts you could share, I guess, on how marketing progresses over time? Curtis Philippon: I think we'll wait and see. I think at this point, when you look at what you see for production and egress, I don't know that you see significant tightening of egress in 2026. I think that's more in 2027 that you start seeing that come in a bigger way. But I think you do start seeing it on the horizon and you start seeing people acting in preparation of those egress challenges coming. And so I think that will make for some interesting opportunities for Gibson. So we see some slight improvement in the marketing outlook in the back half of the year, but it really is fairly consistent for what we see in 2025. And what I would comment on that is the positive on that is it is a tremendous environment right now for our infrastructure customers. Even in low commodity markets, our infrastructure customers are exceptionally healthy and are growing production, and that's really the core of our business. And so we're seeing very good throughput numbers, you see good project announcements from our customers, healthy balance sheets, all while there's sort of this sort of challenging commodity market backdrop. And so as much as we do believe in the long-term guidance of marketing and returning back to our range, it's actually phenomenal for our infrastructure business that we have this very efficient market egress happening right now. Operator: The next question comes from the line of Aaron MacNeil with TD Cowen. Aaron MacNeil: Curtis, as you mentioned in the prepared remarks, you've seen record throughput across the platform. I'm hoping you can sort of take this a step further. Are there any notable contract expiries in the near term where we could see this performance translate to higher contracted pricing to reflect that stronger fundamental backdrop? And if so, how material could that be? Curtis Philippon: Aaron, really, we always have contract renewals that are happening. So there's no sort of uniqueness to 2026 or 2025 for a contract renewal period. We always are working through those. I would say, as you look into next year, though, as you start seeing tightening egress, we like that market condition for renewals as you get into '26, better than what it has been in '24 and '25. Aaron MacNeil: Okay. I also wanted to dive a bit deeper into the impact of nonrecurring cost savings. I know you don't split it out, but can you speak to the specific items this quarter that were nonrecurring, what the impact is and what the visibility to nonrecurring savings could be on a go-forward basis? Curtis Philippon: Yes. We talk about sort of half and half. I don't know if we're given such a -- it's sort of scattered over a number of different buckets. I don't know if it's worth getting into the specifics of what are the nonrecurring ones, but it's about half and half. We'll get into that a bit more at IR Day. I would call out the cost savings program has just been tremendous. The cultural impact of people leaning in and finding cost savings across the business has been quite impactful and culturally getting people focused on, hey, we're all owners here, let's drive cost efficiencies across the business has been powerful. Riley talked about over 80% of our employees participating and having a direct impact on it. We had one example in the quarter that I think is a great story. We've got a senior ops member of our ops team that's a long-term Gibson employee, Kevin Buelow out in Hardisty, who had a capital project in Hardisty come to his attention that we had done an excellent job designing a growth project in Hardisty. We're improving some connectivity in the Hardisty facility. It was about an $800,000 project. And Kevin, with many, many years of experience and knowledge of that asset, looked at that and felt empowered by the cost program to say, I think there's a better way and drove a great conversation with our engineering team and directly on that project. And we ended up saving, I believe it's almost $400,000 on that project and cut time out of the scope, thanks to that. I think these stories, so that would be a great example of a non-recurring cost impact in the quarter that will be realized -- some of that was realized in the quarter. But we've got stories like that happening all over the business right now. And it's just -- I think the cost program just elevated some of these conversations and empowered people to lean in and suggest different ways of doing things. So shout out to Kevin Buelow. Kevin is also one of the newest members of the Hardisty Town Council. So shout out to Kevin, he's a great long-term employee of Gibson. Operator: The next question comes from the line of Sam Burwell with Jefferies. George Burwell: First off, on exports, a little bit of volatility month-to-month through 3Q, even post dredging. So wondering if you could just sort of illuminate whether that was more idiosyncratic to Gibson or reflective of broader macro conditions? And then any insight you could give us on just like the EBITDA sensitivity to this volumetric volatility? Curtis Philippon: Sam. So from a Gateway volumes, super interesting. Obviously, post dredging, we've seen an uptick as we take that facility sort of 47 to 52 feet of depth. You're able to suddenly fill a VLCC rather than 1.25 million barrels to 1.5 million barrels since we saw immediate throughput increase. Not every vessel going through is a VLCC, so you don't see it all the time and not every customer has all that inventory available every time. And so that you don't always get it. But we saw from time of dredging, so pre-dredging, we would have been in the 500,000 range per day on average unloading. Post dredging over the last 5-ish months that it's been -- we've averaged about 725,000 barrels a day. There is some month-to-month flexibility in that. Some of that is geopolitical. There's a lot going on in the world right now. But some of that is really just our customers' programs and when they're timing. And so we've seen a fairly consistent volume. It's actually quite remarkable that we've been able to do the 725,000 on average without the Cactus connection that we -- when we initially planned this out, we really didn't think we would get that big of an uptick without -- until we got Cactus completed because it's such a challenge for the facility to keep up and our customers to keep up with that level of activity with only 2/3 of the supply available to them. And so we've been doing a lot of juggling. Our customers have been extremely supportive on working with us to find ways to get volume onto other pipes to make sure that they can take advantage of using Gateway. But it has been a challenging situation to maintain sort of the high. We did that 775 in August. It's been challenging to maintain that -- quite that level without Cactus. With Cactus now completed, I expect that you're going to see customers get used to using that, and you'll see a volume uptick as we get into the early part of next year. But there is -- at the end of the day, we get a certain amount of compensation for volume throughput, but the vast majority is on just booked windows. And so there is some sensitivity to volume throughput, but there's -- at the end of the day, it's MVC minimums that drive the bulk of the revenue at Gateway. And so there is sometimes month-to-month variations where customers choose for whatever reason, not to take advantage of their MVC. George Burwell: Okay. Perfect. Understood. On marketing, I appreciate the comments you guys gave earlier and that makes sense that the outlook is challenged given where the dips are. But just curious if there are any other headwinds or tailwinds that you see outside of kind of the headline dip, whether it's refining margins? Or I mean, if we do see crude go into contango, just like anything else out there that could potentially swing marketing one way or the other over the, call it, medium term? Curtis Philippon: Yes, there's a few things, but I caution that they're still early on that. But they do give us optimism that we expect to see a bit of an uptick as we get into next year. One thing we flirted with contango just recently. And so obviously, that's a big deal. We've been very backwardated for a long time. Just recently, we flirted with contango. If that was to come back, obviously, there's a very positive impact for our bottom line. On the refinery side of things, one of it is actually just demand for products that one of our large markets for drilling fluids out of the refinery is Western Canada. And as you see a fair bit of activity around LNG-related drilling activity in Western Canada. We think there's a bit of a small uptick around that, and that's a good product for us. So that's a nice indicator for us. And then the other one is just around Gateway and that we've -- in our U.S. side of our business, we haven't really done a lot to take advantage of what our marketing team can do to help Gateway customers, and we expect that you'll see us do more out of our U.S. business to grow a bit of a market business that supports Gateway throughput. Operator: The next question comes from Robert Hope with Scotiabank. Robert Hope: Maybe keeping on the South Texas theme. With Cactus entering service here imminently as well as the dredging now done, where are you spending most of your time on the files for that asset? Is it on the storage side? Are you devoting more time to the incremental dock? Or is it all contracting? Curtis Philippon: Yes. On Gateway, obviously, a great story this year with a couple of notable things. And so as we get into '26, there's a certain amount of us just taking advantage of the new capabilities that we've got. Now that we've got this dredged facility and all this connectivity, we can really move into some recontracting with customers to -- at larger MVCs and that the original MVCs at the facility were done at an Aframax size vessel. Now that we're fully VLCC ready, as recontracting comes up, there'll be larger windows being contracted. And it's nice that we're getting paid on throughput today for that incremental volume, but we love MVCs. We're midstreamers, we love guaranteed revenue. And so you'll see a lot of work over the next couple of years as contracts come up to sort of shift over to larger MVCs versus having a variable portion on some of this throughput. So that's one piece. The other piece that we're seeing is just with the large amount of activity at Gateway that we're seeing customers really pulling for a lot -- looking for additional supply. And so we're doing a fair bit of work out in Wink to go support sourcing additional volumes for customers, and that's quite helpful as they think about getting incremental cargoes off the dock in Gateway, what can we do to find additional barrels for them. So we're doing a fair bit of work around that, and I think we'll talk more about that at the Investor Day and some of the things we're doing there. And then also out of the Eagle Ford, we see some nice opportunities to provide additional Eagle Ford barrels with existing customers that have a footprint up there that would like to get more of those barrels across the dock. And so we're doing a few things around that as well to sort of unlock some of that potential for the Eagle Ford. Robert Hope: All right. And then maybe on Wink, you've highlighted a couple of times this call, and it's been silent for a number of calls recently. How are you thinking about your Wink assets? And what do you think the outlook for them is and how they fit in to the company longer term? Curtis Philippon: Wink has been -- it's an interesting one for us. So early on with Gateway, we definitely underpromised around what is the linkage between Gateway and Wink. And it was still, still early, we're learning what exactly that potential was. But in the back of our minds, I think there -- we think there's something there. And we've seen that play out this year that it is a big deal for customers to be able to find more barrels for the -- across the dock and Gateway. And so having the ability to gather barrels at Wink has been an advantage for us. And so we've leaned into that. The team has done an exceptional job, and you can see the volumes going up. So we're seeing some good activity and profitability out of that Wink business. We think there's an opportunity to grow that a little bit as well as we -- I think it's a good piece of business, but it's also nicely supports Gateway. So you'll see us leaning into that one a little bit more. And I also think just from an overall macro of the Permian, why I'm interested in that is because you can look forward and say the Permian is right now today, a fairly flattish production profile over the next little bit. But if you look specifically at the quality of the barrel in the Permian, there's a real trend going on out there right now that there's increasingly more quality challenged barrels that would benefit from a terminaling solution that Wink and Gibson can provide to help them make sure that they're optimizing their quality before shipping the barrels out of the field. And so I think increasingly, the importance of our service increased a bit. When saying all that, it's still a relatively small part of our business. This is -- we're talking about 50,000 barrels a day of gathering. It's a relatively small asset for us, but we've been pleased with how it's performed. Operator: The next question comes from Maurice Choy with RBC Capital Markets. Maurice Choy: Just a question on, I guess, taking a bigger picture about your objectives in your second year as CEO. It feels like the first year, you've channeled the company's focus, including on keeping things more simple, focusing on a crude oil theme, optimizing costs and on culture. When you think about your second year, what are some of the mandates you've been given by the Board? And how do you look at things like M&A as well as any other hirings that you need to make beyond... Curtis Philippon: Maurice, I think it's been -- I think you characterized the first year well that we had a certain amount of work to do in the first year to get the organization focused on cost and strategically aligned, execute really well out in Gateway. And the team has done a phenomenal job of that. And so I think as we get into next year, it's a little bit of, okay, we've got the team in place now and let's go really -- let's accelerate this. There's an opportunity to accelerate our growth and some of the things that we're doing. And now that we've sort of been through a bit of a period of change, I think now we've got a bit of ability to just go run now, and I'm really pleased with the team we've got around the table and pretty excited about what we can do with that. But we'll see what that means for M&A. I think we've proven with Gateway that Gibson is capable of doing excellent M&A and going and integrating it well and delivering on it but we're not going to force that. I think one of our benefits is we're -- of our size that we don't -- there's not a need to go do M&A just to get a little bit bigger for the sake of getting bigger. If we would do M&A on crude-focused assets that were true crown jewel type assets that we could add to our portfolio that nicely plugged into our current assets as best as possible and had the sort of contract profile and customer quality that we're after and the valuation has to make sense. So in saying all that, I think we'll be pretty focused on growth capital, but have an eye on is there a potential M&A out there that's crude focused that makes sense for us. Maurice Choy: Understood. And if I could just finish off on a question on the leverage and targets. Riley, I think you mentioned earlier that you're forecasting to reach your 3x to 3.5x debt-to-EBITDA target by the first half of next year. I think previously, there was a mention of this being early 2026. So would you view that to be consistent with your prior messaging? And if not, is it merely the marketing outlook having changed a little bit for 2026? Or are there other drivers that you highlight? Riley Hicks: Thanks, Mau. I think as we look at our leverage and kind of returning to our normalization in the first half, we would view that as consistent with our prior messaging. And really, the main impact driving that downward is realizing the benefit of all the great capital projects we've got here in 2025. As that EBITDA comes online, we'll drive our leverage back down to the range that we like. So we feel very comfortable with our long-term deleveraging plan, and we expect to achieve that in the next -- first half of next year. Operator: The next question comes from Benjamin Pham with BMO. Benjamin Pham: I wanted to follow up on the last question and maybe just touch base on your thoughts on the -- your current leadership team. You effectively have completed so what you need to place on your team. And I'm also curious with the new hire, what priorities you've set for him and any potential changes in terms of how you think about the U.S. versus before? Curtis Philippon: Yes. So from a team perspective, I'm pretty excited about the team we've got. I think we've got -- I think it's so important to get the right team around the table. We've done that. We've got a team that's pretty excited about growing Gibson over the next phase of time. And so we're excited about that. In particular, with Blake joining now. We looked at the U.S. business with the addition of Gateway is now Gibson is very relevant in the U.S. And so we've got -- part of bringing Blake in is like, one, let's make sure that we're running and managing our Gateway and our Wink asset very well and continuing to drive good growth of those things and driving great recontracting and doing all those positive things. So that's sort of plan A, sort of keep the car on the track. So we're having a bunch of success, keep that going well. The second part of that is, boy, we're relevant now. Like we're exporting 1 in 5 barrels out of the U.S. goes through the Gibson Gateway facility. So we're a meaningful part of the energy infrastructure in the U.S. We've got a footprint now. What do we do with that? And what other incremental growth capital or other things could we do that could expand that growth down in the U.S. And so I think that's really what his mandate is. And in saying that, it's -- we're targeting this overall infrastructure EBITDA per share growth of over 5%. And I expect there'll be a nice mix of Canadian and U.S. growth that will be pushing for that and a little bit of adding Blake to the mix and his counterpart, Kelly Holtby in Canada is just -- we grant a nice -- a nice competitive tension of a lot of projects coming to the forefront for us to compete for capital and make sure we're driving the best possible projects forward on both sides of the border at the best possible returns. And so I think that's a little bit of how we're thinking about it. Benjamin Pham: Think what ideally, not necessarily putting numbers at this point in time that you could see long term a nice balance mix of sanction projects between both countries? Curtis Philippon: It's hard to predict what the mix is. I think right now, I think it's a fair assumption that you've got a balance between both sides of the border. When you -- we've got -- the U.S. market is obviously much larger, and so the opportunity set is tremendous. But on the other side, in Canada, Gibson has got 70 years of history and just a really substantial asset base across the Western Canadian basin that gives us a lot of relationships and a lot of opportunities on the Canadian side of the border as well. Benjamin Pham: Okay. Got it. And maybe a follow-up question to your earlier comments, Curtis, on the volume uptick, maybe not necessarily translating to the one for one on the EBITDA side of things. I was wondering, I just simply look at your numbers, infrastructure year-to-date, year-to-year, it's up 2%. And I understand there's some dredging impacts there. There's asset sales, but then you got the Edmonton project and you got a big ramp-up in Gateway. So is that I guess maybe just unpack that a bit of just the disconnect between volumes and EBITDA growth? And then is the 15% to 20% then is that more -- it sounds like it's more of a back-end uptick then depending on your comments on the first point? Curtis Philippon: Yes. I think you've got -- there's -- we've definitely seen volume increases. But as I mentioned, there is not a direct correlation between sort of revenue on some of those volumes. And so when I look at those volume increases, I get excited about okay, the next set of recontracting, when does the next tank demand come on as you see our customers getting more and more active in the terminal. And then on top of that, when you get into situations where you get into egress challenges in the future, over the fact that we've got a great customer base moving a lot of volume, I think that just really even further enhances how can we help them at times of egress challenges in the future. So it's a bit -- it's definitely very much a forward look that we get excited about what that impact is versus sort of an immediate earnings impact other than in gateway where we see some throughput earnings impact on the sort of the excess over MVC numbers. So that's a little bit of how I'm thinking about the volumes. The 15% to 20% marker on Gateway, we feel very good about that. Well -- so that's the marker we set on acquisition day that we wanted to -- we thought that we'd realize some benefits and drive a 15% to 20% increase from what the run rate was at the time of acquisition to at some point in the future. We're hitting at some point in the future here in Q4. There will be a step-up in Q4 with just being able to realize sort of a bit more of the full benefit of having of these assets available to us. I think you'll see a bit more of that. We'll likely be closer to the 15% in Q4, and you'll see a bit more of that as you get into 2026 now that you've got -- obviously, we only have Cactus for part of the quarter here in '25. Operator: The next question comes from Patrick Kenny with NBCM. Patrick Kenny: Just on the Edmonton Terminal, see the throughput being up nicely with TMX and then obviously, the Baytex deal coming online. Just wondering if you could refresh us on what the remaining upside story here looks like at Edmonton, either from a capacity or capital investment standpoint? Curtis Philippon: Yes, we're pretty excited. Like it's over half the volume is going on to TMX. That's a good story. I think where we think about what is the additional growth specifically in Edmonton, when we added those last 2 tanks for Cenovus on 15-year agreements, we did the prework to get ready to build 2 more tanks as we see volume and activity continue to increase, I think the probability of adding those 2 tanks just increases as well, whether -- I think there's sort of 2 things. There's sort of -- is there additional TMX debottlenecking and growth and whether that's dredging on one end of that, that allows them to get additional throughput. I think there's some positive indicators on sort of volume increase that will have a good impact on Gibson. But also the second part is it's still so new that I think our customers are telling us that they're still finding ways to further optimize their netback on what they -- on how they're shipping on TMX. And I think there's things we can do to help them on how they're shipping on TMX to sort of offer some upside. And so I think that provides a bit of a growth opportunity for us with our customers. But saying all that, I'd say this has exceeded our expectations for how much volume we've seen on TMX coming through the Gibson facility and pretty excited about how that pipe has been operating. Patrick Kenny: Okay. That's great. And then maybe at Gateway, just coming back to -- you mentioned you're still comfortable with the 15% to 20% growth target. But if I'm not mistaken, that target was set a while back. And so I'm just wondering based on where your market share is now in Corpus Christi, seeing how strong throughput has been year-to-date. Just wondering how close you are to exceeding that 20% growth target as we look into next year. And just wondering if your base outlook includes your ability to move VLCCs at night or any other optimization efforts that might be in the works? Curtis Philippon: Yes. I think we'll dive into a bunch more of that at Investor Day, Patrick. I think that's -- I think there's an interesting additional value that you can unlock at Gateway. One, just using the current capabilities that we've already got. But yes, as you get into things like night moves of VLCCs and thinking about how do you optimize that capacity, I think there's some additional levers still to be pulled even as we get to the 15% to 20% marker now, opportunity to exceed that as you go forward. Patrick Kenny: Got it. And then maybe just lastly for Riley, not to steal too much thunder from Investor Day, but just coming back to the balance sheet and I guess, the plan to stay under 3.5x once you get there next year. Curious how much dry powder you might see being available for additional partnerships like the Baytex deal or other tuck-in acquisition opportunities? Riley Hicks: Yes. Thanks, Pat. I think when we think about those type of opportunities, we think we have ample liquidity and ample ability to access the financial markets to support our growth plan. So no real concerns in growing and deploying capital to grow. We're very comfortable with our financial plan and where we stand with the investment credit rating agencies. So to the extent that we find great tuck-in acquisitions or opportunities or potential partnerships, we will be happy to execute. Operator: There are no further questions, and I would now like to hand the call back to Beth. Beth Pollock: Thank you. Thank you for joining us for Gibson Energy's Q3 2025 Earnings Call. Additional supplementary information is available on our website at gibsonenergy.com. For follow-up questions, please reach out to investor.relations@gibsonenergy.com. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to today's conference call to discuss LifeVantage's First Quarter of Fiscal 2026 Results. [Operator Instructions] Hosting today's conference will be Reed Anderson with ICR. As a reminder, today's conference is being recorded. And now I would like to turn the conference over to Mr. Anderson. Reed Anderson: Thank you. Good afternoon, and welcome to LifeVantage Corporation's conference call to discuss results for the first quarter of fiscal 2026. On the call today from LifeVantage with prepared remarks are Steve Fife, President and Chief Executive Officer; and Carl Aure, Chief Financial Officer. By now, everyone should have access to the earnings release, which went out this afternoon at approximately 4:05 p.m. Eastern Time. If you have not received the release, it is available on the Investor Relations portion of LifeVantage's website at www.lifevantage.com. This call is being webcast, and a replay will be available on the company's website as well. Before we begin, we would like to remind everyone that our prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. These statements are based on current expectations of the company's management and involve inherent risks and uncertainties, including those identified in the Risk Factors section of LifeVantage's most recently filed Forms 10-K and 10-Q. Please note that during today's call, we will discuss non-GAAP financial measures, including results on an adjusted basis. Management believes these financial measures can facilitate a more complete analysis and greater transparency into LifeVantage's ongoing results of operations, particularly when comparing underlying operating results from period to period. We've included a reconciliation of these non-GAAP measures with today's release. This call also contains time-sensitive information that is accurate only as of the date of this live broadcast November 4, 2025. LifeVantage assumes no obligation to update any forward-looking projection that may be made in today's release or call. Now I will turn the call over to Steve Fife, the President and Chief Executive Officer of LifeVantage. Steven Fife: Thanks, Reed, and good afternoon, everyone. Thank you for joining us today. Before we dive into our Q1 results, I want to take a moment to reflect on what has truly been transformational this quarter for LifeVantage. We successfully closed the strategic acquisition that positions us at the forefront of a rapidly growing wellness market. We've brought together 2 passionate consultant communities and we've continued to execute on our product differentiation of activating the body through nutrigenomic innovation. Looking at our Q1 2026 results. Net revenue of $47.6 million was up fractionally from a year ago, reflecting a modest increase in the number of consultants and similar growth rates in both the Americas as well as Asia Pacific and Europe. Adjusted EBITDA of $3.9 million was down $500,000 versus last year due to lower contribution margin, partially offset by lower SG&A. Given its strategic importance, let me now turn to the LoveBiome acquisition we closed on October 1. This transaction represents far more than just additional products in our portfolio. It's about positioning LifeVantage squarely within one of the fastest-growing segments in wellness, gut microbiome health. The gut health supplement market is projected to grow from $14.4 billion in 2025 to $32.4 billion in 2035 million and LoveBiome flagship P84 product aligns perfectly with our approach to product using carefully selected blends of naturally derived ingredients that activate optimal health processes ensuring your body is making things it needs for health. The innovative product that's right alongside our existing portfolio of scientifically validated activators including our flagship Protandim Nrf2 Synergizer customer favorite, TrueScience Collagen and our breakthrough MindBody GLP-1 system. But what makes this partnership truly special is our shared commitment to the direct selling industry and the empowerment it provides to consultants around the world. By bringing LoveBiome consultants into our industry-leading evolve compensation plan with compelling products that address a broad spectrum of health concerns, we're able to activate wellness, both financially and physically to a much broader base of consumers. The integration of LoveBiome is essentially complete with systems and website cutover happening this past weekend. We successfully onboarded personnel, including founder, Kelly Olsen, and his leadership team and we're seeing positive early indicators from the consultant community integration. Consultant product cross-selling training has kicked off and is expected to ramp during the quarter. From a financial perspective, we're on track to achieve the operational synergies we outlined at the time of the acquisition announcement. The integration of our technology platform, supply chain operations, and consultant support system is progressing smoothly, and we expect to realize the full benefits of these synergies as we move through fiscal 2026. Looking beyond this fiscal year, we remain confident in our ability to drive improved operating leverage as we scale our combined operations and realize the full benefits of our strategic investment in technology, product development and market expansion. The timing of this acquisition couldn't have been better as it allowed us to showcase this exciting partnership at our U.S. Momentum Academy event, which was held in Dallas on October 24 and 25. This was truly a historic event. The first time our 2 active communities came together in person for training, along with incentive and product announcements. The energy in Dallas was absolutely electric. We had nearly 2,000 registered, making it one of our largest Momentum Academy events ever. The integration of our consultant communities exceeded our expectations with LoveBiome consultants embracing our drive era quarterly incentive campaign and our comprehensive training programs. This year's event centered around the theme, Love Life and Drive which served as both a nod to the companies coming together and inspiration to consultants to take the driver's seat in their business with purpose, speed and unstoppable momentum. Nothing replaces the energy and momentum that comes from meeting in person, and our time in Dallas emphatically proved that point. Attendees are also trained on Healthy Edge, a groundbreaking combination that pairs the original proven technology of Protandim Nrf2 Synergizer with the emerging science of P84. Individually, each product delivers powerful benefits by supporting cellular health and system communication. Together, they form a peak performance wellness system that provides foundational health throughout the entire body, helping you feel ready to take on life's daily challenges. Consultants at the event got a first look at results of a recently completed in vitro study on P84, which demonstrated the activation of 14 natural peptides found in the gut responsible for regulating, repairing and restoring this vital organ. While most other gut health products merely supplement with pro, pre and post-biotics, the testing proved the activation differentiator of this comprehensive product. We will be providing more details of these exciting results in the coming weeks during the full P84 and Healthy Edge product launch. Next, let me update you on the Shopify partnership we announced last quarter as this is a key focus as we continue to invest in modernizing our technology infrastructure to meet the demands of today's fast-paced consumers. This quarter, the team made great progress with the design, content and development aspects of our new e-commerce platform as we work towards a pilot this fiscal year and later our full rollout. This partnership with the most reputable highest converting e-commerce platform on the market will deliver significant growth potential for both LifeVantage and our consultants. Shopify enables increased conversion and brand advocacy through seamless channel experiences, deeper personalization and data insights and greater consumer confidence through enhanced payment security, checkout reliability and order tracking. As we look ahead to the remainder of fiscal '26, I'm optimistic about our positioning and growth trajectory. The successful integration of LoveBiome has expanded our addressable market while strengthening our consultant base with passionate, experienced entrepreneurs who share our commitment to activating optimal health. We're not just adding products or consultants or creating a comprehensive wellness ecosystem that addresses multiple aspects of human health, including physical and financial from cellular health with Protandim to metabolic wellness with MindBody to gut health with P84 to beauty and longevity with TrueScience. We're uniquely positioned to serve the evolving needs of health-conscious consumers worldwide. And with our industry-leading evolved compensation plan, comprehensive training and recognition programs and vibrant community, we're uniquely positioned to serve the unique needs of entrepreneurs worldwide as well. The direct sales industry continues to evolve and companies that combine innovative products, compelling compensation, modern technology and authentic community will be the winners. I believe LifeVantage enhanced by our LoveBiome partnership is perfectly positioned to lead in this new era. With that, let me turn the call over to Carl for a detailed review of our financial results and outlook. Carl? Carl Aure: Thank you, Steve, and good afternoon, everyone. Let me walk you through our first quarter financial results. Please note that I will be discussing our non-GAAP adjusted results. You can refer to the GAAP to non-GAAP reconciliations in today's press release for additional details. For the first quarter of fiscal 2026, we delivered net revenue of $47.6 million, which was up 0.7% compared to $47.2 million in the first quarter of fiscal 2025. The slight increase in net revenue reflected increased sales of our MB GLP-1 system, offset by lower sales of Protandim and TrueScience product line as well as decrease in total active accounts. While net revenues in our primary geographic regions were both up slightly in the first quarter, we did experience higher growth in Japan, driven by the launch of the MindBody GLP-1 system beginning in March. For the quarter, revenues in Japan increased 2.6% on a constant currency basis. Our gross margin for the quarter was 79.5%, down 40 basis points compared to the prior year period, primarily due to increases in shipping and warehouse related expenses. Commissions and incentive expense as a percentage of revenue was 43.5% in the first quarter compared to 43% in the prior year period. The increase was due to changes in sales mix, along with the timing and magnitude of our various promotional and incentive programs. Non-GAAP adjusted SG&A expense was $14.6 million in the first quarter compared with $14.7 million in the prior year period. Adjusted non-GAAP operating income was $2.5 million in the first quarter compared with $2.7 million in the prior year period. Adjusted non-GAAP net income was $2.3 million or $0.18 per fully diluted share in the first quarter compared to $1.9 million or $0.15 per share in the prior year period. We recorded income tax expense of just under $100,000 in the first quarter compared to income tax expense of approximately $800,000 in the prior year period. Our overall effective tax rate for the quarter was approximately 4%. The decrease in our effective tax rate for the first quarter was due to the positive impact of discrete items recorded in the quarter. We anticipate our full year fiscal 2026 effective tax rate to be approximately 25%. Adjusted EBITDA for the first quarter was $3.9 million or 8.2% of revenues compared to $4.4 million and 9.4% in the same period a year ago, primarily reflecting lower gross margins and higher commission and incentive-related expenses. Please note that all of the adjustments from GAAP to non-GAAP that I discuss today are reconciled in our earnings press release issued this afternoon. Our financial position remains strong with $13.1 million of cash and no debt at the end of the first quarter compared to $14.6 million a year ago. We also maintain access to a $5 million revolving line of credit. Capital expenditures totaled $400,000 in the first quarter compared to $300,000 in the prior year period. Turning to capital allocation. We repurchased 44,000 shares during the first quarter at an average of $13 per share for an aggregate purchase price of $600,000. As of September 30, 2025, there is still $16.7 million remaining under our existing share repurchase authorization. Today, we also announced a quarterly cash dividend of $0.045 per share of common stock or approximately $600,000 in the aggregate. This dividend will be paid on December 15, 2025, to stockholders of record as of December 1, 2025. Since the beginning of fiscal 2024, we have returned approximately $19.8 million in total value to our stockholders through stock repurchases and dividends. We will continue to focus on our balanced capital allocation strategy in order to drive value for our stockholders. Turning to our outlook for fiscal 2026. We continue to expect our full year revenue will be in the range of $225 million to $240 million, which includes expected revenue contribution from the LoveBiome transaction. We are also reiterating our profitability guidance and expect adjusted non-GAAP EBITDA in the range of $23 million to $26 million and adjusted non-GAAP earnings per share in the range of $1 to $1.15 per share. We continue to anticipate revenue in the second half of fiscal 2026 will be higher than the first half due to the seasonality associated with our MindBody product line and the impact of the LoveBiome acquisition. Overall, we are pleased with the continued improvement in our profitability metrics and remain committed to improving our adjusted EBITDA margins to reach our long-term target. And with that, let me turn the call back over to the operator for questions. Operator? Operator: [Operator Instructions] The first question we have comes from Doug Lane of Water Tower Research. Douglas Lane: Before we get to LoveBiome, can you give us a feel -- I know you don't put out quarterly guidance, you put out annual guidance. But can you give us just a some sort of feel on how you thought the September quarter came in versus your original expectations? Steven Fife: Yes, Doug, this is Steve. Q1 is historically our low quarter. We have a lot of our consultant base that isn't as active during the summer months. And we saw that trend continue this quarter. We also -- when I look back to our prior year comparison, we had in September a year ago, a fairly strong ramp-up to our launch of MindBody that occurred in the middle of October and had a separate incentive 20% off a year ago and a ramp-up to that. So it was -- on a year-over-year comparison, it's probably a tough comparison to begin with. But again, kind of seasonally low in general for us over all the years. So a little softer than maybe than what we thought, but not alarming at all. Douglas Lane: Okay. That makes sense. And this year, I guess you announced LoveBiome right in the third month, September. Was there any impact to your business? Did that have any impact on your business between September 3 and October 1. Steven Fife: No. There was 0 revenue contribution from LoveBiome. We didn't close the transaction until October 1. So there were 0 revenue impact from the LoveBiome group. If anything, I would say that our consultant base of the LifeVantage consultant base may have kind of taken their foot off the gas a little bit to wait and see the anticipation and to understand what all of that meant. So possibly some just kind of a pause with some of the LifeVantage consultants, but no contribution from the LoveBiome revenue group. Douglas Lane: Okay. That's good color. So actually, the opposite of what happened last year. So LoveBiome closed on October 1. So you will benefit from a full quarter of their sales just mathematically before you even begin the integration of their sales force and the rollout of the Healthy Edge stack. So let me ask you this. And that will help offset that tough comparison from last year, but I get that really -- really, we're looking at the second half year to really get the full benefit of LoveBiome becoming part of LifeVantage. Steven Fife: Yes, that's exactly right. We -- the transaction closed on October 1, and for the entire month of October, we were operating separately. So their systems, their website, their comp plan was still in full effect and similar for LifeVantage. What's really exciting and really a great success for us is that over this last weekend, we took our systems down for a few days, but converted all of LoveBiome onto LifeVantage's systems, both the transactional side, the e-commerce, the websites, the back offices, so all the tools that the consultants use and the compensation plan. So effective November 1, we have really integrated all aspects of our business. And that was a huge effort for us to pull off so quickly. And now that integration piece is behind us, and we can focus more of our attention on really optimizing now the combined consultant base and customer base of the 2 companies. So we've put in place a very robust training programs of the cross-selling opportunities. Clearly, we've got a full court press on training the former LoveBiome consultants on the evolved compensation plan and helping them understand how their businesses can benefit from that. And the reception to both sides, I guess, of this partnership has been tremendous. But everyone is kind of drinking from that proverbial fire hose right now. And so the quicker we can get everyone trained and up to speed, and that's going to take a minute for that to really happen. But that's why we also -- and from the very beginning, it felt like our second half of the year is going to be larger than our first half weighted heavily to the second half because of that ramp up with LoveBiome but also reentering a season at our MindBody product will come to the forefront with a lot of consumers. As we enter kind of the traditional weight loss season in the January time frame. And then there's a little bit of a resurgence in the April, May time frame as people start looking closer to summer as well. Douglas Lane: A lot of moving parts. Let's talk about the science a little bit. The P84 Nrf2 stack sort of a no-brainer right, the 2 flagship products from each company. But what I think interests me is how deep you're going on gut health. And what are the opportunities from a gut health standpoint with LoveBiome science combined with the work that you've done on MindBody? Steven Fife: Yes. Well, it fits in from the very first conversations that we had with LoveBiome. The question that we asked ourselves and had to answer was how does it sit into our activation philosophy from a product standpoint. And we've started to do testing on P84, and we were fortunate that right before our Dallas Momentum Academy just a few weeks ago, we announced results from an in vitro test of P84, where I mentioned that we identified 14 peptides in our body that are responsible for regulating, repairing and restoring overall gut health that were activated. So our body's ability to produce is so far superior to anything that we can supplement with it. And our -- that in vitro test showed that across these 14 peptides, it increased the production of those peptides and so we're thrilled with that and adding another activator in a market that it's projected to grow from $14 billion to $35 billion over the next 10 years. So we see a huge massive white space for us to operate in with a product that fits into our product strategy as well as when you couple that with the power of Protandim Nrf2 and we've got studies underway right now that we'll hopefully be announcing here in a couple of months around that power of the synergistic benefits of taking Protandim and PAD together and what we've now positioned in what we call our Healthy Edge stack. Operator: There are no additional questions in the queue. So I'll turn the call back over to Steve Fife for closing remarks. Please go ahead, sir. Steven Fife: Yes. Thanks, operator, and thank you, everyone, for joining us today. As we conclude, I just want to extend my appreciation to our committed employees, our outstanding independent consultants and stockholders and all of our faithful customer base. And I look forward to updating you next quarter with further clarity and outcomes of our results. Thanks a lot. Operator: Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.
Operator: Greetings. Welcome to MARA's Q3 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Robert Samuels, VP of Investor Relations. Thank you. You may begin. Robert Samuels: Thank you, operator. Good morning, and welcome to MARA's Third Quarter 2025 Earnings Call. Thank you for joining us today. With me on today's call are our Chairman and Chief Executive Officer, Fred Thiel; and our Chief Financial Officer, Salman Khan. Today's call includes forward-looking statements, including those about our growth plans, liquidity and financial performance. These involve risks and uncertainties, and actual results may differ materially. We disclaim any obligation to update these statements, except as required by law. For more details, see the Risk Factors section of our latest 10-K and other SEC filings. We'll also reference non-GAAP financial measures like adjusted EBITDA and return on capital employed, which we believe are important indicators of MARA's operating performance because they exclude certain items that we do not believe directly reflect our core operations. Please see our earnings release for reconciliations to the most comparable GAAP measures. We hope you've had the chance to read our shareholder letter and look forward to your feedback. We'll begin with some brief prepared remarks from Fred and Salman. After their comments, we are going to be conducting an analyst interview with management. Today's session will be conducted by Reggie Smith, analyst at JPMorgan. And with that out of the way, I'm going to turn the call over to Fred to kick things off. Fred? Frederick Thiel: Thanks, Rob, and thank you all for joining us. This quarter, we continued to evolve MARA from a pure-play Bitcoin miner into a vertically integrated digital infrastructure company, one that converts energy into both value and intelligence. At the heart of our strategy is a simple belief, electrons are the new oil. Energy is becoming the defining resource of the digital economy, powering everything from Bitcoin mining to artificial intelligence. And we believe those who control abundant, low-cost energy will shape the future of both finance and intelligence. Bitcoin has now entered its institutional phase. We're seeing financial leaders such as BlackRock, Citicorp, and now even JPMorgan, integrating Bitcoin into traditional frameworks. And we're seeing the establishment of strategic Bitcoin reserves by corporations and governments alike and even the Secretary of Treasury has posted positive notes about Bitcoin on X. What miners have always understood is now being recognized by global markets. Bitcoin is digital energy, a mechanism for storing and transmitting value. As one of the largest Bitcoin miners in the world, MARA sits at the center of this shift. Our energy to value infrastructure allows us to convert raw power directly into Bitcoin that we hold on our balance sheet, a distinct advantage that grounds our broader mission, transforming energy into intelligence. Every electron has potential value and artificial intelligence represents the next frontier of this transformation of energy into even higher value. We believe that inference AI where the value of AI is actually created and derived, and not training in foundational models is where the AI industry will create the greatest amount of value over time. Every insight produced by an AI model has a cost per token, driven by the cost to build and operate the data center, of which the energy cost makes up a major component. Over time, compute and the cost to build the data center will drop as technology advances such as low-cost ASICs, open-source models and the ability to operate in less sophisticated and less costly data centers drive efficiencies resulting in rapidly declining drops in cost per token, making the AI data centers of today unable to compete on cost per token over time without significant technology refreshes, requiring even more and higher capital injections. We believe energy, not compute, really becomes the primary constraint on AI growth. We are already seeing the alternatives to GPUs enter the market and open-source AI is making it far easier and much less expensive for companies to deploy advanced AI systems directly in their own private cloud environments. In the past, most models were only available through public cloud APIs. That meant enterprises had to send data off-site and pay high per token fees to access AI capabilities. But today, many of the world's most capable models like Llama, Mistral, and others are available in open-source form, giving companies full control to run AI more cost efficiently and fine-tune their models privately. This is a major inflection point for enterprise computing and a shift that plays directly to our strengths as we build out low-cost, high-efficiency compute powered by our own energy infrastructure. We believe we're positioned to provide the kind of private, scalable environments enterprises need to deploy these open models securely. MARA is positioning itself at the nexus of these two AI trends. Open-source AI is expanding the addressable market for private cloud compute. We believe that the future infrastructure will be built to serve that demand efficiently and profitably. This is where MARA's expertise in securing and operating low-cost power gives us a distinct advantage. Just as we optimize for the lowest cost per petahash in mining, we're now optimizing for the lowest cost per token in AI inference. Our long-term vision is to integrate these two energy pathways, Bitcoin and AI into a single platform. Bitcoin mining monetizes underutilized energy and stabilizes grids, while AI inference transforms that same energy into intelligence and productivity. By bringing Bitcoin and AI together, we seek to maximize the value of every megawatt hour we manage. We've already begun executing on this strategy. This quarter, we installed our first AI inference racks at our Granbury site within a modular non-water cooled containerized data center. This site currently has 300 megawatts of nameplate capacity with potential opportunities to expand our growing AI inference business in combination with our Bitcoin mining operations at the site. This milestone marks a significant step forward in proving out our AI infrastructure and next-generation inference hypothesis. It also demonstrates the versatility of our platform, underscoring the potential flexibility of our mining sites to support AI workloads along with Bitcoin mining. Two major initiatives this quarter are propelling our strategy going forward. First, our pending acquisition of Exaion, a subsidiary of EDF in France. Once regulatory approvals are completed and closing conditions have been met, Exaion will expand our capabilities into enterprise-grade AI-optimized private cloud and HPC infrastructure. We believe this will position MARA as a credible partner for enterprises seeking secure localized inference capacity. Second, today, we announced an initiative with MPLX, a separately traded public company formed by Marathon Petroleum Corporation, the largest petroleum refinery operator in the United States, to develop and operate multiple integrated power generation facilities and state-of-the-art data center campuses in West Texas. Under this initiative, MPLX will provide long-term access to lower-cost natural gas at scale, where MARA will develop and operate on-site power generation and compute infrastructure. The initial capacity is expected to reach 400 megawatts with the option to expand to up to 1.5 gigawatts across three plant sites. We are also evaluating additional prospective sites to support modular AI and HPC data centers alongside mining operations, creating optionality for future AI inference workloads. MARA's approach is to deploy smaller, modular facilities directly at lower-cost power sites instead of building hyperscaler campuses. We believe this distributed model will enable us to capture value at the inference layer while continuing to monetize mining and grid sales. This modular structure also gives MARA the optionality to shift capacity towards HPC over time as and if economics and infrastructure maturity support greater AI utilization. We believe MARA is positioned to capitalize on a key structural advantage as power becomes the primary constraint in AI growth. Together, Exaion and MPLX connect the two sides of our AI and data center business, energy and compute, and strengthen our ability to control both cost and performance from power to inference. Internationally, we're deepening relationships across Europe and the Middle East, where we see significant opportunity to deploy our integrated energy and compute model. Our pending Exaion acquisition exemplifies this, and we're honored to welcome Gérard Mestrallet, President Macron’'s special energy onboard as an advisor tomorrow. His expertise strengthens our global strategy as we pursue our goal of driving 50% of revenue from international operations by 2028. On the financial front, we continue to operate with discipline and transparency. We ended the quarter with 52,850 Bitcoin, having mined over 2,100 BTC during Q3. We remain focused on improving free cash flow through ongoing cost optimization, site level efficiency gains and disciplined capital allocation. We have begun opportunistically monetizing Bitcoin from production to fund operating expenses and aim to limit reliance on our ATM to support growth initiatives, helping to mitigate shareholder dilution. As I spoke about last quarter, Bitcoin prices have consolidated within a range since Q2. With intermittent volatility, we view this as a healthy period of equilibrium characterized by institutional inflows into ETF balanced by long-term holder liquidation activity. Using Jordi Visser's IPO analogy, Bitcoin is going through an IPO where early investors in VCs are exiting and institutional investors are coming in, forming a new base and foundation for growth. Meanwhile, broader macro trends, including rate cuts and expanding liquidity suggest improving condition for risk assets. Regardless of short-term volatility, our long-term trajectory remains unchanged, building enduring value through energy ownership, operational excellence, and strategic execution. Finally, I want to provide an update on 2PIC. While we continue to recognize the long-term potential of 2-phase immersion, its practical broad application is still a few years out, and direct-to-chip cooling remains the preferred cooling methodology of data center operators and compute OEMs. We have exited near-term investment in 2-phase immersion to focus resources on opportunities with more immediate and higher return potential. In closing, MARA is evolving from a Bitcoin miner into a digital infrastructure leader, combining energy generation, Bitcoin mining, and AI compute under one scalable platform. Our guiding metric is simple, profit per megawatt hour. It measures how effectively we convert energy into value, whether in Bitcoin, AI inference, or grid stability. As we continue to execute, we believe the market will increasingly recognize the strength of this diversified model and the strategic importance of energy ownership in the digital economy. I want to thank our employees for their exceptional work this quarter and our shareholders for their continued support as we build MARA into the world's leading digital energy and infrastructure company. With that, I'll turn it over to Salman to review the financials. Salman Khan: Thank you, Fred. During the quarter, global hashrate grew by roughly 20%, with the hashrate and network difficulty both hitting new all-time highs by end of the quarter. Bitcoin's price remained relatively range-bound, trading between $104,000 to $124,000, closing the quarter with a modest $7,000 gain. It was one of the most competitive mining environments in recent times and a difficult backdrop for our performance this quarter. Despite this, Q3 was the highest revenue and exahash quarter in the company's history. Our focus on operational and financial discipline over the past year is reflected in the substantial growth of our compute capacity and Bitcoin holdings. Between Q3 2024 and 2025, our Bitcoin holdings expanded by over 98%, growing from approximately 27,000 to nearly 53,000 Bitcoin. Our energized hashrate also expanded, increasing 64% from 36.9 to 60.4 exahash per second. Bitcoin price appreciation resulted in approximately $4.3 billion or 256% increase year-over-year. While Fred spoke to our vision and strategy, our vertical integration and capital allocation strategy is reflected on our financial results. That balanced execution allowed us to expand our holdings and take advantage of favorable market conditions while maintaining liquidity and flexibility. We mined 2,144 Bitcoin and purchased an additional 2,257. The impact on our financials is evident in the results we achieved. Let's dig in. Revenues increased 92% to $252.4 million from $131.6 million in the third quarter of 2024. Bitcoin's average price increased 88% over that time period, which contributed $113.3 million. We mined an average of 23.3 BTC a day throughout Q3 compared to 22.5 BTC in Q3 of 2024, which resulted in 74 more Bitcoin mined this quarter. Our strategy to deploy exahash responsibly resulted in growth of our BTC mine despite a significant growth in global hashrate and the network difficulty level. We reported a net income of $123.1 million or $0.27 per diluted share last quarter compared to net loss of $124.8 million or negative $0.42 per diluted share in the third quarter of last year. We also booked a $343.1 million gain on digital assets, including Bitcoin receivable during the third quarter of 2025 reflecting the positive impact of the Bitcoin holdings on our balance sheet. Now let's talk about our cost structure. Our purchased energy cost of Bitcoin for the quarter was $39,235 and our daily cost per petahash per day improved 15% year-over-year, which we believe at scale is one of the lowest in the sector. This improvement is directly tied to our growing inventory of owned and operated sites, which now account for approximately 70% of our nameplate megawatt capacity. That transition supports our vertical integration strategy, but also pays dividends both financially and operationally. Since we do not control the price of Bitcoin we mine, minimizing the cost of inputs like energy are critical to the financial resilience and long-term success of the company. Next, I'll provide some insights into our Bitcoin holdings and digital asset management strategy. MARA is the second largest corporate public holder of Bitcoin, and we seek to generate returns on our holdings as Bitcoin price appreciates. Our approach combines the potential for long-term Bitcoin appreciation with disciplined efforts to generate return while managing risk. Additionally, we have also used Bitcoin as a collateral to borrow under lines of credit. As of September 30, 2025, we held a total of 52,850 Bitcoin, including 17,357 Bitcoin that were loaned, actively managed, and pledged as collateral. As such, approximately 1/3 of our total holdings were activated through our digital asset management strategy. In Q3, we issued $1.025 billion of zero-coupon convertible notes due 2032, extending our maturity profile and increasing balance sheet optionality. With additional liquidity, MARA gains strategic flexibility to act on opportunities, whether that's acquiring more Bitcoin, funding acquisitions, balance sheet management, or general corporate purposes. We have positioned MARA to act in response to market conditions in order to maximize long-term shareholder value. As of September 30, 2025, we held over $7 billion in liquid assets, giving us the flexibility to fund domestic growth and pursue international expansion. To streamline our communications starting in Q4, we will share our production on a quarterly basis. Investors can continue to monitor our monthly MARA Pool production in real time on the mempool. As we have stated previously, electrons are the new oil, and we are laying the groundwork for 2026 and beyond. We're executing on a pipeline of energy infrastructure projects, both in the U.S. and internationally, and we expect these investments to expand our capabilities while keeping costs low. With that, I'll turn it over to Reggie Smith from JPMorgan to begin our management interview. Reggie? Reginald Smith: I appreciate you selecting me for this call here. I have a very big announcement this morning. I guess kind of help me interpret this morning's announcements versus, I guess, kind of your prior strategy. Like what's being emphasized, deemphasized? Maybe talk about that from the -- like what's the most emphasis you're placing on the business and maybe the least, because there's a lot going on here, certainly relative to the other Bitcoin miners. I know the other guys, it's either Bitcoin mining or kind of colocation. You guys seem to have a lot more balls in the air. Maybe talk through those differences. [Technical Difficulty] Frederick Thiel: Hey, guys. Is everything okay? Reginald Smith: Yes. I didn't hear anything. Did you catch my question? Frederick Thiel: Sorry about that. Sorry. I had a comms issue here. I'm in the U.K., so it was a little bit of a problem. I'm back on now. So yes, I heard your question, Reggie. Sorry. So if you think about the deal we announced today, it's about getting access to low-cost energy that is reliable, available 24/7, where because we are the generator, it provides us with a very low cost. If you look into the details of the announcement, you'll see that the pricing on the gas is amongst the lowest in the market. The other thing is that it gives us now the capacity to add potentially up to 1.5 gigawatts of data center capacity if we want to, which gives us lots of flexibility. A lot of our Bitcoin mining sites are very attractive to use for inference AI, as we discussed earlier. We talked about what we're doing at Granbury and what we'll be able to do at some of our other sites in a similar fashion where we can blend inference AI and Bitcoin mining. But the relationship with MPLX and the opportunities it provides give us a much broader canvas that we can paint on, whether that is traditional HPC like some of our peers have done or whether we want to build it out as hybrid AI, inference AI, and Bitcoin mining sites. So it gives us a lot of flexibility. And we believe controlling and owning power is a core part of any company that operates in the digital infrastructure space. When you look at the spending that's going on, and I think Sachin Ardell said this, in a recent podcast that was quoted, where he was quoted as saying that compute isn't the constraint, energy is the constraint. And so access to energy, we believe, is critical. We think inference over the long term is where all the value is going to get created in this space. But we believe that Bitcoin mining has a very important role to play in not just balancing grids, but providing a flexible load when mixed with AI, such that AI can begin to operate in more places than it does today. And the last thing I'd say is that we believe that the technology curve is going to move so quickly in this space because you have to realize that just like in Bitcoin mining, where cost per petahash is the most important metric that drives profitability in the AI business, unless you are in the application layer. In other words, running is the -- owning the data and the application that is generating value for the enterprise. In healthcare, owning the healthcare data, running the actual AI analysis. The only thing hosting providers and model operators provide are tokens in the sense of we need lowest cost per token if we're going to use that service. And using the APIs from the cloud providers is a very expensive way of running AI. And most enterprises today are being confronted with the fact that the cost per token is too high using existing systems, and they want to move to lower-cost systems. And we're going to start seeing, and we already are seeing ASIC-based solutions coming, open-source models, all of which will allow enterprises to build their own and operate their own private cloud or use those services from third parties, allowing them to drive value from AI. So I think for a lot of the big guys, the challenge is they are doing deals with colocation partners where they are not taking on the debt. The debt is being laid on the joint venture or the SPV related to that colocation facility. And that colocation partner is having to deploy a lot of capital to build those sites and equip those sites, and you have technology obsolescence. Over the course of a 10-year lease, you will have to upgrade the hardware in that location. And you have to estimate that in the cost of what it's going to be to build and operate. And I think there's a risk potentially that $1.4 trillion of data center contracts signed by OpenAI over the -- that will have to be operating in the next 5 years according to what was recently reported in the press, that some of that may not actually be able to come online and generate revenue. So I think our approach is much better, more prudent, certainly much more capital efficient. And by being at the end of the spectrum where we're vertically integrated and able to operate at lowest cost per token and deliver lowest cost per token, we will have a significant advantage in the marketplace. Salman Khan: And Reggie, just a reminder, we -- today, we control approximately 2 gigawatts of capacity. And this added capacity is incremental to that, that takes us to close to 3.5 gigawatts over a period of time. Reginald Smith: Got it. Understood. I'd like -- Fred, I appreciate the color there. And I was doing some kind of light math this morning. And I think about, I guess, kind of AI and HPC, you made a comment in your shareholder letter about the price of power and the price of compute. You made some parallels between Bitcoin mining and HPC. And I was looking at the numbers, and I think they may be a little bit off, but directionally, this is, I think, a fair statement. When you look at Bitcoin mining, the price of power and the price of the actual ASICs, if you think about depreciating per hour, are about the same, like a 1:1 ratio there. For GPUs, that ratio is more like 1 power 10 GPU. So like depreciation charge, and depreciation is super high. So you talked about ASICs and somehow, I guess, driving the cost of the hardware down there. Am I thinking about that right? Like what are you seeing? And kind of where do you see the role going there? Frederick Thiel: Listen, just think about it this way. When Bitcoin mining started, we were running CPUs, right? Then we went to GPUs, then we went to FPGAs, then we went to ASICs. And when you look at the amount of compute power for -- think of it as the number of terahash we could produce for a jewel of energy, it has dramatically changed. So you are now processing many more calculations at much lower cost of energy. And in our business, we depreciate the compute over 3 years. So if you're a hyperscaler and you're signing a deal for 10 years, some of these are 15 years and the depreciation schedule is 5 years for the machines. Does that mean they're going to have to replace those machines 3x in that cycle, right? And to your point, GPUs to power is most probably a 10:1 ratio. And as you get to ASICs, that starts dropping and power starts becoming an even more important component. And when you start looking at the end cost per token, at that point, the model cost also comes into play. And so if you have open source models, if you have low-cost hardware that's energy efficient, you're operating in data centers that don't cost you $10 million a megawatt to build, you start getting to economics that start resembling Bitcoin mining over time. Reginald Smith: Okay. Understood. Now, help me understand this. I wanted to understand or make sure I'm hearing you correctly. When you think about kind of the investment risk and the CapEx risk within this chain, obviously, you've got guys that are building data centers, you've got people that are buying like GPUs and hardware. And then you say, obviously, you got the model guys as well. But I guess your comments on kind of where the CapEx risk is greatest, are you suggesting that the people that are buying the machines are taking on the most risk? Or do you think there's still substantial risk in building big data centers? And I ask you that in the context of, I mean, you guys just, I guess, bought a few GPUs yourself. And so like help me square all of this together to understand kind of what your view is there. Frederick Thiel: Right. So part of the question is, are you in the business of being a bare metal shop, right? You're providing essentially hosting and GPUs. Look at what Iron is doing, right, bare metal. Somebody has to load their software on it, but they're renting capacity on GPUs effectively. And that's what GPU cloud is called. In that case, the operator is funding the GPU purchases, right? In the case of a colocation, there are some deals that have been done where the operator is funding the GPUs. And there are other deals where the lessor of the space, if you would, is bringing the GPUs, and they are the buyer and operator. So if Microsoft comes and is going to contract with you to just buy capacity from you, they're going to bring the GPUs, hopefully. You would hope at least. And they're taking that risk. But there are lots of different models out there being operated by people. What we're doing with inference at the edge is much more around providing inference AI, which is not running on GPUs. We're running on ASICs, ASIC type solutions. And so it's a very -- it's a different model from a hardware cost perspective. It's air-cooled. It's not liquid-cooled, for example, which means your infrastructure is much less expensive. You're not having to spend many millions of dollars per megawatt on building infrastructure, specialized cooling infrastructure. And all of that adds up to the economics of what you can do. But inference is also done at smaller volumes, right? You don't have to do 100-megawatt sites yet. Most of the needs for inference still are quite young. It's early in the market. But if you believe what Gartner and the analysts say, over the next 3 to 5 years, inference will be the primary generator of revenues and value creation within the AI space. So that's where we're swimming. Reginald Smith: Understood. I'm going to skip around a little bit here. I wanted to talk about Exaion. And kind of loop it back into the broader discussion. But obviously, you guys announced that acquisition. Help me understand what they do today? And maybe talk about the scale of their operations. Like are they running data centers today? And if so, what's the size of those? Like what do they do exactly? Frederick Thiel: Yes. Exaion is today, until we close, a fully owned subsidiary of EDF that operates EDF data centers where all of the data for the nuclear fleet operates in this process. So they run EDFs, AI and traditional data centers across the EDF enterprise. They have about four data centers today, three in France, one in Canada. They also operate quantum technology in the Canadian data center, which is made available for research purposes. And they have built a whole set of software solutions that allow you to operate the data center, store data in full private mode, meaning the users' data is fully encrypted. Exaion doesn't have the keys to that data. And so, were that data center to be broken into, if you think of -- if somebody were to steal data, the data in the data center is encrypted. So it's the customer who holds the keys to that data. And so it's a way to build private cloud solutions that are fully secure. And so the whole reason for making the investment in Exaion is it gives us access to a team and an existing set of data centers that are Tier 3 and Tier 4 already. They know how to operate the most sensitive data. They know how to protect it. They have existing customers, so they have experience, and we are going to leverage their knowledge, their experience, their technology, and their platforms to expand what they do on a global basis. Reginald Smith: Got it. So they're asset like. They're more of a service layer, their engineers, their software, things like that. Like they don't actually own any data centers. It's really running that data center, securing data. Is that the right way? Frederick Thiel: Yes. Reginald Smith: Understood. Okay. Is there a way to frame it, maybe early, their revenue run rate? And interestingly about that transaction, I think the first 64% of the transaction you bought them for $168 million. The next 11% will be at a much higher rate. Like what was the thinking there? Any opinions you can provide there. Frederick Thiel: I mean, I think you can think of how many times deals like this are structured. You're paying for a portion of the business based on where it is today. And then the growth opportunity for the existing investors is in executing on a plan to help grow the business. And therefore, you're going to pay a higher multiple for that. That's how you should think of it. Reginald Smith: Understood. Okay. Now, I want to tie all this back. So the MPLX transaction, real quick on that. Does it require any like ERCOT approval? Let's say these guys have the natural gas. You guys would make the power plant or the generation assets and then the data center. But is anything needed from ERCOT? Any roadblocks there? And like how quickly could you have a data center up and kind of running? Frederick Thiel: Yes. I think you have to think of it more as the first thing we're doing is building a power generating station, which will be gas-fired power plant. So you have regulatory requirements around air permits, for example, which in the current political environment should not be exceedingly difficult to acquire. We feel fairly confident that we'll be able to get those without much problem. So once you built the power plant, then because you are not directly grid attached yet, you then have to apply to attach to the grid and be a provider to the grid. So there's a regulatory process for that. Meanwhile, you can be producing energy and operating data center fully behind the meter. And ERCOT gets involved when you connect to the grid or the utility does once you connect to the grid. So -- and the goal here, what's really important to remember about this MPLX relationship is it gives us the ability to own and operate gas-fired power plants with very low-cost gas with the ability to colocate large-scale data centers with reliable 24/7 power in a very attractive part of the marketplace. And so it gives us a lot of control to really drive our growth in a very cost-effective way. And I think it positions us very well, come what may in this HPC AI market and give us a lot of opportunities to really operate and continue to generate a lot of value for our shareholders. Reginald Smith: I agree. I've been thinking about this idea of like vertical integration, and I didn't know if it was going to be a power company acquiring data center capabilities or the other way around. So this is very interesting. If I could dig in a little bit more. So I think you talked about 400 megawatts of capacity to start. How should we think about like the minimum effective dose to kind of get started. So I don't know if you want to commit to 400 megawatts right off the bat. Is it 20 megawatts? And how quickly can something like this come together? And then I know it's early days, but we've heard estimates of up to $10 million per megawatt to build out a data center. Like what are you thinking about from that perspective as well? Frederick Thiel: So you don't build a power plant in 20-megawatt increments. You build it right to a certain size at each site. So there are three sites. We'll likely think of it in 100-megawatt increments initially, but you have the ability to scale these plants much larger. As it relates to the data centers, we have the optionality. We can build these as traditional Bitcoin mining data centers that are fully containerized at somewhere around $1 million a megawatt, including hardware costs for compute. If you then want to look at going the AI route, if we're doing it similar to how we're running the inference AI we're running today, the actual infrastructure cost is very similar. It may run a little bit more expensive depending on the cooling technology, if we use direct-to-chip cooling or we continue to use air cooled. And if you use direct-to-chip cooling, your cost of infrastructure will end up somewhat higher. But the key is we're not building buildings that take 3 years to build. We're doing these as modular containerized solutions, which gives us full flexibility to reconfigure a site depending on whatever we want to do at it. And I'm a big believer that you will see very high-performing HPC capable modular solutions on the marketplace within the next 2 to 3 years, where you will be able to deploy the same sophisticated solutions you're building in these very sophisticated data centers where people can run some of the most sophisticated AI they need to. Remember, there are not many customers in the world who need data centers of the scale that OpenAI needs it, right? OpenAI needs a lot of compute capacity because of the breadth of data and the breadth of the solutions their models operate. If you remember what DeepSeek did and how DeepSeek created the stir in the market, it's because instead of operating with a broad foundational model, they only load into memory specifically the model segments that they need and the data to solve the query, which means you now don't need all of that scale. So what I think will happen in the marketplace is that you're going to have efficiencies in models going to open-source, clients developing their own models and training their own models because the clients don't want to give the data to OpenAI. If I'm -- and I'll give you an example. I was at FII last week in Saudi Arabia, and I was sitting with the Head of Strategy for Aramco on a panel. And they don't put their seismic data in the cloud. They're not going to do that. What do they do? They build their own models. Other companies do the same thing. Look at what Lockheed just did the deal they just did with Google, right? It's an on-prem solution. You are not -- I'm not going to put my data up into your cloud Google. You're going to build a cloud instance on-prem, on my site that is air gapped from your systems. That's what corporations want. They want data sovereignty. They want private cloud. They don't want to run up in Meta's cloud, Amazon's cloud, or OpenAI's systems. 70% of corporate data today is still not in the cloud. There's a reason for that. And I think when you look at inference, inference is driving insights from the data that runs your company, right? It's -- if you're in the healthcare business doing drug discovery, it's all the patient data, the lab samples, et cetera, all that data, you're driving insights from it, right? And if you are doing -- you're building airplanes, it's all the design data and the manufacturing data. If you're running a factory, it's the operations data of the factory, right? If you're running a power plant, it's the operations data of that power plant. You don't want to run that off-site. You want to actually run it on site because as those systems become mission-critical and actually operate the resources and operate parts of the business, you can't take the risk that you have a system failure that brings your whole business down just because you lose a link to a cloud or Amazon goes offline like it did the other day. So I think it's -- people really have to understand that there is a limit to what data and how much risk people want to do in putting their core critical assets into a cloud operated by a third party. And if they can solve the model issue and do it at lower cost, near-prem or on-prem in a private environment, they will do it. And I have been speaking with the heads of AI for major corporations in the financial market today who tell me that they are relocating AI systems out of the cloud back to near-prem, on-prem private solutions because it is significantly less expensive to operate than doing it in an Amazon Cloud or other places like that. And I think that the analyst community really needs to do a much better job of talking to the enterprises who are the users. These are the people who are actually going to pay the money that will allow OpenAI to be successful or not, that will allow Microsoft to be successful or not. You can talk till you're blue in the face with the people building these things, but it's like building railways. If there isn't passenger traffic and there isn't cargo, the rail lines fail. So I hate to be a downer on this, but this is an important thing that a lot of people aren't doing. You need to talk to the customers. Who's going to pay for this stuff? Reginald Smith: And I want to make sure I'm hearing this right and connect these dots. I think you mentioned kind of a smaller kind of, I think, a 1 megawatt, what do you call it, I guess, kind of like a sample or a small micro data center, pilot site. If I'm hearing this right, are you saying that like that could become like the prototype for enterprises having their own on-premise like AI capabilities? Is that what you want to say? Frederick Thiel: Yes. So think of it this way, right? I'll give you an oil drilling example, right? So you have an exploration drill that's drilling, you have seismic data. Today, you have to plan exactly the drill profile and what some -- what the drill operator is going to do. And so the oil companies have built these very sophisticated AI models that run in a modular container typically out on the drilling site that are collecting real-time data from the drill and then feeding back instructions into the drill master. That's an existing example. You can go to a trading -- a financial trading company. And their whole thing is speed and latency. They want their systems operating on their local network, not on a wide area connection where there's latency because 25 millisecond delay in a response means they lose the profit on a trade. And so there are -- whether you're looking at defense, which is going to be a huge growing sector when it comes to AI, just look at the amount of AI that's needed to operate in any theater of war today, look at healthcare, look at manufacturing and production, look at the movie television industry. The single largest consumer of tokens in AI are video illustrations and audio generation. Those are the systems that consume that these diffusion models are the single largest consumer of tokens. And so cost per token is very critical to them because if you're going to generate a 5-, 10-, 15-minute clip of video, it takes multiple factors of magnitude more tokens than asking OpenAI where you should eat lunch today. And so I think, again, the marketplace gets all hyped up about these big contracts, but they really need to look at who's actually going to use this stuff. What are they going to use it for? What can they afford to pay for it? What will the pricing trends be over time? And to use the worn-out Wayne Gretzky technology. If you're in our business, you want to be skating to where the puck is going to be, right? You don't want to be chasing the puck. And I think there are a lot of people announcing deals out there, getting on the bandwagon to pump their stock when they need to look at what's this industry going to look like in 5 years. Reginald Smith: That actually leads to my next question, Fred. So thinking about announcements and catalysts, like what should we look for from MARA to know that like this strategy is taking form and we can start to frame an economic story or a creation story around some of these initiatives. Like what are the milestones and announcements we should be looking for from you guys? Frederick Thiel: So here's what I think you should look for. 4 years ago, I made a presentation at a conference where I said that Bitcoin miners are either going to become energy companies or be owned by energy companies. I think what you should look for is when large energy companies start signing partnership agreements with companies like us to monetize their energy assets at large scale. That will tell you that if that happens to be us, that they have chosen us to do it with because they feel we are the best option for them to maximize the value of the electrons that they produce. That's one step. The next step is as you start seeing customers using more and more inference AI and you see us reporting a greater and greater mix of inference AI in our data centers. And the real metric you should look for is what is our profit per megawatt hour that we talk about. It's not a GAAP measure, so it's not going to be reported that way. But you can think of it as an operational KPI where the profit we can generate from every megawatt hour of energy that we consume or produce is a data point that our investors will be able to see and that will directly correlate to our profitability and ability to have a cash-generating business. Reginald Smith: Okay. And just to make sure -- and I apologize, this is a silly question. Are you looking to sign colocation clients or deals for this site in West Texas? Or is this something that you're thinking about putting your own machines in? Frederick Thiel: It gives us -- I'm not going to answer the question directly because I think our competitors spend more than enough time listening to what I say and then emulating it. So I'm just going to say it this way. It gives us maximum optionality to decide what we want to do with whom. Reginald Smith: Got it. Okay. Because I want to bring it up because you mentioned signing a colocation as like a milestone and... Frederick Thiel: No, you see if I can operate inference AI and make money on it without signing a colocation facility that will give you a little bit more insight into what the business model might actually be. Because think about it, the best thing about our Bitcoin mining business is we don't have a customer. What's the hardest thing all these colocation deals have is they have to go find a customer. Reginald Smith: Yes. Okay. Okay. People say, I change my opinion when the facts change. And this is a pretty -- this seems like a pretty major shift for MARA. Like I said, you guys bought GPUs, I guess, in the last 3 months and you start to run them. Like what in your mind has changed -- that has changed your opinion or has your opinion changed? Because strategically, it seems like the company is kind of pivoting. Talk to me about that. Like what have you learned or gleaned in the last couple of months or quarters that has driven this shift? Frederick Thiel: Yes. Reggie, I wish I could tell you that I had a lightning bolt strike me and I came to an epiphany, but this is -- we're executing the strategy we decided to execute over a year ago. It's just we have decided not to go totally open with the market and tell people what we're doing because it just gives our competitors insight into what we do and they can emulate it. And we prefer to control the timing on how we talk about what we're doing. But I've been talking for the longest time about inference at the edge, and that's where we would make our mark in the marketplace, and we are. We've talked a long time about owning power and the desire to run our business based on controlling energy assets so we're fully vertically integrated. And we're doing that. There's no change in strategy. There's no pivot. It's just we have been purposely operating more like a start-up in the sense that we have really wanted to make sure that we had everything in place so that as the market becomes aware of what we're doing, they just start seeing kind of announcement after announcement after announcement that just gives them more and more confidence in that we're executing on the vision that we set out a year ago. Reginald Smith: Yes. No, I'd say from where I sit and I think about all the pieces you guys have. There are a lot of pieces, and I'm not smart enough to figure out how to put it all together, but it seems like you guys have a lot of ways to kind of win here. I guess we just have to kind of sit back and wait for those announcements as they kind of come through. I know we've kind of spent a lot of time on this. I hope it wasn't a wasted time for people. Maybe we could shift gears a little bit and talk about your like sovereign and foreign government initiatives and things that are going on there. Like one of the questions I have, as you think about this is like what do you think gives you guys a right to win in the sovereign compute kind of load management space versus competitors? Who's even competing with you there? Frederick Thiel: I think -- so here are a couple of ways to look at it. Most of our competitors enter a marketplace by partnering with somebody or contracting for power. They don't bother talking to the government because they're afraid that if they do, they may not be allowed to do what they want to do. And that's the case in a lot of places in the Middle East. We, on the other hand, chose to do it the other way. So in UAE, where we've been operating now for a couple of years, we chose to directly go and work with the sovereign. So we partnered with ADQ and IHC and operate a joint venture together with them where we balance the grid in UAE. It's one of the most advanced liquid immersion technology sites in the Middle East. The only one that's bigger than that is the liquid immersion site we operate in Granbury. And so that has given us a reputation of being somebody who works well with government entities, follows the rules, and is focused on being a good grid citizen and balancing the grid. So when we talk to people in other countries, such as in France, such as in the U.K., such as in Kenya, in Saudi Arabia, in other places, we are welcomed with open arms because we are focused on how can we make your grid more efficient and more effective. How can we make sure that every electron your generators generate -- sorry, generate maximum value. And we are here to be a good grid citizen, and we are here to operate such that your grid becomes more stable and it becomes easier for you to bring on new types of loads, be them AI data centers or whatever. And the challenge, the way most people see it is that takes time. I have been crossing the Atlantic very frequently, but I have been having meetings in the top levels of government, and we have a lot of support. We certainly have seen a lot of support on the European side because there are certain dynamics in Europe that create very large opportunities for us. And so same thing exists in Saudi Arabia, for example, and other places. And we think that it's worth our effort to spend the time and take the time to do this carefully and prudently and well thought out so that we're able to execute successfully and have long-term success in the countries. Because if we're friends with the government, then we have the advantage that as they look to expand what they're doing, if we are a good partner, they will come to us and say, "Hey, we want to do more with you." And that's the type of relationship we want to have with our partners across industry, be it governments, vendors, or end customers. Reginald Smith: And it's funny, we haven't talked about Bitcoin mining at all. I know we're running short on time. Just an update there. Love to hear about the stuff that's happening at the wind farm and some of your flared gas initiatives. Maybe talk a bit about Auradine. And then I guess, your plans for growing hashrate here and how you think about that in the context of kind of where hashprice is and why it makes sense to continue to grow your hashrate at these levels? Frederick Thiel: Yes. So maybe I'll look at this in kind of a somewhat reverse order. So there is more hashrate coming online every day from lots of players. There are very well-capitalized companies who are not public, who are -- have access to huge amounts of capital, who have a stated goal of becoming the largest Bitcoin miner in the world. And if we don't grow our hashrate, we will have an ever-decreasing amount of the global hashrate and produce ever decreasing amounts of Bitcoin. And we think that it's our duty to continue to grow hashrate, not just in the United States, but globally to support the security and diversity of the Bitcoin blockchain and the Bitcoin network because we don't want it to be dominated by any small handful of players. And so we believe it's our duty to continue to grow hashrate. So how do we do that economically? We do it with low-cost power, which we can control, which ties to the MPLX deal. It ties to what we're doing with our wind farm, Texas. It ties to what we're doing with flare gas. We have doubled -- by the end of this year, we'll have doubled our flare gas capacity, and we're going to continue to grow that. The wind farm is fully built out from a data center perspective, and that's running. And we're going to continue to look at opportunities to acquire more energy that is low cost that we can then allocate between Bitcoin mining or AI. You have to kind of think of us as we are going to own lots of electrons, and we're going to put those electrons to best possible use. In regards to Auradine, Auradine's more recent hydro model, which competes very well with the Bitmain and other vendors' models is doing well. We're deploying Auradine in our fleet. We're not deploying exclusively Auradine at this point. There are still different machines have different characteristics that are really good for different environments, and we have a lot of different environments. And so we're continuing to deploy a mix of systems. But over time, it would be logical to feel that we're going to add more and more Auradine to our fleets. Their systems offer some very unique capabilities, especially around load balancing that in a model such as the one that is beginning to gain steam in Texas, where the utility wants to regulate your curtailment and shut you off and turn you on, that requires special capabilities in the miners, and that's something that exists in the Auradine systems. And so as more and more utilities start looking for those capabilities amongst miners who are on grid, I think they will continue to gain some market share there. Other than that, they have spun out some very interesting AI-related businesses, One or Escape, which is around securing large language models -- sorry, which recently had a lot of positive reviews at the RSA show earlier this year and then also ScaleUp, which is a start-up around ultra high-speed cluster interconnect switch technology. So that has been a great investment for us, and we continue to look for investments like that where we can acquire or build technologies that can become part of our solutions over time. Reginald Smith: I guess last one for me. You kind of talked about it earlier, but obviously, a lot of market cap, a lot of value has been created in the Bitcoin mining space amongst the publicly traded guys. I'd argue that you guys haven't received or gotten your share of that. Like what do you think the market is missing and hopefully will come to appreciate in the near term or medium term? Frederick Thiel: I think. Reginald Smith: About that specifically. Frederick Thiel: Yes. I mean I think the key for us is the floor on the valuation of our stock is essentially the value of our Bitcoin holdings. And people don't put a lot of value on the Bitcoin mining infrastructure or the Bitcoin mining business per se. And I think as our business continues to evolve, especially with the energy generation story and as AI becomes a bigger piece of this and we generate more profit per megawatt hour consumed, we'll start getting more attention from people. And I think you'll start seeing people realizing really the benefit of what we're doing in our model, and we'll get more credit for that. Salman Khan: Reggie, just to add to that, the power capacity that we have secured through these transactions that puts us at the forefront. And here's the actual value flows with Bitcoin mining option value between AI-ready assets, our operational flexibility with integrated power, that's what's going to drive value for our stockholders from a long-term perspective. Reginald Smith: Perfect. Congrats on the quarter. Robert Samuels: Thanks, Reggie. We appreciate it. Most of the questions that we received from our retail shareholders have been answered. We're obviously running short on time. But thanks, everyone, for joining us today. If you have any questions that were not answered during today's call, please feel free to contact our Investor Relations team at ir@mara.com. Thanks very much, and enjoy the rest of the day. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.
Operator: My name is Julianne, and I will be your conference facilitator today for the Amgen Q3 2025 Earnings Conference Call. [Operator Instructions] I would now like to introduce Casey Capparelli, Vice President of Investor Relations. Mr. Capparelli, you may now begin. Casey Capparelli: Thank you, Julianne, and good afternoon, everyone. Welcome to our third quarter 2025 earnings call. Bob Bradway will lead the call and be followed by a broad review of our performance by Peter Griffith, Murdo Gordon and Jay Bradner. Through the course of our discussion today, we will use non-GAAP financial measures to describe our performance and have provided appropriate reconciliations within the materials that accompany this call. We will also make some forward-looking statements, which are qualified by our safe harbor statement. And please note that actual results could vary materially. Over to you, Bob. Robert Bradway: Okay. Good afternoon, everyone, and thank you for joining us today. Amgen delivered another strong quarter, driven by rising demand for our medicines and meaningful progress across the pipeline. Volume growth once again paced our progress in an environment where selling prices are declining across the industry. This volume growth reflects the strength of our portfolio and the value our medicines provide to patients and prescribers. We saw growth across all four therapeutic areas this quarter. Revenues were up 12% year-over-year and volume up 14%. 16 of our products grew at double-digit rates and 14 are now annualizing at over $1 billion in sales. Our broad base of innovative medicines is generating powerful momentum and gives us confidence in our ability to sustain long-term growth. We've also been working to expand access to our medicines. And we recently launched AmgenNow, a new direct-to-patient platform that allows qualified patients in the U.S. to access Repatha at one of the lowest prices in the world. This is an important step forward in helping more people benefit from the kind of innovation as represented by Repatha. Let me take a moment to recognize the scale and complexity of what we do in biologics manufacturing which is both an art and a science. And at Amgen, we've built one of the most advanced capabilities in the world in making large molecules. We benefit from 45 years of experience in this space and from having a manufacturing network that's predominantly based here in the U.S., serving American patients and patients all around the world since our inception. We continue to invest in manufacturing with more than $3 billion in planned investments in the U.S. this year alone. This builds on over $40 billion invested in manufacturing and research and development since the passage of the Tax Cuts and Jobs Act in 2017. This foundation positions us well to support growing global demand for our products. And let me just turn briefly to each of our four therapeutic areas. In General Medicine, we're expanding our impact across underserved disease areas with substantial runway. Cardiovascular disease remains the world's leading public health challenge with tens of millions of patients at risk for heart attack and stroke. At the upcoming American Heart Association meeting, we will share data on Repatha showing important benefits in preventing a first heart attack or stroke. Again, a powerful signal for the impact or potential impact of Repatha in primary prevention. In bone health, EVENITY is a transforming care for postmenopausal women at high risk of fracture. It is the first and only bone-building therapy that increases bone formation and decreases bone resorption. EVENITY continues to deliver strong performance and with treatment rates still low among women with high fracture risk, we believe there's significant room for growth. We expect this product to remain a growth driver throughout its life cycle. Looking ahead, both MariTide and Olpasiran offer additional pathways for growth in obesity and cardiovascular disease, two of the world's most pressing health issues. In rare disease, our portfolio of growth drivers are all early in their life cycle. These products are performing well now, and we expect them to continue to grow well into the future. For example, with new indications such as IgG4-related disease and generalized myasthenia gravis on the horizon for UPLIZNA, we're excited by what this product can offer an increasingly broad range of patients. I would also say that the progress that we are seeing with UPLIZNA across a range of different diseases reaffirms our belief for the potential of CD19-directed therapies to address a wide range of rare autoimmune diseases. In inflammation, we've been a leader for decades, and we are very encouraged by what we're seeing with TEZSPIRE as physicians are increasingly comfortable with its profile increasingly comfortable with the fact that it is a well-tolerated and broadly effective agent able to intervene upstream in the inflammatory cascade. We remain highly encouraged by the long-term prospects for TEZSPIRE. In oncology, we're continuing to establish new standards of care. IMDELLTRA has generated strong clinical enthusiasm in small cell lung cancer. BLINCYTO is, of course, now firmly established as the standard of care in frontline consolidation for B-cell acute lymphoblastic leukemia, and we are seeing encouraging project -- progress rather with Xaluritamig in prostate cancer as it advances through Phase III. Meanwhile, our biosimilar strategy continues to deliver results as well. You can see that in the quarter, revenues were up more than 50% year-over-year and are now annualizing at roughly $3 billion in sales. To close, let me just say that we continue to engage with policymakers in Washington and elsewhere around the world to support policies that improve access, protect innovation and strengthen the biomanufacturing ecosystem, especially here in the U.S. We've built a strong springboard for 2026. The products that will drive our next wave of growth are in hand, supported by compelling data, reinforced by readouts this year and still early in their life cycle. We're encouraged by the momentum we're seeing in the business and confident in our ability to deliver innovation and growth well into the next decade. I want to extend my thanks to our colleagues around the world for their commitment to patients. With that, let me turn over to Peter for a financial update. Thank you. Peter Griffith: Thank you, Bob. We are pleased with our strong third quarter performance and remain on track with our 2025 full year goals and long-term objectives. The financial results are shown on Slide 6 and 7 of the slide deck. In the third quarter, revenues increased 12% year-over-year to $9.6 billion, reflecting the continued strong performance of our six key growth drivers, Repatha, EVENITY, TEZSPIRE, and our innovative oncology, rare disease and biosimilar portfolios. The quarter also benefited from discrete items, including roughly $250 million from favorable changes to U.S. estimated sales deductions and a government order for Nplate of $90 million. I would also note that the third quarter included $105 million in sales for RAVICTI, a small molecule within the rare disease portfolio for which we now have a generic competitor as of October. Our non-GAAP operating margin was 47% and reflects significant investments across the business, led by non-GAAP R&D growth of 31% year-over-year, this includes several business development transactions, resulting in roughly $200 million of incremental R&D spending. Excluding these business development transactions, Q3 non-GAAP operating expenses rose 14% and non-GAAP R&D grew 19% year-over-year, reflecting increased investment in our late-stage pipeline. Our continued investments in programs, including MariTide, Olpasiran, Xaluritamig and rare disease will drive sustainable long-term growth and strengthen our leadership in innovation. Our non-GAAP OI&E resulted in a $568 million expense. We continue to strengthen our balance sheet with $4.5 billion of debt retired in 2024 and $6.0 billion of debt retired in 2025. We are pleased to report that we have returned to our pre-Horizon capital structure ahead of plan, and we will achieve greater than $500 million in pretax cost synergies in 2025 in connection with the acquisition. Our non-GAAP tax rate increased 4.8 percentage points year-over-year to 18.2%, primarily due to the change in earnings mix. We generated $4.2 billion in free cash flow in the third quarter, reflecting operational momentum across the business, rigorous management of working capital, all while continuing to invest in innovation. In addition to the increase of 31% in non-GAAP R&D described above, we continue to advance and accelerate technology and AI across the value chain from discovery to development to manufacturing and through to commercial execution. AI and trial enrollment, manufacturing optimization and customer engagement are all among areas leveraging innovation to drive productivity at speed and scale. We're also accelerating molecule design and other aspects of early-stage research powered by modernized AI and data platforms. For 2025, we now expect capital expenditures of roughly $2.2 billion to $2.3 billion to expand network capacity for our products across the portfolio and our innovative pipeline, including MariTide. Our capital expenditures reflect significant investments across the United States, including Ohio, North Carolina, Puerto Rico, Rhode Island, California and Massachusetts. We expect our projects to continue to be on budget and on time. In addition, we returned capital to shareholders through competitive dividend payments of $2.38 per share, representing a 6% increase compared to the third quarter of 2024. Turning to the outlook for the business for 2025 on Slide 8. The benefit of our portfolio was clearly seen this quarter and coupled with momentum across the business, we are raising our 2025 guidance ranges for both revenue and non-GAAP earnings per share. We expect 2025 total revenues in the range of $35.8 billion to $36.6 billion and non-GAAP earnings per share between $20.60 and $21.40. This guidance includes the estimated impact of implemented tariffs. It does not account for tariffs or pricing actions announced or described, but not yet implemented. In addition, let me highlight a few updates to our outlook for the remainder of the year. For the full year, we now expect other revenue to be approximately $1.5 billion. Non-GAAP R&D expenses are now expected to grow at a mid-20s percentage rate year-over-year in 2025. This is driven by increased investment in our late-stage programs and the previously mentioned Q3 business development transactions. We now anticipate non-GAAP OI&E to be in the range of $2.1 billion to $2.2 billion in 2025. We now expect a non-GAAP tax rate in the range of 15.0% to 16.5%. And for WEZLANA in the United States, we continue to expect quarterly sales to fluctuate and do not expect any sales in the fourth quarter. And let me remind you of prior items that have not changed. We continue to expect the full year non-GAAP operating margin as a percentage of product sales to be roughly 45%. The outlook continues to reflect our investments in advancing key late-stage programs, including MariTide, Olpasiran, rare disease and Xaluritamig and leveraging technological advancements, including artificial intelligence. Our operating margin outlook also includes incremental launch and commercial investments. We're focused on delivering sustained long-term growth and value for patients and shareholders by doing what we said we would do, driving innovation in areas of high unmet medical need and maintaining rigorous financial discipline. We continue to focus on execution excellence across the enterprise and remain well positioned for sustained growth throughout the long term. I'm grateful to work with all of our colleagues worldwide in serving patients. This concludes our financial update. I'll now hand it over to Murdo for an update on our strong commercial progress in the quarter. Murdo? Murdo Gordon: Thanks, Peter. In the third quarter, sales increased 12% year-over-year, driven by 14% volume growth. 16 products delivered double-digit or better growth, clear evidence of the strength of our portfolio and the disciplined execution of our teams around the world. Starting with general medicine. Repatha delivered $794 million in the third quarter sales, up 40% year-over-year and now annualizing at approximately $3 billion. Since Repatha's launch a decade ago, the PCSK9 inhibitor class remains underutilized with these therapies currently reaching fewer than 5% of patients eligible for lipid-lowering therapy. With roughly 100 million people still in need of effective LDL-C lowering, Repatha has a substantial opportunity to expand its use to address cardiovascular disease, the world's #1 public health crisis. As you'll hear from Jay, we have recently announced important data from the VESALIUS-CV outcome study, which met its dual major adverse cardiovascular events or MACE endpoints in patients at elevated cardiovascular risk without prior heart attack or stroke. Now I've worked in lipid management for more than 30 years, and I've witnessed numerous landmark statin studies, demonstrating how intensive LDL cholesterol lowering reduces cardiovascular risk. The VESALIUS-CV results demonstrate that Repatha provides additive benefit above and beyond statins, delivering even more reduction in cardiovascular events in primary prevention patients at higher risk. Currently, greater than 95% of patients insured in the U.S. have coverage for Repatha, and most insured patients pay less than $50 out of pocket per month. The prior authorization requirements for many of these patients have also been removed or substantially reduced. In the U.S., we're taking bold steps to improve access with the launch of AmgenNow, our new direct-to-patient program. Repatha is the first therapy available through AmgenNow at a monthly price of $239 or roughly $8 a day. This is nearly 60% below the current U.S. list price, which is already one of the lowest in the world. The launch of this program is a meaningful step toward providing additional affordability and access to Repatha for American patients. EVENITY delivered $541 million in third quarter sales, up 36% year-over-year. In the U.S., sales grew 44%, driven by higher prescription volumes from both established and newly activated prescribers. EVENITY is the only therapy that builds bone and slows bone loss, which is a unique advantage in helping postmenopausal women reduce fracture risk. In the U.S., EVENITY continues to lead the bone builder segment with over 60% market share and approximately 270,000 patients treated to date. However, many remain at high risk of fracture, with close to 90% of the roughly two million very high-risk patients still not receiving appropriate therapy. In Japan, EVENITY has been prescribed to approximately 800,000 patients since launch, making it the leader in the bone builder category with greater than 50% market share. The success of EVENITY in Japan underscores the significant untapped potential in the U.S., where improvements in screening and diagnosis and increased treatment could meaningfully expand patient reach and drive continued growth. Prolia delivered $1.1 billion in sales, an increase of 9% year-over-year. Three biosimilars have launched to date in the U.S., and we see competitive dynamics evolving in line with expectations. In future quarters, we expect increased competition to negatively impact Prolia sales. Our rare disease portfolio grew 13% year-over-year to $1.4 billion, now annualizing at over $5 billion with strong performance across the board. UPLIZNA sales increased 46% year-over-year to $155 million. The launch of UPLIZNA in IgG4-related disease is progressing well with significant uptake among rheumatologists and key academic medical centers. While IgG4-related disease is a recently defined condition, our educational efforts are rapidly building awareness and diagnosis. We've seen over 300 unique prescribers since launch across multiple specialties, demonstrating breadth of adoption of UPLIZNA in this indication. UPLIZNA is a leading FDA-approved treatment for NMOSD with growth driven by increased new patient demand and strong rates of treatment initiations and adherence. Additionally, launch preparations are underway for the anticipated approval of UPLIZNA in generalized myasthenia gravis or gMG, a chronic autoimmune neuromuscular disorder driven by pathogenic B cells. We look forward to the potential of serving more patients who can benefit from UPLIZNA's differentiated profile, including its durable efficacy and convenient dosing and administration. TEPEZZA grew 15% to $560 million in the quarter, driven by increases in inventory and price. We're encouraged by our launch in Japan, where more than 800 patients have been treated with TEPEZZA since December. In the U.S., approximately 25,000 patients have received treatment since launch. To reach even more patients who can benefit from TEPEZZA, we continue to engage a broad prescriber base who have indicated an increasing intent to prescribe. TAVNEOS sales were $107 million in the third quarter, an increase of 34% year-over-year, driven by strong volume growth. More than 6,700 patients with ANCA-associated vasculitis have been treated with TAVNEOS in the U.S. Over 3,800 health care professionals have now prescribed TAVNEOS, representing a 31% increase in the prescriber base so far this year. In inflammation, TEZSPIRE delivered another strong quarter with sales up 40% year-over-year to $377 million and has now achieved over $1 billion in sales year-to-date. TEZSPIRE is well positioned to help many more patients in the U.S. given its differentiated and broadly applicable profile to treat multiple triggers and drivers of severe uncontrolled asthma. In addition, TEZSPIRE has recently been approved in the U.S. for add-on maintenance treatment in adults and adolescents aged 12 years and older with inadequately controlled chronic rhinosinusitis with nasal polyps. This disease is associated with elevated eosinophils and is observed in roughly 20% of patients with severe uncontrolled asthma. This reinforces TEZSPIRE's proven efficacy in eosinophilic disease. Importantly, in this registrational trial, TEZSPIRE demonstrated a reduction in the need for surgery, further expanding its value and potential to help an even broader patient population. Our innovative oncology portfolio, which includes BLINCYTO, IMDELLTRA, LUMAKRAS, Vectibix, KYPROLIS, Nplate and XGEVA grew 9% year-over-year, generating $2.3 billion in third quarter sales. Growth in oncology is fueled by our industry-leading bispecific T cell engager platform, the foundation for IMDELLTRA and BLINCYTO. These medicines are redefining standards of care in difficult-to-treat cancers and extending survival for more patients worldwide. IMDELLTRA generated $178 million in third quarter sales, fueled by strong clinical conviction and rapid adoption across care settings. IMDELLTRA is widely recognized as the standard of care for patients with extensive stage small cell lung cancer who are progressing on or after chemotherapy. Over 1,400 sites of care in the U.S. are now administering IMDELLTRA with more than half of the doses occurring in the community setting. Following superior clinical evidence in the Phase III DeLLphi-304 study, the NCCN guidelines have been updated to reflect IMDELLTRA as the highest recommended therapy in the second-line setting. We look forward to the anticipated full confirmatory approval later this year. BLINCYTO grew 20% year-over-year to $392 million in sales, driven by broad prescribing across both academic and community segments. We see strong conviction in BLINCYTO as standard of care in combination with continued multi-agent chemotherapy for both adults and pediatric patients with Philadelphia chromosome-negative B-cell ALL. Our biosimilar portfolio delivered another strong quarter with sales increasing 52% year-over-year to $775 million and now annualizing at $3 billion. Since our first product approvals in 2018, our biosimilars have generated nearly $13 billion in sales. Additional launches are providing meaningful top line growth and durable cash flow. PAVBLU, a biosimilar to EYLEA continues to gain momentum, reaching $213 million in sales in the third quarter. Retina specialists have responded very positively to the launch of PAVBLU, citing its convenient prefilled syringe format and Amgen's high-quality biosimilar manufacturing as important advantages. I'm very pleased with our performance in the quarter, fueled by the unwavering commitment of Amgen employees around the world to deliver on the company's mission to serve patients. And now I'll hand it over to Jay. James Bradner: Thank you, Murdo, and good afternoon, everyone. The third quarter was a period of strong and disciplined execution across R&D. We advanced multiple late-stage programs and deepened the evidence base for our marketed medicines. Starting with MariTide, both of our Phase III chronic weight management studies are fully enrolled. Interest was significant, enrolling approximately 5,000 adults in roughly 6 months. We have rapidly advanced into additional Phase III studies with strong enrollment momentum in MARITIME-CV and MARITIME-HF for the study of atherosclerotic cardiovascular disease and heart failure, respectively. Recall, in our Phase II chronic weight management study, we observed statistically significant reductions in systolic blood pressure, triglycerides and hs-CRP, a key marker of vascular inflammation. These statistically significant improvements in validated cardiovascular risk factors highlight the potential impact of MariTide beyond weight loss. We have also recently initiated two Phase III studies in obstructive sleep apnea. With six global Phase III studies now underway, we're building a robust evidence base for MariTide. In addition to MariTide, we are advancing our early-stage portfolio for obesity and obesity-related conditions. This includes AMG 513 presently in Phase I and a number of rising preclinical candidates for both incretin and non-incretin targets, featuring both oral and injectable routes of administration. Beyond obesity, in general medicine, as Murdo noted, the Repatha Phase III VESALIUS-CV clinical trial met its dual primary endpoints, demonstrating significant reductions in major adverse cardiovascular events, or MACE, in higher-risk individuals without a prior heart attack or stroke. VESALIUS-CV asked a clinically vital question. Can people at higher risk for a first heart attack or stroke benefit from Repatha when it is added to optimized lipid-lowering therapy. This landmark study enrolled over 12,000 patients, approximately 85% of whom were maintained on moderate to intensive statin-based LDL-C-lowering therapy. At a median follow-up of approximately 4.5 years, both primary MACE endpoints were met and no new safety signals were observed. We are very excited to share the full results from this trial at the American Heart Association Scientific Sessions on November 8 and would encourage all to review the detailed data when presented. In addition to the VESALIUS-CV data, we will also present several real-world studies that report on the state of current lipid management and the effectiveness of Repatha treatment in clinical practice as well as new data from the FOURIER open-label extension study. Together, these data reinforce Repatha's long-term benefit and established safety profile while providing new insights into atherosclerotic cardiovascular disease risk management. The size, scope and ambition of our cardiovascular program, including efficacy from clinical trials and effectiveness from real-world data demonstrate Amgen's unwavering commitment to people living with heart disease and the impact that affordable transformative medicines like Repatha can have on their care. Turning to Olpasiran, our promising best-in-class small interfering RNA medicine targeting Lp(a), we are pleased by the conduct and progression of the fully enrolled event-driven OCEAN(a) Phase III cardiovascular outcome study. We continue to follow the aggregate endpoint accrual rate, which is lower than initial predictions. As the study matures, we will update on the date for primary analysis as appropriate. We retain strong conviction in the potential of lowering Lp(a) to reduce cardiovascular events, owing to very compelling genetic and epidemiological data that link elevated Lp(a) to cardiovascular disease. Moving to our rare disease portfolio at UPLIZNA. We recently presented additional data from the Phase III MITIGATE trial in IgG4-related disease, featuring subgroup analyses stratified by baseline characteristics and organ involvement, such as the pancreas, kidney and bile ducts. These data demonstrate benefits comparable to those seen in the overall trial population, supporting UPLIZNA's potential across the spectrum of IgG4-related disease patients. For UPLIZNA in generalized myasthenia gravis, we look ahead to the December 14 PDUFA date and continue to receive encouraging physician feedback that highlights the need and opportunity for highly active, durable and convenient treatment options for patients with gMG. In inflammation, we are excited by the FDA and European Commission approvals of TEZSPIRE for the add-on maintenance treatment of inadequately controlled chronic rhinosinusitis with nasal polyps for the benefit of adult and pediatric patients aged 12 and older. The Phase III data supporting this approval revealed rapid and sustained symptom improvement and a meaningful reduction of systemic steroid use. Notably, among patients treated with TEZSPIRE, we observed a near uniform avoidance of surgical intervention. Additionally, our two Phase III studies of TEZSPIRE in chronic obstructive pulmonary disease are enrolling patients with moderate to very severe COPD with blood eosinophil counts greater than or equal to 150 cells per microliter. Our Phase III study in eosinophilic esophagitis continues to mature. By targeting thymic stromal lymphopoietin or TSLP at the top of the alarm in inflammatory cascade, TEZSPIRE targets the root cause of serious inflammatory diseases driven by Th2 inflammation. Moving to oncology. Our bispecific T cell engager or BiTE platform is delivering outstanding clinical results for patients facing advanced cancers. IMDELLTRA, our DLL3 targeting BiTE molecule now established as standard of care in second-line small cell lung cancer is generating compelling data in combination and in earlier lines of therapy. In September and October, we presented results for multiple arms of the DeLLphi-303 Phase Ib study of IMDELLTRA in patients with small cell lung cancer, tested in combination with a PD-L1 inhibitor as first-line maintenance therapy. IMDELLTRA demonstrated a promising overall survival of 25.3 months, approximately doubling survival observed in other studies featuring the existing standard of care. In separate arms of DeLLphi-303, IMDELLTRA tested as first-line treatment in combination with platinum-based chemotherapy and a PD-L1 inhibitor demonstrated 12-month overall survival of 81% with median overall survival not yet reached. In both settings, the safety profile was manageable and consistent with the known safety of each component. We are now evaluating these combinations in the pivotal DeLLphi-305 frontline maintenance and DeLLphi-312 frontline induction and maintenance Phase III studies. Previously, we shared the remarkable results of the DeLLphi-304 study, evaluating IMDELLTRA versus standard of care in subjects with relapsed extensive-stage small cell lung cancer after platinum-based first-line chemotherapy. The U.S. regulatory submission has been accepted by the FDA with a PDUFA date of December 18, 2025. Regulatory reviews are also underway in a number of additional geographies. We are developing IMDELLTRA for expansive impact in small cell lung cancer and other DLL3-positive malignancies, including Phase Ib studies evaluating novel agent combinations, less frequent dosing regimens and subcutaneous delivery. As an oncologist, let me share that the impact of IMDELLTRA for patients facing such a challenging disease as small cell lung cancer is honestly very moving. This disease has seen little innovation in decades, and IMDELLTRA is now benefiting so many in this fight. With BLINCYTO, our CD19 targeting BiTE medicines, we continue to work to improve and evolve the standard of care for patients here with B-cell acute lymphoblastic leukemia. Recently, we initiated a potentially registration-enabling study of subcutaneously administered blinatumomab in both adults and adolescents with relapsed or refractory B-ALL. Our first-in-class STEAP1 CD3 bispecific T-cell engager, Xaluritamig is advancing in Phase III clinical development with two studies now underway. The first study, XALute, is enrolling patients with metastatic castrate-resistant prostate cancer who have previously been treated with taxane-based chemotherapy, comparing Xaluritamig monotherapy versus investigators' choice of standard therapy. The second study, XALience, is evaluating the combination of xaluritamig and abiraterone versus investigators' choice of standard therapy in patients with chemotherapy-naive metastatic castrate-resistant prostate cancer. We are also exploring Xaluritamig in other combinations and in earlier stages of prostate cancer with multiple Phase Ib studies ongoing. Across IMDELLTRA, BLINCYTO and xaluritamig, we see meaningful long-term potential from our bispecific T cell engager platform and remain committed to bringing transformative and innovative therapies like these to patients with cancer. Lastly, we are disappointed to announce that FORTITUDE-102, a Phase Ib/III study of bemarituzumab plus chemotherapy and nivolumab in patients with first-line gastric cancer was stopped for an adequate efficacy at an ad hoc analysis requested by the Data Monitoring Committee. We are deeply grateful to the patients, investigators and research partners who made the study possible. We remain committed to creating and developing medicines for challenging cancers where unmet need is significant as for patients with gastric cancer. Here, however, the magnitude of observed efficacy did not meet our standard for an Amgen medicine. Beyond these innovative medicines, our next wave of biosimilar candidates is advancing in Phase III clinical development, featuring biosimilars to OPDIVO, KEYTRUDA and OCREVUS. With breadth and depth across our four therapeutic areas, we are excited about the potential to deliver for patients, and we are well positioned to deliver sustained long-term growth. In closing, thank you to the Amgen teams whose disciplined execution and patient-first mindset make this progress possible. I'll now turn it over to Bob for Q&A. Robert Bradway: Okay. Thank you. Why don't you remind our callers of the procedure for asking questions, and we'll try to get to as many of you as possible. I know it's a couple of minutes past the top of the hour now. So we'll try to get through these. And if we don't get to everybody on the call, we'll be available afterwards to answer any outstanding questions. So, let's get started. Operator: [Operator Instructions] Our first question comes from Salveen Richter from Goldman Sachs. Salveen Richter: With Olpasiran, you mentioned best-in-class in the context of a competitive landscape out there. And you also noted that the event rate for the OCEAN(a) outcome study is lower than you expected. Could you just speak to your confidence in this program and what the event rate means for a base case readout, whether it's now in 2027 versus year-end '26 prior? And then separately, from a BD perspective, you spoke to how you're back at pre-Horizon debt levels. How does this impact your approach to business development heading into 2026? James Bradner: Thank you very much, Salveen. I'll take the first question around Olpasiran. And as I mentioned, our conviction remains very strong. The genetic association for Lp(a) in cardiovascular disease is crystal clear from human genetics, from epidemiological data. Lp(a) is fundamentally an inflammatory lipoprotein particle, and we know a lot about that biology in the vascular beds from analogy to LDL-C. Olpasiran has true best-in-class properties. It's frequency of administration is better. The depth of Lp(a) suppression is better, has a very clean safety profile. OCEAN(a) is an event-driven study. We're accustomed to conducting these global studies, look at VESALIUS-CV. We're very pleased with study conduct and look forward when we do read this out to seeing the impact of Olpasiran. We won't guide today on that particular date, but we'll keep all posted as we put into focus. Robert Bradway: And Salveen, I wouldn't say that the return to the leverage that we had pre-Horizon affects our thinking in business development to any great extent. We're actively looking for opportunities in business development, as you know. We're particularly focused in the therapeutic areas that you're familiar with as areas of interest for us. And just given the number of things we have in the late-stage clinic right now, we're focused primarily on earlier-stage things. And the good news is there are more of those than late stage anyway. So we're focused, open for business, but we have been. So thank you for the question. Operator: Our next question comes from Terence Flynn from Morgan Stanley. Terence Flynn: Peter, I was just wondering, high level, I know you're going to give 2026 guidance at this point, but maybe you could walk us through some of the puts and takes that we should think about heading into 2026. And then, Jay, just one clarification on ROCKET ASTRO. I noticed you completed that trial and it said the safety was consistent. Just wondering if there was any gastrointestinal ulcerations in that study. I know you saw those before in some of the prior studies. Peter Griffith: Yes, Terence, thank you very much for the question. And I would point towards our key growth drivers when you think about the top line and where the company is going. We've just had an excellent quarter, 14% volume growth, Repatha, EVENITY, TEZSPIRE, innovative onc, rare disease now annualizing at over $5 billion off the quarter, biosimilars annualizing at close to $3 billion. So that's how we're thinking about that. As we go down the P&L, maybe the easiest thing for me to do, Terence, would be just to spend a minute because I think people probably are thinking about operating margin. And we've been clear in the past number of years about that. And when we have an opportunity to achieve cash-on-cash returns greater than our hurdle rate, we're going to drive those opportunities for shareholders. So nothing has changed in that. We're at about the 47% operating margin level in 2024 as we continue to accelerate the investing in research and particularly development, Terence of our later-stage pipeline. We're going to continue and have continued to invest in 2025, again, focused on research and development. We're going to stick with this disciplined capital allocation approach. We haven't changed from that, investing in the best innovation, as Bob just said, looking externally inside the company internally remains at the top of our capital allocation hierarchy. Nothing's changed there. So we'll keep that up. We haven't provided longer-term margin targets, so nothing into 2026. But I'd just say we remain focused on achieving industry-leading margins while continuing to invest in the very best innovation. So as you think about the business going forward, here's a couple of thoughts for you to think about. First, we're focused on our earlier pipeline. Bob just mentioned that again, investing in the best innovation to further build out that part of the pipeline. In terms of R&D expenses, I just want to note, we experienced what I might characterize as a step change increase in R&D expenses over the last year. We don't anticipate an incremental step change going forward. In terms of R&D expense, think of a lot of puts and takes there. We'd remind you that we've completed a number of Phase III studies in 2025, including Repatha VESALIUS, the a confirmatory study for IMDELLTRA along with several rocatinlimab, bemarituzumab studies. And we've added studies, of course, for MariTide, Olpasiran and Xaluritamig and those will carry forward into 2026. I'd also remind you, Terence, that our non-GAAP operating margin guidance of for the full year 2025 includes $200 million of business development activities in the third quarter, along with some incremental launch and commercial investments in the fourth quarter. So just kind of summarizing, hoping that answers your question and gives you some thoughts about where we're at this year and continuing into '26. We're going to continue to drive executional excellence, productivity and ruthless prioritization around the organization. We've worked very hard as an enterprise for many years to be amongst the leaders in margins in our industry, and we certainly expect to continue to remain there. So, Terence, thank you very much for the question. Robert Bradway: Jay, do you want to speak to ASTRO? James Bradner: I gladly would. Terence, thanks for asking. For all on the call, ASTRO is a 52-week study of rocatinlimab, the OX40 directed T cell rebalancing agent. In this case in adolescents with moderate to severe atopic dermatitis, tested two doses, 150 and 300 milligrams. We studied the medicine as monotherapy as well as combination therapy with low-dose steroids or calcineurin modulation. Study met its co-primary endpoints at 24 weeks. Safety, quite consistent with the other studies. We did observe GI side effects, mostly mild in nature and not at an excessive rate. As we bring to close the eight studies of the ROCKET program, we start to reflect on the target product profile, we'll have more to say about that in the near future. Robert Bradway: All right. Let's move on to the next question and see if we can keep it to one question so we can get as many of you as possible. Who's next? Operator: Our next question comes from Jay Olson from Oppenheimer. Jay Olson: Congrats on the quarter. We're curious about the VESALIUS-CV results and how you expect them to impact the overall market opportunity for Repatha? And also what should we look for in the details when you present them at AHA? And related to that, just any lessons learned that you can apply to Olpasiran? Robert Bradway: Jay, we're glad you're interested and excited about the VESALIUS study. So are we -- we look forward to having a chance to share with you in detail. Maybe two parts. Jay, do you want to kick off and then Murdo, you can follow up. James Bradner: Yes. Thanks, Jay. Cardiovascular disease is still the #1 killer, heart attack every 40 seconds in the United States. And just about everybody in the world knows about bad cholesterol or LDL-C that Repatha so dramatically lowers. And we know that lower is better, yet lipid management globally is still very poorly managed, about 100 million people in the world who are in need of better control. Repatha, so firmly established as accessible, affordable, efficacious in the prevention of recurrent CV events in VESALIUS-CV, we asked the really vitally important question, can we prevent first events? And indeed, this is the first -- the only PCSK9 to demonstrate such an effect. 75% of MIs are first events. And so it's a really important question. We can't wait to share these data at the upcoming AHA. Importantly, on this study, as Murdo mentioned in the top of the program, this is in addition to optimize lipid management. And so for patients and doctors on a statin, but with inadequate LDL-C control, this is a major, major advance. We're looking very much forward to sharing the complete results. You asked about lessons learned. I think work with great people. The TIMI Study Group was outstanding. We carry all of the learnings of how to conduct a global study of this incredible span in nature, more than 12,000 patients worldwide. And I think it also serves to emphasize by hitting both dual primary endpoints, just how much room there still is to improve cardiovascular care targeting inflammatory lipoparticles. Murdo? Murdo Gordon: Well, I think you've covered most of it, Jay. I would say that if you're not doing anything this weekend and you're really curious, be in New Orleans or tuned in. I really -- I think that the word landmark gets thrown around a lot in describing clinical trials, but I don't think it's an inappropriate moniker to put on this one. I think this is a substantial advance in understanding how you can prevent first heart attacks and strokes. This is a call to action for primary care physicians everywhere. And we will make sure that immediately after the presentation of these data that our medical teams, our field sales teams, our patient support organizations are out there in full force, making sure that primary care physicians are aware of these data. and that patients have the benefit, as Jay said, of an affordable solution that gives them incremental risk reduction beyond any established lipid-lowering therapy on the market today with Repatha. So it's an exciting time. We've systematically told you all that we were opening up access for Repatha and that we were asking primary care physicians to do more beyond the cardiologist role here. And these data give us yet another opportunity to continue that important work. Thank you. Robert Bradway: And Jay, as we mentioned a couple of times on the call in our prepared remarks, Amgen now obviously is an important part of the thinking here. We don't want there to be any excuse for anyone not to be able to get access to this at an attractive price relative to the benefit that the medicine provides. So, anyway, thanks for asking the question. Let's move on to next caller. Operator: Our next question comes from Matt Phipps from William Blair. Matthew Phipps: FDA recently released new biosimilar guidance and maybe removing the need for comparative efficacy studies. I wonder if that changes your view at all on the business, maybe some of the barriers to entry, but also the calculus on what biologics might be worth pursuing a biosimilar for? Murdo Gordon: Thanks, Matt, for the question. I don't think it changes our strategic focus on biosimilars. This has been a very good growth business for Amgen, and we continue to see it as such. Obviously, we pay attention to the new guidance and our development teams and regulatory teams are very focused on making sure we're ready to adapt to them. I would say that all of the technical functions here at Amgen are in a position to compete effectively regardless of the guidance, whether it's heavy clinical trial requirements or whether it's technical comparability requirements. We've got a great process development team here in our manufacturing operations organization who continue to do very innovative things in the development of biosimilars, such as helping us be the only biosimilar to EYLEA commercially available on the market. So we think we'll be in good shape. We'll be competitive. And no matter what the guidelines come, obviously, we'll look closely at them, as I said, and we'll understand how that might impact development of products going forward. Robert Bradway: And just quickly, Matt, at a strategic level, I would observe that there's an undercurrent of question in some quarters, particularly in Washington about how successful the biosimilar market is in the United States right now. As a leading competitor, our perspective is the market is performing very well. We think the ground is well set for this to continue to be a flourishing market in the U.S. with patients having access to alternative supplies of important medicines after their patents have expired. And we would watch carefully to make sure that policies don't emerge that might move this marketplace in the direction of the generic drug industry, where there have been obviously a number of abuses that have given rise to quite a bit of anxiety about that market and its impact on patients. In contrast, we think the biosimilar market is working well. We think regulatory and other policies that are in place today enable that to continue. And we would advocate for, again, a recognition that the things that are in place now are working well. Operator: Our next question comes from Yaron Werber from TD Cowen. Yaron Werber: Great. Maybe just a question for Jay. The second year of the MariTide data is expected by year-end. We know you're looking at three different things. You're looking at the same dose, lower dosing, going to placebo and you're testing Q12 weeks in that study. There's no Q8 weeks. Any sense sort of -- is this going to be in a medical meeting? And can you give us any sense kind of what to really expect and put it in context? James Bradner: Yes. Thanks, Yaron. The Part 2 of the Phase II chronic weight management study is indeed a very interesting study, having achieved strong efficacy in Part 1, 52 weeks, Part 2 will contribute a first maintenance experience. And just a reminder the design, as you covered already, we are testing quarterly dosing, full dose. We're testing low dose at monthly, and we're comparing these measures to placebo and continued treatment. And these data will be very useful to us. This will inform our maintenance strategy. It will provide guidance to additional Phase III designs, and we'll have more to say about our disclosure approach in due course. Operator: Our next question comes from Chris Schott from JPMorgan. Christopher Schott: Maybe a bigger picture question on obesity. We've had a number of updates in the space lately. We've got the Metsera headlines going around. We've got some discussions on lower Medicare pricing for obesity drugs. I'd just be interested in just Amgen's latest view on kind of the obesity market and the company's role within the market with MariTide and the broader pipeline. I want to get just the latest kind of lay the land from your perspective. Robert Bradway: Yes. Thanks for the question, Chris. I would say that we are -- we remain very enthusiastic about the opportunity for us in obesity. We believe strongly, as you know, that we have a differentiated approach to this market than the competitors that are in the space. presently and different from what we see others advancing in their portfolios. So again, our interest in this based on everything we know about our molecule and everything we see in the marketplace remains very, very constructive. So, I'll invite Jay and Murdo, I'm sure they'll have thoughts they want to add. Jay, why don't you kick in? James Bradner: Sure. Thanks for the invitation. It's a major public health crisis. Living in the United States, so many people face this every day. Maybe 40% of adults in the United States will have a BMI over 30 and 1/5 of children. It's also massively costly to health care in the United States. The CDC will estimate over $170 billion a year. And market -- Murdo can speak to it, but the market is totally underpenetrated, implying that health care can significantly improve. But for it to improve, we think it will take really differentiated assets, not just another weekly injectable peptide, which have proven very hard to keep patients on those types of medicines with 55% failure to continue medicines beyond the calendar year. And of course, obesity itself as well as the related conditions require much more enduring and chronic therapy. And so we think that MariTide has a fantastic and differentiated profile to contribute there. But as you asked about the broader pipeline, we've been in obesity and metabolic medicine discovery research for more than 20 years. And this pipeline, we have another Phase I asset, AMG 513. And we have preclinical programs advancing for novel targets within the incretin and non-incretin pathways. Some will be oral, some will be injectable. And so we're really in it to have a huge impact on this major public health crisis. Murdo? Murdo Gordon: Yes. Thanks, Jay. I mean the only thing I would continue to reinforce for everybody listening in is we continue to feel that MariTide is a true differentiation compared to what is available in the market. I mean it is interesting that there's a bidding war between two companies for a GLP-1 that is through some lipid technology enabled potentially to maybe be monthly. So to have a product that's well defined clearly monthly, perhaps even less frequently in a market, as Jay described, that is massive and undersatisfied, where we hope to go into this market, not just to reduce the weight of patients who struggled with obesity but also to help deliver on the medical benefit of managing that weight. And I can't wait to see the results of our Phase III program, and I'm really pleased with how the team is executing. We look forward to that day. Thank you. Operator: Our next question comes from Evan Seigerman with BMO capital. Evan Seigerman: Bob, your comment kind of on the biosimilar sector struck with me. I'm wondering if you could highlight what you think needs to change from a policy perspective to encourage even more uptake of biosimilars. For example, the #1 selling adalimumab product is still HUMIRA and not AMJEVITA. How can you as a biosimilar leader really encourage more use of these products? Robert Bradway: Yes. Again, I think there's a difference in the U.S. between the Part B medicines and the Part D medicines or the retail and the physician-administered medicines. So I think the market dynamics are evolving differently in those two areas. Obviously, the payers are very involved in the Part D where the rebate dynamics are important, but that erodes over time, and I think we see happening that now. Very confident when you look back over the fullness of time, you will see that AMGEVITA, our adalimumab biosimilar will have been a very successful product for us. We see that internationally. It continues to be a strong product for us. We think it will continue to be that. And I think, again, in the U.S., a safe, reliable supply of a true biosimilar like ours will do well in the long term. Operator: Our next question comes from Umer Raffat from Evercore. Michael DiFiore: This is Mike DiFiore in for Umer. I just want to go back to the MariTide Phase II trial for a bit. There is some confusion on whether we'll get two-year weight loss data in the upcoming Part 2 readout of the MariTide obesity Phase II trial. So can you clarify the design, especially as it relates to the washout post week 52? And since most of these patients will have lost weight in year one, isn't it reasonable to assume that weight loss in year two, Part 2 will be a lot less in year one Part 1? Robert Bradway: Yes, Jay, go ahead. James Bradner: Yes, I'm happy to answer the question. As I shared, it's principally a maintenance study that tests low dose monthly and full dose quarterly against placebo and continued MariTide at target dose. As the study was powered really to inform Phase III and we derived a significant amount of guidance from Part 1, there are some aspects of Part 2 that are more descriptive. I mean you may know that to participate in Part 2, patients had to achieve greater than 15% weight loss in Part 1, and then they were randomized to a number of arms. And so the power to make significant insights into weight loss between the arms is not strong, but there will be patients that continue on at their target dose. And as patients in Part 1 did not achieve a weight loss plateau, we'll be interested to follow those patients forward for the second calendar year. Robert Bradway: And just to be clear there, Jay, when you say the power is not strong, you mean it's not designed -- numerically, it's not designed for that purpose. James Bradner: That's right. This, as I shared, is a study that's designed to inform our strategy on maintenance MariTide as well as further Phase III programming. And we fully expect to derive all the information needed from Part 2 of the study for those purposes. Robert Bradway: Great. Okay. Let's go to the next question. Again, I'm mindful we're getting up to the half past the hour. So we'll take two more questions, and then I apologize to the rest of you. We're available for calls later in the day. So let's go to the next question. Operator: Our next question is from David Amsellem from Piper Sandler. David Amsellem: So on UPLIZNA specific question. So you're seeing pretty strong performance in the wake of the label expansion in IgG4-related disease. Can you talk to the extent to which there's been pent-up demand here? Give us your refreshed views on the sales opportunity here? And then I guess, beyond that with the gMG label expansion, how are you thinking about rapidity of uptake there given that, that's a more competitive landscape and there are some competitive dynamics to consider in gMG. Robert Bradway: We'll try to get it efficiently for you here. But I think, Murdo, I'm sure you're going to want to have -- say a few things about the exciting dynamic we see for UPLIZNA. Murdo Gordon: Yes. Thanks for the question, David. Obviously, we're very early in the IgG4 launch. As I mentioned, we've got roughly 300 unique prescribers that have prescribed UPLIZNA for IgG4. I'm not sure I would characterize it as pent-up demand. IgG4 is a disease that really only got its own ICD-10 code in 2023. So this is a patient that often presents without an obvious diagnosis on the part of the physician. So we're actually seeing our awareness, our education and the fact that we've got the only FDA-approved treatment for IgG4 as a catalyst for even more growth. The estimate is about 20,000 patients in the U.S. But as I mentioned, given that the diagnostic codes are relatively new here, the actual market could be much bigger. We have obviously demonstrated overwhelming efficacy. When you can reduce flares by as much as 87%, substantial reduction in steroids and really have patients who are in significant trouble here, have their disease resolved and have their flares reduced as a very important therapy. So it's helped us a lot. Jay will want to expand further on that. But before I turn it to him, I'd just say that in NMOSD, we expect to have a strong -- sorry, in gMG, we expect to have a strong presence in that market given the profile that we were able to show in the MINT trial. We've got a very convenient dosing here after the first loading dose, you get to twice a year therapy. very durable effect, perhaps more durable than some of the agents that are in the market today. And given that the data are already out there, we -- there, we have some real interest on the part of the people who are treating the gMG patient population. The other thing to think about in gMG is there's a lot of switching between treatments and between classes of therapy. Usually, a patient is on a primary therapy for no longer than a year to 1.5 years, and they see at least two medications, sometimes as many as three medications until they feel stabilized. So it is a market that's still dissatisfied despite the number of entrants. Jay? James Bradner: Yes. Thanks, Murdo. I think the differentiation is really strong, as Murdo shared. And I think it's attributable to targeting the core disease biology. I mean targeting the CD19 positive cell is really the entirety of the B-cell compartment, not just the mature cells, but also the immature cells that start to elaborate the autoantibodies. And because of this, although it's always hard to make trial-to-trial comparisons, we see numerically higher efficacy by MG-ADL, which is a standard measure. We see more steroid sparing than FcRn. We see incredible durability, as Murdo said, during the randomized control period and a serious dosing advantage with Q6 months dosing after the loading dose. And so durable, sustained efficacy are not just promising for gMG, but more broadly to the other diseases that are driven by pathologic autoantibodies. And as you might know, we have open studies of inebilizumab as well as blinatumomab in autoimmunity that are open and enrolling in a very dynamic and exciting space where CD19 medicines of many classes are showing profound activity in severe and advanced autoimmune diseases. And we, of course, have two in-market brands. So we're in a good spot to take advantage of this opportunity to help these patients. Operator: Our last question today will come from Dave Risinger from Leerink Partners. David Risinger: So thank you for all the updates. I was just hoping that you could maybe just call out the top two or three pipeline cards that are turning over that could be most impactful for Amgen in the next 6 to 12 months that we should be focused on? Robert Bradway: Jay, do you want to go ahead and talk about a couple of things that you're watching carefully? James Bradner: Yes. Well, I'm obviously very excited in this moment about the VESALIUS-CV, which we're going to be sharing in just a week. And so I really quite encourage you to pay close attention to this. The further development of IMDELLTRA and tarlatamab is also very exciting. We see very dramatic activity in the cases that are now being communicated back to us of patients saved from impossible situations, as I shared, is very powerful. And as we've learned from blinatumomab, moving tarlatamab, IMDELLTRA into combination therapy into frontline use into a setting where there could be less active disease owing to the debulking of chemo, all promises, as we've seen in this dramatic 303 study presented at World Lung as well as at ESMO for really meaningful activity in frontline in Phase III. And this is one of those moments, David, where time just can't move fast enough to read out those Phase III studies. Robert Bradway: We had an opportunity here before the call, Dave, to see some PET scan data on a patient who is in tough shape, who is experiencing quite a profound response to the medicine. So it's a medicine that we're excited about. I think somebody at ESMO described it as wow squared. So stay tuned. A lot of -- we're hopeful about the data that's forthcoming on the IMDELLTRA platform here over time. All right. Well, thank you all for your attention and for joining the call. Casey and his team will be available through the afternoon and evening if anybody didn't get a chance to raise a question that they have an interest in. We look forward to being with you after the next quarter. Thanks. Operator: This concludes our Amgen Q3 2025 Earnings Conference Call. You may now disconnect.
Operator: Good afternoon, everyone. Thank you for standing by, and welcome to the Corvus Pharmaceuticals Third Quarter 2025 Business Update and Financial Results Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Zack Kubow of Real Chemistry. Please go ahead, sir. Zack Kubow: Thank you, operator, and good afternoon, everyone. Thanks for joining us for the Corvus Pharmaceuticals Third Quarter 2025 Business Update and Financial Results Conference Call. On the call to discuss the results and business updates are Richard Miller, Chief Executive Officer; Leiv Lea, Chief Financial Officer; Jeff Arcara, Chief Business Officer; and Ben Jones, Senior Vice President of Regulatory and Pharmaceutical Sciences. The executive team will open the call with some prepared remarks, followed by a question-and-answer period. I would like to remind everyone that comments made by management today and answers to questions will include forward-looking statements. Forward-looking statements are based on estimates and assumptions as of today and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by those statements, including the risks and uncertainties described in Corvus' quarterly report on Form 10-Q for the quarter ended September 30, 2025 and other filings the company makes with the SEC from time to time. The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. With that, I'd like to turn the call over to Leiv Lea. Leiv? Leiv Lea: Thank you, Zack. I will begin with a brief overview of our third quarter 2025 financials and then turn the call over to Richard for a business update. Research and development expenses in the third quarter of 2025 totaled $8.5 million, compared to $5.2 million for the same period in 2024. The $3.3 million increase was primarily due to higher clinical trial and manufacturing costs associated with the development of soquelitinib as well as an increase in personnel-related costs. The net loss for the third quarter of 2025 was $10.2 million, including a noncash loss of $300,000 related to Angel Pharmaceuticals, our partner in China. This compares to a net loss of $40.2 million for the same period in 2024, which included a $32.8 million noncash loss related to the change in fair value of Corvus' warrant liability and a $700,000 noncash loss related to Angel Pharmaceuticals. Total stock compensation expense for the third quarter of 2025 was $1.2 million, compared to $700,000 in the same period in 2024. As of September 30, 2025, Corvus had cash, cash equivalents and marketable securities totaling $65.7 million, as compared to $52 million at December 31, 2024. Consistent with our last quarter, we expect our current cash to fund operations into the fourth quarter of 2026. I will now turn the call over to Richard, who will discuss our clinical progress and elaborate on our strategy and plans. Richard Miller: Thank you, Leiv, and good afternoon, everyone. Thank you for joining us today for our update call. Our primary focus continues to be on the development of soquelitinib for both atopic dermatitis and T cell lymphomas, and we have several important milestones upcoming for these programs. First, we have completed enrollment in the extension Cohort 4 of our Phase I trial, and we expect to have the results of the full data set in late December. Given the proximity to the holidays, we plan to report results in January. Second, the initiation of our Phase II atopic dermatitis trial is on track for early Q1 2026. We believe soquelitinib is strongly positioned as an oral medication with a novel mechanism of action that so far has shown favorable safety and efficacy profile. There has been increasing interest in drugs with novel mechanisms to address atopic dermatitis and other inflammatory diseases. Our confidence in soquelitinib is bolstered by our belief that the data to date not only stands up favorably against recent data sets from other approaches, but indicates that we have the potential to be a leader in this space. We are also encouraged that the clinical evidence obtained to date with soquelitinib in both atopic dermatitis and in T cell lymphoma bode well for the potential of ITK inhibition in a broad range of immunology and inflammatory indications, and we continue to explore potential next opportunities for our platform. On today's call, I will provide an overview of extension Cohort 4 and our plans for reporting this data, and the status of our planned Phase II trial in atopic dermatitis. I will also discuss the relevance of our soquelitinib ASH oral presentation for our Phase III peripheral T cell lymphoma trial and its implications for I&I indications, including atopic dermatitis. And I will provide a brief recap of other operational progress and updates. Let me start with a reminder of the key data reported to date for soquelitinib in atopic dermatitis. In June, we reported data from Cohort 3 of the Phase I trial evaluating a 200-milligram twice-per-day oral dose for 28 days of treatment, building on the encouraging results we had already reported with a lower dose level from cohorts 1 and 2. All of the treatment cohorts demonstrated a favorable safety and efficacy profile compared to placebo. The Cohort 3 efficacy data was especially remarkable, demonstrating earlier and deeper responses compared to cohorts 1 and 2. At day 28, Cohort 3 showed a mean percent reduction of EASI score of 64.8%, compared to 54.6% for the combined cohorts 1 and 2 and 34% for placebo. In Cohort 3, 50% of patients achieved EASI 75, 8% achieved EASI 90 and 25% achieved IGA 0 or 1. No placebo patients achieved EASI 75 or IGA 0/1. We also saw an impact on itch with a number of Cohort 3 patients reporting steep drops in patient-reported PP-NRS score beginning at day 8. In terms of the kinetics of response, Cohort 3 showed earlier and deeper separation from placebo starting at day 8, compared to cohorts 1 and 2, with the EASI score improvement continuing through day 15 and 28. The continuous downward slope of the curve suggests that longer treatment duration could potentially deepen responses further, which we are now exploring with the extension Cohort 4. We have completed enrollment in the extension Cohort 4 of the Phase I trial, which is evaluating 24 patients at the Cohort 3 dose of 200 milligrams twice per day given for 8 weeks, with an additional 30-day follow-up without therapy. The 24 patients were randomized in a blinded fashion 1-to-1 with placebo, 12 active and 12 placebo. As mentioned earlier, we plan to report the 8-week data set on 24 patients in January. Our objective with this additional data is to confirm the results obtained in our earlier cohorts in a larger number of patients and to determine if the longer treatment duration of 8 weeks leads to better efficacy. The second upcoming milestone for soquelitinib in atopic dermatitis is the initiation of our planned Phase II clinical trial, which we anticipate will begin early Q1 2026. The trial will be randomized, placebo-controlled and double-blinded, involving approximately 70 clinical trial sites globally. The trial was designed to enroll approximately 200 patients with moderate to severe atopic dermatitis that have failed at least 1 prior topical or systemic therapy. I would like to emphasize that we are including patients who have failed previous systemic therapies, such as Dupixent or JAK inhibitors. We are interested in this population of patients because soquelitinib has a mechanism of action that is different than currently available agents and prior use of these agents would not be expected to lead to resistance to soquelitinib. The patients will be randomized equally into 4 cohorts, 50 patients each, receiving soquelitinib 200 milligrams once per day, 200 milligrams twice per day, 400 milligrams once per day, or placebo. The treatment duration will be 12 weeks and patients will be followed for an additional 90 days without therapy. The primary endpoint will be the mean percent reduction in EASI score from baseline to week 12. This is the typical endpoint for Phase II clinical trials in atopic dermatitis. Secondary endpoints will include the percent of patients achieving EASI 75 or IGA 0/1 at week 12, impact on itch measured by the percent of patients achieving greater than or equal to 4-point decrease in PP-NRS at week 12, and safety. Photographic documentation of disease at baseline and response to therapy will be mandated on the study and reviewed by independent experts. In oncology, we continue to enroll patients in our registrational Phase III trial of soquelitinib in patients with relapsed PTCL, driving towards interim data in late 2026. In addition, we are pleased to report that the final results from our Phase I/Ib clinical trial of soquelitinib for the treatment of relapsed/refractory T cell lymphomas will be presented in an oral session at the Annual Meeting of the American Society of Hematology meeting in December. This presentation will report on the clinical data and supporting preclinical work that drives us to continue advancing the program for PTCL, as well as providing the rationale and safety information motivating us to focus on immune and inflammatory diseases. In particular, we will report on the durability of progression-free and overall survival. We believe the presentation at ASH adds to the growing clinical evidence that soquelitinib is a safe and active agent working through a mechanism that supports its utility in both T cell lymphoma and immune-mediated diseases. As a reminder, some patients in the Phase I trial were treated beyond 2 years in the same daily dose range as is being studied in atopic dermatitis. And complete durable tumor responses were seen in patients with highly aggressive tumors. We also have a growing body of preclinical data supporting the potential of ITK inhibition in a broad range of additional indications across dermatology, rheumatology, pulmonary medicine, solid cancers and other diseases. Briefly on other operational updates. In October, we appointed Mr. David Moore to our Board of Directors, building on the addition of Richard van den Broek in April. David is Executive Vice President, U.S. Operations, at Novo Nordisk and President at Novo Nordisk. His experience leading one of the most successful GLP-1 franchises, along with his broad expertise across strategy, commercial, market access, business development and investing, is anticipated to be an important strategic resource as we work to maximize the potential of our ITK inhibitor platform. In closing, we remain very optimistic about the potential of soquelitinib in atopic dermatitis. In addition, the knowledge and experience from our current trial motivates us to think beyond atopic dermatitis, to a broad range of other immune diseases. We believe we may have the opportunity to establish selective blockade of ITK as a new therapeutic approach to autoimmune inflammatory diseases based on modulation or rebalancing of cellular immunity. We look forward to providing soquelitinib updates in the coming months. First, at ASH for our T cell lymphoma program, and then in January for the extension Cohort 4 data for our atopic dermatitis program. Combined with the planned initiation of our Phase II atopic dermatitis trial in early Q1 2026 and the ongoing enrollment in our Phase III PTCL trial, we are building significant momentum for soquelitinib coming into the new year. I will now turn the call over to the operator for questions and answer period. Operator? Operator: [Operator Instructions] Your first question comes from the line of Graig Suvannavejh from Mizuho. Graig Suvannavejh: Congratulations on the progress in the quarter. I had a couple of questions. First, on your ASH abstract and the data that you will be presenting next month. I'm wondering, we saw very impressive OS data, and with that in mind, with other information that was in that abstract, could you perhaps put in context the comparability that obviously leads to your enthusiasm for the prospects of soquelitinib in peripheral T cell lymphoma? And I'll come back with a second question. Richard Miller: First of all, the PFS and OS being presented at ASH meeting is quite impressive, the -- especially when you consider this is a Phase I trial using an agent that was not previously tested in this disease. As you all know, T cell lymphoma is a very bad disease with a median survival usually of about 6 months in relapsed. We have far better results than that and we're excited about that. The reason that we're also excited is we've learned so much from that trial in terms of immunobiology, safety, pharmacokinetics, pharmacodynamics, mechanisms of action that pertain to -- that are very pertinent with regard to immune diseases. One of the things I talk about in the ASH abstract, and we'll elaborate on at the meeting, is the fact that we're seeing responses in T cell lymphomas that are so-called GATA3-positive. Now GATA3 is a transcription factor that is also known as the master regulator of Th2 function. Th2 cells are the cells of interest in a variety of immune diseases, including atopic dermatitis. So putting all that information together we feel bodes well, not just for the T cell lymphoma program, but for a range of immune diseases. It's confirming and consistent with our belief that we have a drug with a really new novel mechanism of action, it's oral, it appears very safe. And we are seeing really significant signals of activity in patients who have a cancer of their immune system that involves the very same cells that are involved in all these other immune diseases. I hope I answered that question. Graig Suvannavejh: You did. And then if I could just go to soquelitinib and your atopic dermatitis readout that's coming in the early part of the year. As you have expanded the treatment duration and as you've expanded the number of patients, is it fair for us to assume that what you saw previously will have an improvement on the efficacy that you saw? And if you don't see an improvement versus what you saw previously, does that change in any way your enthusiasm for the prospects of soquelitinib in atopic dermatitis? Richard Miller: So first of all, we feel, and so do many of our outside experts feel, that the data that we generated in Cohort 3 with 28 days of treatment was quite good. It was safe and it was quite active in that. What we aim to show -- and as you recall, the reduction in EASI scores were continuing to go down for the last few weeks of therapy. So with the expanded cohort, we really are looking for 2 things. Number one, we want to show consistency. We want to show -- confirm what we showed before in a larger set of patients with more placebos and more patients getting active drug. Placebos, I don't have to tell you folks, placebos are very important in evaluating these diseases. The second thing we're looking for is: does the extension of the treatment duration improve the results further? So those 2 concepts. I want to see consistency of the data from what we did earlier, and yes, we'd like to see an improvement as we go beyond 28 days. And of course, we want to confirm safety and the other things as well. So that would be what to expect as we look at the data that comes out in January. Operator: Your next question comes from the line of Jeff Jones from Oppenheimer. Jeffrey Jones: Congrats on the real progress you're making here. One on soquelitinib. Richard, as you mentioned, you've seen and been generating data in a number of other indications in the I&I space. What are your plans to take soquelitinib forward in other indications at this point, sort of indications and timing? Richard Miller: Okay. So just to be clear, Jeff, soquelitinib in humans is being studied in the registration Phase III trial and, of course, in our Phase II atopic dermatitis trial. We also have a trial in lymphoproliferative disease called ALPS that you know about. Now we have many preclinical models that we've evaluated soquelitinib, everything from asthma, atopic dermatitis, psoriasis, scleroderma, systemic sclerosis, et cetera. We are making definite plans to move into other immune-related diseases. I'll be talking more about that early next year. The key diseases for us now appear to be asthma, and probably another dermatologic condition, yet to be defined. Jeffrey Jones: Great. Appreciate that. And then you -- or the Kidney Cancer Research Consortium reported an update on the cifo trial at ESMO. Just curious as to the next steps there. The trial is still ongoing, there are still patients on follow-up. How are you thinking about ciforadenant in the context of renal cell and beyond? Richard Miller: So as you know, the cifo trial was done in collaboration with the Kidney Cancer Consortium, who pay for most of the trial. I don't think we have any other expenses related to that. There were 19 patients still on treatment and on follow-up, 19 out of 50, 40% or so almost. So we're going to continue to follow those people, and we'll decide what to do once we see how the rest of the data evolves. But that's our current plan for that. Operator: Your next question comes from the line of Li Watsek from Cantor. Li Wang Watsek: Congrats on the progress. I have a couple of questions here. First, maybe just in terms of baseline characteristics of the Cohort 4 versus prior 3 cohorts. Is it reasonable for us to assume they're pretty similar to Cohort 3? Or is there any difference that we should keep in mind? And I have a follow-up. Richard Miller: It is very reasonable for you to assume that the characteristics are very similar to Cohort 3. And to elaborate on that, the enrollment in the trial is 17 centers, all U.S. centers, the same centers that were utilized for the first 3 cohorts. None of the criteria for eligibility have been changed. And yes, we know the demographics already of our patients, very, very similar to those of Cohort 3. Li Wang Watsek: Okay. Great. And then for the Phase II trial, just given the patient population that you'll be enrolling, it sounds like the patients can be exposed to JAK inhibitors and Dupi. So just given this demographic, what should be the bar for the EASI score? Richard Miller: Okay. So first of all, when we go to Phase II, of course, it's a larger trial, 200 patients, it would be very difficult, would take a long time to enroll that solely in the U.S. So there is going to be a heavy reliance on sites outside United States, particularly in Europe, which is what most companies are doing now. I think that we're somewhat unique in that we're allowing patients who failed Dupi and JAK and other systemic therapies -- within reason. I mean you can't fail 10 therapies. But -- now the reason we're doing that is that we have some patients that we've seen in cohorts 1, 2, 3 and now even in the fourth cohort that have failed those systemic therapies, and they're responding to our drug. So I don't know what the final numbers are going to be on that yet, whether it's identical to first-line therapies or somewhat not identical. So it's a little bit hard for me to say what the bar is. First of all, I'm not aware of any data that has specifically been published on the response of a drug to somebody who's failed the JAK inhibitor or Dupi. Now those studies do, I know, recycle patients. They take patients who are EASI 50s and they treat them again for longer periods of time. But that's really kind of a different kind of experiment. So look, I think it's a little early to set a bar for the Phase II. Let's get our Phase I results. Let's take a look at the Dupi failures and the JAK failures, and then we can talk more about that. But I think it is an important point, I'm glad you asked the question, that the Corvus patient population is a little bit different. Now we're doing that deliberately. We want these failures because we think that we have a drug with a mechanism of action that is going to -- where the mechanism of resistance to a Dupi or a JAK is really -- may not really be pertinent or relevant for our mechanism. And then we need to learn that. So the good news here is that it expands the potential use of our drug. We feel that it potentially could be used first line or it could be used in the relapsed situation. Operator: Your next question comes from the line of Aydin Huseynov from Ladenburg. Aydin Huseynov: Congrats on the progress this quarter, and appreciate taking questions, I got a couple. So Richard, so you're already running a trial in atopic dermatitis, and I was curious to hear any thoughts on potential other dermatologic indications such as either hidradenitis suppurativa, vitiligo, psoriasis or anything else. And can you run several trials simultaneously -- several dermatologic trials simultaneously? Just wanted to get your thoughts on this. Richard Miller: Okay. So the preclinical models and the data we have in the lab tells us that asthma should be a very good indication for us. We also think that a disease like hidradenitis suppurativa would be a very good disease for us. It's in the dermatology space and that's a disease that's both Th2 and Th17 driven. So let's think about that a little bit. A Dupixent, for example, or a STAT6 inhibitor or whatever, is going to get your Th2-type cytokines, but it's not getting Th17 because that doesn't signal through STAT6. So we think we have a distinct advantage here for a disease like HS because we hit 17 and Th2. There are other reasons as well. So other diseases we're thinking about are prurigo nodularis, that's a Th2 and Th17 disease as well. That's not as common, but there's even more of an unmet need there. Alopecia areata, we've considered. It's a very competitive space. JAK inhibitors work well. But that's still on our list and we're still doing some work on that. Now your question, can we run more trials? We intend to run multiple trials in immune disease. We intend to push this drug in multiple areas, as I mentioned on my talk, not just in dermatology, pulmonary medicine, oncology, rheumatology, et cetera, et cetera. Now of course, we know at some point here, we're going to have to raise some money to do that. And we're optimistic that with the data that we have coming out, that we'll be in a position to raise money to fund those activities. Aydin Huseynov: Very helpful, Richard. One more question I have regarding Phase II registration trial. I just wanted to better understand the time lines, the potential readout, and hopefully, the potential launch of the drug. So given so many developments with soquelitinib, I guess this is the first indication -- that's the first indication you're going to launch the drug. And I just wanted to get a better sense of immediate commercial opportunity and the time lines in PTCL for soquelitinib. Richard Miller: Yes. So well, our time line is a futility interim analysis at the end of 2026, probably finished, full data by end of 2027. Launch would be, I think, relatively quick for this. One of the beauties of this trial is that it's a single registration, randomized trial that could lead to full approval should you meet your endpoints. And it's 150 patients, relatively small trial, with relatively short endpoints. The control -- the chemotherapy control arm is expected median PFS, which is the primary endpoint of, what, 3 months, 2 months. So we're excited about it. I'm an oncologist and lymphoma is my expertise, as you know, and I ran a clinic at Stanford for 25 years or more taking care of lymphoma patients, there is no treatment, no good treatment for this disease. There is no competition at this point. Even in the research stages, I mean, really there's nothing new in this area. So we think we have the potential should this drug be approved, where it will be used immediately in all T cell lymphomas, frontline, late line, you name it, because really there isn't anything else. I mean we have a ways to go before we can figure all that out, but the opportunity here, we think, is much larger than people recognize. Now it's not atopic dermatitis in terms of the number of patients, of course, but it also doesn't have the competition and it also doesn't have the very long time lines to approval. All right? Operator: Your next question comes from the line of Etzer Darout from Barclays. Jordan Becker: This is Jordan Becker on for Etzer Darout. Thanks for taking our questions and congrats on the updates. Two questions. You alluded to it, but I just want to double-click on this. Do you plan to do any post hoc analysis following the Cohort 4 completion to look at efficacy in Dupi and JAK-naive and refractory populations? And then two, can we expect a similar analysis in terms of biomarker correlates of clinical efficacy with the updated data? Richard Miller: The answer is yes and yes, Jordan. Thanks for the question. We, of course, will be doing post hoc analysis trying to figure out how the drug is working, how to make it work better, all sorts of things. So clearly, looking at the effects of prior therapy, prior systemic therapies, all those clinical variables will be evaluated. We do have a pretty aggressive biomarker program. We're minimizing biopsies of the lesions on patients only because that does hurt enrollment, and we don't want to do that. But we have a pretty extensive program now looking at single-cell RNA sequencing of blood, and that's revealing a lot of interesting things. I mean there's a lot of new things that are coming out on this. I think the same old, same old look at IL-13 or whatever, that's going to go bye bye, TARC, et cetera. Those are not good biomarkers, everybody knows that. The best biomarkers for these diseases are yet to be defined because they're heterogeneous diseases and we don't really know what the cause is. So we're looking at a lot of that. We'll report on what we find. The biomarker game is a tough game. There's a lot of variables to look at, and hard to make much of anything when you have a small number of patients. But we certainly will hope to get clues and signals that we can validate in larger trials. Okay? Operator: Your next question comes from the line of Sean Lee from H.C. Wainwright. Xun Lee: I just have a couple of quick ones on the design of the upcoming Phase II AD study. So what's the reasoning behind the settling on a 12-week duration treatment rather than the 8 weeks that you're testing in the Cohort 4? And are there any notable differences between the enrollment criteria of the Phase II compared to the patients that you're enrolling in Phase I? Richard Miller: So far, the eligibility criteria are pretty much identical. The reason we're going to 12 weeks is we're going to examine that. Most therapies are out at 16 weeks now. But if you look at the data from most studies, you'll see that most of the separation, most of the efficacy is obtained in the first 12 weeks. You don't really gain that much more by treating longer. So that's the reason for our 12-week study. Look, I'm trying to make this a shorter treatment, not a longer treatment, okay? I don't know any patient, and I've been, as I mentioned earlier, running a clinic for over 30 years, I don't know any patient who wants more medicine to take longer. So I'm trying to see if we can go shorter, not longer. But of course, we want to maximize -- both are important. You want to maximize responses. You want to hopefully shoot for total clearance of disease, that is EASI 100%, that's what you want. And that's what we'll try to do. But that's -- if you look at most studies, you don't gain much by going from 12 weeks to 16 weeks. Now some people are going to 6 months, 1 year. I mean, great, if you're willing to take a drug for that long, for an incremental benefit that's marginal. Operator: Your next question comes from the line of Cha Cha Yang from Jefferies. Cha Cha Yang: This is Cha Cha on for Roger Song. I was hoping that you could give us some color on any of your plans for potential partnerships or licensing deals for soquelitinib in the coming future, or if you plan to raise money and take this forward yourselves in either AD and oncology. Richard Miller: Okay. So thanks for the question, Cha Cha. I can tell you that ITK as a target is on the radar of every major company that works in this area. I know that because we're talking to them. We'll evaluate partnering opportunities as they arise, whether it be in oncology or immune diseases. At this time, however, we're pushing forward with our cancer program and our immunology program. We, as I mentioned just a few minutes ago, we do recognize that we're going to have to raise more money to maximally develop all these programs. We're optimistic about our data and we think there will be ample opportunity to raise funding, whether it be through offering stock or partnerships at the appropriate time. Operator: Next question is from the line of Graig Suvannavejh from Mizuho. Graig Suvannavejh: I was very curious, as you think about your ITK portfolio and comments around potentially advancing next-generation ITK, I was wondering, Richard, if you could share kind of the vision or strategy around the potential of adding another indication for soquelitinib versus moving forward with a next-generation ITK inhibitor with perhaps a similar indication in mind. Just how do you balance that kind of strategy? Richard Miller: Well, that's a -- thank you for the question. That's a good question. Obviously, pushing forward with soquelitinib, which now has a wealth of safety and efficacy data in hundreds of patients, is -- will move faster than bringing along one of our backup compounds, which, of course, still have to go through IND-enabling studies. And then if you go in the immunology space, don't forget you need to do normal volunteer single-dose, normal volunteer multi-dose. So that takes time. But we are going to consider all that. Right now, we're pushing forward in the PTCL, atopic dermatitis and soon other immune diseases. We're also considering other dosage forms and formulations of soquelitinib. We're working on that now. We also are looking at soquelitinib-like ITK degraders. We've made some of those. We're looking at those in the laboratory. Interestingly, it turns out that soquelitinib, a covalent drug, leads to degradation of the ITK target to a certain extent. We've learned that. That's really interesting. I don't think anyone has known that before. So we're looking at any and all of that stuff. But certainly pushing forward with our lead compound, that's going to be the fastest. Operator: Your last question is from the line of Jeff Jones from Oppenheimer. Jeffrey Jones: Just a quick one. Digging a little bit deeper into the Dupi and JAK-exposed patients that could be enrolled in the Phase II study. Would you guys be powering the study to really do a subgroup analysis that could be statistically significant again and separate those systemically exposed patients versus systemic therapy naive patients? Richard Miller: No, we would not be doing that. I mean that's -- I mean, we don't have enough information yet, Jeff, to make a commitment like that. But one thing is for sure, we will stratify the studies to look at that subgroup. So what I mean by that is that will be a defined subgroup. We will stratify randomization based on whether you fail this -- a prior systemic therapy or not. You want those equally distributed in your placebo and in your active arm. But without really knowing the efficacy signal yet we would expect in that, it's a little hard to power how many patients you would need and what effect you're looking for. I think that would be going pretty far. I'm not sure you'd want to do that at this stage. I'd rather do a study, include everyone -- the best outcome, do a study, include those people, have a positive study in your predefined endpoint. You get approval, I mean if it were Phase III, you get approval for everyone. Jeffrey Jones: Yes. No, great. And the other way to look at that would be stratifying. So really appreciate the clarity. Richard Miller: Thanks, Jeff. Operator: Thank you very much. As there are no further questions at this time. I would like to turn the call back to Mr. Richard Miller for closing comments. Sir, please go ahead. Richard Miller: Thank you very much, operator. Thank you, everyone, for participating in this call. We look forward to advancing the soquelitinib programs and our other programs. And we look forward to updating you on our progress as we move forward into 2026 and beyond. Thank you very much. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
Conversation: Operator: Good afternoon, and welcome to the NMI Holdings, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to John Swenson of management. Please go ahead. John Swenson: Thank you, Gary. Good afternoon, and welcome to the 2025 Third Quarter Conference Call for National MI. I'm John Swenson, Vice President of Investor Relations and Treasury. Joining us on the call today are Brad Shuster, Executive Chairman; Adam Pollitzer, President and Chief Executive Officer; and Aurora Swithenbank, our Chief Financial Officer. Financial results for the quarter were released after the close today. The press release may be accessed on NMI's website located at nationalmi.com under the Investors tab. During the course of this call, we may make comments about our expectations for the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about the factors that could cause actual results or trends to differ materially from those discussed on the call can be found on our website or through our filings with the SEC. If and to the extent the company makes forward-looking statements, we do not undertake any obligation to update those statements in the future in light of subsequent developments. Further, no one should rely on the fact that the guidance of such statements is current at any time other than the time of this call. Also note that on this call, we may refer to certain non-GAAP measures. In today's press release and on our website, we provided a reconciliation of these measures to the most comparable measures under GAAP. Now I'll turn the call over to Brad. Bradley Shuster: Thank you, John, and good afternoon, everyone. I'm pleased to report that in the third quarter, National MI again delivered standout operating performance, continued growth in our insured portfolio and strong financial results. Our lenders and their borrowers continued to turn to us for critical down payment support. And in the third quarter, we generated $13 billion of NIW volume, ending the period with a record $218.4 billion of high-quality, high-performing primary insurance-in-force. In Washington, our conversations remain active and constructive, and there continues to be broad recognition in D.C. of the unique and valuable role that the private mortgage insurance industry plays, offering borrowers low-cost down payment support and access to mortgage credit while also placing private capital in front of the taxpayer to absorb risk and loss in a downturn and ultimately ensure the safety and soundness of the conventional mortgage market. National MI and the broader private mortgage insurance industry have never been stronger or better positioned to provide this critical down payment support than we are today. And we're excited to continue working with Director Pulte, other members of the administration and the leadership teams of Fannie and Freddie to advance their important goal of helping more Americans than ever unlock the dream of homeownership. With that, let me turn it over to Adam. Adam Pollitzer: Thank you, Brad, and good afternoon, everyone. National MI continued to outperform in the third quarter, delivering significant new business production, consistent growth in our insured portfolio and strong financial results. We generated $13 billion of NIW volume and ended the period with a record $218.4 billion of high-quality, high-performing primary insurance-in-force. Total revenue in the third quarter was a record $178.7 million, and we delivered GAAP net income of $96 million or $1.22 per diluted share and a 15.6% return on equity. Overall, we had a terrific quarter and are confident as we look ahead. The macro environment and housing market have remained resilient through an extended period of headline volatility. Our lender customers and their borrowers continue to rely on us in size for critical down payment support, and we see an attractive and sustained new business opportunity fueled by long-term secular trends and furthered by the recent improvement in mortgage rates. We have an exceptionally high-quality insured portfolio covered by a comprehensive set of risk transfer solutions and our credit performance continues to stand ahead. We're delivering consistent growth in embedded value gains in our insured book, and we continue to manage our expenses and capital position with discipline and efficiency, building a robust balance sheet that's supported by the significant earnings power of our platform. Taken together, we see a clear opportunity for continued outperformance. Notwithstanding these strong positives, however, macro risks do remain, and we've maintained a proactive stance with respect to our pricing, risk selection and reinsurance decisioning. It's an approach that has served us well and continues to be the prudent and appropriate course. More broadly, we remain encouraged by the continued discipline that we see across the private MI market. Overall, we had a terrific quarter, delivering strong operating performance, consistent growth in our insured portfolio and strong financial results. We're in the market every day with a clear mandate and purpose offering a low-cost, high-value solution that helps borrowers bridge the down payment gap and meaningfully reduces the cash required at the closing table. In the process, we help to make homeownership more affordable and achievable for millions of Americans and communities across the country with coverage that works to insulate the GSEs and taxpayers from risk and loss in a downturn. Looking ahead, we're well positioned to continue to serve our customers and their borrowers, invest in our employees and their success, drive growth in our high-quality insured portfolio and deliver through the cycle growth, returns and value for our shareholders. With that, I'll turn it over to Aurora. Aurora Swithenbank: Thank you, Adam. We again delivered standout financial results in the third quarter. Total revenue was a record $178.7 million, GAAP net income was $96 million or $1.22 per diluted share and return on equity was 15.6%. We generated $13 billion of NIW and our primary insurance-in-force grew to $218.4 billion, up 2% from the end of the second quarter and 5% compared to the third quarter of 2024. 12-month persistency was 83.9% in the third quarter compared to 84.1% in the second quarter. Net premiums earned in the third quarter were a record $151.3 million, compared to $149.1 million in the second quarter and $143.3 million in the third quarter of 2024. Net yield for the quarter was 28 basis points, consistent with the second quarter. Core yields, which excludes the cost of our reinsurance coverage and the contribution from cancellation earnings was 34.2 basis points also unchanged from the second quarter. Investment income was $26.8 million in the third quarter compared to $24.9 million in the second quarter and $22.5 million in the third quarter of 2024. Total revenue was a record $178.7 million in the third quarter compared to $173.8 million in the second quarter and $166.1 million in the third quarter of 2024. Underwriting and operating expenses were $29.2 million in the third quarter compared to $29.5 million in the second quarter. Our expense ratio was a record low 19.3% in the quarter, highlighting the significant operating leverage embedded in our business and the success we have achieved in efficiently managing our cost base. We have a uniquely high-quality insured portfolio and our credit performance continues to stand out. We had 7,093 defaults at September 30 compared to 6,709 at June 30, and our default rate was 1.05% at quarter end. Claims expense in the third quarter was $18.6 million compared to $13.4 million in the second quarter, reflecting normal seasonal activity and the continued growth and seasoning of our portfolio. GAAP net income for the quarter was $96 million and diluted earnings per share was $1.22. Adjusted net income was $95.7 million, and adjusted diluted EPS was $1.21. Total cash and investments were $3.1 billion at quarter end, including $148 million of cash and investments at the holding company. Shareholders' equity at September 30 was $2.5 billion and book value per share was $32.62. Book value per share, excluding the impact of net unrealized gains and losses in the investment portfolio was $33.32, up 4% compared to the second quarter and 16% compared to the third quarter of last year. In the third quarter, we repurchased $24.6 million of common stock, retiring 628,000 shares at an average price of $39.13, through quarter end, we've repurchased a total of $319 million of common stock, retiring 11.3 million shares at an average price of $28.25. We have [ 256 million ] of repurchase capacity remaining under our existing program. At quarter end, we reported $3.4 billion of total available assets under PMIERs and $2 billion of risk-based required assets. Excess available assets were $1.4 billion. Overall, we achieved standout financial results during the quarter, delivering consistent growth in our high-quality insured portfolio, record top line performance and expense efficiency and strong bottom line profitability and returns. With that, let me turn it back to Adam. Adam Pollitzer: Thank you, Aurora. We had a terrific quarter, once again delivering significant new business production, consistent growth in our high-quality insured portfolio and stand out financial results. We have a strong customer franchise, a talented team driving us forward every day, an exceptionally high-quality book covered by a comprehensive set of risk transfer solutions and a robust balance sheet supported by the significant earnings power of our platform. Taken together, we are well positioned to continue to serve our customers and their borrowers, invest in our employees and their success drive growth in our high-quality insured portfolio and deliver through the cycle growth, returns and value for our shareholders. Thank you for joining us today. I'll now ask the operator to come back on so we can take your questions. Operator: [Operator Instructions] Our first question today is from Terry Ma with Barclays. Terry Ma: Just wanted to start off with credit. As I look at new defaults in the quarter, it was up only about 5% year-over-year, that's a noticeable step down from the pace of year-over-year increases that you've seen in the last kind of 10 quarters. So maybe just any color on kind of what happened in the quarter? And as we kind of look forward, how should we expect kind of new defaults kind of emerge like when we factor in kind of seasoning and everything? Adam Pollitzer: Yes. Terry, good question. Look, I'd say broadly speaking, we're still greatly encouraged by the performance of our portfolio overall including the trends, obviously, in the default population. The impact of seasonality coming through this year was a bit more muted, which is encouraging. I think we trace that to a few things, right? We got broad resiliency that we've seen in the macro environment, and so that continues to set a favorable backdrop. We have an incredibly high-quality insured book and our existing borrowers, broadly speaking, remain well situated, and we're seeing that continue to translate through to our credit experience. The increase in our default experience that you noted some amount of that traces to seasonality, right? We tend to see seasonally a seasonal uptick in default experience as we roll through the second half of the year, and some portion of it traces to what we've talked about for a while now the seasoning, just the natural growth and seasoning of our book. As we look forward, we do expect that seasonality will continue to come through, and so we'll see an additional impact seasonally in Q4. And we do also expect that as we roll forward over the longer term, we'll continue to see that normalization in our credit experience but overall, we're delighted with how our portfolio is performing. It's exceptionally high quality, and we're encouraged by the trends that we saw in the third quarter and really year-to-date. Terry Ma: Got it. That's helpful. And then maybe just any color on the competitive environment. There has been some rumblings about a potential new entrant, so any color on kind of how to think about how the dynamic may or may not change like if there was a new entrant into the MI market. Adam Pollitzer: Yes. Yes. It's -- I'd say, look, it's not necessarily new. I think there's been periodic chatter about new market entrants over the years. and we're aware of the latest effort that's out there. But I'd say we, perhaps more than anybody else know the challenges and difficulties that come with building a private MI business, it is not easy at all, right? It's really hard to raise the capital. It's really hard to build an MI specific operating platform. It's really hard to hire the right team to sign up customers, earn their trust and also manage through an extended J curve to get to a point of profitability. And when we look at things, say, today versus when we got our start back in 2011, the market is at a very different point today. And so today, there is no clear need in the market, right? At this point, the 6 incumbent MI players are all serving the market incredibly well. We're showing up every day for lenders and their borrowers. We've got ample capacity to support their origination volume. We've got their trust we're offering, I think, broadly speaking, fair and valuable solutions for every borrower that comes through our market, and so it's difficult to know obviously exactly where things land. We don't know what will happen with the latest rumors. But say, it's a very high bar, right? It takes a lot of capital, a very large amount of capital to fund the PMIERs compliance business. And if we were controlling first strings and thinking about making an investment in a new entrant ourselves, I'd say we'd be highly skeptical that now is the right time to do that, given all the challenges that we would see for anybody who came into the market today. And that's not because the market itself is challenges because the market is doing so well in the 6 companies that are there today are performing so well. So we'll see, ultimately, if somebody new came in, everybody -- the market will adapt around it. But I think going from discussions to actually having a fully funded, capitalized approved entity, that's a pretty wide gulf. Operator: Next question is from Bose George with KBW. Bose George: Can you give us an update on what you're seeing in terms of the strength of the consumer? Also just any housing markets that you're keeping an eye on where -- in terms of home prices or other signs of potential weakness. Adam Pollitzer: Sure. Yes. Good question. Look, I'd say broadly speaking, I noted in our prepared remarks, but we've been encouraged by the broad resiliency that we're seeing in the economy and the housing market for a while now. Headline unemployment remains low, inflation is cooled, consumers broadly speaking, are still spending businesses or continuing to make significant investments. The equity market is continuing to set new highs. And so the overall picture today is an encouraging one. But for us, obviously, it's not just about today. It's also what comes tomorrow. And so we always think about risks that might be on the horizon. And so when we parse through the data, I think we can all see it on the macro side, there are signs in the labor market of some degree of strain emerging. We're not seeing unemployment increase, and we don't have government data for the last little while, but there are certain private data points that we can look at. So we don't see unemployment increasing, but certainly, the pace of new hiring activity has slowed. I think consumer confidence is down, particularly amongst certain borrower cohorts, and there's broad talks of -- I think we're terming it a K-shaped recovery. So we'll see what I'd say from our vantage point, it's still a really encouraging and resilient backdrop those macro and housing market but we're always focused on what might come. And then Bose, I think you asked a question about geos. And so yes, we've talked for a while now that there are certain geographies, Florida, Texas, the Sunbelt, Mountain West where we're seeing some -- either a declining pace of house price appreciation or a turn in prices with inventory building. And that's still the case. Those same markets, there's nothing new, the pressure isn't new, but we're still seeing, when we look at the world, those markets that have been soft for a little while now continue to show signs that they're soft, and we see continued strength, though, in the Northeast and the Midwest. Bose George: Okay. Great. That's helpful. And then actually just in terms of the reinsurance markets, can you just talk about what you're seeing there? Also, just I guess you guys are more active on the XOL side, just in terms of execution, like why there versus more on the ILN side? Aurora Swithenbank: Sure. In terms of what we're seeing in the reinsurance market, reinsurance markets remain very robust, and we look at the pricing achieved by some of our competitors in the marketplace year-to-date, it's the best pricing that's ever been achieved. If we wind the clock back to 2024, we placed full XOL and quota share coverage for 2025, 2026 and a portion of the 2027 year with respect to the quota share. So we have a really nice runway in terms of our locked-in capacity in the traditional reinsurance market. So you may recall that in the third and fourth quarter of the year, the back part of the year, we typically engage with our reinsurance partners and talk about the opportunity to lock in further coverage for forward years or to optimize the coverage that we have in place. And so you may imagine, we're engaged in those discussions currently. And -- but again, it's a very strong reinsurance market backdrop leading into those conversations. And with regards to ILN versus XOL, we like both of those markets. Both of them have been very good sources of capital for us as a company. Recently, we have been more biased towards the traditional reinsurance market. In particular, because it offers that forward coverage, which isn't available in the debt capital markets. And so that's been our recent preference just from a cost flexibility and speed of execution perspective. But we like both of those markets. And I think you should expect us in the fullness of time to be active across all different markets. Operator: The next question is from Mark Hughes with Truist. Mark Hughes: Yes. the core yield, it's been holding pretty steady at 34 basis points. Is that a good run rate here? What moves that 1 way or the other in the kind of the near to medium term? Aurora Swithenbank: Sure. I'm happy to start out here. It has been very stable, and that's obviously been supported by the tremendous persistency that we've had in the book and continue to have in the third quarter. So again, we would -- we don't give forward guidance, but given the strength of the in-force book, we would expect that plus/minus that kind of number for the core yield will be good. Obviously, the net yield is influenced by claims expense in the quarter and how that runs through our reinsurance contracts. Mark Hughes: And then any thoughts about the impact on persistency if we do see interest rates drop, that would be great from a new business perspective, a lot of purchase activity would ramp up presumably, but you get a lot of refi. How would you see the puts and takes if kind of you get a refi-ed market? And then if you can get multiple rounds of it, given the -- where recent borrowers have been borrowing at. Adam Pollitzer: Yes. So I think as you termed it, there's both puts and takes. Our persistency was 83.9% in the third quarter, and as we noted, again, helped to drive continued growth in embedded value gains in our insured portfolio. Overall, our portfolio is broadly well situated because we've got a 5.2% weighted average note rate underpinning our exposure at quarter end. But it's not even, obviously, across the entirety of our book. There are vintages parts of our in-force that have greater degrees of refi sensitivity, and where we will likely see an uptick in some prepayment speeds given the recent moves in rates, that's going to be natural, right? So that's the put. The take, as you noted, though, is, one, some portion of the borrowers in our portfolio who will benefit from a refinancing today or very likely to still need MI coverage because while HPA has generally trended higher, it's trended higher at a normal, not record pace. And so there's an opportunity to see penetration of refinancing origination activity grow if there were -- if we saw an uptick in overall refi activity. As you noted, look, if rates lag down, to the point where we see a more pronounced pressure on persistency, we'd also expect to see a benefit in new business activity, NIW volume, bringing prospective buyers purchase demand off the sidelines. And the 1 other 1 to note is there's a potential knock-on benefit from a credit experience standpoint, to a refinancing cycle, right? If we see refinancings accelerate, it's most likely just because of where the underlying note rates are that, that will come from our more recent vintages. And those are the vintages that we're looking at for that normalizing credit experience. If those vintages begin to turn over, it will take -- it will extend that normalization cycle from a credit performance standpoint. Mark Hughes: Appreciate that. And then were there any onetimers in the expense ratio is obviously, as you say, a record number. Anything nonrecurring there? Or is that a good run rate? Aurora Swithenbank: I'd say, with regard to the expense ratio, there was nothing in particular that I'd point out in the quarter. And if you look at the raw dollars, it's within a couple of hundred thousand dollars of what we spent last quarter. And so there are a few positives and negatives, but again, nothing of note. I would say if you're looking forward, typically, the second and third quarter are lightest in terms of expenses and the fourth, and then the first quarter tend to be heavier just in terms of both dollars of expense and also the ratio goes up during those quarters. And in the fourth quarter, that typically results from the accrual of some of our people-related expenses. So that's the only thing that I would note with regard to the fourth quarter. Operator: The next question is from Rick Shane with JPMorgan. A.J. Denham: This is A.J. on for Rick. So if rates fall in refis do start to tick up, is there anything kind of proactive you can do to recapture MI on more of those loans? Could you maybe just walk through your playbook sharing your early experience you've had there? Adam Pollitzer: Yes. So I'd say on the margin, there are things that you might try to do. But more broadly, the most important piece of the playbook is to be everywhere in the market and be offering valuable solutions for our customers to be plugged in with as many lenders as possible and so that we could serve their borrowers. We've noted for a while that 1 of the unique attributes that we have to our benefit is that our share of the new business environment is larger than our share of industry insurance-in-force. So to the extent that there is some amount of industry insurance-in-force that's in motion because it's refinancing, but still needs MI coverage. We have an opportunity, we think, to capture a little bit more of that than we will necessarily lose. And so that's not a strategy per se, it's just where the numbers are. But the real strategy behind it is make sure that we are connected to our customers that we're offering them valuable solutions that were present for their borrowers across all markets so that, that business that is potentially in motion is a business that we can capture. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Adam Pollitzer: Thank you again for joining us. We look forward to speaking with you again soon. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Operator: Good afternoon, and welcome to the NMI Holdings, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to John Swenson of management. Please go ahead. John Swenson: Thank you, Gary. Good afternoon, and welcome to the 2025 Third Quarter Conference Call for National MI. I'm John Swenson, Vice President of Investor Relations and Treasury. Joining us on the call today are Brad Shuster, Executive Chairman; Adam Pollitzer, President and Chief Executive Officer; and Aurora Swithenbank, our Chief Financial Officer. Financial results for the quarter were released after the close today. The press release may be accessed on NMI's website located at nationalmi.com under the Investors tab. During the course of this call, we may make comments about our expectations for the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about the factors that could cause actual results or trends to differ materially from those discussed on the call can be found on our website or through our filings with the SEC. If and to the extent the company makes forward-looking statements, we do not undertake any obligation to update those statements in the future in light of subsequent developments. Further, no one should rely on the fact that the guidance of such statements is current at any time other than the time of this call. Also note that on this call, we may refer to certain non-GAAP measures. In today's press release and on our website, we provided a reconciliation of these measures to the most comparable measures under GAAP. Now I'll turn the call over to Brad. Bradley Shuster: Thank you, John, and good afternoon, everyone. I'm pleased to report that in the third quarter, National MI again delivered standout operating performance, continued growth in our insured portfolio and strong financial results. Our lenders and their borrowers continued to turn to us for critical down payment support. And in the third quarter, we generated $13 billion of NIW volume, ending the period with a record $218.4 billion of high-quality, high-performing primary insurance-in-force. In Washington, our conversations remain active and constructive, and there continues to be broad recognition in D.C. of the unique and valuable role that the private mortgage insurance industry plays, offering borrowers low-cost down payment support and access to mortgage credit while also placing private capital in front of the taxpayer to absorb risk and loss in a downturn and ultimately ensure the safety and soundness of the conventional mortgage market. National MI and the broader private mortgage insurance industry have never been stronger or better positioned to provide this critical down payment support than we are today. And we're excited to continue working with Director Pulte, other members of the administration and the leadership teams of Fannie and Freddie to advance their important goal of helping more Americans than ever unlock the dream of homeownership. With that, let me turn it over to Adam. Adam Pollitzer: Thank you, Brad, and good afternoon, everyone. National MI continued to outperform in the third quarter, delivering significant new business production, consistent growth in our insured portfolio and strong financial results. We generated $13 billion of NIW volume and ended the period with a record $218.4 billion of high-quality, high-performing primary insurance-in-force. Total revenue in the third quarter was a record $178.7 million, and we delivered GAAP net income of $96 million or $1.22 per diluted share and a 15.6% return on equity. Overall, we had a terrific quarter and are confident as we look ahead. The macro environment and housing market have remained resilient through an extended period of headline volatility. Our lender customers and their borrowers continue to rely on us in size for critical down payment support, and we see an attractive and sustained new business opportunity fueled by long-term secular trends and furthered by the recent improvement in mortgage rates. We have an exceptionally high-quality insured portfolio covered by a comprehensive set of risk transfer solutions and our credit performance continues to stand ahead. We're delivering consistent growth in embedded value gains in our insured book, and we continue to manage our expenses and capital position with discipline and efficiency, building a robust balance sheet that's supported by the significant earnings power of our platform. Taken together, we see a clear opportunity for continued outperformance. Notwithstanding these strong positives, however, macro risks do remain, and we've maintained a proactive stance with respect to our pricing, risk selection and reinsurance decisioning. It's an approach that has served us well and continues to be the prudent and appropriate course. More broadly, we remain encouraged by the continued discipline that we see across the private MI market. Overall, we had a terrific quarter, delivering strong operating performance, consistent growth in our insured portfolio and strong financial results. We're in the market every day with a clear mandate and purpose offering a low-cost, high-value solution that helps borrowers bridge the down payment gap and meaningfully reduces the cash required at the closing table. In the process, we help to make homeownership more affordable and achievable for millions of Americans and communities across the country with coverage that works to insulate the GSEs and taxpayers from risk and loss in a downturn. Looking ahead, we're well positioned to continue to serve our customers and their borrowers, invest in our employees and their success, drive growth in our high-quality insured portfolio and deliver through the cycle growth, returns and value for our shareholders. With that, I'll turn it over to Aurora. Aurora Swithenbank: Thank you, Adam. We again delivered standout financial results in the third quarter. Total revenue was a record $178.7 million, GAAP net income was $96 million or $1.22 per diluted share and return on equity was 15.6%. We generated $13 billion of NIW and our primary insurance-in-force grew to $218.4 billion, up 2% from the end of the second quarter and 5% compared to the third quarter of 2024. 12-month persistency was 83.9% in the third quarter compared to 84.1% in the second quarter. Net premiums earned in the third quarter were a record $151.3 million, compared to $149.1 million in the second quarter and $143.3 million in the third quarter of 2024. Net yield for the quarter was 28 basis points, consistent with the second quarter. Core yields, which excludes the cost of our reinsurance coverage and the contribution from cancellation earnings was 34.2 basis points also unchanged from the second quarter. Investment income was $26.8 million in the third quarter compared to $24.9 million in the second quarter and $22.5 million in the third quarter of 2024. Total revenue was a record $178.7 million in the third quarter compared to $173.8 million in the second quarter and $166.1 million in the third quarter of 2024. Underwriting and operating expenses were $29.2 million in the third quarter compared to $29.5 million in the second quarter. Our expense ratio was a record low 19.3% in the quarter, highlighting the significant operating leverage embedded in our business and the success we have achieved in efficiently managing our cost base. We have a uniquely high-quality insured portfolio and our credit performance continues to stand out. We had 7,093 defaults at September 30 compared to 6,709 at June 30, and our default rate was 1.05% at quarter end. Claims expense in the third quarter was $18.6 million compared to $13.4 million in the second quarter, reflecting normal seasonal activity and the continued growth and seasoning of our portfolio. GAAP net income for the quarter was $96 million and diluted earnings per share was $1.22. Adjusted net income was $95.7 million, and adjusted diluted EPS was $1.21. Total cash and investments were $3.1 billion at quarter end, including $148 million of cash and investments at the holding company. Shareholders' equity at September 30 was $2.5 billion and book value per share was $32.62. Book value per share, excluding the impact of net unrealized gains and losses in the investment portfolio was $33.32, up 4% compared to the second quarter and 16% compared to the third quarter of last year. In the third quarter, we repurchased $24.6 million of common stock, retiring 628,000 shares at an average price of $39.13, through quarter end, we've repurchased a total of $319 million of common stock, retiring 11.3 million shares at an average price of $28.25. We have [ 256 million ] of repurchase capacity remaining under our existing program. At quarter end, we reported $3.4 billion of total available assets under PMIERs and $2 billion of risk-based required assets. Excess available assets were $1.4 billion. Overall, we achieved standout financial results during the quarter, delivering consistent growth in our high-quality insured portfolio, record top line performance and expense efficiency and strong bottom line profitability and returns. With that, let me turn it back to Adam. Adam Pollitzer: Thank you, Aurora. We had a terrific quarter, once again delivering significant new business production, consistent growth in our high-quality insured portfolio and stand out financial results. We have a strong customer franchise, a talented team driving us forward every day, an exceptionally high-quality book covered by a comprehensive set of risk transfer solutions and a robust balance sheet supported by the significant earnings power of our platform. Taken together, we are well positioned to continue to serve our customers and their borrowers, invest in our employees and their success drive growth in our high-quality insured portfolio and deliver through the cycle growth, returns and value for our shareholders. Thank you for joining us today. I'll now ask the operator to come back on so we can take your questions. Operator: [Operator Instructions] Our first question today is from Terry Ma with Barclays. Terry Ma: Just wanted to start off with credit. As I look at new defaults in the quarter, it was up only about 5% year-over-year, that's a noticeable step down from the pace of year-over-year increases that you've seen in the last kind of 10 quarters. So maybe just any color on kind of what happened in the quarter? And as we kind of look forward, how should we expect kind of new defaults kind of emerge like when we factor in kind of seasoning and everything? Adam Pollitzer: Yes. Terry, good question. Look, I'd say broadly speaking, we're still greatly encouraged by the performance of our portfolio overall including the trends, obviously, in the default population. The impact of seasonality coming through this year was a bit more muted, which is encouraging. I think we trace that to a few things, right? We got broad resiliency that we've seen in the macro environment, and so that continues to set a favorable backdrop. We have an incredibly high-quality insured book and our existing borrowers, broadly speaking, remain well situated, and we're seeing that continue to translate through to our credit experience. The increase in our default experience that you noted some amount of that traces to seasonality, right? We tend to see seasonally a seasonal uptick in default experience as we roll through the second half of the year, and some portion of it traces to what we've talked about for a while now the seasoning, just the natural growth and seasoning of our book. As we look forward, we do expect that seasonality will continue to come through, and so we'll see an additional impact seasonally in Q4. And we do also expect that as we roll forward over the longer term, we'll continue to see that normalization in our credit experience but overall, we're delighted with how our portfolio is performing. It's exceptionally high quality, and we're encouraged by the trends that we saw in the third quarter and really year-to-date. Terry Ma: Got it. That's helpful. And then maybe just any color on the competitive environment. There has been some rumblings about a potential new entrant, so any color on kind of how to think about how the dynamic may or may not change like if there was a new entrant into the MI market. Adam Pollitzer: Yes. Yes. It's -- I'd say, look, it's not necessarily new. I think there's been periodic chatter about new market entrants over the years. and we're aware of the latest effort that's out there. But I'd say we, perhaps more than anybody else know the challenges and difficulties that come with building a private MI business, it is not easy at all, right? It's really hard to raise the capital. It's really hard to build an MI specific operating platform. It's really hard to hire the right team to sign up customers, earn their trust and also manage through an extended J curve to get to a point of profitability. And when we look at things, say, today versus when we got our start back in 2011, the market is at a very different point today. And so today, there is no clear need in the market, right? At this point, the 6 incumbent MI players are all serving the market incredibly well. We're showing up every day for lenders and their borrowers. We've got ample capacity to support their origination volume. We've got their trust we're offering, I think, broadly speaking, fair and valuable solutions for every borrower that comes through our market, and so it's difficult to know obviously exactly where things land. We don't know what will happen with the latest rumors. But say, it's a very high bar, right? It takes a lot of capital, a very large amount of capital to fund the PMIERs compliance business. And if we were controlling first strings and thinking about making an investment in a new entrant ourselves, I'd say we'd be highly skeptical that now is the right time to do that, given all the challenges that we would see for anybody who came into the market today. And that's not because the market itself is challenges because the market is doing so well in the 6 companies that are there today are performing so well. So we'll see, ultimately, if somebody new came in, everybody -- the market will adapt around it. But I think going from discussions to actually having a fully funded, capitalized approved entity, that's a pretty wide gulf. Operator: Next question is from Bose George with KBW. Bose George: Can you give us an update on what you're seeing in terms of the strength of the consumer? Also just any housing markets that you're keeping an eye on where -- in terms of home prices or other signs of potential weakness. Adam Pollitzer: Sure. Yes. Good question. Look, I'd say broadly speaking, I noted in our prepared remarks, but we've been encouraged by the broad resiliency that we're seeing in the economy and the housing market for a while now. Headline unemployment remains low, inflation is cooled, consumers broadly speaking, are still spending businesses or continuing to make significant investments. The equity market is continuing to set new highs. And so the overall picture today is an encouraging one. But for us, obviously, it's not just about today. It's also what comes tomorrow. And so we always think about risks that might be on the horizon. And so when we parse through the data, I think we can all see it on the macro side, there are signs in the labor market of some degree of strain emerging. We're not seeing unemployment increase, and we don't have government data for the last little while, but there are certain private data points that we can look at. So we don't see unemployment increasing, but certainly, the pace of new hiring activity has slowed. I think consumer confidence is down, particularly amongst certain borrower cohorts, and there's broad talks of -- I think we're terming it a K-shaped recovery. So we'll see what I'd say from our vantage point, it's still a really encouraging and resilient backdrop those macro and housing market but we're always focused on what might come. And then Bose, I think you asked a question about geos. And so yes, we've talked for a while now that there are certain geographies, Florida, Texas, the Sunbelt, Mountain West where we're seeing some -- either a declining pace of house price appreciation or a turn in prices with inventory building. And that's still the case. Those same markets, there's nothing new, the pressure isn't new, but we're still seeing, when we look at the world, those markets that have been soft for a little while now continue to show signs that they're soft, and we see continued strength, though, in the Northeast and the Midwest. Bose George: Okay. Great. That's helpful. And then actually just in terms of the reinsurance markets, can you just talk about what you're seeing there? Also, just I guess you guys are more active on the XOL side, just in terms of execution, like why there versus more on the ILN side? Aurora Swithenbank: Sure. In terms of what we're seeing in the reinsurance market, reinsurance markets remain very robust, and we look at the pricing achieved by some of our competitors in the marketplace year-to-date, it's the best pricing that's ever been achieved. If we wind the clock back to 2024, we placed full XOL and quota share coverage for 2025, 2026 and a portion of the 2027 year with respect to the quota share. So we have a really nice runway in terms of our locked-in capacity in the traditional reinsurance market. So you may recall that in the third and fourth quarter of the year, the back part of the year, we typically engage with our reinsurance partners and talk about the opportunity to lock in further coverage for forward years or to optimize the coverage that we have in place. And so you may imagine, we're engaged in those discussions currently. And -- but again, it's a very strong reinsurance market backdrop leading into those conversations. And with regards to ILN versus XOL, we like both of those markets. Both of them have been very good sources of capital for us as a company. Recently, we have been more biased towards the traditional reinsurance market. In particular, because it offers that forward coverage, which isn't available in the debt capital markets. And so that's been our recent preference just from a cost flexibility and speed of execution perspective. But we like both of those markets. And I think you should expect us in the fullness of time to be active across all different markets. Operator: The next question is from Mark Hughes with Truist. Mark Hughes: Yes. the core yield, it's been holding pretty steady at 34 basis points. Is that a good run rate here? What moves that 1 way or the other in the kind of the near to medium term? Aurora Swithenbank: Sure. I'm happy to start out here. It has been very stable, and that's obviously been supported by the tremendous persistency that we've had in the book and continue to have in the third quarter. So again, we would -- we don't give forward guidance, but given the strength of the in-force book, we would expect that plus/minus that kind of number for the core yield will be good. Obviously, the net yield is influenced by claims expense in the quarter and how that runs through our reinsurance contracts. Mark Hughes: And then any thoughts about the impact on persistency if we do see interest rates drop, that would be great from a new business perspective, a lot of purchase activity would ramp up presumably, but you get a lot of refi. How would you see the puts and takes if kind of you get a refi-ed market? And then if you can get multiple rounds of it, given the -- where recent borrowers have been borrowing at. Adam Pollitzer: Yes. So I think as you termed it, there's both puts and takes. Our persistency was 83.9% in the third quarter, and as we noted, again, helped to drive continued growth in embedded value gains in our insured portfolio. Overall, our portfolio is broadly well situated because we've got a 5.2% weighted average note rate underpinning our exposure at quarter end. But it's not even, obviously, across the entirety of our book. There are vintages parts of our in-force that have greater degrees of refi sensitivity, and where we will likely see an uptick in some prepayment speeds given the recent moves in rates, that's going to be natural, right? So that's the put. The take, as you noted, though, is, one, some portion of the borrowers in our portfolio who will benefit from a refinancing today or very likely to still need MI coverage because while HPA has generally trended higher, it's trended higher at a normal, not record pace. And so there's an opportunity to see penetration of refinancing origination activity grow if there were -- if we saw an uptick in overall refi activity. As you noted, look, if rates lag down, to the point where we see a more pronounced pressure on persistency, we'd also expect to see a benefit in new business activity, NIW volume, bringing prospective buyers purchase demand off the sidelines. And the 1 other 1 to note is there's a potential knock-on benefit from a credit experience standpoint, to a refinancing cycle, right? If we see refinancings accelerate, it's most likely just because of where the underlying note rates are that, that will come from our more recent vintages. And those are the vintages that we're looking at for that normalizing credit experience. If those vintages begin to turn over, it will take -- it will extend that normalization cycle from a credit performance standpoint. Mark Hughes: Appreciate that. And then were there any onetimers in the expense ratio is obviously, as you say, a record number. Anything nonrecurring there? Or is that a good run rate? Aurora Swithenbank: I'd say, with regard to the expense ratio, there was nothing in particular that I'd point out in the quarter. And if you look at the raw dollars, it's within a couple of hundred thousand dollars of what we spent last quarter. And so there are a few positives and negatives, but again, nothing of note. I would say if you're looking forward, typically, the second and third quarter are lightest in terms of expenses and the fourth, and then the first quarter tend to be heavier just in terms of both dollars of expense and also the ratio goes up during those quarters. And in the fourth quarter, that typically results from the accrual of some of our people-related expenses. So that's the only thing that I would note with regard to the fourth quarter. Operator: The next question is from Rick Shane with JPMorgan. A.J. Denham: This is A.J. on for Rick. So if rates fall in refis do start to tick up, is there anything kind of proactive you can do to recapture MI on more of those loans? Could you maybe just walk through your playbook sharing your early experience you've had there? Adam Pollitzer: Yes. So I'd say on the margin, there are things that you might try to do. But more broadly, the most important piece of the playbook is to be everywhere in the market and be offering valuable solutions for our customers to be plugged in with as many lenders as possible and so that we could serve their borrowers. We've noted for a while that 1 of the unique attributes that we have to our benefit is that our share of the new business environment is larger than our share of industry insurance-in-force. So to the extent that there is some amount of industry insurance-in-force that's in motion because it's refinancing, but still needs MI coverage. We have an opportunity, we think, to capture a little bit more of that than we will necessarily lose. And so that's not a strategy per se, it's just where the numbers are. But the real strategy behind it is make sure that we are connected to our customers that we're offering them valuable solutions that were present for their borrowers across all markets so that, that business that is potentially in motion is a business that we can capture. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Adam Pollitzer: Thank you again for joining us. We look forward to speaking with you again soon. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, everyone, and welcome to the A10 Networks Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Tom Baumann. Sir, the floor is yours. Unknown Executive: Thank you all for joining us today. This call is being recorded and webcast live and may be accessed for at least 90 days via the A10 Networks website at a10networks.com. Hosting the call today are Dhrupad Trivedi, A10's President and CEO; and CFO, Michelle Caron. Before we begin, I would like to remind you that shortly after the market closed today, A10 Networks issued a press release announcing its third quarter 2025 financial results. Additionally, A10 published a presentation and supplemental trended financial statements. You may access the press release, presentation and trended financial statements on the Investor Relations section of the company's website. During the course of today's call, management will make forward-looking statements, including statements regarding projections for future operating results, demand, industry and customer trends, macroeconomic factors, strategy, potential new products and solutions, our capital allocation strategy, profitability, expenses and investments, positioning and our dividend program. These statements are based on current expectations and beliefs as of today, November 4, 2025. These forward-looking statements involve a number of risks and uncertainties, some of which are beyond our control, that could cause actual results to differ materially, and you should not rely on them as predictions of future events. A10 does not intend to update information contained in these forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law. For a more detailed description of these risks and uncertainties, please refer to our most recent 10-K and quarterly report on Form 10-Q. Please note that with the exception of revenue, financial measures discussed today are on a non-GAAP basis, unless otherwise noted and have been adjusted to exclude certain charges. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP, and may be different from non-GAAP financial measures presented by other companies. A reconciliation between GAAP and non-GAAP measures can be found in the press release issued today and on the trended quarterly financial statements posted on the company's website at a10networks.com. Now I would like to turn the call over to Dhrupad Trivedi, President and CEO of A10 Networks. Dhrupad Trivedi: Thank you, Tom and thank you all for joining us today. A10's strategic position, aligning our solutions and technology road map with the persistent needs of our customers around trusted infrastructure, cybersecurity and AI capabilities continues to enable growth that outpaces our market peers. Our solutions emphasize high throughput, low latency, and integrated security, which our customers and the broader market increasingly view as Essential. A10 is well positioned alongside the durable catalyst that are driving spending across our markets. In the third quarter, revenue grew nearly 12% year-over-year. On a trailing 12-month basis, growth from enterprise customers in North America continues to outpace our overall company-wide growth. Revenue from the Americas has increased 25% on a trailing 12-month basis, driven primarily by investment in AI infrastructure. This performance helped offset macro-related headwinds in other regions. Our global diversification continues to enable consistent performance despite macro variability. AI-related deployments were a key driver for growth, where security and performance at scale are critical. These applications are power hungry and our solutions deliver efficient throughput and low latency with integrated best-in-class security capabilities. This allows customers to achieve target performance with fewer devices, improving total cost of ownership, while maintaining the highest levels of network performance. We continue to leverage this advantage in large data center opportunities globally. Our operating model continues to focus on discipline and leverage, converting growth into profitability and cash, while reinvesting in strategic priorities. EBITDA margins expanded year-over-year from 26.7% to 29.3%, while non-GAAP operating margin expanded from 22.6% to 24.7%. This demonstrates the inherent leverage in our model even as we continue to invest more in R&D. A10 is well positioned to serve both enterprise and service customers alike, while we navigate macro uncertainty. In the world of AI, these will be harder to demarket as customers redefine their architectures. Our increasingly strong alignment with AI infrastructure build-out and adoption gives us confidence in our strategic positioning as we align investment with structural tailwinds of AI and cybersecurity. As our investments in innovation and product enhancements have taken shape, we have established ourselves as a stronger, more differentiated technology solution provider. On a trailing 12-month basis, growth stands at just over 10%. Based on momentum in key strategic initiatives, we expect full year growth rate of 10%. With that, I'd like to formally welcome Michelle Caron, our new Chief Financial Officer to the call. I also want to take a moment to thank Brian Becker. Brian had been an important part of the leadership team during A10's progress and had instituted strong processes that will continue to serve us well into the future. Michelle brings deep operational and financial expertise from complex global organizations and a proven ability to align financial strategy with growth opportunities. Her background complements A10's disciplined culture and long-term transformation agenda. We expect continued disciplined execution and an increased focus on capital deployment to play a role in our overall growth. Michelle's experience positions us well to help drive that next phase of the company. Michelle? Michelle Caron: Thank you, Dhrupad. I'm excited to join A10 at this important inflection point. What drew me here is the combination of a strong foundation, coupled with an even stronger opportunity ahead. With a proven business model, solutions that are ideally aligned with global spending trends and a Tier 1 customer base, A10 is positioned for consistent success. I shared Dhrupad's belief that we can continue to grow both organically and inorganically, and I look forward to contributing to both sides of that growth equation. My near-term focus involves building on our solid base and driving greater consistency, predictability and profitability as we grow. I'll be concentrating on a few key areas. First, maintaining financial discipline and transparency, better aligning our performance and market expectations. Second, driving profitable growth. balancing top-line expansion with healthy margins and cash flow; and third, maintaining disciplined capital allocation. Investing where we can create the most value, while continuing to return capital to our shareholders. Supporting our pipeline of M&A activities and effectively putting our cash to work will be part of this initiative. Now let me turn to the results. As Dhrupad noted, we delivered a strong Q3, growing revenue almost 12% to $74.7 million, reflecting a mix of 58% product revenue and 42% service revenue. Global service revenue of $31.6 million grew 6% while product revenue of $43.1 million grew 17% year-over-year. Product revenue, which has been strong for the last 2 quarters represents a leading indicator of future revenue. Our third quarter performance gives us confidence we're on the right track to deliver on our strategic priorities, while continuing to drive rigor building on our culture of excellence. Within our product revenue category, the third quarter reflected a greater contribution of security-led revenue exceeding our long-term target of generating 65% of our total revenue from security-led solutions. This performance reflects customer demand and our alignment with customer needs, particularly within North America for both service providers and enterprises. Now looking at our major verticals, enterprise customers represented 36% of Q3 revenues. As previously stated, America is our priority region, and we continue to see growth in excess of overall revenue on a trailing 12-month basis. Service provider revenue, which was 64% of total revenue, was weighted towards cloud providers, further indication of our success in strategically aligning our offerings with AI infrastructure build-out. From a geo perspective, our Americas region represented 65% of global revenue, reflecting the benefits of A10's investments in our enterprise segment and strength of AI infrastructure build-out. As Dhrupad mentioned, macro-related headwinds in Rest of World were made up for in the Americas region. Now with the exception of revenue, all of the metrics discussed on this call are on a non-GAAP basis, unless otherwise stated. A full reconciliation of GAAP to non-GAAP results is provided in our press release and on our website. Our continued operating discipline contributed to our strong Q3 results. Non-GAAP gross margin was 80.7%, in line with our stated goals of 80% to 82%. Operating expenses were $41.8 million, reflecting an operating margin of 24.7%, an improvement of about 215 basis points year-over-year. GAAP net income for the quarter was $12.2 million or $0.17 per diluted share. Non-GAAP net income for the quarter was $16.7 million or $0.23 per diluted share, reflecting a 7.4% EPS growth from the year ago period. Diluted weighted shares used for computing non-GAAP EPS for the third quarter were approximately 73 million shares, down 1.7 million shares year-over-year, driven by our continued share buyback. Adjusted EBITDA was $21.9 million, 29.3% of revenue, which is aligned with our long-term strategic goals. Turning to the year-to-date results. Revenue for the first 9 months of 2025 was $210.2 million compared to $187.5 million, an increase of 12.1%. Non-GAAP gross margin was 80.5% year-to-date. Adjusted EBITDA was $61.1 million year-to-date, reflecting 29% of revenue. Non-GAAP net income on a year-to-date basis was $47.2 million or $0.64 per diluted share compared to $41.9 million or $0.56 per diluted share last year. On a GAAP basis, net income for the first 9 months was $32.3 million or $0.44 per diluted share compared to net income of $31.8 million or $0.42 per diluted share in the first 9 months last year. I'll now turn to the cash flow and balance sheet, both of which are very strong. We generated $22.8 million in cash flow from operations in Q3. CapEx was $4.7 million with cash and investments totaling $371 million at the end of the quarter. Deferred revenue was $143.5 million. During the quarter, we paid $4.3 million in cash dividends and repurchased $11 million worth of shares. The Board has approved a quarterly cash dividend of $0.06 per share to be paid on December 1, 2025, to shareholders of record on November 17, 2025. The company still has over $60 million remaining of its $75 million share repurchase authorization. I look forward to speaking with many of you in the coming weeks, gathering your feedback on our strategy and operations. I'll now turn the call back to Dhrupad for closing comments. Dhrupad Trivedi: Thank you, Michelle. We are encouraged by continued business execution and remain confident that A10 is strategically well positioned in the market, especially as we see acceleration in AI infrastructure build-out. A10 is positioned squarely in front of multiple durable secular catalyst. In fact, our strength in high-performance hardware and software is more relevant than ever before. We are investing to enhance our position in the enterprise space and remain aligned with key leaders in the service provider sector around the world. We believe our business model enables us to dynamically allocate resources to address changing market conditions, while preserving profitability and shareholder returns. Operator, you can now open the call up for questions. Operator: [Operator Instructions] Your first question is coming from Gary Powell (sic) [ Gray Powell ] from BTIG. Gray Powell: It's actually Gray up again for Gary. Gary is traveling today. But just want to say congratulations on the good results. I just had a couple of questions. Yes, absolutely. I think last year, security-led revenue was around 63% of the business, growing 9%. You called out 65% in the prepared remarks in the slide deck. Just how is it tracking this year? And where do you think it can go longer term? Dhrupad Trivedi: Yes. Good question. I think -- so we had said long term, our goal was 65% because -- we see the connection between security and infrastructure as something that actually is a strength for us in the sense, we want those things to work together and make it even better. So if you look at where we actually ended up in Q3, the number was higher than 65%. And so we feel pretty good continuing to maintain that goal of about 65%. And if we do better, that's great. But at the same time, we are not looking to lose infrastructure revenue in its place, right? So, I feel pretty good that we have been able to improve that mix to -- from somewhere less than 30% to 65%. And obviously, our goal is to lead with that because that tends to expose us to higher growth markets and applications. Gray Powell: Understood. Okay. That's really helpful. And then just a separate topic and this 1 might be a little bit early. But F5 had a pretty bad data breach a few weeks ago. Again, like, I'm sure it's a little bit early from your side, but is that something that can potentially help your customer discussions on the enterprise side of the business? Is that something that's come up at all in conversations yet? Or is there any -- I don't know, is there any directional commentary you could make about that? Dhrupad Trivedi: Sure. Yes. No, I think good question. And I think, first of all, I would say that all of us in the cybersecurity industry, right, face the same kinds of attacks and challenges that we are all resolving, right? So obviously, we cannot specifically comment on anything, but I would say as we navigate that market environment and you look at some of the key players in that space, right, including F5, of course. I think we have seen certainly an increased level of interest from customers, not necessarily wanting to change, but wanting to understand what else is in the market and what alternatives there might be towards making sure that their own infrastructure is more resilient in the future, right? So of course, I think we'll continue to work with our customers just as we'll continue to work with the industry overall to find better ways to manage and handle cybersecurity challenges. Operator: Your next question is coming from Simon Leopold from Raymond James. W. Chiu: This is Victor Chiu for Simon. You noted strength in North American AI infrastructure investments in your prepared remarks. But can you elaborate on some of the specific factors contributing to the upside this quarter, were there a handful of specific customers or deals? Or was it more -- was the strength more broad-based? Dhrupad Trivedi: Sure, Victor. I think -- so as, of course, you know well too, the market today in AI is pretty concentrated with several large players. And then in the longer term, we are also engaged with multitude of players who, in 2 to 3 years' time will be doing a lot more things on their own, right? So right now, it's in the phase of initial big build-out and then it becomes more realistic in terms of business goals, local models and so forth. So in this phase of the evolution, certainly right, the benefit to us was from a few large customers, who are investing aggressively into building the AI infrastructure. But we are equally engaged with customers around the world on the enterprise side as well, who will be the beneficiaries long term as they build out their own solutions and decide how to take advantage of AI. W. Chiu: Great. That's very helpful. And just a quick follow-up, just to elaborate on the previous question. Have you observed any -- on the flip side, have you observed any negative collateral impact from the high profile security breach from 1 of your key competitors that customers express specific concerns or hesitations moving forward with planned deployments? Dhrupad Trivedi: No, we are certainly not seeing any negative impact from that. I think people are used to kind of having to deal with public as well as private incidents in that space for many, many years to come. So, it is certainly not a negative thing for us at all. And it's -- I would say, it has certainly increased conversations we are having with customers. But at the same time, it's hard to say it's positive. But certainly, there's no hesitation on customer side in terms of spending on A10's products, right, and holding off on that in any way. Operator: Your next question is coming from Julio Romero from Sidoti & Company. Julio Romero: This is Julio on for Anja. So my first question would be just it seems like the efforts you've done on the enterprise sales push have been working. Are there any more initiatives you can do there? And then secondly, where are you in the innings of expanding within this market? Dhrupad Trivedi: Yes. Good question. And I think we have been talking about that for a few periods now, right? So I think our initial thesis was around building up our capability on the product solution side as well as on the commercial execution side to get more stability with enterprise customers than growing our share. I think in the last 2 to 3 years, we have continued to see that kind of maturation process, if you will. And we believe, certainly with our sales leadership currently in place, there is a lot of focus around that while we continue to support our service provider customers as well. So I would say, if I had to characterize it in that sense, I would say probably we are in the third or fourth innings as we continue to build kind of our own maturation of the team, but also engagement with customers. Julio Romero: Excellent. Very helpful. And then just any preliminary thoughts you could share on how you would view 2026 shaping up for you from a top line and bottom line perspective just at a high level at this point? Dhrupad Trivedi: Yes. No, good question. And I think I would say you can see, obviously, last year was a little bit unusual year in terms of seasonality. And this year, as we talked about, we expect on a full year basis to get back to 10% growth and obviously, the EBITDA results as well. As we look into the future, I would say the challenge like everybody else is we are dealing with uncertainties that we cannot control, such as interest rates and tariffs and everything else. But given the momentum in the business, particularly around secular tailwinds that we are aligning more and more to. We feel that going into next year, we should be able to sustain the growth level that we are seeing now. And we obviously will continue to provide more clarity as we see it as well. But our goal is obviously to be in that high single-digit range. And if the market aligns do better than that, but at the same time, focused on -- our business model goals on 26% to 28% EBITDA as well as EPS growth faster than top line. Operator: Your next question is coming from Hamed Khorsand from EWS Financial. Hamed Khorsand: I was just wanted to see what kind of progress you've been making as far as expanding your service provider customer base? Dhrupad Trivedi: Yes. No, good question. So I think, Hamed, I would probably differentiate it in 2 ways. So 1 is we -- during this year, with our existing large Tier 1 service provider, I think that has been, like most companies have seen a lot of pressure on CapEx. And so our efforts there have been more around improving share of wallet and cross-selling, whether it's in U.S. or Europe or Asia, right? Where we are seeing a little bit more traction is on the Tier 2 service provider side, where it's not necessarily related to things like BEAD funding, but we are certainly seeing a little more activity and rollout. So our progress there is, I would say, gaining new customers that are in that category of independent or Tier 2 type service providers. With Tier 1 in addition to waiting for CapEx, really trying to expand our footprint to sell into different business units or selling them multiple products. Hamed Khorsand: Okay. And then just looking out to the clarity you're seeing as far as your service prices are concerned, do you have that clarity at all? Is it better? Dhrupad Trivedi: Yes. So good question, Hamed. So I would say on the service provider customer side, it probably varies, so on the ones that are exposed to more building out things like cloud infrastructure, the clarity is decent, I would say. And we have a 6- to 9-month kind of cycle. So we generally have a reasonably good idea. On the Tier 1 telcos in Europe, I think we have reasonably good clarity, a little slower than normal, but moving along. Japan is pretty slow, but their economy is still in a difficult spot, right? So that we -- it's in line with what we expect. In the U.S. Tier 1 service provider, I would say, where they are exposed to cloud and infrastructure like that is good. But on the pure classic telco side, it's still a little bit choppy in the sense -- they may still spend the same amount for the full year, but projecting it by quarter is still harder than it normally used to be. Hamed Khorsand: Okay. And could you just talk about what drove that big outperformance this quarter in the EMEA region for you? Dhrupad Trivedi: Sorry, Hamed. I think you broke up for 1 second. Can you please repeat that? Hamed Khorsand: In the EMEA region, it seems like on your presentation slides, that was a big revenue portion. What drove that? Dhrupad Trivedi: I think so the -- in Q3, the EMEA portion, the step-up that you saw was 1 big project that culminated in the period. So it's probably fair to look at that 3 quarter and average it to be more indicative of it. And it's not like a new step level that you should expect to continue seeing there. Operator: Your next question is coming from Christian Schwab from Craig-Hallum. Christian Schwab: Great quarter. Can you give us an idea yet of the percentage of product revenue that's tied to AI-related security products? Dhrupad Trivedi: Yes. No, good question, Christian. And I think you have mentioned that last time as well. So we are working internally on how to create a view that does that. And the complication for us is -- for many of our customers, they were, let's say, going to build 10 data centers. Now they are still building 10, but 6 are designed for AI and 4 were what they used to do before. And I think we are trying to get a better handle on that through our customers so that we are more specific and clear in how we represent that. So that's the tougher part of it. Now when you look at our service provider growth improvement, I would say majority of it is related to because they are doing AI build-out. But it's hard for me to say from the 10 data centers they build 4 were AI and 6 were not AI, right? Because they don't market that way either. So -- but that's something that's on our docket Christian and that we are working towards in our Q1 comments to start figuring out a way to show some kind of a proxy for that. Christian Schwab: Great. And then when you talked about the momentum in the business sustaining itself in '26, we kind of did 10%, then you went back to high single digits. So should we just kind of assume sustaining the momentum in the business, next year's top-line growth objective would be 8% to 10%. Is that -- did I hear that right? Dhrupad Trivedi: Yes, I think that's a fair way to look at it. So I think that's sort of the line of sight we have, right, is in that range for next year as well? And as we navigate things up and down, right, it's hard to kind of nail it down by quarter at this point. But on a full year basis, certainly, we feel good with that ZIP code, yes. Christian Schwab: Great. And then my last question. Seeing the increased customer interest as an alternative given F5's recent issues when would be a logical time for those indications of interest to potentially turn to orders? Is that 3 months, 9 months, how should we be thinking about that opportunity? Dhrupad Trivedi: Good question. So I think, yes, as I said before, certainly, we are having customer conversations and certainly, right, we wish all those customers and F5 to resolve those problems swiftly for themselves because a good thing for the industry. Typical sales cycle for us in that kind of an enterprise market is 6 to 9 months. And we are engaged or talking to customers, but roughly speaking, that's the window in which you would see it translate into incremental bookings if that were going to be the case. Operator: Your next question is coming from Michael Romanelli from Mizuho Securities. Michael Romanelli: Yes. Maybe to start off, I was wondering -- I was wondering if you can comment on linearity in the quarter and how activity has been through the month of October? Dhrupad Trivedi: Yes. No. Good question. And I think, Michael, that it varies a little bit by regions as well. So I would say that linearity for us outside of Americas has been not atypical or in line with what we expect to get to. Within Americas, I think there is a little bit of jitter around kind of political things and tariff and interest rate. But overall, we don't see a dramatic change in linearity relative to what we were expecting. Michael Romanelli: Got it. Okay. That's helpful. And then as my follow-up, it's nice to see the services revenue return to growth following consecutive quarters of decline. As part of revenue algo. How should we be thinking about your services revenue growth going forward? Dhrupad Trivedi: Yes. Good question. So you are right. I think there's a little bit of timing element to the service revenue because it's related to 1-year, 2-year, 3-year kind of support contracts and so forth. The way you should think about it is if our product is growing at a certain rate, typically, that is sold with 1-year service or support contract. So 1 year from that date, we would have a larger eligible pool of renewals and support contract and revenue. So in that sense, product revenue growing faster means that a year from now, it should naturally lead itself to service revenue growing faster as well. Operator: Your next question is coming from Hendi Susanto from Gabelli Funds. Hendi Susanto: Dhrupad and Michelle. Dhrupad, would you talk about opportunity in AI, like we are somewhat familiar with A10 like core application, but perhaps you can go deeper into use cases for AI for service providers, data centers, Tier 1 service providers, like where you foresee A10 in influencing. For example, whether it is -- like what are the growth drivers in AI, whether it is traffic or security and whether there are things that are somewhat presenting new use cases for A10? Dhrupad Trivedi: Sure. Yes, Hendi. Good question. So I think I'll do that briefly here. But for us, really, the like we have done in the last several years, right? We connect everything back to our differentiation. So on the foundation level, we have hardware platforms and software that now also support higher throughput, lower latency and GPU-based architecture. So those feed into people building out data centers, whether it's enterprise or service provider or telco or cloud, right? So that's the first foundation level. Second level is in our cybersecurity product, we have expanded coverage to where our products are able to detect and remediate threats that occur now because of AI traffic, and that will be things like prompt injection and loss of PII data and so forth, right? So that's an expansion of our networking know-how to now handle new kinds of threats that happen because of AI. Third is, obviously, we are working with our customers on a longer-term basis to understand how we can look at traffic data from a long period of time in complex networks and use AI tools to drive predictive analytics, which ultimately, for them, helps do better things around network planning, resource management and which is ultimately their cost of running -- like building and running a network, right? So that's the range of things we do. So we don't come into it thinking we are a new AI startup. What we do is we know 20 years of networking, we know cybersecurity, we have a large team of people, a lot of young graduates as well who are AI engineers. And what we are doing is we are taking our know-how in networking and security. And using that as a foundation to create AI solutions that are value creating for our customers. Hendi Susanto: Got it. And then Dhrupad, I think when you talk about U.S. service providers, you refer like Tier 1. What does the opportunity in Tier 2 service provider look like at A10 now? Dhrupad Trivedi: So I think broadly. So this is not AI, right? But broadly speaking, I think in the Tier 2 service provider side, a few years ago, right there was a lot of discussion of government spending, rural broadband, things like that. Obviously, that has changed quite a bit, particularly with the government actually in shutdown now. So it's not that, but it's more that for those kind of carriers, our solution does not require them to fully rip and replace everything they do and then figure out how to monetize it or pay for it, right? Our solutions are more aligned on getting more out of those networks, doing more virtualization, things like CGNAT, which allows them to reuse addresses cheaper and so progress there is more on an economic value proposition based on our technology. It is not a substitute for a Tier 1 who might spend 5x as much, right? But it is something where we continue to see good resonance with our technology and solutions. Operator: Thank you. That concludes our Q&A session. I will now hand the conference back to Dhrupad Trivedi for closing remarks. Please go ahead. Dhrupad Trivedi: Thank you and thank you to all of our employees, customers and shareholders for joining us today and for your continued support. I am increasingly confident in our strategy and about our future. Thank you for your time and attention. Operator: Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.