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Operator: " Michael Cooper: " Unknown Executive: " Sairam Srinivas: " Cormark Securities Inc., Research Division Sam Damiani: " TD Cowen, Research Division Operator: Good morning, ladies and gentlemen. Welcome to the Dream Impact Trust Third Quarter Conference Call for Tuesday, November 4, 2025. Please advise the participants are in listen only mode and the conference is being recorded. [Operator Instructions] During this call, management of Dream Impact Trust may make statements containing forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the Trust's control that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. Additional information about these assumptions and risks and uncertainties is contained in the Trust's filings with the securities regulators, including its final long-form prospectus. These filings are also available on Dream Impact Trust's website at www.dreamimpacttrust.ca. Your host for today will be Mr. Michael Cooper, Portfolio Manager. Mr. Cooper, please proceed. Michael Cooper: Thank you, operator, and welcome to the listeners on our third quarter conference call. We're really quite pleased with how the third quarter has gone. We've made quite a bit of progress since our last call and our last results in August. In Ontario, and particularly in Toronto, the housing market is quite difficult. And we found some really innovative ways to deal with it and add value by moving projects forward. Now the difficulty, just to be clear, is really from the last decade of poor economic performance in Canada, increasing cost to build both in the -- from the private sector as well as from governments and the limited ability of residents in Toronto to earn sufficient income to afford the economic rent necessary to fund new developments. Dream is focused on attacking the affordability issues by partnering with governments to lower our costs with low interest loans and waivers of development charges. while including affordable apartments in our projects. We're providing a lot more affordable. So the savings we're achieving are getting passed on to our tenants in the portion of the building that's discounted. While we're one of the original pioneers of these public-private partnerships, they've become very common in our industry recently. Our experience and track record have supported our plans to build viable purpose-built rental projects on our lands, even when condominiums are not feasible and pure market apartment returns are too low to justify the risk. We await tonight important budget to see the specific housing initiatives to support providing additional housing and specifically affordable housing. The budget is also important to see how our government create an environment for new investments to grow the economy. And we're also waiting to see what the bond markets do tomorrow morning after they digest the budget. It's great to see that the government sees the problems we are facing and admits them. The steps they take next will have a big impact across the country and also have a significant impact on the short-term success of our business. Even prior to the introduction of these policies, Impact has made tremendous progress. I just want to go over a few of the examples of what we've achieved in the last 90 days. Our value-add apartments have been increasing their net operating income. We've had increased turnover and with turnover, we get to move to market rent. It's moving the low rents to higher rents that's driving the net operating income, even though market rents are a little lower than they were at the peak. For our purpose-built rental, we've been very pleased to see significant increases in leasing over the last while, and 2 of our buildings are approaching stabilization. These 2 buildings are funded with CMHC ACLP financing. And once we achieve stabilization, provided we have net operating income above that meets or exceeds our pro forma, the loans will become nonrecourse, which is a significant accomplishment, and we're looking forward to two of the buildings hitting that soon. In addition, we made a tremendous amount of progress at 49 Ontario. We're currently starting some of the demolition of the office building. It will be fully underway within 2 weeks. So construction has started, and we expect the CMHC debt to be finalized and advanced within the next 30 to 90 days. This will solidify $75 million of equity in the project or almost $4 per unit. And as the project progresses, that $4 per unit represented by 49 Ontario could grow to 7 with the profit of the development. With construction costs declining and the way of development charges, the returns are relatively attractive as the savings have offset the decline in rent. So we're very excited to get that project going. In addition, at Quayside, we're advancing with milestones being achieved weekly. We anticipate that by year-end, the only milestone left prior to starting construction will be the finalization of the CMHC financing and the construction should start in the second half of next year. Again, this will lock in the equity value in the land, and it should be another exciting investment with decent returns. We said one of our goals for this year was to decrease our land load significantly. Our goal is to get to $140 million of land loans. That would basically be 2 of our big projects, Brightwater Zibi plus land loans at Forma West, Victory Silos, and we want to get rid of Scarborough Junction. We're a little bit behind on that, but we're trending to where we want to be. Brightwater has had quite a few closings so far. We've got another 200 to go. We're very pleased with purchasers' closing ability. So that's pretty exciting. We're generating a fair amount of cash out of that. And we're also getting ready to start the next block, which had sales from 1.5 years ago, and that's a 220-unit condo unit building, and we expect that construction to start within the next couple of months. Otherwise, any new developments on our lands have been delayed, which is what we expected for the last couple of years. At Zibi, we are quite pleased with the leasing of the residential buildings and the progress at Odenak. We are approaching the commencement of Block 1 in Gatineau, which is the last building that we had budgeted to start this year, although, again, that's likely to be late into next year. As I was saying, at Brightwater and Zibi, we are developing the units slower because of the softness in the market, but we're making progress. We've also made progress continuing to renew debt as it expires. We also extended the Fairfax debenture out to 2031. And we've entered into a $15 million loan with Dream and are looking to increase that facility prior to year-end as we establish what the liquidity requirements are. Over the next few years, we expect to sell a similar amount of properties we have in the last few years. And with the Dream loan, we are well positioned to manage our liquidity over the next few years. Based on our current plan, we expect to have about 90% of our portfolio to be apartments by 2030 with a best-in-class portfolio with low-cost debt, stabilized with sufficient cash flow to meet all of our obligations and with some cash flow left over. We're aware that the public markets show little interesting impact currently. However, we have excellent assets, which we are making more productive at every level. At this point, I'd like to ask for Derrick to do his inaugural conference call address. Unknown Executive: Thank you, Michael, and good morning, everyone. In Q3 2025, the Trust recognized a net loss of $10.3 million compared to a net loss of $7.6 million in the prior year quarter. This change was largely driven by deferred tax recoveries and condo occupancies at Brightwater in the prior year quarter as well as respective fair value adjustments in each period. This was partially offset by earnings from our multifamily assets in lease-up. This includes Voda at Zibi as well as Birch House and Maple House, both at Canary Landing. For the recurring income segment, same-property NOI was $1.7 million, consistent with the prior year. Occupancy remained stable at 95%. With regards to our assets in lease-up, we are pleased with the increase in leasing performance over the third quarter. Overall, these assets are approximately 9% leased, up from 75% last quarter. We anticipate these assets will continue to contribute to NOI as they reach stabilization. For the Development segment, we reported a net loss of $1.4 million compared to a nominal net loss in the prior year. Results are not directly comparable as the prior year included occupancies at Brightwater and certain fair value adjustments. During Q3 2025, approximately 9% of the 106 unit block at Brightwater Town closed. In combination with Brightwater 1 and 2, we have completed closings for nearly 400 units over the past 12 months. The next block at Brightwater is Mason, which is expected to close by year-end. Construction is progressing at Cherry House and Odenak. Combined, these projects are expected to bring nearly 1,500 units to market over the next 2 years. We are advancing on construction at 49 Ontario and making progress with Quayside. These are significant projects, and overall, we expect to have positive cash flow once 49 Ontario is completed and stronger cash flows once Quayside is completed, which we anticipate will be in approximately 2030. We have made good progress working through our near and medium-term debt maturities. During the quarter, we reduced our outstanding debt position by over $119 million. This included extensions for $84 million of land loans for Zibi and Brightwater without a repayment. Additionally, the construction loan for Brightwater Town was repaid with proceeds from condo closings. We are working with our partners and lenders to address the remaining debt maturities for this year and into 2026. As noted in our August update, we expected to reduce land loads by $140 million this year. We plan on repaying the land loan at 49 Ontario within the next 90 days and have paid off $7 million in land loans related to Zibi. The remainder is largely related to a project where we reduced the debt by 1/3 or approximately $15 million and are working with our partners to repay the remaining debt. We are generally on target, but it may take a little bit longer than we had estimated. As at September 30, the Trust had cash on hand of $7.6 million. As previously announced, we have entered into an agreement to extend our 2026 convertible debentures totaling $30 million by 5 years. The extension is subject to unitholder approval and customary closing conditions. Subsequent to the quarter, the Trust entered into an agreement with Dream up to $15 million in financing with a 5-year term. The financing agreement demonstrates Dream's continued support of the trust and provides it with increased financial flexibility as we work through our upcoming developments and stabilize our completed assets. I will now turn it back to Michael. Michael Cooper: Thanks, Derrick. The stock price has definitely been under a lot of pressure, and it's been very disappointing. So it's hard to explain that we have some of the industry-leading projects that are advancing very well that are very exciting that look to be very profitable endeavors. The focus obviously is working on the balance sheet and the liquidity. And I think we've got ways to address that, that we're quite confident about. And we're also focusing on growing our rental properties, the value of our rental properties through increase in net operating income for the value-add properties, achieving stabilization for our completed purpose-built rental and for developing the land into new developments for Odenak, 49 Ontario and Quayside and also reducing the debt on lands or selling some of the lands. So that we shore up value and reduce risk. But I think that the message that's been so hard to communicate is the work that we're doing is excellent projects with tremendous support from governments that will realize a lot of value. With that, we'd be happy to answer any questions at this time. Operator: [Operator Instructions] Your first question comes from Sairam Srinivas with Cormark Securities. Sairam Srinivas: Michael, clearly, there's a lot that's gone on this quarter in terms of progress on leasing all the assets that were under development, and that's a great thing. When you kind of look at occupancy quarter-on-quarter, that's reflected. But when you look at rents, average rents are slightly down quarter-over-quarter. Would that be a function of any incentives you're seeing in the leasing environment? Or is it just generally that leasing is weak? And how does that compare to your point economic rents and what you would expect from these projects? Michael Cooper: So I think, firstly, on the value-add projects, we don't we don't usually have incentives. It's really on the purpose-built rental, which is common to have incentives. With these buildings, you finish a building that's 200 to 700 units, and you want to fill them up as quickly as you can. So use incentives to get the first tenants in. On top of that, what we've had is a lot of condo deliveries, which are effectively competition for new apartments. So we think this is near the bottom. There's going to continue to be more condo deliveries next year. The interesting thing is there's less new apartments being started. So what we're seeing is tons of apartments being delivered -- tons of condos being delivered this year that have put into the rental market. There's going to be a fair amount next year. And then I think what we're going to start to see is a reduction in the number of condos that are being rented as people start to buy them up for their own use at prices significantly below what they were sold for initially. So we think there's kind of a temporary jump in supply that's going to start to moderate. The new supply is going to stop coming from condos and apartments are even slower starting. So we think it's just a lot of turbulence right now. In our numbers, like on the new projects, we've probably reduced our expected rents by about 15% from where they might have been 1.5 years ago. But as I mentioned, construction costs have come in. Interest rates are reasonable. And for Quayside and Ontario, we've had development charge waivers. So even at that much lower rent, the returns are meaningful and in line with where we had hoped. The interesting thing is as we -- like when we look forward from these lower rents, we are not expecting any jumps in rent. We have a relatively historic average growth in rents from where they are now, where they're under a little bit of pressure. Does that help? Sairam Srinivas: That does, Michael. When you probably translate that into SPNOI growth, average rents overall in the multifamily same-property portfolio were up 7% year-over-year. Occupancy looks stable, but NOI seems to have actually been unchanged almost year-over-year. Can you kind of speak to the operational expenses perhaps on those assets? Unknown Executive: It's Derrick. So on those ones, what you'll see year-over-year is that there's higher operating expenses, and this is largely due to the timing of property taxes. So this quarter, we had property -- we received those and those, I think, for 3 months. So I think you'll see a slight decrease. But excluding those, I think it would have gone up instead of going down by about $100,000, it's going to go up by $200,000. So I think we do expect to see that to continue to grow going forward outside of the property tax items that were received during the quarter. Sairam Srinivas: That's great, Derrick. And perhaps, actually, while I have you, when you think about the financing stack and when you compare the projects that are currently coming up after leasing, the base of my question is that when we look 12 to 24 months from now and hopefully, when the market recovers, you would see these assets stabilize and start generating a more stabilized NOI. But when you look at financing, would you say the current level of financing is more temporary and there are some adjustments that could happen in terms of lower finance costs for these developments? Michael Cooper: So you're asking on the renewals, we would expect Well, firstly, on a lot of the projects, we've got longer-term debt. So the first project that we have coming up is around 2029, 2030 for the new builds. And then some of the debt is going to be in 2034, 2036 kind of stuff. On the value-add, we're probably -- we put debt on at a very good time. As that comes up, it will be up a little bit higher. Sairam Srinivas: All right. That makes sense, Michael. And my last question is on Brightwater. As far as the sales go, Derrik, can you run me through the revenue recognition of it? Is it recognized in Q3? Or do you expect more to come in Q4? Unknown Executive: It would be in Q4. So the occupancies for Brightwater, the others happened in Q2. In Q3, we had closings on that. And then in Q4, we had another closing, which will be the Mason. And just to be clear, we recognize the profit during occupancy, not at closing. So what Gary is referring to is when we have closings coming up, we may have already recognized that profit, but we're going to get the cash and pay down debt, which is also important. So we're closing about 200 units, but I think we've already recognized that profit, but we're going to have some other units closed at occupying, which will provide a little bit more revenue recognition. That's right. So there's no revenue going to be in Q4. It will be all cash related to the closing. Operator: [Operator Instructions] Your next question comes from the line of Sam Damiani with TD Cowen. Sam Damiani: Just on the disposition strategy, can you give a little bit of color on -- in terms of what you expect to see, I guess, over the next quarter or 2 in terms of dispositions? Michael Cooper: Yes, that's a pretty short time frame. I think over the next quarter or 2, we're going to sell the 10% of 49 Ontario. We hope to have a contract to sell the excess land at 49 Ontario. And don't hold me to whether it's the next quarter or 2 or the quarter after that. And I think we're looking at one commercial property that there's some action on, but I doubt that will be in the next quarter or 2. So I think we've got some transactions in the second half of 2026 for the most part. Sam Damiani: And then beyond that, Michael, you're still looking at selling more in the fullness of time? Michael Cooper: Yes. I think that we're probably going to want to like lighten up on the commercial properties. And maybe I wasn't clear. We're clearly going to as close to an all apartment business as we can. So we expect to see that happen over the time. We've got some condos that will be finishing. We've got some land. But generally, I think we're going to try to focus really on the apartments. Sam Damiani: Okay. Helpful. And just on the loan from Dream, I mean, how much bigger could that get beyond the $15 million? Michael Cooper: It's a great question. I mean we thought about putting it in the press release and decided not to. So I'm just thinking out loud, I probably wouldn't say it here either. But what I would say is we have a very busy November and December on a lot of fronts that is going to have an effect on how much liquidity is required. So it could vary by $10 million or $20 million based on some of the things that happened this fall. But we'll provide more details. I mean, obviously, one of the issues is Dream Unlimited has their Board meeting after Dream Impact Trust. So we've got to discuss it with them, and then we're going to size it as we get a little bit more information. Sam Damiani: And then the plans to ultimately repay that loan would come from asset sales or what would be the source of funds to repay those loans? Michael Cooper: That's another great question. The concept is to be a 5-year loan. I think that Dream's view is to make sure that they don't have the money at risk to get a fair return, but really to support the trust. And I think that the view would be to look at the business once there's a completion of 49 Ontario and Quayside is mostly finished. But they're going to represent a tremendous amount of the value of this business. So we'll take a look at that in 2030 and decide whether that capital gets repaid, stayed outstanding as debt or some type of potential equity, but that's way in the future. All I'm trying to get at is it's a very supportive lender who will be looking out to make sure that the best outcome possible for Dream Unlimited and Dream Impact Trust. And all I'm saying there, Sam, is you don't have to look at exactly like where the proceeds are going to come from. We're working very hard to have like 90% apartments, have decent free cash flow. And at that point, we'll take a look and say, okay, what should we be doing with the company now that it's really -- a lot of the risk is diminished. We'll look at the balance sheet, and we'll kind of decide where do we go from here and Dream would look at what to do with the debt at that time. The last point would be that the loan will be a 5-year loan on paper, and that is the actual rights and obligations. And the other part is just saying that that's how the 2 parties have conducted themselves in the past and likely to conduct themselves in the future. Does that make sense? Legally, it to be a 5-year loan. Sorry, operator. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Cooper for any closing remarks. Michael Cooper: Thank you, operator. Thank you for listening. And I don't have any closing comments. I sort of put them in my opening comments. Thank you, everybody. Derrick and I are available all the time. Give us a shout if you want to discuss any further. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good morning, and welcome to the Graphic Packaging Third Quarter 2025 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Mark Connelly, Senior Vice President of Investor Strategy and Development. The floor is yours. Mark Connelly: Good morning. We have with us today Mike Doss, President and Chief Executive Officer; Steve Scherger, Executive Vice President and Chief Financial Officer; and Chuck Lischer, Senior Vice President and Chief Accounting Officer. During this call, we will reference our third quarter 2025 earnings presentation available through this webcast and on our website at www.graphicpkg.com. Today's presentation will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in today's press release and in our SEC filings. Now let me turn the call over to Mike. Michael Doss: Thank you, Mark, and good morning and good afternoon. Thank you for joining our call today. I want to start by taking a moment to acknowledge the enormous contributions that Steve Scherger has made over the past decade as Graphic Packaging's Chief Financial Officer. As announced last month, Steve has decided to leave Graphic Packaging to take on a new challenge. He has stayed with us through this week to close the books on our third quarter, and I appreciate that. Steve was my partner in the development and execution of our business transformation from the acquisition of International Paper's consumer business and more than a dozen acquisitions to our Kalamazoo and Waco investments. His impact on the team we have built and the culture we have created at Graphic Packaging will shape our company for years to come. I will miss his counsel. I'm pleased to introduce Chuck Lischer, who Steve hired in 2019 as our Chief Accounting Officer. Chuck will take on the new role of Interim Chief Financial Officer. Chuck has been a key member of our leadership team and involved in every major decision Steve and I have made. We are fortunate to have someone with Chuck's deep knowledge stepping in as we pivot from Vision 2025's investment to Vision 2030's free cash flow. Now let's turn to the quarter. Graphic Packaging sales were $2.2 billion. Adjusted EBITDA was $383 million, adjusted EBITDA margin was 17.5% and adjusted EPS was $0.58. While the challenges of a stretched consumer and the impact on grocery volumes is well chronicled, we are focused on what we can control. We executed well in the quarter, made progress on costs and reduced inventory. Meanwhile, our innovation platform continues to open up new markets for paperboard packaging, once again allowing us to outperform the broader markets we serve. Turning to Slide 3. I'm pleased to announce that we produced the first commercially saleable rolled paperboard at our Waco recycled paperboard manufacturing facility on October 24. That was significantly earlier than our plan and faster even than our highly successful K2 start-up in Kalamazoo in 2022. I could not be more proud of our team, many of whom were part of our team that built our Kalamazoo K2 machine. I want to thank our contractors, and I'm incredibly grateful for the strong support we received from the Waco community from Governor Abbott and the State of Texas. Waco was Graphic Packaging's largest capital investment and extends our economic and quality advantage in recycled paperboard across all of North America. Waco is a critical enabler for the consumer packaging we sell, improving surety of supply, reducing waste, allowing us to only offer the highest quality packaging materials and expanding the markets our recycled paperboard packaging can serve. Having Waco in our system gives us competitive advantage that will last for decades. The Waco facility sits in the Texas Triangle, which is a highly attractive location for recovered fiber sourcing given its proximity to 4 major cities. Our team also developed an internal fiber sourcing plan, which allows us to bring scrap paperboard from our packaging facilities to Waco. This is exceptionally clean and very low-cost fiber. True circularity isn't just about the environment, done right, it's also about sound business economics. By closing the loop between our own manufacturing system scrap and Waco's recovered fiber sourcing, we dramatically reduce overall system waste while simultaneously improving our production economics. And with the inclusion of paper cups in the Recycled Materials Association's recently updated guidelines, a key strategic investment we made at Waco looks even better. We designed Waco to have the capability to process up to 15 million paper cups a day. And as cup collection ramps up, graphic packaging will play a key role in ensuring this high-value fiber source is put to good use rather than ending up as landfill. As previously announced, the ramp-up to full production at Waco is expected to take 12 to 18 months. The start-up of Waco marks the end of our Vision 2025 transformation program. We now have everything we need, strong positions across a wide range of markets to drive top line consistency the packaging industry's best innovation team to open new markets for paperboard and an integrated packaging platform with durable, substantial long-term competitive advantage. On October 30, we formally announced that our East Angus recycled paperboard manufacturing facility will cease production, December 23. Taken together with our earlier Middletown closure and the recent closures by others, Waco will add just a couple of percent to total capacity, only about 75,000 tons more than the industry had at the start of 2025. As was the case in Kalamazoo, we do not expect the startup of Waco to materially impact recycled paperboard market balance. Graphic Packaging has a long and consistent practice of matching our board production to our demand for our packaging. Turning to Slide 4. The pressure on the consumers is evident by the grocery volumes. Increasingly, we hear from our CPG customers that the consumer market has bifurcated. Upper income consumers are still spending, but are spending differently and more carefully. Lower income consumers continue to cut back as food prices rise further. And in the third quarter, we also saw more of our CPG customers timing their purchases as a way to manage cash, which has made order flows less predictable. In the third quarter, our volumes were down 2% year-on-year, again, outperforming most of the markets we serve. We also saw some incremental price deterioration, not so much in paperboard, but in packaging pricing. Recycled and unbleached packaging markets are in good balance, but we continue to see highly unusual competitive pressure from bleached packaging producers who normally wouldn't choose to compete directly with recycled because their costs are so much higher. Yet we are seeing competitors offering discounts on bleached packaging that essentially matches recycled packaging pricing despite the obvious lack of profitability at that those kinds of prices apply. Given that bleached capital costs and annual sustaining capital requirements are dramatically higher, we don't believe that the situation is sustainable. With the investments we have made at Kalamazoo and Waco, we can match bleached paperboards appearance and print performance with a sheet that costs significantly less to make on equipment that requires a fraction of the capital to maintain. We believe that our investments have put us in the sweet spot for all 3 packaging substrates and that our economics and quality create a durable long-term competitive advantage. Over time, we expect our recycled paperboard to replace more expensive bleached paperboard in a range of markets. As we discussed last quarter, we are not a meaningful participant in open market bleached paperboard. But the impact of a large imbalance in that market has been to reduce the pricing power in recycled and unbleached packaging. Recycled and unbleached are our primary markets, and both are healthy and in good balance. So this is really about margin pressure rather than market share. Looking at our markets. Food and household products were steady overall, while beverage and foodservice were weaker. Health and Beauty, which is mostly a European business for us, was again solid. Beverage promotion returned to a relatively normal pattern this year, but promotional activity for food and foodservice remains highly targeted, an approach which has not driven meaningful volume of foot traffic. Mass retail, superstores and discount grocers continue to take share from traditional grocers. That is one of the driving forces behind the surge in private label offerings, although traditional grocers have increasingly embraced store brands as well. In the past 2 years, literally thousands of private label and store brand SKUs have been introduced and trademark data suggests the trend will continue into 2026. Meanwhile, our innovation portfolio continues to expand. Innovation is steadily opening up in new markets for our paperboard packaging from household products to protein to produce. Turning to Slide 5. The breadth and depth of our consumer staples packaging portfolio is especially important in times like these, where consumer purchasing patterns are rapidly evolving. We are in every grocery aisle in supermarkets and superstores and are a major packaging supplier to quick service restaurants. We are introducing recycled paperboard packaging to more markets and more categories, including household products and health and beauty as customers increasingly embrace our paperboard as a less expensive, more responsible choice that consumers [indiscernible]. Turning to Slide 6. Excluding the effect of FX, third quarter packaging sales were down approximately 2% year-over-year, a modest deceleration from second quarter market trends. Food results were roughly flat overall with continued uneven performance in the Americas, partially offset by strength in international, although as we have previously noted, consumers in our international markets are also feeling the stress of high prices. As in past quarters, no clear category trends are emerging. We see targeted promotion that shifts from product to product and brand to brand, but has been insufficient to drive overall volumes higher. As our customers evaluate the effectiveness of promotion, they are also developing clear insights into price points where customer purchases either grow or decline rapidly. So for example, a $0.25 price increase of $4.50 to $4.75 may not cause a big change in demand, but a $0.25 increase from $4.75 to $5 might cause a major decline in sales. Getting a better handle on that sort of price sensitivity should help our customers as they work to reposition, resize and reformulate. In beverage, we saw a welcome return to a more normal promotional activity this summer, which helped drive soft drink multipack demand. The longer-term trend towards less beer consumption continued both in the Americas and in international markets. Keep in mind that while trends in multipack demand do track references like Nielsen over the medium term, leads and legs can vary, particularly when beverages are purchased and when they're concerned. A 12-pack, for example, will tend to be consumed more quickly if it goes directly into the refrigerator. So when you have a 2-for-1 promotion, it can be a bit harder to predict when consumers will be back to buy more. Some of the normal second quarter beer production shutdowns that typically occur around the 4th of July holiday were deferred this year and are now scheduled for the fourth quarter. The impact of that shift is difficult to predict, but represents an effort by our customers to match their own production to demand. We serve beverage producers of all kinds and sizes with multipacks for cans, bottles and plastic. Over time, we expect to outperform the overall beverage market, both in the Americas and in our international business, thanks to our innovation portfolio and the strength of our integrated beverage packaging model. Foodservice results are broadly weaker as has been well telegraphed by the media. While affordability has been the primary challenge to foot traffic and volumes, this is also the category with the most bleached paperboard packaging and bleached packaging is where we have seen the most unusual competitive behavior, which is affecting sales as well as profitability. Our smaller international foodservice business continues to perform very well with new product innovation and strong execution driving continued volume improvement. In household products in the Americas, we see consumers reducing purchases and shifting to private label alternatives. Our international business continues to provide a significant offset, largely driven by our product innovation. Health and beauty is a relatively small and mostly international business for us that has significant potential to grow over time in the Americas. Slide 7 highlights our 5 packaging innovation platforms. Innovation is a critical component of our strategy because our innovation team is opening up entirely new markets for paperboard packaging. In the past couple of years, our innovations have taken us into meat protein, freshly prepared food, ready meals in Europe, ground coffee and a host of markets which were traditionally dominated by plastic and foam. Innovation is why we are confident in our ability to grow faster than the QSR and CPG markets we serve. On Slide 8, we highlight an innovation that demonstrates our market expansion. In the produce aisle and especially with small fruits and vegetables, plastic punnets are the traditional packaging standard. But while plastic punnets are cost effective, their performance and consumer appeal is mixed at best and recycling rates are low. As our customers look for better functionality and greater consumer appeal, we have developed a family of paperboard punnets, including open, top seal and clamshell designs that use up to 95% less plastic and are recyclable in most existing programs. On this slide, we highlight our ProducePack top-selling punnet. These examples are from 2 of our large store brand customers, Marks & Spencer and Tesco in the U.K. Fruits and vegetables are packed in many different ways depending on the grower, the scale and the market. So we designed our punnets to work on the same automated lines as plastic punnets and minimize switching costs and to be superior plastic alternatives where more handling is involved. Our clamshell design, for example, serves a handpacked market. But unlike the plastic clamshell, ours can be locked into a closed position with one hand, improving labor efficiency. When we began this project, our team studied the science of food ripening and developed containers that have a meaningfully positive impact on how long some fruits and vegetables stay fresh. In cherry tomatoes, for example, a third party has verified an increase in shelf life of more than 3 days, a really big advantage for highly perishable product. Other tests being demonstrated that our paperboard punnets slowed the mold growth compared to plastic alternatives. Our punnets also offer outstanding visibility inside now, something you can't get with plastic. That gives the growers and retailers a way to increase their brand marketing impact to distinguish more easily between products and quality levels and to educate consumers about what they are buying. Our paperboard punnets, along with other new innovations like our PaperSeal line are a perfect fit with today's trends towards healthier eating and the growing use of GLP-1. And they are great examples of just how effectively Graphic Packaging moves with the consumer. Turning to Slide 9. Our vision for Graphic Packaging is clear, and my confidence in our business model remains strong. Innovation, culture and the commitment to making packaging that is better for the planet are fundamental to driving best-in-class results for our customers and for all of our stakeholders. With Waco now ramping up, we have everything we need to reach our Vision 2030 goals. And that means we can turn our full attention to execution and driving cash flow. On Slide 10, we summarize our financial results. I've already described the big drivers of sales and margin performance. Slide 11 highlights the still challenging consumer packaging environment on the left and the strength of our business model and execution on the right. Delivering margin improvement in the face of sequential price volume pressure is a testament to the strength of our model and the value we bring to our customers. While we are not satisfied with the current results, we are confident that we can meaningfully improve margins as demand and competitive behavior normalize. Turning to Slide 12. We used $150 million to repurchase approximately [ 6.8 million ] of the company's outstanding shares year-to-date, reducing shares outstanding by 2.3% in 2025 after a similar reduction in 2024. We have repurchased approximately 24% of the company since 2018. Turning to the outlook on Slide 13. We have modestly revised our guidance to reflect performance to date and our best view of what's been an increasingly difficult to predict volume outlook. In this environment, we are focused on the things we can control, and that includes cost and inventory. We are assessing opportunities to further reduce SG&A and finding other opportunities to reduce costs, which I believe will further cement our significant efficiency and margin advantage over competitors. You saw us take action to reduce inventory in the second and third quarters, and we will continue to drive inventory out of our system as we reoptimize around Waco and Kalamazoo. In the fourth quarter, we will take further action to balance production with customer demand, which we expect to have approximately a $15 million impact on EBITDA. These decisions are intended to protect our margin profile and to protect our volume. At a time when competitors are running for cash and signing contracts that we believe carry margins well below the cost of capital, we are focused on protecting our industry-leading margins and protecting share where we are the best and most logical supplier in the medium and long term. We are using this period of unusual competitive behavior to align our order books with customers who understand the durable competitive advantages that we have in innovation, cost, efficiency and quality. Our year-end leverage target is up modestly. That is mainly a function of the change in our EBITDA expectations as well as our decision to take advantage of the dislocation in our share price with additional share repurchases in the third quarter. Graphic Packaging has doubled in sales and EBITDA since 2017 and maintaining prudent debt levels has always been a major factor in the company's success. With our Waco investment nearing completion, we expect a significant free cash flow inflection and we will prioritize deleveraging alongside our other uses of cash in 2026 and beyond. In keeping with our commitment to prudent use of leverage and maintaining financial flexibility, we made an important financing transaction in October. As detailed in a recent 8-K, we've entered into a $400 million delayed draw term loan, which will be used to repay the bonds maturing in April of 2026. This loan has a floating rate 35 basis points lower than our revolver and matures in June of 2027. This new financing addresses the upcoming bond maturity while giving us more time to decide whether longer-term financing is needed. Given the substantial cash flow we expect to generate in 2026 and beyond, the flexibility of prepayable debt is particularly attractive now. Our current cost of debt is approximately 4.5%. As a reminder, with the Waco investment effectively complete, our capital spending will decline significantly to approximately 5% of sales. Capital spending is the largest driver of our expected cash flow inflection. With the team we now have in place and the levers we have to pull, I'm confident in our ability to generate our targeted $700 million to $800 million of free cash flow in 2026. Let me be very clear about this. We can't control demand and lately, we can't predict it any better than our customers or our competitors can. But Graphic Packaging is at a very different place today. With Waco complete, we have the industry's best assets and best cost position. And we have far greater control over our ability to generate free cash flow than we did a year ago. While competitors are restructuring spending and lately making short-term deals that don't generate cost of capital returns, Graphic Packaging continues to focus on delivering results for our customers and our stockholders. We have everything we need, and the next 5 years are about innovation, execution and free cash flow. Graphic Packaging is in a better place to create lasting value for our stockholders than ever before. In the appendix that begins with Slide 15, you'll find some additional information you may find helpful. That concludes our prepared remarks. Operator, let's begin with Q&A. Operator: [Operator Instructions] And the first question today is coming from Ghansham Panjabi from Baird. Ghansham Panjabi: I guess, first off, just wanted to congratulate Steve. I wish him the best for the future. Obviously, a great run at the company and look forward to your next role. So congrats again. So my first question, Mike, just kind of looking back at 3Q, did the end markets track pretty much what you thought, but the difference was just the share shift because of the bleach board conversion? And related to that, why would that dynamic change near term, barring some sort of inflection higher in volumes? Stephen Scherger: Ghansham, it's Steve. Just thank you for those very kind words, and I'll let Mike jump into the response here in a moment. But it has been just a phenomenal opportunity over the last 10 years. I want to thank Mike personally, just a phenomenal partnership, a true opportunity to work hand-in-hand with him, which has been just a wonderful and honorable experience. Probably looking ahead, though, as excited for the business as it could be if you look out now with the investments that have been made, Waco coming to life, above cost of capital returns out into the future, the business is incredibly well positioned for success going forward and the cash flow inflection that's happening as we sit here on this call with you today is outstanding. So my thanks to Mike personally for all that we did together and look forward to what lies ahead as well. So thanks for that, Mike. Michael Doss: Thank you, Steve. It's been a real honor. To your question, Ghansham, in terms of expectations in the quarter versus the results we realized, first, I want to clarify there was no share loss for us there. That was really a function of customer purchasing patterns. And when you look at their volumetric performance through second quarter and into third quarter and the third quarter material that's been released so far by a handful of our larger customers, it shows we're actually outperforming their overall volumetric performance, and that's really a function of our innovation. Our innovation in the quarter was another $52 million, roughly 2%. So that's helping us kind of outperform some of the challenges that they're seeing in terms of their volumetric performance. Stephen Scherger: Okay. And then in terms of -- with all the dynamics that are occurring, do you still feel confident with the Waco EBITDA contribution specific to next year? Or does that depend on some of the dynamics in the marketplace that are taking place at this point? Michael Doss: No, thank you for that. Look, I'm very confident in Waco's ramp-up in delivering the $80 million that we talked about. And obviously, there's another $80 million behind that. By way of reminder, the first $100 million of that -- those savings was really a function of the mill closures, Middletown, which was closed at the end of May, as you know, and now we formally announced our East Angus facility in Quebec will close by year-end. So that's all in line. Relative to the total impact of that in 2026, we have to see kind of what the volumes look like as we go into 2026. I mean if volumes are largely flat year-on-year, that's a different outcome than when they're down 2%. So if they're down a little bit next year, then we will need to look at our Kalamazoo K1 machine, and we'll run that in a way that allows us to optimize operating our K2 machine in Kalamazoo, which is our most efficient and Waco, which will be our most efficient paperboard manufacturing facility. And if we do need to toggle a little bit, we can take some downtime on our K1 machine, and we're able to do that at a very reasonable cost. Operator: Your next question is coming from George Staphos from BofA. George Staphos: Appreciate the details. Also want to make a quick shout out to Steve. Really important drivers, as you mentioned, Mike, of what Graphics become the last 10 years and really thank -- want to thank him for all the support he's had given us all on this phone, both in terms of our industry research and our research on graphics. So Steve, thanks so much. In terms of my questions, you mentioned, Mike, the opportunity perhaps to further improve productivity and the like. And that's my phrasing, not necessarily yours. What opportunity do you think you have? How important is that in terms of Waco and the commercial opportunities and to some degree, the commercial challenges now that you're facing in the market to getting to that $80 million plus? How much of that additional cost reduction, SG&A and so on is required? Or would it be additive? And then I had a follow-on. Michael Doss: I think the big part of that, my confidence in the $80 million on the Waco ramp-up for '26 is very high, George. I mean the facility, as I said in my prepared comments, has come up a little faster than we even expected. We're very happy with what we see so far. So that's there. I think the bigger question is around our visibility and what the end-use markets are doing as we head into 2026. And as I said in my prepared comments, what we're really going to focus in on the things that we can control. So we've got some unusual competitive activity going on right now, as I mentioned, around bleached paperboard. We don't necessarily control that. We don't necessarily control what the overall volumetric performance of our customers are. They're working very heavily on that. You hear and read about the things they're trying to do to get their businesses going in the right direction. So we're obviously cheering for them. But in the meantime, we've got a number of levers that we can pull to really make sure that we operate the business as efficiently and effectively as possible. And those kind of in order are -- first thing is CapEx is going to revert back to a more normalized level to 5% or below. That's going to generate in excess of $350 million of free cash flow just by that. And ultimately, even though, as you well know, we've got a very low cost structure here, we're looking at every cost, SG&A and plant costs that really allow us to make sure that we don't impact customer service levels -- but given some of the realities we've got going on in the market, we've got to challenge all those things. And we're doing that stuff internally here. So we'll continue to do that. And ultimately, taking a look at our inventory situation, you've seen we've released -- had a capital release so far this year of about $30 million. We expect upwards of another $20 million here in Q4. And as we go into next year, that will be another area we're really looking at hard because with Waco and Kalamazoo online, if you think about it, we now have 5 very well-capitalized paperboard manufacturing facilities. And that gives us a unique perspective to be able to look at our overall system, look at our supply chains, take a step back and really make sure that we're challenging kind of where we're at and what we can do. So those are the levers that we really have in our control. That's how I'm thinking about it. As I mentioned to Ghansham, if we need to take a -- to manage our supply and demand on our coated recycled paperboard as Waco really ramps up quick, we can toggle our K1 machine. We're able to do that and we're able to do it cost effectively. George Staphos: My other question, just more of an end market question. So foodservice, I think from the chart was one of the end markets that wasn't doing as well for you in the quarter. Foodservice has been kind of an interesting market from our observations, right? You've had fast casual not doing so well, but quick service has been picking up some steam. What kind of trends were you seeing into the fourth quarter? And to the extent the customers can know and you can share, you might be limited in either ability, what do you think -- ability to talk about it, what do you think is the outlook for foodservice there? And if that picks up, it's actually a relatively higher-margin end market for you? Michael Doss: Thanks for that question. I think the -- you said it well. I mean the fast casual is definitely under pressure. I mean, last week, you had Chipotle release. I won't go through all the comments, but the CEO really talked about the 25- to 35-year-old consumer, unemployment levels being higher, disposable income being lower. And in his words, that was driving them back into the grocery store. And again, I think that's a worthwhile comment to make, and I bring it up because, as you know, we've built our portfolio to move with the consumer. So if that shift happens, given we're in every aisle of the grocery store, we actually are okay. We do see that trend around more of the QSR impact, which makes sense given the price points of QSR versus fast casual, and we're there. And we also think that we've got a number of innovation ideas that we're working with those customers that ultimately will allow us to continue to earn a place at the table and grow our volumes. So that's how we're thinking about that dynamic. George Staphos: Do you think it grows, Mike, next year, I guess, just to draw a bow on it or tie a bow on it? Michael Doss: I'd like to believe so. But again, George, it's just difficult for me to talk about demand. I mean I think about a quarter, our customers have a hard time doing it. If it does for us, it will be most likely because of innovation. Operator: Your next question is coming from Matt Roberts from Raymond James. Matthew Roberts: Steve, I'll echo everybody else's thanks. Appreciate your comments and all the time over the years. And if you want to get a RISI comment on this last question, I'll cede the floor to you. But maybe on the competitive price pressure on SBS and CUK on CRB, I apologize if I missed it. How much of a drag was that in 4Q? How long are you expecting it to last? And while I believe your SBS is mostly cup stock, are you able to sell incremental SBS or CUK similar to your competitors at the expense of CRB given that price spread? Or how has your own sales mix by paper types changed in this environment? Or do you expect any shift in 2026? Any incremental color on how the tons from Waco layer in over 2026 and that impacts your mix would be helpful. Michael Doss: Yes. Thanks, Matt. So I'm going to address the SBS, CRB, CUK comments. We've had a fair amount of inbound in that, as you can imagine, over the last week or so. So the first thing you need to know and you see it in our volumes, we have not lost any share. And we're going to be very focused on making sure we don't lose any share because of that, if you think about it, you've got a product in making SBS and we make it. We've got a mill that does it Texarkana. We know the cost structure on that. It's much more expensive to make than coated recycled paperboard. So from our standpoint, we would never substitute SBS for CRB given the cost advantage we have. And in fact, it's lower cost to make CRB, coated recycled paperboard than it is to make bleached paperboard. So the margin profile, just simple arithmetic there in terms of what that looks like. And again, we're operating that mill and we operate Kalamazoo and Waco. And what I'll tell you is that the CapEx requirements of a virgin paperboard manufacturing facility are 4x what they are coated recycled paperboard facility. That is, again, part of the decision we made when we invested so heavy in Kalamazoo and in Waco because of that phenomenon. So over the medium to long term, we're highly confident that we can continue to not only protect our share but win share from bleached because the cost of capital returns start to get in the way there. And ultimately, that's something that needs to find its own level. There's -- I think RISI in their last article or so talked about 500,000 tons of excess bleach capacity in the North American market. We'd agree with that, if not a little bit more. So that's got to be dealt with. That's really not something that Graphic will deal with. As you know, our focus is on package sales, make cartons, we make wraps, we make cups. We sell value-added packaging. 95% of everything we do is in that area. So from our standpoint, and I mentioned this in my prepared comments, most of this was on the package price and not on the actual paperboard level itself, which makes sense, given the dynamic we saw and what you saw happen with pricing in the quarter. We're confident in our ability to, over time, not only protect our share, but continue to grow it with the high-quality, low-cost material we have coming out of our coated recycled platform. So hopefully, that gives you a little bit of color on how we're thinking about it. Matthew Roberts: Certainly. Really appreciate it, Mike, as always. And maybe I could squeeze one quick follow-up in. On the cash flow for next year, any flexibility in terms of the CapEx number you said, I think, 5% of sales or lower. Any growth projects that you could potentially defer and bring that 5% in any lower or any other cash costs associated with the ramp-up? Michael Doss: Yes. It's -- we're looking at all that as you'd expect, and we'll dial that in next time we talk to you, we'll give you a little bit clear view into kind of what that looks like for 2026, obviously. But it's a good question and something we're looking at all the time. But what I'm very confident is the $350 million of inflection that will occur year-on-year. Operator: Your next question is coming from Charlie Muir-Sands from BNP. Charlie Muir-Sands: Just firstly, on Waco, can you just give some clarification around the phasing. You've obviously guided the start-up costs of the $65 million to $75 million. Have they been largely incurred now? Or do they step up sequentially into the fourth quarter? And how should we be thinking about those in this year versus next year? I mean effectively, is the step-up reversal of those plus the $80 million? Or would that be double counting? That's the first question. Michael Doss: My apologies if I don't hit this properly. I'm having a difficult time hearing you. I think your question was around the phasing of the onetime costs associated with Waco, which is outlined in the materials to be $65 million to $75 million. Assuming that was your question, the phasing of that is like a 2/3 this year, 1/3 2026. And if I didn't get it right, please come back. Charlie Muir-Sands: Great. Hopefully, you can hear me. Can you also give us an update on the progress in selling your PaceSetter Rainier premium CRB. Are you achieving specific price premium for that now? And then one final piece is, can you just talk about the deleverage that you're expecting in the fourth quarter to get to the 3.5 to 3.7x net debt to EBITDA at year-end? Michael Doss: Yes. Thanks for that. So I'm going to address the question around Rainier first, and then I'll cover the leverage. Listen, on Rainier, it's a great product. And one of the great things we have is we've got the most modern cleaning systems in both Kalamazoo and in Waco that give us tremendous competitive advantage over anybody else in the North American market. We've got curtain coaters on all 3 of our paper machines that give us the ability to really have brightness that approaches bleached paperboard levels. Now Rainier is actually used -- it's one of the tools we're using to make sure we don't lose any share as we're competing against the SBS guys. Now ultimately, that does have some margin impact. The pricing we would expect to get is a little lower, as you would appreciate because they're lowering their packaged prices to compete with CRB. So that's something we have to work our way through, but we have the levers to pull and we have the capabilities to do it. So I really am happy that we've got that great in our portfolio of mix. And relative to year-end leverage, yes, we've got a range of 3.5 to 3.7 for year-end numbers in terms of overall debt. That's really a function of a little bit of reduced EBITDA number, as you can imagine, and the fact that we wanted to be opportunistic to buy back some shares this year given the dislocation. We talked to our Board about that and given the ultimate inflection of free cash flow that will happen here in 2026, that made sense to do. And as I said in my prepared comments, as we go into 2026 with that free cash flow, we'll be looking to delever as well as return cash to shareholders in a way that makes sense and drives long-term shareholder value. Mark Connelly: Charlie, this is Mark. You'll recall that Q4 is typically a positive free cash quarter for us. And so that will help us get that leverage down to the range we're looking for. Operator: Your next question is coming from Gabe Hajde from Wells Fargo. Gabe Hajde: Steve, pleasure working with you. I had a question about working capital and cash flow as well into next year. Steve, can you help us with some of the AR factoring that's been done or reverse factoring? Just give us a sense for what that looks like and maybe how that will be managed into 2026? Michael Doss: Mark, why don't you handle that question, if you would? Stephen Scherger: Yes, Mark -- we'll let Mark handle it. This is Steve. The question is around AR finance, accounts receivable financing. There won't be any material changes year-over-year relative to that in terms of the expectations of where we would be at the end of '25 versus '26. That's not really an enabler for cash flow in '26. As Mike mentioned in his comments, the '26 cash flow enablement is really about reduced CapEx, reduced inventory levels, also some managing of SG&A costs. Those are going to be the levers that will be pulled to drive cash flow, that confidence in the $700 million to $800 million. So it won't be around -- it won't be about accounts receivable programs being materially different. And just to clarify, Gabe, CapEx this year running $850 million, $450 million next year. So that delta is $400 million cash flow inflection. Gabe Hajde: Okay. And then unfortunately, I feel like there's still some confusion around the start-up costs, the $65 million to $75 million. Can you give us a little bit more specificity around if that's capitalized interest costs, if those are kind of, I'll call them, wasted tons, but rolling test tons off and recycling them through. And if I heard you right, Mike, there's $65 million to $75 million this year, and that reduces down to $35 million next year, so for a net positive of $30 million. And again, is that -- is that the same as the $80 million that we're talking about in terms of contribution from the investment? Michael Doss: Okay. So there's a number of things to unpack there. The $80 million EBITDA run rate. So that's on the EBITDA line into next year. The $65 million to $75 million, and this is -- we've talked about this a number of quarters now, are the onetime costs, cash costs associated with the start-up of the machine. Charlie's question was what's the phasing of that? Of that $65 million to $75 million, 2/3 of that in this year, 1/3 of it is in next year. And I'm going to ask Chuck Lischer to give a little bit of detail on the breakdown of that just high-level buckets so that you kind of understand what we're talking about there, Gabe. Charles Lischer: Yes. That's mostly just the operating costs associated with running the facility prior to startup. So as we train the team and bring the team on board to have the facility ready to be up and running. Anything that does not get capitalized is what we've been capturing in that $65 million to $75 million. And yes, that is a multiyear number, not just a single year number, the $65 million to $75 million. The other point on the capitalized interest, that, of course, is something that we do during the period of construction. That will, of course, stop once the asset comes into service. So we won't see capitalized interest again in 2026. Gabe Hajde: Okay. Or in Q4? Charles Lischer: Well, a little bit -- potentially a little bit in Q4 as the asset came in service during Q4. And there's a little bit of continued spend, but -- and then just regular capitalized interest. But for the primary Waco asset, then that would cease. Operator: Your next question is coming from Arun Viswanathan from RBC. Arun Viswanathan: Steve, great working with you. Thanks for all the help and insight over the years and look forward to the next chapter as well. So I guess my question is around maybe initial thoughts on '26 and specifically around Waco, maybe you can just kind of give us some of the assumptions underlying the $80 million EBITDA uplift and if those are still intact. I believe most of those are around cost per ton. But is there any volume component? And then related matter, I guess, do you still feel the same way about '27 as well, another $80 million uplift? Or is that also somewhat volume dependent? Michael Doss: So Arun, I'm going to kind of take a step back and make sure I kind of walk through this again so that I want to make sure that my points are clear here. We're very confident in our ability to deliver $80 million in Waco as it ramps up next year. And then in 2027, there'll be another $80 million. By way of a reminder, that's $160 million in total. $100 million of that, as I mentioned, is focused on kind of the fixed cost of not running Middletown and East Angus. So that will come in there next year. We'll be ramping up. We won't be at full run rate, as I said in my prepared remarks, from a volumetric standpoint for 12 to 18 months, but our confidence level in the $80 million for next year is very high. We had always said that as we kind of brought it online in the outlying years, we need some volumetric growth. That hasn't changed. And the way we're going to deal with that, as I mentioned to George earlier, is we'll toggle between running our K2 machine in Kalamazoo, which is the new one we just operated now for the last 4 years, the Waco mill, those are going to run wide open and we'll service our business on our lowest cost assets, highest quality, lowest cost. We'll use our K1 machine, which is the smaller of the 3 machines to take any downtime that we need to take to make sure that we match our supply and our demand. And of course, we'll be working quickly to make sure that we fill that out. A lot of it depends on kind of our customers' volumetric performance, as I mentioned earlier, if they're able to get back to at least flat volumes in 2026, that's a big deal for us because our innovation has consistently added close to 2% of volume. And so that's really how to think about Waco and how we're planning for '26 and beyond. Arun Viswanathan: Okay. Just on the markets then, it sounds like beverage was a little bit weaker in Q3 and foodservice was as well. Do you expect that to continue to remain weak as you move into Q4 and '26? And maybe you can also comment on some of the other markets, food and household and health and beauty. I guess -- and have you seen any change in innovation sales in those markets? We've been hearing anecdotally that there may be some trade down amongst the consumer packaging companies into traditional substrates, maybe a little bit less willingness to assess the waters with some new innovation-led products. I don't know if that's what you're hearing as well, but maybe you can just comment on what you're seeing on that side. Michael Doss: Yes. I'll start by saying I don't expect to see much change in Q4 versus what we saw in Q3. I mean October started off substantially similar to what we saw in Q3. You get to read our customers' as I do. And as I talked about earlier, fast casual is down a little bit, QSR may be a little better. It's hard for us to know exactly what our customers' volume performance is right now. And I said that in my prepared remarks, given some of the things that they're doing to manage their balance sheets and production schedules around the holidays and so on and so forth. So that's part of why we're being a little bit deliberate in calling that out. As we head into 2026, look, I know every one of these customers as we talk to them all, are very focused on getting their volumetric performance back. They got to grow and they're doing the things that they believe are required to do that. We see a lot of new CEOs. We see a number of restructurings that are going on. We see agitation at different levels. So hopefully, that [indiscernible] itself in volumetric performance as we head into 2026, for sure. Mark Connelly: I would just add a couple of things -- Arun, I'd just add a couple of things. This is Mark. In the beverage market, typically, you see promotion activity in the fourth quarter, but we also saw some changes in production schedules by our customers, sometimes taking downtime around the July 4 -- that didn't happen to all of our customers this year. Some of that may happen in the fourth quarter. So that adds a little bit of variability. We're also certainly in the food business, continuing to see a lot of unevenness, customers moving from one category to another to try to save money and not so much destocking by the food suppliers, but strategic stocking, as Steve -- as Mike mentioned, in terms of trying to get their year-end numbers and cash where they want it. So a lot of unusual behavior, but no real change in any of the trends. Arun Viswanathan: And just to clarify, so it sounds like you will have the $80 million next year. And then aside from that, it's mainly volume and price that we should be keeping in mind as far as what the drivers are for any kind of EBITDA bridge. Is that correct? Mark Connelly: Yes, that's exactly right. Operator: Your next question is coming from Mark Weintraub from Seaport Research. Mark Weintraub: Steve, for your help over the last few years. So I just wanted to revisit again on Waco, in terms of the ramp, order of magnitude, how much tonnage would you be expecting to produce in 2026? Michael Doss: Yes, Mark, I'm not going to call that out. I mean it's going to be -- as you can think about it, though, we put it into service here in October. It's a 12- to 18-month ramp. So that's pretty quick -- coming up. Mark Weintraub: For sure. And so let's say we were to assume it's 400,000 to say something. So I guess what I'm just trying to think through is that East Angus is 100,000 tons. Middletown, I think a little less than 200,000, but was down for about half the year, correct me if I'm wrong. So we're talking about like 200,000 tons of replacement board effectively. And so I just -- is the rest because you're bringing down inventory this year? Or maybe if you can just kind of walk through the math on where the Waco tons, what they fill in for? And/or is there a little bit of growth that does just to kind of to meet the full production that you're expecting to have from Waco next year? And that would be super helpful. Michael Doss: Thanks for the question. Here's the math I'm going to walk you through. If you really look at East Angus, which is our facility, it will shut down the end of the year and our Middletown facility, which closed at the end of May and then what others have announced that they're closing, it's 475,000 tons. Waco, of course, adds 550,000 tons to the overall market. So on a net basis there, it's about 75,000 tons of additional capacity that's coming online. I'll tell you this, Mark, I need Waco to come up right now to make sure that I'm able to service my customers. You saw the [ APA ] data. Inventories are down pretty dramatically on CUK and CRB. That's deliberate plan on our behalf here relative to what we did. So we need those funds coming off of the Waco machine to help service our customers and make sure that we take care of our overall demand. Look, you had a good note out earlier this week. You talked a little bit about K2 and Kalamazoo and Waco and balancing that production with our K1 machine. I think you got it pretty right. So I don't have a whole lot more that I think I need to add. Mark Weintraub: Okay. And I fully appreciate that once everything is reset, we should be at the target levels of profitability. I'm just trying to make sure that I fully understand the transition period though, as we go hopefully into kind of a better 2027 demand environment, et cetera, and everything is sort of kicking into gear. And I guess I'm a little -- I just want to clarify because implicit in what you're saying, and I don't mean to be oppositional anyway here, but implicit in what you're saying is that you basically have gotten a lot of the business from the other capacity that was shut. And I'm not -- or is there something I'm missing? Is it -- again, is it that inventory reduction, which you're doing this year, and therefore, you're not doing it next year. And so that's why -- because those would be pretty big numbers. So just trying to fully understand. Michael Doss: CRB, I think that's fair. We have work to do, in our opinion, with some of the other optionality with some of the other substrates we have and Waco and Kalamazoo help enable that as well relative to our overall supply chain. But I think, like I said, you've got the math pretty well set, and we're going to match our supply and our demand on CRB like we always do, and that swing machine will be our K1 machine in Kalamazoo. Operator: Your next question is coming from Mike Roxland from Truist Securities. Michael Roxland: I'll just echo what everybody else has said. Steve, thank you for all your help over the years and wishing you the best of luck in the future. In terms of the '26 free cash flow bridge, obviously, you guys have expressed confidence in the $700 million to $800 million of free cash flow next year. Just trying to get some more color around that because year-to-date, adjusted free cash flow, as you pointed out in your press release, is minus $332 million. So you have a $400 million of CapEx step down. You're looking at a starting point of $68 million in terms of free cash flow. I know you got a $400 million of free cash flow in 4Q due to working capital unwind. But also you are contending with, I think, a higher working capital, cash taxes and interest, but you called out on your call last quarter of about $300 million, $350 million. So can you help me reconcile those moving pieces I just mentioned with the $700 million to $800 million you're still confident you will achieve next year? Michael Doss: Yes, I'm going to focus in on 2026 and give you a little bridge. You have to remember, Michael, and you know this, Q4 is always our big cash quarter. So we'd expect that gap to close dramatically as it always does every year. And as we look at next year, we've got the contribution from Waco. We've already talked about that. And then the bridge is really pretty straightforward. It's around the CapEx reduction, which we've already talked about, which is close to $400 million here, as Mark just mentioned. We've got cost control that we've got at our disposal, both in terms of SG&A as well as things we would do at the plant levels and discretionary spending. And we've got inventory that we're really going to focus in on, too. And like I said, I'm really excited about our new platform with 5 large, well-capitalized paperboard manufacturing facilities that there's more capital release that we can work on, both in terms of roll stock as well as finished goods as we roll into next year. And that's the bridge. And that's what gives me really a high level of confidence in the $700 million to $800 million next year. Michael Roxland: So -- I'm sorry, go ahead. Charles Lischer: This is Chuck Lischer. I was just going to add that this is one of the areas that I've dug into over the last few weeks, and I share Mike's high level of confidence in this area. He mentioned the levers. We know what they are. We're going to pull them. In addition to that, cash -- federal cash taxes are going to be very favorable for us next year, near zero. And so we know what the levers are. We're ready to pull them, and we have a high level of confidence in the number. Michael Roxland: I didn't interrupt you there. So it sounds like last call, you mentioned $300 million, $350 million of interest, cash taxes, working capital. That sounds like that's coming down significantly as well. Michael Doss: We're going to have to take that bridging offline, Michael. Let's do that. Again, I'm focused. And as I said, the levers that we're pulling here in the $700 million to $800 million, we'll help you get your model right that it works, but let's take that offline after the call. Michael Roxland: No problem. One quick follow-up. I know we're running out of time here. Just in terms of the 550,000 tons for Waco, I mean, how comfortable are you bringing on that full amount of capacity over the next 12 to 18 months in a market that's depressed? Or are you assuming that we're not going to be in the same place 12 months from now? And so just -- it's a lot of capacity. I understand on a net basis, it's 75,000 tons, I get that. But the market itself, as you pointed out, your competitors are acting irrationally. How would you -- I mean, do you intend to bring this the 550,000 tons in 18 months? Or do you have flexibility to basically push that out further if SBS folding cards does not improve materially in the near term? Michael Doss: We're going to ramp Waco as fast as we can. It's our lowest cost, highest quality mill along with our K2 machine in Kalamazoo. And as I've mentioned a number of times here now, if I need to match my supply and our demand, we'll do it on our K1 machine. So I want to bring it on as fast as we can. It's a great facility. It's going to allow us to compete in markets that, quite frankly, we haven't been able to compete in before. And it's going to help us deal with some of that behavior by some of the bleached board producers in a way that allows us to protect our industry-leading margins. So you want us to do that. It really makes sense to do so. Look, you'd love to bring a brand-new machine on like we brought the K2 machine on -- into a really snug market. But you make a decision, it takes a number of years, in our case, 2.5 years to bring it on. This is what we've got. And we've got a lot of levers to pull and our confidence level is high to deliver the free cash flow next year. And that's really what our focus is. Operator: Next question is coming from Anojja Shah from UBS. Anojja Shah: Just one quick one for me. When I think about capital allocation priorities next year, you're going to have a lot of free cash flow. You've talked about deleveraging, of course, share repurchases, CapEx goes down significantly. Is there anything else in there we should be thinking about? Like I don't know, is there room for bolt-on M&A or expansion in international markets? How are you thinking about it? Michael Doss: Look, from my standpoint, it's really 2 things in our priorities. It's delevering our balance sheet, which we've talked about as well as returning cash to shareholders. That's our focus. Operator: That was all the time we have for questions. I would now like to pass the floor back to Mike Doss for closing remarks. Michael Doss: Thank you, operator, and thank you, everyone, for joining us on our call today. With Waco up and running, we have 5 of America's very best paperboard manufacturing facilities, the strongest and most capable global packaging manufacturing network and the world's best packaging innovation team. We are uniquely positioned to deliver exceptional results for our customers and to generate strong, steady cash flow across the next half decade and beyond. I want to thank our employees for their dedication and our stockholders for their confidence in Graphic Packaging. Thank you, and have a great day. Operator: Thank you. This does conclude today's conference call. You may disconnect at this time, and have a wonderful day. Thank you once again for your participation.
Operator: Good morning, and welcome to UMH Properties Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. It is now my pleasure to introduce your host, Mr. Craig Koster, Executive Vice President and General Counsel. Thank you. Mr. Koster, you may begin. Craig Koster: Thank you very much, operator. In addition to the 10-Q that we filed with the SEC yesterday, we have filed an unaudited third quarter supplemental information presentation. This supplemental information presentation, along with our 10-Q, are available on the company's website at umh.reit. We would like to remind everyone that certain statements made during this conference call, which are not historical facts, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements that we make on this call are based on our current expectations and involve various risks and uncertainties. Although the company believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the company can provide no assurance that its expectations will be achieved. The risks and uncertainties that could cause actual results to differ materially from expectations are detailed in the company's third quarter 2025 earnings release and filings with the Securities and Exchange Commission. The company disclaims any obligation to update its forward-looking statements. In addition, during today's call, we will be discussing non-GAAP financial metrics. Reconciliations of these non-GAAP financial metrics to the comparable GAAP financial metrics as well as explanatory and cautioning language are included in our earnings release, our supplemental information and our historical SEC filings. Having said that, I would like to introduce management with us today. Eugene Landy, Founder and Chairman; Samuel Landy, President and Chief Executive Officer; Anna Chew, Executive Vice President and Chief Financial Officer; Brett Taft, Executive Vice President and Chief Operating Officer; Jim Lykins, Vice President of Capital Markets; and Daniel Landy, Executive Vice President. It is now my pleasure to turn the call over to UMH's President and Chief Executive Officer, Samuel Landy. Samuel Landy: Thank you very much, Craig. We are pleased to report normalized FFO of $0.25 per diluted share for the third quarter of 2025 as compared to $0.24 per diluted share for the same period last year representing an increase of 4%. Sequentially, normalized FFO per diluted share increased 9% from $0.23 in the second quarter. Normalized FFO of $0.25 per diluted share for the quarter annualizes out to an even $1 and is a significant milestone we are proud of. We continue to execute our long-term business plan, which is resulting in increased occupancy, sales and ultimately, increased net operating income and property values. We now own 145 communities containing approximately 27,000 developed homesites with 10,800 rental homes. Our portfolio is 87.2% occupied, leaving us with 3,500 vacant sites to continue to grow organically as we invest in our rental home program and experience further growth in our sales operation. At any given time, UMH has $100 million or more invested in turnaround acquisitions, expansions and inventory. These long-term investments provide for a runway to generate strong operating results, grow the company and increase the value of our communities. For example, over the past 5 years, we have completed the construction of approximately 1,100 sites. Of these sites, approximately 470 are currently occupied. As we fill the remaining 630 sites, we have the opportunity to earn significant sales profits and increase our overall occupancy rates, revenues and property values. 630 sites can generate sales profits of $20 million or more and generate recurring site rental revenue of $4 million per year or more. Additionally, we have approximately $33.6 million invested in our joint ventures with Nuveen, which own 3 recently developed communities containing 471 sites. These communities continue to make progress increasing occupancy and should begin to positively impact earnings in the coming quarters. We have the potential to increase sales profits, occupancy, NOI and grow our loan portfolio. We have raised the capital to do this because we believe that will result in FFO per share growth in the next few quarters. During the third quarter, we increased total revenue from $60.7 million in the third quarter of last year to $66.9 million in the third quarter of this year, that represents an increase in quarterly total income of 10%. For the 9 months ended September 30, 2025, total income was $194.8 million an increase of 9% from the prior year period. We are on track to surpass $250 million in total income in 2025. Our company is well positioned with a strong balance sheet and a sound operating environment for earnings per share growth in the quarters to come. During the quarter, we issued $80 million of our new 5.85% Series B Israeli bonds, which will be deployed accretively over time. We have capital needs of $120 million to $150 million annually, which we invest in our capital improvements, new rental homes, expansions and financing of home sales. Most of these uses being accretive uses of capital. Over the past 2 years, we have relied on our common ATM to fund our growth initiatives. This year, we are utilizing our ATM less and debt more. In the long term, this debt will be repaid and the equity should increase in value. The objective is to grow earnings per share and ultimately, our share price. Over the past 5 years, normalized FFO per share has increased by 48% and the dividend has increased by 25%. During the quarter, we increased same property occupancy by 132 units over the second quarter and by 357 units over last year. For the 3 months ended September 30, 2025, same property rental and related income increased by 9% and same-property NOI increased by 12% or $3.7 million. Year-to-date, same property rental and related income increased by 8% and same property NOI increased by 10% or $9.2 million. Our same-property operating expense ratio for the quarter fell to 39.7% as compared to 41.1% last year. Our rental home occupancy was 94.1% as compared to 94.4% last year. During the quarter, we converted 227 new homes from inventory to revenue-generating rental homes. Year-to-date, we have converted 523 new homes from inventory to revenue-generating rental homes. We currently have 400 homes on site with 100 homes ready for occupancy and another 300 being set up an additional 200 homes on order that have not yet been delivered. The pipeline of homes on our vacant sites positions us for additional occupancy increases throughout the rest of the year and into next year. We anticipate by the end of 2025, we will have added 700 to 800 new rental homes. Sales of manufactured homes continue to grow, driving additional sales profits. Gross sales for the quarter were $9.1 million as compared to $8.7 million last year, representing an increase of 5%. Not included in these sales results are an additional $800,000 in sales at our recently opened joint venture, which is a greenfield development Honey Ridge. Including these sales, sales for the quarter were up 14% over last year. For the 9 months ending September 30, 2025, Sales of manufactured homes increased by 5% from the prior year period. Gains from sales for the quarter were $1.3 million or 14% of total sales. Gain from the sales for the 9 months were $3.2 million or 12% of total sales. During the quarter, we acquired 2 Maryland communities consisting of 191 lots, which are 79% occupied for a total purchase price of $14.6 million. Subsequent to quarter end, we closed on the acquisition of one community located in Georgia, consisting of 130 sites of which 32% are occupied for a total purchase price of $2.6 million. Year-to-date, we closed on 5 communities containing 587 sites for a total purchase price of $41.8 million. Our Marcellus and Utica Shale strategy, which began in 2011, has resulted in substantial appreciation of the land, communities, homes and approved sites we own in the area. Data centers, the Shell Cracker Plant, pipeline projects, new gas wells and electric generation plants all generate the need for more quality affordable housing. UMH owns 4,000 acres of land in 78 communities with 12,300 home sites in the Marcellus and Utica Shale areas. We are seeing increased interest in leasing our oil and gas rights and anticipate more lease signings in the coming months. UMH is well positioned for future growth through the occupancy of our 3,500 vacant lots, the development or sale of our 2,300 acres of vacant land, infill of our 600 recently constructed expansion lots, the infill of our 329 sites owned through our joint venture, the leasing of our oil and gas rates and the growing profitability of our sales and finance company. We anticipate that we will achieve our 5% annual rent increase, generating $11 million in new revenue, install and rent 800 new rental homes, generating an additional $10 million in revenue and a substantial increase in our sales revenue and sales profit. These are valuable opportunities to increase rental revenue, sales revenue, finance and insurance revenue and increased value and FFO per share that are not currently reflected in the value of the company. Additionally, we have $36 million in inventory that is paid for and actively being sold and rented, which will increase earnings as the homes and lots become occupied. This organic growth should allow us to generate earnings growth and improve operating results for the years to come. We are incredibly optimistic about the future of the company and look forward to driving FFO per share growth. And now I will turn it over to Anna to discuss our third quarter results. Anna Chew: Thank you, Sam. Normalized FFO per diluted share increased from $0.24 to for the third quarter of 2024 to $0.25 for the third quarter of 2025, representing an increase of 4%. Sequentially, normalized FFO per diluted share increased 9% from $0.23 in the second quarter to $0.25 in the third quarter. Rental and related income for the quarter was $57.8 million compared to $51.9 million a year ago, representing an increase of 11%. This increase was primarily due to an increase in same-property occupancy the addition of rental homes and increase in rental rates and the additional revenue generated by the purchase of 2 communities at the end of the first quarter of 2025 and the purchase of 2 communities at the beginning of the third quarter of 2025. Community operating expenses increased 11% during the quarter. This increase was due to acquisitions and an increase in payroll costs, real estate taxes, snow removal and water and sewer expenses. These increases in community operating expenses also includes onetime legal and professional fees of $660,000 for the 3 and 9 months ended September 30, 2025. The 11% increase in both rental and related income and community operating expenses resulted in a net increase in community NOI of 11% for the quarter. Our same property results continue to meet our expectations. Same-property income increased by 9% for the quarter, while same-property community operating expenses only increased by 6% and resulting in an increase in same-property community NOI of 12%. Same-property NOI increased by $9.2 million for the 9 months ended September 30, 2025, resulting in an annualized run rate of $12.3 million. Our community operating results continue to be exceptional, and we anticipate further growth as we fill our recently developed sites and our inventory. As we turn to our capital structure, at quarter end, we had approximately $673 million in debt, of which $468 million was community-level mortgage debt, $28 million was loans payable and $177 million with our Israeli bonds. Total debt was 99% fixed rate at quarter end with a weighted average interest rate of 4.83%. The weighted average interest rate on our mortgage debt was 4.58% at quarter end compared to 4.17% at quarter end last year. The weighted average maturity on our mortgage debt was 5.8 years at quarter end and 4.6 years at quarter end last year. In August and September, we paid off 10 mortgages totaling $61 million, and we are currently in the process of refinancing most of these communities and anticipate closing during the fourth quarter. On July 22, 2025, we sold $80.2 million of 5.85% Series B bonds that are due in 2030. The net proceeds of the sale of these bonds after deducting offering discounts, fees and other transaction costs were $75.1 million. On July 8, 2025, we amended our $35 million revolving line of credit with OceanFirst Bank to extend the maturity date to June 1, 2027. Interest is at prime with a floor of 4.75% and is secured by our eligible notes receivable. At quarter end, we had a total of $322 million in perpetual preferred equity. Our preferred stock, combined with an equity market capitalization of $1.3 billion and our $673 million in debt results in total market capitalization of approximately $2.3 billion at quarter end. During the quarter, we issued and sold 290,000 shares of common stock under the September 2024 common ATM program at a weighted average price of $16.44 per share. Generating gross proceeds of $4.8 million and net proceeds of $4.6 million after offering expenses. The company also received $2.6 million including dividends reinvested through the DRIP. During the quarter, we issued and sold 3,000 shares of our Series D preferred stock under our 2025 preferred ATM program at a weighted average price of $23 per share, generating gross proceeds of $75,000 and net proceeds of $59,000 after offering expenses. We currently have $99.9 million eligible for sale under the 2025 preferred ATM program. From a credit standpoint, we ended the quarter with net debt to total market capitalization of 28.3%, net debt less securities to total market capitalization of 26.9%, net debt to adjusted EBITDA of 5.1x and net debt less securities to adjusted EBITDA of 4.8x. Interest coverage was 3.7x and fixed charge coverage was 2.3x. From a liquidity standpoint, we ended the quarter with $34 million in cash and cash equivalents and $260 million available on our unsecured revolving credit facility with a potential total availability of up to $500 million pursuant to an accordion feature. We also had $183 million available on our other lines of credit for the financing of home sales and the purchase of inventory and rental homes. Additionally, we had $32 million in our REIT securities portfolio, all of which is unencumbered. This portfolio represents only approximately 1.5% of our undepreciated assets. We are committed to not increasing our investments in our REIT securities portfolio. We are well positioned to continue to grow the company internally and externally. And now let me turn it over to Gene before we open it up for questions. Eugene Landy: Thank you, Anna. UMH has continued to deliver consistent growth over the years by executing a disciplined strategy implemented by our talented and dedicated team. This strategy begins with identifying and investing in assets with strong upside potential. Our systems and processes, which have been refined through more than 55 years of operating experience, allow us to unlock that potential. We do this through infilling vacant lots, developing new sites, replacing outdated homes with modern state-of-the-art housing and applying a targeted sales and rental platform in markets where we already have a proven track record. To fuel these operations across our portfolio, we've taken a disciplined approach to raising capital by thoughtfully issuing both equity and debt we've been able to expand while maintaining a strong, flexible balance sheet. One that's built to capitalize on market opportunities, continuously improve our existing portfolio and withstand unforeseen challenges. Because of UMH's proven business plan and responsible capital management, we are well positioned to continue growing earnings per share, increasing our property values and enhancing long-term shareholder value. We remain focused on the strong fundamentals of the manufactured housing sector and the broader need for housing across the country. These tailwinds, combined with our disciplined approach, continue to drive meaningful increases in the value of our portfolio. Our communities continue to perform exceptionally well with strong sales demand rising occupancy and the ongoing operational efficiencies. We've also developed our vacant land in ways that will enhance both the value of our communities and the company over time and we've achieved this while keeping our mission, treating residents fairly and expanding the supply of attainable workforce housing at the center of everything we do. Looking ahead, our mission has never been more important. The national housing shortage continues to intensify, and manufactured housing is uniquely positioned to help meet this critical need. We are encouraged by recent legislative initiatives that may provide residents with better financing options while also creating new opportunities for UMH to access long-term cost-effective capital for growth through acquisition and new development. We are confident that we are on the right track. Our continued success should translate to growth in earnings per share and stock price along with the satisfaction of helping to meet one of the most pressing social needs of our time, quality, affordable housing. Operator: [Operator Instructions] Our first question today comes from Gaurav Mehta with Alliance Global Partners. Gaurav Mehta: I wanted to ask you on your 4Q acquisition in Georgia. Can you provide some color on the occupancy upside there and it also looks like the average monthly home rent is lower than your other property in Georgia. Just hoping to get some more color on that property. Brett Taft: Yes, sure. So the property in Albany, Georgia is located very close to our other community in Georgia. It's 130 sites. It's currently about 30% occupied. It's really our typical value-add business plan we will go in there make some immediate improvements, increase the overall quality of the infrastructure, add some amenities and then start to bring in new homes for rent. I would expect the rental rates to be in the $1,000 to $1,200 a month range once we get going, and that property has really significant upside potential. Our plan is to get in there and start bringing in homes basically as soon as we complete some initial improvements. And we should see a pretty substantial increase in occupancy over the first year. We're getting ahead of ourselves a little bit, but 30 units a year should be about what we're able to accomplish there, potentially more. Samuel Landy: I just wanted to note the -- it appears to us in the Southeast, nobody has followed our model which is shift to renting homes. They're going by the old model, resident owns the home and rents the lot. By adding rental units, if you look at our 3 Southern states: Georgia, South Carolina, Alabama, our revenue increase for the past year, 469% in Georgia, 37% South Carolina, 23% Alabama. So our Southern strategy is working, and we're going to continue it. Gaurav Mehta: Second question I have is on share repurchases. In September, you increased your share repurchase size to $100 million from $25 million. Just want to get some more color on how share repurchases fit in your capital allocation plan going forward. Samuel Landy: So the plan is we've done quite a bit of work. Part of our expense increase was the increased legal to create a contract to sell vacant land at the time a developer sells houses. That's a very long-term prospect because somebody has to get the approvals to build the expansions, sell the houses and then eventually, we'll turn that into cash. But the objective is to sell assets, issue preferred stock, use those things to fund our growth and then potentially repurchase stock. Eugene Landy: If I can add, UMH is unique as a REIT. Our sector is unique. We have the government-sponsored entities, which are by legislation, we are privileged to borrow money and the amounts of perhaps 60% of value. As the value of our communities go up, the ability to borrow money goes up. And over the last 5 years, we've had a remarkable growth in values, and we've realized some of that additional borrowing power. But we do -- when we started the company, we see that we are very conservative, but perhaps we've been too conservative and that we certainly can have debt of 45%, 50% assets, and we have the ability then to go to the government-sponsored entities and borrow very substantial amounts of money. In addition, there's a shortage of preferred shares. It's a unique type of security. Its equity as far as we're concerned and yet it doesn't share in the growth of the company so that it's very accretive to the common stock. So between the preferred stock and the ability to borrow from government-sponsored entities. We are in a really unique and privileged position to complete the buyback that the Board has authorized. Gaurav Mehta: And then lastly, in your prepared remarks, you talked about seeing more interest in oil and gas rights that your company has. Can you provide some more details on how big that opportunity set is? Samuel Landy: Well, it's very difficult for even us to evaluate that. We receive more and more inquiries pertaining to the properties. But if you look at the Marcellus and Utica Shale map and you recognize we have 4,000 acres, I believe, in the Marcellus and Utica Shale area. You think about the Homer City data centers and these articles in today's Wall Street Journal about how technology is improving, how they could drill deeper, they could obtain more energy from the ground. The value of these rights is increasing. The demand for energy is increasing. Data centers are a huge thing. Off topic a little bit because we're talking about the Marcellus and Utica Shale. But in that regard, when you look at where we've located our communities directly outside of great cities, Nashville, Memphis, Columbus, Pittsburgh, Jackson, New Jersey, Eatontown, New Jersey, the growth in value of these locations, just like the Marcellus and Utica Shale, it's substantial and really creates a great future for us. Operator: The next question is from Craig Kucera with Lucid Capital Markets. Craig Kucera: There was a pretty meaningful decline in G&A from really the last 3 quarters. I know there's some seasonality in your G&A, but is there anything else that we should be thinking about? Anna Chew: It was primarily seasonality and the timing of certain expenses, we would expect that on average, Q3 year-to-date would be what we would expect for Q4. Craig Kucera: Okay. That's helpful. And I just wanted to confirm the onetime legal and professional expenses were booked as property operating expenses. Anna Chew: Yes, it was. Craig Kucera: Okay. Got it. When I look at what you paid for Albany Dunes, I think it's like $20,000 a site, which is significantly below which you've been typically paying even going back to '21. Is this property going to require a lot more CapEx in your typical value-add acquisition? Or is it going to be something similar to what you usually do? Brett Taft: No, it's a very similar strategy. I mean, you look at all body doing though, and it's 130 sites. It's only 32% occupied at the time of acquisition. There's very limited income there now. And obviously, the NOI property throws off is what really generates that property value. So we looked at Albany Dunes as an asset with a ton of upside by implementing our typical business plan. And quite frankly, we wish we could go out and find more assets that fit that exact strategy. That's what we've proven we're able to do very well, and we're going to keep our eye out for other assets that meet that criteria. Just to add to the other acquisitions we've completed this year, Cedar Grove and Maplewood Village in New Jersey are both 100% occupied properties with reasonable site rent. So that's going to drive that cost per site up into the $92,000 a pad range. And then Maryland similar to New Jersey, higher rents, higher occupancy and drives a higher per pad price. Craig Kucera: Yes, that makes sense. Eugene Landy: You have to realize that manufactured housing is in a unique position. We believe we can produce 3 bedrooms, 2 baths and 1,100 square feet of home for $250,000 a unit. 1,000 units for $250 million. And the cost of the conventional construction is running $400,000, $450,000 a unit. And apartments, which were only 650 square feet and only 1 bathroom, running $350,000 a unit. So we have a distinct cost advantage. We are affordable housing. The government is recognizing it. The market is recognizing it and we hope that we can continue to add 1,000 homes to the nation's need for housing. Craig Kucera: Great. And just circling back to the new Georgia acquisition. I think you've had some issues with some of the new markets you've entered in the Southeast in the past where the municipalities have slowed down approvals. Is this community fully entitled and approved to move forward? Or do you expect any sort of delay? Brett Taft: To be fair, the one that we had issues with was fully entitled and we didn't expect a delay. But no, this is fully entitled. There should not be issues. If anything changes, we'll update you in the future. But our game plan is to go full speed ahead down there. Craig Kucera: Got it. Just one more for me. You had a nice pickup in your net additions of rental homes this quarter. And I know your sales out of the used home pool are sort of up and down. But how meaningful do you view the remaining pool of used homes for sale? Is it getting closer to being complete? Or do you still think you have a healthy number you think you'll try and sell. Samuel Landy: Well, the ultimate objective is that the finance laws become more liberal. And that would be incredible because our first rental homes were purchased in approximately 2011. So they're just getting to be about 15 years old. We can be selling more and more rental homes if the people who live in there -- live in them can be approved for the loans. If all of that works out and add to that, there could be government guaranteed loans generating cash to us. And the way the rentals worked the first year, we did a 100, second year 300, then 500, than 800 a year. Eventually, we could be selling a significant percentage of the 15-year-old rentals as finance sales and potentially government guaranteed cash sales and we'll be adding our new 800 rental units needing minimal cash as a comparison to how it's done today. Today, we buy 800 rentals and set them up at about $75,000 a piece and we need to obtain all of that cash to do that. If we're selling 500 older rentals, which could be cash sales, and you're selling them, I hope, for about $60,000 per unit and you're paying $75,000 per new unit that will greatly reduce the cash we need to grow the rental portfolio in the future. Operator: The next question is from John Massocca with Ladenburg Thalmann. John Massocca: So apologies if I missed this earlier in the call, I've been bouncing between a couple of different ones. But could you give any update maybe on manufactured home sales quarter-to-date? And I guess what are the seasonal expectations in 4Q for home sales? Could they be weaker than 2Q, 3Q? Or does the increased size of your portfolio today maybe offset some of the traditional seasonality in terms of sales? Brett Taft: It's a good question, John. And we did not provide an update on the call, so you're the first one there. But our sales pipeline remains very strong. We've been happy with what we've seen in October so far. Pipeline today is about $3 million and growing as we get some home set up at some high-traffic expansions with good demand right now. So hard to say exactly where we'll shake out in Q4 as it is typically one of our slower selling seasons as is Q1. But last year, we had a very strong fourth quarter, and we think we're positioned this year to also have a strong fourth quarter. We think we're in line to beat the sales record that we set last year, and we'll hopefully smash the record, honestly. Samuel Landy: In our presentation for the call on Page 13, we list homes sold since 1996. And in 2005 or 2006, when we were a much smaller company, we did $15 million in sales in 1 year because we had -- we were on the last phases of great expansions. And today, we have great expansions, new -- 3 new communities we've built and there are so many factors that go into how home sales are, including whether or not the people 55 and older are experiencing good sales to sell their home and downsize. One of the things we've just done some research on, we have photographs of the homes, people were downsizing from to buy homes from us. And people are selling remarkably large expensive homes to buy a house from us for $300,000 in the community. And that's exactly what the demographics say should be happening, the percentage of the population over 65 years old, who now wants to sell their home and downsize. And right now, they're stalled a little bit because of interest rates. They're not selling their existing homes in the numbers you would expect. But as that changes, our sales can dramatically improve. John Massocca: And then on the rental side, as we think about some of the additional color you gave in the earnings release, the 100 homes or so you kind of have on site. I mean are those contributing to the vacancy number at this point? I mean are those kind of counted as vacancy today? And I guess kind of what are you thinking of in terms of timing for renting those units out and the 300, you said are kind of around and available to kind of set up. I mean, is that something we should expect to have maybe already occurred in the quarter? Or is that something that could occur later in kind of December? And how does all that work in the context of maybe 4Q not being a traditional kind of core leasing season? Samuel Landy: Right after COVID, you had the problem of the factories weren't producing homes. And that sent everything off balance. There are no problems today. In terms of we can order a home, have it and set it up. And Brett, how long would that take us? Brett Taft: Well, ordering the home, you're probably 2 months backlog right now, and then you've got 2 to 3 months of setup. It can be done quicker, but you can run into utility issues and things like that. So from the time you order a home to the time it's fully set up, call it, 6 months. Samuel Landy: So we don't see any problem going forward or 800 units and possibly additional homes during the year, and we see communities accelerating their demand for rentals. Brett, can you give some specific examples? Brett Taft: Yes, sure. So property friendly village we own in the Toledo area, Perrysburg, Ohio. They're on track to fill over 80 rental units this year. One of the first years we own that property, they filled 100. So the only slowdown they really had was, what Sam just mentioned, when they were not able to get inventory. So we're optimistic we'll continue to push there. We've got some positive going on near Purdue University right now with Woods Edge. We've got a couple of hundred vacant sites at that community with very strong demand. And then you look really throughout the portfolio, and it may not be 50 or 100 sites, but there's many communities that can do 10 or 15 in a year, and that's where we should see some of this growth. Now to answer the question about whether that's included in occupancy or not, the inventory homes are not included in the overall occupancy number. So they show as vacant sites. They also are not included in the vacant rental pool. Once that home turns from inventory to a rental home, that's when it hits the rental pool. John Massocca: And -- just going back to the commentary from the earnings release, that 100 homes or so you said are on site and ready for occupancy. Are those essentially contributing to the rental pool vacancy? Brett Taft: No, they are not included in the rental pool until they are rented for the first time. Anna Chew: All of our homes when we order them are either for rent or for sale. So therefore, we determine when it becomes a sold home, it becomes a sold home that's out of inventory. When it becomes a rental, then we move it into the rental pool. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Samuel Landy for any closing remarks. Samuel Landy: Thank you, operator. I would like to thank the participants on this call for their continued support and interest in our company. As always, Gene, Anna, Brett and I are available for any follow-up questions. We look forward to reporting back to you in February with our fourth quarter and year-end 2025 results. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. The teleconference replay will be available in approximately 1 hour. To access this replay, please dial U.S. toll-free 1 (877)344-7529 and or international +1 (412) 317-0088. The conference access code is 4344189. Thank you, and please disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to the Brightstar Lottery Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to James Hurley, Vice President of Investor Relations. James, you may begin. James Hurley: Thank you, and thank you all for joining us on Brightstar Lottery's Q3 2025 Earnings Conference Call, which is being hosted by Vince Sadusky, our Chief Executive Officer; and Max Chiara, our Chief Financial Officer. After some prepared remarks, both Vince and Max will be available for your questions. During today's call, we will be making some forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guarantees, and our actual results may differ materially from those expressed or implied in the forward-looking statements. The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our latest earnings release and in our SEC filings. During today's call, we will discuss certain non-GAAP financial measures. You'll find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in our press release, slides accompanying this webcast and our filings with the SEC, each of which is posted on our Investor Relations website. Our statements are as of today, November 4, and we have no obligation to update any forward-looking statements we make. And now I'll turn the call over to Vince. Vincent Sadusky: Thank you, Jim, and good morning to all. We achieved many strategic milestones in the third quarter. This includes closing the IGT Gaming sale for $4 billion in cash executing on our shareholder return plans and completing the refocusing of the company as a lottery pure-play business. A big congratulations to the Brightstar team for their dedication and resilience in getting us here. Today's better-than-expected Q3 revenue and profit results reflect a significant acceleration of global same-store sales across all geographies. Year-to-date revenue of $1.8 billion highlights the scale of our business which is driven by the sustained growth of core instant ticket and draw game sales. That's translated into solid profits and cash flow generation, which are attractive characteristics of our lottery business. You can appreciate this in the nearly $1 billion we've returned to shareholders through a combination of dividends and share repurchases this year, including the dividend we announced today. That $0.22 cash dividend per share is a 10% increase from our historical rate and is a clear demonstration of our commitment to enhancing shareholder returns. Same-store sales rose an impressive 8% in the third quarter, including 4% growth for core instance and draw games. In the U.S., same-store sales were up 8%. Multi-state jackpot same-store sales rose 70%, fueled by $1.8 billion Powerball jackpot in the period. We also had a nearly 2% increase in instant and draw games, they are same-store sales. Thanks to the continued success of our high-priced instant tickets in California and Florida and eInstant growth in Georgia. Italy same-store sales were up solid mid-single digits with strength across both instant and draw games. The Miliardario relaunch and summer bundle performed well as did the new EUR 25 special edition VIP game. 10eLotto's multi-bet payslip in Gioco del Lotto's Numero ORO option continue to fuel Italy draw game growth. Global iLottery sales increased over 30% in the period. In Italy, digital-only Gioca Più games are driving eInstant growth, while our new 10eLotto fast game is contributing to double-digit eDraw expansion. iLottery momentum is equally strong in the U.S., where robust user growth in Georgia and Kentucky is complemented by the high-performing Elephant King and Cats jackpot games. Viking Gold, our first AI developed game went live in Rhode Island and Kentucky a few weeks ago, marrying proven game mechanics with AI generated animation. There are several more AI developed games in the pipeline. We introduced the new Brightstar brand to partners in North America and Europe at the recent NASPL and European Lotteries trade shows. Brightstar received significant interest from customers eager to see the latest in lottery innovation to engage players. Brightstar's AI capabilities were of particular interest, including our new game plan Wizard, a tool that analyzes instant ticket inventory and the performance of past games to assist in forecasting and building optimized game launch plans. For over 50 years, our innovative products and services have helped our customers excel. We believe the current roster will drive compelling incremental value over the next few years. Now I'll turn the call over to Max. Massimiliano Chiara: Thank you, Vince, and hello to everyone joining us on the call today. Before I discuss the third quarter results, I want to note the early adoption of new accounting disclosures changed the geography of certain expense items on the income statement. Overall, results have not impacted, and we have provided historical recast financials reflecting these changes at the back of today's Q3 earnings press release. Now on with the quarter's results. Better-than-expected third quarter revenue and adjusted EBITDA were primarily driven by strong same-store sales across jurisdictions and game types. Adjusted EPS improved significantly in the quarter from a $0.02 loss in the prior year to earnings of $0.36 in the current year and increased 20% on a year-to-date basis, driven by improvements in net interest, income taxes and G&A expenses, partially offset by higher gross profit in the prior year. The Q3 and year-to-date EPS figures do not yet fully reflect the benefit of the 13.6 million shares delivered to date under our accelerated share repurchase activities. The actual number of shares outstanding at the end of the quarter has been reduced to approximately 190 million shares. Third quarter revenue of $629 million grew 7% from prior year, up 5% at constant currency. Improved trends in same-store sales across all geographies drove a $19 million increase in instant ticket and draw revenue. Italy's 6% growth was especially impressive, even when normalized for a like number of Lotto draws, rising 5.3%. U.S. multi-stage export revenue increased $15 million, primarily due to elevated activity associated with a $1.8 billion Powerball jackpot and other service revenue decreased $10 million primarily due to non-wager-based revenue from European contracts in the prior year. Please note that this is the first quarter of the U.K. transition, which I'll address in more detail shortly. Third quarter adjusted EBITDA of $294 million rose 11% or 7% at constant currency. High flow-through of wager based revenue growth resulting from strong sales, store sales and jackpot activity and lower costs associated with expense recoveries were partially offset by the non-wager-based service revenue impact in Europe that I just mentioned and the impact of product sales mix and start-up costs associated with the new printing press. In addition, the transition of the U.K. contract had a negative impact of around $6 million in the third quarter and is expected to cause a headwind of about $14 million to revenue and EBITDA in Q4. Cash flow from operations and free cash flow for the third quarter and year-to-date periods reflect the impact of the first installment of the Lotto license fee. On a year-to-date basis, cash flow from operations was a negative $6 million or a positive $573 million when you adjust for the $579 million Italy Lotto upfront license fee. And free cash flow was a negative $245 million or a positive $334 million when you make that same adjustment. $2 billion of the IGT Gaming sale proceeds were used to reduce debt, improving net debt to $2.6 billion at the end of the third quarter. As Vince mentioned, we have delivered significant shareholder returns this year with around $980 million already paid to shareholders and an additional $42 million to be paid in the fourth quarter marking a 10% increase in the quarterly dividend to $0.22 per share. Our financial profile is strong with total liquidity of $3.2 billion and net debt leverage of 2.3x. This puts us in a solid financial position in advance of the 2 remaining Italy Lotto license fee installments. As a reminder, the fees payable in 3 tranches with EUR 500 million already paid in July, EUR 300 million due in the fourth quarter and the balance of EUR 1.43 billion due by April 2026. Brightstar is responsible for 61.5% of the total, so EUR 1.37 billion or approximately $1.6 billion at current rates, and our consortium partners will fund the balance. We are reaffirming our full year '25 revenue and adjusted EBITDA outlook of approximately $2.5 billion and $1.1 billion, respectively. Cash from operations for continuing operations is now expected to be a negative $220 million or about $700 million positive when excluding the Italy Lotto license fee. An improvement of about $55 million from our prior expectations, primarily due to timing of working capital and a cumulative improvement of about $150 million from the original outlook for the year, reflecting a laser-focused approach to the non-EBITDA items affecting cash generation. CapEx is being revised lower to around $340 million due to timing shift. Overall, this represents about $110 million improvement in the outlook for CapEx versus what we expected at the beginning of the year. Now I will turn the call back over to Vince as we present an update on the business. Vincent Sadusky: Great. Thanks, Max. Well, now that the sale of gaming is complete and Brightstar is a pure-play lottery company, we thought it would be helpful to provide an overview of business attributes as well as some future financial targets to assist current and prospective investors in evaluating our company. The name Brightstar may be new. However, the company's leadership in the lottery business draws on nearly 50 years of experience. During this time, we've developed and deployed some of the leading products and services in the industry. As the premier pure-play global lottery company, our mission is to elevate lotteries and inspire players. For decades, our innovative solutions have helped customers to excel and distinguish their lotteries from other forms of discretionary consumer spending. Today, we're shaping the future of the global lottery business in partnership with our customers. The return to a singular focus on lottery marks an exciting new chapter. Brightstar enjoys global leadership in a growing industry, and the singular focus improves our ability to continue to innovate and execute. Our business has been consistent as we have serviced our lottery customers well and as a result, have had an average customer relationship of about 30 years. One of our unique competitive advantages is we're the only system provider who is also a significant operator of lotteries in both the U.S. and Europe. This gives our team great insight as a customer of our own products and services. The world lottery industry has experienced steady growth for decades and accelerated growth during the COVID years. To this day, lottery sales remain at those elevated levels, which is remarkable, considering the significant expansion of online consumer gambling options. Also, unlike other forms of gambling, lottery play has been very resilient to our economic downturns. Another significant positive is the long-term contract nature of our business, both as an exclusive system provider and as an operator, providing greater visibility into future revenue, profit and cash flows than many other industries. Providing incremental upside to the traditional lottery business has been our leading position into high-growth iLottery operations. We expect broader iLottery adoption, especially in the U.S. and Italy, will continue and meaningfully enhance sales growth. We believe our global leadership position provides us a clear right to win in iLottery. The Brightstar team and Board have consistently worked to unlock the intrinsic value of our assets, disposing of non-core businesses, strengthening the balance sheet and increasing capital returns to shareholders. We believe our current valuation provides a compelling entry point as we execute on strategies to create shareholder value. The scope of Brightstar's capabilities and geographic reach is unmatched. We are uniquely able to either operate lotteries on a B2C basis or provide technology and other services on a B2B basis. We work with about 90 customers around the world with leading market share in the U.S. and Italy, our 2 main markets. Our service contracts are mainly exclusive and long-term in nature, with an average length of over 10 years. Incumbency has tremendous value, evidenced by a nearly 100% FM and operator contract renewal rate in the U.S. and Italy over the last 15 years. We generated $2.5 billion in revenue last year, about 80% recurring in nature. That translated into $1.2 billion of EBITDA and about $700 million in cash from operations. Brightstar's investment appeal and unique competitive position rests on 4 pillars. First is the unparalleled depth of industry experience across our leadership team; second is the large growing global lottery industry characterized by exclusive long-term contracts requiring specialized expertise; third is our market leadership and recurring revenue base; and fourth, our technology product leadership bolstered by a 50-year history of proven innovation and our unique position in the value chain. We've built a focused strategy to evolve the business and create compelling incremental value over the next several years. It focuses on defending and growing core contracts, pursuing targeted expansion and leading in iLottery especially in the U.S. and Italy, our main markets where Brightstar is well positioned to win with established leadership. We are also focused on driving efficiencies through our optimal cost savings program, digitization and broader AI adoption. These initiatives are expected to drive up to $1.7 billion in capital return to shareholders in the '25 through '28 period. The lottery industry has delivered steady mid-single-digit growth over the last 20 years and has demonstrated remarkable resilience during periods of macroeconomic and geopolitical uncertainty. Industry sales have climbed even as new gaming alternatives have become available. We expect that mid-single-digit growth profile to be maintained over the next several years, fueled by broader iLottery adoption. This supports strong predictable revenue and cash flow for us through our percentage of service contracts. As I mentioned earlier, incumbency is a powerful asset. We retained nearly 100% of our facilities management and operator contract revenue in the U.S. and Italy over the last 15 years and over 70% of current FM and operator contract revenue is secured or extendable beyond 2028. This provides great visibility and predictability into our revenue and cash flows over the next several years. Three key levers will drive incremental growth for our core business. The first is share expansion. There's over $12 billion in lottery industry sales currently owned by competitors that is up for rebid by 2028, much of which is outside the U.S. We've recently dedicated more management resources to pursuing these opportunities. Brazil, for example, is a compelling market opportunity where we've already established an initial foothold in [indiscernible]. The second lever is product innovation and portfolio optimization. Lottery is a supply-driven business and compelling new games are a powerful call to action. Optimizing the pricing and payouts of a lottery game portfolio is an effective way to deliver the most engaging player experiences across a broad range of taste and preferences. This strategy worked well for us in Italy over the last several years. Channel and touch point expansion is the third lever. Making lottery games more accessible to players is an effective way to drive sales growth. The recruitment of new retailers with large store networks and the deployment of self-service vending machines are great examples of a proven way to do this. New technologies that facilitate higher sales velocity like LotteryLink and our cloud-based tech solutions are other examples of products designed to increase sales. LotteryLink is now live in New Jersey, and we've begun to deploy self-service vending machines in high-traffic locations throughout Italy. Broader iLottery adoption, especially in the U.S. and Italy, is a major driver of incremental growth over the next several years. Brightstar is well positioned to expand market share across platforms and content. We're already the global leader in iLottery platforms that have built a library of over 300 games used by nearly 20 customers. In the U.S., iLottery penetration is under 10%, with only 14 lotteries live and none of the top 5 participating. Mature markets reach over 40% showing strong player interest. Our U.S. iLottery sales have grown well above the market rate over the last few years, and we've been awarded 2 of the last 4 platforms. We expect 20-plus percent annual iLottery growth for the next several years. This is supported by winning new jurisdictions, including leveraging our strong track record of performance with our FM customers as we have successfully done in Tennessee and Missouri. Game innovation and portfolio optimization offer additional potential as we are on track to launch about 40 new eInstant games each year. Our CRM tools help customers drive growth by delivering customized engaging player experiences using rich player insights. The iLottery opportunity is equally compelling in Italy. As the operator of the country's 2 largest lottery games, we are well positioned to lead digital expansion. Italy is one of the world's most attractive gaming markets, with total market wagers growing at a 7% CAGR over the last decade, including 20% digital growth. Land-based wagers have grown alongside digital expansion. Today, iLottery penetration in Italy is just 3%. By comparison to other European markets range from mid-teens to over 50%. Italy's digital acceptance is clear. iGaming and online sports betting have reached 30% and 55% penetration, respectively. We aim to bring Italy's iLottery penetration in line with European benchmarks by 2030. As we execute proven iLottery strategies in Italy, we've identified other avenues to increase digital adoption. One is to activate digital solutions in our 58,000 Lotto and Scratch & Win points of sale to enhance the overall player in retail experience. In the last year, Lotto and Scratch & Win reached $9.5 million and 17.1 million players, respectively, representing 40% to 75% of Italy's total gaming population. We've already begun executing this digital strategy with the My Lotteries Play launch earlier this year. In just 9 months, we've gained 3 incremental points of market share with minimal marketing effort. My Lotteries Play also enables expansion into iCasino, digital sports betting and bingo. We recently went live with over 80 iCasino games and a dozen live casino games tapping into the estimated 25% overlap between digital lottery players and those who are also engaged with iCasino and digital sports betting activity. This presents cross-selling opportunities that should drive increased average spending on iLottery and other games. We believe we can create significant incremental value here without the need to become a market leader. We'll earn additional distribution fee on all My Lotteries Play activity. For lottery-related wagering, this is on top of the 50% on Lotto and 3.9% on Scratch & Win wagers. We earn as a concessionaire for those games. Needless to say, the new Lotto license unlocks significant strategic and financial opportunities reinforcing our leadership in Italy's evolving digital gaming landscape. Now I'll turn the call back to Max. Massimiliano Chiara: Thank you, Vince. When we consider all the strategies that this just outlined, we believe Brightstar's organic growth rate accelerate to more than a 5% CAGR over the next 3 years. In terms of its building blocks, we have -- first, we expect our core land-based business in the U.S. and Italy to deliver a 3% CAGR, excluding the U.K. transition. Second, improved iLottery regulatory momentum in the U.S., combined with our long-standing market leadership there is expected to contribute another 1% CAGR. Third, the new Italy B2C expansion initiatives led by iLottery growth are expected to deliver another 1% CAGR. And finally, growing share in underpenetrated international markets and instant ticket printing offer additional momentum. Because the accounting impact of the amortization of the upfront fee paid in connection with the new Lotto license will weigh on our reporting revenue, the net result in an expectation of more than a 3% CAGR. In addition to the accelerated top line organic growth trajectory, we have identified certain operational efficiencies that are expected to deliver approximately $80 million in gross cost savings by 2028 versus the 2024 baseline. We have already communicated $50 million of these savings expected by 2026, which are mostly focused on back-office optimizations to rightsize the business following the IGT Gaming sale. The additional $30 million OPtiMa savings we are announcing today target primarily the cost infrastructure across our main operational areas. It also includes benefits from back-end technology modernization, increased automation, digitization and broader AI adoption across the organization. We have established a structured program to accelerate AI adoption across core processes such as content creation, software development and corporate work streams. We expect AI-driven initiatives to yield even more on our profitable growth and on future CapEx in 2028 and beyond when these initiatives will be fully operational. As we have communicated previously, the '25 through '28 period represents a peak CapEx cycle for us. This is related to the renewal and repeat of several of our largest contracts, including California and Italy Lotto, which we have already secured and New York and Texas alongside Italy's Scratch & Win, which are on the horizon. There is also a sequence of smaller contracts mostly already secured. In particular, we expect average annual CapEx of about $400 million for the '25 through '28 period. The vast majority of this is traditional contractually required investments for new central systems, retail terminals and communication infrastructure across our portfolio. There are a few new areas of strategic investment incorporated there in such as CapEx to expand the number of player touch points. This includes more spending on proven sales drivers such as self-service vending machines and new technologies such as LotteryLink as Vince clearly explained in our strategy session. Another is investments to evolve our core technology stack to leverage new capabilities like AI and cloud infrastructure. We're also investing in infrastructure needed to support new Italy B2C opportunities activated by the new Lotto license. We continue to expect annual CapEx to moderate to about $200 million to $225 million post this peak CapEx cycle. It is important to appreciate that our CapEx investment reinforced Brightstar unique competitive advantages and directly support our accelerated organic growth outlook. They also build foundations to deliver long-term efficiencies beyond the current OPtiMa program. The durability and predictability of our cash flows as a stand-alone lottery business enabled us to establish some key pillars for capital allocation. The company has consistently returned capital to shareholders over the last decade through quarterly cash dividends. However, most of our capital during the period was allocated to investing in the business and reducing leverage. Now we'll leverage more comfortably around our target range of 3x. We intend to allocate more capital to invest for growth and enhance shareholder returns. In conjunction with the sale of the gaming business, we recently announced several ways in which we are delivering increased shareholder returns. First is a 2-year $500 million share repurchase authorization, representing mid-teens percent of the current market cap. As part of the authorization, we executed a $250 million accelerated share repurchase agreement, the largest in company history. We also declared a $3 per share special cash dividend that was paid in July. We intend to maintain approximately $160 million in annual regular cash dividends going forward, even with the reduced share count post execution of the buyback program, effectively increasing the per share dividend on an annualized basis. You see that in today's announcement, a 10% increase in the Q4 dividend. At the current share price, our regular dividend represents a compelling yield of around 5%. We're committed to maintaining an attractive yield even as we face increased capital intensity to maintain the contract portfolio over the next few years. In the '25 to '28 period, we expect an aggregate $7.1 billion of cash generation to be allocated in the following manner, about $3.2 billion for investments required to maintain the existing contract portfolio and pursue targeted new growth initiatives represented by the organic CapEx and our portion of the Lotto upfront fee. About $1.7 billion for shareholder returns, both dividends and share repurchases. The accelerated share repurchase and quarterly dividend plus the special dividend that was paid already in 2025. The balance reflects our remaining share repurchase authorization and dividend we expect to pay over the next 3 years. About $2.2 billion split between payments to minority partners, debt reduction and other cash users. I'd like to note this multiyear allocation does not include any upfront fee for Scratch & Win in '28 as the structure of the RFP is not known at this time. Also as a reminder, our net debt at the inception of the '25 to '28 period was $4.8 billion. Since then, we have been able to drive our debt exposure down to today's historical low of $2.6 billion, allowing us going forward to absorb the Lotto upfront fee without significantly impacting our [ same ] leverage, where we expect it to go above our long-term 3x target for a temporary period until the recurring cash generation of our business will allow us to realign it towards the long-term target over the next few years before engaging in discretion win bid. Moving now to the mid-term targets. We are introducing 2028 revenue and profit targets to give you a sense of where we expect the accelerated growth outlook we have outlined to take us in the medium term. By 2028, we expect revenue to reach approximately $2.75 billion as a more than 5% organic CAGR net to over 3% on a reported basis as a result of the increased service revenue amortization associated with the new Lotto concession. Adjusted EBITDA is expected to grow at a more than 6% CAGR to $1.3 billion over the same period as top line expansion is accentuated by optimal cost savings and other efficiency initiatives. Cash conversion before upfront license fee is expected to improve to about 70%. Once we are past the CapEx -- the peak CapEx investment cycle, we believe the business will generate over $400 million in annual free cash flow before upfront license fees, but after minority distributions. This implies a low- to mid-teens free cash flow yield at the current share price. We expect free cash flow to further increase at an accelerated pace as many of the initiatives we have talked about today mature in 2030 and beyond. We believe this is a compelling value for a growing, durable business with long-standing leadership positions. With that said, now I'd like to open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Jeff Stantial with Stifel. Jeffrey Stantial: Maybe starting off here on the new financial targets and sort of strategy that you laid out. Vince, if you take each of the buckets that are laid out on Slide 23, so core growth, iLottery, Italy, all other, could you maybe just unpack a little bit further for us some of the assumptions that underpin those growth rates, meaning for iLottery? How much is sort of same-store sales growth? How much of a benefit is new state launching for Italy? How much is assumed for retail market share, iLottery penetration, casinos, sports capture, that side of things? Just anything to really help us better understand the algorithm from here would be great. Vincent Sadusky: Yes. Yes, sure thing. So I think we tried to lay out in really simple form the components of growth. So we think certainly the starting point is something that kind of based in recent history around the ability for the core retail to grow. And then on top of that, iLottery and the Italy B2B expansion as well as printing and product sales account for the balance. . The assumptions around iLottery are primarily organic growth. We've, I think, got a realistic assumption around what incremental markets might evolve over the plan period. But I think in that really exciting from our perspective, Max and I, is the ability to look out really through 2028. So we thought the mid-term targets were -- really, I think, important to show because the confidence we have in those, it's obviously a lot easier to -- given the nature of our business to project out a few years from now, 3 years from now versus going out for the longer term. So on the iLottery front, we've already secured several platform deals and content deals that take time to actually initiate and then grow. So the iLottery growth in North America is primarily built around the assumption of the customers and the pool of iLottery opportunity that is currently secured. On the B2C side, we've gotten a lot of questions around that, right, because that's probably the most speculative piece of the walk and most difficult for investors or potential investors to get their arms around. So we want to talk about that a bit more today, which we think is important because this is something that we think is a very, very exciting opportunity. Again, when you think about our position in the marketplace, having these 2 long-standing lotteries that have, I think the number is somewhere around 90% of the lottery market in Italy and to have this really incredible retail distribution network and seeing what's been done in other parts of the world and the uniqueness of Italy with limited, really no advertising. We think the things that we're doing are very, very exciting to take a market that -- where people really love gaming. They love to play and a well underpenetrated market in the B2C space around iLottery. We think this evolution now that we've secured Lotto, just makes great sense. We haven't really disclosed what our percentages are in terms of anticipated market share. But we believe they're incredibly reasonable and to come up really 3 share points really just since launching our app consolidating our play under one roof, have better usability and interactivity with our -- with our customers, with our ultimate customers, even prior to really a robust marketing effort I think, is really indicative of the potential to increase our share pretty significantly. And as we said, our share of iCasino game play and sports betting play is pretty reasonable. We said over and over again, there's established players in the market that have been at this a long time. We're not looking or anticipating share anywhere close to what they have. But it really doesn't take all that much to, I think, significantly improve the cash flow prospects of this particular business. So when you look out to '28 also, there's a ramp period. I think we've been very sober in our projected share increase over the years. And the really exciting stuff comes beyond 2028. So we think what we've built in this walk to 2028 is super reasonable. And then when you get into kind of the all other -- a lot of this is built off of the instant ticket share gains we've had over the last year or 1.5 years. There's been, I think, really good work done by the team now that we've invested in our print facility, and we've got this state-of-the-art facility to have the confidence to go out and increment share. Now we still have some teething pains going on with the print operation as we're perfecting this state-of-the-art very complex facility and equipment. But we're working through that, and our goal is to be really best-in-class at in printing in our Lakeland facility, to be able to distribute great product around the world. And we have a lot of the business lined up. On the product sales side, we've had a great focus on breaking down -- analyzing the capabilities and breaking down equipment, not only by our competitors, but other state-of-the-art point of sales equipment and terminals around the world to come up with the latest generation of equipment -- of hardware that we believe will make us more competitive in the sales category. And we think that's immediate. We're already out in the marketplace competing with what I believe is superior hardware products. So we feel really solid about the walk and what they're built on, largely on existing business or business -- I think, reasonable share gains based upon the anticipation of execution. Jeffrey Stantial: That's great. And then for a follow-up, maybe turning over to a return of capital, Max, I apologize if I missed this, but it seems like the full $250 million ASR at this point is pretty much effectively deployed. I didn't catch any commentary on expectations for that second $250 million tranche, whether in terms of timing, mechanism, anything like that? Any color there would be would be appreciated. Massimiliano Chiara: Of course. Yes, we need a little bit of patience on that because the first tranche is still in the market. We are executing it. As we originally anticipated, the expectation is to complete the first tranche by the end of the year and the latest early January. So let's see when we get there and beyond -- what other options we have for the prosecution of the buyback program. Jeffrey Stantial: Right. And just to be clear, do you know how much is still remaining on the $250 million ASR? Massimiliano Chiara: The program is proceeding at pace with the original expectations. So we kind of are not walking off our estimate, to be done by the end of the year. Operator: Your next question comes from the line of Barry Jonas with Truist. Patrick Keough: Patrick Keough on for Barry. First, Mega Millions is on a nice jackpot run right now. We're curious to get your thoughts on what you're seeing since the price change went into effect and how or when you'll know if it's been successful for you? Vincent Sadusky: Yes. So since Mega Millions increased their price to $5 back in the spring, back in April. Unfortunately, as you know, we -- there just has not been a good run up until now, and so it was very -- it's been very difficult to really evaluate the success of the price change. The advantage of the price change is the built-in Megaplier and the math model was changed such that less of the amount of bet, the amount wagered goes to the actual jackpot and more towards these next year prices, which are significant, million, multimillions. And so it was the theory that this would offer a differentiated game to Powerball, which has really driven more significantly towards the top jackpot. Yes, I think it will take time for players to understand and appreciate that. It's been -- the actual results have been according to that design. There's been many, many more payouts at the sub jackpot level. And I think that is beginning to be understood by players, but that will certainly take some time. Yes, as with any Jackpot game, the higher the jackpot, the more the play, the more the play, the more frequent players will also win these less than top jackpots. And I think the differentiation will be accelerated. So I think Mega's up to about $800 million now, and we're routing for it to have a continued run. This is the highest it's been since the increase in the price, and hopefully, that continues. Patrick Keough: That's great. Next from us. It's still early, but can you walk through puts and takes as we start thinking about 2026? And could you frame next year's growth relative to the 2028 targets you introduced this morning? Massimiliano Chiara: Yes. So we normally provide an update to '26 when we report the end of the year number. So we would not be prepared to speak -- talk in detail about it right now. We wanted to really focus more on kind of finishing the year and give the market a glimpse of our expectations to the mid-term with the 2028 target so that help investors unpack all our strategies and the new equity story of Brightstar. But again, the good news is that in the short-term, our core business have accelerated. Italy is running above trend with a particular -- particularly nice Q3 performance normalized for the calendar at plus 5%. The U.S. is recovering -- the core business in the U.S. is recovering significantly. And when everything is set and done and you take the 9 months year-to-date, the jackpot is down just above 10% year-on-year. So you need a lot to really bring the performance back in line versus more historical averages. So obviously, the $1.8 billion jackpot in September was an outlier. But if there is a decent run in the fourth quarter, we may end up in a decent territory. And really that leaves everything on the performance of the LMA, which is really bound by the fiscal lottery year, which ends mid of our calendar year in June, July. So unfortunately, from once in a while, it happens that we got hit by consecutive quarters of no jackpots, and that is reflected in the LMA. But again, when you go back 15, 20 years history of this business, that is quickly recovered. And again, hopefully, this is going to be the same between the second part of '25 and the first part of '26. Again, if the jackpot performance just continue to go along the way as it has historically done. And the other good news for '26 for now that we are obviously sharing with the market is that we continue to accelerate our OPtiMa efforts. We have accelerated the execution of the first part. We actually brought already home $30 million of savings through 2025. So there is an incremental, if you want $50 million to be done between '26 and '28 to get to the total of $80 million that we just announced today. Other than that, I would defer to the conversation when we report the end of the year numbers. Operator: [Operator Instructions] Your next question comes from the line of Chad Beynon with Macquarie. Chad Beynon: Vincent, Max, thanks for all the medium-term commentary and framing up the story. That was helpful. Max, just revisiting a little bit what you were kind of touching on there, but I want to focus on Q4 and the decision to reaffirm the outlook. So I know that you have tough comparables, particularly in Italy from a year-over-year basis. But it looks like maybe Q3 came in a little bit better than expected from a same-store basis, that's kind of continued here. Can you maybe -- and then I did want to touch on was the U.K. amount that you noted of $14 million, is that -- was that in the original guidance. But I just want to ask about anything else that might be coming in below expectations? Or was this just an opportunity to maintain hopefully some conservatism given the uncertainty with the consumer? Massimiliano Chiara: Yes, so this is definitely an interesting juncture of the year because with this phenomenal Q3 performance we have kind of a bit reestablished the pace that we lost in the first half because of the LMA jackpot negative combination. So again, when we unpack Q4, it's important to recognize that there are 2 negative impacts in the top line; one is the U.K. and the second is the increased revenue amortization coming from the larger upfront fee that we are going to deliver to ADM in Italy. December 1 is the first date of the -- under the new concession. So we will have to book a month on the new rate. So when you take those 2 items out, which probably together makes about $30 million, you can expect definitely a pretty interesting performance on the top line even compared to last year. We expect the product sales business to be kind of more or less in line with last year for the fourth quarter, which will definitely a decent performance. And then we continue to anticipate G&A to come lower in Q4. So overall, we think we have the ingredients to deliver a great quarter again. Obviously, it didn't make sense to go into the nitty gritty details of the number to -- and change it by a few million dollars. So we are reiterating the $1.1 billion EBITDA. We may end up exactly at that number. We may end up a little bit better. So we'll see at the end of the day, but we are facing a couple of headwinds on the top line. We continue to see good progress in our core business, and we continue to deliver savings in our operational structure. So overall, we are optimistic that we can deliver a good quarter. Chad Beynon: Great. I appreciate that, Max. And then, Vince, on your medium-term outlook when you outlined the growth, I know one of the things that you talked about with share expansion outside of U.S. and Italy, which I believe is about 12% according to the slide deck. Can you just talk about when a lot of these opportunities could come to your table? Is there a rolling cadence of new bids that are coming up -- or is this more on the printing side, any more commentary? I know you're not giving '26 guidance, but just trying to figure out when some of these opportunities will arise. Vincent Sadusky: Yes. I would say on the share gains for our core business, those things are -- will take several years, either to when or like let's take the case of São Paulo, Brazil, for example. If we decide to move ahead on that award, which we've partnered up with Scientific Games on that, we begin to execute that in 2026, but you won't see really cash flow and profitability until beyond 2026. So it's just the nature of these things, especially when you're effectively establishing a lottery in a new -- in a greenfield market, which is an incredibly exciting opportunity. However, it takes some time. So I would say the things that we talked about for market expansion especially thinking about the near term 2026 are related to print and product sales. Operator: And that concludes our question-and-answer session. I will now turn the conference back over to Vince Sadusky for closing comments. Vincent Sadusky: Thank you all for your attention. Just to recap, we believe that Brightstar enjoys global leadership in a growing industry, and we think have returned to a singular focus on lottery really marks an exciting new chapter. It improves our ability to continue to innovate and execute, drive the acceleration in organic revenue growth and increased shareholder returns that we expect over the next 3 years. And of course, we believe our current valuation provides a compelling entry point for growing a durable business with a long-standing leadership position as we execute on strategies to continue to create significant shareholder value. Thank you. . Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Hello, and welcome, everyone, to the Corebridge Financial Third Quarter 2025 Earnings Call. My name is Becky, and I'll be your operator today. [Operator Instructions] I will now hand over to your host, Isil Muderrisoglu, Head of Investor and Rating Agency Relations, to begin. Please go ahead. Isil Muderrisoglu: Good morning, everyone, and welcome to Corebridge Financial's earnings update for the third quarter of 2025. Joining me on the call are Kevin Hogan, President and Chief Executive Officer, and Elias Habayeb, Chief Financial Officer. We will begin with prepared remarks by Kevin and Elias, and then we will take your questions. Today's comments may contain forward-looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based upon management's current expectations and assumptions. Corebridge's filings with the SEC provide details on important factors that may cause actual results or events to differ materially from those expressed or implied by such forward-looking statements. Except as required by the applicable securities laws, Corebridge is under no obligation to update any forward-looking statements as circumstances or management's estimates or opinions should change, and you are cautioned to not place undue reliance on any forward-looking statements. Additionally, today's remarks may refer to non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available on our website at investors.corebridgefinancial.com. With that, I would like to now turn the call over to Kevin and Elias for their prepared remarks. Kevin? Kevin Hogan: Good morning, everyone, and thank you for joining. I'll start this morning by providing some context around the announcement we made on Friday. As you have seen, our CFO, Elias Habayeb will be leaving Corebridge in April to take a senior leadership position at a publicly listed company that we do not consider a competitor. Elias and I have worked together for many years, and I know he will be missed at Corebridge. We've engaged a leading executive search firm and have begun a search process. We are pleased that there will be a 6-month transition period that will allow for Elias to oversee the completion and filing of 2025 financial statements and the finalization of the 2026 budget and business and operating plans while the search is underway. I would also note that one of Elias important contributions as CFO of Corebridge has been building a very strong finance team that I am confident will support the ongoing execution of our 4 strategic pillars and our trajectory for continued growth. I know that this search will be one of Marc Costantini's top priorities when he arrives next month, and I am confident that he and the Board will select the right person for Corebridge's next chapter. We expect this to be a seamless transition. With that, let me turn to third quarter results. Corebridge delivered another quarter of solid performance with our diversified businesses generating the highest sales since the IPO, even as we further strengthened our balance sheet and once again delivered both strong earnings and an attractive capital return to shareholders. Our financial results as presented reflect our position after the previously announced variable annuity transaction with Venerable, which marks an important inflection point for Corebridge. Our company is now simpler, with a lower risk profile, higher quality of earnings and greater growth potential. Corebridge has been working since the IPO to strengthen every element of our value proposition. Our diversified business model is founded on a broad spectrum of products and services, distribution channels and market segments delivering diversified sources of income that enable us to generate sustainable cash flows and perform through various market cycles. Across our businesses, we are committed to deploying capital where the risk-adjusted returns are the highest and customer demand is the greatest. While our spread income is now a larger percentage of the whole, our sources of spread income streams themselves are diversified. We have a high-quality investment portfolio and minimal legacy liabilities. Our strong balance sheet provides us with financial flexibility to achieve our strategic objectives. We have maintained capital ratios of our insurance companies above their targets. And at $1.8 billion, including partial proceeds from the VA reinsurance transaction, we have more than ample liquidity at the parent. Finally, we continue to emphasize disciplined execution. The team at Corebridge has done an excellent job to date managing through a complex corporate separation, divesting our international businesses, launching our strategy in Bermuda, executing one of the largest VA reinsurance transactions to date, upgrading our technology and customer service capabilities and meeting or exceeding every financial target we set at the time of the IPO. It is a very strong foundation for continued success and shareholder value creation. Turning to Slide 4. Our results in the quarter once again demonstrate that we continue to execute on all 4 of our strategic pillars. First, we delivered strong organic growth with total premiums and deposits of $12.3 billion, reflecting ongoing strength in Individual Retirement. Sales of our RILA product were nearly $800 million in the third quarter and have topped $1.7 billion year-to-date. We are now the only company to have a top 10 ranking across all 4 major annuity product categories as measured by LIMRA. In October, we received regulatory approval to sell our RILA in New York state, one of the nation's largest annuity markets and one where we feel very well positioned. And we remain on track to launch by the end of the year. In addition to our individual businesses, we had very strong performance in Institutional Markets in both GICs and pension risk transfer transactions. Overall, general account net inflows were $1.4 billion, up 27%, supporting general account growth of 6% year-over-year. Across all of our businesses, we remain disciplined in how we price new business, adjusting as market conditions evolve. For example, interest rates declined through the third quarter, prompting us to take rate actions to preserve margin. We generally respond quickly when conditions change, even at the risk of short-term production, and that discipline remains a hallmark of how we run the business. Our diversified business model gives us optionality to allocate capital to where it will earn the highest risk-adjusted returns. We are focused on growing earnings and being responsible with the capital that our shareholders have entrusted us with. Turning to our second pillar. We remain focused on optimizing our balance sheet and creating greater capital efficiency. The capital freed up by our transformative VA reinsurance transaction was significant. And as we've said before, we continue to explore additional opportunities that would be value accretive. One example is expanding our Bermuda strategy, which is off to a great start with $18 billion of reserves ceded since inception. Third, we continue to focus on further improving our operating leverage, and we recently completed our voluntary early retirement program, which is creating capacity to invest in and upskill in key areas such as digital. By continuing to modernize our operations, we see ongoing opportunities to improve our customer and distribution partner experience, which is essential to growth and to further increase our operating leverage. Fourth and finally, we remain committed to active capital management. Year-to-date, we returned more than $1.4 billion to shareholders through buybacks and dividends. While our payout ratio over the period was 80%, reflecting the impact of the VA reinsurance transaction, our target payout ratio remains 60% to 65%. Reflecting on the market, the macro environment remains attractive. The need for people to take care of themselves financially by growing their assets and locking in secure retirement income is a powerful tailwind for our Individual and Group Retirement businesses. In Life Insurance, the large protection gap continues to represent a significant opportunity in those areas of the market where our advantages can drive attractive returns. And in Institutional Markets, pension plan funding levels remain very strong, and plan sponsors are resolute in their intention to divest these liabilities. Corebridge is well positioned to capitalize on those trends, and we'll do it with the same commitment to strong financial metrics that you've come to expect from us, a 12% to 14% return on equity, an average 10% to 15% annual EPS growth rate over time and a 60% to 65% payout ratio, all while maintaining the Life Fleet RBC ratio above target. As I prepare to hand the reins over to Marc, I'm pleased to be doing so from a position of strength. Corebridge has market-leading businesses, a very strong balance sheet and robust opportunities for continued profitable growth. That's why I believe Corebridge remains a compelling investment proposition. With that, I'll turn the call over to Elias. Elias Habayeb: Thank you, Kevin. I'll begin my comments today on Slide 5. Excluding VII and notable items, Corebridge reported third quarter adjusted pretax operating income of $678 million and operating earnings per share of $0.99. This quarter included one notable item that represented the charge of $98 million, resulting from the impact of our annual actuarial assumption update. At the total company level, the annual actuarial assumption update is expected to have a limited impact on the go-forward run rate earnings. The details by business are provided in the appendix to the earnings deck. Annualized alternative investment returns this quarter were $0.11 per share below our long-term expectations, with outperformance in private equity, partially offset by underperformance in hedge funds and real estate equity. Looking forward, we're beginning to see a pickup in M&A activity, which should benefit alternative investment returns. However, we're also seeing a continued lag in real estate equity performance. Accordingly, based on what we know today, we expect alternative investment returns for the fourth quarter will be below our long-term expectations of 8% to 9%. Adjusting alternative investment returns to long-term expectations and notable items, we delivered run rate operating EPS of $1.21, which represents a 6% year-over-year increase and an adjusted run rate ROE of 12.9%, which is up 70 basis points versus the prior year. Moving to Slide 6. Total sources of income increased approximately 1% year-over-year after excluding VII and notable items. Despite the 100 basis points of Fed rate cuts in 2024, spread income was down only 1% as business growth paired with asset optimization actions mitigated the headwinds. Fee income was up 7% year-over-year, primarily from favorable market, while underwriting margins were essentially flat year-over-year. Turning to Slide 7. I'll focus on our capital and liquidity positions. In the quarter, our insurance company distributions totaled more than $1.3 billion, including approximately $700 million of proceeds from our VA reinsurance transaction. Capital return in the quarter was a strong $509 million, including $381 million of share repurchases. Furthermore, since September 30, we have begun deploying the proceeds from the VA reinsurance transactions and have returned over $370 million to shareholders. Our holding company liquidity remains robust at $1.8 billion, well above our next 12-month needs in large part due to undeployed proceeds from the transaction. With our Life Fleet RBC ratio remaining above target and our recent VA reinsurance transaction generating significant distributable proceeds, you can expect to see elevated levels of share repurchases in the coming quarters, pursuant to the $2 billion increase to our share repurchase authorized by the Board in June. Next, I'll briefly review a few highlights from each of our businesses, the details of which can be found in the appendix to our earnings presentation. As a reminder, results exclude the impact of VII and notable items where applicable. Additionally, while we remain focused on prudently managing our expenses, we did see a short-term increase across all segments, resulting from higher compensation-related expenses, consistent with our prior guidance as well as a onetime medical expense accrual. In Individual Retirement, core sources of income were flat year-over-year as the impact of Fed rate actions was partially offset by strong growth and asset optimization. We saw continued strength in new business. Index annuity sales were at an all-time high and RILA sales continued to grow reflecting strong customer demand and the benefit of our deep distribution network. Net flows were up 13% year-over-year, mostly driven by higher index annuity and RILA sales. Adjusted pretax operating income declined by 9% year-over-year. The biggest driver was higher DAC amortization and commissions, reflecting several factors, including growth in the business. Higher fee income and lower base spread income offset each other as a result of market movements over the past year. Group Retirement results in the third quarter demonstrate the ongoing transition from a spread-based to a fee-based revenue stream. Core sources of income grew 1% as fee income increased 4.5% year-over-year, while base spread income declined by 4%. Overall, fee income now accounts for approximately 60% of Group Retirement's core revenue. Adjusted pretax operating income increased 1% year-over-year as higher fee income offset lower base spread income. While assets under management and administrations were flat year-over-year, advisory and brokerage assets continued their strong growth and were up 9% year-over-year to a new record high. Premiums and deposits excluding advisory and brokerage were down 10% year-over-year, reflecting previous plan exits and lower out-of-plan fixed annuity sales. As we look ahead, we're making considerable investments in the business to upgrade the quality of our in-plan services and further build up our wealth management offerings, which should increase enrollments and rollover recaptures. To that end, our adviser headcount is the highest it's been in 2 years, and our adviser productivity is up 10% year-over-year, both supporting our growth initiatives. We expect our growing number of financial advisers as well as their increased productivity to be a positive earnings driver for Group Retirement in the future. In our Life Insurance business, core sources of income were flat year-over-year. Adjusted pretax operating income was down 8% year-over-year largely due to some onetime costs related to systems conversion and higher expenses mentioned earlier. Mortality continues to trend favorably, demonstrating strong underwriting on the block. Adjusting for onetime items, this quarter's Life adjusted pretax operating income was $115 million, in line with our previous guidance. We continue to believe this business will generate earnings of $110 million to $120 million per quarter other than in the first quarter, which typically has higher mortality. While new business sales were down 6% year-over-year, we grew our fully digital senior life products by 19%. In Institutional Markets, we had the strongest sales quarter since the IPO with both PRT and GIC showing exceptional growth. This was the sixth consecutive quarter with GIC issuances in excess of $1 billion. The outlook for PRT transactions remains promising, both for the fourth quarter and longer term as pension plans in the U.S. and the U.K. have continued appetite for derisking as planned funding levels remain very strong. That said, given the nature of PRT transaction, you can expect some continued variability in quarterly volume. Total reserves grew by $8 billion or 19%. Core sources of income were up 5% year-over-year, while adjusted pretax operating income was up 3%. Before I close, I wanted to provide a few thoughts on the state of the market and credit, in particular. Currently, the Fed has begun its easing cycle, so short rates are moving lower, and the curve is steepening. With that, you have credit spreads at the tight end of the range and defaults remain relatively low. In addition, there's been recent headlines about increasing signs of pressure in the broadly syndicated loan market. We believe these events are idiosyncratic, and we have negligible exposure to those names. The current market environment is factored into both our asset allocation and our asset and liability management strategy. We focus on liability origination and originate assets that are predominantly high quality and fixed rate to match those liabilities. Floating rate assets along with derivatives play a smaller and specific role in our duration management. Floaters can also offer incremental value and diversification. Given the tightness in spreads, we prefer higher quality assets that provide collateralized cash flows with credit enhancement and/or covenants rather than lower quality unsecured or idiosyncratic risk. In the context of our broader investment portfolio, it remains resilient and well positioned to manage through volatility. The portfolio is 95% investment grade and is highly diversified among asset class, industrial sectors and geographies. In the third quarter, our portfolio continued to experience positive rating migration for bonds and commercial mortgages. We also have a deeply experienced credit team that operates in a highly rigorous and iterative underwriting process with multiple levels of approvals and ongoing monitoring and proactive portfolio management. We underwrite through the cycles and focus on capital preservation and risk of loss. In terms of the broader balance sheet, we carry moderate leverage, a comfortable liquidity position and access to the capital markets. We regularly run various stress tests of our capital and liquidity positions and remain comfortably within our risk appetite. I also want to provide a reminder about our earnings trajectory over the next few quarters. We published a revised financial supplement that recasts Individual Retirement's VA earnings below the line going back to the first quarter of 2024. As we have said previously, we expect the VA reinsurance transaction to be accretive to the pre-recast EPS by the second half of 2026 once we complete the share repurchases funded by the proceeds from the transaction. Due to timing, EPS over the next few quarters will be lower than they would have been if we had deployed the proceeds on day 1. Additionally, similar to 2024, any Fed rate actions are expected to have a short-term impact on spread income as we expect to mitigate the effects through growth in the business, asset optimization and other management actions. Finally, as you know, this is our last earnings call with Kevin as CEO. I want to take this opportunity to thank Kevin for his friendship, guidance and leadership. The value Corebridge has created for shareholders on his watch has been truly outstanding, and I'm deeply honored to have worked with him. With regard to my announcement, I have worked at Corebridge and AIG for over 20 years, and it's been very gratifying both on a personal and professional level. I'm pursuing an opportunity that I believe is the right next chapter for me. I can't disclose details at this time, but an announcement will be made in due course. I'm very proud of the finance team we have built at Corebridge, and I am committed to ensuring a smooth transition for the benefit of the team, all my Corebridge colleagues, our incoming CEO, my successor and our shareholders. With that, I will turn the call back to Isil. Isil Muderrisoglu: Thank you, Elias. [Operator Instructions] Operator, we are now ready to begin the Q&A portion of the call. Operator: [Operator Instructions] Our first question comes from Joel Hurwitz from Dowling & Partners. Joel Hurwitz: And first, I just want to wish you both the best in the future. In terms of my questions, I wanted to start on Individual Retirement and the base spread yield. Could you just unpack the drivers of the 7 basis point decline quarter-over-quarter? Elias Habayeb: Yes, happy to, Joel. So listen, as we've said before, we expect spread income in Individual Retirement to grow over time and that hasn't changed. We do expect some marginal compression for the dynamics we talked about in the past with the differential between the spread on new business versus in-force and that we expect to be marginal. And based on what we know today, factoring in the latest outlook on rate cuts, we expect that to go through the end of '26 and level off and potentially start growing from there. Now when you come to this quarter itself, the base spread compression due to the dynamics we've explained is in the 1 to 2 basis points. But with the VA transaction that we did, that we closed on the Texas side, which is about 90% of it, we had to reallocate the assets to come up with a portfolio that we transferred to the other side. And that's kind of creating noise, and it's a onetime impact of about 5 basis points. And that kind of level sets kind of a new baseline where to measure compression going forward from. Joel Hurwitz: Got it. That's helpful. That makes sense. And then Elias, in your prepared remarks, you mentioned considerable investments in the group business for, I think, in-plan guarantees and in wealth management. Can you just elaborate on the level of expected spend there and what exactly these investments are? Kevin Hogan: Yes. Joel, it's Kevin. Look, I mean there's a couple of areas we're investing in the Group Retirement business. On the in-plan business, we continued to invest in our automation and digitization initiatives, improving the customer and participant experience there. And then in terms of the wealth management, it's really growing the adviser force and professionalizing the adviser force. And we've been investing in increasing the footprint of the advisers, serving both the in-plan and the out-of-plan opportunity. And then to a certain extent, expanding our product and service shelf to cater to the needs of that, what we call wealth management, which is serving the former in-plan participants in the out-of-plan area. We're not putting a particular number on the investments that we're making. I mean, this is part of the opportunity that we have to continue investing in the growth of the business. And we've seen the results from it. Our advisory and brokerage assets are up 9% year-over-year to a new record of $17.6 billion. Our out-of-plan assets have reached $28.8 billion. And between the in-plan fee business, the out-of-plan business and the advisory and brokerage that really makes up our -- what we think of as our wealth management platform, it's a big earnings base of $108 billion in assets, which is up 2% year-over-year. So we're seeing green shoots, but we continue to invest in the business. Operator: Our next question comes from Alex Scott from Barclays. Taylor Scott: Best wishes in your next phase here. I guess my first question is on the private credit. I know you gave some comments already. But I was just interested if you could provide a little more color around some of the metrics like how much of your bonds are what you would consider private credit or any commentary on the way that you have those rated and which of the rating agencies you use? So just trying to get a little more color on some of the concerns that are more broadly out there on private credit. Elias Habayeb: Alex, it's Elias. Yes, so through private credit -- for us, private credit is a broad category, it includes private placements, which insurance companies created this asset class and have been in it for years, it's like in the $30 billion range. 90% of it is investment grade. We generally use the main rating agencies from a rating perspective on it. Below investment grade, and it's a small portfolio, it's largely the middle market loans, that's like a $3.5 billion portfolio on that. And that's one we've originated some time ago -- that's been originated some time ago and is performing well relative to that asset class. And while we've seen some deterioration, it's all within the yield. We don't see a principal loss on that. Taylor Scott: Got it. Can you also talk about just the competitive environment for pricing on the retail annuities that you're selling and how the trade-off between volume and spread is expected to translate into absolute earnings growth in spread over the next couple of years in that business? Kevin Hogan: Yes, sure. Thanks, Alex. Look, I mean, first of all, the demand for annuities remains robust, and the belly of the curve and the forward suggests it's going to remain supportive, even while the short-term sort of rate outlook is a little uncertain. And the long-term macro drivers are there with the aging of the population and the supportive adviser community and people realizing they need to look after themselves. And look, I mean, once again, in the third quarter, we saw conditions that were quite supportive. Rates did come down during the quarter. And so we repriced our fixed annuities and indexed annuities several times in response and also actively managed our in-force crediting rates. But we still saw very strong opportunities in indexed annuities, especially those with income benefits where we had a second successive record quarter. RILA was also very strong, $800 million across the company, $650 million in Individual Retirement, which continues to be very well received in the market. And we just got our approval to launch in New York, which we believe is, if not the largest, one of the largest annuity markets in the country, which we expect before the end of the year. So that momentum will continue. And fixed annuities is the most immediately sensitive business. And while it was a little lower, we still produced $2 billion, which is quite strong. And we will continue to be disciplined in allocating capital where the risk-adjusted returns are the highest. And in the second half of the quarter, we saw compelling opportunities in Institutional Markets, including in pension risk transfer, where we concluded $1.5 billion, plus we remain a regular GIC issuer with our sixth quarter in a row over $1 billion. So we're comfortable with our overall position. The environment remains competitive, but we have tools by which to respond. Individual Retirement is one of our spread businesses, but Institutional Markets is another one. And above all, we remain confident in growing both our enterprise and our individual retirement general account and spread income over time. Fed actions will present occasional short-term headwinds. But we expect spread income to continue to contribute to our EPS growth targets over time. Operator: Our next question comes from Jack Matten from BMO. We currently aren't getting any response from this line. So we'll move on to our next question from Tom Gallagher from Evercore ISI. [Technical Difficulty] Isil Muderrisoglu: Operator, we aren't hearing any questions come through. Can you please check? Operator: Bear with me 1 second. I'm just going to try and open the line again. Tom, your line is now open, please go ahead. Thomas Gallagher: Can you guys hear me? Isil Muderrisoglu: We can, Tom. Thomas Gallagher: Okay. Great. So I just had a few questions on the Group Retirement business. First one is just on how do I think about the surrenders and then how much you're capturing in your wealth management business. If I look at the numbers, in-plan, it's about 5% annual decay. When you factor in how much you're retaining on the wealth management piece as the -- as you're capturing some of the outflows, how much would that shrink the 5% annually? How do I think about that as kind of a go-forward organic growth number when you add those 2 pieces in? Kevin Hogan: So Tom, on the in-plan business, the average age of the participants exceeded 59.5 about 10 years ago. And so there's kind of a natural outflow on the in-plan part of the business, which is consistent with what, I think, the entire defined contribution industry has been experiencing. And that's to a certain extent what you're seeing in the transition of the portfolio from spread income to fee income over time. And that is the trend that we expect to continue. As I mentioned, we're investing in the footprint of the adviser base to support both the in-plan and the out-of-plan businesses, and we do expect that to be a gradual transition as we shift to more of the fee income businesses. But this trend has been happening in the 403(b) space for some time. If you go back 10 years ago, most new customers were rolling into -- or investing in a 403(b) type of a program, whereas that shifted to the group mutual funds. And then over the last couple of years, we've seen a transition from the group mutual fund entry platform to the advisory platform. So there's a natural trend there that the in-plan business is gradually going to be replaced by the out-of-plan business. We haven't published a number on our recapture rate, but it is a very successful part. And you can see that in the growth of the advisory and brokerage assets, which are up 9% year-over-year. And then I'll just briefly touch on the larger surrenders. I mean the larger surrenders that we saw continue to be in the health care space. There's a lot of consolidation that's going on there. Those are generally episodic. If there's a merger where our plan is the smaller of the 2 plans, those are ultimately consolidated. We don't know if that takes 2 or 3 years from the time of the merger, but we do try to provide an announcement when we learn about those. And those are generally the group mutual fund platform, which has a smaller impact on earnings than the 403(b) part of the business. Thomas Gallagher: My follow-up is just I recognize both of you are going to be transitioning out. But curious on your view of the strategic importance of VALIC within Corebridge. On one hand, I think it's a great franchise within the 403(b) market, has its stand-alone legal entity. But on the other hand, it shrinks organically, and I recognize there's some offset there from the wealth business. But is this something that would be under consideration of potential divestiture if you got a great price on the asset? Or do you think that's a long-term keeper when you think about within the broader franchise here? Kevin Hogan: Well, Tom, my personal opinion, and I think that this is something that is fully supported by the Board as well as the executive leadership of the company is that the retirement services, Group Retirement business is an extremely valuable strategic asset. And the differentiating aspect of the value proposition of that business is VALIC Financial Advisors, which is our field force of financial professionals that support these customers through their working period and have the opportunity to develop a relationship with them and then continue to serve them and their families after they retire at the time of household asset consolidation, which is where the real opportunity in the wealth management piece of that business has been. And there's 1.9 million customers in this business, 1.6 million of those customers are still in-plan only business -- only customers and therefore, represent a future opportunity for that out-of-plan capability that we're enhancing through the investments we're making in both the adviser force and the platforms to support the adviser force. So this trend in the transition from a spread to a fee-based business is something that is going to take place over a longer period of time, but the strategic opportunity for this business is absolutely enormous, driven by the unique value proposition of VALIC Financial Advisors. It was over 6 or 7 years ago, we made the decision to double down on the role of the human adviser. And therefore, we have been focusing on plans that want our advisers on site and engage, and that's what gives them the opportunity to develop those relationships. So I look straight past the short-term financial sort of transition that's taking place, and I look at the bright future strategic opportunity of this business as a tremendous asset for the company. Elias Habayeb: And with that transition, Tom, this is Elias. I like to add on. You're improving the free cash flow conversion profile of the company over time by shifting the earnings to more of a capital-light or fee-based stream from a balance sheet-heavy general accounts basis. Operator: Our next question comes from Jack Matten from BMO. Francis Matten: First question on Institutional Markets. It was a strong new business quarter not just for PRT, but also GICs and corporate markets. I guess those non-PRT businesses, can you talk about what's driving your growth there, what you like about those products and what you're achieving from a spread margin standpoint? Kevin Hogan: Well, in the Institutional Markets, there's -- the main businesses are the guaranteed investment contracts and the pension risk transfer. And we manage those as we do any of our spread businesses relative to a target margin. There's also the -- the other businesses in Institutional Markets include the BOLI business and the COLI business, which includes insurance COLI, which is kind of similar to the BOLI business. And occasionally, we do also have transactions in that space. There's been an increasing demand for insurance COLI that we've recently observed, and we are a participant in that market. And so those are the 3 main areas. We have a modest structured settlements business that has grown incrementally. But really, where we see the future of this business is in the GICs and in the pension risk transfers. And pension risk transfers, we focus on the full plan termination space, we have for almost 10 years now, and we built specialized capabilities there. And full plan terminations are a subset of the overall PRT market, but the pipeline for full plan terms is very strong in both the U.S. and the U.K. And this is a significant part of the upside we see in the business. Francis Matten: Got it. And a follow-up is on cash flow. I guess first part just on the timing of incremental dividends from the VA transaction. When do you expect to get the remainder of those up to the holding company? And the second part is on the, I guess, $600 million or so of maybe underlying dividends ex those additional proceeds. Is that still a good run rate to think about moving forward? Or would you expect a near-term kind of step down just from the VA transaction? Elias Habayeb: Jack, it's Elias. With respect first to the proceeds, from the VA transactions, we expect to take -- to distribute those out of the insurance companies over a couple of quarters. We had [ $700 million ] in September, we'd look to another piece in December and then another piece early next year on that front. With respect to the $600 million, that's been our run rate. It will step down a bit, given the change in the distributable earnings profile of the insurance companies. That being said, we can expect to continue to grow it over time to deliver on our 60% to 65% payout ratio. Operator: Our next question comes from Ryan Krueger from Keefe, Bruyette, & Woods. Ryan Krueger: You had mentioned that you took actions on -- to mitigate some of the short-term rate headwinds over the last year or so. I guess are you seeing any existing opportunities now given the Fed has begun a [ credit -- rate ] cutting cycle again? Or I guess, you view that as more opportunistic in the future? Kevin Hogan: Well, Ryan, let me just start. I mean we're sort of managing in 2 different areas. And I think you maybe are asking about 2 different things. Let me start about what I mentioned in terms of managing the pricing of the product. That's more driven by where the belly of the curve is, the 5- and 10-year part of it, not so much the short-term Fed actions. The Fed actions are more relative to the shorter end of the portfolio. Elias Habayeb: Yes. So Ryan, based on the way we manage the balance sheet, we're disciplined from an ALM perspective. And so on the net floating rate exposure, we will evolve that as we see the liability side change, and we've come down more than 50%, or we've reduced our exposure by more than 50% since June of '24. And that's something we monitor closely. And when there's opportunities to reduce it, we will further reduce it, recognizing what's the outlook there. That being said, the way we manage the balance sheet is, we will always look for opportunities to optimize the balance sheet and improving return on capital. And we've done that over the course, you've seen it -- our track record since the IPO, we've taken action on the asset side to improve returns. And we've done that as a tool to also help manage the impact of rate cuts on earnings, and we will continue to do that. And the other thing I would add is if you look year-on-year, our spread income is flat. And that's in part because we were able to offset that with actions we've taken on the asset side as well as growth in the portfolio. And as we look forward, like to us, rate cuts will be a short-term speed bump, but we've got the tools to manage through it, and we expect to grow spread income over time because the fundamentals behind our spread products continue to be very strong. And remember, we offer spread products in 3 of our businesses, and we've got the flexibility like we did in the third quarter to dial to where we see the most attractive returns and deploy our capital that way. Ryan Krueger: And then in the Life Insurance business, it's performed pretty well over time, but there's also been a robust market for in-force reinsurance transactions. Is there anything within that business that you see as a potential opportunity when it comes to potential risk transfer? Elias Habayeb: Well, when it comes to risk transfer, Ryan, we are always actively seeking opportunities to increase shareholder value and optimize the portfolio. With respect to the Life business, we have repositioned this business substantially over the last couple of years to focus on less interest-sensitive businesses and more middle market. We've invested a lot in our automated underwriting and our digital platforms, and we're very pleased with the performance there. We did move a substantial amount of life reserves into Fortitude Re when we created it a number of years ago before divesting that. And we continue to look for opportunities across the portfolio, whether that's in the form of our Bermuda strategy, external reinsurance or potential external transactions. But above all, we're very pleased with the performance of the Life business. We've invested a lot in our underwriting capabilities over the years, and our mortality has continued to actually emerge at or better than pricing expectations, and we have a very healthy in-force that we expect to continue to contribute at that level of earnings that we had earlier guided to the $110 million to $120 million a quarter except for the first quarter, which is always a little bit lower. Operator: Our next question comes from Elyse Greenspan from Wells Fargo. Elyse Greenspan: My first question is on capital return. Elias, I think you said you guys returned $370 million Q4 to date. I'm assuming that's just repurchases and that ignores the dividend, correct me if I'm wrong. And then is that the pace that we should think about for capital return for the rest of the quarter? Elias Habayeb: Elyse, it's Elias. So that number, you're correct, is only share repurchases. We expect to return a higher amount of capital in the fourth quarter. But given the distributions on the VA proceeds that we got in September, I would not though take the October number and extrapolate it as if it's all going to be at the same pace. It'd be a bit more front loaded in the quarter, but it will be less than this run rate. Elyse Greenspan: And then I guess my second question is a follow-up on private credit. It seems like you guys are comfortable with the allocation given Alex's question earlier in the call. I'm just curious, there's lots of headlines just on regulation. Just if you have a view on just the regulatory regime and the direction things are headed in and then just the overall allocation you guys have to private credit. Elias Habayeb: No, happy to. So as I've said before, our investment strategy is liability-driven. And we look at opportunities where we could get attractive returns and where we can afford to have private credit, we pursue it. But we're very disciplined on the underwriting side. We're aware of what's developing on the regulatory front, and we're engaged with it. And that kind of becomes a consideration if we think there's a risk on how we allocate capital. At this point, our strategy, we're comfortable with it. We understand the potential implications on the regulatory side. And based on what we know today, we don't think it will have a material impact or materially change what we've been doing. Operator: Our next question comes from Suneet Kamath from Jefferies. Suneet Kamath: Congrats to both of you. I wanted to come back to risk transfer because, Kevin, in your prepared remarks, you had mentioned that you're open to it. But sort of in a follow-up to Tom's question. You do have a new CEO coming in. You do have a new CFO eventually coming in. Is it fair to assume that you're probably not going to do anything major until those 2 seats are filled and those folks have a chance to look at the overall strategy? Or is that not the right way of thinking about it? Kevin Hogan: Look, I would draw your attention to my prepared remarks relative to the transition. We have a very strong foundation in place. We have a strong team. We have a track record of execution. Looking forward to welcoming Marc. Elias is here for 6 months through the transition. I'm going to change my role to be an adviser to the Board for 6 months. And we're looking forward to a very smooth transition process. Elias Habayeb: And Suneet, they're not letting me take a garden leave. I expect to be working the full 6 months. Suneet Kamath: Got it. Okay. Well, sorry to hear that. I guess on Bermuda, how should we think about Bermuda? Is that -- over the long term, I'm not talking about near term, is this eventually going to allow you to increase your free cash flow conversion ratio? Or is it more an ability to just grow faster because the capital is more optimized? Elias Habayeb: Suneet, the way I look at it is it gives us financial optionality. And with that optionality, we'll evaluate what's the best utility of that optionality and how we maximize shareholder value, and we'll allocate our capital accordingly. Kevin Hogan: Yes. So just following up from that, I mean, it really gives us potentially as we further grow and develop our Bermuda strategy, the option to do both. And I think that is ultimately what a mature Bermuda strategy that leverages all the capabilities associated with that will lead us to. Operator: Our next question is from Cave Montazeri from Deutsche Bank. Cave Montazeri: My first question is -- first, thank you for all the color on the credit portfolio. It's quite helpful right now. just want to follow up. You did mention that you're well diversified by sector or whatnot, which makes a lot of sense. Can we assume within private credit specifically, is that also very well diversified from a sector point of view? Do you have any maybe sectors that you are more overweight, any exposure, like outside exposure to the auto sector, for example? Elias Habayeb: On the private credit side, the majority of our exposure is an investment-grade private placement, and that's kind of diversified across sectors from there. So we follow the same kind of principles on private credit as we do kind of overall allocation to credit in general. So I think it's a fair assumption that we've got -- it's -- the private credit portfolio is similarly diversified as the overall portfolio. Cave Montazeri: Great. My follow-up question is on PRT. Obviously, quite a lumpy business. And I think it's the only business you have left that's international after the repositioning of the business. I guess, do you -- are you still comfortable retaining an international exposure when it comes to PRT? Or would that eventually become a U.S. business only? And what is kind of the near-term outlook for PRT? Kevin Hogan: Thanks, Cave. So our U.K. business is a reinsurance business and reinsurance is, to a certain extent, kind of a global business. We can use our U.S. balance sheet as we do in the U.K. for PRT as a reinsurer for other potential international opportunities, and that is something that we have an opportunity to explore and to expand. And so whilst we don't have any admitted international operations, that doesn't mean that we don't retain the expertise and interest in growing in international markets in the form of reinsurance. Now to your question about pension risk transfer. Look, the pension risk transfer opportunity is extremely robust. As per my prepared remarks, pension plans are attractively funded. Companies are very interested in no longer having to be fiscally responsible or fiduciarily responsible for those plans. And so management teams are committed to exiting those liabilities. And there's a subset of the pension risk transfer market, both in the U.S. and the U.K., which is in a single negotiated transaction, a company can go through the multiple stages of exiting a plan. That's called a full plan termination. And we are a specialist in that part of the market. There's fewer competitors in that part of the market. We find the economics more attractive as a result. We've built the administration capabilities to manage the complexity of those plans of the active and deferred populations, in addition to the retirees. And also we've invested in the underwriting resources to have the expertise in managing the liabilities. So we have an excellent position in that business. The pipelines are extremely strong in the U.S. and the U.K. The economics are attractive, and we remain very well positioned. So we're extremely optimistic about the pension risk transfer position that we have. Operator: Our next question comes from Wes Carmichael from Autonomous. Wesley Carmichael: First question, in Individual Retirement, and I guess it's a question on margin. But for your fixed indexed annuity portfolio, is there an opportunity there to adjust crediting rates via caps and participation rates? And I guess, relatedly, we're hearing from some in the market that there's some higher competition for FIAs where it's tied to the S&P 500. And so curious if you're seeing that as well. Kevin Hogan: Look, the entire individual retirement market is a competitive market. We're seeing competition, I think, everywhere there. I don't think it's any heightened in indexed annuities or fixed annuities or RILA. It's an active and competitive space. And through a combination of the very strong distribution relationships that we have, the historical product creativity that we've been able to manage and then also the discipline with which we manage our new business pricing, we continue to be able to produce attractive new business there. As I mentioned in the index annuity, we're definitely seeing -- right now, we're focused more on the income benefit aspects of that part of the portfolio. But we have a very broad range of index products as well as our other products, and we work with a broad variety of distribution channels, which helps us overcome some of those market competitive consideration. So we're very comfortable with the overall position in the individual retirement businesses, whether that's our index business, our RILA, which is performing very well and the fixed annuity business, which is a little bit more sensitive to external conditions, and we are -- as a result, we respond very quickly when there are pricing changes in that environment. Wesley Carmichael: And just a follow-up. But on longer-term guidance, I think you talked about a long-term EPS growth guide of 10% to 15% or something in that range. Just curious if anything has changed there. I know there's quite a bit of buyback that probably supports 2027. But if you think underneath the surface, when you think about rate, long term, short term, anything that's changed your view in that respect? Elias Habayeb: Wes, it's Elias. Listen, we still think the 10% to 15% average annual growth is the right guidance for the company. This will be driven by growing earnings as well as share repurchases. Some years will be higher, some years will be lower, but we think that's still the right target for this company. And I think it's a pretty attractive target to be able to deliver 10% to 15% on average. It will be influenced from time to time by different factors, some outside our control, but the things we're focused on are accretive to achieving that target, whether it's on organic growth, balance sheet optimization, the expense discipline, capital management, all those things, the stuff we control will be accretive to that target. Operator: This concludes our Q&A session for today. So I will hand back to Kevin for closing remarks. Kevin Hogan: Thank you, operator. This is my last earnings call, so I would like to share a few thoughts. In a career spanning 4 decades, it has been the honor of my professional life to serve Corebridge as CEO. I am very proud of our executive leadership, the ladies and gentlemen of Corebridge and also our partners, and especially of the value we have created for Corebridge's stakeholders. Our employees now work for a strong independent company with significant upside career potential. Our customers and distribution partners can rely on our commitment to innovation, modernization and professional service. We work hard to give back to the communities in which we operate. And our shareholders have seen the value of their investment in Corebridge appreciate. Going forward, I'm confident the company is in very good hands with Marc Costantini, who can build off the strong foundation we have set in place. We look forward to introducing him to all of you soon. I've received a lot of notes from folks, I'd like to thank you for your wishes. And thanks to everyone again, who joined us for the call. Have a great day. Operator: Thank you. This concludes today's call. Thank you for joining us. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to The Ensign Group Q3 Earnings Call. [Operator Instructions]. At this time, I would like to turn the call over to Mr. Keetch. Please go ahead. Chad Keetch: Thank you, operator, and welcome, everyone. We filed our earnings press release yesterday, and it is available on the Investor Relations section of our website at ensigngroup.net. A replay of this call will also be available on our website until 5:00 p.m. Pacific on November 30, 2025. We want to remind anyone that may be listening to a replay of this call that all statements made are as of today, November 4, 2025, and these statements have not been or will be updated subsequent to today's call. Also, any forward-looking statements made today are based on management's current expectations, assumptions and beliefs about our business and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. Except as required by federal securities laws, Ensign and its independent subsidiaries do not undertake to publicly update or revise any forward-looking statements where changes arise as a result of new information, future events, changing circumstances or for any other reason. In addition, The Ensign Group, Inc., is a holding company with no direct operating assets, employees or revenues. Certain of our independent subsidiaries, collectively referred to as the service center, provide accounting, payroll, human resources, information technology, legal, risk management and other services to the other independent subsidiaries through contractual relationships. In addition, our captive insurance subsidiary, which we refer to as the insurance captive, provides certain claims made coverage to our operating companies for general and professional liability as well as for workers' compensation insurance liabilities. Ensign also owns Standard Bearer Healthcare REIT, Inc., which is a captive real estate investment trust that invests in health care properties and enters into lease agreements with certain independent subsidiaries of Ensign as well as third-party tenants that are unaffiliated with the Ensign Group. The words Ensign, company, we, our and us refer to The Ensign Group, Inc., and its consolidated subsidiaries. All our independent subsidiaries, the Service Center, Standard Bearer and the insurance captive are operated by separate independent companies that have their own management, employees and assets. References herein to the consolidated company and its assets and activities as well as use of the words we, us, our and similar terms are not meant to imply nor should it be construed as meaning that the Ensign Group has direct operating assets, employees or revenue or that any of the subsidiaries are operated by The Ensign Group. Also, we supplement our GAAP reporting with non-GAAP metrics. When viewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business, but they should not be relied upon to the exclusion of GAAP reports. A GAAP to non-GAAP reconciliation is available in yesterday's press release and is available on our Form 10-Q. And with that, I'll turn the call over to Barry Port, our CEO. Barry? Barry Port: Thanks, Chad, and thank you all for joining us today. We're pleased to report another record quarter in several key areas. Before we jump into some of the financial highlights, I do want to provide some more detail about the primary driver of our success, which is the extraordinary outcomes achieved by the dedicated and talented clinical teams. While we are always trying to highlight our clinically driven culture, sometimes the financial outcomes take the forefront on calls like this. We do feel, however, it's important to point out again that our clinical performance continues to be the key differentiator for us. Simply put, our consistent financial results would not be possible without a relentless patient-focused culture that strives to deliver the highest quality clinical outcomes. According to the most recently published CMS data, same-store Ensign affiliated facilities outperformed their peers in their annual survey results by an impressive 24% at the state level and 33% at the county level. This exceptional performance is not just a snapshot. It reflects the sustained clinical excellence of our local leadership teams and caregivers. In that same CMS data set, Ensign-affiliated operations also maintained a 10% advantage in overall 4- and 5-star rated buildings when compared to their peers. What makes this especially notable is that the majority of these communities were 1- and 2-star facilities at the time of acquisition. Together, these results demonstrate our consistent ability to elevate quality of care, strengthen operational execution and create long-term value across our portfolio. We can't emphasize enough how hard our teams are working every day to give our patients and their families the best service possible while developing and sharing best practices with their peers in their own clusters and markets and beyond. These efforts are bearing fruit and showing through in several ways. On the census front, our same-store and transitioning occupancy increased to 83% and 84.4% during the quarter, which were both all-time highs. The primary reason for this growth in occupancy is due to the fact that our teams are capturing more market share by earning the trust of the communities they serve through the clinical outcomes described earlier. As each operation earns and solidifies the reputation as the facility of choice in their respective markets, they're not only seeing more patients, but they're also being entrusted to care for more and more medically complex patients, which includes a larger share of Medicare, managed care and other skilled patients. In addition, we believe we're just now starting to see the increased demand for our services related to the strong demographic trends. As we look ahead, these demographic trends are undeniable. The U.S. population aged 80 and older, our core population is projected to grow by more than 50% over the next decade from roughly 13 million today to over 20 million by 2035. At the same time, the ratio of seniors to middle-age family members is expected to decline by nearly 40%, creating sustained and growing demand for the kind of skilled nursing and rehabilitation services offered in our facilities every day. These powerful tailwinds will only bolster the census momentum we're seeing across our portfolio, giving us confidence in the long-term growth and opportunity ahead. On the skilled mix front, we saw skilled days increase for both our same-store transitioning operations by 5.1% and 10.9%, respectively, over the prior year quarter. We also saw Medicare revenue increase for both our same-store and transitioning operations by 10% and 8.8%, respectively, and an increase in our same-store Medicare days by 4.2% over the prior year quarter. In addition, we saw managed care revenue increased for both our same-store and transitioning operations by 7.1% and 24.3%, respectively. These improvements in skilled mix in our same-store operations and the even larger improvements in our transitioning operations highlight our ability to capture a portion of the enormous upside inherent in our existing portfolio. The combination of strong demand for our services and our efforts to be best-in-class in our markets creates a pathway to continue to produce long-term sustainable growth. At the same time, we continue to acquire new operations with massive long-term upside. Since 2024, we have successfully sourced, underwritten, closed and transitioned 73 new operations across several markets, many of which were already performing at or above our expectations. Our opportunity to continue adding new operations to our portfolio remains solid. However, as Chad will discuss in a minute, the deal market does fluctuate. In our 26-year history, we've seen periods of time when capital seems to flood into the industry, which can temporarily raise prices to irrational levels. A close look at our history will show in an environment like that, we have remained disciplined and taken a slower pace to growth, avoiding the addition of what we believe to be overpriced deals. Instead, our local leaders spend fewer hours on transitioning newly acquired assets and shift their focus towards enhancing our capabilities within our same-store and transitioning portfolio. Over time, we have experienced very consistent growth in revenue and earnings, even though the deal market has been and will continue to be choppy. While we're thrilled with our current record same-store occupancy, we're actually excited that it's as low as it is. At 83%, we have enough organic growth potential left in our organization to sustain our consistent earnings and revenue growth, even if we stopped acquiring during periods of irrational pricing. To illustrate this opportunity, reaching a minimum of 85% occupancy in same-store would be like adding 8 new 100-bed operations and at a minimum of 88%, it would be the equivalent of adding 17. This kind of organic growth is even more powerful than acquisitions because it expands census without adding new fixed overhead, driving stronger and more efficient margin improvement. As we point out during each of our earnings calls each quarter with specific facility examples, it's not uncommon to see some of our most mature operations consistently achieve and maintain occupancies in mid- to high 90s. As we grow, our local leaders are always on a lookout to attract and develop new partners into post-acute care, including administrators and training, nursing and therapy leaders and other key contributors. We are encouraged by the deep bench of incredible talent that continues to flow into our organization, and we look forward to working with them to continue to achieve our mission to dignify post-acute care. On the labor front, we do continue to experience improvements in turnover, stable wage growth and lower staffing agency usage even in the face of increased occupancy. As we've said before, our people are at the heart of our efforts and seeing these metrics consistently improve is critical to maintaining our path of success and to achieve industry-leading results. After another stronger-than-expected quarter, we are again raising our 2025 earnings guidance to between $6.48 to $6.54 per diluted share, up from our previously raised guidance of $6.34 to $6.46 per diluted share. The new midpoint of this increased 2025 earnings guidance represents an increase of 18.4% over our 2024 results and is 36.5% higher than our 2023 results. We are also increasing our annual revenue guidance to $5.05 billion to $5.07 billion, up from $4.99 billion to $5.02 billion to account for our current quarter performance and acquisitions we anticipate closing through the end of the year. We're excited about the trajectory we are on for the year and look forward to continuing our consistent march towards great clinical and financial results. This increased guidance is due to the continued execution of our growth model with organic growth stemming from continued strength in occupancy and skilled mix as we head into the fourth quarter, which is typically one of our strongest quarters. In addition, many of our new acquisitions are performing well ahead of schedule, which highlights our continued commitment to our locally driven transition strategy and also points towards solid underwriting and investment decisions. We are excited about our performance so far this year and are confident that our partners will continue to execute and innovate while balancing the addition of newly acquired operations. We are eager to continue to drive organic improvements and take advantage of the acquisition opportunities we see on the horizon. The combination of improvements in occupancy and skilled mix in our more mature operations and the long-term upside in our newly acquired operations highlights the enormous organic potential we see in our existing portfolio. Next, I'll ask Chad to add some additional insights regarding our recent growth. Chad? Chad Keetch: Thank you, Barry. We accelerated our growth by adding 22 new operations, including 10 real estate assets during the quarter and since. These include 2 larger deals, an 11-building portfolio in California and a 7-building portfolio in Utah. It also includes some single facility opportunities with one in Alabama, one in Wisconsin, one in Iowa and one in Idaho. In total, we added 1,857 new skilled nursing beds and 109 senior living units across 6 states. This growth brings a number of operations acquired during 2025 and since to 45. We are thrilled to complete the 11-building portfolio in California during the quarter after many months of preparing to transition these operations. These new acquisitions allow us to serve areas of California that we've been looking to enter for years. Consistent with other similar regional portfolios we've acquired in the past, our local team is prepared to execute on their specialized building-by-building transition plans several months in advance. So far, we've been very pleased with the progress in these transitions. As long-term operators, we've never sold a skilled nursing operation. When we agree to operate a new facility, we make a commitment to the staff, patients and the larger health care community that we are there for the long haul. Our company was founded in California, and these additions only serve to deepen our commitment to the growing populations of seniors in this great state that will benefit from our high-quality health care services over the coming decades. We were also thrilled to close on the Stonehenge portfolio in Utah. We have admired these operations for many years and are honored to continue their legacy as one of the most reputable providers in the state of Utah. This strategic acquisition adds high-quality, newer constructed properties to our existing footprint and a very important state for us. The locations are a perfect fit with our existing clusters and introduce us into a few new markets. We are also thrilled to add these assets to Standard Bearer's growing real estate portfolio. This acquisition is a perfect example of how our locally driven acquisition strategy works best. This off-market transaction was a multiyear process that would not have happened with a traditional centralized deal team. This opportunity came to our organization because of a very long-standing relationship between the sellers and our local leaders, who then worked together with our team at the service center to structure a win-win deal for us and the sellers. We are excited to add our second facility in Alabama and look forward to watching that market grow as we add strength and experience to our local team there. Because our growth over the last several quarters spans across many states and markets, it leaves us with significant bandwidth to grow in almost all of our markets. We continue to prioritize markets that we know best, while simultaneously and meticulously expanding into new markets. Overall, our growth this quarter continues to demonstrate our ability to take on multi-facility portfolios as well as our traditional singles and doubles, which when taken collectively, are equivalent to a large transformative acquisition. We've shown that our approach to transitioning each operation as a complex health care business works on single operations, small portfolios and on a larger scale, particularly when a larger deal spans several markets and geographies. While we certainly will continue to evaluate and consider any deal that's out there, we are also very comfortable growing the way we've grown this year with lots of transactions across many states, which are typically more reasonably priced and don't carry the complexities that sometimes accompany the acquisition of a large company. As we look at the current pipeline, we continue to see opportunities that include everything from small to midsized owner-operated portfolios, landlords looking to replace current tenants, nonprofits looking to divest of their post-acute assets and a steady flow of traditional onesie-twosies. However, we've also seen some trends in the last few months that show that pricing in certain areas has become too rich to support the fundamentals of the operations. We must and will remain committed to staying disciplined and true to the principles that have contributed to our consistent success, including ensuring that we pay prices that will allow the operations to have enough of the necessary resources to invest in the building and the clinical systems in order to achieve the highest possible clinical outcomes. With that said, we have several deals lining up for the first quarter of 2026 and our local leadership and their deal partners at the service center work together to source and underwrite reasonably priced deals with sellers who are not just interested in receiving top dollar, but care deeply about the quality and reputation of the company they select to inherit their legacy. Our local leaders continue to recruit future CEOs for Ensign affiliated operations, and we have a deep bench of CEOs in training that are eagerly preparing for an opportunity to lead. During the quarter, we reached an all-time high for AITs in our pipeline. This high-quality influx of local talent, combined with our decentralized transition model allows us to grow without being limited by typical corporate bottlenecks. Therefore, our unique acquisition and transition strategy puts us in an excellent position to continue growing in a healthy and sustainable way. Lastly, we are pleased with the continued growth of Standard Bearer, which added 11 new assets during the quarter and since, including 1 skilled nursing asset that we acquired in Texas that will be operated by a high-quality third-party tenant pursuant to a triple net lease. Standard Bearer is now comprised of 149 owned properties, 115 are leased to an Ensign affiliated operator and 35 are leased to third-party operators. We were excited to add our growing list of relationships with unaffiliated operators, which further diversifies our tenant base and helps our organization as a whole continue to advance our mission by working closely with like-minded operators that want to make a difference in this industry. Going forward, Standard Bearer will continue to work together with our existing operating partners and new relationships we are developing in order to acquire portfolios comprised of operations that Ensign would operate and facilities at third parties that are interested in operating under a lease. Collectively, Standard Bearer generated rental revenue of $32.6 million for the quarter, of which $27.6 million was derived from Ensign affiliated operations. For the quarter, Standard Bearer reported $19.3 million in FFO and as of the end of the quarter, had an EBITDAR to rent coverage ratio of 2.5x. And with that, I'll turn the call over to Spencer, our COO, to add more color around operations. Spencer? Spencer Burton: Thanks, Chad, and hello, everyone. As always, we'd like to share a few examples of how operations in various stages of their maturity are contributing to our outstanding results. It's the aggregation of achievements like these that comprise the Ensign story. And we believe these examples are the best way to explain how we produce consistent results over time. As Barry and Chad both mentioned, one of the biggest drivers of Ensign's consistent growth that our same-store operations are continually pushing for quality and improvement year after year. A great example of that diligence is Beacon Harbor Healthcare & Rehabilitation located in Rockwall, Texas. Beacon is led by Executive Director, Cory Blomquist, and his clinical partner, COO, Don Thompson, who has guided a remarkably stable leadership team since the facility joined Ensign back in 2019. Beacon has long been a strong clinical and financial performer, and the team has been executing a thoughtful multiyear strategy to make the facility the clear provider of choice in their community. First and foremost, they've focused on taking care of their caregivers. Despite operating in a tough labor market, Beacon enjoys turnover well below state averages, runs low overtime and hasn't used a single nursing agency shift all year. Because their staff feel valued and supported, that care naturally extends to their patients. Second, the team has maintained their 5-star CMS quality rating, while growing their reputation for clinical excellence. They've also expanded their medical partnerships, adding cardiology, pulmonology and nephrology specialists and strengthened relationships with local hospitals, which enabled them to participate successfully in multiple ACOs and expanded managed care partnerships. The results speak for themselves. Occupancy has increased from 69.4% in Q3 of 2024 to 77.7% in Q3 of 2025, with Medicare days up 11% and managed care days up 21%. As the team has methodically executed their plan, earnings have followed. Q3 EBIT is up nearly 45% from the prior year quarter. Even more exciting is the fact that the operation still is less than 80% occupied and is primed to experience even more growth in coming years. With a stable leadership team, strong labor practices and a culture that puts people first, Beacon Harbor stands as a powerful example of how sustained organic growth continues to drive Ensign forward. The second example highlights the kind of transformational growth we often see in our newly acquired operations when they're led by strong local leaders with clear shared vision. River Park Post Acute in Chandler, Arizona, was acquired in May of 2024. Prior to transition, the facility primarily served long-term care residents and had limited visibility in the local health care community. It operated at 3 stars and struggled with census and referrals. That changed quickly under Executive Director, [ Arjun Purvis ] and Director of Nursing, Rhonda Gilbert. Together they united the team around a bold vision to become a beacon of quality in Chandler by caring for more complex skilled patients. They went to work strengthening hospital partnerships, enhancing the facility's appearance and raising clinical standards. Rhonda and her team focused on the fundamentals, training frontline caregivers, setting high expectations and establishing 7-day a week on-site physician group coverage. Confidence grew, and with it, the facility's reputation. In just 15 months, River Park has achieved 2 successful CMS surveys, including one deficiency free, a rare feat even among established operations. They've also advanced from 3 stars to 5 stars overall and in quality measures. Operationally, the turnaround has been just as impressive. Occupancy rose from 76.3% in Q3 of 2024 to 97.1% in Q3 of 2025. Skilled mix days increased from 40.7% to 67.5%, with Medicare days up 18.9% and managed care up 176%, adding more than 20 managed care patients per day compared to the prior year. Both clinical and operational gains have translated into extraordinary financial results. Revenues are up 54% and EBIT is up 376% year-over-year. River Park story is a vivid reminder that when clinical excellence comes first, results follow quickly. It also shows the potential that exists in so many of our new acquisitions when talented local leaders are empowered, supported by our resource teams and backed by a culture that believes in doing the right thing for every patient every time. With that, I will turn the time over to Suzanne to provide more detail on the company's financial performance and our guidance, and then we'll open it up for questions. Suzanne? Suzanne Snapper: Thank you, Spencer, and good morning, everyone. Detailed financials for the quarter are contained in our 10-Q and press release filed yesterday. Some additional highlights for the quarter include the following: GAAP diluted earnings per share was $1.42, an increase of 6%. Adjusted diluted earnings per share was $1.64, an increase of 18%. Consolidated GAAP revenue and adjusted revenues were both $1.3 billion, an increase of 19.8%. GAAP net income was $83.8 million, an increase of 6.9%. And adjusted net income was $96.5 million, an increase of 18.9%. Other key metrics as of September 30, 2025, include cash and cash equivalents of $443.7 million and cash flows from operations of $381 million. During the 9 months ended September 30, 2025, we spent more than $240 million to execute on our strategic growth plan, most of which have been in the works for months. We made these investments from a position of strength as shown by the lease adjusted net debt-to-EBITDA ratio of 1.86x after taking these investments into consideration. Our continued ability to maintain low leverage even during periods of significant growth is particularly noteworthy and demonstrates our commitment to disciplined growth as well as our belief that we can continue to achieve growth in the long run. In addition, we currently have approximately $593 million of available capacity under our line of credit, which, when combined with the cash on our balance sheet, gives us over $1 billion in dry powder for future investments. We also own 155 assets, of which 149 are held by Standard Bearer and 131 of which are owned completely debt-free and gaining significant value over time, adding even more liquidity to help with future growth. The company paid a quarterly cash dividend of $0.0625 per share for common stock. We have a long history of paying dividends and have increased the annual dividend for 22 consecutive years. In addition, we currently have a stock repurchase plan in place. Also on October 1, 2025, the annual Medicare market basket net rate increased by 3.2%. We continue to work with both state and federal levels to ensure that our seniors and the workforce that supports their daily needs have a voice in the ever-evolving health care landscape. We are pleased with the outcomes of the 2025 rate year and feel optimistic that state and federal governments will continue to recognize the importance of properly funding the health care needs of the ever-growing senior population. As Barry mentioned, we are increasing our annual 2025 earnings guidance to between $6.48 to $6.54 per diluted share, and our annual revenue guidance between $5.05 billion and $5.07 billion. We have evaluated multiple scenarios and based on the strength of our performance and the positive momentum we have seen in occupancy and skilled mix as well as continued progress on labor, agency management and other operational initiatives, we have confidence that we can achieve these results. Our 2025 guidance is based on diluted weighted average common shares outstanding of approximately 59 million, a tax rate of 25%, the inclusion of acquisitions closed and expected to be closed through the end of the year, the inclusion of management's expectations for reimbursement rates and with the primary exclusion coming from stock-based compensation. Additionally, other factors that could impact quarterly performance include variations in reimbursements, delays and changes in state budgets, seasonality in occupancy and skilled mix, the influence on the general economy, census and staffing, the short-term impact of our acquisition activities, variation in insurance accruals and other factors. And with that, I'll turn it back over to Barry. Barry? Barry Port: Thanks, Suzanne. As we wrap up, we just want to reemphasize how grateful we are for our operational leaders, our clinicians, our field resources, our service center partners and most importantly, our frontline staff. So much is being done every day to improve the lives of those we care for, and those stories inspire all of us. Their level of dedication in creating an amazing experience for our residents and one another is truly remarkable. They are on a mission to dignify post-acute care in the eyes of the world and they show it through their collective ownership, which has led to these results. Looking ahead, we couldn't be more optimistic about our ability to continue our steady path forward as we build up the momentum from this quarter. And with that, we'll now turn it over to the Q&A portion of our call. Operator, would you please provide the instructions for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Ben Hendrix with RBC Capital Markets. Benjamin Hendrix: I appreciate the commentary about the managed care growth. How should we think about the room to run on the skilled mix side, specifically in the same-store portfolio? And what have you guys seen as a sustainable like fully ramped skill mix in some of your higher-performing facilities? Maybe a Beacon would be a good example of that? Barry Port: Yes, it's a great question. I mean, I guess I would point you back to just the growth we've seen over the past several years. It's a steady and consistent growth and one that we expect to see continue. I mean, certainly, when you look at it on a same-store basis, 5.1% growth is a big jump in days. But it's -- as you look backwards, it's not entirely abnormal when you look at different quarters. But we are pleased with how it's growing, and it's growing not just in managed care, it's growing in Medicare as well and other skills. So look, I would tell you, just fundamentally, it's -- that's our business. We -- when we dive into these transitions and even look at how we continuously evolve on a same-store basis, the constant thought is how to add more services that meet the needs of our acute providers and our managed care partners. And so what you see is kind of a result of what we all work towards. Our operators are thoughtfully engaged in discussions with these partners to figure out what services are needed, how to add new skill sets, new programs, new capabilities that allow them not just to take the patients, but to achieve the outcomes that are being sought. Spencer or Suzanne, do you guys have any other comments you want to add to that? Spencer Burton: I would just add, you referenced Beacon, the example that I shared earlier. I would say in a lot of these facilities, you don't see necessarily a cap happen even after 5 years. There is potential, for example, in Beacon for that skilled mix to continue to ramp up. There's still over occupancy potential as well. But I would say we have so many of our facilities that are more mature, but still have substantial upside on overall census, but especially on skilled. That really is, like Barry mentioned, when you increase your clinical capacities and you climb the acuity chain, you're going to see that skilled growth even faster than your overall growth. And that's what I hope and I expect we'll continue to see in coming years. Suzanne Snapper: If you look at it from a days basis, that same store and the current quarter is saying that only 31.7% of our same-store days are from skilled. And so the opportunity that we have to grow skilled across the same-store portfolio is very large, and that's why we get super excited about the organic growth not just from the skilled mix, but also from the occupancy mix, as we said in our prepared remarks, sitting at only 83% and that opportunity to have basically tons of buildings actually added if we sold it up to the markets that Barry mentioned. Benjamin Hendrix: Appreciate that. Just a quick follow-up in some of your newer markets, like particularly I was saying about Alabama as you expand into that market. Can you talk about the managed care contracting environment that you see initially in those types of new markets? And how much you comment on how much of a lift it is to try to get those -- that contracting backdrop up to par with some of your more mature markets? Suzanne Snapper: I'll start and others can add in. It's a process, right? I mean I think, we have relationships with a lot of the contractors because in some of these states like Tennessee, there is overlap with other states that we're already in, but it still takes time to get those contracts in place, and it takes time to make sure that we're ready for the patients, right? As we talked about in the prepared remarks, we're in a clinical business and growing our clinical care sets takes time. And then those partnerships to bond take up the time. And so again, you see acquisitions coming in at that lower skilled mix, you see them at lower rates. And then over time, we're able to grow it. Operator: Your next question comes from the line of A.J. Rice with UBS. Albert Rice: So on the -- just a question maybe on the deal activity that you've seen this year. It sounds like the California and the Utah deals, were things that you've been pursuing for -- or thinking about for quite a while. And I wondered if there is anything in the current environment, that's allowing some of this deal activity to come through, that seems like it's on a little bit of a heightened pace is our expectations between buyers and sellers as to pricing or whatever more in sync now. And you mentioned a couple of markets where you were seeing expectations elevated. I wondered are there are other buyers stepping in? Or are those deals just not getting done at this point? Chad Keetch: Yes. Great question. So on the deals that we were able to close, I wouldn't say there's any special market conditions that made these happen when they did. I think it's just a matter of thinking of the Utah deal as an example, the seller there, I mean these could be pretty emotional decisions for these sellers that have built these businesses over many years. And for him, and there's a couple of owners. But I think it was just a long process of kind of preparing themselves to sort of sell their business and move on to something else. And so in a lot of these cases, it's very much driven by who they're choosing to inherit their legacy. And so yes, that's kind of that example. California, obviously, that was unique because that was a portfolio that had about 30 buildings in it, and we were just taking a portion of it with the 11 buildings. So that was complicated just because there were so many moving parts with multiple operators, all trying to get their licenses, et cetera. So in terms of some of the other states, I mean, we definitely have seen pockets of pricing that we think is not supported by the fundamentals. Texas has been one of those where we've seen some financial buyers come in and start to cobble together portfolios at prices that just don't make any sense, long term. And so our focus, A.J., is just we're going to stay disciplined. And as Barry mentioned, we can have a choppy deal environment. But because of our multiple levers we have to pull, we're not dependent on deals just to continue our path that we've been on. So really excited about the deals we were able to close this year. And we already have some lined up for -- we have some that will close yet this year. And then we have some that are lining up for Q1 of next year. Kind of hard to predict beyond that, what the pipeline for '26 will look like. But I think our approach will stay the same. And we're opportunistic in our approach and pricing is a major factor, and we'll just stay true to our principles. Albert Rice: Okay. Maybe one other area. We talked before, and it seemed like it's more in the early stages, demo stages. But with this tightness in capacity and behavioral health, it sounded like you had some managed care companies asking you whether you could potentially take some of those residents, they're having trouble finding places on an inpatient psych unit or a facility to place them. I wondered if there was any update in those discussions? And are you seeing any traction with that? Barry Port: Yes, lots of traction, A.J. We continue to add behavior units in several of our facilities in states like Arizona and California. We've got long-standing relationships with county programs with managed care partners and we continue to build on those and add more capacity as they have demand for it. It is certainly an area that we've got a lot of experience and success with and one we hope to continue to look at growing. Operator: Your next question comes from the line of Raj Kumar with Stephens. Raj Kumar: Yes, I appreciate all the commentary on the clinical and quality performance differentiation for Ensign. Maybe just kind of wanted to focus on the higher acuity and the skill mix uptrend over the past few years. And overall, when you kind of look at your local markets, do you get a sense that your facilities are taking market share from other care settings, kind of thinking about inpatient rehab facilities that serve more higher acuity members. Do you get a sense that there's some market share gain from that? Or is it just predominantly being driven by just the demographic demand trends? Barry Port: Yes. I wouldn't say that there's a major shift between care settings necessarily. I mean, remember, we operated as an acute LTAC and we -- while there are certain patients that we could take in a skilled nursing setting, I wouldn't say there's a massive shifting of settings necessarily. I think it's more a function of just the increasing demand for higher acuity patients. We're seeing -- when you look at the demographics you're seeing certainly more patients in our target demographic, but we're also seeing more chronic illnesses and more comorbidities with our patients. And that's driven us to make sure that we adapt and can pivot and make sure that we've got the right training, the right personnel, the right ability to care for those patients and continue to add more and more of those complex services. Raj Kumar: Got it. And then maybe just one more on kind of the organic growth potential ahead that you framed in your prepared remarks. Just maybe wondering if you could frame it from a market share perspective in terms of what the market share is in your mature markets? How much more room there is on that front? And then kind of maybe thinking about those transitioning and newly acquired facilities and the market share gain potential there? Barry Port: Certainly, the organic opportunity is obviously something we pointed out and for good reason. There is massive upside in every one of our key markets for growth as we continue to develop and evolve. Suzanne mentioned establishing those managed care partnerships and how that takes some time. And as you kind of get through those hoops and establish those relationships, those gains happen over a long, long period of time. It's not something that happens in a year or even 2 years. It's something that happens over many years. Because even as you add new services, you've got to make sure that the results align with the addition of those services and that your partners, especially our managed care partners are satisfied with the outcomes that we're getting. So it's a long-standing evolution, but there's a ton of upside. We try to point out in our examples, how even some of the most mature buildings continue to make those gains. That's why -- there's usually at least 1 or 2 examples of buildings that we've had for a long, long period of time like Beacon, that have continued to evolve over the course of almost 10 years now and see gains, not just in an overall occupancy standpoint, but growth -- continued growth in skilled mix as they refine and adjust and add new services. So I don't know, Spencer, anything you want to add to that? Spencer Burton: I think that's great. And there really is -- there's also this tailwind that's been going for a long, long time that we're working hard to make sure that we position ourselves right for. And that's this desire of payers to find the lowest-paying setting where high acuity services can be offered. And whether it's the latest ACO models that come out from CMS or whether it's just managed care doing what they do, that's something that really positions us to continue to do what Beacon is starting to do. They're part of a couple of ACOs, by example. As we continue to position ourselves as a high-quality, low-cost alternatives to some of these other settings, it really makes a difference and it gives us a lot of hope for the long run. Operator: Your final question will come from the line of Clarke Murphy with Truist Securities. Clarke Murphy: So just wanted to come back to you guys continue to deliver really solid results and your newer facilities have been a particular area of strength. Can you just kind of give us a sense for if there are any common themes behind how quickly your new facilities are contributing to your overall results? And then I kind of wanted to just touch on your expansion a little bit in the Southeast. Anything you guys have noticed in that region that's meaningfully different than you thought or expected in terms of demand trends, labor availability, ability to attract clinical talent or just kind of anything else in the Southeast? Suzanne Snapper: Maybe I can start a little bit and then Barry and Spencer can add in. I mean, I think when you look at that recently acquired bucket, we -- after the acquisitions that we just announced this week, we'll have 68 locations in that recently acquired bucket. And so when you were looking at the revenue contribution, it's quite significant compared to prior years with over mix. If you just look at through the quarter, we had about 15.5% of our revenue coming from that recently acquired bucket, and it will be even higher [indiscernible] in Q4. It's a large portion of what we're dealing [indiscernible] acquisitions been contributing. Now we've always said when they first come on with us, it takes a while to turn. And I think the managed care comments that we've been talking about, and that process that we've been talking about, and those clinical systems that we've been talking about are all part of that. And so that contribution at the beginning is pretty light when you start to go down to the bottom line, but over time, it grows. Barry Port: I mean I think if you zoom out and look at our margins, in spite of the fact that these new acquisitions, and there have been a lot of them aren't really contributing nearly what they should be or what they will, our margins have stayed steady, which speaks to how well they were transitioned because usually, we see somewhat of a drag when we acquired the pace that we have been over the last many months. So they're certainly ahead of schedule from that perspective, but I would tell you that they're nowhere near what their potential will be, obviously. But contributing in a way that is pretty exciting for us as they come in ahead of their pro forma expectations. But as you look at the Southeast and our growing portfolio in that market, we're pretty excited about it. All of those transitions in Alabama and Tennessee have been really, really good transitions. They're not all contributing yet, but we see the potential. We have some amazing leaders out there, a couple of great market leaders and also some really great facility leaders who are really kind of moving the dial and showing some pretty significant signs of what we could be out there, which gives us a lot more confidence to keep growing out there. We continue to look for opportunities to strengthen that Southeast portfolio and add some more buildings. Spencer Burton: Yes, I'd just add to your first question about, is there a process change? When you understand how we acquire, the process really is, you've got -- it's operations driven. You've got, in any given market, a large amount of operators and clinicians that are part of the acquisition, underwriting and transitioning process. And as you'd expect, as we have all those people doing it and as we've taken on deal over the last 4 or 5 years, we've learned a lot. And that gets shared. And our job is to make sure that there's a forum for best practice sharing. And we think what you see with some of these is that you see lessons learned that are being applied. And so while we're not guaranteeing that all acquisitions will go ever more smoothly. On the aggregate, you're seeing good practices from operators that are shared widely and then put into practice, and we've been really pleased with what's come of that with the speed of our improvements. Clarke Murphy: Great. And then just another quick one for me. Just -- I appreciate some of the higher-level labor comments that you guys gave. But is there anything that you can tell us a little bit more specifically in terms of metrics around wage inflation, turnover? Are you guys still not using any contract labor to achieve continued solid results? And just anything that you guys are doing on the labor front to drive improvement? Barry Port: Go ahead, Spencer. You can start, and I'll follow up. Spencer Burton: Yes. I'll start maybe really granularly and then we can go up from there. We are using some contract labor. It's very, very minimal. It's less than 1/5 of what we used just a couple of years ago kind of in the staffing crisis. What we tend to see is our new acquisitions of the 3 buckets tend to use the most. It's still relatively less than it used to be. But our same-store is very, very, very minimal. I mean it's the small minority of our same store that has any contract labor right now. Barry Port: Yes. And just to add, certainly, it's close to pre-COVID level. But I would add that wage inflation is back to normal levels, low to mid-single digits. And as we saw before, turnover is probably, I think, on its fourth year of decline for us and just really solid overall labor trends. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: " Ryan Douglas: " John Aballi: " Jeffrey Black: " Anderson Schock: " B. Riley Securities, Inc., Research Division Kyle Mikson: " Canaccord Genuity Corp., Research Division Vidyun Bais: " BTIG, LLC, Research Division Unknown Analyst: " Andrew Brackmann: " Bill Bonello: " Craig-Hallum Matthew Parisi: " KeyBanc Capital Markets Daniel Brennan: " TD Cowen, Research Division Operator: Good morning, ladies and gentlemen, and welcome to Exagen Inc. Q3 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I will now hand you over to Ryan Douglas. Please go ahead, sir. Ryan Douglas: Good morning, and thank you for joining us. Earlier this morning, Exagen, Inc. released financial results for the quarter ended September 30, 2025. John Aballi, our President and Chief Executive Officer; and Jeff Black, our Chief Financial Officer, will host this morning's call. A recording of today's call and the press release announcing the quarterly results can be found on the company's website at www.exagen.com. As today's call includes forward-looking statements, we encourage you to review the statements contained in today's press release and the risks and uncertainties described in our SEC filings, which identify certain factors that may cause the company's actual events, performance and results to differ materially from those contained in the forward-looking statements made on today's call. In addition, we will discuss non-GAAP financial measures on this call. Descriptions of these non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. I'll now turn the call over to John. John Aballi: Good morning, everyone, and thank you for joining us. I'm pleased to report that Q3 was the strongest quarter in Exagen's history, driven by robust volume growth and continued execution across our commercial, scientific and operational teams. Compared to last year, year-to-date, we've grown revenue by 19%, comprised of 8% growth in testing volume and 9% growth in ASP. This synergistic impact is exactly how we anticipated our top line performance would evolve when we set our strategy a few years back. These numbers highlight the power of combining volume with reimbursement growth and what effect that can have on top line when both are moving in the same direction. Our team is energized by the opportunities we continue to see in both areas, which I'll break down further in a second. But first, let's start with our recent product launch. At the end of Q3, we successfully launched assays for the detection of anti-PAD4 antibodies, our second novel set of rheumatoid arthritis biomarkers this year. While we expect the revenue impact from PAD4 to be modest, it continues to differentiate our rheumatoid arthritis offering and demonstrates our ability to bring new markers to the clinic quickly and effectively. The feedback from clinicians has been encouraging, and we're seeing growing interest in how these markers can impact patient care. I personally saw some of this clinical interest at the American College of Rheumatology meeting in Chicago last week, where multiple physicians wanted to dive deeper into the science with our team and where we had a robust attendance at our conference presentation on these markers. We've also had several clinicians share firsthand experience with the testing, highlighting the clinical need for better biomarkers in this patient population, but also several examples where the anti-PAD4 markers were the only serological abnormalities in clinically ambiguous patients. This is highlighting the true value of the markers in the clinic. One specific example that was shared was when a patient had anti-PAD4 positivity as the only abnormality in their serological profile. And because of this was referred for x-rays where she had evidence of erosive changes. It's important to intensify treatment for these patients as anti-PAD4 antibodies also serve as a prognostic marker for highly erosive disease, but this pathology tends to respond better to treatment escalation. So hopefully, this patient is able to get their disease under control soon, and our biomarker testing led to the diagnosis and gave insight to guide the treatment in this patient. This is one of the many examples of our clinical utility these markers can bring and that we are hearing about from our customers. With the launch of these markers, we have now completed the development of one of the most sensitive serologic evaluations for rheumatoid arthritis available on the market today. I'm very proud of the work our team has done to deliver these tests to the clinic and in a field which hasn't historically seen a lot of biomarker innovation. We are setting a course to change that and better personalize care for these patients. To remind everyone of the impact our testing now has, conventional biomarker profiling for rheumatoid arthritis consists of rheumatoid factor and anti-CCP antibodies, which are positive in approximately 70% of clinically diagnosed RA patients. With the addition of RA33 antibody testing and our new assays for detection of anti-PAD4 antibodies, our serologic profiling will be positive in approximately 85% of patients, thereby capturing approximately half of the RA patient population, which would have historically been diagnosed as seronegative RA. Additionally, these patients, which are positive for RA33 antibodies are more likely to have milder disease, which tends to respond favorably to methotrexate. Patients positive for anti-PAD4 antibodies generally have more aggressive disease, but are likely to respond more favorably to treatment escalation. This level of precision in predicting the disease course and treatment response is exciting to bring to rheumatoid arthritis patients and it is just the start of what we are doing in this field. Lastly, and this is rare for biomarker innovation, these efforts require less than $3 million in investment, and we expect revenue payback in less than 24 months. We won't always be able to contribute to the clinic in such a valuable way with a relatively small investment and quick return, but we do believe that with our current commercial channel, we can innovate long term with decent returns on investment. Switching to AVISE CTD testing volume trajectory. Q3 volume was the highest we've ever recorded for a third quarter period. And notably, we did not see the typical quarterly slowdown. In fact, volume remained strong into October, which is a positive trend for Q4 and indicates to me that our team is back to growing the business after helping our customer base adapt to the billing changes we implemented a couple of years ago. Our expansion into new territories is also starting to pay off. We see meaningful contributions from these regions, and our per territory productivity remains strong. Of note, 2 of our recent expansion territories emerged as top-performing growth territories this past month, and we have others trending similarly. Total ordering physicians and orders per clinician continue to trend upward, and we're seeing increased engagement from both new and existing physicians. This is a testament to having the right team in place and the stability and focus we've built over the past 1.5 years. We currently operate with 45 sales territories, up from 42 at the end of Q3. Our focus remains on profitable growth, and we will continue adding territories where we see clear opportunity, strong physician engagement and can find the right talent. Now let's talk about ASP, which is top of mind for me. We've made significant progress over the past 2 years with our trailing 12-month ASP for CTD now at $441, a 9% increase year-over-year. However, it's important to acknowledge that we're not seeing the full second half ASP expansion I had anticipated. The new biomarker reimbursement, while accretive, has not ramped as quickly as I had hoped. We still believe there's a path to further ASP gains and our efforts around appeals, revenue cycle operations and payer education are showing incremental progress. But the reality is these gains are coming more gradually than I expected. Additionally, we lost a large high ASP direct bill account this quarter, which is weighing on our current ASP as we convert this business into a standard commercial insurance payer mix. Both of these items have temporarily slowed our trajectory. But as I've constantly conveyed throughout my time here, this is why I view it critical to gauge our success relative to a trailing 12-month measure, which does continue to climb. We continue to be very diligent with our revenue cycle operations and have a strong strategy employed to secure the higher reimbursement we ultimately expect, but you are seeing a somewhat muted ASP reflected in our top and bottom lines as we work through these efforts. Turning to our pharma and CRO business. We generated nearly $800,000 in revenue this quarter, bringing our year-to-date total to $1.2 million. Our order backlog now stands at $3.5 million and continues to grow. While this revenue stream can be lumpy, it's an important and expanding part of our business. We're encouraged by the momentum we're seeing in this area. As I mentioned, I was recently in Chicago attending the American College of Rheumatology Annual Conference, where we had a strong presence this year, highlighting new abstracts and deepening our interactions with clinicians. We submitted and had accepted 6 different abstracts covering the bulk of our pipeline efforts. One ultimately was chosen for a plenary talk and in general, we continue to showcase our company as an innovative presence within the rheumatology field. It was a highly successful meeting in this regard. Looking ahead, we remain on track to deliver $65 million to $70 million in revenue with the ability to be cash flow positive at the high end of our range, though the timing of sustained cash flow positivity may be pushed to 2026 as we continue to navigate the ASP challenges I just detailed. Generating cash remains a core near-term goal, and we're committed to achieving it in a disciplined, sustainable way. In closing, I want to thank our team for their dedication and execution and our partners and shareholders for their continued support. We continue to build something special at Exagen. And while the path is never perfectly linear, our progress is real and our opportunity remains significant. Thank you. And with that, I'll turn it over to Jeff for additional comments on the financials. Jeffrey Black: Thank you, John, and good morning, everyone. As John mentioned, we delivered another strong quarter, highlighted by our third consecutive quarter of volume growth, continued ASP expansion and a balance sheet that we expect secures our runway to positive free cash flow. Fourth quarter revenue of $17.2 million was our highest quarter in history, just beating out the second quarter and a nearly 40% increase over the third quarter of 2024. Even considering over $1 million in downside revenue adjustments in Q3 of last year, we still delivered over 25% revenue growth. And this is against seasonality headwinds we typically see in the third quarter, which we curtailed through growth in CTD test volume, up 15% from Q3 of last year and almost 2% sequentially. Year-to-date through the third quarter, we grew revenue 19% to roughly $50 million with trailing 12-month ASP up over 9% and volume up over 8%. As John mentioned, we're also seeing significant momentum in our Pharma Services business, which generated revenue of $780,000 in the third quarter. Year-to-date through Q3, we recognized $1.2 million in Pharma Services revenue versus about $100,000 in 2024. Our business development team has done a fabulous job of securing additional contracts and developing a strong pipeline that we expect will continue to grow. Today, we have up to $3.5 million under contract in pharma services, representing future potential revenue opportunity. The timing of deliverables and related revenue recognition are often lumpy from quarter-to-quarter, so we remain cautious to guide on specific timing of this revenue. Our trailing 12-month AVISE CTD ASP grew $37 year-over-year to $441 per test. The trailing 12-month number remains our best indicator of ASP traction due to the typical ebbs and flows of reimbursement in any one quarter. As John mentioned, we're behind expectations on our ASP acceleration, but we remain confident that we'll drive further expansion through revenue cycle management enhancements, commercial payer engagement and market access initiatives. These remain priorities for us and are core tenets to our success in driving reimbursement gains. As John also mentioned in the third quarter, our most significant ASP headwind was a loss from one of our higher volume, high ASP direct bill accounts. Importantly, we offset the revenue impact of this pullback with an overall increase in volume, which is a testament to our commercial team and ability to drive diversification of our physician base. As to the T cell and RA33 biomarkers we launched in January, we saw a moderate expansion in ASP and related accrual rate versus the second quarter, and we continue to expect over time to realize our long-term target. It's also important to note that while we launched our newest biomarker, PAD4, late in the third quarter and began billing for it, none of this volume was reflected in revenue. At the end of Q3, we had not established a payment history on this marker, so we did not record an accrual rate. We should see a moderate expansion in ASP in the fourth quarter for PAD4 as we establish an early payment history and related accrual rate. Gross margin in the third quarter was just over 58%, up about 260 bps compared to the third quarter of 2024. Excluding the impact of over $1 million in downside revenue adjustments in the third quarter of last year, gross margin in the quarter was down about 175 bps from just over 60% in 2024. Year-to-date, gross margin was just over 59% and up about 60 bps over the same period in 2024. Gross margin has been favorably impacted in 2025 by our continued ASP improvements even with an increase in COGS related to our new biomarkers. In fact, our per test AVISE CTD cost is running favorable to initial expectations, offsetting some of the ASP headwinds and allowing us to maintain our gross margin profile near that 60% level. We still see a path to the mid-60s over time as we remain focused on driving further ASP expansion and aggressively managing COGS. Operating expenses for the third quarter were $13.2 million, up from $11.6 million in Q3 of '24, and this increase was in part due to increased R&D spend for PAD4 and other pipeline initiatives as well as SG&A associated with our first sales territory expansion since John took over and another key commercial leadership addition to the team. We expect operating expenses to remain roughly at these levels for the next several quarters, and we'll continue to allocate resources responsibly as we've done in the past. At the same time, we remain focused on disciplined capital allocation to commercial, clinical and R&D initiatives that we believe have a high probability of driving accelerated long-term growth. From a balance sheet perspective, we have the flexibility to make the investments needed to support these initiatives and invest opportunistically as we see fit. But equally important, we have the ability to modulate spend down or up as needed, all with an eye toward preserving our path to positive free cash flow. Our net loss for the third quarter was $7 million compared to $5 million in the same period last year. But it's important to note that the $7 million loss in the most recent quarter includes about $3 million in noncash expenses related primarily to the fair value adjustments from our new debt facility with Perceptive, which we closed in May of this year. Our adjusted EBITDA loss in the third quarter is $1.9 million compared to $4 million in the third quarter of 2024. And year-to-date through Q3, our adjusted EBITDA loss improved $1.5 million or nearly 20% to $6.1 million for the first 9 months of 2025. We maintain our focus on positive adjusted EBITDA in the near term and believe that ASP growth is the most important lever for achieving this goal. Please refer to our earnings release issued earlier today for a reconciliation of adjusted EBITDA to net loss. Turning to our balance sheet. We ended the third quarter with $35.7 million in cash and cash equivalents, up from $30 million at the end of Q2 with accounts receivable of about $11 million. Excluding financing proceeds during the third quarter, we generated net cash of $2.3 million compared to net cash usage of $2.4 million a year ago. We also enhanced our cash position in the third quarter through opportunistic but disciplined placements under our ATM sales agreement with TD Cowen Securities. We raised just over $3.4 million at an average price of $9.83 per share, taking advantage of share price momentum and higher volume trading days throughout the quarter. We remain very well positioned from a balance sheet perspective with over $45 million in combined cash and accounts receivable at September 30 that we expect will fund our existing business to positive free cash flow and up to an additional $50 million in available future credit capacity if and when needed. In closing, we continue to deliver value to shareholders through solid operating and financial execution. We delivered another quarter of record revenue in Q3, a third consecutive quarter of AVISE CTD volume growth, continued ASP expansion, and we remain on track to deliver from 17% to over 25% revenue growth in 2025. We will now open the call for questions. Operator: [Operator Instructions] Our first question comes from Anderson Schock of B. Riley Securities. Anderson Schock: Congrats on all the ASP progress. So first, you mentioned on the second quarter earnings call, $430,000 per territory. Do you have an updated revenue per territory for the third quarter? And how should we think about the productivity ramp of these new territories? John Aballi: And thanks so much for the question. So the was $430,000 per territory was a record for us. And just so that people have kind of the background trajectory, that was from -- up from the high 200s. So we've made -- you're right, we've made material progress in the revenue per territory, all really on the back of the ASP gains that we've seen as an organization. For the third quarter, it was right around that level, slightly below. I think that's more a factor of we added the additional territories. And so you have that denominator growing and give it a little bit of time as we see those territories bearing fruit, and we do expect it to increase over time. So you're just under that $430,000. Anderson Schock: Okay. Got it. And then with the launch of your RA markers at the end of the third quarter, so once establishing a payment history for these, is there an incremental uplift to ASP that you're targeting similar to the $90 increase with the lupus biomarkers launched in January? John Aballi: Yes. So we've not broken this out yet, and we hesitate to proclaim a number without having a robust history of collections there. So that's what we're doing right now. We're gathering that information, developing that history and then we'll establish it. Happy to provide an update on a future call. We expect it to be relatively modest compared to the $90 expectation that we had for the prior markers. This is a set of ELISA-based assays, 2 markers as opposed to 3 in the case of RA33 or 3 also in the case of the T cell analytes. So less markers, lower cost platform, build on the generic codes. It's going to be in the low single-digit dollars or maybe even in the double digit, but it's not going to be anything like what we had previously. Anderson Schock: Okay. Got it. And then you also mentioned on the last call, you're approaching your first pharma partnership with the urine platform. Are there any updates you could provide there? John Aballi: So we actually completed our first statement of work related to that platform. And just so that everyone is aware, we have some fantastic technology that we've licensed out of Johns Hopkins really with multiple intended use opportunities really to change the way these patients are managed for the better. And lupus nephritis affects about half of all lupus patients. This technology has been shown when you look at certain proteins in the urine of lupus patients, there's the potential to diagnose the disease through a noninvasive manner. That's something we continue to pursue and have published on from an abstract perspective. We're looking at therapeutic response and then even prediction of long-term kidney function or prognosis really. And so we have completed our first profiling effort. We're in discussions on subsequent efforts there, but it went successfully. It was a small project and look forward to doing more. Operator: The next question comes from Kyle Mikson of Canaccord Genuity. Kyle Mikson: Good quarter. So I guess on the ASP topic, John and Jeff, maybe just level set and provide some more -- some framework of how we should think about approaching $500 because that was the target before. And you had that $90 incremental from the new biomarkers that was just referenced in the last question. So maybe just like if there's a way to kind of think about the progression going forward and maybe just like think of this more realistically when you can get to $500 again or maybe there's some other trailing 12-month metric that we should kind of model out and kind of think about as we look at 2026, the quarters and so forth? John Aballi: Kyle, thanks for the question. So I guess, first and foremost, there's no other metric, and I'd be skeptical if I did provide a different metric as people change targets when they get hard. So that's not the approach we take here at Exagen. From our perspective, $500 is still very realistic. It's really just a timing thing. And so we outlined a couple of contributing factors in Q3. We actually had a large client bill account that for purely financial reasons, it's a hospital system in the Northeast. They made the determination to no longer to cancel that contract. That had some ASP headwind. We believe over time, we can build it back through the commercial -- the standard commercial insurance route, but it takes a little bit of time. We haven't had as much history with some of those payers, those regional payers in the Northeast, given that we've built through the hospital system through a client bill arrangement. Related to the new markers, you're exactly right. You're right on there, $90 was our expectation at the start of the year. We had mentioned on the Q2 call that we were coming in the low 70s, around $72. We're up from there, actually continue to go up almost on a daily basis, but expected to be at the $90 now, and we're not. So I still believe that we're on the path to $90. It's through our standard revenue cycle operations that we'll get there. We believe we'll get there. Additionally, we've launched these new PAD4 markers, and we haven't recognized any revenue there because we don't have a good track record for an accrual rate to establish an accrual rate. So those will be lifts over, call it, the coming quarter or 2 or 3 is progress in converting that client bill account, which had some reasonable volume associated with it, continued work on the new biomarkers that we launched at the start of the year, establishing accrual rate for the current product launch and then just our underlying groundswell of efforts that we've continued to work on. So I think you'll see over time, that trailing 12-month number continue to rise. I just had expected the trajectory to be a little bit more steep at this point in time, 9% year-over-year is still reasonable, but we'd like it to be faster. So that's the right metric, and we'll continue to work at it. Kyle Mikson: Okay. Perfect. And then on just on volume, it seems like that was kind of sequentially flat, I think, like quarter-over-quarter, if I do the math right. And that's actually -- I think that's actually stronger than your typical seasonality. So that's good, maybe just confirm if that's true. And then if we should think about a drop-off or step down in the fourth quarter, just given ACR and the other seasonal factors. And on that point, given the ASP, as you characterize it, the challenges, would you like kind of pull back on rep expansion at this point? Or are you still kind of all systems to building out the team going into next year? John Aballi: Those are great questions. So just to be clear, volume is actually up in Q3 relative to Q2, a couple of percent. So from that perspective and looking at historical seasonality, that's a meaningful change. And so we're very proud of that. I think the team has worked extremely hard. That was really with about the same number of sales territories. We had 42 at the end of the quarter here. So contributing territories in Q3 was somewhere still around that 40 level. So from that perspective, I think it was a very strong quarter. We've also seen the volume increase into Q4. October was a fantastic month for us. We've now understand what that final volume number is, and it was our highest month in several years. So from that perspective, I think we've got our team with the right incentive structure. We've got the right team, and we're highly focused in delivering the clinical value and the messaging and education around that, that is driving business and adoption. So I think as it relates to the sales expansion question, there's no reason why we wouldn't continue to expand if we have the right opportunities in front of us. Right now, we're making sure that the 5 territories we've added in the last 4 months or 5 months are well supported, well-educated and are set up for success. And we'll continue to add as those opportunities arise. We did add to our sales leadership side that was more opportunistic. Someone I had worked with previously became available and I think very highly of that individual. So we took advantage of the opportunity to bring them on board. And again, it just sets us up for future growth. So we did go up in Q3. I would expect somewhat of a step down in Q4, just mostly a function of business days. I think in Q4, you've got some pretty significant holidays. We had ACR, the week-long conference that actually occurred in October. So our October performance was in light of ACR occurring in this month. So we're on the right trajectory. I would still expect a slight step down. But overall, we're setting ourselves up very well for continued growth through 2 mechanisms, ASP and volume. Kyle Mikson: Perfect. And then finally, I would love to ask about the pharma business. So that was -- so $800,000 in revenue in the quarter compared to $100,000 for all of last year. That's pretty impressive. So I guess why is so strong now this year? And then could that be even more material in 2026? Could that be like a real business line that you could actually start to kind of break out? And kind of additionally, is that an area you would partner or acquire in given the unmet need in autoimmune disease? John Aballi: Yes. That's a very interesting set of questions. So from my perspective, excited about the progress on the pharma revenue side to deliver $800,000 far and above what we've done historically as it relates to testing services. And so I'm very proud of that, proud of the team and took a lot of energy and effort, but well worth it. And I think we've delivered for our pharma partners. They have time constraints, they have quality requirements. They want flexibility. And in all of those facets, clearly, we're demonstrating our ability to differentiate ourselves in the market, and it's working out for us. So where could this go? I mean the pharma services in general, tends to be a lumpy business. As you know, you complete a project and you tend to get recognized revenue consistent with that project when the work is completed. And so there'll be certain quarters with outsized performance versus others. But for the year or on an annual basis, I do expect this to continue to grow. There's a lot of opportunity, a lot of pharma development. You see new diseases getting approved for biologics in this space. Sjogren's, for example, is one that just came with Novartis. There's other diseases as well that people are looking for biomarkers and better diagnostic biomarkers and better markers of disease activity, and we believe we're well positioned or well suited for that. Also given that our base methodology within AVISE is flow cytometry, I think that we're well positioned to offer something unique there as well. So we'll continue to refine our business plan, our business model, understand how we can add value. I'll just give you one example, but when a pharma organization comes to a service provider, what they're looking for is speed -- at times, what they're looking for is speed to get some of these assays validated and available for them in clinical trial testing at a high-quality level. We generally meet the quality thresholds given our commercial pipeline and the fact that we have access to so many patients and so many different samples, our ability to validate assays and develop new assays, I think, is really substantial and a huge competitive advantage for us. So that's part of the differentiation we're able to offer amongst many other things, but we'll have to see how it progresses. But yes, it's trending in the right direction. Operator: Our next question comes from Mark Massaro of BTIG. Vidyun Bais: This is Vidyun on for Mark. So just one on the sales force expansion. I understand that you just hired these reps. But could you just remind us how you're thinking about targets in terms of per rep and kind of the time that it takes for them to reach maturity and hit their stride? John Aballi: So from our perspective, we set profitability targets for -- on a per territory basis. And that has to do with both the compensation structure. So once you reach a certain scale, there's profitability bonuses that end up coming into play. But then as it relates to opportunity, we're looking for a minimum level of profitability or contribution margin that at least sustains the price of having a field-based presence in that area. And so that naturally relates to number of tests, but it also changes as our ASP changes. So from our perspective, we tend to split our largest territories provided we still believe or have done enough research to believe that there's substantial opportunity there. And so that's really the mechanism that we're approaching the sales expansion process with. And it generally takes -- I mean, it's always tough to generalize, but it generally takes around 9 months for -- 6 to 9 months for someone to start to contribute. There's multiple exceptions of that, and I tried to highlight that in the prepared remarks. But we've got 2 in the Southeast where 2 territories where they were our highest growth by percentage and 2 of our top 5 nationally were some of these expansion territories. So that's exciting for us. I guess it reinforces that we made the right choice from a personnel standpoint. We found the right person to join our team, but we're also doing a really nice job evaluating the opportunity there. So we'll continue to do that, but somewhere in the 6 month to 9 month range. So I would expect by year-end, heading into '26, we start to really realize the full potential of now this 45. Vidyun Bais: Okay. Perfect. And then just a follow-up on the kind of slower-than-expected traction with ASP lift for the new biomarkers. Can you just help us think about steps you can take in terms of driving payment for these biomarkers or what it is exactly that's holding up payment here? John Aballi: Yes. Great question. So as it relates to extra color on the ASP side. From our perspective, some of the denials that we're seeing are related to basically medical policy for these new markers and it's the diagnostic code in conjunction with the procedural code being used is not approved from a payer standpoint. We believe that through an appeals process, a robust appeals process that we've architected and implemented now here over the last couple of years that we can be successful long term, but initial denials are higher than I had originally expected. So that's really the basis for it. There's some other nuances there that we think we can improve upon, for example, out-of-network denials and things like this, but these are unique markers, and we're the only lab that's offering them. And so there is no in-network alternative, especially for this suite of analytes. So from our perspective, it has to do with revenue cycle operations probably being the most effective lever in this space. Still working on some physician efficacy advocacy along with patient advocacy, but those will be secondary or tertiary tactics that we employ, and then we'll have to take it from there. Operator: Our next question comes from Ross Osborn of Cantor Fitzgerald. Unknown Analyst: This is [ Matt ] on for Ross today. I guess just one for me. You reiterated a path to mid-60s gross margin over time. I guess can you kind of expand on what the key unlocks are to get there, whether it's further automation, volume scale, repair mix normalization and how you're thinking about that timeline to start seeing incremental leverage? Jeffrey Black: Sure. Yes. How's it going? This is Jeff. Yes, I'll take that. I think multiple levers, right? I think we continue to say and believe that ASP expansion will be the best way to accelerate margin into that mid-60 range. And so as John laid out, there is a strategy to continue to expand ASP with just better revenue cycle management and continued improvements there. We also, as I mentioned, are seeing our COGS per test on AVISE CTD actually well below target, which is very encouraging. And that's been a function primarily of just better optimization of labor, and we really haven't had to make the significant investment in labor that we would have expected to keep up with the volume, particularly with the new biomarkers. All of that has come before any real optimization we've made in either assay development or lab operations. So we do think there is real opportunity for further optimization in workflow. But I would say that the biggest driver is going to be the ASP expansion. And just to add some more color to that. John mentioned that we did see a pullback, and we lost a pretty high volume -- relatively high-volume, high ASP account. If you were to normalize for that, we would already be above the 60% gross margin range for the quarter. So we're still tracking, and we're really encouraged because our COGS profile is much below where we expect it to be. Operator: The next question comes from Andrew Brackmann of Will Blair. Andrew Brackmann: Maybe just on the volume front, accelerated volume growth again here in the quarter. A lot has been asked sort of on rep productivity. But as you sort of think about the drivers of that volume growth, how should we sort of parse out the sort of levers between the expanded commercial team, more efficient rep productivity, but then also just the launch of markers from earlier this year and then there's still just the massive penetration that you have in front of you, the penetration potential that you have in front of you? John Aballi: Andrew, thanks a lot for the question. So maybe more of a qualitative answer. It's always tough to pinpoint or address this with precision. But from my perspective, having something innovative and clinically useful to discuss with our client base has reinvigorated our sales team for sure, but also the interest on the customer side. So I think the fact that we launched these new markers is very much a positive, and we're seeing that energy, I guess, kind of rekindle here in the second half of the year with the recent launch of these additional markers -- especially now that we've got unique marker set specific to rheumatoid arthritis, it really does open up the clinical conversation and provide that additional value for folks. So that's where I would rank that at the top. We've talked at length about having stability and such a high-caliber team in our organization. And I really believe that, that's a significant contributing factor to our growth right now. We've got groups of folks who really take learning the science seriously, really work hard, and you're seeing the results of that. I mean as long as you pretty consistently stay customer-centric, work to satisfy the needs of your customer and are generally concerned with adding value to their clinical practice, I think you can be relatively successful. And this area of medicine is highly driven by relationships. It's very clear that even the patient clinician approach here, it's chronic disease management, the relationship there is very key, and it is with our organization as well. And we we've really worked to build trust and establish that trust. We want testing performed where it's going to be useful. And not widely -- our test is not useful in every clinical context when you're trying to diagnose the connective tissue disease. So we really want to understand how clinicians where they're struggling and where this can add value. And our team, I think, as master is probably too strong of a word, but come close and continue to improve in this area. And I think we're seeing the results of that. So the new markers, I think, are a very strong contributing factor, stability in the team, along with a heightened focus in the clinical messaging, and that's what you're seeing here. Andrew Brackmann: Okay. That's great color. And then just on the loss of that large direct bill customer, any more color you can maybe give on the magnitude of the headwind that, that caused ASPs in the quarter? And then as you look at that entire book of business for direct bill, any other risks out there that you might see popping up in terms of other customers going down this route? John Aballi: Yes. So maybe I'll just share a little bit of how I think about the direct bill opportunity. I think it's an interesting opportunity. It's approaching 20% of our revenue. It's on the order of 8% to 10% of our volume. So it gives you a sense of that relationship there. I think it's an interesting part of the business. in the sense that the people or the entity that you're negotiating with from a pricing standpoint also handle medical policy for all intents and purposes, right? So it's a combination negotiation, if you will. And it allows those entities to get access to more innovative technology sooner. In that sense, they can determine when and if they want access to certain technology. But it also tends to put that offering and that relationship at risk at times because they can decide to switch just as quickly. And so our understanding of this transition was it was a financially motivated decision, didn't really take into account the clinical impact or, to be honest, the desires of the rheumatology group at this organization. But nevertheless, it was made and from their perspective in their best interest. And -- but they're still offering our test, using it in clinical practice. We're just converting more to commercial insurance. And so we know that that's a little bit longer road in terms of getting back to the ASP that we ultimately aspire to, but it's one that we're well versed in and know the appropriate tactics. So the client bill opportunity is interesting. I think we're probably at close to the max level of client bill business that I want to take for organization. We'll see if other opportunities arise. But long term, I think it's better that we work with insurers. I think it's a better relationship in that regard. It can be tougher short term. But longer term, I think that's a better competitive advantage and a more reliable approach. Operator: Our next question comes from Bill Bonello of Craig-Hallum. Bill Bonello: I just want to follow up on the question that Andrew was just pushing on to just make sure I understood what you said. So in terms of that client, they are still ordering the test. They simply moved from being client bill to third-party bill? Or -- and then if that's correct, was there sort of any associated impact on volume at that client? Or are you seeing steady volumes and just the change in ASP? John Aballi: Yes. Bill, opportunity to expand a little bit more. So specifics related to this account, which happy to go into, probably won't go into as much detail with each of these instances. But with this account specifically, one -- when the contract was terminated, and we were given fairly short notice here, talking about a few days, when the contract was terminated, access to the testing was suspended. So the hospital system froze the EMR and actually paused access for their clinician base. They actually stopped drawing it with their in-house laboratory as well drawing the blood, et cetera. So really, everything came to a halt initially. Given our close relationships with the rheumatology division there and their desire to continue to have access to this test, they pursued an alternative route, and we worked with them on the logistics to revive that. So where we're at now is the volume has returned because we've been able to logistically provide phlebotomy access for them along with helping them establish a new ordering process, et cetera. And we're not back exactly to where we were, but it's certainly trending in the right direction and much better than when we were informed of the transition. So you did have some suspension related to volume. I believe we're trending back in a very positive way there with optimism on the trajectory. And then most of the impact has been ASP. Bill Bonello: Okay. That's really helpful and nice to see the acceleration in volume growth even with that. situation. So the second thing because to me, volume growth really seems like the exciting story here, the uptick, but ASP obviously matters. So just on the higher denials than you had expected, a couple of questions. Why do you think that's happening? Why do you think you're seeing greater denials than you had expected? And then is that dynamic exclusively related to the new markers? Or are you seeing an uptick in denials across the board? John Aballi: Yes, that's a great question. So our base business, no notable changes in payer behavior that are worth going into a level of detail on this call, right? So we remain on a positive trajectory for the base business. It is related to the new markers as to why we're seeing a higher level of scrutiny than I expected. Well, I think it comes down to incentives for the most part, insurers are oftentimes profitable organizations, and they're looking for ways to curtail utilization. And this is one way, either through prior authorization, implementations, medical record requests. They throw a lot of hurdles in place to see if the clinicians truly really want this type of offering. And that's what we're seeing. So some of it is related to the ICD-10 code, the diagnostic code being used in conjunction with billing, but this is what we're provided by the client. So not a lot that we can do there. Just tough to simulate all of these situations ahead of time. I think we did a reasonable job on our end in estimating this and still believe that long term, that $90 aspiration is within reach. We're climbing to it. I think we're in the mid-high 70s now. We were in the low 70s a quarter ago. So even over a 3-month period of time, you've seen almost a 10% change in that new marker reimbursement for the positive. It just is going to take us a little bit of time to work through this. And ultimately, where do we land? Not entirely sure. Is it $85? Is it 95? I don't know. But I just think it's important and prudent to be transparent with this, and that's kind of what we're working on. Bill Bonello: That's really helpful. And then just the playbook, is it radically different what you're trying to do here in terms of working through denials and eventually getting these additional markers paid for than sort of what you've done over the past 2 years where you've driven a sort of massive increase in ASP through revenue cycle management? Just trying to understand how unique this particular situation might be relative to what you've done in the past? John Aballi: Yes. Tactically and procedurally, it's very similar. And so that's why I feel confident that from an architecture standpoint, from a process standpoint, we have the infrastructure in place to address this at scale. On the content, now that's obviously going to change because most of what we've been doing is having discussions around AVISE lupus and what the body of evidence is behind that in terms of clinical validity and utility. Now these are new markers. And so the body of evidence is not as deep, although with the rheumatoid arthritis markers, they've been studied for many years, RA33, body of literature out there for 20-plus years, the PAD4 autoantibodies, body of literature out there. So we're able to leverage some of that science that's been conducted by other institutions and infuse that into our appeals process, but it does require us to update the appeal letters and to structure that content a little bit differently. And there's going to be a learning curve naturally with some of that. But the process and tactics remain the same. Operator: The next question comes from Matthew Parisi of KeyBanc. Matthew Parisi: This is Matt Parisi on for Paul Knight at KeyBanc. You've previously mentioned ALJ hearing wins during the prior quarters. And I was wondering if there has been any further ALJ hearing wins for Exagen in 3Q? John Aballi: Matt, none that we disclosed publicly. We have continued a robust appeals efforts. We are, I think, making some material progress there. This past quarter, we actually presented in front of multiple medical directors at various plans. And so we're getting the attention and the audience and the opportunity that we've sought out strategically, and we'll continue to make incremental progress there. We have filed for future ALJ hearings, but no notable update in that regard. Operator: Our next question comes from Dan Brennan of TD Cowen. Daniel Brennan: Great. Maybe just one more on the account, the direct account. I know it was asked, like did you size it just so we can get a sense of as we look forward, if that's still in the comp, kind of we can back that out. And then like what's the difference between the direct realized price versus the commercial realized price? John Aballi: Yes. Dan, thanks for the question. So in terms of in-quarter ASP impact, you're talking on a blended rate, a little north of $20, right? So you've got a headwind of about $20 for the in-quarter ASP impact of that account alone. Volume-wise, we didn't cut it out or carve it out because we believe that volume is continuing to come back over time. And so we'll just have to see. It will be a slight headwind near term, but hopefully returning to normal levels or even improving as we continue to add more clinical value in that context. But the ASP should also start to improve as we develop a history and a better relationship with the payers in that region. So hopefully, that gives you a little bit of a feel. So it was significant, but also something for us opportunity-wise to work on. Does that help? Daniel Brennan: Yes. No, that helps. I mean your trailing 12-month ASP, right, still has been ticking up nicely even this quarter, another $13 or so sequentially. So I guess within the context of the $65 million to $70 million guide, is the assumption that the ASP continues to go up? Or is it like maybe flat because of this kind of account loss? Just how do we think about that realized price in 4Q from a trailing 12-month basis? John Aballi: Yes. We don't split it out by ASP or volume. And you can see -- I think one of the things is over the course of this year, that $65 million to $70 million guide has generally stayed about the same with a little bit improved clarity at the end of Q1 or Q2, but generally stayed about the same. And we believe that we'll fall within that range even despite some of these headwinds. So again, I'm proud of the team for executing in multiple ways. And I think given the fact that we do have progress on ASP and volume simultaneously, put us in a good position to reach those objectives. From a Q4 specifically, I think we've got a few different ways to get there. We -- even as it relates to the year-end cash flow positivity objective. From our perspective, we have some things in the works with various payers that could get us there for sure. ASP will be the most sensitive lever to get us there, but we'll also have to see how volume comes in. I think we should be cautiously optimistic as it relates to volume progression because -- just because of the holiday season really. Jeffrey Black: And Dan, just to add to answer your question on the guide, I think about it -- the way to think about it is that the low end of the range would assume very little, if any, ASP expansion in the fourth quarter, right? And clearly, obviously, the high end of the range would include continued and maybe some accelerated expansion, but the low end would really assume that we don't do much in the way of ASP expansion in the fourth quarter. Daniel Brennan: Got it. I got that. comps, you've done a really nice job, obviously, on the volume as you've kind of optimized for the profitability and the cash burn, and you've had really nice volume growth in Q3 and kind of year-to-date. As we look ahead, like comps do get more difficult. Obviously, the market is large. I mean, is double-digit growth like reasonable to think about as we go into 2026? John Aballi: So we've not set a base guide or objective for our top line growth. We think it will be driven by 2 factors. Volume, we've said likely to grow in the mid- to high single digits, and we're seeing that, if not a little bit higher for this year as we've really established a strong sales organization, but also with the new marker launch. ASP is inherently difficult to project and especially timing. And I think you're seeing that play out real time here with these quarterly results, but also just in the past, we've had periods of time where we've seen pretty extreme acceleration. And I think as long as that trajectory continues upwards over time, we'll be in a pretty good spot organizationally with both factors contributing. Daniel Brennan: Got it. Maybe just one final one. There's been a bunch of questions on denials and payment and your confidence, obviously, with these differentiated markers that you guys will be successful. I think in the past, like when we -- a lot of diagnostic companies, including yourselves, commercial payers tend to really drag their heels and investors like to look at like what the opportunity is over time, maybe not in the next 6 months or 12 months, but maybe over the next 2 years, 3 years, like what's that opportunity set for like where can realized price get to? So I think in the past, maybe you guys have talked about something $500, $600. Like any way to think about as we look ahead, no timetable attached to it, but is there any change in kind of what's happened here that would dissuade you from thinking you can get to like kind of $600 plus or minus? Or how do we think about the longer-term opportunity on realized price capture? John Aballi: Yes. Our relatively near-term goal remains that half of Medicare rate. I think that's still a viable objective for us to meet in that time frame. And so that would put us kind of at that $600 range. And as we achieve that, that continues to dramatically transform our organization. We believe that current volume, we'd be a cash flow positive organization at the $500 range. So we're close, and we're close to transforming the organization in a very positive way, and I still think that's a reasonable expectation for us. Longer term, it should be higher. Daniel Brennan: Higher than the $600 or the $500? John Aballi: Yes, than the $60. Operator: Ladies and gentlemen, with no further questions in the question queue. I will now hand over to John Aballi for closing remarks. John Aballi: Thanks so much. Year-end has come or is coming fast. And I really just want to thank the team here at Exagen for their continued dedication and performance. We have an ambitious quarter ahead with key milestones to accomplish, and I look forward to finishing the year strong. Thanks to everyone on the call for their partnership as we work to establish a dominant company in the autoimmune space. Thanks for your time this morning. Operator: Thank you, sir. Ladies and gentlemen, that concludes this event. Thank you for attending, and you may now disconnect your lines.
Operator: Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the PotlatchDeltic Third Quarter 2025 Conference Call. [Operator Instructions]. I'd now like to turn the call over to Mr. Wayne Wasechek, Vice President and Chief Financial Officer, for opening remarks. Sir, you may proceed. Wayne Wasechek: Good morning, and welcome to PotlatchDeltic's Third Quarter 2025 Earnings Conference Call. Joining me on the call is Eric Cremers, PotlatchDeltic's President and Chief Executive Officer. This call will contain forward-looking statements. Please review the cautionary statements in our press release, on the presentation slides and in our filings with the SEC regarding the risks associated with these forward-looking statements. Also, please note that a reconciliation of non-GAAP measures can be found in the appendix to the presentation slides and on our website at potlatchdeltic.com. I'll turn the call over to Eric for some comments, and then I will review our third quarter results and our outlook. Eric Cremers: Well, thank you, Wayne. Good morning, everyone. Thanks for joining us. Yesterday, we announced third quarter total adjusted EBITDA of $89 million. Our overall results were driven by a strong performance in our real estate business from both the rural and the development part of the business. Additionally, I'm pleased with the strong operational performance delivered across all segments this quarter, especially given the challenging market backdrop we continue to navigate through. Before I discuss each of our business segments, I wanted to briefly comment on our recent joint announcement with Rayonier on our proposed merger of equals transaction. As we highlighted on the call a couple of weeks ago announcing the transaction, we believe that the merger between our 2 companies will result in significant strategic and financial benefits beyond what either of us could achieve independently. PotlatchDeltic and Rayonier share complementary business models, similar cultures and capital allocation philosophies and a long-standing commitment to sustainability. This merger will significantly increase the scale of both companies as the combined company will own nearly 4.2 million acres of timberlands across 11 states. The combined company will also continue to operate our efficient and scalable wood products manufacturing business with 1.2 billion board feet of lumber capacity and 150 million square feet of plywood capacity. In addition, the combination will result in a diverse real estate portfolio, including 3 active real estate development projects and robust opportunities to provide land-based and natural climate solutions. From a financial perspective, the combined company will have a strong pro forma balance sheet as well as an enhanced capital markets presence. Through this combination, there is also a significant opportunity to create value through synergies, operational efficiencies and the sharing of best practices. We estimate synergies of $40 million, which will be primarily driven by corporate and operational cost optimization. We expect to close the transaction in late the first quarter or early the second quarter of 2026, subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals and the approval of PotlatchDeltic's and Rayonier's shareholders. Now shifting to our third quarter operations, starting with Timberlands. The division delivered on its Q3 planned harvest volume of 1.9 million tons with Idaho producing its highest quarterly volume so far this year, which follows typical seasonal patterns. Indexed sawlog prices in Idaho softened in line with broader lumber price declines, while cedar sawlog prices remained elevated, supported by strong regional demand. Across the South, underlying sawlog and pulpwood prices held relatively stable during the quarter despite the seasonal increase in log supply and elevated mill log inventories throughout the region. Moving on to our Wood Products business. The segment reported an EBITDA loss of $2 million in the third quarter. This decline was driven by historically weak lumber prices as muted demand and persistent oversupply continued to plague lumber markets. From an operational standpoint, however, our performance was quite strong. The division delivered 333 million board feet in shipments and produced its lowest average manufacturing cost per thousand board feet since Q2 of 2021, which was prior to the onset of inflationary cost pressures we have experienced over the last few years. We believe these operational results position us well to capture upside when market conditions eventually improve. The downward lumber pricing trend during Q3 ran counter to our expectations, especially given the significant increase in Canadian antidumping and countervailing duties implemented during the quarter. Beyond relatively soft lumber demand, we believe several other factors contributed to the price decline, including Canadian mills accelerating shipments into the U.S. ahead of the higher duties, along with the financial support pledged by the Canadian government to its lumber industry. Despite scattered mill curtailments and production cutbacks across the industry and the recent implementation of 10% Section 232 tariffs for lumber imports from all regions, these measures have yet to generate any meaningful upward momentum in lumber prices. Unfortunately, we are also in a seasonally weak period for lumber demand. Now that said, we believe prices have now stabilized as we head through the remainder of the year, supported by a more balanced supply-demand dynamic and a more normalized level of inventories across the industry. Moving to real estate. The division delivered another robust quarter, driven by strong contributions from both rural and development sales activity. For rural real estate, highlights include 2 larger transactions in Georgia totaling $39 million in revenue, each at attractive multiples to timberland value. We also experienced solid take-up on our residential lot offerings and completed a commercial land sale to a local church in Chenal Valley. Demand for rural real estate remains strong, supported by its appeal as a stable long-term investment. Buyers have been also motivated by additional factors, including conservation, recreation, home sites and adding property that is adjacent to their land ownership. Looking at our natural climate solutions opportunities, we continue to make progress across our various initiatives. Starting with solar, developers are actively evaluating recent adjustments to green energy incentives within the tax bill and assessing how to navigate under the current regulatory environment. While these factors present some potential headwinds, interest from well-established solar developers remain solid. We currently maintain 34,000 acres under solar option -- solar option agreements and expect this to grow to 40,000 to 45,000 acres by year-end, reinforcing our confidence in the long-term opportunity. Additionally, the Smackover formation in Southwest Arkansas continues to attract significant interest from major lithium developers. Since last quarter, we signed a new mineral lease agreement with Saltwerx LLC, a subsidiary of ExxonMobil Corporation, covering approximately 4,200 surface acres for lithium development in the region. With this agreement, our total surface acres under mineral leases in the Smackover formation now stands at over 5,000 acres, underscoring the growing strategic value of our holdings in the emerging market for lithium. We remain excited about the unique optionality that timberland ownership provides and are committed to expanding our natural climate solutions portfolio. This includes opportunities in forest carbon offsets, carbon capture and storage and other emerging initiatives that position us to create long-term value. Shifting to capital allocation. In the first half of the year, we repurchased $60 million of common stock through our 10b5-1 program. Due to our pending merger with Rayonier, our ability to repurchase shares has been and will be limited prior to closing. That said, we continue to maintain a solid financial position, providing flexibility to navigate the current macroeconomic environment while staying focused on executing on our strategic plan, including our 2025 CapEx program. Now moving to the U.S. housing market. Overall demand remains constrained by weaker consumer confidence and affordability challenges with many prospective homebuyers waiting for mortgage rates to move lower. Encouragingly, rates, in fact, are trending lower. The 30-year fixed rate mortgage fell to 6.1% in October and home affordability reached its best level in 2.5 years. Combined with anticipated further easing of interest rates by the Fed, these developments could point to a more favorable housing environment ahead. Furthermore, the long-term fundamentals of housing demand remain intact, including a persistent housing shortage and demographic tailwinds for millennial household formation. As affordability improves, these structural drivers should reassert themselves, supporting future growth in housing activity. Shifting to the repair and remodel market. Activity has been muted as economic uncertainty and elevated borrowing costs weigh on discretionary spending, particularly for large-scale remodeling projects. However, leading indicators, including the Joint Center for Housing Studies and the National Association of Homebuilders suggest that demand for home improvement will remain stable in the near term, followed by more modest but positive growth in 2026. Looking at our own business, demand from our home center customers started the quarter seasonally slower but strengthened as the quarter progressed. This momentum has continued as we move toward the end of the year. The long-term fundamentals of this segment remain compelling, driven by an aging housing stock, historically high home equity levels and the persistence of hybrid and remote work, which continues to fuel demand for functional improvement and aesthetic home upgrades. To wrap up my comments, while near-term headwinds persist, we maintain a positive view of the long-term fundamentals that drive demand in our industry. Looking forward, we believe lumber prices have reached their low point for the year and have generally stabilized. We are optimistic that the combined impact of higher Canadian softwood lumber duties, the 10% Section 232 tariffs and supply reductions from an increasing number of mill curtailments will gain traction to support improved domestic lumber pricing as we move through the remainder of the year. Finally, we remain focused and disciplined in operating our businesses efficiently and effectively while advancing the key work streams necessary to complete our proposed merger with Rayonier, a transformative transaction that positions the combined company for growth and delivering long-term shareholder value. I will now turn it over to Wayne to discuss our third quarter results and our outlook. Wayne Wasechek: Thank you, Eric. Starting from Page 4 of the slides. Total adjusted EBITDA was $89 million in the third quarter compared to $52 million in the second quarter. This sequential quarter-over-quarter increase in adjusted EBITDA is mainly attributed to strong real estate activity in both our rural and development real estate businesses. I will now review each of our operating segments and provide more color on our third quarter results. Starting with our Timberlands segment, which is presented on Slides 5 through 7. The segment's adjusted EBITDA increased from $40 million in the second quarter to $41 million in the third quarter. Our sawlog harvest in Idaho increased from 360,000 tons in the second quarter to 411,000 tons in the third quarter. Our quarterly harvest volume is typically the highest in the third quarter as dry weather results in more favorable logging conditions. Sawlog prices in Idaho declined by 5% per ton compared to the second quarter. This decrease was driven by lower index sawlog prices, partially offset by seasonally lighter sawlogs. Log and haul costs were higher compared to the second quarter due to a greater seasonal mix of steep terrain logging operations in Idaho, along with longer haul distances. In the South, we harvested 1.5 million tons in the third quarter, consistent with harvest volumes in the second quarter. Average Southern sawlog prices were up by just over 1% from the second quarter. This increase in price primarily reflects a higher mix of larger diameter pine sawlogs and a seasonal increase in hardwood volumes, both within our Gulf South region. Turning to Wood Products, shown on Slides 8 and 9. Adjusted EBITDA was a loss of $2 million in the third quarter compared to a positive $2 million in the second quarter. This decline was primarily driven by lower lumber prices despite strong operational execution demonstrated by lower average cash processing costs and higher shipment volume. Our average lumber price realization decreased $54 per thousand board feet or 12% from $450 per thousand board feet in the second quarter to $396 per thousand board feet in the third quarter. Comparatively, the random lengths framing lumber composite average price was approximately 10% lower in the third quarter compared to the second quarter. Note that our regional mix and product mix differs from the composite, and there's also a timing difference between our sales and the composite. Lumber shipments increased by 30 million board feet, rising from 303 million board feet in the second quarter to 333 million board feet in the third quarter. Transitioning to Real Estate on Slides 10 and 11. The segment generated adjusted EBITDA of $63 million in the third quarter compared to $23 million in the second quarter. During the third quarter, our rural real estate business sold approximately 15,600 acres at an average price of nearly $3,300 per acre. Notably, sales included 2 large transactions in Georgia, the conservation land sale generating over $21 million in proceeds and a nearly $18 million recreation sale to a landowner with adjacent property. In the Chenal Valley development side of our real estate business, 55 residential lots were sold at an average price of $139,000 per lot in the third quarter. Sales reflected a balanced mix of premium and more affordable lots, supporting diverse buyer demand. The division also completed a nearly $7 million commercial land sale in the quarter for $533,000 per acre. Turning to our capital structure summarized on Slide 12. We finished the quarter with $388 million in liquidity, including $89 million of cash on our balance sheet as well as availability on our undrawn revolver. Additionally, we successfully refinanced $100 million of debt that matured in August and utilized our final forward starting interest rate swap. This refinancing approach resulted in only a $50,000 annual increase in our cash interest costs and maintains our weighted average cost of debt at approximately 2.3%. Capital expenditures were $16 million in the third quarter. This amount includes real estate development expenditures, which are included in cash from operations in our cash flow statement, and it excludes timberland acquisitions. For the full year, we continue to anticipate CapEx spend of $60 million to $65 million, which excludes the final closeout payment of $6 million for the Waldo sawmill project that we made in Q1 and any additional potential timberland acquisitions. I will now provide some high-level outlook comments. The details are presented on Slide 13. Within our Timberlands segment, we anticipate harvesting between 1.7 million and 1.8 million tons in the fourth quarter, with approximately 80% of this volume sourced from the South. In Idaho, harvest volumes are anticipated to be just above Q1 and Q2 levels. Additionally, sawlog prices in Idaho are expected to decline approximately 13% in the fourth quarter, driven mainly by lower prices on index volume. As a reminder, our index volume reflects a 1-month lag. Consequently, Q4 index pricing is based on September through November lumber prices with both September and October experiencing relatively low lumber prices. In the southern region, we anticipate harvesting approximately 1.3 million to 1.4 million tons during the fourth quarter, and we expect that our average sawlog prices will decline slightly based on sawlog mix and mills wanting to maintain log inventory levels that are in balance with current lumber market demand. We plan to ship 290 million to 300 million board feet of lumber in the fourth quarter. Our average lumber price thus far in the fourth quarter is $397 per thousand board feet, which is near our average lumber price for the third quarter. This is based on shipments of approximately 120 million board feet of lumber. Turning to our Real Estate segment. We expect to sell approximately 5,000 acres of rural land at an average price of $3,200 per acre in Q4. For our Chenal Valley development, we expect to close on approximately 46 residential lots at an average of $95,000 per lot. Further details regarding real estate can be found on Slide 13. We expect total adjusted EBITDA in the fourth quarter to be lower than third quarter results. The anticipated decline is mainly driven by fewer rural real estate acres sold, reduced residential and commercial development activity and within Timberlands, seasonally lower harvest volumes, combined with softer index pricing on Idaho sawlogs. That concludes our prepared remarks. Rob, I would now like to open the call to questions. Operator: [Operator Instructions]. Your first question today comes from the line of Ketan Mamtora from BMO. Ketan Mamtora: Maybe to start with, Eric, can you talk a little bit about what you are seeing on the -- in the pulpwood markets in the U.S. South. We've seen a pretty big erosion here in prices over the last few years. We've also seen a lot of pulp and paper mill closures here recently. So even if we assume that sort of overall demand picks up, that's a lot of lost tonnage. Can you sort of talk about what you're seeing in the pulpwood market? Wayne Wasechek: Yes. Ketan, this is Wayne. I'll take that. Yes, you're right. Unfortunately, we have seen mill closures and capacity coming out of the market. This has been a trend. I mean, even recently, we've seen some various mill closures. But I would say for us, nonetheless, given our size, our scale and the relationships that we have with customers, we find a home for our volume. And I think we tend to have more options than others may have. So our log takeaway has really been pretty steady. Our team does a great job of navigating these markets. And I think the other advantage we have is just the scale and diversification. So for us, I think that's what it really comes down to. But certainly, where the mills are, that does put pressure on pricing for pulpwood. But I think the other thing that I would highlight is just when we -- Eric made some comments on the pending merger with Rayonier. And we look at -- from that, we look at many strategic and financial benefits of the merger, and this is just one area where the combined company, we have greater scale and diversification, which mitigates the exposure to any one market that we can have. Eric Cremers: Yes. And don't forget, Ketan, this is Eric. You've got -- every market is different. And I think -- and Rayonier can talk about this on their call. But you think about where the hurricane went through some of their properties, I don't know, a year ago, maybe a little bit more, knocked down a bunch of trees that really depressed prices for a period of time. But now those trees are, by and large, those salvage logs are gone, and there's, if you will, a shortage of green logs to feed the mills. So different regions are going to react differently to different events. And you can't say that everything is the same in the South because it varies dramatically from wood basket to wood basket. Operator: Your next question comes from the line of George Staphos from Bank of America. George Staphos: The question I had, I think at one point in time, when you were guiding for the quarter, you're guiding maybe for about 310 million to 320 million board feet of lumber. You obviously ran better. Obviously, in a market that was somewhat depressed. So I was just curious, help us understand sort of the commercial strategy as you're running more of that capacity in what was a tough market. And Wayne and Eric, as we look out to fourth quarter, holding price aside, should we expect a relatively consistent level of cash margin out of the Wood Products business versus 3Q? And I had a quick follow-up. Eric Cremers: Yes. So George, to answer the first question, we're always trying to lower our per unit costs in our mills. And it is true of most first quartile mills that, that last stick of lumber coming out the door, coming out the manufacturing process is going to be your lowest cost stick of lumber. So yes, we lost a little bit of money in Wood Products in the quarter, but don't forget there's overhead associated with running the mills. And so it might look as though that last stick of lumber was negative, had negative margin, but the reality is it probably had positive margin. We have got principally a set of first quartile mills. And while the mills may be profitable because of overhead, it might flip them to negative. So I think you got to keep that in mind as you think about how we run our mills, how we operate our mills. We generally run them as hard as we can to leverage and absorb overhead costs in each stick of lumber. George Staphos: Let me just wanted to hear. Go ahead. I'm sorry. Eric Cremers: Yes. Yes. So that's the first one. The second one, yes, I do think prices are going to move a little bit higher as we move through the fourth quarter here. And when we talked -- I think our supplemental slides show pricing being flat. I think they could be up 2%, 3%, 4%, something like that. So I don't expect a lot of movement. I think if you look across the different -- the waterfall chart for Wood Products going from Q3 to Q4, I think you might see log costs could be a little bit negative. If we have higher lumber prices, that's going to hurt our St. Maries mill, for example. We might have log costs get a little bit more -- processing costs a little bit more expensive because we're getting into a slower production period with colder weather. But I think generally, you would expect flat performance, excluding price, but I do expect prices to move up a little bit in the quarter. George Staphos: Okay. I appreciate that. And then just give us a bit more detail in terms of some of the very good performance in real estate in the quarter. It was a bit ahead of our expectations. It was, I think, ahead of your initial guidance. Kind of I recognize these are episodic, right? It's hard to predict timing at times, but was there anything else that drove the better-than-expected performance in real estate and why some of those sales occurred in the third quarter? Wayne Wasechek: Yes, George. Again, like you said, it can be -- sales are rather lumpy, and we're always looking at the pipeline that we've developed and based on timing, can shift from quarter-to-quarter. I think for this quarter for us, though, we had a couple of larger sales as we noted. The bigger one is on conservation. That one, we had a large conservation sale come through. So that really showed the outperformance in the quarter relative to guidance. But overall, what we've seen throughout this year is there's been strong demand for rural real estate for recreation to adjacent landowners. We've seen it all come through. But I think the real difference for us has been on the conservation side. And this year, we've had, I would say, about 10,000 acres sold under conservation transactions. And we're guiding to 35,000 acres for the full year. Well, those conservations are kind of more onetime type transactions. So you take that out of the mix, that gets us to about 25,000 acres, which really is in line with what we've talked about. Generally, market demand for us is, say, around 1% of our portfolio, which would put us at around 20,000 to 25,000 acres. And excluding these conservation sales, I think really that lines up with our full year expectation. George Staphos: Appreciate it, Wayne. Last one for me, Eric, if you could talk, are there any sort of green shoots, if you will, no pun intended in terms of what's happening on the supply side relative to tariffs, relative to duties. I mean it's -- we've talked about in our research it's been kind of a weak -- too weak of a supply-demand environment for any of these sort of constraints, tariffs and do to have an effect on pricing. Are you seeing anything on the ground now where you are finally starting to see some supply constraint and boding well for kind of a spring building season? What are your customers saying in terms of the building season, recognizing it's not the spring time, it's November? [indiscernible]. Eric Cremers: Yes, George, I am hearing mildly favorable things about the outlook for next year. I mean, you're right. This year is kind of -- we're writing the rest of the year off. They're just -- we're entering a slow period, gets cold outside, construction activity slows. So I don't have much in the way of hope for higher log prices as we move through the fourth quarter, although I do expect them to move up a little bit. And why do I expect them to move up a little bit is because we are seeing more and more curtailments. It almost seems like every other day, there's a new announcement. Certainly, you saw Weyerhaeuser's results are taking down production, I think, 10% in Q4 -- we've had [indiscernible] , Western Forest Products, Interfor, Domtar, company after company has been announcing curtailments. So I do think it has been coming and it will continue to come. These curtailments given the duties and the tariffs that are now in place. And I do think -- if you had to ask me, gee, what do you think is going to happen in lumber prices in '26 versus '25, we're just now getting into the budgeting cycle. But I'd guess prices could be up $30 to $40 full year over full year. It's still not where I think they ought to be longer term for the industry to be healthy. But I do think it is positive, and it's moving in the right direction. And these curtailments, somebody announces them today, but they don't take full effect for who knows, 2, 3 months as they work down their log decks. So it just takes a while for it to really have an impact. So I do think next year is going to be better. I do think we have bottomed here in the fourth quarter. I do feel like prices are moving in the right direction. But again, it's a slow time of the year. So I don't think we're going to see a lot of price action before the end of the year. Operator: Your next question comes from the line of Mark Weintraub from Seaport Research Partners. Mark Weintraub: First, just a little bit on the real estate side. So how much in total revenue with the conservation sales? And maybe what were the type of price per acre in the quarter or in the year have contributed? Wayne Wasechek: I think for the forecast, we're looking at maybe about 25% of our total rural revenue is associated with those 10,000 acres. Mark Weintraub: Got you. And what type of pricing is that relative to sort of the other? And I guess the part of the question is I'm trying to get a sense as to, are you seeing any changes in what you might consider apples-to-apples pricing in your real estate sales? Has there been upward bias? Or has it been pretty flat? Wayne Wasechek: No. I think, Mark, demand is strong. And because of that, we've been able to increase our prices, I think, fairly significantly. I mean if you look on a kind of a consistent mix basis, year-over-year, I think we would say maybe prices are up about 10%. Mark Weintraub: That's helpful. And shifting gears on the lumber side, it's kind of interesting one of your large competitor had talked about its pricing being down, I think it's like $20 or something quarter-to-date and you are flat. Is there -- any thoughts -- and if you look at random lengths, I think it probably is down somewhat. So is there some mix? Or what might be kind of any thoughts as to why your pricing is better? -- quarter-to-date? Eric Cremers: Yes. Mark, there could be a number of factors at play. I suspect it's more mix than anything else. We've got a great stub program with some home centers that could be part of it. It could be that we produce a lot of wides in the South. We're not heavy to 2x4s in the South. Wides have been weak all year long in the South. They've finally started to improve. I suspect that's having a part of the explanation here. But it's going to be mixed at the end of the day. Mark Weintraub: Great. And just for identification, wides, that would primarily go into what end use? Eric Cremers: Well, it be home construction, but it's like 2x12s, 2x10s, things like that. We normally -- in the spring, wides tend to take a nice run in price because it's wet weather and bigger trees are hard to get to. They tend to be underwater. And that didn't happen this year. This year, it was pretty dry. Access to the larger trees was there, and so prices never really, really ran. And I think we're now getting back to a more normal kind of a price environment where we do get a better premium for wide versus 2x4s. Mark Weintraub: Okay. Great. And last, maybe on the lithium that's back over 5,000 acres now, can you kind of help us understand potential economics on that part of the business? Wayne Wasechek: Yes. From a P&L standpoint, there's really kind of a wide range of potential outcomes due to various factors. I think at this time, we're not providing any sort of guidance related to that. And there are a couple of large variables that will drive the opportunity ultimately. One, it depends on what is the price of lithium. And then two, the ultimate concentration and the amount of lithium that is extracted. So those factors really drive what our kind of lease and royalty rates will be from the opportunity. So at this time, it's too early to provide any detailed insight into P&L opportunity. Eric Cremers: We kind of need Exxon to build that processing plant first, Mark, and it's going to take a few years, you can imagine. Mark Weintraub: Sure. I mean, do you have a perspective on what the timing of that plant might be? Wayne Wasechek: Yes, we don't at this time. Mark Weintraub: Okay. Okay. Fair enough. And then lastly, probably also something you can't really answer, but is there any more color you can share with us on the process that led to the merger transaction with Rayonier at this point? Eric Cremers: Yes. I think you're going to have to wait until the proxy is filed on that one, Mark, and there'll be a lot of detail in there. Operator: Your next question comes from the line of Mike Roxland from Truist Securities. Michael Roxland: Congrats again on the deal and all the progress. I just wanted to confirm if I heard correctly, lumber inventories in the channel, it sounds like -- one question is where do they stand? Because I think I heard you said they're lean right now or certainly down from where they were, but I just want to confirm that. Eric Cremers: Yes. I think they are lean, Michael. If you're a dealer out there somewhere, you don't need to speculate. You can get just-in-time deliveries. There's plenty of capacity out there. So I think they're pretty lean. Michael Roxland: Got it. And then on Natural Climate Solutions, any -- it sounds like things are pretty good in terms of your pipeline, maybe a couple of issues potentially in solar, but it doesn't really sound like it looks like your order book is going to be pretty full by the end of the year. But just wondering if you have any concerns regarding government funding cuts. Obviously, the government is pretty aggressive with wind from the outset. They become more aggressive with solar recently. So I'm wondering if that's giving you any pause in terms of the growth potential near term for some of those NCS initiatives. Wayne Wasechek: Yes. I don't -- we don't think so, Mark. I think some of the concerns may be overstated. I mean I think where we get that is just from what we're hearing from solar developers. We're continuing to have active discussions and interest. And like we've said, we expect to grow acres under solar option by the end of the year. So those factors point us in the direction that, yes, we're still very bullish on solar. And we're also dealing with more sophisticated solar developers. They know how to build a successful project. They've done this before. They've been through various cycles and they also have the financial wherewithal to execute these projects. I mean we've done a couple of solar deals even pre-IRA funding, and that just proves that deals can be done without these incentives. So you just look at the overall energy environment, I mean, the issue remains there's still a need to keep pace with energy demand, and we certainly believe that this is part of the solution. So... Michael Roxland: Got it. And one final question. Just I wanted to follow up on with respect to real estate sales. Is there anything in your pipeline that has the potential to maybe close earlier this year than, let's say, in 2026? So maybe you're working on some things that have a January or early February type -- anticipated closing date, but could potentially -- is there anything that maybe has the type of time frame that could be accelerated into this year before you some additional upside as you had in 3Q? Wayne Wasechek: Yes. At this time, we're just sticking with the guidance that we've given, the 5,000 acres for Q4. That's what we have insight to, and we believe. But again, yes, there can be timing of both good and bad. So I think we kind of play it where we think it will come through. Operator: At this time, I'm showing there are no more questions. I'll now turn the call back over to Wayne Wasechek. Wayne Wasechek: Thank you, everyone, for joining us this morning. Just please contact me with any follow-up questions. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: " Greg Mann: " Thomas Doyle: " Troy Wilson: " Mollie Leoni: " Brian Powl: " Unknown Analyst: " Li Wang Watsek: " Cantor Fitzgerald & Co., Research Division Jason Zemansky: " BofA Securities, Research Division Yue-Wen Zhu: " LifeSci Capital, LLC, Research Division Operator: Good day, everybody. My name is Danny, and I will be your conference operator today. At this time, I would like to welcome you to the Kura Oncology Third Quarter 2025 Conference Call. [Operator Instructions]. At this time, I would like to turn the call over to Greg Mann from Kura Oncology. Greg Mann: Thank you. Thank you, Danny. Good morning, and welcome to Kura Oncology's Third Quarter 2025 Conference Call. Joining the call today are Dr. Troy Wilson, President and Chief Executive Officer; Tom Doyle, Senior Vice President, Finance and Accounting. Dr. Mollie Leone, Chief Medical Officer; and Brian Powl, Chief Commercial Officer, are also on the call and available to answer questions. Before I turn the call over to Dr. Wilson, we remind you that today's call will include forward-looking statements based on current expectations. Such statements represent management's judgment as of today and may involve risks and uncertainties that cause actual results to differ materially from expected results. Please refer to Kura's filings with the SEC, which are available from the SEC or on the Kura Oncology website for information concerning risk factors that could affect the company. With that, I'll turn the call over to Troy. Troy Wilson: Thank you, Greg. Good morning, and thank you all for joining our third quarter financial results conference call. Over the past quarter, we've continued to significantly advance both our clinical pipeline as well as preparations for the anticipated commercial launch of ziftomenib, our once-daily investigational menin inhibitor for acute myeloid leukemia. I'll begin with an update on zifto, followed by brief remarks on our commercial readiness and our farnesyl transferase inhibitor program. The FDA review of ziftomenib for treatment of patients with relapsed and refractory NPM1-mutated AML remains on track with a PDUFA target action date of November 30, 2025. Communication with FDA continues to be open and constructive, and we remain focused on achieving a successful review outcome. Based on clinical data from the KOMET-001 study, which has been presented at a major medical meetings and published in the Journal of Clinical Oncology in September, we're confident ziftomenib has a differentiated and favorable benefit risk profile. And if approved, ziftomenib could potentially reset the commercial landscape and become the menin inhibitor of choice for eligible patients. Although while the regulatory review process for ziftomenib progresses, our clinical team continues to execute on a strategic development plan targeted at addressing the large unmet need beyond the relapsed/refractory setting where we believe ziftomenib's benefit risk profile will be even more competitive and more impactful for patients. At EHA earlier this year, we reported updated combination data for ziftomenib with 7+3 intensive chemotherapy in newly diagnosed NPM1 mutant and KMT2A rearranged AML. These data were very encouraging, showing high rates of complete remission and MRD negativity in over 70 patients across the combination cohorts with a safety profile consistent with what is expected in patients treated with 7+3 alone. These results highlight ziftomenib's potential as an early intervention, offering a meaningful opportunity to improve patient outcomes. Yesterday, we announced acceptance of 2 oral presentations at ASH, which will feature data on ziftomenib in combination with venetoclax and azacitidine chemotherapy. Both abstracts, one in the newly diagnosed setting and the second in the relapsed/refractory setting reported high response rates and MRD negativity with a safety profile consistent with previous reports. The abstracts used data cutoff of June 20, 2025, and updated results reflecting additional follow-up will be reported in the oral presentations next month. We plan to host a virtual investor and analyst event to discuss these ASH presentations on Monday, December 8, at 12:30 p.m. Eastern Time. Details will be available on our website. Encouraged by these positive results, we've advanced rapidly into our KOMET-017 frontline Phase III trials. KOMET-017 comprises 2 randomized, double-blind, placebo-controlled trials to evaluate ziftomenib in combination with both intensive 7+3 and non-intensive ven/aza chemotherapy regimens in patients with newly diagnosed NPM1 mutant or KMT2A rearranged AML. The program aims to advance ziftomenib to the frontline setting with potential to treat patients earlier in their disease course when the opportunity to alter its trajectory is greatest. We're targeting enrollment at over 150 global sites with a large proportion in the U.S. Each KOMET-017 trial includes dual primary endpoints to support potential U.S. accelerated and full approvals. The intensive chemotherapy combination study evaluates MRD-negative complete response, or CR, and event-free survival. The nonintensive chemotherapy combination study assesses CR and overall survival. Site activation is accelerating in each of these company-sponsored registrational trials and patient enrollment is progressing well. Continuing this momentum, last month, we opened a trial cohort to assess ziftomenib combined with 7+3 induction chemotherapy and quizartinib, an approved FLT3 inhibitor in patients with newly diagnosed AML harboring FLT3-ITD NPM1 mutant co-mutations. FLT3 mutations represent one of the most common and challenging genetic mutations in AML with limited durable treatment options. Our preclinical studies suggest ziftomenib and quizartinib synergize to enhance activity without undue toxicity. Note, this effort also builds on our clinical experience with the combination of ziftomenib and gilteritinib in the relapsed/refractory NPM1 mutant setting. Enrollment in that trial has been robust, and we intend to present preliminary Phase I data at a major medical meeting next year. With these studies now underway, ziftomenib development is active in all 3 major frontline settings, collectively representing up to 50% of incident AML cases in the U.S. Turning now to commercial preparations. Our teams are launch ready and confident in our execution plan across the commercial organization from marketing, market access as well as patient support and sales analytics, field operations and sales, our teams are fully mobilized and prepared to execute as soon as ziftomenib is approved. Our disease awareness campaigns have exceeded their targets. Our preapproval information exchanges with key payers and other market decision-makers are complete, offering us confidence that we will facilitate rapid access and uptake. Our limited distribution network is fully aligned and ready to support product upon approval. And our team of experienced oncology account managers is already engaged in profiling target accounts. In early October, we and our partner, Kyowa Kirin, held a joint launch readiness meeting where our 2 field teams of Kura and Kyowa Kirin what we finally call 1K completed their training and precertification. The excitement and alignment across both organizations is palpable, and the 1K team stands ready to deliver upon approval. Turning now to our farnesyl transferase inhibitor portfolio. Last month, we presented new clinical data, highlighting the potential of FTIs to safely combine with major classes of targeted therapies, including PI3-kinase alpha inhibitors, KRAS inhibitors and anti-angiogenic tyrosine kinase to overcome resistance pathways and enhance antitumor activity. In our FIT-001 Phase I trial evaluating darlafarnib, our next-generation FTI in combination with cabozantinib in patients with renal cell carcinoma, we observed a manageable safety profile across multiple dose levels of each agent, including at the full label dose of cabozantinib. Antitumor activity was seen across all dose combinations, including in patients with prior exposure to cabozantinib. The objective response rate or ORR was 33% to 50% in clear cell renal cell carcinoma and 17% to 50% in patients with prior cabozantinib exposure. The KURRENT-HN trial evaluates tipifarnib, our first-generation FTI with alpelisib in patients with PIK3CA-dependent head and neck squamous cell carcinoma. This combination also demonstrated a manageable safety profile and robust antitumor activity in a heavily pretreated patient population, where meaningful benefit would not be expected from either agent alone. An ORR of 47% was observed at a dose of tipifarnib of 1,200 milligrams per day and alpelisib at 250 milligrams per day. We see tremendous promise in darlafarnib and the broader potential of farnesyl transferase inhibition as a differentiated mechanism to extend the reach of precision oncology with the potential to enhance activity of PI3-kinase alpha inhibitors, KRAS inhibitors and TKIs, darlaifarnib represents a very substantial commercial opportunity with the potential to address more than 200,000 incident patients annually in the U.S. alone. We view our FTI platform as a strategically important pillar of growth that complements our leadership in menin inhibition. Our dual pipeline strategy positions Kura with 2 clinically validated mechanisms that address some of the most pressing needs in precision oncology. We expect to have more to share regarding our FTI clinical development plans and business development strategy in 2026, supported by a steady cadence of data presentations at medical meetings throughout the year. Kura remains in a strong financial position to execute across our pipeline, advance the development of ziftomenib and support our commercialization activities. Our partnership with Kyowa Kirin has enabled us to invest in a robust, expansive and accelerated development plan for ziftomenib. We recently received 2 $30 million milestone payments payable for the first patients dosed in the 2 KOMET-017 Phase III trials, which brings the total milestones received this year to $105 million. We expect approximately $315 million more in near-term milestone payments, including a substantial milestone payment associated with commercial launch of ziftomenib. This is consistent with the $420 million in near-term milestones we announced at the inception of the partnership with Kyowa Kirin last November. We reported pro forma cash of $609.7 million for the period. This figure includes milestone payments received in October and November 2025 and reflects a strong capital position to advance our pipeline through key clinical and regulatory milestones. I'll now turn it over to Tom, who will review the third quarter financial results. Thomas Doyle: Thank you, Troy. Collaboration revenue from our Kyowa Kirin partnership for the third quarter of 2025 was $20.8 million compared to no revenue for the third quarter of 2024. Research and development expenses for the third quarter of 2025 were $67.9 million compared to $41.7 million for the third quarter of 2024. General and administrative expenses for the third quarter of 2025 were $32.8 million compared to $18.2 million for the same period of 2024. Net loss for the third quarter of 2025 was $74.1 million compared to a net loss of $54.4 million for the third quarter of 2024. This included noncash share-based compensation expense of $11 million compared to $8.3 million for the same period in 2024. As of September 30, 2025, Cura had cash, cash equivalents and short-term investments of $549.7 million compared to $727.4 million as of December 31, 2024. As adjusted for the $60 million in KOMET-017 milestone payments under our collaboration agreement with Kyowa Kirin, Kura had on a pro forma basis, $609.7 million in cash, cash equivalents and short-term investments as of September 30, 2025. Based on our current operating plans, we believe that our cash, cash equivalents and short-term investments as of the end of the third quarter will be sufficient to fund our current operating expenses in 2027. And if we include anticipated collaboration funding under the Kyowa Kirin agreement, Kura's financial resources should support advancement of our ziftomenib AML program through top line results in our frontline combination program. With that, I'll turn the call back over to Troy. Troy Wilson: Thank you, Tom. Before we open the call for questions, let me just briefly highlight the key milestones we expect over the coming months and into next year. For ziftomenib and our menin inhibitor programs, we look forward to continued engagement with FDA reviewers as we approach our PDUFA target action date of November 30 for ziftomenib as a monotherapy for patients with relapsed/refractory NPM1 mutant AML, present preliminary clinical data in newly diagnosed NPM1 mutant AML and updated clinical data in relapsed/refractory NPM1 mutant and KMT2A rearranged AML from our KOMET-007 cohorts evaluating ziftomenib in combination with ven/aza at the ASH Annual Meeting to be held next month in Orlando. And finally, presenting preliminary clinical data from the KOMET-008 cohort evaluating ziftomenib in combination with the FLT3 inhibitor gilteritinib in patients with relapsed/refractory NPM1 mutant AML in 2026. For our farnesyl transferase inhibitor programs, we expect to initiate one or more expansion cohorts of darlafarnib and cabozantinib in patients with advanced renal cell carcinoma in the first half of 2026, to present updated dose escalation data from the combination of darlafarnib and cabozantinib in advanced renal cell carcinoma in 2026, to present clinical data from the combination of darlafarnib and adagrasib in patients with KRAS G12C mutated solid tumor indications in 2026. With that, Danny, we're ready to begin the question-and-answer session. Operator: [Operator Instructions] Our first question today comes from [ Jonathan Chang ] at Leerink Partners. Unknown Analyst: This is [ Albert Agustin ] on for [ Jonathan Chang ]. What do you foresee will be the makeup of account types that you are trying to penetrate for zifto launch? Are there any particular account types that you are focusing on? And also, are there any plans to include zifto in the NCCN guideline? Troy Wilson: Sure. Thanks, [ Albert ]. In general, we're going to try to limit it to one question. The second one is easy, but please, if folks can limit it to one question so we can get everybody. Brian, let me ask you if you can take Albert's 2 questions in turn. Brian Powl: Sure, absolutely. Thanks, Albert, for the questions. So our expected account types here are typically going to be the specialty hematologists. We anticipate a mix of academic -- large academic institutions as well as in some of the larger community oncology practices. It's going to be similar. Well, I think we get into our overall targeting strategy. We have probably about 4,000 HCPs that we're targeting. Within that range, I'd say, probably 78% of that is going to be in the academic setting, and then we'll have -- the rest of the focus will be on the community oncology practices that are treating those AML patients and particularly the relapsed/refractory patients. To your second question, just quickly to answer, yes, our plans are to submit the KOMET-01 data on the basis of our approval soon after approval. You can't submit to the NCCN for a listing until you have FDA approval. So our plans are to submit that within days of approval. Operator: Our next question comes from Li Watsek at Cantor Fitzgerald. Li Wang Watsek: On the progress. Maybe just one on the ASH update. Can you just talk about what we should expect for the actual oral presentations versus what's in the abstract release yesterday? Yes. Troy Wilson: Thanks, Li, for the question. Mollie, do you want to take that one? Mollie Leoni: Sure. As Troy pointed out, the data cut was back in June for what was submitted to ASH. So obviously, we've got many months more worth of data. So you'll see not only more evaluable patients being able to be reported and the evolution of responses across the whole patient population. You'll also see new information about MRD negativity as well as just longer follow-up and safety information in general. Operator: Our next question comes from Salim Syed of Mizuho Securities. Salim Syed: I love the revised format of the call. I appreciate it. I guess one for us, Troy, maybe just on the new label that we got from Syndax, which includes Tsad now and the black box. Just curious, there seems to be varying views on if this actually matters or not. Just what does it mean for you? What does it mean for the space as you think about your own NPM1 launch and also as you progress here towards first line in particular, which I guess there's a view out there that it doesn't matter because first line maybe is -- you wouldn't see Tad as much. But curious to just get your view as the space evolves here. Troy Wilson: Yes. Salim, thanks for the question, and glad you're appreciating the new format. This is -- there's a lot that I think we can talk about here. We'll have more to say if and when we get approval of ziftomenib here coming up very quickly on our PDUFA action date. A few thoughts. And I'm going to give my comments, and I'm going to ask Mollie for her because she really needs to speak to this from a clinical perspective. But first of all, Salim, maybe the magnitude of the risk. This is a box warning. So a box warning is as serious as one can have as far as warnings and precautions. It isn't so much the frequency, it is the severity, particularly tors, right? Tors for everyone on the call, I mean, we're talking about a risk of sudden cardiac death. There are numbers that are getting bantied around that it's 1 in 1,000, it's not. You don't typically see this as much in younger patients. So you really need to focus on the NPM1 population. And we're looking at maybe somewhere between 1 in 100 or perhaps even more frequent than that. And I guess I would just put it to anyone, right? If you have 2 agents, both of which are efficacious, but one of which has a 1 in 100 or more chance of sudden cardiac death, what are you going to I think that's where we feel increasingly confident based on the clinical data that's been presented at major medical meetings that's published in JCO, we're going to have a differentiated and favorable benefit risk profile. And I think that will start in the relapsed/refractory setting. But to the comment about it's less relevant in the front line, the risk doesn't go away. In fact, what you're dealing with is those patients are healthier, therefore -- and they're presumably going to stay on therapy for much longer. So if anything, you want a more favorable benefit risk profile in that population, which means I think you -- your -- the ability to differentiate on a favo. Let's see. I would -- the last thing I'll say before I turn it over to Mollie is the ASH abstract, there was a giant data dump. Despite comments from some others that there's really no room for another menin inhibitor, there's a lot of activity in the menin space from us and from other competitors. You can go -- you can parse through the abstracts. What I think you'll see is that the benefit risk profiles of the difUFnt agents are continuing to be defined as we go. And I would draw your attention not only to the activity and all of these agents are very active, and that's good for patients. But the safety and tolerability is also coming much more into focus, and I would invite you to look at the various combinations. But Mollie, let me invite you to add any thoughts or comments maybe to build on mine. Mollie Leoni: Absolutely. As Troy said, it's not the black box warning that in and of itself is something to focus on. It's what it means the data has shown. And one of the best ways of understanding that is to look at the FDA's actual guidance document on the topic. It is very clear that once a drug causes at least a 20-millisecond change in the QTC prolongation, it is now considered to be significantly more likely to cause sudden cardiac death. It's not just torsades we're looking at. It's any ventricular arrhythmia. And so the risk just becomes so much more increased, that is why they put the black box. So it's understanding what data requires a black box warning that becomes really important in this situation and to patients who are trying to decide between options of what risks they are willing to take on and what risks they would rather avoid if they have the option to do so. And as Troy pointed out, while something like differentiation syndrome is very well mitigated in earlier lines with combination therapy, you would actually potentially expect more issues with the ability to handle or at least equal issues with the ability to handle QTC prolongation just because of the various medications that are going to be given as concurrent therapies and as additional oncology therapies for these patients' treatment. And it becomes more complex when deciding how to administer a drug with QTC black box warning with other drugs that have QTC prolongation. And so dosing and monitoring become extraordinarily important versus if you're going to administer it as a monotherapy in the relapsed/refractory setting. And again, as Troy said, the right denominator for looking at this is really your elderly patients, where in some of our competitors, we see almost a 50% rate of QTC prolongation. That is going to be your NPM1 mutant patient population. So your NPM1 mutant patient population becomes a denominator that really is more appropriate for looking at these more severe QTc prolongations and episodes of tors and sudden cardiac death. Operator: Our next question comes from Charles Zhu at LifeSci Capital. Yue-Wen Zhu: So I guess with all of that in mind for one, what kind of level of penetration or market share would you either expect or hope to achieve relative to your first-mover competitor in the space, at least in the near term in the relapsed/refractory setting? And can you also perhaps give a little bit more color around the ongoing points of FDA regulatory engagement that seem to be continuing on as you head close to your PDUFA date? Troy Wilson: So Charles, I don't want scold you. You asked 2 questions. And so we're going to -- we'll answer the first one. And then if there's time after others, we'll come back and get the second one. So Brian, could you please speak to Charles' first question relating to penetration and sort of how we're going to compete with our competitor, who is out there with a first-mover advantage? Brian Powl: Yes. Thanks, Charles, for that question. So we haven't guided on our market share penetration expectations quite yet. But what I can do is kind of just share some of the feedback and expectations we have. So we've conducted extensive engagements with treating physicians, KOLs, community practitioners, academics. And tested our profile relative to others. And I think that the benefit risk balance and between a strong efficacy, safety -- efficacy profile with good safety and tolerability that allows patients to be able to be well managed, along with the combinability and even the convenience of a once-daily oral medication, all come out to factors that suggest that ziftomenib has a best-in-class profile and that we'll be confident we'll be able to communicate on that best-in-class profile coming into the market. So without really guiding on any share calls quite yet, we anticipate -- well, we give credit that our competitor is already in the market, but we recognize that we anticipate both the skill of our team that we've hired that are ready to go and are ready to launch this product and the profile of the product are really going to help us to capture a majority share in this space. Operator: [Operator Instructions] Our next question comes from Roger Song at Jefferies. Philip Nadeau: This is Na Phil on for Roger. As we -- just a quick one on the ASH data. So the early data look pretty encouraging with the CR rates and MRD negativity. As we head into the meeting, what other analyses or long-term outcomes are we expecting to see like durability? Will we have also subgroup insights? Troy Wilson: Yes. Thanks, Na Phil, for the question. Mollie, do you want to... Take Na Phil's question? Mollie Leoni: Sure. As I said, the biggest thing you'll see is much longer follow-up. You'll see more granularity around the MRD negativity, breaking it down so that you have maybe some comparisons that you can make to previous ven/aza data to understand if there is additional impact with a targeted agent added on. And you'll see more durability, et cetera. And yes, we can -- we will be breaking it down by subgroups. You'll understand what our FLT3 patients look like that were in the trial, what our IDH patients look like that were in the trial. So it should just be a much more even comprehensive view of the data that we have seen thus far in our rather large patient pool that we'll be able to present in both the relapsed/refractory and the frontline setting where you're going to see 30 to 70 patients, which is extremely robust and able to really show you more maybe the truth of what these patient populations look like. So we're excited to share it with you. Operator: Our next question comes from Jason Zemansky at Bank of America. Jason Zemansky: Congrats on the great progress. Troy, I wanted to ask a follow-up regarding the commercial launch in NPM1. But is having a differentiated label enough to overcome the second mover advantage when you think about sort of prescriber inertia? Is it more so that just, I guess, getting drug to patients? I mean, how do you overcome some of the hurdles here just given kind of the time lines? Troy Wilson: Sure. Maybe I'll just make a quick comment, and then I'll let Brian take it because he's really the one who should speak to this. These physicians, I mean, you all talk to them, right? They are very sophisticated, constantly taking in new data and looking for options that offer the best benefit risk for their patients. The patients are also extremely sophisticated. They have all sorts of access to information. And they are -- again, others might say it's efficacy, efficacy, efficacy. Yes, that's important. All of these agents are right? That's the great thing for patients. And we should all celebrate the fact that patients have multiple options. But these docs are now having conversations with their patients about the risk benefit. And there's a striking difference between the relapsed/refractory setting where a number of these patients are inpatient versus the frontline setting, where our hope is that we send them home and they're able to stay on continuation therapy for months or even years. So Jason, I don't -- I mean, I'm not going to deny there is an advantage to an incumbent. But I think when you're coming forward as we believe we are with a superior benefit risk profile in a very competitive space, I think we will see the market reach its equilibrium. Brian, any -- what thoughts would you like to add to my comments? Brian Powl: Thanks, Troy. I think -- I mean, you captured it well, I think, but what I'd maybe just add just a couple of points that -- the advantage, I think, right now that you're seeing -- there's a 1-year advantage in the market potentially, but it's a few weeks, 5 weeks at most advantage in the NPM1 space. Our teams are out there, as I mentioned, we've been engaging. We've been spending the last year working with payers to ensure that there is not going to be any kind of blocking available. And the profile of ziftomenib, I think, really has resonated where payers wouldn't see a need to do something like that. So from an access perspective, we think that we'll have kind of a very powerful strong position in that space. Our goal is to build a distribution model that is seamless and easy for physicians and their practices to prescribe ziftomenib. One of the things that might be even more simplistic as we talked about the simplicity is that we'll have one SKU. We're not going to have multiple SKUs of different products that they have to worry about inventory and dosing challenges, things like that. So there may be some advantages we think that we'll be able to capitalize on in the near term. But I would just go back finally to say that the field team that we've hired has extensive experience with these practices. They are itching to be out there speak about ziftomenib and they're ready to go. And I feel like that if you give us the time for launch, I think you'll see that the profile that Troy outlined and our ability to execute is going to be on par or better than anyone in the industry. So I'm very confident we'll have an opportunity to really overcome any second move or disadvantage that may be perceived. Troy Wilson: And let me -- thank you, Brian. That was great. Let me just add just a couple more thoughts, Jason, to your question. We are going to be promoting on label. The label is going to be relapsed/refractory NPM1 mutant AML, clearly, the adult population. But as we indicated in the prepared remarks and as you've seen, I think we have now the most comprehensive, and I would argue the most aggressive overall development program. We have 2 Phase IIIs underway in intensive and nonintensive. We're combining with both FLT3 inhibitors. We have combinations with LDAC, with FLAGIDA. And as Molly said, we're coming forward not with a handful of patients. We're coming forward with 20, 30, 40, 70, 100 patients at a time. So we're really giving -- and which is why I think we have -- our 2 presentations at ASH are both orals. We have a massive development and medical affairs effort supporting our commercial launch. We won't be able to promote in those. We'll be publishing, we'll be educating, we'll be collaborating. But everyone is looking forward to combinations. Everyone is looking forward to earlier lines of therapy. This is not -- we're not looking at 1 quarter or even 2 quarters. Our goal is how do we make ziftomenib the cornerstone therapy throughout the treatment continuum. And I think we have the right strategy to do that. As Brian said, a few weeks coming behind isn't really going to make much of a difference at all. So I appreciate the question. Operator: [Operator Instructions] Our next question comes from Reni Benjamin at JMP Securities. Reni Benjamin: Congrats on all the progress. I guess, Troy, you had mentioned in your prepared remarks regarding the joint launch meetings. I'd love to -- can you provide any sort of color in kind of what goes on in these meetings? How many people kind of what's the split between you and KK? Do you wait for the -- do you hit the ground running as soon as you get approval? Do you wait until next year? Just any sort of color as to how this will move forward. Troy Wilson: Yes, Ren, thanks for the question. This was the best launch meeting I've ever attended. It was electrifying. It really was. I mean people are so excited to bring this therapy forward. But let me turn it over to Brian, who can maybe give you a bit more specificity about what the goals of the launch meeting were and how the 2 teams came together as 1K to really move this forward. Brian? Brian Powl: Yes, sure. Thanks, Ty. Yes, Reni so this launch meeting and typically what you will do as you prepare is to bring the field teams together so that they're well trained and ensured that they're ready to go in case we have an approval. Timing of a launch meeting, you can do them after you get approval, you can do them before. We tried to build a bit of a buffer where we thought October gives us an opportunity for the teams to be ready as close as possible to a potential approval. And essentially, this is a team where we had all of the field members that are both from Kyowa Kirin and from Kura that not just for our sales organizations that are going to be working together. We'll have the 2 field forces are going to be putting their efforts towards raising awareness and selling ziftomenib to the target physicians, but they're basically we put that group together as well as our field market access teams, our field medical teams. And we spent several days just working through understanding the role of menin in AML, the challenges for patients with relapsed/refractory AML, did some certifications, precertifications for the team, so they're ready to go and are prepared. As soon as we get to an anticipated FDA approval, the teams will then recertify on that final prescribing information, and we'll be able to get out in the field immediately. We've been planning our organizational readiness in case of an early approval. So the teams have -- I can say have been ready to go for -- at least since that meeting in October and probably even before that, we had all the rest of our organizational readiness put together. So we've been trying to pull together that full team. And as Troy said, it was a really well-executed meeting between both companies, and there's a tremendous amount of energy and readiness for that anticipated approval as soon as by end of November is our target PDUFA date, we'll be ready to go. Operator: Our next question comes from Peter Lawson at Barclays. Alexandre Bouilloux: It's Alex on for Peter. Just a quick one for me on the -- what the label could look like. I guess, is there any potential for the monitoring requirements, the differentiation syndrome to be different from other AML drugs? Troy Wilson: Alex, you're asking is -- let me make sure I'm reading your question back. Are you asking is there going to be potentially a difference in the monitoring requirements for DS in the label? Is that your question? Alexandre Bouilloux: Yes. Troy Wilson: Mollie, do you want to... Mollie Leoni: Yes, for how to address it just versus prior drugs. Yes. No, absolutely. So I -- obviously, I don't want to comment on ongoing discussions. We're still nearing our PDUFA date. And so obviously, things are still evolving. However, our differentiation syndrome guidance has been laid out in our protocols and in our IB for years now, and it is unchanged. I don't think that it is any additional monitoring that would be unexpected for this patient population in general who is regularly getting labs tested, et cetera. So -- but let's wait and see and have a more fulsome discussion once we actually have hopefully the approval in hand. Operator: Our next question comes from David Ruch at UBS. David Ruch: And I just want to kind of come back to that sort of the market dynamics between you and your competitors. So I'm wondering based on your prelaunch work you and have been doing, could you maybe share some initial feedback from physicians on how they're efficacy and tolerability versus competitor inhibitors in the space, the IPM1 space? Troy Wilson: Yes, David. I'm going to ask Brian to speak to that. As you can imagine, we've done kind of a lot of market research and sought the opinions of KOLs and practicing physicians. But Brian, maybe you can speak to the lessons learned thus far about our ziftomenib's profile relative to our competitors. Brian Powl: Sure. Thank you, David, for that question. So the -- I'll speak to the feedback we've received and really kind of align it around 4 key parameters or pillars, you could call them. First is the efficacy. We've tested the profiles of ziftomenib relative to other potential menin inhibitor competition. And it seems that the view is that the efficacy is kind of the table stakes to get in. You'll see that the CR/CRh, duration of response, things like that are seem to be relatively similar. Safety and tolerability is something that did stand out as a differentiator between ziftomenib and other products, which that alone, as Troy said, is not -- safety is not something that wins on a product, but it's that balance of benefit and risk and the tolerability of that really things can hit the scales. The other 2 pillars around -- that we found really help to differentiate ziftomenib is one around the combinability with current -- with current concomitant medications. As Troy mentioned, we're going to be focusing on our on-label use promotionally, which is going to be in that relapsed/refractory monotherapy space. But those patients typically get concomitant meds like azoles and others to manage the challenges of being a relapsed/refractory AML patient. And the combinability and the simplicity of a dose where you don't have to do a lot of modifications seems to be meaningful for physicians as well because -- and for patients because it's more straightforward. And then finally, the third was around simplicity. Once a day, daily dosing, there's one dose that each -- most patients or all patients really need at that 600-milligram dose is very straightforward. And imagine for an NPM1 relapsed/refractory patient who is typically in the elderly population, the simplicity of having that once-daily dose is also meaningful. So that's really kind of what we've heard is that there are -- of course, we've also heard, as Troy said, anything -- any therapies for these patients are really going to be important that can deliver some efficacy. But when you have choices, that's when you start to parse out what those differences may be. And that's where we feel pretty confident in the profile of ziftomenib as a differentiated agent coming into the market. Operator: Our first follow-up question is from Li Watsek at Cantor Fitzgerald. Li Wang Watsek: And I guess just given the recent disruptions at FDA, including within CEDAR, just curious, have you noticed or anticipate any changes in terms of cadence and discussions with the agency? Troy Wilson: Short answer, Lee, we haven't noticed any difference. We don't anticipate any difference. We're on track for our November 30 PDUFA date. I think we characterize the interactions with the agency as open and constructive. We don't know what we don't know. But I think at this point, we're -- we feel like we're in good shape, and we're tracking toward a positive review outcome. The path to approval in AML is much more -- much better precedented than some of these other instances. The fact that we have a competitor who was just approved in the same indication just a few weeks before, I think, gives us good confidence that we're on track. But obviously, we'll continue to stay vigilant and Mollie and her regulatory team are doing a terrific job. But so far, it's all systems are go. Operator: There are no further questions at this time. So I would now like to turn the call back over to Troy Wilson for our closing remarks. Thank you. Troy Wilson: Thank you, Danny. Thank you all once again for joining the call today and for your questions and the discussion. We'll be participating at the Jefferies Investor Conference in London later this month. And just as a reminder, we'll also be hosting a virtual analyst and investor event on December 8 from -- at the ASH Annual Meeting in Orlando. So we'll look forward to speaking with many of you at these events. As we move forward, our focus remains on executing with discipline, investing wisely and advancing a pipeline designed to make a real difference for patients. With our pipeline, our experience, passionate team and a strong balance sheet, we think we're well positioned to deliver long-term value for both our patients and our shareholders. Until our next update, if you have any additional questions, you know how to find us. Please reach out. Thank you all once again, and we hope you all have an enjoyable Tuesday morning and a productive day. With that, we'll adjourn the call. Thanks, everyone.
Ana Fuentes: Good evening, and thank you very much all of you for taking the time to attend Gestamp Nine Months 2025 Results Presentation. I'm Ana Fuentes, M&A and IR Director. Before proceeding, let me refer you to the disclaimer of Slide #2 of this presentation that has been posted in our website and will set out the legal framework under which this presentation must be considered. The conference call will be led by our Executive Chairman, Mr. Francisco Riberas; and our CFO, Mr. Ignacio Mosquera. As usual, at the end of the conference call, we will open up for a Q&A session. Now let me turn the call to our Executive Chairman. Francisco Jose Riberas de Mera: Okay. Good evening. Thanks for attending this call in which we will be presenting Gestamp results for the first 9 months of the year. So far, this year remained very challenging with adverse FX impact for us and also negative volumes in our core markets. But even in this negative context, Gestamp is performing quite well year-to-date, with revenues very close to EUR 8.5 billion, which means a minus 0.8% auto business sales at FX cost and compared with the previous year. But even if lower sales, our EBITDA margin has grown to 11%, up 38 basis points versus 2024. In terms of Phoenix Plan, I think we are running quite well, improving already 96 basis points EBITDA margin versus 2024. And moving forward to ensure our balance sheet strength, ending this period with a leverage of 1.6x debt to LTM EBITDA. So solid results year-to-date and providing a good visibility for the full year. In terms of the market, light vehicle manufacturing in the first 9 months of the year is up by 4.3% compared with 2024, reaching already 62.2 million units. However, there are big differences in geographical areas, mainly in Asia is where we have all the growth, growth by 8.1% compared with previous year and especially in China with a growth of 12% increase year-to-date. And in rest of the areas and especially in Western Europe with some additional decrease in volumes in line with previous years. Moving to Slide 6 to talk on Gestamp revenues versus the market. The market has grown as stated by 4.3% up to September, while Gestamp sales, auto sales at FX constant has decreased by 0.8%. So that means an underperformance of 5.1%, underperformance, which is mainly due to China. In fact, without considering China, Gestamp could have had a slight outperformance to the market. If we go to the analysis for different regions, we see in Europe that we have some underperforming in Western Europe, but it is fully offset by our continuous growth in Eastern Europe. We have also some slight underperformance in North America and Mercosur, and we had a huge underperformance in Asia of 12%, mainly due to China because without China, we are outperforming the growth of the market, especially due to the growth that we had in our Indian operations. In China, in fact, we are growing very quickly our business with Chinese OEMs. We have, for instance, a growth of more than 45% in the Q3 compared with Q3 2024, especially in EVs. And also, we are working in different projects with Chinese OEMs all around the world. We had a negative impact of the ForEx. In fact, we had a revaluation of the euro versus most of the currencies, which is impacting Gestamp revenues and also impacted our EBITDA. In fact, out of the decrease of our revenues year-to-date of 4.9% in euros, 3.7% comes from negative ForEx impact, 0.5% from the decline of scrap revenues due to the scrap prices decline and only 0.7% is a negative organic growth year-to-date. But even if we are not able to control in the short term what is going on with the market and the FX, we have been able to improve our EBITDA margin year-to-date with lower sales. And in fact, in terms of our auto sales, we have decreased our sales compared with 9 months of 2024 by EUR 400 million. And at that time, in this period of time, we have decreased our EBITDA only by EUR 9 million. So that means that we have increased our EBITDA margin by 42 basis points. And we have been able to do that with very important measures all around the organization. In terms of cost reduction, we have also implemented very important flexibility measures, especially in our European operations. We have some constructive customer negotiations, especially around volume deviations and also, of course, delivering in the Phoenix Plan. So we are delivering on the upper range of our full year target. And in fact, if we go to Phoenix, we are performing well. We are performing well in a market which is worse than expected with 1% decrease in volumes year-to-date and still with uncertainty around tariffs, and that's why we are adapting the speed of our actions and the impact in the profit and loss account and the CapEx. But altogether, in Q3, we have increased our EBITDA in North America from EUR 31 million to EUR 44 million, reaching a 7.6% EBITDA margin from 5.5% in Q3 2024. And year-to-date, with sales moving down, we have increased our EBITDA margin by 96 basis points, already reaching a 7.2% and clearly committed to reach our target of 8% EBITDA in full year 2024, again, with lower sales. And in scrap, even if in terms of tons, our volumes are okay. Due to the decrease of scrap prices, our revenues year-to-date is down 9% below the one we had in 2024, with scrap prices moving down in Europe, in China and -- but quite steady in U.S. And due to this declining trend in scrap prices, we have reduced our EBIT margin to 5.8%, lower than the one we had in 2024 of 6.9%. But we are expecting clearly to improve back our margin as soon as scrap prices stabilize. So now I hand it over to Ignacio Mosquera. Ignacio Vazquez: Thank you, Paco, and good evening to everyone. If we move on to Slide 12, we can have a closer look to our financial performance in the first 9 months of 2025. As Paco has already explained, Phoenix Plan aimed at restructuring our NAFTA operations has had a EUR 12.2 million impact on P&L and a EUR 10.2 million impact on CapEx for the first 9 months in 2025. And as a reminder, in the same period of 2024, we had an impact of EUR 16.8 million in P&L and a EUR 3.8 million impact on CapEx. We have included comparable figures for both periods excluding Phoenix. For the first 9 months of 2025, we have reached revenues of EUR 8.486 billion, which entails a 4.9% decrease when compared to the EUR 8.927 billion from 9 months 2024, mainly due to the strong negative ForEx impact that we carried over from the first half and which has remained in Q3 2025 in all key geographies. Revenues for the auto business, excluding scrap at FX constant, have been almost flat with a 0.8% decrease year-on-year in 9 months 2025 as FX has negatively impacted results by EUR 334 million. In terms of EBITDA, we have generated EUR 925 million in the first 9 months of 2025, meaning a 10.9% reported EBITDA margin. Excluding Phoenix impact, EBITDA in absolute terms would amount to EUR 937 million, with an EBITDA margin of 11%, improving the first 9 months of 2024 profitability in almost 40 bps and providing visibility to reach the full year 2025 EBITDA margin target. Reported EBIT is almost flat in the period, decreasing by 1.7% year-on-year to EUR 399 million with an EBIT margin of 4.7%, improving profitability in the period in almost 20 bps. Excluding Phoenix impact, it would amount to EUR 411 million, reaching a 4.8% margin. Net income in the first 9 months has been EUR 104 million. That compares to the EUR 127 million reported in the first 9 months of 2024. This lower net income is explained mainly by the negative financial result performance, which has been strongly impacted by ForEx evolution in the first 9 months of 2025 and a comparable 9 months 2024, which was positively impacted by one-off hyperinflation impact. Net debt has closed in EUR 2.107 billion, reducing net debt in EUR 330 million compared to the first 9 months of 2024. The positive net debt evolution in absolute terms is driven by our partnership with Santander announced in the previous quarter and due to the comparable free cash flow figures with last year, where we had some extraordinary working capital negative items in the third quarter of 2024. As for free cash flow in the first 9 months of 2025, we had a negative free cash flow generation in the third quarter mainly due to Q3 normal business seasonality, offsetting first half 2025 positive free cash flow generation. To sum up, a solid set of results despite continuing to be strongly impacted by the negative ForEx evolution and a complex and volatile environment. Despite that, we have been able to improve our profitability levels and strengthen our financial profile that provides good visibility for full year guidance in terms of margin, leverage and free cash flow. If we now turn to Slide 13, we can see the performance by region on a year-on-year basis. Looking at each region in detail, revenues in Western Europe have decreased by 5% year-on-year in the first 9 months of 2025 to EUR 3,001 million. Revenues evolution in the region has been affected mainly by volume pressure in the period, and to a lesser extent, the continuous fall in raw material prices. In terms of EBITDA, it reached almost EUR 298 million and EBITDA margin that stood at 9.9% in the period, down from the 10.8% reported in the first 9 months of 2024. Profitability in the period has been impacted mainly by volume drop with still limited operating leverage despite productivity measures being taken. Results of these measures will still take some time with no tangible results in the very short term. In Eastern Europe, the performance in the first 9 months of 2025 have been very solid, proving once again our strong positioning in the region. On a reported basis, during the 9 months of 2025, revenues have grown year-on-year by 6%, up to levels of EUR 1.418 billion, despite the strong impact of ForEx evolution in the region. EBITDA levels have increased by 25.6% to EUR 216 million with an EBITDA margin of 15.2% in the first 9 months of 2025, beating the 12.8% margin reported last year 9-month period. The profitability improvement is mainly attributed to a better product mix, highlighting the strong project ramp-up, among others in Turkey and the good evolution of the business in the remaining countries. In Europe, overall, considering both regions as a whole, we have managed to improve our profitability, partly due to the shift in the mix to Eastern Europe. In NAFTA, Phoenix Plan continues to show its signs of improvements in the year with good underlying operations despite complex market evolution. Our revenues have decreased by 7.2% year-on-year mainly due to negative volume production performance in the first 9 months and further more the negative ForEx impact in Mexico and the U.S. However, on the other hand, EBITDA has increased by 7% if we exclude Phoenix impact of EUR 16.8 million in the first 9 months of 2024 and EUR 12.2 million in the first 9 months of 2025. We have succeeded in continuing to deliver the plan in the context of limited visibility. The good evolution of our Phoenix Plan leads to an EBITDA margin of 7.2%, improving versus last year profitability in almost 100 bps and setting the pace to achieve the target of around 8% EBITDA margin range for 2025. As you all know, turning around the operations in NAFTA to improve our market positioning and profitability is a key priority for Gestamp. In Mercosur, the first 9 months of 2025 have been marked by the ForEx evolution in Brazil and Argentina, leading to lower revenues in the period, decreasing by 10.4%. At FX constant, we grow in the region 3.4%, slightly below the market. In the other hand, reported EBITDA levels have remained flat in the period, leading to an EBITDA margin of 12.2%. Despite the decline in revenues in the period, we have been able to maintain EBITDA levels in absolute terms and improved profitability in 127 bps, thanks to the flexibility measures were implemented in the region and a favorable comparative with last year due to the floods suffered in the first 9 months of 2024. In Asia, reported revenues have decreased by 8.3% year-on-year in the first 9 months of 2025 to EUR 1.338 billion within a complex and very competitive market. Our negative performance in the period is partially explained by the ForEx evolution in China and extraordinary revenue growth in the first 9 months of 2024, almost 8% in the same period. Despite negative revenue evolution in the period, we have managed to maintain similar levels of profitability with an EBITDA margin of 14.5% for the first 9 months, which places Asia as the second most profitable region in the group. Our approach continues to be focusing on premium products in the region. We keep on working to gain positioning in this region, maintaining the strong levels of profitability. Asian region remains a great opportunity for us, not only in China, where we continue to develop high value-added products, but also India, where we're undertaking new projects with a strong performance. Finally, the scrap has seen revenues decreasing by 9.4% to EUR 395 million and an EBITDA in absolute terms by 16.1% year-on-year, reaching EUR 31 million in the period. This situation is mainly by the sustained decline in scrap prices during the period due to weaker demand, as Paco mentioned before. This negative evolution has led to an EBITDA margin of 7.9%, slightly lower than the first 9 months 2024, although above the reported profitability in 2023, which was circa 7.5% EBITDA margin. Overall, we have seen that our unique business model and geographic and global diversification has driven our profitability improvement in the first 9 months of 2025. Turning to Slide 14. We see that we have ended the first 9 months of 2025 with a net debt of EUR 2.107 billion, which is EUR 10 million above the EUR 2.97 billion reported in December 2024. This net debt increase considers mainly dividend payment of EUR 79 million and EUR 220 million of minorities acquisitions and M&A, due to the partial real estate asset sale agreement of EUR 246 million closed in September. During the 9 months of the year, the company has generated a negative free cash flow of EUR 41 million, excluding EUR 22 million extraordinary Phoenix cost. We have experienced a negative evolution in the 9-month period due to EBITDA decrease in nominal terms in the third quarter and a deterioration of working capital related to business seasonality and temporary one-off impact. We expect significant improvement in cash flow in the next quarter to meet full year guidance, generating positive free cash flow in the 2024 range. As a result of this, I'm moving to Slide #15. We ended up the first 9 months of 2025 with a reported net financial debt of EUR 2.107 billion, which implies the lowest reported net debt in the 9-month period since IPO. This lower net debt in absolute terms leads to a leverage of 1.6x, well below the 9 months 2024 figure, which was impacted by extraordinary negative impacts of last year's third quarter. While this quarter, we have benefited from the cash inflow from the partial real estate asset sale agreement of EUR 246 million. This leverage ratio provides us with a strong visibility to be below full year 2025 guidance as we are already in the 2024 range. Furthermore, as we commented in the previous slide, we expect to generate positive free cash flow in Q4 to keep on improving our leverage ratio for full year. Our priority is to preserve our financial strength, and we remain disciplined over leverage in absolute and relative terms. As we turn to Page 16, we are proud to share our latest actions which we have carried out in recent months and that have been key to provide a strong balance sheet flexibility. Firstly, and as a reminder, in September, we closed our partial real estate sale and leaseback agreement for our assets located in Spain strengthening our balance sheet. And secondly, the new senior bond issuance that we recently closed as of 6th of October that will contribute to extend our debt maturity structure. The new bonds have allowed us to increase pro forma average debt life from 2.6 years to 3.4 years by replacing the bond that was due to maturing the Q2 2026. Furthermore, Gestamp's new 500 million senior secured bond issuance represent the tightest price callable bond by an auto parts issuer since September 2021 with a coupon of 4.375%. We'll continue to actively manage our balance sheet structure to strength and flexibilize our financial profile. Thank you all, and now I hand over the presentation back to Paco for the outlook and final remarks. Francisco Jose Riberas de Mera: Okay. Thank you, Ignacio. And so moving forward, in terms of the market with the latest forecast, now we are assuming that the total global manufacturing of light vehicles is going to reach this year 91.4 million, which means an increase of 2% comparing with the 89.6 million of 2024. So it's a total increase in terms of units of 1.9 million units, and it's basically the increase that we see right now in Asia. So all the growth is basically coming from Asia. It's still positive evolution in Mercosur and still with a decrease in terms of manufacturing volumes in Western Europe of 3.6% and also in NAFTA around 2%, even if we have a good performance in terms of the Q3. So -- in this complex environment in terms of volumes, in Gestamp, we are taking all kind of actions in order to ensure profitability and to preserve our cash flow generation and also the strength of our balance sheet. As already commented, in terms of preserving our profitability, we are not counting with volumes. What we are counting is to implement as soon as possible all kind of strategies around the flexibilization of our footprint, of course, all kind of cost-cutting measures, especially impacting the fixed cost expense -- the fixed expenses, trying to improve our -- the efficiency of our operations and of course, with a clear focus in North America in delivering in the Phoenix Plan. Also with a clear commitment in the positive cash flow generation, basically by being very selective in our CapEx strategy and with a strategy very focused in our return on investment and of course, preserving our focus in the management of the working capital. And in terms of balance sheet, as Ignacio has already commented, we have been able to increase our flexibility. We have been able to crystallize some value through some partial asset disposals. We had a quite strong liquidity level. And of course, now after these bonds issuance, we have a more balanced maturities distribution. So with all this, moving to the Slide 20, in terms of guidance, we guided at the beginning of the year in terms of sales, in terms of revenues to be able to outperform versus the market in a low single-digit range. But as it was already stated in July, now we see that we are going to be below the performance of the market in terms of revenues. But even that, we guided in terms of profitability to be in line or to a slight improvement in terms of profitability of EBITDA margin. Now we are -- we believe we are going to be in the upper range. In terms of scrap, we guided to be basically in line with the previous year, but due to the decline of scrap prices, we see now that we are going to be below the results we get in 2024. And in terms of leverage and free cash flow, we guided to be in the range of 2024. And now we are expecting to end up the year with a better leverage than the one we had in 2024, and we are confirming the free cash flow in the range of the one we had in 2024. So just to wrap up, we consider our results in the year-to-date 2025 to be very positive and proving our resiliency of our business case. And of course, that is helping us to be very comfortable with the visibility we have for full year 2025. Clearly focused in delivering the Phoenix Plan. We are committed to be able to get this year 8% and also to be able to reach a double-digit margin as soon as possible. And in the case of balance sheet, we are, of course, moving to have this kind of a strong balance sheet and flexible financial profile. So now with this, now I hand it over to your questions. Ana Fuentes: Sorry, is the operator there to start the Q&A session? Operator: [Operator Instructions] The first question comes from Enrique Yáguez from Bestinver Securities. Enrique Yáguez Avilés: I have 4 questions, if I may. The first one is regarding the market outperformance. I don't know if you are feeling confident to recover next year the traditional path of growth of the company? Or for the contrary, we should see more normalized market outperformance broadly in line with the market taking into consideration your objective of focus on profitability? The second question is regarding the Phoenix Plan implementation. I know that the turnaround of NAFTA is performing quite well, but it seems there are some delays versus the original schedule. I don't know if we should see some savings from this schedule, potentially coming from a reduction in the measures implemented or just a question of the time frame. Third, regarding the sale and leaseback with Banco Santander. Could you provide a guidance of the annual cash outflow expected from this sale and leaseback? And fourth is regarding the potential measures on the steel sector. I know that you have the pass-through mechanism, but I would like to know your views about how these tariffs in euros and import tariffs might affect the European OEMs? Francisco Jose Riberas de Mera: Okay. Thank you very much for your questions. Concerning the first one, it's true that traditionally in Gestamp, we have been able to outperform the market for years. And it's true that today, right now, we are suffering for the growth in China, where we do have a very important operation where we are growing with the Chinese OEMs, but still our penetration level in that market is not the same one we have in other geographies. For the future, we are expecting to recover what we are doing, but I think we have stated that our focus is now to be clear in profitability and also to strengthen our balance sheet. So we are not running in order to be able to grow. We have invested. We have a very good position with all the customers. So the idea is that we will probably recover, say, our position in terms of performance with the market, but the focus is on profitability. Concerning the Phoenix Plan, we are in line. We are committed. We will get this double digit probably by end of next year. So everything is more as planned. We have some difficulties with some plans. We have some delays in implementing some investments. And of course, we have this kind of changes in the idea with the tariffs. That's why we have decided to postpone some kind of the actions in order to wait and see what could be some implications. But overall, we are satisfied with the plan, and I think we should be able to implement all the measures that we expected in the beginning of the plan. So in any case, positive news. I can -- the third question maybe will be for you, Ignacio. But if we go to the steel, in Europe, we had this announcement of the tariffs, still it's unknown whether it's going to be starting from the 1st of July or maybe it could be starting a little bit before. That could create a barrier in terms of the volumes of tons coming out from Asia, especially. But we are not expecting a big increase on steel prices for the auto market for the year 2026. In any case, these tariffs are relevant and also we have in 2026 expected an impact from the mechanism called [indiscernible], which is related to the CO2 emissions. So that could also have some kind of impact. It's not a tariff, but it's going to be similar to that. So overall, we are -- we expect to have less imports coming out from Asia but we are not expecting a big increase in the prices for the auto this year. Maybe we will have more increase in steel prices for sport but not for the auto qualities. And maybe Ignacio around Santander. Ignacio Vazquez: Sure. So maybe let me recap a little bit of the transaction that we did with Banco Santander, where we sold a minority participation in 4 companies which are the owners of our real estate assets in Spain. And basically, those real estate assets include the land, the building, but they don't include productive assets. With that in mind, those companies are -- have signed agreements with our operative companies where they get a lease agreement, and their revenue income is based on that lease agreement. Upon the results of those companies, there will be a shareholder discussion and each shareholder would be entitled to dividends. Those dividends would go through the minority participation in our P&L. Right now, as since closing, that was based in September -- at the beginning of September, we booked around EUR 0.7 million of minorities right up to Q3. If you extrapolate that number, that's the estimate that we have foreseen has normal impact in our minorities for the full year, a little bit north of that. I hope that answers your question, Enrique. Operator: [Operator Instructions] The next question comes from Francisco Ruiz from BNP Paribas. Francisco Ruiz: I have 3 questions. First one, and these first 2 are related. I hear you Paco saying that, well, you are mainly focused on profitability and leverage and trying to have a more, let's say, healthy balance sheet. But when I look at your leverage ratio, the leverage ratio are already at very low levels, and it's going to be lower in Q4 after a good free cash flow Q4 -- free cash flow in Q4. So what's the aim of Gestamp in terms of leverage for the future? And once you're getting to below 1.5x, what's your target for the future in terms of leverage? What's the use of cash that the company will do with this? The second one is despite you talk about flexibility and the CapEx continues to be above previous levels. I mean we talked about an 8% CapEx versus a 7% last year. So I don't know if this is something which is temporary and we should expect lower CapEx in the future? Or this is something that we should expect for the coming years? And last but not least is mainly a modeling question about the factoring, if you could give us the level of factoring at the end of the quarter. Francisco Jose Riberas de Mera: Okay. Thank you. So thank you, Francisco. So let me go to the first one. It's true that we have decided to focus on profitability because in terms of volumes, there is a lot of uncertainty, so I think it's time and it's the right time to focus in profitability and to preserve our financial health. So it's true that our leverage is not high, and it's true that we are intending to reduce even this leverage because we believe that this is going to be very healthy to be in a position, maybe even lower than 1.5x in terms of leverage for the next months and years to come. I don't know exactly what could happen. But today, as you see, there are many things going on in the auto sectors. There are many companies suffering. So I think for us, we believe that we have already done a very important effort in terms of CapEx in the last year. We have a very good footprint. We have a very good technology. We are focused on improving our position in Asia and India. But coming to your second question, we believe that we can really go and strengthen our position with a CapEx to revenues level much lower than the one we had in the previous year. It's true that in 2025 and the beginning of 2026, we still have some tail from the investment decided already 2 years ago. But in all the decisions that we are doing already for many months, we are clearly moving down in this CapEx ratio. So we are going to see in the near future that our CapEx and our debt, of course, and our free cash flow generation is going to be improved. And in terms of factoring? Ignacio Vazquez: Yes. With regards to factoring, Francisco, we are now at this quarter with close at EUR 849 million, which represents roughly 7.3% of our sales. So within the bank that we've stated as our commitment, which was between 6% and 8% of sales. Ana Fuentes: The next question comes from Christoph Laskawi, but I'm going to make it because he's in a train and he's unable to make it, okay? The first one is on free cash flow, and he's asking if the improvement in Q4 is going to be mainly driven by working capital. And he's also asking about the payment patterns from OEMs, if we are currently at a normal level or not. And his second question is on supply chain. And he's asking if costs doing -- more recently have been adjusted downwards in Europe and North America, to lower cost and if the situation is more stable now. And any comments on the current situation on the demand side is also appreciated. Francisco Jose Riberas de Mera: Okay. Good. I think in terms of the free cash flow improvement, you can talk about it, Ignacio, but regarding the payment conditions by our customers, it's true that, of course, we have like always a fight in order to collect some payments around the tooling like usual. But for us, I think what we are really committed is in order to be able to manage properly our working capital. But we don't see so far a kind of special pressure from customers due to financial restrictions. It's true that there is also a focus in their side in order to be able to preserve the supply chain. There are risks in the supply chain. And I think for them, it's very important to keep moving. So in terms of the supply chain, I don't see there is a kind of big topics already clear in the market. We see the demand stable, quite flat as stated. We have seen some problems in the supply chain. For instance, as you know, some noise around chips, also some noise around some raw materials. So of course, there are going to be things like that, and we need to react to these kind of things. But today, for us, we don't see anything which is really impacting at least we don't have a visibility or clear visibility by customers or any stops of their production plans. But maybe to elaborate a little bit more on working capital... Ignacio Vazquez: Yes, sure. I mean, I think that the behavior of working capital in Q4 for this year, you should take into account the turnaround of working capital that we experienced also in 2024. And I think that we should see a similar pattern, which is pretty much our seasonality to a certain extent. So part of the levers of the free cash flow for the following quarter will be based on that working capital turnaround. And as happened last year, we also are experiencing and as Paco referred to, we're fighting for some tooling collection, which we expect that to also come in into Q4. Operator: The next question comes from Juan Cánovas from Alantra Equities. Juan Cánovas: I wanted to know if you could provide more details about your plans to increase the penetration with the Chinese OEMs that you mentioned before. I think in your recent document, you also pointed that you were expecting to increase penetration in all the new EV OEMs by 2027. So I wonder whether you could provide details and color on that subject. Francisco Jose Riberas de Mera: Okay. Thanks for the question. Usually, I don't like to provide too many specific details on our nominations with the customers. It's true that we are increasing our sales a lot with Chinese OEMs so far, especially in China because the total manufacturing of Chinese OEMs right now outside from China is still quite limited. We are working with them in all the different expansion plans that they have in Europe and America and also in other areas of Asia. But still, these plans are not moving forward very aggressively. In terms of what we do in China, from the beginning, we have some position in China trying to be allocated in the upper segment in terms of prices and quality and margins. So what we basically do in China, not our full range of products and technologies, but we are focusing hot-stamping and high-quality products like in the case of the door rings. We are also specialists in the area of chassis, special chassis, and we do a lot of chassis for EVs. And also we do a lot in the area of hinges and checks and power systems in the range of Edscha. For instance, I can tell you that today, in Edscha, it's more than 30% of our sales are in China, and more than 50% of the sales of Edscha in China are to pure domestic Chinese OEMs. We are growing right now with many, many, many customers, many Chinese customers. And the increases that we have from one day -- from one year to another is sometimes very, very aggressive. Again, I don't want to provide more details, but you can read our sales in Asia as going down slightly in China, going up a lot in India. And in the case of China, our sales to, let's say, European players are going down, and we are able to offset and compensate part of it what we are doing now with pure Chinese OEMs. So we see a good trend. We have a very good position with them in their research and development centers. And as far as they go to more sophisticated EV vehicles, we have much more chances to be quite -- very more suitable with our technology. Chassis for EVs, we are very much advanced and we're one of the leaders in terms of chassis for EV solutions. And in the areas of door rings, we are clearly one of the players over there with our technologies. We have our overlap patch technology. So I think we are doing a very good job, and we are very well positioned for that. So still, it will take some time to recover and to move all the business we have from 2 European players to Chinese, but we are in the right path. And of course, we are expecting very good news for the expansion of the Chinese OEMs outside from China. Operator: The last question comes from Anthony Dick from to ODDO. Anthony Dick: My question was regarding the outperformance or the underperformance rather. I heard your comment about China. And obviously, I think you're not the only one in that situation for sure. But I was actually looking at Western Europe, where the underperformance has accelerated throughout 2025. And I also heard your comments about prioritizing profitability, but I was just keen to understand whether there was something specific in the Western European region that was causing this increased underperformance maybe with some clients or another or something like that? Francisco Jose Riberas de Mera: Okay. Thank you. Yes, it's true what I mentioned, I think the most important part of our underperformance is coming from China and also especially from the Chinese OEMs. In Europe, I think we do have an underperformance in Western Europe, not only in this quarter but also in 2024. But it's true that we have offset the part of this underperformance with a very healthy growth that we have in different countries or around Eastern Europe. We have been increasing our investments and our operations in countries like Poland, Czech Republic, Slovakia, Hungary, Romania, also in Bulgaria and also in Turkey. So this is offsetting part of that. It's true that as far as we are leaders in this market, the decline that we have in Western Europe compared with the market sometimes is linked to some specific programs that we have a very good position out of them. I can tell you that, for instance, there have been countries like Spain that have been impacted to some specific programs. This year, we are impacted by a specific program that happened in U.K. So there are always a lot of questions all around. But concerning what we have doing the analysis, are we losing market share in Europe? The question -- the answer is no. We are doing well with them. We are -- in most of the new programs, we are doing a very good renewal of the programs, a carryover of many programs. So we are doing well in Western Europe and growing a lot in Eastern Europe. Ana Fuentes: Okay. Thank you. Thank you very much for taking the time to join us today. And as usual, the IR team remains at your disposal for any further doubts. Thank you again. Francisco Jose Riberas de Mera: Okay. Thank you very much. Ignacio Vazquez: Thank you.
Operator: Good day, and welcome to the Innovative Industrial Properties, Inc. Q3 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Eli Kanter. Thank you, and over to you. Eli Kanter: Thank you for joining the call. Presenting today are Alan Gold, Executive Chairman; Paul Smithers, President and Chief Executive Officer; David Smith, Chief Financial Officer; and Ben Regin, Chief Investment Officer. Before we begin, I'd like to remind everyone that statements made during today's conference call may be deemed forward-looking statements within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995, and actual results may differ materially due to a variety of risks, uncertainties and other factors. Please refer to the documents filed by the company with the SEC, specifically the most recent reports on Form 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. We are not obligated to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, on today's call, we will discuss certain non-GAAP financial information such as FFO, normalized FFO and AFFO. You can find this information together with reconciliations to the most directly comparable GAAP financial measure in our earnings release issued yesterday as well as in our 8-K filed with the SEC. I'll now hand the call over to Alan. Alan? Alan Gold: Thanks, Eli. Good morning, and thank you for joining our call. In the third quarter, we completed our initial investment into IQHQ, a premier life science real estate platform that enhanced the diversification of the company and is expected to provide significant earnings accretion for the benefit of IIP shareholders. The total investment was $105 million, including $100 million into a revolving credit facility and $5 million in preferred stock. Our remaining commitment of $165 million in preferred stock is expected to be funded in multiple tranches through the second quarter of 2027. In conjunction with this investment, we successfully closed on a new $100 million secured revolving credit facility to support our investment into IQHQ and further strengthen our balance sheet. We were very pleased with the support of our largest lender in providing this facility, which we believe reflects continued confidence in our platform, balance sheet and disciplined approach to growth and capital allocation. These transactions mark a significant step in our evolution and our return to growth as we diversify our portfolio beyond cannabis into the dynamic life science sector. We have strong conviction in the long-term fundamentals driving this industry, and we believe this strategic investment at this entry point positions us to deliver highly accretive returns to our shareholders. We believe in the value of our diversified portfolio across both cannabis and life science and the ability of our team to strengthen our platform and create long-term value for our shareholders. Now with that, I'll turn the call over to Paul. Paul? Paul Smithers: Thanks, Alan, and welcome, everyone. Our investment in IQHQ, together with the new credit facility, marks a meaningful step forward in executing on our strategy to return to growth while further diversifying and strengthening our portfolio. Expanding into life sciences positions us to capture long-term secular growth while complementing our established leadership in the regulated cannabis real estate market. We continue to actively maximize the value of our assets to drive growth and optimize performance, while at the same time, our investment in IQHQ provides an additional avenue for future growth. We believe this dual-track strategy will significantly enhance shareholder value and position IIP for sustained success across both industries. I'd like to provide a few specific updates on our progress within our portfolio. Receivership proceedings for 4Front Ventures are ongoing. We are engaged with the U.S. receiver and bankruptcy trustee regarding the properties and related claims and are working closely with outside counsel to protect our legal interest and pursue our rights under the leases. Gold Flora remains in receivership. We remain in ongoing discussions with the receiver regarding the receivership and sale process. We will continue to monitor developments and provide updates as appropriate. With respect to PharmaCann, we are pleased to report that the judge in Illinois ruled in our favor in our dispute with PharmaCann, and we expect to regain possession of our Illinois property by year-end. Our efforts to also regain control of the properties located in New York, Ohio and Pennsylvania remain a top priority. We continue to work closely with local counsel to pursue our rights and remedies under the leases and related guarantees, including monetary claims. Because timing varies by state and depends on local jurisdictions, we are unable to provide a specific time line at the moment. We remain focused on advancing these processes as efficiently as possible, and we'll provide updates as developments occur. In September, we took back possession and control of the 4 California properties previously securing a loan totaled at $16.1 million, which we declared in default and are evaluating options to maximize the value of these assets. Turning to federal developments impacting the cannabis industry. Recent commentary from President Trump has reaffirmed that cannabis reform remains a priority at the federal level. His endorsement of medical cannabinoids, particularly for senior citizens, alongside references to the potential $64 billion in health care savings signals growing political momentum for rescheduling cannabis to Schedule III, eliminating the burdensome 280 tax for operators. We believe this shift will be a positive catalyst for the industry, unlocking broader access to capital and accelerating institutional participation that we remain cautious on the likelihood and timing. We also see compelling demographic trends that reinforce the long-term opportunity in cannabis. Seniors by currently underrepresented among cannabis users are the fastest-growing consumer segment with usage growing at a 9% 5-year compounded annual growth rate, triple the rate of the broader adult population. Importantly, this cohort is more likely to rely on physician recommendations and rescheduling could ease barriers for doctors to prescribe cannabis for conditions like pain, arthritis and sleep disorders. Accounting for 35% of total drug spending, we believe increased adoption by seniors could drive meaningful incremental revenue for the industry and further validate cannabis as a mainstream therapeutic option. Finally, we are also pleased to share a significant legal update. Last month, the U.S. Court of Appeals for the Third Circuit unanimously affirmed the District Court's dismissal of the federal securities class action brought against IIP and certain of our officers and directors. While we disagreed with the arguments of this class action since the very beginning, it is great to see our views validated by the courts. This outcome allows us to continue focusing on executing our strategy and delivering long-term value to our shareholders. I'd like to now turn the call over to Ben to discuss our leasing, disposition and investment activity. Ben? Ben Regin: Thanks, Paul. Within our cannabis portfolio, we've executed leases totaling 281,000 square feet year-to-date across properties located in California and Michigan and taking advantage of capital recycling opportunities by selling 2 assets. We are also closely monitoring the situations with our tenants that Paul described and are encouraged by the strong demand for our real estate and look forward to sharing additional updates in the future. Turning to IQHQ, we're very excited about our return to growth. We closed on our initial $105 million investment with additional commitments of $165 million expected to be funded over time. We expect this investment to be highly accretive and positions us to capitalize on secular tailwinds. Just last month, Lila Sciences, an AI biotech company, leased 244,000 square feet across 2 buildings at IQHQ's Alewife Park asset in Cambridge, Massachusetts. The transaction represents one of the largest leases in the region since the beginning of the year and underscores the improving leasing momentum for IQHQ and continued demand for premier real estate assets. Overall, global spending on AI and pharma and biotech is projected to reach $3 billion in 2025 and $16.5 billion by 2034, reflecting a 27% CAGR. The use of AI can accelerate drug discovery and innovation, resulting in an associated increase in real estate needs according to Cushman & Wakefield. We believe the IQHQ portfolio located in key AI and life science hubs in San Diego, San Francisco and Boston is well positioned to capitalize on these trends. And within our investment pipeline, we will continue to selectively pursue assets in the cannabis and life science industries, focusing on the highest quality investments with the most attractive risk-adjusted returns for our shareholders. I'll now turn the call over to David. David Smith: Thank you, Ben. For the third quarter, we generated total revenues of $64.7 million, a 3% increase compared to the prior quarter. This increase was primarily due to a payment of $0.8 million we received from the Gold Flora receivership, along with annual rent escalations in our portfolio. Adjusted funds from operations for the quarter totaled $48.3 million or $1.71 per share, representing no change from the second quarter results. Our balance sheet remains strong, supported by $2.7 billion in primarily unencumbered gross assets and a low leverage capital structure. We ended the quarter with nearly $80 million in liquidity, including cash on hand and availability under our credit facility. As Paul and Alan noted earlier, subsequent to quarter end, we secured a second revolver with a federally regulated bank for $100 million, reflecting our view that as we diversify into a new sector, it should increase IIP's access to attractively priced bank financing. The new revolving credit facility secured by our IQHQ investment was structured at favorable terms of SOFR plus 200 basis points or 6.1% on the closing date of the facility and includes an accordion feature that could expand capacity to $135 million, subject to additional bank commitments. This facility, combined with our low leverage capital structure and strong liquidity ensures we have ample flexibility to fund future growth. Our investment in IQHQ is expected to be highly accretive with a blended interest rate exceeding 14% or roughly 800 basis points higher than the current pricing on the new credit facility and aligns with our commitment to delivering strong risk-adjusted returns for our shareholders. As always, we remain focused on maintaining a conservative financial profile while pursuing strategic opportunities that drive long-term value, highlighted by a low debt to gross assets ratio of 13% and a robust debt service coverage ratio exceeding 11x. On the capital markets front, during the quarter, we opportunistically issued 246,000 shares of our preferred stock for total net proceeds of $5.9 million. Looking ahead, we are actively evaluating our capital structure and having ongoing discussions regarding our bonds maturing next year to proactively address this maturity in the near term. We will continue to explore a range of strategic financing alternatives that align with our long-term growth objectives and conservative financial philosophy. With that, we thank you for joining the call and would like to open up the call for questions. Operator, could you please open up the call for questions? Operator: [Operator Instructions] We have the first question from the line of Tom Catherwood from BTIG. William Catherwood: I wanted to start with the dividend question, but from a different perspective. So the way we see it, there are 2 near-term catalysts that can help bridge the gap from the $1.71 per share of AFFO that you did in Q3 to the $1.90 of quarterly dividend. The first is, as you guys have spoken about, the IQHQ investment, which we think kind of conservatively can contribute, let's call it, $0.11 per share on a cash basis when it's fully deployed. And the second is your signed but not commenced backfill leases. And we think those can contribute something in the range of $0.11 to $0.15 a share per quarter. So regarding that second bucket, what are your expectations for the timing of rent commencements at your re-leased assets? And how does that timing factor into the company's dividend policy? Alan Gold: Well, I mean -- so I'm not sure that I follow your math exactly. I mean I think we might be a little bit -- have a little bit different perspective on the IQHQ investment, but we'll take that offline and deal with that separately. As to the timing of the rent commencements on unleased assets or assets that are -- we're going to be getting back, keeping in mind that the Gold Flora assets is going through a receivership in which the receiver, as Paul has mentioned, has awarded the opportunity to an entity that would be closing on the transaction and then paying rent on the facilities that it intends to use, leaving the remaining -- if there are any remaining assets for us available to re-lease, and we believe the timing on receiving income on that would be rather quickly given the level of interest that we've seen from those or that portfolio. As to Gold or as to 4Front, once again, going through receivership and with an intent of seeking a buyer to purchase the entity and then continue forward. We think once that is completed, the revenue would be immediate or very quickly after the completion of the receivership, which could be another, Paul, what you estimate? Paul Smithers: On 4Front, it could be another 3 to 9 months. Alan Gold: And then on PharmaCann, we -- which is, I think, just a positive statement on the industry in general, we're seeing continued interest and increasing interest on those specific assets and in the individual states. And while we're pleased to be getting through the legal side of the Illinois transaction, we believe that there is interest from interested parties to take over that facility. We've just been stymy because of the courts to be engaging with those players. And now with the positive reaction from the court to our pleadings, we believe that we'll have significant interest and be able to get revenue starting in the 6- to 9-month time frame. So I'm sorry, let me let Paul finish with that. Paul Smithers: Yes. Just some additional thoughts, Tom. I think as far as the litigation, I think we're in the fourth quarter of getting some resolution. It takes a long time in these various jurisdictions to get a trial date. And as we reported, we had a favorable outcome in Illinois. I think Pennsylvania and Ohio will be next in line by either a trial or summary judgment and at some point in New York after that. So we are getting close -- much closer to a resolution of those matters. And I also want to add that in the bankruptcy cases involving 4Front and Gold Flora, our back rent and rent owed to us is considered an administrative claim in the receivership process. So once the receivership is concluded, we should receive significant funds by way of administrative claim. And again, that is -- Gold Flora is sooner than 4Front, but we'll continue to report on the timing on those. William Catherwood: That's great. That was really helpful. And just kind of to add to that, there's a couple of other leases that you signed since the end of 2023. So these are like the re-leasing you did with Mitten Extracts or Lume Cannabis, Tri-Mountain Pure and Berry Green, all the backfills that were already done. For that run rate that you had this quarter, that $171 million, how many of those leases have commenced in that run rate this quarter? And how many are still left to commence kind of near term? Ben Regin: Tom, this is Ben. Yes, I think it's pretty minimal for the third quarter. I think just as a general statement, when we sign a lease, there's sometimes a licensing process, ramp-up of operations and kind of various things that impact when that revenue starts. But just to echo what Alan and Paul said, I think we've been very pleased with the leasing success. We're very optimistic about the demand we're seeing really across all assets that are going through the various kind of legal processes. So timing is a little more difficult to peg, but again, very encouraged by the demand that we're seeing really across the portfolio. William Catherwood: Okay. But just to clarify, Ben, so those ones that I mentioned, the ones that you had backfilled over the past 2 years, those -- you said it was a de minimis contribution to 3Q. So there's still more of that to roll in. Is that correct? Ben Regin: Yes. I mean, Tom, on that side, there was a slight benefit, but I would say de minimis this quarter as those leases come online and ramp up. Alan Gold: And to wrap up in the fourth quarter and beyond. William Catherwood: Perfect. Perfect. All right. And then the last one for me in terms of the balance sheet, as we think through sources and uses over the next 6 months, you obviously mentioned in the prepared remarks the new $100 million revolver, which kind of can continue to support your ongoing investment in IQHQ. For the unsecured bonds that mature in May, what are the specific options or kind of avenues that you're currently pursuing? And what is your expectation in terms of timing and getting to a resolution on those? Alan Gold: Well, I mean, I think the options are very clear. We're either going to refinance them or we're going to refinance them. I think that's what we're -- that's our options right now. We believe that we have the -- a very strong and affirmed rating from Egan-Jones and continue to believe that we have a very, very strong balance sheet, one of the strongest in REIT land. And we believe that investors will recognize the strength of our balance sheet and the fact that we have executed on our promise to pay on the bonds for the last 4.5 or 4.3 years. And we believe we have sufficient time to work through the refinancing as they become due next year. And the earliest that they become repayable, I believe, is in the first quarter. Paul Smithers: Correct. Yes. William Catherwood: Okay. So that's perfect, Alan. So timing-wise, we should just kind of expect to see -- get to the end of that process in first quarter of '26, correct? Alan Gold: That is the plan that we have on the table today. Operator: We have the next question from the line of Aaron Grey from Alliance Global Partners. Aaron Grey: So first one for me, just on potential impact of reschedule. I know it's been talked about in the past. I just wanted to revisit it again because, in terms of direct impact, it would seem better cash and stabilizing your existing base of tenants, so maybe less worry of incremental defaults. But how do you think about potential opportunities for growth and more uses for acquisitions and new tenants? Is it less so dependent on rescheduling and more so dependent on additional states coming online? Just want to give your broader outlook on cannabis, given the supply/demand that we've seen in a lot of the existing states, the appetite that you're seeing for potential additional cultivation or if that's more so dependent on new states versus rescheduling there. Alan Gold: No, I think as we alluded to earlier in our comments that we're really seeing some really positive interest in our facilities that we have in the states when we do have facilities. So we're seeing continued interest by the existing growers in those states who have maybe survived or as you want to say, we think the consolidation phase of this market, of the cannabis, industry seems to have worked. It's worked through the majority of that consolidation and that the most efficient and the efficient growers and companies in that industry have survived and are continuing to look to consolidate, but grow their focus in the individual states that they're in. So we're seeing that positive green shoot there without the rescheduling occurring. And we believe that, that will continue to build over time. And as it builds over time, we are absolutely best positioned to take advantage of any new demand for the sale-leaseback program that we continue to offer to the market and to use our capital for the benefit of IIP, our shareholders. Now Paul, I mean, do you want to add anything to -- with regards to the rescheduling and what you think how the impact might be for our tenants? Paul Smithers: Sure. So I think we've, Aaron, in the past, discussed what rescheduling would look like and how that helps. And I think you identified it that I think the first real impact is really improving the credit of the operators. They have just much more free cash to use. So that improves the credit as far as our tenant base, but also gives them the opportunity to use that cash to expand. And so much of our development is our operators expanding the existing facilities coming to us for additional investments. So we think that's certainly a possibility or likelihood, I think, with rescheduling. And as we noted in our remarks that there is this kind of up and down enthusiasm about rescheduling. We're -- now we're in a place where some really positive comments have come out of the White House, both by the President and the President's staff that said we expect a resolution on the rescheduling by the end of this year, which means, what, 2 months now. So we are anxiously awaiting that. We do believe that it makes sense for the President to get ahead of this issue politically, and he is motivated that way. And his comments about CBD usage with -- for the elderly and things of that nature that he's posted really give a lot of momentum to having some resolution. We think it would be a positive resolution on rescheduling, hopefully by the end of the year. Aaron Grey: Really appreciate that color. That was helpful there. So then in the near term, right? So before we see rescheduling, you talked about potential opportunities for both life sciences and as well as cannabis. How should we think about prioritizing in the near term and your current -- given your current liquidity position? Does the life science offer more near-term opportunities given what we just saw with IQHQ and the rate on the revolver? Assuming that's related to -- obviously, it's related to IQHQ and a much better rate than you have from the other revolver related to the cannabis. So absent rescheduling, do you see more opportunities in the life sciences for the near term? Or do you still see even as and rescheduling equal opportunity within both? Alan Gold: Yes. No, I think we are highly focused on the cannabis industry and making sure that we are supporting our tenant partners as best we can. And we believe that, that's our primary focus. Secondarily, do I think that there are more double-digit plus yield opportunities in the life science industry. We are constantly looking at that. But I think that, that was a very unique opportunity that we were able to capitalize based on our expertise and knowledge. And we will continue to look at that, but I think our primary focus will remain in the cannabis industry. Operator: We have the next question from the line of Bill Kirk from ROTH Capital Partners. William Kirk: So the press release mentioned, I think, a few new names where you're collecting security deposits. One was named, the other is unnamed in Sacramento. Can you give us a sense for size on those? What do you expect the outcome to be? And were those 2 identified when you went through that tenant health work that you did earlier in the year? Alan Gold: Yes, we're less than 1% of our revenue. And we're monitoring all of our tenants, and we spent time with those tenants and understood what was going on in with them. Ben, do you have any color associated with those 2 tenants or anything you want to add to that? Ben Regin: Yes, I would just add. So those were 2 tenants in California. And I think this is a theme maybe we've seen in many markets where the growth and expansion of the efficient operators and the demand that we're seeing for these facilities, along with some of the other vacancies that we've taken back, really reflects the consolidation that we're seeing play out in the industry and the less efficient operators moving out and the more efficient operators continuing to grow their platforms within these individual markets. I feel very good about the quality of those assets, along with the rest of our portfolio, which I think is reflected again in the amount of interest that we're seeing really across the board. William Kirk: And with the additional square footage leased at IQHQ with biosciences, what does that take occupancy to at IQHQ? And ultimately, kind of where do you expect occupancy to go? Maybe how long does it take to get there? And what capital do you think is required to get that occupancy rate up further? Alan Gold: Well, I mean, I think that's -- IQHQ is a private organization, that's really there for them. From our perspective, what we can say is that the occupancy level approaches that 24%, 25% level and that we certainly hope that they can take occupancy up to the 90-plus percent range in the next I guess, 18 to 24 months. Operator: We have the next question from the line of Alexander Goldfarb from Piper Sandler. Alexander Goldfarb: So just big picture, I think at the end of last year, you had like 27% of ABR that was in default. It sounds like you signed some new -- it sounds like you signed some backfills. You're working on some resolution and receivership, but there were some new tenants, including the $16 million loan that went bad. So net, as a percent of ABR, where do we now stand as far as percent of ABR that's not rent paying? I'm not saying occupying space, but not rent. I'm talking how much ABR is still not rent paying. Where do we stand now? Alan Gold: Alex, obviously, since we announced that last December, I mean, some things have moved around too. We've taken some properties back from PharmaCann, but from kind of an overall ABR collection, there's roughly 20%. Alexander Goldfarb: Okay. So David, so we're now at -- we were 27%, we're now 20% and that 20% includes the impact of the latest tenants in the third quarter and the $16 million loan. David Smith: That's correct. Keep in mind, as Alan mentioned before, those 2 tenants during the quarter were very small, 1%, so kind of immaterial to the overall portfolio. But you're roughly correct. Alexander Goldfarb: Okay. That's cool. That's cool. And then on the -- obviously, we all appreciate your background in life science. Alan, you cofounded and were there through December at IQHQ, and there's a deep history. But you look at both industries, cannabis, there's still issues going on, tenants having struggles. The Alexandria, the only pure-play REIT out there, life science still has issues. BXP talks about life science issues. So we understand the quality of the balance sheet now, but it definitely seems like there are capital -- potential capital needs for both cannabis and if something happens senior to you at IQHQ and you have to defend your position there to defend your stake. So how -- like I still -- it's still unclear like the risk of going into IQHQ, just given life science is not out of the woods. Like I would get it if things were blowing and going and a lot of activity was going on in that space, but it still seems like it's pretty troubled. So just how do we balance the capital needs of both industries when even in cannabis, you're still having some tenant issues? Alan Gold: Yes. I mean I think, first of all, we didn't make the investments so that we would have to defend the investment. We made the investment such that we are in a very strong credit position. And the only -- it's the common shareholders at IQHQ and/or the other investors who have to really defend and really are focused on defending that business. So that's not our role or our responsibility, number one. Number two is we maintain a very strong balance sheet, a very conservative balance sheet that allows us as we've just proven that to be able to get additional credit from our bank group and at a very attractive yield. So we think we still have that and continue to have great access to a variety of capital sources. Number three is that I know you guys want to -- you want the companies to only invest when it's absolutely clear that the gold ring is right in front of them and they can easily grab it. But our job is to do -- is to try to look around the corner, to try to look for unique investment opportunity that provide attractive, accretive returns to our shareholders. And we've done just that. And if you -- if in 3 years or 4 years, you come back on the call and you want to ask about how IQHQ and that investment went, I'll be happy to report exactly how that investment went. Alexander Goldfarb: Okay. And just the final question is, Paul, over the years, there have been a lot of hopeful things happening in cannabis that this measure, this state legalizing or this rescheduling and that would almost be like the panacea like now the sector would catch traction. Obviously, I appreciate your comments on giving us an update of what's going on with the rescheduling, the eagerness of seniors to adopt cannabis. But every time that we've heard positive stuff before, it hasn't jump-started the industry. So is your view that these positives could jumpstart the industry? Or your view is, hey, these are positives that are out there, but there's still the issue of the gray market, there's still the issue of the black market. There's still all those other -- I guess I'm just trying to understand, should we get excited that there's good stuff coming or it's like, hey, these are positives, but there's still a lot of negatives that the industry is still dealing with, namely the gray market and the black market? Paul Smithers: Yes, Alex, obviously, rescheduling doesn't make the black market go away. Those are 2 separate things that need to be separately addressed. With rescheduling, I think that will be a huge shot in the arm to the industry for the reasons we've discussed in great detail. At the same time, I think we've seen some real positive movement on state-by-state combating black market. It's not fixed by any means, but it's getting much more attention, I think, in the larger states. You've seen in California and Massachusetts and Michigan, especially some really significant -- and New York, I think about it, some real significant movement in curtailing the black market grows, but also the gray market retail. And I know you and I have discussed this in New York, the actual physical blackouts of the retail. So going in the right direction on that. Operator: This concludes our question-and-answer session. I would now like to turn the conference back to Alan Gold for any closing remarks. Alan Gold: Thank you. And I thank you all for joining today. Again, I'd like to thank our team for the hard and good work that they've done. And with that, we conclude the call. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. My name is Carrie, and I will be your conference operator today. At this time, I would like to welcome everyone to the James River Group Q3 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Bob Zimardo with Investor Relations. Please go ahead. Bob Zimardo: Thank you, operator, and good morning, everybody, and welcome to the James River Group Third Quarter 2025 Earnings Conference Call. During the call, we will be making forward-looking statements. These statements are based on current beliefs, intentions, expectations and assumptions that are subject to various risks and uncertainties, which may cause actual results to differ materially. For a discussion of such risks and uncertainties, please see the cautionary language regarding forward-looking statements in yesterday's earnings release and the risk factors of our most recent Form 10-K and other reports and filings we have made with the SEC. We do not undertake any duty to update any forward-looking statements. In addition, during this presentation, we may reference non-GAAP financial measures. Please refer to our earnings press release for a reconciliation of these numbers to GAAP, a copy of which can be found on our website. Lastly, unless otherwise specified for the reasons described in our earnings press release, all underwriting performance ratios referred to are for our continuing operations and business that is not subject to retroactive reinsurance accounting for loss portfolio transfers. I will now turn the call over to Frank D’Orazio, Chief Executive Officer of James River Group. Frank D’Orazio: Thank you for that introduction, Bob. Good morning, everyone, and welcome to James River's Third Quarter 2025 Earnings Call. I'm pleased to be joining you today on this election day morning and would like to start by emphasizing the fact that we feel a focus on profitability above all else, is a critical North Star for success in a transitioning property and casualty marketplace. We believe the underwriting and derisking actions that we've taken throughout James River demonstrate that commitment and the fruits of our labor are beginning to show up in our operating results, specifically in the company's bottom line performance that we'll discuss today. As usual, I'll start the conversation, and we'll turn it over to Sarah before we open up the discussion for questions. We ended the third quarter with an annualized adjusted net operating return on tangible common equity of 19.3%, well above our mid-teens return target and with $0.32 per share of adjusted net operating income. Notably, tangible common book value per share has grown 23.4% year-to-date. Our group combined ratio of 94% is down over 40 percentage points from the 135.5% reported in the third quarter of 2024 and also down more than 4 percentage points compared to the 98.6% we reported in the second quarter of this year. We're very proud of our deliberate efforts to significantly reduce our expense ratio now at 28.3%, reflecting a decrease of more than 3 percentage points compared to the prior year quarter and 2 percentage points lower than our second quarter this year. Since the start of the year, we have taken actions to make lasting changes and increase efficiency across our organization with savings largely attributed to headcount and professional fee reductions. These savings, coupled with the impact of our anticipated redomicile have created material and tangible efficiencies for the company going forward. In a few minutes, Sarah will provide additional context and detail regarding these actions. As alluded to, James River continues to build a resilient E&S business that prioritizes profitability. This focus is extremely relevant in today's transitioning market where competition continues to increase, particularly in larger accounts and across property risks where rate pressures persist. While our portfolio is not immune to these headwinds, we remain constructive on the market opportunity ahead given our positioning, which emphasizes small- to medium-sized casualty risks and specialty third-party lines with limited property exposure. As we have previously discussed, we continue to be intentional in our shift to smaller accounts with lower average premiums, which we believe have historically proven to be more profitable than larger account segments of the market. Our segment leadership reorganization now complete has created a more agile structure focused on improving speed while driving execution and accountability. Underwriting teams have leaned into smaller accounts and delivered strong performance in our specialty divisions. Empowered by technology and data, our underwriters are acting decisively and efficiently with continued overwhelming support from our wholesale broker partners. While our innovation journey continues, we're focused on streamlining our workflows with the benefit of technology and greater efficiency in our underwriting operations. In our E&S segment, we remain focused on profitable underwriting production, business mix improvements and appropriate underwriting governance. Year-to-date, rates are up 11% across casualty lines in the aggregate, moderating since last quarter, but still comfortably in excess of our view of loss cost trends. For the quarter, casualty rates increased 6.1% with notable gains in commercial auto at plus 29.8%, energy at plus 19%, excess casualty at plus 10% and general casualty at plus 7.9%. Submission volumes, which rose 3% over the prior year quarter, are up nearly 5% year-to-date, while our average renewal premium size is down 12.7%, also year-to-date. Over the past several years, we've worked diligently to refine our underwriting appetite, institute tools for better performance monitoring and further embed the culture of enterprise risk management throughout the organization. These efforts are paying off, particularly in the most recent accident years. After 33 months, the reported loss ratio for the 2023 accident year reflects a 21% improvement compared to 2020 despite a significant increase in earned premium. Claim count decreases for the same period are in the low to mid-teen percentages as well. This performance gave us the confidence to modestly increase our net retention at our midyear reinsurance treaty renewal. This quarter, the E&S net retention on the portfolio exceeded 58% for the first time in over 2 years, up from 56% in the same quarter last year. From a production standpoint, gross written premiums declined 8.9% compared to the prior year quarter. However, production dynamics were not uniform in the segment. 6 of our 15 underwriting departments showed growth led by our Specialty division, which grew by 4% in aggregate compared to the prior year quarter and includes Allied Health, Energy, Environmental, Life Sciences, management liability and professional liability. Within Specialty, Allied Health has now grown 20-plus percent for a second consecutive quarter, while Energy and Life Sciences grew at 16% and 10%, respectively. These departments are delivering strong performance with what we believe are attractive margins, and we're encouraged by the continued opportunity these divisions hold. Our Excess Casualty and general casualty portfolios were down 4% and 2%, respectively, reflecting increased competition as well as our intentional focus on smaller accounts and in Nexus Casualty specifically, our more conservative positioning on large commercial auto fleets, acknowledging many of the same unattractive dynamics that market competitors continue to report. Although a small line of business for us, rates were down 19.6% and subsequently, gross premiums decreased by 38.2% in our excess property unit, where for the second year in a row, we continue to see greater market pressures than anywhere else in our portfolio due to a significant increase in market appetite and capacity. However, the biggest driver of decreased production for the segment in the quarter was in our Manufacturers and Contractors division, which decreased its gross premium writings by 30% or $13.5 million. While we have seen increased competition in certain pockets of the market, this is an area where we have taken direct underwriting response to an increased frequency of low severity claims over the last several quarters despite frequency being down across our other 14 underwriting departments. While we believe some of the increased frequency may be attributable to the Florida statute change introduced last year, we've taken deliberate actions to reduce our exposure to subcontractors serving the tracked home building space as we believe this subclass has been a driver of the uptick we've experienced in low severity frequency. As mentioned, while E&S gross premiums declined by 8.9% in the quarter, net earned premium grew 1%, which helped to drive $16.4 million in underwriting income and a much improved 88.3% combined ratio. Our accident year loss ratio of 63.5% was 1.2 points lower than the prior year quarter simply due to business mix, but consistent on a year-to-date basis. As our press release highlighted, during the quarter, we completed our annual detailed valuation review or DVR process. As a reminder, the DVR is the first principles ground-up review of all assumptions and selections underpinning our E&S segment's reserve base. By definition, our actuaries complete this in-depth study once a year during the third quarter. This review of our entire E&S reserve balance provides a detailed analysis of the assumptions underlying reserves, adding additional rigor to our internal quarterly actuarial processes. While the company has long completed its DVR parameter process during the third quarter, this is the third annual review of what has evolved into a much deeper and more granular process. The outcome of our DVR process is a $51 million charge in accident years 2022 and prior, which we ceded to the legacy covers that we purchased last year. The largest portion of the charge is driven by other liability occurrence and product completed operations related to accident years 2020 to 2022. In essence, we feel the legacy covers are serving their purpose as intended, responding to any development from older years as they reach maturity or allowing for the company's more recent years to age favorably given the numerous underwriting actions and positive indicators reflected in those years. I should point out that while it varies by line of business for the majority of our portfolio, our tail continues to be characterized as 75% developed at about 5 years, meaning that the underwriting years of concern, 2022 and prior are largely already at that vintage or older. we continue to see a stark contrast in the indicators and performance of the portfolio between the 2022 and prior years and the positive performance trends of the more recent accident years of 2023 forward. Claims frequency is meaningfully down in those most recent years as our incurred losses despite meaningful portfolio growth since 2020. Importantly, we have not experienced any adverse development for the period of 2023 through the current accident year, and our diagnostics continue to substantiate our favorable view of those years. Moving on from E&S. As discussed in prior quarters, we are actively managing our specialty admitted fronting business with a focus on expense management and significantly reduced net retentions as we take meaningful underwriting actions based on our view of the sector's dynamics and a decisive shift away from commercial auto. As a result, segment expenses have declined 44% year-to-date as we've continued to manage expenses aggressively while also reducing our net premium retention to below 5% this quarter. Despite the reductions in both gross premiums and net retentions, we continue to renew programs that meet our underwriting criteria while selectively reviewing new opportunities. Looking ahead, our strategy remains sharply focused on profitability. We expect to maintain discipline, continue our deliberate mix shift towards smaller, more profitable accounts and uphold underwriting guardrails in challenging areas. We are closely monitoring casualty pricing trends, submission velocity and quote-to-bind efficiency to ensure we remain data-driven and responsive to market signals. Expense management will remain a core area of focus as we seek to improve operational leverage without compromising the quality of our underwriting or claim service. Now I'll turn the call over to Sarah to expand on several of the areas that we referenced this morning before we open up the call to questions. Sarah Doran: Thanks very much, Frank. Good morning, everyone, and thanks for joining us today. We continue to make notable progress on our strategic goals through 2025 in our efforts to increase lasting operating efficiency while demonstrating the stability of our balance sheet. This quarter, we're reporting a small net loss from continuing operations available to common shareholders of $376,000 or about $0.01 per diluted share. On an adjusted net operating basis, we're reporting $17.4 million or $0.32 of income per share. As Frank mentioned, our annualized operating return on tangible common equity for the quarter was 19.3% and tangible common book value per share increased 23.4% from the start of the year to $8.24 a share as we've made meaningful strides to grow our capital base. Strong investment results and a meaningful improvement in AOCI from market interest rate reductions this quarter provided some uplift. Our third quarter combined ratio of 94% consists of a 65.7% loss ratio and a 28.3% expense ratio much improved from the 135.5% we reported in the prior year quarter, and that's really driven by strong performance across our E&S segment. On a year-to-date basis, we reported an expense ratio of 30.5%, which is below our full year 31% target. Just as a reminder, we started the year with an expense ratio of 32.7%. Year-to-date, we've recorded lasting savings of about $8 million coming out of all 3 of our reportable segments, E&S, Specialty Admitted and Corporate. The largest area of reduction has come from reduced compensation expense across the group. And notably, we began the year with 640 full-time employees and had 590 or 50 fewer by the end of the third quarter. We've also reduced costs meaningfully in areas like rent and professional fees. The 28.3% group expense ratio this quarter is more notable given the decline in gross written and net earned premium quarter-over-quarter, up 28% and 7%, respectively. Reviewing by segment, quarter-over-quarter, E&S had a $3 million G&A reduction, Specialty admitted about $2.5 million; and corporate, a little over $1 million. Year-to-date, corporate expenses have declined 7.5% compared to the same period in 2024, well within the 5% to 10% decline in corporate expenses we're working towards for the full year. And finally, on expenses, our planned redomicile to bring our holding company from Bermuda to Delaware is expected to be complete this coming Friday, November 7. That will bring significantly more expense benefits via a more efficient structure and a lower expected effective tax rate. We expect that this transition will be meaningfully accretive to our fourth quarter earnings and going forward, bring our effective tax rate closer in line with the U.S. statutory rate. As mentioned previously, the redomicile is expected to bring a onetime tax savings of $10 million to $13 million during the fourth quarter of 2025 and ongoing quarterly expense savings of between $3 million and $6 million going forward. Let me quickly wrap up my comments with investments. We reported $21.9 million of net investment income, up from $20.5 million in the previous quarter. The portfolio remains conservatively positioned with an average credit rating of A+ and a duration of 3.4 years. We've been strategically reducing our allocation to cash and short-term investments during the year taking advantage of strong relative value opportunities across our fixed income allocation, where we've been putting money to work at an average book yield of 5.2%, which is well above our current book yield of 4.5%. And we've been doing this while not sacrificing credit quality. I do expect a more favorable quarter-over-quarter comparison of NII next quarter, given the impact from the payment of the retroactive structures that we purchased in the second half of 2024. With all that, I'd like to turn the call back over to the operator and open the line for questions. Operator: [Operator Instructions] Your first question will come from Mark Hughes with Truist Securities. Mark Hughes: Frank, you had spoken about the recent accident years, 2023 and forward, you're seeing a much more favorable loss experience. Any way to distinguish how much of that might be just your underwriting actions versus the broader market trends perhaps in the last couple of years? Frank D’Orazio: Thanks, Mark. I think our view is it's heavily tied to the underwriting actions that we took. It's such a dichotomy in terms of experience. We kind of went through the number just relative to the decrease in claim counts as well as the reduction in incurred losses. So if you remember, we instituted a number of sublimits and exclusions. We exited certain classes. We really, at the same time, also improved our performance monitoring and the rate in which we do that and some of the processes relative to feedback loops within the organization. So I would say it is directly tied to the underwriting actions we've taken as well as the rate environment. So we have been able to produce rate in excess of our view of loss trends. So that obviously helps as well. Mark Hughes: Yes, very good. Sarah, did you provide any sort of expense ratio target? I think you may have commented on that in the past. But with the improvement this quarter, it sounds like more expense savings flowing through the P&L. Is there a particular target you've got in mind? Sarah Doran: Yes. Thanks, Mark. I think our full year target is consistent with what we've said a couple of quarters ago, and that's 31%, which would be certainly down from where we started the year at 32% and change. So I still feel very good about that. I'm obviously hesitating a little bit because we're doing this while we're making the underwriting changes, which has pushed down net earned. So I'm much more focused on the dollars we've taken out of the organization because I think those dollars have permanently left the organization than the ratio because I think the ratio also is going to miss the tax savings and the additional benefits that we're getting through the red. But a long way of saying, I still feel good about 31%, but I think there are other levers there that tell the story in a more effective way as well. Mark Hughes: And then excess property, I know it's small in your book. Rates are down, business is down. What's your judgment about where that stands now? It was obviously a light storm season. Is that business continuing to see further declines and not your book necessarily, but just kind of your judgment of market conditions? Is it softening further here in the fourth quarter? Or is that maybe stabilized? Frank D’Orazio: Yes, Mark. Well, I think you kind of alluded to it. I mean the industry U.S. property losses, the experience this year is certainly well within most carriers' plans. So my expectation would be from a rate environment perspective, I would expect more of the same, so double-digit rate decreases. We're also seeing some loosening up of terms and conditions. So just plenty of capacity out there, whether it's carrier, MGA and MGU. So I guess the wildcard would be that if something significant, very significant, like $50 billion event type significant happen between now and year-end, that could be perhaps a game changer to kind of slow down the rate of the aggression in the property marketplace. But right now, that's what we see. We're kind of thinking more of the same. Operator: Your next question will come from Brian Meredith with UBS. Brian Meredith: A couple of questions here for you. First, I'm just curious, the reserve charge that took that went to the ADC cover, the lines of business that, that was involved in, how much of that business are you still writing today? And was anything kind of learned through that study that maybe affected your kind of thoughts on what you're underwriting today and how you're booking stuff? Frank D’Orazio: Yes. Sure, Brian. Let me take a crack at that. So we're talking about primarily the charge being driven by other liability occurrence and product completed operations from 2020 to 2022. The other liability occurrence primarily was non [indiscernible] space. These are lines of business that we're still in, so that would include energy, sports and entertainment, some elements of general casualty and then the product completed operations charts clearly coming out of MC. I'll draw a direct kind of parallel to the actions that we're taking first in MC. We've done a pretty deep analysis of what we see as an increase in low severity claims over the last, call it, 1.5 years or so and have made the decision to take some significant underwriting actions relative to tracked homebuilding in a number of different states. So we're not necessarily exiting the class, but we've got certain prohibited applications that we're paying attention to and a number of guidelines relative to the class. So I would say that's already in process. And I would say relative to the OLO, the other liability occurrence, those are changes that have been kind of, I think, already recognized and built into the organization over the last couple of years of underwriting changes that we've really started commencing at the end of '22. Brian Meredith: Great. And then the second question, I'm just curious, maybe you can provide some outlook and what you think the ultimate happens with your Specialty Admitted segment. I mean it looks like it's shrunk pretty meaningfully. Frank D’Orazio: It has, Brian. And so we developed a view that we wanted to significantly reduce the commercial auto exposure in the portfolio based on our view of the behavior in the sector as well as the rated reinsurance market appetite, and we wanted to take less risk there. So we've greatly reduced our net retentions, and that view has not changed. You kind of see that playing through from quarter-to-quarter. We have -- I would say we've kind of picked our horses, so to speak, and have a handful of active programs today, mostly fully fronted. We feel like they're on a very solid footing and stable with low net retentions. We're now less than 5% in terms of retention. It's a far cry from where we've been in the past and certainly, I would say, a fraction of where probably the rest of the sector is. And we're continuing to focus on expense management. So as you know, the segment capital contributes fairly meaningfully to net investment income, circa, call it, 20% or so. And so we've shown and stated in the past that we'll continue to manage the business to take advantage of what we view as profitable opportunities that meet our criteria. Brian Meredith: Got you. I was just wondering, it's getting so small, just the relevance of that business in the marketplace? And does it make sense in even being in it? Sarah Doran: I think we're tag teaming on the question, Brian. I think we're -- the way that we thought about managing the segment, we're certainly still in it. We're getting inquiries into it. We've got active programs, but we're managing it for profitability. So to Frank's point, getting the retention is actually at 3.7% this quarter, managing the expenses. We've taken over 1/3 of the expenses out of it. I think that there's very little that we're able to or have to continue to invest in it to keep it online. I would also say is that the last thing I'd say is I think those profitability ratios that you're probably looking at as well, they've become, I think, less important indicators of the health of the business when you see net written premium drop 94% quarter-over-quarter. So as we look at this to manage net investment income and to focus on the rest of our business, it's not much of an effort as we've continued to move forward there. Frank D’Orazio: Yes. And I guess if I just one final word on it, Brian. Our track record, I think, has demonstrated that we regularly evaluate all of our businesses and underwriting units to make sure they fit our corporate goals and objectives and it's just good stewardship, and we'll continue to do that. Operator: There are no further questions at this time. And I'll turn the call back over to management for any closing remarks. Frank D’Orazio: Thank you, operator. As we approach the end of 2025, it's worth reflecting on the transformation this company has undergone. Our experienced and reenergized leadership team continues to build and improve James River, distinguished by underwriting profitability while flexibly reallocating capital to the most attractive opportunities as market dynamics evolve. I'm pleased with our continued progress as an organization. With every passing quarter, we're seeing the demarcation between the company's legacy performance and the more recent accident years characterized by significant underwriting changes and marked improvement in performance. Our primary goal remains to enhance shareholder value through consistent and deliberate execution over the years ahead. Thank you to all for listening to the call today. We look forward to speaking to you again in a few months. Operator: Thank you for your participation. This does conclude today's conference. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Heron Therapeutics Q3 2025 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, Melissa Jarel, Executive Director of Legal. Please go ahead. Melissa Jarel: Thank you, operator, and hello, everyone. Thank you for joining us on the Heron Therapeutics conference call today to discuss the company's financial results for the quarter ended September 30, 2025. With me today from Heron are Craig Collard, Chief Executive Officer; Ira Duarte, Executive Vice President and Chief Financial Officer; Bill Forbes, Executive Vice President, Chief Development Officer; Mark Hensley, Chief Operating Officer; and Kevin Warner, Senior Vice President, Medical Affairs, Strategy and Engagement. For those of you participating via conference call, slides are made available via webcast and can also be accessed via the Investor Relations page of our website following the conclusion of today's call. Before we begin, let me quickly remind you that during the course of this conference call, the company will make forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement. This includes remarks about the company's projections, expectations, plans, beliefs and future performance, all of which constitute forward-looking statements for the purposes of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. These statements are based on judgment and analysis as of the date of this conference call and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The risks and uncertainties associated with the forward-looking statements made in this conference call and webcast are described in the safe harbor statement in today's press release and in Heron's public periodic filings with the SEC. Except as required by law, Heron assumes no obligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. And with that, I would now like to turn the call over to Craig Collard, Chief Executive Officer of Heron. Craig Collard: Thanks, Melissa. Hello, everyone, and welcome to Heron Therapeutics Third Quarter 2025 Earnings Call. Today, we're thrilled to share our third quarter results and provide insight into how product sales are trending. I'd like to begin by highlighting several key accomplishments from the quarter. One of the most significant milestones was the successful completion of our financing. This has been an overhang on the company since I joined, and we're glad to have it behind us. With this resolved, management can now fully focus on commercial execution and product growth. Beyond the successful financing, team Heron delivered strong operational and financial performance in the third quarter. We generated total net revenues of $38.2 million for the quarter and $114.3 million year-to-date. This performance resulted in adjusted EBITDA of $1.5 million for the quarter and $9.5 million year-to-date. Our gross margin was 68.8%, which is slightly down from previous quarters, primarily due to a onetime write-off of SUSTOL polymer inventory. SUSTOL has been trending downward over the past several months due to increased market competition, and we expect this trend to continue for the foreseeable future. CINVANTI, on the other hand, continues to exceed our expectations. We've maintained a conservative outlook this year, anticipating a potential slight decline in CINVANTI performance as we move into Q3 and Q4. So far, that decline has not materialized. Despite ongoing competitive pressure that has historically impacted our average selling price, we're pleased that net sales are remaining fairly consistent. We believe this positive trend will continue through Q4 and into next year. Turning to our acute care portfolio, we implemented several new initiatives in Q3, including the CrossLink Ignite program, an incentive-based initiative to improve distributor engagement, the launch of the 200-milligram vial access needle or VAN and the creation of the IBM team, a dedicated sales force focused on APONVIE only. All of these initiatives were rolled out at different times during the quarter and are beginning to have a meaningful impact. That's why we've consistently stated our belief that the acute products will begin to inflect more prominently as we move into late Q3 and Q4 of 2025. ZYNRELEF net sales grew 49% in Q3 2025 as compared to Q3 2024, and APONVIE net sales grew 173% in that same time period. More importantly, we're finally seeing real momentum in the acute care. While quarterly net revenues and unit demand were solid, weekly unit demand from late September through October has been the highest we've ever seen, clearly indicating a possible trend break. Mark will provide more detail on this in his prepared remarks. Lastly, our J-code for ZYNRELEF went into effect on October 1. This is a significant win for Heron and for the providers who rely on ZYNRELEF in their practices. The J-code will streamline reimbursement and reduce administrative burden, especially as the NOPAIN Act continues to gain traction. We believe this change will improve access and coverage across both government and commercial payers, ultimately supporting broader adoption and better patient outcomes. Also, our prefilled syringe continues to advance with a time line to possible approval in late 2027. Bill Forbes, our Head of Development, will address any questions regarding PFS and other development initiatives in the Q&A. This quarter has been both busy and successful for Heron. With increasing demand for ZYNRELEF, APONVIE and even CINVANTI, we're extremely excited about the trajectory of the business moving forward. I'd now like to turn the call over to Mark Hensley, our Chief Operating Officer. Go ahead, Mark. Mark Hensley: Thanks, Craig. In acute care, ZYNRELEF kept its momentum in the third quarter. This is a site-by-site, case-by-case adoption curve. Access enables OR-proved converts, protocols make it stick. We focused on removing friction and tightening execution. The VAN made prep in the OR easier, the Ignite program kept distributors focused on accounts we can win. Our education and medical support teams help standardize technique and support protocol adoption. And as of October 1, ZYNRELEF has a permanent product-specific J-code, which makes billing conversations clearer. Stepping back, the theme is friction removal and focus. Those same disciplines translated to both APONVIE and CINVANTI as well. In oncology supportive care, CINVANTI remains a steady anchor. As APONVIE expands and deepens our relationships with anesthesia and pharmacy, we see CINVANTI ordering rise in those hospitals. Let me show you how this progress shows up in the revenue numbers on Slide 6. For our acute care franchise, net sales were $12.3 million in the third quarter, up from $10.7 million in the second quarter. ZYNRELEF net sales were $9.3 million. That is a 49% growth year-over-year versus $6.2 million in the third quarter of last year and up from $8.2 million in the second quarter. The drivers are consistent, the VAN, the Ignite program focusing distributors on winnable accounts, support from our education and medical support teams and now permanent J-code clarity. APONVIE net sales were $3 million. That is 173% growth year-over-year versus $1.1 million last year and up from $2.5 million in the second quarter. Third quarter APONVIE growth occurred before the dedicated team was fully active. The team finished training in October and entered the field in early Q4 to support momentum. Now let me show how this demand shows up in ZYNRELEF operating metrics on Slide 7. Our installed base continues to expand as sites move from first case to protocolized use. Average daily units increased from 882 in the third quarter last year to 1,127 in the third quarter this year, an increase of about 28%. Ordering accounts rose from 705 to 833 over the same period. This comes from friction removal and focus, the VAN, Ignite program, our education and support teams and permanent J-code clarity streamlining reimbursement. You will also see October plotted on the line, significantly above September. It is a preliminary single month and not a proxy for the fourth quarter. We will stay disciplined and let the quarter play out. With that context, let's turn to Slide 8 and APONVIE. APONVIE's trajectory is strong. Demand units grew 142% year-over-year. Average daily units increased from 418 to 998 and ordering accounts increased from 299 to 405. We launched the dedicated APONVIE team on July 1, 6 representatives focused on high-potential hospitals. The team completed full training in October, so Q3 reflects partial deployment. Full activation supports momentum going forward. In addition, the 2025 PONV prophylaxis consensus guidelines are expected to be published in Q4. APONVIE is anticipated to be part of the guidelines, which should significantly increase awareness of its availability and clinical profile. We look forward to aligning our education and disseminating the information with our recently expanded field sales and medical teams. Now turning to the oncology care franchise on Slide 9. Oncology franchise net sales were $25.9 million in the third quarter. CINVANTI net sales were approximately $24 million, up about 6% year-over-year and stable sequentially. As APONVIE broadens anesthesia and pharmacy relationships, we are beginning to see CINVANTI pull-through in those same institutions. SUSTOL net sales were $1.9 million, down about 32% year-over-year. We plan to wind down commercialization over the next 12 months while we evaluate potential product updates with a possible late 2027 reintroduction subject to development and regulatory progress. We will continue to support customers and manage the transition responsibly. To wrap up, we are seeing structural progress. The VAN, the Ignite program, clinical education and permanent J-code clarity are turning ZYNRELEF first cases into durable protocols. APONVIE's hospital curve continues to strengthen, supported by a fully trained and strategically aligned team positioned ahead of the imminent release of the updated 2025 PONV prophylaxis consensus guidelines. CINVANTI remains a stable anchor and as APONVIE expands hospital relationships, we believe CINVANTI will benefit. October stepped up for ZYNRELEF, but it is a preliminary single month. We will stay disciplined and let the quarter play out. Thanks, and I'll now turn it over to Ira. Ira Duarte: Thanks, Mark. Our product gross profit for the 3 months ended September 30, 2025, was $26.3 million or 68.8%, which decreased from 71.2% for the same period in 2024. This decrease is due to an increase of $1.4 million of inventory reserves and write-offs recorded and an increase of $1.3 million in the cost of units sold, primarily due to supplier mix. For the 9 months ended September 30, 2025, our product gross profit was $84.1 million or 73.6%, which increased from 72.5% for the same period in 2024. This increase is due to an increase in units sold and a lower cost per unit due to the supplier mix. SG&A expenses for the 3 months ended September 30, 2025, was $26.9 million compared to $23.3 million for the same period in 2024. The increase is primarily due to higher personnel and related expenses due to new hires and increased generalized marketing costs. SG&A expense for the 9 months ended September 30, 2025, was $78 million compared to $77.3 million for the same period in 2024. The increase is primarily due to increased marketing costs related to ZYNRELEF, offset by a decrease in personnel and related costs due to terminations and a onetime stock compensation expense in 2024, which did not reoccur in 2025 and a decrease in legal expenses due to timing of litigation. Research and development expenses were $3.5 million for the 3 months ended September 30, 2025, compared to $4.5 million for the comparable period in 2024. The decrease is primarily due to timing of expenses. Research and development expenses were $8.7 million for the 9 months ended September 30, 2025, compared to $13.5 million for the comparable period in 2024. The decrease is due to a decrease in personnel and related expenses due to terminations and a decrease in write-offs of property and equipment and other assets. For the 3 months ended September 30, 2025, we incurred a net loss of $17.5 million compared to a net loss of $4.8 million for the same period in 2024. The increase in net loss is primarily due to the $11.3 million loss on debt extinguishment recognized in the quarter. For the 9 months ended September 30, 2025 and 2024, we incurred a net loss of $17.2 million. The net loss for the 9 months ended September 30, 2025, included a onetime charge of $11.3 million related to our recent debt extinguishment. Cash and short-term investments at September 30, 2025, was $55.5 million. As a result of the debt and equity transactions completed in the 3 months ended September 30, 2025, $13.1 million was added to cash and short-term investments. If we had exclude depreciation, stock-based compensation and inventory reserves and write-offs, our adjusted EBITDA results would have been a positive $1.5 million operating income for the 3 months ended September 30, 2025, compared to a loss of $400,000 for the same period in 2024. For the 9 months ended September 30, 2025, our adjusted EBITDA is $9.5 million operating income compared to a loss of $700,000 for the same period in 2024. We are reaffirming our previously given guidance for net revenue of $153 million to $163 million and adjusted EBITDA of $9 million to $13 million. And now we'd like to open the call for any questions. Operator: [Operator Instructions] Our first question comes from Carl Byrnes from Northland Capital Markets. Carl Byrnes: Congratulations on the quarter. Just turning back to the slide with respect to ZYNRELEF in the first few weeks of October, it looks like you're pushing 18% in terms of increase. And that's on a month-over-month basis. Is that correct? Mark Hensley: Yes, Carl, that's -- it's roughly correct. Yes, it's 17%, 18% right in there. Carl Byrnes: Excellent. Fantastic. And then a financial question. If we look at gross profit margin and back out the onetime stocking charge, which I think is around $2.2 million, you end up with approximately an adjusted gross profit margin, which would be around 74.5%. Does that sound correct? Ira Duarte: That is correct, Carl. Craig Collard: Yes, that's accurate. Ira Duarte: Which is in line what we've been for the last few quarters. Carl Byrnes: Okay. And then one further adjustment, which is the extinguishment of debt. What would the net interest income line be backing that out? Would that be somewhere in the $2.1 million vicinity? Or what number should we use there? Ira Duarte: Going forward, yes, probably about $2.5 million would be going forward. Carl Byrnes: Yes. Okay. So $2.1 million for the quarter, but sort of adjusted for the quarter period... Ira Duarte: For it was a full quarter, yes. Carl Byrnes: $2.5 million plus. Got it. Congrats again. Operator: Our next question comes from Brandon Folkes from H.C. Wainwright. Brandon Folkes: Congratulations on the quarter. Maybe just from me, understanding it's very early days on the internal sales team. Can you just talk about though how you're viewing those on ZYNRELEF and APONVIE, and how are you thinking about potentially adding to those teams in 2026 or sort of the measure of success to potentially add to those teams in 2026? And then any additional investments you're thinking on the commercial side behind the 2 products in 2026? Mark Hensley: Thanks for the question, Brandon. This is Mark Hensley. I'll start, and then we'll let Craig kind of finish it up. So internally, we're very pleased with the kind of structural changes we made at the beginning of Q3. Just as a reminder, we now have a dedicated ZYNRELEF team, a dedicated APONVIE team. That APONVIE team is also beginning to do some work with CINVANTI. And so we think there's a lot of synergy there on both sides. And so the increased focus, we believe, has -- is a partial impact on the results we're seeing in the quarter and certainly as we go forward into next year. In addition to that, we have better alignment with our distributor partners. And so certainly, we think all of those things being put together will result in increased sales as we go forward. Craig Collard: Yes. Brandon, I would sort of add to that. As we think about the product going forward or the products going forward, I think we've been pretty consistent in saying when we see sort of pockets in the country take off when we have, let's call it, conducive events like access into an account, we have good cross-link participation, and we have certainly personnel in that area. Once we see that type of success, we would like to obviously mimic that where we can. So I think going forward, we continue to look for those pockets, and we're beginning -- as the data suggests, we're beginning to see that. And so we're in the process of going through our budgeting process for the year. And I think we'll be looking at where we can add in specific pockets and again, staying within profitability and so forth. But I think you're going to see more to come on that because, again, we're beginning to see a little bit of a different trend. And so if we can expand that, we would certainly like to do that. Brandon Folkes: Fantastic. And maybe just one follow-up from me. Just on ZYNRELEF, granted the demand curves look really, really good, I appreciate you sharing those. Just given the VAN came online pretty significantly in the quarter, any inventory stocking benefit in the revenue -- in the reported revenue line in 3Q on ZYNRELEF? Mark Hensley: We didn't see -- we had that kind of similar bump when we launched the 400 VAN. Because the 200 VAN is really only about 35% of the total sales, there was a minimal, let's say, bump, I guess, but not to the degree that we saw with the 400. So the inventory remained relatively stable compared to prior quarters. Brandon Folkes: Congrats on the quarter. Operator: Our next question comes from Serge Belanger from Needham. Serge Belanger: First question regarding the NOPAIN Act, can you just give us an update on its implementation and what you're seeing from commercial plans, whether they are following in the footsteps of Medicare? And then secondly, on the oncology care franchise, maybe just provide a little bit more color on your long-term outlook for that franchise. It sounds like you expect SUSTOL to remain under pressure for the foreseeable future. And then on CINVANTI, do you expect competitive pressures to come back despite the ones that didn't materialize in the third or fourth quarter? Craig Collard: Yes. Serge, I'll take the CINVANTI question, then I'll pass the other over to Kevin on the NOPAIN Act. But again, we've been saying all year long and even in my prepared remarks about CINVANTI, we felt that with the competition out there that we could see a little bit of a dip in Q3 and Q4. We have yet to see that. We've been fairly consistent in being able to keep accounts and that type of thing. But to your point, there are -- it is a very competitive space, and we will continue to have pressure. And we could lose an account from time to time or we could be forced to take our price down to keep an account. So I mean that's just sort of the market we're in. We're going to continue to sort of look at this pretty conservatively. What I can say on the upside, though, with the IBM team that we have, we're beginning to promote CINVANTI a bit more from a rep standpoint within hospital accounts. And again, we're thinking that will have or could have a positive impact. So again, still facing the same competition, but the fact that we have a little bit of a larger voice out there, we've actually -- we had an account we won about 3 weeks ago that was fairly significant. So again, if we can keep doing that, we think we can keep things fairly stable as we move forward. So we'll continue to update quarterly, but I think our outlook remains fairly consistent as with things we've said before. Kevin Warner: Serge, it's Kevin Warner. So in regards to the NOPAIN Act and the impact we're seeing out in the field, it's definitely starting to build momentum. As we said previously, as expected, it would take 6, 9 months and be tail half of the year once providers and systems got educated on the fact that you could reimburse outside the bundle, and it's not typical as we know. So we're seeing education happen across all segments from some of our competitors, obviously, other companies that are included in the NOPAIN Act. They're standing at platform presentations like at ASA and delivering the message out there. So we're continuing to educate around it, provide the systems in place and educational materials of how to actually bill separately. Commercial payers, to your point on that question, we are seeing some momentum there also. We believe it would take them time to reassess and do a rearview take on it and see what's happening with implementation. But you have providers like Aetna and Cigna that are providing separate reimbursement, and it varies state by state with individual commercial plans that we see out there. Overall, as an estimate, we see about 75% of all ZYNRELEF indicated procedures, especially our target procedures, have some form of coverage, whether it's be a Medicare or a commercial plan. We have a few other things from the economic perspective that are tailwinds coming into 2025 for us when you look at the teams model by CMS, which is a value-based care model. So you're looking at things like patient-reported outcomes and satisfaction. So do you feel pain? Do you have PONV? That's going to be a significant tailwind. Also the dissolution of the inpatient-only list specifically about 285 orthopedic procedures are coming off that inpatient-only list. So that will make them outpatient eligible procedures now and thus reimbursable under things like the NOPAIN Act. So a lot of value and impact is coming to our patients and really changing the model to a value-based care, looking for these advances in our health care system, long-acting advances like ZYNRELEF and APONVIE that can help facilitate this transition as we're moving our phases of care. Craig Collard: Yes, Serge, just to maybe address the second part of your question regarding SUSTOL, similar scenario as we faced with CINVANTI, although it's just been a little bit more competitive on that side. And again, we have fewer accounts. And so what we've seen over the last few years, we've had a continual decline and a -- continual decline in -- on our ASP. And so what we've decided to do is wind this product down over the next -- into next year. And again, our plan is to look at possibly improving the delivery of that product, whether that be a lighter gauge needle or what have you. But we would like to bring that out possibly late '27 back into '28 as a relaunch product. And again, there's things we can do there from our selling price and that type of thing that would possibly bring this product back to market. And so we'll talk more about that as we move forward and ideas that we have. But the plan now is to wind this down as we move to really to the end of next year. Operator: Our next question comes from Sierra Dong from Jefferies. Unknown Analyst: This is [indiscernible] on for Clara. Congrats on the quarter. So my question is about the ZYNRELEF prefilled syringe program. So you said if successful, it's expected to be approved in 2027. And based on your feedback from physicians on VAN and how do you expect the prefilled syringe program to help on the franchise on the long-term? And how can we think of the momentum there? William Forbes: Thank you for your question. This is Bill Forbes. I'll just give a little bit of an update on this. We've recently just manufactured our registration batches and with that have initiated our stability program. As you know, every new product has to undergo at least 1 year of real-time stability. So we've got that clock ticking. So we're glad we've crossed that milestone, and that's why we're looking -- obviously, once we've completed that stability program, we'll go ahead and file and it will be approved, hopefully, in 2027. The impact, I think, is one, as you can see from the VAN, we've had a bit of an uptick. And I think as far as simplifying and speeding the application and use of ZYNRELEF, the VAN has been a big step forward. But the prefilled syringe takes it to another level. Obviously, in that -- in this scenario, we're just going to go ahead and open up the prefilled syringe packaging and place it in the surgeon's hands so that they can -- it can go ahead and install the product. So I think when it comes to receiving the product, it simplifies things even to a much greater extent and obviously, will speed, I believe, the conversion of accounts into use of ZYNRELEF. I don't know if Mark has any other comments on it. Mark Hensley: No, I think that's good. Craig Collard: Yes. I would just add, I think Bill is spot on it. When you think about simplicity, we still have the scenario where when we go into onboard an account, there is a training even though the VAN has improved dramatically and being able to draw the product out of the vial. And so if you think about really being able to simplify your product and now you go in and you open a tray and you dump the product in the sterile field and basically, it's ready to go, it just takes one step out of the process. So again, we certainly think this is going to have a positive impact. And again, as things are moving forward, we think this just makes the product that much better and has another benefit so. Unknown Analyst: Okay. I do have a follow-up. So for the J-code for ZYNRELEF, it's also applicable to the prefilled syringe and also for the VAN, right? William Forbes: It would be once the prefilled syringe is launched. Yes, that's correct. Operator: Thank you. This concludes the question-and-answer session. I will now turn it over to Craig Collard, CEO, for closing remarks. Craig Collard: Thank you, operator, and thank you, everyone, for joining the call today, and we look forward to speaking to you all next quarter. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, and welcome to the Ocular Therapeutix Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded and will be available for replay on the Investor Relations section of the Ocular Therapeutix website. I would now like to turn the call over to Ocular's Vice President of Investor Relations, Bill Slattery, Jr. Please go ahead, Mr. Slattery. William Slattery: Good morning, everyone, and thank you for joining us today. Earlier this morning, we issued a press release and filed our quarterly report on Form 10-Q, outlining our financial results and business updates for the third quarter of 2025, along with several updates to our registrational programs for AXPAXLI, also referred to as OTX-TKI in wet AMD and non-proliferative diabetic retinopathy. Ocular's Executive Chairman, President and CEO, Dr. Pravin Dugel, will summarize recent business highlights before we move to our question-and-answer session. Joining Dr. Dugle for the Q&A portion of the call will be Donald Notman, Chief Financial Officer and Chief Operating Officer; Sanjay Nayak, Chief Strategy Officer; and Steve Meyers, Chief Commercial Officer. We refer everyone to this morning's press release and our Form 10-Q for a comprehensive update of third quarter 2025 financial and business results. During today's call, certain statements we will be making constitute forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially as a result of a variety of factors, including risks and uncertainties identified in the Risk Factors section of our annual report on Form 10-K and our other SEC filings. With that, I'd like to hand the call over to Dr. Pravin Dugel to review our recent updates. Pravin? Pravin Dugel: Good morning, everyone, and thank you for joining us today. At Ocular Therapeutix, we are courageous, bold and opportunistic. We make decisions from a position of confidence. We refuse to accept the status quo, not in how we develop drugs, not in how we design trials, and not in how we think about the retina market. Our purpose is clear: To redefine the retina experience for patients, physicians and payers around the world. 2025 has been a transformative year for Ocular Therapeutix. We've advanced 2 registrational studies in wet AMD, SOL-1 and SOL-R, each designed to answer distinct clinically relevant questions. As our momentum continues, we are thrilled to announce today that SOL-R has reached its target randomization of 555 subjects, an important milestone that reflects exceptional execution and strong investigator enthusiasm for AXPAXLI. In addition to SOL-1 and SOL-R, we designed a long-term extension trial, SOL-X, which goes well beyond simply providing long-term safety data and may provide further evidence that AXPAXLI treatment should be started early to obtain the greatest visual benefits. Equally important, we've unveiled our registrational HELIOS program in diabetic retinopathy, which we believe represents the next frontier in our mission to deliver long-lasting, clinically impactful and genuinely sustainable therapies for retinal diseases. This is a bold initiative to pursue a single broad superiority label that captures the entire spectrum of diabetic retinal disease, including non-proliferative diabetic retinopathy, NPDR and diabetic macular edema, DME. With 2 complementary strategically designed studies, HELIOS-2 and HELIOS-3, we intend to address both populations within a one unified program. If the HELIOS trials are successful, we expect that we would not need any additional studies to market AXPAXLI for use across the spectrum of diabetic retinal disease. At our recent Investor Day, I described how Ocular is now positioned to redefine this field through a strategic triad: #1, the potential for a superiority label that may set AXPAXLI apart from all other anti-VEGFs in both wet AMD and diabetic retinal disease; #2, expanding the market to potentially capture the vast untapped opportunity across wet AMD and diabetic retinal disease; and #3, potential for immediate adoptability made possible by a product profile that seamlessly integrates into today's retina practice. Today, I'd like to elaborate on each of these pillars, how they define our strategy, guide our execution, and position Ocular to lead a potential generational shift in retinal therapy. Let's start with superiority. To date, no approved therapy in wet AMD has demonstrated superiority to an anti-VEGF. Each successive entry has only been incrementally longer lasting. This has led to an increasingly commoditized landscape, a market where differentiation has eroded and pricing pressures have intensified. More recently, biosimilars have turned what was once a breakthrough in the field into one defined by step therapy restrictions and rapid discounting that encourages a pricing race to the bottom. We believe AXPAXLI has the potential to break this cycle. SOL-1, our Phase III superiority trial in wet AMD was designed under a SPA agreement with the FDA and remains on track for top line data in the first quarter of 2026. If successful, we expect AXPAXLI could be the first and only therapy with a superiority label compared to a single dose of anti-VEGF. This superiority label extends beyond wet AMD and now includes diabetic retinopathy, where we will initiate two superiority trials, HELIOS-2 and HELIOS-3. Achieving a superiority label would put us in a category of one. Why does this matter? Because a superiority label not only defines a clinically differentiated asset but it also fundamentally changes market dynamics. It can potentially insulate us from the pricing compression and formulary step therapy that plague ME-2 agents. When a product demonstrates superiority and is approved by the FDA, it can become a premium drug chosen first by the physician, not forced to be a later line option by the payer. We believe this is the holy grail of retina, superior outcomes, improved durability and a pricing model that rewards innovation. We are proud that both SOL-1 and HELIOS-2 in wet AMD and NPDR, respectively, are designed under formal FDA agreements and anchored in superiority endpoints. These are not marketing terms. They have substantive statistical meaning, as agreed by a regulatory body, giving us a path to pursuing claims that no other company currently possesses. The second pillar of our triad is market expansion. Today, the global annual anti-VEGF market is estimated at roughly $15 billion. That figure tells only a fraction of the story. It reflects patients who are currently treated, not those who should be. In wet AMD, up to 40% of patients discontinue therapy within just the first year, often due to the burden of monthly or bimonthly injections. In diabetic retinopathy, the situation is even more staggering. Fewer than 1% of the 6.4 million NPDR patients in the U.S. received treatment, even though anti-VEGF drugs have been shown to work in this indication. The gap between what's possible and what's practiced represents what we believe is the largest expansion opportunity in retinal medicine. Our goal with AXPAXLI is not simply to compete for share within today's treated population but also to expand that population by reducing burden, increasing adherence and improving long-term outcomes. We believe we can achieve this through three key drivers. First, durability. AXPAXLI is designed to deliver sustained suppression of VEGF for up to 12 months following a single injection. This could allow physicians to see their patients less often while maintaining disease control. Second, flexibility. The ability to tailor dosing intervals between 6 and 12 months, providing real-world adaptability across diverse heterogeneous patient needs. Third, confidence. Data from both SOL and HELIOS programs, combined with FDA-aligned trial designs and our planned long-term open-label extension in wet AMD may provide the evidence base physicians and the payers need to support early consistent use. Even modest improvements in adherence could translate into hundreds of thousands of additional patients retaining vision, and a market opportunity significantly larger than what is measured today. At our Investor Day, we showed analysis demonstrating how we plan to move the current treatment discontinuation spiral towards a treatment retention cycle with AXPAXLI in wet AMD. Expanding treatment into diabetic retinal disease accelerates that market expansion even further. This includes NPDR, a disease 3x as prevalent as wet AMD with no standard of care in use today and DME. This is not hypothetical incremental growth; this is redefining the market. The third pillar of our triad is the potential for immediate adaptability. When we talk to retina specialists, one theme is clear, workflow matters. They want innovations that improve outcomes without requiring alterations to practice dynamics. AXPAXLI was designed precisely with that in mind. It requires no surgery. There is no need for concomitant steroids, and we believe no additional monitoring is needed. AXPAXLI will be administered by retina specialists who are familiar with intravitreal injections and perform these tasks every day with EYLEA, VABYSMO, or Lucentis. The experience itself will also be familiar. We are conducting all our registrational trials and expect to launch with a prefilled injector, just like the prefilled syringes used with most commercial anti-VEGF injections today. Moreover, the single hydrogel is designed to be fully bioresorbable, intended to leave no remnants behind without active drug. The procedure and the post-injection experience are similar to current anti-VEGF injections, except that AXPAXLI could last up to 12 months. This makes AXPAXLI not just innovative but also easily adaptable. Patients may benefit from fewer visits and longer durability. Physicians benefit from a potentially better drug with the same workflow and payers benefit from reduced utilization, predictability, fewer patient dropouts, and potentially better long-term outcomes. AXPAXLI can allow retina specialists to see more patients less frequently. It can enable a more predictable schedule for patients. And even if patients need to reschedule a visit, there should be enough drug on board to cover them until they can get in to see their physician. Ultimately, AXPAXLI may help alleviate the burden that often leads to treatment discontinuations or problems with adherence. The bottom line is that we believe AXPAXLI can simplify, optimize and even scale modern retinal practices. And importantly, this view isn't just ours. It is shared by the stakeholders who matter most when it comes to patient access and value. Over the past several months, we've spent significant time engaging with payers representing more than 75% of U.S. commercial lives and over 25% of Medicare Advantage lives to walk them through our clinical strategy, study designs and endpoints. We have been extraordinarily pleased with the feedback we have gotten from these conversations. On superiority, one payer described the potential of a product with AXPAXLI's expected durability as game-changing while another noted that it could be clinically preferred ahead of the entire anti-VEGF class. On market expansion, one comment captured it best; avoiding blindness is invaluable and less costly. And on adaptability, another payer noted, there is value in consistent, sustained and uninterrupted therapy. These conversations affirm what we already believe. Payers can see the potential of a product with AXPAXLI's target profile to deliver meaningful clinical differentiation, expand access, and redefine value in retina by improving outcomes while potentially reducing the overall burden of care. Turning to our SOL registrational program for AXPAXLI in wet AMD. Our success to date is built on outstanding execution. In SOL-1, I could not be more pleased with how the study is running, including retention, trial conduct, and safety monitoring. As it relates to retention to date, more than 95% of patients remain on study. That's almost every participant staying engaged over the course of the study, which is unheard of for retina trials. As it relates to rescues, to date, per our mask review, over 95% of rescue events have met the prespecified protocol-defined criteria. Let me repeat that. Over 95% of all rescue events have occurred exactly as designed. That level of compliance under masking is exceptional. Simply put, patients are staying in the trial and physicians are waiting until patients meet the predefined thresholds before administering rescue treatment in the vast majority of cases. This speaks to the discipline of our sites and the clarity of our protocol, which is likely to yield a robust data set when we receive top line data in the first quarter of 2026. These details matter. Protocol adherence ensures that when we unmask data, we will be looking at a clean, reliable data set that can withstand the highest level of regulatory scrutiny. Just as importantly, the SOL-1 trial is washed over by an independent data safety monitoring committee, and there have been no safety signals to date. This is also worth repeating clearly, there have been no safety signals to date as observed by an independent data safety monitoring committee. SOL-R continues to progress in parallel with its 6-month screening and loading phase, serving as an innovative patient enrichment strategy designed to derisk the study population. SOL-R is the first trial of its kind to include an extensive 6-month screening and loading phase, specifically designed to exclude patients with early persistent fluid or significant retinal fluid fluctuations, which can otherwise introduce variability and disrupt non-inferiority trials. I am thrilled to share this morning that SOL-R has now reached its target randomization of 555 subjects. This marks yet another significant milestone for Ocular and reflects the remarkable speed and execution of our clinical team, along with the overwhelming enthusiasm and engagement from investigators across the world. The exceptional pace and scale of recruitment across the SOL program underscore the strong demand among retina specialists and patients for more durable therapies like AXPAXLI that can potentially deliver better long-term outcomes while reducing the treatment burden. To maintain our commitment to both patients and investigators, we will continue to allow randomization of previously enrolled subjects currently in the loading phase of the trial. We continue to expect top line data for SOL-R in the first half of 2027, and we will refine our guidance at the appropriate time. Taken together, the SOL program has been designed to generate a comprehensive efficacy and safety package that addresses the most important questions retina specialists will have, giving them the confidence to use AXPAXLI immediately upon launch if approved. After subjects have completed 2-year follow-up in either SOL-1 or SOL-R, they will have an opportunity to enroll in our SOL-X study for additional 3 years. In this open-label extension, all enrolled subjects will transition to every 6-month treatment with AXPAXLI. To be clear, this study is a strategic initiative, not a regulatory requirement. We believe SOL-X could generate valuable insights into the potential long-term benefits of using a non-pulsatile treatment like AXPAXLI, in addition to providing long-term safety data. The study is designed to assess key outcomes, such as vision preservation, antifibrotic activity and most importantly, the potential consequences of delaying AXPAXLI treatment in the control arm patients. SOL-X outcomes may further expand AXPAXLI's potential by highlighting the need to start AXPAXLI treatment early or risk worse long-term visual outcomes. By reducing the treatment burden and potentially improving long-term outcomes, we believe the data from SOL-X could increase both short-term and long-term patient retention significantly. Let's now turn to diabetic retinal disease, which we define as both diabetic retinopathy and DME or diabetic macular edema, where our innovation extends to how we think about trial design, endpoints and label strategy. Our HELIOS program represents a bold differentiated approach to this disease. We are pursuing a broad diabetic retinopathy label that also encompasses DME, a complication within the diabetic retinopathy continuum. We believe this strategy allows us to capture the full spectrum of diabetic eye disease with a single registrational program. The unmet need here is staggering. Diabetic eye disease affects more than 100 million people globally, yet the majority remain undertreated. Even among NPDR patients without DME, disease progression leads to irreversible vision loss if left unmanaged. Current treatment paradigms are largely reactive, waiting until vision-threatening complications occur prior to intervention. We believe that must change. Our HELIOS-2 and HELIOS-3 Phase III trials are designed as superiority studies to demonstrate that early infrequent treatment with AXPAXLI can meaningfully alter the course of disease. HELIOS-2 is being conducted under a SPA agreement with the FDA, underscoring our continued commitment to regulatory alignment and scientific rigor. Together, these 2 trials will evaluate 6 and 12-month dosing intervals, providing flexibility to address diverse patient needs. A key innovation in these studies is our primary endpoint, an ordinal 2-step DRSS endpoint at week 52. Historically, Phase III DR trials have relied on binary diabetic retinopathy severity score or DRSS endpoints, counting only the percentage of patients who achieve a greater than or equal to 2-step improvement, or those who achieve a greater than or equal to 2-step worsening, not both. While straightforward, this method discards valuable clinically relevant data. Our ordinal analysis by contrast captures the entire spectrum of patient responses: improvement, stability, and worsening, allowing every participant to contribute data to the statistical analysis. This approach offers several distinct advantages. It reflects real-world treatment goals to both improve disease and prevent worsening. It increases statistical powering, allowing more efficient studies with a smaller sample size. It potentially provides a higher probability of success compared to other endpoints considered, and it aligns fully with FDA guidance as confirmed in our SPA for HELIOS-2. We evaluated other endpoints such as vision-threatening complications or VTCs, but those present major limitations. VTCs are binary and event-driven, which require much larger sample sizes and longer durations to reach statistical power. They also reflect late-stage disease progression rather than early therapeutic benefit. In short, ordinal DRSS is not only more clinically relevant with a potentially higher probability of success but it is also agreed to with the FDA from a regulatory standpoint. It's the right endpoint to demonstrate AXPAXLI's disease-modifying potential in DR. Since announcing this endpoint at our Investor Day, the feedback from both investigators and the broader retina community has been outstanding. We believe this approach represents the future of diabetic retinopathy trial design, and we expect this ordinal endpoint will become the new gold standard for the field moving forward. Unlike our wet AMD program, the HELIOS-3 trial employs sham injections and there are important regulatory reasons for that distinction. DR trials have very different regulatory requirements compared to the 2023 FDA draft guidance for wet AMD. Sham should not be used in wet AMD or even in center involving DME studies because they require subjective visual acuity primary endpoints where sham injections may not provide adequate masking and could influence outcomes. In DR, however, outcomes are based on objective retinal photographs, not subjective patient responses. Moreover, since there is no universal standard of care for NPDR, sham control is not only acceptable but necessary to ensure global regulatory alignment, particularly in countries without approved therapies for this population. Finally, our design strategy enables us to pursue a single unified DR label that encompasses both NPDR and DME. Because DME is a complication affecting a subset of DR patients, all patients with DME inherently have underlying retinopathy. In HELIOS-2 and HELIOS-3, we plan to include patients with non-center involved DME. Subjects with non-center involved DME demonstrated improvement with AXPAXLI in our HELIOS Phase I study. We believe this approach eliminates the need for separate DME trials and may position us to address the full diabetic eye disease spectrum with a single registrational program. By focusing on a superiority-driven DR label that captures the entire continuum of disease, we believe AXPAXLI can unlock a market opportunity that is not just incremental but transformative for patients, physicians, and payers worldwide. We ended the third quarter of 2025, with approximately $345 million in cash, which does not reflect approximately $445 million in net proceeds from our October equity financing. We were thrilled to see the enthusiasm for participation in our recent financing, validating the bold opportunistic decisions we have made to date. Every decision that is made in this company is made from a position of confidence in our drug, AXPAXLI, and in our clinical strategy, and in our market potential. Our confidence is compounded by consistently positive feedback we are hearing externally, including from payers who represent the vast majority of covered lives in the U.S. These discussions have reinforced the excitement we have seen from investors and further validated our triad-based strategy. These perspectives underscore that the market is already preparing for a future potentially defined by AXPAXLI, one where potentially better outcomes, lower burden and cost efficiency converge. Following our recent financing, we are now in an enviable position with an expected cash runway into 2028, and the financial flexibility for top line data from both SOL and HELIOS registrational programs, advance SOL-X, our long-term extension trial, invest in manufacturing capacity and infrastructure, and prepare for commercial launch and global expansion in anticipation of a potential AXPAXLI approval. We are operating from a position of increased strength. Every capital decision we make is proactive, not reactive, made from conviction, not constraint. When you put it all together, our science, our trial design, our execution and our strategic vision, the path forward is clear. We are building Ocular Therapeutix around the triad that defines how we intend to redefine the retina experience: potential superiority label, setting a new standard of durability that transcends incremental improvements, creating lasting competitive differentiation and potential insulation from pricing and step therapy pressures; market expansion, transforming a $15 billion treated market into a much larger addressable opportunity by reducing burden, improving adherence and reaching millions of untreated patients with wet AMD and DR; immediate adaptability, delivering a product that fits seamlessly into existing practice; no surgery, no concomitant steroids, no change in workflow, simply a better, longer-lasting treatment that aligns with how retina specialists already work. This Triad isn't a marketing pitch. It's the blueprint of how we intend to redefine retina, period. To summarize today's key points: #1, SOL-1 remains on track for top line data in the first quarter of 2026, with exceptional retention and trial integrity, reaching statistical significance and SOL-1 has the potential to enable a superiority claim on the AXPAXLI label in wet AMD; #2, SOL-R has now reached its target randomization of 555 subjects and is rapidly progressing toward top line data in the first half of 2027, built on a real-world design with a derisking patient enrichment strategy; #3, our HELIOS program will initiate imminently, leveraging a novel ordinal endpoint established per the SPA agreement for HELIOS-2 with the FDA -- we believe this is the optimal endpoint that increases statistical power and provides us a greater probability of success compared to other endpoints; #4, we continue to pursue a broad diabetic retinal disease label, including DME that could significantly expand AXPAXLI's reach; #5, our financial strength gives us the flexibility to obtain top line data from each of our SOL-1, SOL-R and HELIOS programs, pursue our SOL-X open-label extension study and prepare for commercialization with confidence; #6, and finally, through the triad of superiority, market expansion and immediate adaptability, we're building a company positioned not just to participate in the retina market but to redefine it. At Ocular Therapeutix, we are bold in our science, courageous in our strategy, and relentless in our pursuit of excellence. Thank you for your time and your continued support. Operator, we are now ready to take questions. Operator: [Operator Instructions] Our first question comes from Tazeen Ahmed with Bank of America. Tazeen Ahmad: Thanks for the very detailed update. I maybe wanted to get a sense of how you're thinking the initial label for wet AMD could look like? Because you're doing a lot of work among SOL-1, SOL-R and SOL-X. So what would the initial label look like and what do you think would be attributes of the label that you would think would be competitive that may need to be added on later as more data comes in? Pravin Dugel: Thank you, Tazeen. Thanks for the question, a very appropriate great question. And I'll start out by saying, of course, we're not in labeling discussions with the FDA as yet. But you can see that this company has strategically placed the clinical trials in such a way as we get, we believe, the best label in the history of our field. We expect our label to be a superiority label based on SOL-1. We believe that we'll have the flexibility of dosing every 6 months to every 12 months based on SOL-R and SOL-1. And we'll also have flexibility, obviously, of repeat dosing. That's what we expect from the initial label. Again, we're not in discussions with the FDA, as you can imagine. However, the other thing also that I'd like to note is that although this will not be in the label, remember that in the masking arm of SOL-R, we are going up against high-dose EYLEA. So although the randomization is 2:2:1, and although this is not for statistical analysis, we certainly will have the numeric data. So we believe that we'll have a great competitive advantage versus the second generation of anti-VEGFs with high-dose EYLEA as well. Tazeen, thank you again for the question. Operator: Our next question comes from Tara Bancroft with TD Cowen. Tara Bancroft: So my question is on NPDR. So one really quickly, for the expected patient populations in the HELIOS trials. Can you tell us what percentage of the enrolled that you would expect to have that are non-center involved DME? And then the real question is, if you could maybe describe in a little more detail for us, what is it that underlies your confidence in having a very broad DME inclusive label beyond only the non-center involved, especially compared to a different approach of running separate DME trials altogether? Because in that, I think it would be helpful if you could also discuss whether the inverse could be true that successful DME trials could be inclusive of NPDR at all or not? Pravin Dugel: Tara, thank you for the question. Great question again. So as far as the first question is concerned, really a quick answer. The fact of it is that we don't know. And when the time is appropriate, we certainly will guide you as to the stratification of our baseline patients that we have enrolled. In regards to the second question, the first thing to look at is the data from the HELIOS-1 study. Recall that with a single injection of AXPAXLI, a single injection at week 48, every single patient with non-center involving diabetic macular edema improved. Again, every single patient with diabetic macular edema improved with a single injection. We've looked at these patients in every which way that was presented in our Investor Day, including in terms of total volume, et cetera, et cetera. And Peter Kaiser showed you every single patient and every single patient with a single injection improved. On the other hand, every single patient who was not treated in the control group got worse. So we have great confidence based on the HELIOS-1 data that patients with non-center involving diabetic macular edema will improve. Now again, we're not in labeling discussions, obviously, with the FDA. But what I can tell you is that historically, the FDA has given label based on the disease itself. If you recall in my last company with IVERIC Bio, we studied only patients with extrafoveal geographic atrophy. There wasn't a single patient that we studied with center-involving geographic atrophy. And yet, when you see the label of that drug you will see that it's a broad label encompassing all of geographic atrophy. The same can be said of previous studies for diabetic retinopathy such as PANORAMA. The same thing could be said for visual limitations in clinical trials that have not extended to the label, such as going all the way going back to ANCHOR and MARINA. So we have great confidence that we will have a broad label that will encompass all of diabetic eye disease and that we will not need to do another study for diabetic macular edema. Recall also that it doesn't work the other way around, because every single patient with diabetic macular edema will have diabetic retinopathy, but not every single patient with diabetic retinopathy will have diabetic macular edema. So again, we have great confidence that we will never need to do another diabetic eye disease trial again for retina. We believe that we will obtain a broad label that will encompass not only diabetic retinopathy but all of diabetic macular edema. Thank you, Tara, for that question. Tara Bancroft: That's fantastic proxy to IVERIC. Operator: Biren, are you there? Biren Amin: Can you guys hear me? Pravin Dugel: Yes, please go ahead with your question. Biren Amin: Maybe, Pravin, on the SOL-R study, could you just talk about what percentage of patients were randomized from the screening phase? And for SOL-X, I understand on the open-label extension, you're going to enroll patients from SOL-1. But are SOL-R patients also going to be eligible to participate in SOL-X? Pravin Dugel: Biren, thank you again and thanks for the question. So as far as SOL-R is concerned, recall that what we have is a very thoughtful and long ramp. Recall also that if you look at every single study that's ever been done with an anti-VEGF, whether it'd be Lucentis, EYLEA, Avastin, Beovu, anything. But what you see is a curve when you plot the visual acuity with a number of injection that looks identical, which is that after 2 injections, the visual acuity improves and then it stabilizes. Now what we could have done is simply to say after 2 or 3 injections, we'll go ahead and randomize patients in SOL-R, because we'll have a certain degree of confidence in regards to the stability. We didn't do that. We went way above and beyond. What we did was to say, okay, we will do 3 loading doses and we'll have a unique period, 2 observation periods, not 1 but 2, in order to weed out any patient who would be unstable with any fluctuations in the OCT of 35 microns or greater. And after that, we went ahead and give 2 more loading doses and only then do we randomize. So it's a very long ramp. As far as the screen failures are concerned, Biren, that was your question, we haven't guided you to that as yet. We will when the time is appropriate in terms of giving you the baseline details. But as of yet, I'm just absolutely thrilled to report as we did this morning that we reached our target randomization of 555 patients. This is a credit not only to our clinical team, which has been just absolutely outstanding in terms of execution throughout this entire process with SOL-1 with SOL-R, and you'll see very soon with the HELIOS studies, but it's also a credit to the patients and to the PIs. And we're incredibly grateful to both that we've reached this point of target randomization. In regards to the open-label study, both studies, SOL-1 and SOL-R will funnel patients into the open-label extension. Again, we will have a lot of data that we will have in that open-label extension. I think one of the most important things that we will have is what the crossover patients will do. Now remember, the crossover patients will cross over after 2 years of pulsatile therapy. We don't believe that those patients will ever catch up. And the reason for that is that we know that fibrosis can be detected as early as 90 days after pulsatile therapy. And we believe that with 2 years of pulsatile therapy that will limit the patient's vision improvement. And we will have data showing that for the best long-term outcomes, it is necessary to start AXPAXLI from the very beginning. We believe that data will be very important. The other part related to this also is that in all studies, starting with the 7 UP study, for instance, long-term outcome has shown a gradual decline in visual acuity based on fibrosis and atrophy. And we believe that with constant suppression that AXPAXLI will provide, we will see continued visual acuity improvement and stabilization, which will also add to the long-term outcomes that will benefit from immediate treatment with AXPAXLI and continuation of AXPAXLI with long-term constant suppression of VEGF. Thank you, Biren, for your question. Operator: Our next question comes from Colleen Kusy with Baird. Colleen Hanley: Congrats on all the progress. Just as we're getting a little bit closer now to the SOL-1 data, just what details would you expect to share in the SOL-1 top line? Specifically, would you include 6-month BCVA? And what do you think will be the most important data points from SOL-1 that will help give us confidence in the read-through to SOL-R? Pravin Dugel: Colleen, thank you for your question. A great question, which I'm sure is on everybody's mind. Here's what I would say. Look, what we have done and what we have said is that we are very strategic in terms of planning these studies and our expectations of what the goal of these studies are. The sole purpose of SOL-1 is a superiority label, that's what we're pursuing. The purpose of SOL-R is clinical relevance. And the purpose of SOL-X is to provide long-term data to support both of these things. We also recognize what the challenge of SOL-1 is. We've recognized the challenge there is to go ahead and show you data in our secondary and exploratory analyses that will give you even more confidence in the success of SOL-R. We understand that challenge. We will absolutely meet that challenge. We have not guided you as to what we will show you as yet, but we certainly understand what we need to do with the card turn in terms of the narrative of a positive SOL-1 study. But let me also say that while we will provide you even more confidence in the success of SOL-R there should already be a great deal of confidence that SOL-R will succeed based on several factors. First is the derisked patient randomization that I've already spoken to, which has really the longest ramp, the most thoughtful derisking that I've ever seen of any study. And the second one is pertaining to the trial design is the endpoint. It's a 56-week endpoint. It's a singular endpoint that we believe is absolutely optimal for us. Again, it's a singular 56-week endpoint. But to summarize, Colleen, what I would say is we understand the challenge. We will absolutely meet the challenge. We will provide you even more confidence based on the SOL-1 card turn that there will be a positive SOL-R study. Thank you for the question. Operator: Our next question comes from Sean McCutcheon with Raymond James. Sean McCutcheon: Maybe a quick one for me. Can you speak to the progress of getting the NPDR studies up and running? I know you're using a similar site footprint to the wet AMD program? And how do you anticipate that accelerating those studies? Pravin Dugel: Sean, thank you for the question. Look, the process started immediately after the race for NPDR, and we are very fortunate that we have fantastic sites all over the world. You've seen the results of that based on the execution of SOL-1 and SOL-R. And yes, many of the same sites are being used. There're additional sites as well that we are very, very fortunate that we have people in this company, as you know, with an enormous amount of expertise. Many of the folks here have trained many of the people that run these sites and certainly know pretty much everybody around the world. So we're in an envious position of being able to strategically pick the very best sites. And you've seen that. Again, look, it's easy to forget where we were, Sean, not long ago. We had a trial that everybody said was not recruitable. We recruited way ahead of schedule in record time. And then people said, well, even if you did recruit that trial, there's no way that, that -- the execution is going to be good. Doctors are going to do whatever they want, patients aren't going to stay. We've provided you data in our Investor Day and today, real numbers to show you how well the execution is taking place that 95 -- we have a 95% on protocol rate, over 95% on protocol rate and over a 95% retention rate. Those things are absolutely unheard of for any trial in retina, let alone a trial that supposedly was impossible to recruit. And oftentimes, we forget that. We forget the level of execution that this team has provided. And that's not only thanks to the clinical team but that's also thanks to the sites that they've selected and the personal relationship that all of the team has with not only the PI but the entire site. So the answer to your question is we will give you guidance to the HELIOS progression. We're very pleased with the way that it's going, and you'll hear more details to follow. Thank you, Sean, for the question. Operator: Our next question comes from Jon Wolleben with Citizens JMP. Catherine Okoukoni: This is Catherine on for Jon. I just have another quick one for the DR program. I'm just wondering if there's any risks associated with using the ordinate 2-step DRSS endpoint, especially since you're considering using a smaller patient population. Is there any concerns regarding a higher placebo effect given kind of patient variability? I wonder if you could speak to that? And how do these risks compare to traditional endpoint? Pravin Dugel: Catherine, thank you for the question. It's a very appropriate and fair question, and it's something that we've looked into quite a bit. And what I can tell you without hesitation whatsoever is that we have great, great, great confidence with the ordinal endpoint. Now if you look at the talk that was given by Peter Kaiser in our Investor Day, you'll see that there're all kinds of scenarios that were put in, including the data that we have with the HELIOS-1 study. And as you can see, the level of success achieved by the data on the HELIOS study was overwhelming. So in this particular case, given the drug that we have and given the data that we have, we are very confident that with the ordinal endpoint that we will succeed. Again, if you look back at the HELIOS-1 study, what I would say as a clinician who's practiced for over 30 years and also with all the other clinicians that we have in this company, is that we've really never seen a situation where a single injection of a drug, again, a single injection of a drug after week 48 has results where every single parameter is in favor of the drug. And remember, this was just the drug. This was not a combination of agent. EYLEA wasn't combined with this. This was simply AXPAXLI and nothing else, completely transparent. And what you will see there is not only in terms of the diabetic retinopathy score but also in terms of diabetic macular edema. And then we've looked at it in every single which way possible, including the total fluid volume, including perfusion and every single parameter favored the drug with a single injection after week 48. So we have great confidence in the endpoint, and we have great confidence in the success of both HELIOS-2 and HELIOS-3. And remember also that HELIOS-2 has an FDA-approved SPA going with it as well to validate that study and validate the study design. Again, I also want to repeat that both HELIOS-2 and HELIOS-3 are superiority studies. Catherine, again, thank you for the question. Operator: Our next question comes from Yi Chen with H.C. Wainwright. Yi Chen: For the HELIOS-2 trial, once started, how long do you think it will take to complete enrollment of 432 patients? Do you think NPDR patients would be relatively difficult to enroll because they are reluctant to get treatment in the first place? Pravin Dugel: Yi, thank you for your question. So we have already seen a great deal of inertia to enroll these patients. In fact, we saw that before we even announced the trials. As I was asked earlier on by Jon, whether we're using the same sites or not, I said, yes, there was a great deal of overlap, including other sites. The sites have already been demanding for this -- demanding the study. There is such a need out there for these patients. And remember, what we're enrolling is we're enrolling advanced severe -- moderate to severe -- advanced non-proliferative diabetic retinopathy. So a lot of these patients are symptomatic. They may not have lost vision but they certainly have blurry vision, et cetera. They certainly are knowledgeable that there are -- there's a threat to their vision. So there's a great deal of need out there and a great deal of enthusiasm to have something that is absolutely sustainable, both by both patients as well as the PIs. And this is completely sustainable. As you know, it's a single injection if it does what we expect it to do, that will last for a year. This is -- we know that this is a target that's derisked, that's validated in other studies. So we believe that this is a relatively derisked study. And especially given what I just said about HELIOS-1, we're very, very confident in the results. So to answer your question, we don't think that there's going to be any issue whatsoever in completing these trials in a very efficient manner. This is already underway and we will guide you when appropriate. Again, thank you, Yi, for the question. Operator: We've reached the end of our question-and-answer session. There are no further questions at this time. I would now like to turn the floor back over to Dr. Dugel for closing comments. Pravin Dugel: Thank you very much. I'd like to thank all of you for your time today. I'd like to thank all of you for your diligence and for joining us. We look forward to updating you on our progress. If you have any follow-up questions whatsoever, please reach out to Bill Slattery, our Vice President of Investor Relations, and have a great day, everybody, and thank you again for your time. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Hello. My name is Didi, and I will be your conference operator today. Welcome to the Silicon Labs Third Quarter Fiscal 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I will now turn the call over to Giovanni Pacelli, Silicon Labs Senior Director of Finance. Giovanni, please go ahead. Giovanni Pacelli: Thank you, Didi, and good morning, everyone. We are recording this meeting, and a replay will be available for 4 weeks on the Investor Relations section of our website at investor.silabs.com. Our earnings press release and the accompanying financial tables are also available on our website. Joining me today are Silicon Labs' President and Chief Executive Officer, Matt Johnson; and Chief Financial Officer, Dean Butler. They will discuss our third quarter financial performance and review recent business activities. We will take questions after our prepared comments, and our remarks today will include forward-looking statements that are subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the Investor Relations section of our website. I'd now like to turn the call over to Silicon Labs' Chief Executive Officer, Matt Johnson. Matt? Robert Johnson: Thanks, Giovanni, and good morning, everyone. Silicon Labs delivered third quarter results consistent with our outlook, demonstrating strong sales and profitability growth driven by disciplined execution throughout the company. Based on our Q3 results and Q4 outlook, we expect full year revenue growth of 34% compared to 2024. Even more exciting is the continued growth ahead with many customers at various stages of qualification and new production ramps leading into 2026 and beyond. Our industrial and commercial business continued its strong performance in the quarter, extending the momentum we have seen throughout the year. Demand for commercial applications such as building safety, lighting and access points experienced strong quarter-over-quarter sales growth, while normal variation in electronic shelf label shipments drove softened quarter-over-quarter results. In industrial, smart meter demand continues to build as utilities worldwide deploy near real-time tracking of critical infrastructure and resource usage. The rapid rise of artificial intelligence is driving new growth in energy demand, increasing the need for intelligent load balancing across the world's electrical grids. In response, many regions, including the United States, India and Japan are expanding, upgrading or installing new monitoring infrastructure to strengthen grid resilience. This trend reinforces the importance of connected solutions that enable efficient data-driven management of energy systems. As the global leader in smart metering, we are well positioned to benefit from this trend. Our Home & Life business grew as expected with smart home applications delivering another consecutive quarter of sequential growth with medical customers up nearly 60% year-over-year as we ramp new programs and continue to expand our market share in this area. Our strong customer engagements with high win rates in this space validate our conviction that Silicon Labs wireless solutions are setting the benchmark for continuous glucose monitoring and remote outpatient care. Markets where reliability, performance and security are critical. As connected health and smart living ecosystems mature, our differentiated portfolio positions us to capture substantial new design wins across next-generation monitoring, diagnostics and wellness devices. At this year's Works with Austin Summit, we were joined on stage by senior leaders from Amazon and Cisco as we introduced 2 groundbreaking design tools that are redefining how customers develop and deploy connected solutions. The first, Studio 6 is a fully revamped enablement platform that streamlines development, integration and debugging, reducing complexity for engineers across product lines. It offers a powerful suite of tools that have become the hallmark of Silicon Labs' success and a key differentiator valued by our channel partners and broad base. The second, the Simplicity AI software development kit, or SDK, is a new platform we believe will become the de facto standard for IoT developers. It enables customers to leverage Agentic AI train directly on Silicon Labs software design rules and frameworks, delivering a step function increase in the speed, quality and efficiency of customers' code creation and testing. While currently available to select customers, we believe this first-mover advantage demonstrates our continued innovation and leadership in this space. The combined impact of these tools is powerful, easier wireless adoption, faster development cycles and over time, entirely new applications created through human AI collaboration. Another emerging trend we see as a significant future growth opportunity is accelerating demand for active wireless asset tracking. Customers increasingly want to monitor high-value assets in real time, moving beyond today's passive RFID tags and costly cellular solutions that limit scalability in battery life. Silicon Labs' latest solutions make this possible with advanced radio location features that deliver real-time beaconing with high accuracy and ultra-long battery life. This enables real-time GPS-like precision at a fraction of the cost, which is an ideal for an increasing set of emerging applications. As supply chains and operations become more data-driven, secure and accurate asset tracking will become increasingly essential across logistics, shipping, retail, manufacturing and so many other environments. Looking ahead, we believe our technology leadership and scale in IoT uniquely position us to enable a new wave of IoT growth. Consistent with our existing plans to strengthen our supply chain resilience, this past week, we announced the expansion of our partnership with GlobalFoundries to manufacture industry-leading Series 2 wireless SoCs at its Malta, New York facility. This long-term partnership will add needed U.S. capacity for competitive IoT wireless solutions for the next decade and beyond and production will ramp over the next several years. Finally, the continued strength of our Series 2 platform, combined with the ramp of Series 3 that will be even more impactful, extends our leadership position in ultra-low power performance with next-generation compute, connectivity and security to bring more secure, interoperable IoT devices to market faster. The Silicon Labs team continues developing and deploying the next wave of IoT innovation, I'm proud of their consistent execution and remain confident in our strategic direction. Looking forward to next year, we expect continued momentum from our share gains converting into revenue, gross margin expansion and the benefits of disciplined operational management, all of which will support our commitment to delivering sustained earnings growth. With that, I'll turn it over to Dean for a closer look at the financials. Dean? Dean Butler: Thanks, Matt, and good morning to everyone. I'll first review the financial results for our recently completed quarter, followed by a discussion of our current outlook. Revenue for the September quarter was $206 million, up 7% sequentially and in line with the midpoint of our prior guidance. Year-over-year, consolidated revenue was up 24%, which is twice the performance of our most comparable peer. The industrial and commercial side of the business was $118 million or 57% of consolidated revenue, up 7% sequentially and up 22% from the same period last year. Sequentially, the growth was driven by a diverse set of industrial applications like building automation, commercial lighting and access points. Strong demand from smart metering customers also contributed. Home & Life September revenue was $88 million or 43% of consolidated revenue, up 6% sequentially and up 26% from the same period a year ago. Sequential growth was driven by strength in smart home automation customers and year-over-year growth is dominated by new ramps in continuous blood glucose monitors and other medical applications. During the quarter, distribution made up approximately 74% of our revenue mix, channel inventory ended at 61 days and channel point of sale saw a sequential increase in the September quarter as some of the stocking activity is anticipation of customer production plans. September gross margins saw another positive progression driven by strength from our product mix and increasing sales through our distribution channel. GAAP gross margin was 57.8%. Non-GAAP gross margin was 58%, which was above the midpoint of our guidance and up 170 basis points from the prior quarter and better than the same quarter a year ago by 350 basis points. GAAP operating expenses were $131 million, which includes share-based compensation of $20 million and intangible asset amortization of $2 million. Non-GAAP operating expenses of $109 million was consistent with our expectations. GAAP operating loss was $12 million and non-GAAP operating income was approximately $11 million. Our non-GAAP tax rate remained 20%. GAAP loss per share was $0.30 and non-GAAP earnings of $0.32 per share beat the midpoint of our guidance by $0.02, driven by our better-than-expected gross margins in the quarter. Turning to the balance sheet. We ended the quarter with $439 million of cash, cash equivalents and short-term investments. Our days of sales outstanding was approximately 30 days. Balance sheet inventory remained essentially flat, ending the quarter at $82 million of net inventory. Days of inventory on hand was also relatively unchanged at 85 days at quarter end. Our normal survey of end customers shows further decreasing of customer inventory and is now at the lowest levels since we began tracking this data point. Turning to our current outlook. We anticipate the revenue in the December quarter to be in the range of $200 million to $215 million, which at the midpoint would imply a 25% year-over-year growth and continued sequential growth. Q4 sequential revenue factors in seasonality effects, which is historically flat to slightly down sequentially. Product mix continues to support a further expansion of our gross margins into the September -- December quarter with both GAAP and non-GAAP gross margins expected in the range of 62% to 64%. At the midpoint of this guidance, it implies an 840 basis point non-GAAP improvement year-over-year. Q4 also includes an expected onetime benefit to gross margins, which adds approximately 200 basis points to our current forecast. Given our improvement in profitability and our fiscal year-end, the variable portion of compensation will add approximately $2 million sequentially. resulting in expected non-GAAP operating expense in the range of $110 million to $112 million and a GAAP operating expense between $134 million and $136 million. As a reminder of our stated plans, we expect to limit our operating expense growth going forward and increasingly focus on driving earnings per share accretion faster than our top line revenue growth. The company has reached a level of technical capability where the need for further expansion of spending is reduced, and our shareholders should expect to see this accelerated earnings growth going forward. December earnings per share on a GAAP basis is expected to be in the range of $0.22 loss to a profit of $0.08 per share on a basic share count of 32.9 million shares. Non-GAAP earnings per share is expected to be in the range of $0.40 to $0.70 on an expected diluted share count of 33.2 million shares. This wraps up our prepared remarks. I'd like to now hand the call over to the operator to start the Q&A session. Didi? Operator: [Operator Instructions] And our first question comes from Tore Svanberg of Stifel. Tore Svanberg: Congrats on the progress here. My first question is on the gross margin guidance for Q4, Dean. So you talked about the onetime benefit. Maybe you could clarify exactly what that is. Even without that benefit, gross margin is up pretty significantly. I think you mentioned mix was the main reason. Just wondering how we should think about that dynamic, especially going into 2026, just given how much higher the gross margin guidance was? Dean Butler: Yes, Tore, good question on gross margins. This is an area I think the company has done really well for the past year is continue to improve our gross margins. Last quarter, we ended at the high end of our long-term stable rate. Now we're pressing up above that. You're right to have cut about 200 basis points is a onetime benefit that we'll get in the December quarter. It's a credit that we're receiving and the way to recognize the credit is it has to be recorded all in one period. That's not expected to continue on a go-forward basis, which means at the midpoint, 63%, backing out 200 basis points, we're sort of at a stabilized 61%. When I look into 2026, I think where we are at sort of this normalized 61%, we're probably going to be able to maintain that from what I can kind of see in mix and production ramps and over the next couple of quarters, we'll kind of be in the 60% to 61%. Eventually, it will go back toward our long-term range. But for now, at least for the next few quarters, I think we stay in this 60% range, Tore, if that's helpful. Tore Svanberg: That's very helpful. And just my follow-up is for Matt. Matt, you talked about the Works with conference and you introduced those 2 new tools. And particularly interested in the SDK-based Studio AI that you announced. I'm just trying to understand what that means for you financially over time because obviously, this is going to really accelerate the way third-party developers design a new product. So sort of any financial impact you could talk about from that new tool would be really interesting. Robert Johnson: Yes, absolutely. So just a reminder for everyone, what this is, is an agentic AI development environment for our customers. And what we showed them is using this environment, it absolutely streamlines the steps, it accelerates the time and really eases the development. So what I would expect Tore to be very direct is for experienced developers, this will allow them to be more efficient. For new entrants, it will allow them to lower the bar in terms of what they need to know in terms of entering the IoT space and developing with a wireless solution. So what this should do over time is allow us to scale faster because one of the toughest things in the wireless domain is for someone who doesn't know how to use wireless technology to adopt wireless technology. So this essentially makes it easier and opens the door to more people being more efficient, faster time to market with their IoT wireless development. So for us, it should result in scalability and more efficiency in terms of acquiring customers' designs and scaling. Not going to happen overnight, but we're already working with our first customers there. And as you've all seen, this space is moving fast. So we're pretty excited about this, and our customers are excited about it now, too. Operator: And our next question comes from Christopher Rolland of Susquehanna. Christopher Rolland: I guess mine are around both channel and customer inventories, which you did address in the prepared remarks. I guess, first of all, good job on filling the disti channel a little bit more here. I was wondering what your expectations are there? Could we eventually get to the 70, 75 target? And how long might that take? And on the customer side, you guys talked about kind of the lowest days ever. Perhaps if you could -- I know this isn't a perfect science, but if you could talk about a range, and obviously, we're at the bottom of the range, but your expectations for customer replenishment as well over the next few quarters? Robert Johnson: Yes. So Chris, this is Matt. So quick answer. Customer side, I'd say any excess inventory effects at end customers are effectively gone now. I think we can say that with confidence. And we're now operating with the market again and those inventory effects are gone. So that's an important milestone, and that's been something that we've been dealing with for a pretty long time as part of this cycle. So that's one. I think, two, on the disti side, we've been running on the lower end of our DSI closer to 50 with a target of 70 to 75 days and a goal of working that up each quarter if we can, on average, around 5 days. And this quarter, we went up around 10. And it's important, we saw strong POS growth, but we did make progress on those 5 days we wanted to make. And in addition to that, we had another 5 days that was around strategic stocking agreement with a customer in anticipation of their ramp. So that's the combination of those is how we got to the 10 days. Moving forward, we're going to keep trying to push around 5 days until we get to our target. That hasn't been linear. It's been lumpy. So I wouldn't expect it's perfect each quarter, but that's our goal, and we're continuing to push in that direction. And we'll get there over the coming quarters. Christopher Rolland: Excellent. And without being too specific, maybe broad strokes for next year for '26, how you guys see that setting up, I guess, starting in March, I think you guys are you seasonally buck some of the other guys that are down in March. Perhaps if you could give us the setup for that year and which products are you kind of most excited about or do you think are going to carry growth the best through '26? Robert Johnson: Okay. Sure. So obviously, we're not calling '26, and I think it's a difficult time to call the broad market or macro with the uncertainty that's out there. But what we can say with confidence is just like this year, I think this year -- full year with this guide for Q4, Chris, we'll be at around 34% year-over-year for '25 versus '24, which I think is really strong. And at the same time, we've seen really good progress on gross margin and EPS. Next year, not calling the market, but whatever the market ends up being, we see a path to doing better than the market and taking continued market share. And as Dean was indicating, we see strong gross margin in there as well and solid EPS progress over that time frame. In terms of what's driving that, it's the same stuff. So we've been talking about the strength of Series 2 and increasing strength of Series 3 mixing in. And we have our metering space that's continuing to drive strength, ESL and CGM. We like what we see in each of those areas. We also shared that we're seeing increasing strength in asset tracking as a category that will mix into our growth over time. And I'd also add one other kind of tailwind is we've been talking about matter for a long time. I think next year, you're going to start to see matter revenue feathering in as well, which all of these serve as a foundation for continued growth for the years beyond that. So we're excited for 2026. And maybe easy takeaway, we have a positive bias right now, all things considered. Operator: And our next question comes from Cody Acree of the Benchmark Company. Cody Grant Acree: Congrats on the great numbers. Dean, if you can maybe talk a bit about the gross margin incremental for Q4, even with the onetime and just the sequential bump is much more than I would think just normal mix shift would entail. So can you just talk about the details of the drivers sequentially? Dean Butler: Yes, Cody, there is -- within the mix, there are a couple of specific parts that have much better margins than the rest of the profile, which is actually incrementing it up. We don't want to get into too much detail on which specific part that is that way we -- customers don't get upset at us that might be buying that. The other element that we've also returned back into is above 70% of distribution is coming our sales. We just ended Q3 at 74%. That continues to sort of move margin up. But I would say within the mix, probably there's a couple of specific parts that's driving it incrementally higher. Throughout the year, just sort of as a macro trend for the last kind of 4 quarters or so, industrial has been performing extremely well for the company. That tends to come a little bit better gross margins for us as well. And that's sort of been kind of the yearly march as we've gone forward these last 4 quarters. And so hopefully, that helps give you a little bit more color, Cody. Cody Grant Acree: Sure. And then I guess just any directional color on your different segments, Home, Life and I&C? Dean Butler: This one, we -- you've gotten this wrong a couple of times so I hesitate to give you sort of a formal guide. Look, I will say it the way I said it last quarter, which is knowing no real differences, probably we're looking at a similar mix sort of quarter-on-quarter. Kind of the hesitation around that really is just around visibility of short order lead times. So turns are coming in right now inside of lead time. So we never really know how the total backlog is going to shape out for the entire quarter, and that's really our only hesitation. Operator: And our next question comes from [ Trip Smith ] of Barclays. Kyle Bleustein: This is Kyle Bleustein on for Tom O'Malley. I wanted to dig into the gross margin commentary a little bit more. I was just kind of curious like what has changed since the Analyst Day? Like has the product mix surprised you at all? And then when you're talking about it being stable for the next few quarters and coming back down, is that again on the mix side? Or is there anything to do with pricing? Just kind of your thoughts there? Dean Butler: Yes. Nothing's really changed, Kyle, just to give you a little context from Analyst Day, that's intended to be our long-term sort of sustainable range that we think we run in, and that's 56% to 58%. Throughout the year, we've been pressing into that range and then at the high end of that range is where we landed at the end of the September quarter. Now piercing above 60%, sort of mid of our guidance 63%. That's really a relatively short-term phenomenon. We'll probably see that for the next few quarters, and Cody asked on his question on sort of specific product mix. That specific product mix probably is not a long-term multiyear sort of sustainable mix. I do think as we come up into the 60s, it takes a few quarters, but we'll gradually start moving back towards kind of the stated long-term range. But at least from what we can tell right now, that's not a fast movement back down. I think it's a fairly gradual movement back down. So I wouldn't say anything has really changed other than a couple of product-specific things that have done better. And of course, I also gave Cody some additional color on industrial throughout the year has done better as well. Distribution, we're making progress. So all those things sort of help. So I hope that answers your question, Kyle. Kyle Bleustein: Okay. That's helpful. And then just for my follow-up, can you kind of give an update on how the Series 3 rollout is going, either like expected percent of the mix? And then just overall, as that kind of ramps into your product portfolio, how we should think about overall pricing trends? Robert Johnson: Yes, sure. This is Matt, Kyle. I'll take that. So the easy setup to remember is Series 2, we've stated even in our Analyst Day, we have not even ramped -- we've ramped a small portion of what we've won there in the current platform, and we're still winning in Series 2. So Series 2, we're looking at many years of growth before we see that peaking. And as, I think, data point or testament to that, we just announced a partnership with GlobalFoundries to bring Series 2 to the U.S. as a U.S. manufacturing option because given the life we see there, that's going to be needed. So Series 2, think of that as ultra-successful de facto standard in the market today as we see it. Then bring in Series 3, which our expectation based on what we've done there will be even more impactful than Series 2. It's early days. We're just ramping our first product, and we're going to start -- you're going to start seeing a series of products come out at an increasing acceleration. So each year, more products coming off of that base platform and IP, and it will start feathering into our design wins and revenue over time. But just like Series 2, these things take time. So I wouldn't over-index on the revenue impact this year, next year. I think you're looking after that before material impact come. But why that matters is it's all about setting ourselves up for the future. And Series 3 is set up for the future, just like Series 2 was, and that's why it's so successful now. And that's important because I can say here, and I'm proud of this, we have the largest opportunity funnel as a company we've ever had because of now the combined strength of these 2 platforms. And remember, they're software compatible, which is an awesome strength. And we're on track to record design wins once again. So the combination of all those things really sets us up good for the next few years and beyond, and we're excited and proud of that. And that's why I think we can say we have a positive bias sitting here today. Operator: And our next question comes from Quinn Bolton of Needham & Company. Quinn Bolton: Congratulations on the nice outlook, especially on the margin side. I wanted to just come back to the active asset tracking, Matt, that you talked about in the prepared comments. It sounds like it could be a pretty meaningful opportunity. In the past, you guys have talked about CGM, smart meters, ESL as 3 of your more company-specific product ramps that can drive outsized growth. Wondering, would you start thinking about active asset tracking as maybe a fourth company-specific driver? Or would you not put it in the same sort of magnitude as the other 3 that you've previously talked about? Robert Johnson: So we're being intentional and deliberate, Quinn, about introducing this as a concept. And that means we believe it has a lot of growth potential as an end market. And we believe that we have a lot of potential for strength in that market. We don't want to be talking to you all about a space that's not growing long term, and we don't have a very strong position. So we think it has that potential. That being said, it's early days. We're just introducing it as a concept for you all, but it does have that recipe. And we do see an acceleration in our engagement and position in that space. What we have as a company is very attractive to customers, just a great fit for us in terms of what we can do in technology. We're the largest company in this space. That's something our customers want to see. And we have the ability to turn products really quick to address the needs of this marketplace. So yes, it has potential, and we're excited about it. Don't want to over-index on it. It's early. But I think over time, it has really exciting potential. Quinn Bolton: And Matt, just maybe a quick follow-up there. Was that the Bluetooth-6, I think it's channel sounding technology that's the basis for that active asset tracking? Or is that another wireless technology? Robert Johnson: Yes. BLE with channel sounding is and can be used in those applications and is interesting to a lot of those customers because not only can they kind of figure out where the things are, but they can figure out where they are relative to each other, which is really important in some applications. So that is one of the things that is driving interest. Quinn Bolton: Okay. Great. And then a follow-up question, just I think in the past, you thought the CGM could get to 10% of revenue by Q4 of '25 to the second quarter of 2026. Is that time line still sort of in the cards for the continuous glucose monitors? Robert Johnson: So the last thing I remember is us believe there's a path to being 10% in the first half of next year, and we still see that path. Operator: And our next question comes from Joe Moore of Morgan Stanley. Joseph Moore: Congrats on the good margin performance here. I wonder if you could talk about sort of inorganic opportunities at the Analyst Day, you said that you were open to that. Is that still something that you're contemplating? It seems like you have a lot of organic growth here. Just how are you thinking about M&A opportunities? Dean Butler: Yes, Joe, if you recall at the Analyst Day, we said we are open to M&A opportunities, but we have a pretty tight filter. And I think that hasn't changed, which means we're looking for things that can help accelerate our growth level, which is a tough filter to find these days sort of with Silicon Labs just posting a 34% year-on-year. And that growth doesn't look like it's changing anytime soon. We also don't want to add on technology or end markets that are not in our wheelhouse. So it has to be in our wheelhouse, accretive to our growth, which really means that there are not a whole lot of assets that are going to fit that stage. We also have a lot of the technology that we need. And so while we're open, I think the reality, what ends up meaning is M&A is probably something we're open to, but the more likely is to flow that excess cash flow back in terms of buyback. I think with the increasing profitability that we see now and as gross margins sort of keep going up and our operating expenses are starting to be held flat, that looks like increasing excess cash flow, and that's likely to lead us more down the path of buybacks going forward, just given that tight narrow lens on M&A. Joseph Moore: That's very helpful. And then with regards to your customers kind of drawing down inventory to these lower levels, I guess, just do you have conversations about some of the geopolitics of the situation? And I just -- I know you're not impacted by stuff like Nexperia, but it seems like that's creating line down situations. Like did the customers sort of feel like, okay, given these geopolitical uncertainties, I need to hold more inventory? Or just -- I don't think we've seen a lot of that activity, and I'm a little surprised that we haven't. Robert Johnson: Yes. We're not seeing customers building inventory around this. In fact, broadly, it's come down, not up. So -- and we're watching that very closely. I do think that the uncertainty, Joe, is just not helping anything. And I think that's worth saying that when you talk to customers, they're trying to navigate all this and they don't have as much clarity and visibility as they'd like. So I do think that, that weighs on their -- the way they talk about the future. But big picture, we're not seeing inventory builds around this. There might be a pocket here and there, but broadly, it's going the other way. Operator: And our next question comes from Peter Peng of JPMorgan. Peter Peng: Just a follow-up to that point. So you guys are above $200 million in revenue levels and your end customers' inventories are decreasing. Do you still -- do you believe you're still kind of undershipping to end demand? And if so, how much? Robert Johnson: No, we don't, Peter. We think we're as aligned with consumption and consumption as we've been in a very long time. Peter Peng: Got it. Okay. And then my follow-up is just on your Wi-Fi. Can you probably share some updates on that and some program ramps? And maybe how you're thinking about that trajectory over the next year or 2? Robert Johnson: Great. Thank you for asking. I should have mentioned that more proactively. So Wi-Fi this year, strong growth. I can't remember the exact numbers, but 30% to 40% year-on-year. That's an area that is our newest of our 4 major technology cornerstones. And it's growing and winning share. And we have our existing products out there, but also we started hinting and teasing as part of our Series 3 platform, you're going to see a lot more from us in Wi-Fi, and that's coming soon. So I think the combination of that sets us up really well for -- simply said, relatively small compared to our other areas, but accelerated growth. And maybe easy framing, right now, BLE is our fastest growing. Wi-Fi is our second fastest growing, even though we have leadership positions in the other 2 areas, 15.4 and -- yes, sorry, I just lost my train of thought, guys. 15.4 and subgig. So 15.4 subgig, leadership positions, strong growth, but the new areas, the newest areas for us are the fastest growing, and we're making really fast progress there. So an easy way to frame it, big funnel for Wi-Fi, strong design win momentum should set us up for continued growth and share gains in Wi-Fi for a long time to come, but it is still our smallest of the 4 areas. Operator: Thank you. I will now hand the call back to Giovanni Pacelli. Giovanni Pacelli: Thank you, Didi, and thank you all for joining this morning and for your interest in the company. Before concluding today's call, I would like to announce our upcoming participation in RBC Capital Markets Global Technology, Internet, Media and Telecommunications Conference on November 19 in New York City. This now concludes today's call. Thank you. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Urban One 2025 Third Quarter Earnings Call. As a reminder, this conference is being recorded. We will begin this call with the following safe harbor statement. During this conference call, Urban One will be sharing with you certain projections or other forward-looking statements regarding future events or its future performance. Urban One cautions you that certain factors, including risks and uncertainties referred to in the 10-Ks, 10-Qs and other reports it periodically files with the Securities and Exchange Commission could cause the company's actual results to differ materially from those indicated by its projections or forward-looking statements. This call will present information as of November 4, 2025. Please note that Urban One disclaims any duty to update any forward-looking statements made in the presentation. In this call, Urban One may also discuss some non-GAAP financial measures in talking about its performance. These measures will be reconciled to GAAP either during the course or this call or in this company's press release, which can be found on its website at www.urban1.com. A replay of the conference call will be available from 2:00 p.m. Eastern Standard Time, November 4, 2025, until 11:59 p.m. Eastern Standard Time, November 14, 2025. Callers may access the replay by calling 1 (800) 770-2030. International callers may dial direct +1 609-800-9909. The replay access code is 7822067. Access to live audio and a replay of the conference will also be available on Urban One's corporate website at www.urban1.com. The replay will be made available on the website for 7 days after the call. No other recordings or copies of this call are authorized or may be relied upon. I will now turn the call over to Alfred C. Liggins, Chief Executive Officer of Urban One, who is joined by Peter Thompson, Chief Financial Officer. Mr. Liggins, please go ahead. Alfred Liggins: Thank you very much, operator, and welcome, everybody. And as usual, we're joined by other team members here, Jody Drewer, our Chief Financial Officer for TV One and CLEO, in case we've got any questions on the cable business, Karen Wishart, our Chief Administrative Officer; Chris Simpson, our Chief Legal Officer; and also Veronika Takacs, who is our Chief Accounting Officer. And so thank you very much again for joining us this quarter. You've seen the press release, hopefully, that we put out. Business came in a bit softer for the quarter than we had projected across the board. Our core radio pacings going forward are facing big political headwinds. So looking at about minus 30% right now. However, ex political, we're down to almost mid-single digits, 6.4%, which is better. It's an improvement. But because the revenues have come in lighter with Q3, we are adjusting our guide for the year. Last quarter, we guided to a $60 million EBITDA number. We generally usually give a range. We gave a hard number last quarter. We're adjusting that guide down to $56 million to $58 million of EBITDA for the full year as we come to the close. Within our third quarter and last quarter, I said that we were going to look to do another round of cost saves, and we actually did that in Q3, which resulted in about $3 million of annualized expense savings. This is in addition to the $5 million that we had done earlier in the year. Peter is going to talk about the impact on the numbers in Q3 of that in terms of severance. And so with that, I'm going to turn it over to Peter, so he can go into the details of the numbers, and then we'll come back for Q&A. Peter Thompson: Thank you, Alfred. So consolidated net revenue was approximately $92.7 million, which is down 16% year-over-year. Revenue for the Radio Broadcasting segment was $34.7 million, a decrease of 12.6% year-over-year. Excluding political, net radio revenues were down 8.1% year-over-year. And according to Miller Kaplan, our local ad sales were down 6.5% against the market that was down 10.1%. So we outperformed on local. And on national ad sales, we were down 29.1% against the market was down 21.5%. So we underperformed on national. Our largest ad category was services, which was up 22.9%, driven by legal services. Financial was up 17.9%, but all of the other major categories were down, including government, health, retail, entertainment, auto, telecoms, food and beverage. Net revenue for the Reach Media segment was $6.1 million in the third quarter, down 40% from the prior year. And adjusted EBITDA at Reach was a loss of approximately $200,000 for the quarter. And that was really a lower overall network audio market, lower national sales renewals and probably a drying up of DEI that drove the decline at Reach. Net revenues for the Digital segment were down 30.6% in Q3 at $12.7 million. Direct and indirect digital sales were down by approximately $4.4 million. The decline was the result of decreases in DEI money, back-to-school, political and overall softer client demand. Audio streaming was down by $1.3 million year-over-year. Adjusted EBITDA was approximately $0.8 million compared to $5.3 million last year. We recognized approximately $39.8 million of revenue from our cable television segment during the quarter, a decrease of 7%. Cable TV advertising revenue was down by 5.4%. Total day delivery declined by 29.4%, P25-54, which was partially offset by an increase in CTV and third-party platform revenue share. Cable TV affiliate revenue was down by 9.1% driven by subscriber churn. Cable subscribers for TV One, as measured by Nielsen, finished Q3 at 34.1 million compared to 34.3 million at the end of Q2. CLEO TV had 33.5 million Nielsen subs. Operating expenses, excluding depreciation and amortization, stock-based compensation and impairment of goodwill and intangible assets decreased to approximately $83.7 million for the quarter, a decrease of 4.2% from the prior year. There was some noise in the expenses. We had a notable expense decrease in corporate and professional fees and overall payroll expenses, also cable television content amortization was down, but we had the August RMLC settlement with ASCAP and BMI that resulted in an average royalty rate increase of 20% retroactive to January of 2022. And so we recorded approximately $3.1 million of retroactive royalties in Q3, and you see that in the programming and technical expense in the radio segment. We did add that back to adjusted EBITDA. The company, as Alfred said, completed a second reduction in force in October as part of the ongoing cost reduction efforts. And as a result, we had $1.6 million of employee severance costs, which we recorded in third quarter, but we also added that back to the adjusted EBITDA for the quarter. Radio operating expenses were down 5% or $1.7 million, driven by lower employee compensation, sales commissions and a favorable change in the bad debt reserve compared to prior year. Reach operating expenses were up by 8%, and that was due to a favorable change in the bad debt reserve that we took in the prior year. Operating expenses in the digital segment were down 2.6%, and that was driven by lower employee compensation. Operating expenses in the Cable TV segment were down 2.4% year-over-year, driven by lower programming content amortization due to fewer premier hours compared to last year. Operating expenses in corporate were down by approximately $1.5 million. The third-party finance and accounting professional fees were down significantly year-over-year. Consolidated adjusted EBITDA was $14.2 million for the third quarter, down 44.1% and consolidated broadcast and digital operating income was approximately $20 million, a decrease of 43.6%. Interest and investment income was approximately $0.5 million in the third quarter compared to $1.1 million last year. Decrease was due to lower cash balance -- lower cash balances in interest-bearing investment accounts. Interest expense decreased to approximately $9.4 million in Q3, down from $11.6 million last year due to lower overall debt balances as a result of the company's debt repurchase efforts. The company made cash interest payments of approximately $18.2 million in the quarter. And during the quarter, the company repurchased $4.5 million of its 2028 notes at an average price of 52% bringing down the gross balance on the debt to $487.8 million as of September 30, 2025. Our depreciation and amortization expense increased $4.9 million as a result of the company's change to the useful life of TV One trade names and our FCC licenses, which we moved from indefinite lives to finite lives. Benefit from income taxes was approximately $1.1 million for the third quarter, and the company paid cash income taxes net of refunds in the amount of $0.1 million. Capital expenditures were approximately $3.1 million. Our net loss was approximately $2.8 million or $0.06 per share compared to net loss of $31.8 million or $0.68 per share for the third quarter of 2024. During the 3 months ended September 30, 2025, the company repurchased 176,591 shares of Class A common stock in the amount of approximately $0.3 million at an average price of $1.75 per share. And the company also repurchased 592,822 shares of Class D common stock in the amount of approximately $0.4 million at an average price of $0.73 a share. As of September 30, 2025, total gross debt was approximately $487.8 million. Our ending unrestricted cash balance was $79.3 million, resulting in net debt of approximately $408.5 million. which we compared to $67.9 million of LTM reported adjusted EBITDA, given a total net leverage ratio of 6.02x. And with that, I'll hand back to Alfred. Alfred Liggins: Thank you very much, Peter. Operator, can we go to the lines for questions, please? Operator: [Operator Instructions] Our first question comes from the line of Ben Briggs with StoneX Financial. Ben Briggs: I have a couple of questions here. So first of all, and I know we're looking forward a little ways, but -- and we're only part of the way through the fourth quarter. How are you guys thinking about 2026 and what demand looks like there and what listenership may be and kind of how the pieces of the puzzle are going to fit together then? Alfred Liggins: Yes. We feel good about 2026 for a number of reasons. One, obviously, we're going into a political year. But two, a number of the places that we've had challenges this year, we have changed our operating strategy to address that. I would say most notably, where Reach Media has had a very tough year because we got caught flat-footed with a big, big decline in our largest advertiser in the company, unexpected cancellations, and these were cancellations across the board. When I say across the board, across the whole audio sector. And quite frankly, we weren't able to replace those ad dollars once we had committed that inventory. So we're able to get ahead of that. We saw Reach Media and iOne had contributed probably -- excuse me, had benefited the most from the rise in DEI advertising, and we just got way too concentrated at Reach Media with 2 particular advertisers, one of those actually stood out more than the other. So we'll be more prepared for that going forward. This is also our first year navigating Reach without our former President of the Audio division, David Kantor, who actually founded and created Reach. So trying to make that transition was also -- was difficult even though we knew it was coming and we prepared for it. And so I think we're better positioned there. Also, there have been a number of things that we're doing in our radio markets, where we think that we will perform better in particular in Washington, D.C., we just rearranged some of our formats there, and we launched a new format targeting the Hispanic community, which has become a very, very large segment in the D.C. area. It's almost close to 20% of the marketplace. I mean it's like 18.5% of the marketplace. And we positioned ourselves recently as a major player there, which is going to broaden our offering in the D.C. market in addition to some changes that we've made in terms of management and beefing up our sales staff, et cetera. And so we've got a few other changes that we in some of the markets where we think it's going to improve performance in a meaningful way as well. And TV One has been holding in there this year. And so we think that given those things I just outlined, we're feeling good about a rebound in 2026. Ben Briggs: Okay. Okay. That's good to hear, and that's great color. Next thing for me, I guess this is kind of focused on post fourth quarter plans as well. But are you thinking of any kind of M&A activity or larger than usual kind of -- I know you guys swap radio stations here and there on a pretty regular basis. But are you thinking about anything more transformative in the future? I know every now and then things get kicked around. I'm just curious if there's anything else. Alfred Liggins: I think everybody in the industry is focused on dereg and what's going to happen. You've seen a number of deals that have been filed already in the radio space looking for waivers to exceed the current ownership caps. The FCC has signaled that they think the ownership rules are antiquated and people in TV and in radio have submitted deals to be approved for waivers. There is also a notice for proposed rule-making out that I know that the industry is going to comment on if they haven't already about dereg. And I think everybody in the industry is going to be pro-dereg when I say everybody, I'm sure it's not necessarily going to be 100%. But that's going to create some opportunities for people to align assets in markets in a much more efficient manner. And yes, we're looking at that. There's nothing that is large and transformative that we're working on now because this is all very new. But we tend to try to think ahead and be intellectually creative in what the next move is. And so all along, we've had conversations and thoughts and conversations with people about the art of the possible because historically, we haven't been up against the ownership cap. So we've probably had the ability to grow or do M&A that others haven't, even though in a dereg environment, that will be enhanced. But what is a governor is leverage. And is any transaction going to be delevering, right? And even when you look at these transactions, you've got to think about it against a backdrop just because you have dereg, doesn't solve necessarily your top line secular trajectory, right? So you just got to be careful about how you underwrite and M&A transaction. But with that said, I do think it's going to create some significant opportunities to build stability in these businesses. At the end of the day, these are -- the radio business is largely a local business. So you've got the opportunity to provide more different demographic targets to advertisers, local advertisers, I think that makes you a stronger player. We've seen that in our Indianapolis market, our Houston market. our Charlotte market where we've spread out in different format demographics. And that's one of the things that we just did, like I articulated earlier in D.C. that I think is going to [indiscernible] significantly. So there's no M&A deal that we are currently working on that's transformative as we speak, but I'm sure that we will explore opportunities to be able to rearrange the debt shares in order to make us a stronger entity. Ben Briggs: Okay. Okay. That's all very, very helpful. And then next thing I want to ask about is, I think, at the top of a lot of investors' minds, is your debt buyback activity. Obviously, you stated in the press release this morning that you did a little bit of buybacks in the third quarter. Are you expecting to continue to execute on those buybacks? Alfred Liggins: Yes. Look, I thought I figured we would get that question because -- yes, yes, because we've been more acquisitive in the past. But because of this heat up in potential dereg and stuff moving around, we decided to sit pat and build a little liquidity as we get to the end of the year, see how that all shapes up and figure out also how that is going to play out. We are always and have been focused on delevering and the best way to delever. So we -- one way to delever is buy back debt at a discount. Another way to delever, and we've done it a number of times, including in Houston is through delevering M&A activity. So we've decided to keep our powder dry a little bit here to see what opportunities are going to present themselves in the near term. Operator: And there are no further questions at this time. I'd like to hand the call back over to Alfred Liggins. Alfred Liggins: Thank you very much, operator. And again, as always, Peter and I are available for calls afterwards e-mails or calls directed to us. Thank you for your support, and we'll talk to you next quarter. Operator: This concludes today's call. You may now disconnect.
Operator: Greetings, and welcome to the Helios Technologies Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tania Almond, Vice President of Investor Relations and Corporate Communications. Thank you. You may begin. Tania Almond: Thank you, operator, and good day, everyone. Welcome to the Helios Technologies Third Quarter 2025 Financial Results Conference Call. We issued a press release announcing our results yesterday afternoon. If you do not have that release, it is available on our website at hlio.com. You will also find the slides that will accompany our conversation today as well as our prepared remarks. Here with me today are Sean Bagan, President and Chief Executive Officer; Michael Connaway, our Chief Financial Officer; and Jeremy Evans, our Chief Accounting Officer. Please join us in welcoming Michael for his first earnings call with Helios. He joined the Helios' team just 3 weeks ago. Sean will start the call with highlights from the third quarter, then hand it over to Michael for a brief introduction. Jeremy will then review our third quarter financial results in detail. Sean will conclude our prepared remarks with expectations for the remainder of 2025. We will then open the call to your questions. If you turn to Slide 2, you will find our safe harbor statement. As you may be aware, we will make some forward-looking statements during this presentation and the Q&A session. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from those presented today. These risks and uncertainties and other factors can be found in our annual report on Form 10-K for 2024, along with upcoming 10-Q to be filed with the Securities and Exchange Commission. You can find these documents on our website or at sec.gov. I'll also point out that during today's call, we will discuss some non-GAAP financial measures, which we believe are useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of comparable GAAP with non-GAAP measures in the tables that accompany today's slides. Please reference Slides 3 and 4 now. With that, it's my pleasure to turn the call over to Sean. Sean Bagan: Thanks, Tania, and welcome, everyone. We appreciate you joining us today. Our third quarter delivered positive measurable results, analogous to the current changing autumn season. Since I joined Helios 9 quarters ago, our business has persevered through various market down cycles. I am pleased to finally report that the third quarter was a harvest season for Helios as we returned to growth and delivered above 20% adjusted EBITDA margin. After planting strategic initiatives and weathering challenges, we're now seeing results in the same way that farmers do after spending months planting, nurturing and waiting, often through unpredictable weather before finally harvesting in the fall. Helios Technologies is evolving through restructuring, innovating and expanding and the core remains incredibly strong. Growth often requires visible change, and now the progress is coming through in our financial results. We believe the third quarter marks a turning point for Helios. We delivered a 13% sales increase with growth across all 3 of our regions and both business segments. This growth was driven by a strong performance from our Electronics business. In fact, it was a record quarter for Enovation Controls with strong demand returning in the recreational industry. That's not to discount the growth in hydraulics, which was achieved in what continues to be a soft marketplace. Our focus on our go-to-market strategy and accelerated pace of innovation is winning back customers and taking market share. Of note, over the last 5 months, our weekly average order volume has outperformed the same period in the last 3 years. Our customer centricity and high level of customer engagement is capturing new business wins and growing our sales funnel. Our new products across both segments have had great reception, where we have been showcasing them at major trade shows such as IBEX, Utility Expo, the Battery Show, iVT Expo, bauma ConExpo India, and the International Pool Spa Patio Expo. In addition to our customer-focused initiatives, our teams also dedicated time to strengthening our culture and giving back to the communities in which we work. We are doing this work with purpose as we strive to be the employer of choice in the communities we live. It is getting noticed with numerous external awards and accolades. Among other examples, we continued our annual sponsorship of the Clyde Nixon Business Leadership Award, named after a former Sun Hydraulics Chairman and CEO. This award is presented at the Sarasota County's Economic Development Corporation's Annual Meeting and honors the Sarasota County's business leader who exemplifies the personal integrity, business excellence and community commitment of the late Clyde Nixon. Additionally, during our recent Helios Leadership Summit, our team prepared books filled with inspirational messages for the children served by Easterseals Southwest Florida chapter. These servant leadership qualities go back to our founders, specifically Bob Koski's unique approach to his [ infamous ] horizontal management style and his philanthropic mindset. Moving to our results. As expected, our higher sales in the third quarter contributed to margin expansion. This shows through in our operating model when you look at the sequential sales step-up from 2Q'25 to 3Q'25 of $8 million and the associated incremental margins at the gross profit line all the way through to the adjusted EBITDA and earnings per share. We are continuing to invest in engineering resources to drive our future product pipeline and are upgrading production capabilities, which will have a productivity payoff in the future. We also continue to generate positive cash flow and reduce debt. After our ninth consecutive quarter of paying down debt, our net debt-to-adjusted EBITDA leverage ratio has improved to 2.4x. During the quarter, we closed the sale of Custom Fluidpower and recorded a gain of $21 million. We are excited to have CFP remain in the Sun family as a continued hydraulics distributor in Australia, under an exclusive distribution agreement for the region. This followed the action to close our HCEE operation and put engineering resources back into our core businesses, another example of our evaluation of the footprint realignment. This is a continuous focus as we evaluate how best we optimize our operations to serve our customers where we can command strong market positions. Also, as part of our ongoing portfolio evaluation, this quarter we wrote down $25.9 million of goodwill related to i3 product development, a company we acquired in May 2023. We have refocused i3PD engineers on projects aligned with Helios's core business and strategic goals, including the No Roads and Cygnus Reach software platforms, supported by a leadership change that has added more software sales expertise. We have reforecast sales for i3PD and adjusted our expectations for the rate of adoption of new software capabilities. Overall, for Helios, we remain focused on profitably growing the business, driving EBITDA margins back into the 20s and improving our return on invested capital. Our capital priorities remain to invest in organic growth, reduce debt, maintain our long dividend history and opportunistically repurchase shares. With continued margin expansion, we expect to lower our leverage ratio to around 2x by year-end with the fourth quarter cash flow generated from operations combined with utilizing the cash received on October 1st from the sale of CFP. As we continue to strengthen our balance sheet, we will have more optionality to make strategic investments as we advance into 2026. Finally, I would like to take this opportunity to welcome Michael Connaway as our new CFO. Our employees, partners and shareholders will find his insightfulness, strong grasp of finance and breadth of experience a nice addition for Helios. We now have our full leadership team in place to harness our collective energy and create the momentum to drive us forward. Let me turn the call over to Michael now to introduce himself. Michael Connaway: Thanks, Sean. These are certainly exciting times at Helios, and I'm very excited and honored to be here. I joined Helios because I see great potential for this business. I know that we have businesses that have strong cores with well-respected histories, great market positions with global brand recognition, deep customer relationships and quality products that serve critical needs within the applications they are used. With the progress under Sean's leadership, it is evident there is tremendous value that we can create going forward. I believe that my experience can be well applied here and look forward to contributing to company growth, driving cash and earnings improvements and helping the team create increasing shareholder value over time. With that, let me pass it over to Jeremy to cover the details of the solid third quarter results. Jeremy Evans: Thanks, Michael. It's great to have you join us, and good morning, everyone. As I review our third quarter results, please reference Slides 5 through 8. Sales in the quarter were $220 million, up 13% year-over-year and exceeding the top end of our guidance range, which was $215 million. This reflects strong performance in the Electronics segment, which grew 21%, while Hydraulics increased 9%. Encouragingly, we saw the mobile, recreational and agriculture markets turn green this quarter relative to year-over-year comparables. There were some orders from the fourth quarter that customers pulled forward, a contribution to the outperformance. Sequentially, sales were up 4% or $8 million as demand continued to improve across multiple end markets. Regionally, year-over-year sales increased double-digits across all 3 geographies. Sequentially, we had 10% growth in APAC and 6% growth in the Americas, offsetting the typical seasonal decline in EMEA, which was down 6%. Note, foreign exchange favorably impacted sales by $1.8 million compared with the year ago period. Gross profit increased 21% year-over-year to $73 million, with gross margin expanding 200 basis points to 33.1%, driven primarily by better capacity utilization from higher volumes, favorable mix and operational efficiency improvements, which more than offset tariff headwinds. Sequentially, gross margin improved 130 basis points, reflecting incremental leverage from higher volume, primarily in the Electronics segment. We continue to look for ways to improve gross margin through efficiency and capacity utilization while focusing on our core business. Our initiatives to restructure HCEE, leverage our low-cost Tijuana facility, divest CFP and refocus i3PD resources, are examples of decisions taken in the past year. Operating income was down in the quarter compared to the prior year, primarily due to goodwill impairment related to i3PD. The CFP divestiture gained mostly offset the goodwill charge. On an adjusted basis, operating margin came in at 16.6%, the third quarter in a row of expansion, while adjusted EBITDA margin declined 40 basis points year-over-year. Last year's operating profit had a $5.5 million benefit due to stock compensation reversal from the CEO termination. Our effective tax rate in the third quarter was 19.8% compared with 14.2% in the year ago period, reflecting the mix of business and applicable statutory tax rates and the impact of both the goodwill impairment charge and the gain on the sale of CFP. The 2024 period included an overall increase in discrete tax benefits driven by the CEO termination in July of 2024. Diluted EPS was $0.31 in the quarter, down 9% over last year. Diluted non-GAAP EPS was $0.72 in the quarter, up 22% over last year, primarily from the sales growth and business improvements we have discussed. The sequential increase demonstrates the strong operating leverage of the business. Turning to Slide 9. Hydraulics delivered 9% higher sales year-over-year, supported by improving demand from our customers in the mobile end market and early signs of improvement in agriculture. Foreign exchange had a favorable $1.8 million impact on the segment compared with the prior year period. Hydraulics gross profit and gross margin grew year-over-year 12% and 90 basis points, respectively, supported by operational efficiencies from improving lead times and continued volume strength at Faster. SEA expenses were up $5 million or 30% over the prior year period, mainly due to the $3.7 million reversal of unvested stock compensation in connection with the CEO termination in July 2024, in addition to higher wages and benefits reflecting investments made in our core operations. Moving to Slide 10. Electronics sales grew 21% year-over-year, driven by record performance in innovation. We saw growth from our customers in the recreational, mobile and industrial end markets, while our demand in the health and wellness market was relatively flat. Gross profit and gross margin expanded 38% and 420 basis points, respectively, from the prior year, primarily due to higher volumes and more favorable mix. Operating income of negative $13.7 million reflects the i3PD goodwill impairment. Prior to the goodwill impairment charge, operating income as a percentage of sales increased to 15.3%, up 490 basis points compared to the prior year period due to the higher gross margin and lower SEA expenses as a percentage of sales. The prior year period included a $1.8 million reversal of unvested stock compensation in connection with the CEO termination. Slide 11 shows the trailing 12-month free cash flow conversion rate of 223%. We generated $18.5 million in free cash flow during the quarter, down from $28.8 million in the prior year. This quarter's cash from operations was impacted by an increased accounts receivable balance as a result of the higher sales. CapEx of $6.7 million or 3% of sales was consistent with our focus on maintenance and productivity enhancements that deliver clear and measurable returns on investment. Turning to Slide 12. At the end of the third quarter, cash and equivalents were $55 million, which did not include all of the proceeds from the sale of CFP, and we had $360 million available on our revolving lines of credit. Our balance sheet is strong and provides us with great flexibility. With that, I will now turn the call back over to Sean. Sean Bagan: Thanks, Jeremy. Turning to Slides 13 and 14. We have met our commitments over the last 8 consecutive quarters as we have instilled a stronger financial discipline and processes for accountability and predictability. We have also outperformed our expectations for the first 9 months of this fiscal year while navigating the tariff landscape and expect to end 2025 well-positioned for further growth carrying into 2026. As we mentioned last quarter, we expected an acceleration from recreational customers based on our order book and other market factors such as improved channel inventories. With mobile also starting to show positive indicators, the broader macro and customer sentiment is turning upward. Key industrial indicators are stabilizing and early cycle demand patterns are improving, signals that support the beginning of an up cycle across some of our end markets. At the same time, Helios's own self-help initiatives are taking hold. We've strengthened our operating discipline, streamlined our portfolio and invested in capabilities that expand our addressable markets. Building on 2 years of disciplined strategic planning and execution, we are well-positioned to capture the next phase of growth with greater agility and profitability with our streamlined operations. We expect fourth quarter sales to be in the range of $192 million to $202 million, up 10% over the prior year period at the midpoint of the range. This would be a 20% growth rate at the midpoint, adjusting for $15.6 million in CFP sales in the prior year comparable period. For the full year, sales at the midpoint of the guidance, adjusting for CFP, would be 4% growth over fiscal 2024. We expect fourth quarter adjusted EBITDA margin to be in the range of 20% to 21%, keeping us at the 20% plus level. For the full year, we expect adjusted EBITDA margin to be in the range of 19.1% to 19.4%, with the midpoint about 25 basis points above the midpoint of our original guidance range from February this year. We expect fourth quarter diluted non-GAAP earnings per share to be in the range of $0.67 to $0.74, which more than doubles over last year at the midpoint. For the full year, we expect diluted non-GAAP EPS of $2.43 to $2.50, with the midpoint 12% above the high end of our original guidance from February. We entered the year with a clear plan and stronger discipline. And today we're operating with greater precision, accountability and focus, defining a new standard for Helios, one we intend to keep refining and elevating with every step forward. I am incredibly proud of the progress made this year by the Helios team, and we are committed to capitalizing on our momentum as we continue to stack up wins. Turning to Slide 15 to 17. We remain focused on organic growth driven by innovation. The team has done a great job launching new products this year that provide incremental sales streams and allow us to attack adjacent markets. Our focus on investing in R&D and innovation through the down cycle has positioned us well for when the cycle starts to turn. As you look at both our financial priorities as well as our key focus areas we established for the year, I am pleased with how we are performing. We returned to growth this quarter and expect to end the year with sales above 2024 levels with improved margins, a lower cash conversion cycle and reduced debt, laying a strong foundation for 2026. We are targeting to host our next Investor Day on the morning of March 20, 2026, in Sarasota, Florida. There will be more information provided as we get closer to the event. As I conclude our prepared remarks, I want to revisit what I shared on last quarter's call, our renewed energy and determination to deliver a strong comeback in the second half of the year. Today, I'm proud to say we are doing just that. Our execution and progress reflect the unwavering dedication of every Helios employee around the world. We are fortunate to have an extraordinary group of companies within the Helios family, many celebrating their own remarkable milestones alongside our founding company, Sun Hydraulics, as it marks its 55th anniversary in 2025. As we honor that legacy, our focus remains squarely on the future, driving innovation, serving our customers with excellence and creating lasting value for our shareholders. The actions we're taking today are designed to strengthen our foundation and amplify our momentum. I'm more confident than ever in my belief that the future is very bright for Helios. Thank you for being part of today's call and for your ongoing engagement with and support of Helios Technologies. With that, let's open the line for Q&A, please. Operator: [Operator Instructions] Our first question comes from the line of Chris Moore with CJS Securities. Christopher Moore: Congrats on a nice quarter and the momentum. Maybe just talk about -- provide a little color on some of your recent commercial wins, how much visibility that gives you into '26? Sean Bagan: Chris, thanks. I appreciate the kind words. And, yes, as you know, when we entered this year, we prioritized our go-to-market as our top initiative. We were coming off -- well, we are now coming off 12 quarters of sales decline. So it feels really good to put up a green number of positive growth and certainly would attribute that to our refocus on go-to-market. We really started with standing up new sales processes, reporting and most importantly, with the team across all of our businesses. And I certainly can give a few recent examples as we're seeing that. But ultimately, the success is going to be judged by our sales and order levels, which we have some really solid metrics that we'll share throughout the Q&A session here. So, across kind of all 4 businesses, we like to talk about them. A perfect example, recent win is with our Faster team. As you know, we're proud to celebrate our 55th anniversary here at Sun Hydraulics, but Faster actually will be celebrating their 75th anniversary next year and speaks to the deep, long customer relationships they have. And deep into the AG industry, AGCO is a long-term customer of ours. And a recent nice win for the Faster team that will start to stack in 2026, where our customer across kind of their 3 European brands, Fendt, Valtra and Massey Ferguson, decided to really commonize the back end of the hydraulic attachments. And so they chose us for our performance quality and price, frankly, of our coupling. So that's just an example, but there's many of that within the Faster team. The Sun team is really all about distribution and partnering with our long-term distributors and just stacking up wins, as I like to say, within the organization, whether recent wins in the wind power, alternative energy, AWP earthmoving, a leading OEM there through one of our distributors, the light compact construction equipment leader, specialized AG harvesting equipment. These are all small wins that are stacking and adding up. And then you go over to the Electronics segment and just at the International Pool Patio Spa Show in Vegas last week and a great win-back example, one of the higher premium hot tub spa brands, Bullfrog is a customer win back, and they had one of our displays on display at the show that we're very excited to win some of that business back. And then as I highlighted in our prepared remarks, Enovation had a record quarter. They are on the gas and driving innovation and growth for us across all of Helios. I would like to speak to one win that we've had recently that we haven't been able to announce yet, but it's in a new space, and it shows our ability to really target through our go-to-market approach, these adjacent opportunities. So this is in the neighborhood electric vehicle space. That will take some time to ramp and grow as we displace [ their ] competitor, but it shows, again, our focus on go-to-market, very targeted on where we're searching. And I couldn't be more prouder of what the Enovation team has done. I would put off our engineers against any of our competitors, whether that's software, mechanical application, that's allowing us to go get these win backs and is key to supporting our product strategy. Christopher Moore: Wow, good stuff. I appreciate that. Maybe just my follow-up. Obviously, margin progression is happening here. Fiscal '21 was an unusual year driven by Balboa. Adjusted EBITDA was 24.6%. What would it take over the next 2 or 3 years to get back to that level? Sean Bagan: Yes. I'm glad you highlighted Balboa because I've highlighted that before that, that was about double what it currently is in terms of its revenue size during that year. And given that low-cost manufacturing, that was very accretive from an overall Helios mix perspective. But in addition, we were coming off also highs with innovation in the recreational products when everyone was buying outdoor equipment at that time. So I think what we're showing now is the demonstration of the operating leverage we have embedded within our business. And whether you look at kind of sequential step-ups or year-over-year, we showed a 200 basis points improvement in our gross profit margins here in the third quarter. But even sequentially, you look every quarter this year up. So it's going to come down to volume, and we highlight that, and I will tie that back to why it's so important that we go create growth in this go-to-market. It's no secret the markets we're operating in are not healthy. They're still recovering. Now we're seeing signs of growth, but really in order to get that EBITDA margin back into those mid-20s, we need more volume. The other piece that I would highlight there is we've been very focused on the rest of the value drivers within the company. And certainly, the operating expense of the company has been very well managed. We did want to continue to call out that last year and the compare has about a $5.5 million pickup that was due to the prior CEO's termination. But absent that, we've managed our costs below 2024 levels, and we're growing our sales. So on a year-to-date basis, we're up. So you can see the operating expense leverage we're also getting out of the business. Christopher Moore: Very helpful, Sean. I'll jump back in line. Operator: Our next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Jeffrey Hammond: Maybe just start on recreational vehicle. That seems like a market, maybe you touched on it, [ truck ] markets are still choppy. But is that -- what you're seeing, destocking ending? Is there a program win share gains? Or is there a real kind of demand recovery there? And maybe same for mobile, which again, seems pretty choppy, but you're kind of pointing the green arrow? Sean Bagan: Yes. So starting with the recreational. We have -- what we've seen is the market has -- from a retail perspective has not rebounded. But what has changed is that the dealer channel inventory levels are in a much healthier spot. Our largest customer has been on the gas from an innovation perspective and has taken a lot of share, and we've benefited from that. And honestly, the other piece here is with interest rates, and I've talked about this on prior calls, that this is an industry where a lot of that product is financed. And with the lowering of interest rate environment, that certainly could help. When we look at it just in North America, I mean, even Canada is outperforming the U.S. from that perspective because their benchmark rates about 2.25% that they just reduced [ too ] in October. While our U.S. Fed is still in that 3.75% to 4% targeted range, but came down. And so I expect that to likely help. But when you look at those channel inventory levels, they're absolutely in a much healthier space. The non-currents are finally clearing through with the OEMs running their factory authorized clearance and types of things to pull that through. And dealer sentiment then gets a little bit better there. I don't expect dealers are going to go restock back up to prior levels, and that's not a bad thing. Leaner inventories and healthier turns are good for that industry. And finally, I would say, our largest customer is -- has very steady optimism that I frankly see it grounded in realism and the worst of the channel cleanups are behind us. And so, that gives us confidence. And then secondly, yes, we are on the gas from a go-to-market perspective. Looking for new wins. I highlighted the NEB, one. And I would tell you, we're looking at others within that space, whether that's both with just the off-road type vehicles or marine, which is really excited about our No Roads application that we have now launched the No Roads Marine, and we expect that to help us get some new wins there in that segment as well. Jeffrey Hammond: Okay. Great. So appreciate -- the CFP looks like a good divestiture and done i3 moves, I think we understand. Any more portfolio reshaping you think needs to happen from here? Or is this kind of where we're set? And then you mentioned as you get leverage down, you want to -- it should allow you to lean in on strategic investments. And I'm just wondering maybe how you're thinking the same or differently than the prior management team about M&A? Sean Bagan: Yes, Jeff. So I would say from a portfolio perspective, nothing else imminent. I would say, for me, this is just standard work that we're always evaluating the portfolio and the performances of the different businesses. But at this point, we're strongly committed to all of our businesses. It's no secret that our Balboa business has deteriorated from those COVID highs that certainly weren't sustainable. But we feel really good about the trajectory of that business and have a multipronged approach plan to improve their profitability as that volume returns. Coming off of that recent show that I referenced in Vegas, we demonstrated in a kind of a side room. So we had our typical booth, but we had a side room where we brought in all our key OEM customers to really show them our vision for our product pipeline. And I will tell you that we have more product coming in the next 18 months than we have launched in the last 10 years, and we've started some of that. Purezone is one example. So, we're excited and believe that the existing portfolio is strong, but we're always going to evaluate that. Jeremy Evans: Yes. And this is Jeremy. I'll touch on the M&A question. As we've said in prior calls, our focus has been on paying down debt. Our leverage ratio is down to 2.4x at the end of Q3. We think we could get that around 2 by the end of the year. And when you look at our cash flow -- free cash flow last 12 months, very high, near record high cash flow. So we do expect as we get into 2026 that we will have maybe a different priority around capital allocation. But as we said on prior call, M&A is not going to be driven at the corporate level. It needs to make sense with what we have down in our operating segments, and it needs to get the right return. So we will obviously be aware, be looking. If there's an opportunistic opportunity, for sure, we'll look at it. But it's got to make sense. It's got to fit the portfolio, and it's got to have the right return. Operator: Our next question comes from the line of Mircea Dobre with Baird. Joseph Grabowski: This is Joe Grabowski on for Mircea this morning. Welcome aboard, Michael. Michael Connaway: Thankyou. Joseph Grabowski: Okay. So I guess I'd start in Electronics, and I know we've talked about it already, but the sales there were the strongest in the last 3 years, as you mentioned, Enovation Controls had a record quarter. Maybe just talk about any unusual items in the quarter, any perhaps pull forwards into the quarter? And then I know there's seasonality, but how do you kind of think about the sequential sales progression in Electronics from Q3 into Q4? Sean Bagan: Yes. So Joe, on the Electronics performance in the third quarter, we had in our prepared remarks, there was a little bit of pull-through from the fourth quarter, and that really was concentrated to that -- to the Electronics segment, and it was more in that recreational marine space. I think absent that $3 million, we were just above the top end of our guide by about a point once you take that $3 million out. And when you look at the Hydraulics segment, although I understand your question is electronics related, it was a very similar trend. We're about a point above our top end of our guide with some things hitting a little bit more favorably across both segments. Michael Connaway: Just the numerics quick on that one, on the sequential. So you kind of alluded to some of the sales pull-ins. But off of that $79 million number in Q3, call it, $3 million or $4 million on sales pull-ins driven by customer ordering patterns. And then if you look at Q4 at the mid on Electronics, which is [ $73 million ], you would kind of add that back and you get a flat sequential on electronics. But embedded within that flat sequential is 2 quarters in a row of 20% plus year-over-year view. So the Electronics segment, in particular, Enovation is continuing to show really good sales progression. Joseph Grabowski: Great. Okay. Great. That's very helpful. And then maybe my follow-up, switching to Hydraulics. I thought it was interesting that you highlighted that AG was up for the first time in 6 quarters. Maybe kind of talk about where the growth is coming from there and maybe any geographical strength in AG for Hydraulics? Sean Bagan: Yes. The AG strength comes from our Faster business, which is predominantly direct to OEM and AG is their -- largest market they serve. I'll acknowledge that the OEMs are not putting up really strong numbers for our large customers, whether that's Deere and AGCO or CNH, but even as you get into some of the European and Chinese OEMs or some of the kind of in between construction and AG and you think Kubota's and getting into hardcore construction with Caterpillar. Now they had a more upbeat recent earnings release. But the rest of the AG is challenged, but that dynamic I shared on recreational products is exactly what is we've seen playing out in AG as well, where retail demand actually in the U.S. finally put up a positive number here last month in terms of registrations. But that's coming off 4 years of declines in registrations. And so the comps are easier. But what has changed is the dealer inventory and channel levels are at much healthier spots. And so we look at where kind of indications are signaling for 2026, all of the OEMs are suggesting things may begin to recover. But what we clearly see is in our incoming orders and indicative orders from them year-over-year, that's a positive increase as we're going to feel that earlier as a supplier into them. So we're optimistic that's 2 quarters in a row for our Faster team that has grown year-over-year and continue to expect that to trend favorably in the fourth quarter and as we enter 2026. Operator: [Operator Instructions] Our next question comes from the line of Nathan Jones with Stifel. Nathan Jones: I'll follow up on some of these destocking questions because I think it's -- I mean, it's probably an important distinction to make because we get questions about this from investors on Helios. You guys don't actually need to see the John Deeres and the Caterpillars of the world selling more wheel loaders and tractors in order to see revenue growth for Helios in 2026. What you need is the first signal of the bottom of the cycle, which is then stopping destocking inventory and actually producing more machines even if they're not actually selling more machines, correct? Sean Bagan: That's fair. Yes. Nathan Jones: And so -- and that's what you're seeing in the market. You've talked about -- I think I just want to make it clear for people in recreation and mobile and in AG, that's the kind of market dynamics that you're seeing, which is indicative of a bottoming cycle for you guys to begin with, yes? Sean Bagan: Yes, I would agree. The only caveat I'm going to put, because we talked deeply already about recreational and AG, when you go over to more of the end markets that Sun is exposed to area work platforms, type of -- there's big macro signs, obviously, with PMI that's been mixed. But geographically, it had been stronger in China and Asia, and we've seen that in our sales as well. But beyond that, it's the piece of us and our partnering from a go-to-market with our distributors to do that targeted account planning. And you look at industrial production and the Big, Beautiful Bill and what that will create in terms of infrastructure, we feel well-positioned despite that our NFPA data telling us these markets have been down. And so with us now growing, we think we're taking share, but you're absolutely right on the AG and rec. Nathan Jones: So I think then -- I mean, you talked about being well-positioned for growth in 2026 and without needing to forecast what Caterpillar sales are going to be or what Deere sales are going to be, you should have some decent visibility to growth just against the destocking comps that you had in '25. So I'm wondering if you're prepared to offer any color on what you're thinking about 2026 at this point? Sean Bagan: Yes. So not in terms of full guidance and such, but I feel with conviction that we will enter the year in 2026 with growth. Now I will also highlight that we will have easier comps in the first half of the year than the second half as we enter 2026. But why I have conviction is what we're seeing in our demand trends. We haven't seen the level of order increases for multiple years. And even October came in, in double-digits just as the prior 5 months had done from a year-over-year perspective. The other thing I want to make sure is clear is that CFP revenues coming out, that was a roughly $60 million a year business. Last year in the fourth quarter, it was $15.6 million. So we just got to keep that in mind that we're not anchoring on 2025 guidance at the midpoint of $825 million and growth off of that. Our really jumping off point is closer to $780 million. Nathan Jones: Yes, I think we're organic. You should get a little bit of a tailwind from -- to gross margins from the CFP divestiture, yes? Sean Bagan: Correct. Yes. particularly -- well, obviously, that's in our Hydraulics segment. So it will be more visible there. But certainly, at the Helios level, it helps as well. Operator: Our next question comes from the line of John Braatz with Kansas City Capital. Jon Braatz: Sean, you took the charge-off on i3 this quarter. What are you doing specifically to turn that operation around and get it to make a contribution to the bottom line? What kind of changes are you making there? Jeremy Evans: John, this is Jeremy. I'll field that one. I want to first highlight that with that acquisition, we gained access to a team of highly talented engineers. And as we've been integrating them into the rest of the Helios portfolio, we've actually been consulting with them and having them help with some of the new product innovations that we've been coming out with, and others that we have in the pipeline. And as we evaluated that, we believe it makes a lot more sense to have those resources focus on projects that can benefit the broader Helios portfolio. And so, just to remind everyone, they were a third-party engineering design service firm that basically work project by project. We didn't retain any of the IEP for those projects. And then we also had some software, that's where that Cygnus Reach platform came. And we just think it's not a turnaround play, but it makes much more sense to refocus those resources on customers and projects that will benefit the broader Helios portfolio. So that's the main reason. The other piece I would say is rather than try to sell the software platforms on a stand-alone basis, which requires a lot of customization kind of a long runway, we want to embed that software onto the products that we are launching. And we are doing that with some of the next-generation displays, both in our electronics and then also having them help out on the hydraulics side as well. So it's really less of a turnaround situation and more of leveraging those resources as to best add value to the broader Helios portfolio. But as a result of that, some of that third-party revenue projections, we've dialed that back as well as we've adjusted the, call it, the adoption rate on the software where it's going to be tied now into some of those product releases. And so, a result of that math came out and we said we can't support the goodwill that we had on the balance sheet for that under the new strategy. And that's really what led to the write-off this quarter. Sean Bagan: And John, if I can just accentuate because Jeremy explained that really well. But at the end of the day, this is just an example of overpaying for an acquisition that was pre-revenue and didn't scale. And at the end of the day, then it's a mathematical equation based upon current business circumstances. But that said, I want to reiterate how important that the i3 team is to our overall strategy. We acquired, as Jeremy said, some very talented engineers that have been cornerstones in some of the new products we've announced already and released recently, but also further stuff in the pipeline. And at the end of the day, I couldn't be more proud of those engineers and the way they are pumping out products and our sales teams now with our go-to-market approach are kicking down doors. Our customer excitement is very high. And in this fierce competitive world, our Helios team doesn't back down and we take on these challenges, and we love being the underdog. Jon Braatz: Okay. Sean, I'm looking forward at the new product pipeline. Obviously, in the past, there was some emphasis placed on big OEM wins that would be quite sizable. When you look at the lineup, are there any singular new products that really move the needle? Or are they sort of one-off in isolation? Sean Bagan: Well, that's the plan is to always launch products that catch the attention of OEMs and they want to buy them. But we, at the end of the day, are truly an extension of many of those OEM customers of ours. So we are designing and developing products years in advance with them. But even the most recent one we announced, the new multi-Faster from Faster. And just a reminder, I mean, that is a piece of equipment that goes on mini-AG and construction vehicles to allow the operator to quickly attach and detach hydraulic applications. And at the end of the day, I'd like to highlight that multi-Faster is kind of a term in the industry that others have copied and tried to compete with us. But with our new multi-Faster, we bring out features like higher flow rates and more applications that it can go on or different deviations of that product, like earlier in the year, the multi-slide that went downstream in the market to the compact excavation equipment and such. And so, we're always trying to innovate. But at the end of the day, the multi-Faster is the multi-connection that others have copied. I would say it's like the Kleenex. It's created its own brand that others have copied. Operator: We have no further questions at this time. I'd like to turn the floor back over to management for closing comments. Tania Almond: Great. Thank you very much, everyone, for joining us today. We will be attending some different conferences between now and the end of the year, both in person and virtually. So we look forward to catching up with you in person. If you have any follow-up questions, feel free to reach out to me directly. Thank you, and have a great day. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
Operator: " Kyle Turlington: " John Turner: " Blake McCarthy: " Ben Brigham: " James Rollyson: " Raymond James & Associates, Inc., Research Division Derek Podhaizer: " Piper Sandler & Co., Research Division Tim Ondrak: " Stephen Gengaro: " Stifel, Nicolaus & Company, Incorporated, Research Division Doug Becker: " Capital One Securities, Inc., Research Division Keith MacKey: " RBC Capital Markets, Research Division Sean Mitchell: " Daniel Energy Partners, LLC Edward Kim: " Barclays Bank PLC, Research Division Bud Brigham: " Lee Cooperman: " Omega Family Office Operator: Greetings, and welcome to the Atlas Energy Solutions Third Quarter 2025 Financial and Operational Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Kyle Turlington. Please go ahead. Kyle Turlington: Hello, and welcome to the Atlas Energy Solutions Conference Call and Webcast for the Third Quarter of 2025. With us today are John Turner, President and CEO; Blake McCarthy, Executive Vice President and CFO; and Bud Brigham, Executive Chair. We will be sharing their comments on the company's operational and financial performance for the third quarter of 2025, after which we will open the call for Q&A. Before we begin our prepared remarks, I would like to remind everyone that this call will include forward-looking statements as defined under the U.S. securities laws. Such statements are based on the current information and management's expectations as of this statement and are not guarantees of future performance. Forward-looking statements involve certain risks, uncertainties, and assumptions that are difficult to predict. As such, our actual outcomes and results could differ materially. You can learn more about these risks in the annual report on Form 10-K we filed with the SEC on February 25, 2025, our quarterly reports on Form 10-Q for the first quarter and second quarter, our other quarterly reports on Form 10-Q, and current reports on Form 8-K, and our other SEC filings. You should not place undue reliance on forward-looking statements, and we undertake no obligation to update these forward-looking statements. We will also make reference to certain non-GAAP financial measures such as adjusted EBITDA, adjusted free cash flow, and other operating metrics and statistics. You will find the GAAP reconciliation comments and calculations in yesterday's press release. With that said, I will turn the call over to John Turner. John Turner: Thank you, Kyle. Before we begin our prepared remarks, I'd like to extend our deepest condolences to David Smith's family and our friends at Pickering Energy Partners. Dave was more than a respected analyst. He was a true friend. His kindness, humor, and generosity touched everyone fortunate enough to know him. We are deeply saddened by his loss. Godspeed, David. For the quarter, Atlas generated $40.2 million of adjusted EBITDA on $260 million of revenue, delivering a 15% adjusted EBITDA margin. Despite an exceptionally weak West Texas completions market, we generated meaningful adjusted free cash flow, a clear statement of the strength of our competitive moat with our cost-advantaged mines and integrated logistics network. Our third-quarter volumes came in at 5.25 million tons, a slight sequential decline from the second quarter, but a significant deviation from our expectations, which were based on completion schedules communicated to us by our customers. As more of our customers shift to fixed percentage contracts, we're increasingly dependent on tight alignment and transparency with their plans. During the quarter, several key customers made the tough but prudent call to slow or pause completion activity into 2026 to preserve 2025 capital budgets. We expect fourth-quarter volumes to step down again sequentially due to typical seasonality and a continuation of customer intention to slow capital spend on completions, thus pushing those expected volumes into 2026. However, encouragingly, we have seen some customers who paused all completions activity earlier in the year resume operations in October. Our current estimate for our fourth quarter sand volumes is approximately 4.8 million tons, which we forecast to be our low point during the cycle. Customers have already begun communicating their early 2026 plans, which imply improving volumes early in the calendar. OpEx per ton, including royalties, rose to $13.52, driven primarily by challenges with the dredge feed and wet shed at Kermit. These issues triggered elevated third-party service costs and downtime that inflated Kermit's operating costs, particularly in September. While we continue to deal with these issues in October, the plant is returning to a more normal state of operations, and we expect these cost pressures to ease as the quarter progresses. Importantly, we remain on track to take delivery and commission 2 new dredges early in the second quarter of 2026, which we expect to unlock significant capacity and cost efficiencies. Our logistics business delivered 5.3 million tons, a modest decline from the second quarter. The well-documented slowdown in Permian completions activity has driven trucking rates to below even COVID-era levels. We're actively optimizing costs and efficiencies, but we're also intentionally carrying some extra capacity into the fourth quarter to ensure that we're ready to meet anticipated 2026 demand. The Permian frac crew count, which averaged more than 90 in 2024 and peaked at approximately 95 in March of this year, dropped to around 80 crews entering the third quarter and has likely declined further in the fourth quarter. With WTI prices trading around $60 and a little incentive for operators to ramp activity, we remain cautious about a broad recovery in early 2026. But we are increasingly optimistic about our progress in gaining market share through this downturn. That's why owning the lowest cost to produce sand reserves, pairing them with an extensive logistics network, and amplifying it with the Dune Express was central to the strategy. Downturns are where you grind out the hard yards; up cycles are where you reap the rewards. That's the oil and gas business, and specifically oilfield services for you. So we're focused on what we can control. We have launched a company-wide initiative to maximize efficiencies with an initial target of $20 million in annual cost savings. Using our scale and cost advantage, we're attacking the market while competitors pull back. While we will have a more concrete grasp of total wides in the coming weeks, we are well-positioned for our core plants to be highly utilized in 2026, and we are growing more confident by the day that the Dune Express will exceed 10 million tons next year, a major ramp from 2025. Atlas has now achieved scale in the sand and logistics business, where additional investments currently yield more risk due to the inherent cyclicality of the oil and gas industry. It has been a tough oil and gas market in the Permian, and incremental growth investments in sand and logistics are not currently justified by the returns available in this pricing environment. 9 months ago, we entered the power business on the thesis that the tailwinds were very broad, deep, and durable. Today, that thesis has proven true, well beyond our original expectations. The world turns to the oil and gas industry to solve complex energy problems in times of turmoil. Now it's turning into firms with oilfield DNA to close the massive gap in power generation. Electrification, the resurgence of domestic manufacturing, and now the explosive power demands of AI and computing have turned a capacity-constrained grid into a crisis. For years, power was a line item, often an afterthought. Today, it's the most critical assumption in any growth model. Relying on the grid now carries unacceptable risk of delays, cost escalation, or outright failure. For large capital projects, dedicated behind-the-meter power is quickly becoming a must-have. When we entered the power space, we saw this trend coming. Our legacy business generates strong through-cycle cash flows, but it's volatile. Power offers decades-plus contracts uncorrelated to oilfield swings, delivering a level of stability and sustainability that fundamentally changes Atlas' cash flow profile. The Moser acquisition wasn't about additional EBITDA. It was about the addition of a base platform on which to build and grow this business. We've since added significant industry talent and expertise from outside oil and gas, and it's paying off fast. Our opportunity pipeline is now approaching 2 gigawatts in potential projects, and we're in active commercial dialogue for large load, long-term power solutions. These are customers looking for fully integrated permanent power solutions to power their own significant investments, which are otherwise at risk due to the lack of access to reliable grid power. Atlas is ready to be their solution. We are targeting having more than 400 megawatts deployed across our power business by early 2027, with the majority under long-term contracts. In order to achieve this target and indicative of our growing confidence in the pace of negotiations, we have placed an order for more than 240 megawatts of new, more power generation assets with a blue-chip equipment provider. Meanwhile, our legacy motor fleet, while not high-density, excels at delivering flexible near-term bridge power. In a market starving for generation assets, this capability opens doors. It lets us solve immediate pain points, builds trust, and pivots the conversations to permanent contracted power, exactly what the market demands and what we're built to deliver. We have been relatively quiet about the evolution of our power platform for the past several quarters, but the combination of the major platform, the talent we have brought into the organization, the strong macro tailwinds and our opportunity set becoming more concrete has made it apparent this transformation is changing the complexion of Atlas at a pace that is gaining speed faster than we imagined. This brings me to the subject of the dividend. As announced last night, we have made the difficult but necessary decision to temporarily suspend the dividend. Returning capital to shareholders has always been a core part of Atlas' DNA. Management is fully aligned with investors. But our mandate is to maximize long-term value creation for Atlas shareholders. That means protecting our balance sheet and optimizing growth above all else. While Atlas's base business continues to generate cash in what we believe is our cyclical low for our sand and logistics business, our current level of profitability does not cover the entirety of the dividend. Additionally, and importantly, the opportunities being presented in the power market are potentially game-changing for Atlas, but they do require capital. The size of the dividend represents a potential roadblock to our ability to pursue these opportunities and secure optimal financing. The project should bring stable, financeable cash flows and high-quality counterparties, enhancing our ability to resume and sustain shareholder returns, and maximizing long-term value creation for our shareholders is management's core mission. Importantly, we chose the word suspension deliberately. We expect this pause and return of capital to be temporary. The steps we are taking today are making Atlas stronger, not just to survive through the cycles, but to power through them. I'll turn the call over to our CFO, Blake McCarthy. Blake McCarthy: Thanks, John. In Q3 2025, Atlas generated revenues of $259.6 million and adjusted EBITDA of $40.2 million, a 15% margin. EBITDA fell more than forecast due to the aforementioned fall in customer demand, elevated operating expenses at our Kermit facility, and margin pressure in our logistics business. OpEx per ton, including royalties, was $13.52 and higher than anticipated. Cash SG&A was elevated during the quarter due to litigation expenses. Excluding litigation expense, cash SG&A was in line. We expect fourth quarter volumes to decline sequentially to approximately 4.8 million tons. While we do expect some degree of seasonality during the quarter, it will be partially offset by new customer additions and a resumption of completion activity from current customers. Our average proppant sales price is expected to be slightly under $20 per ton for the fourth quarter. OpEx per ton is expected to be up slightly from third-quarter levels due to lower sequential volumes and the elevated expenses related to resolving the wet shed issues at Kermit. OpEx per ton is expected to normalize in the first quarter of 2026 due to an increase in scheduled customer volumes and a return to more normal operations at Kermit, with further improvement expected in the second quarter with the commissioning of the new dredges. Logistics margins are expected to decline sequentially with seasonality and planned customer crew rings. We expect our power business to be up slightly, driven by increased unit deployments. Breaking down revenue for the third quarter, profit sales totaled $106.8 million, logistics contributed $135.7 million, and power rentals added $17.1 million. Proppant volumes were 5.25 million tons, slightly lower than the second quarter. Average revenue per ton was $20.34. We did not record any shortfall in revenue this quarter. Total cost of sales, excluding DD&A, was $195.2 million, comprised of $66.3 million in plant operating costs, $117.8 million in service costs, $6.4 million in rental costs, and $4.7 million in royalties. Cash SG&A for the quarter was $25.5 million, which included cash transaction expenses and other nonrecurring items of $1.3 million. SG&A is expected to remain around third-quarter levels due to the aforementioned litigation expenses. DD&A was $40.6 million. Net loss was $23.7 million, and net loss per share was $0.19. Adjusted free cash flow, defined as adjusted EBITDA less maintenance CapEx, was $22 million or 8% of revenue. Total accrued CapEx during the third quarter was $30.5 million, consisting of $12.3 million in growth CapEx and $18.2 million in maintenance CapEx, bringing total accrued CapEx for the first 9 months to approximately $100.1 million. We continue to budget $115 million of total CapEx for 2025. Fourth quarter adjusted EBITDA is expected to be down sequentially, driven primarily by lower sales volumes and logistics margins related to end-of-year seasonality. Before I hand the call over to Ben, I'd like to give a little detail on our efficiency initiative and the goals we have set internally and expect to hold ourselves to for investors. As John mentioned, Atlas's core strategy is based around being the most efficient supplier of sand and logistics in the Permian Basin, and having our overall cost structure optimized is key to the execution of that strategy. Thus, we have set a near-term cost savings target of $20 million annualized for the organization. These savings are expected to be realized through rightsizing of our corporate G&A, the fixed cost structure of our operations, and a heightened focus on procurement savings. We expect to begin realizing some of these savings as early as this quarter, with the full impact flowing through our financials by mid-2026. This is simply good corporate hygiene and necessary following 3 successful acquisitions since the beginning of 2024. Atlas is designed to generate cash through the cycle, and exercises like this ensure that we will maximize cash flow generation through the cycle. I'll now turn the call over to our Executive Chairman, Ben Brigham, for some closing remarks. Ben Brigham: Thank you, Blake. While our operations are logistically located in the field, our corporate headquarters are right here in Austin, Texas, home to Circuit of the Americas, where the U.S. Formula 1 Grand Prix debuted in 2012. Just over a decade ago, in 2014, F1 went hybrid, introducing a revolutionary dual power architecture that paired the traditional engine with advanced energy recovery systems. The impact was profound. Last time fell by 3 to 5 seconds, a monumental gain in a sport decided by 10 of a second. With dual power sources, F1 became faster, more efficient, and more sustainable than ever, fueling record profitability, global viewership, and enduring relevance. That's the perfect metaphor for Atlas today. We've gone hybrid. With the acquisition of Moser Energy Systems, we've layered a stable, high-growth power generation platform on top of our industry-leading oilfield foundation. This isn't mere diversification. It's strategic synergy engineered to: one, smooth volatility in oil and gas cycles; two, accelerate growth in high-demand, high-margin power markets; and three, deliver predictable, resilient cash flows for shareholders. The tailwinds are unlike anything I've seen in my career. We now see the convergence of explosive growth in AI infrastructure, advanced manufacturing, grid reliability, and next-generation energy systems. Markets where distributed, efficient, always-on power is mission-critical. Regarding our core proppant and logistics business, we estimate our Permian market share has grown during this down cycle to about 35%, and early RFP season signals suggest it will grow further next year. That's a direct result of our unmatched advantages and performance. As Blake and John noted, a key driver will be a meaningful ramp in Dune Express utilization beginning in 2026. Finally, on the dividend. I don't take this decision lightly. Dividends are a vital signal of value creation and transparency. However, to optimize capital allocation and maximize long-term shareholder value, especially given the transformative opportunities in power, a temporary suspension is the right move. And as one of the largest shareholders and your Executive Chairman, returning capital to owners remains a top priority. This is a strategic pause, not a retreat. That concludes our prepared remarks for the third quarter. I'll now turn the call over to the operator for Q&A. Operator: [Operator Instructions] And our first question will come from Jim Rollyson with Raymond James. James Rollyson: I don't know if it's John or Bud, but you guys have obviously historically been quiet on the power business. And obviously, that changed with your release last night. And plan to deploy more than 400 megawatts in a new strategic order. Can you maybe just back up and spend a minute on how your thought process has changed? What's your updated power strategy, and how Moser fits into that, given the equipment differences, please? John Turner: Yes. Jim, this is John. I'll take that question. We've been intentionally tight-lipped until now about our power business because we wanted to share targets that were backed by a clear line of sight execution. Our power strategy really hasn't changed. We're simply advanced to the next phase of the next quarter. From the start, we knew success required an established platform with deep power expertise far beyond just ordering generators. The acquisition of Moser delivered exactly that: a seasoned team in engineering controls and manufacturing. We've since bolstered that with talent, experience in large-scale permanent projects, EPC partnerships, and negotiating long-term power purchase agreements to support our major investments. The secular tailwinds here are explosive, comparable to the oil and gas business in the mid-2000s when China became a super consumer. But with far broader customer depth, power is now the critical bottleneck across revolutionary U.S. growth areas from AI to electrification, solving that offers high equity returns and stability. Unlike the whipsaw of the oil and gas business, power delivers predictable long-term cash flows, making it far easier to justify sustained investments. Strategically, it's a straightforward position ourselves as an integrated power producer, behind-the-meter power provider of choice for building, owning, and operating bespoke solutions. To scale, we're augmenting our assets with higher density generation as evidenced by today, our 400-plus megawatt deployment target by early 2027, and the large equipment order we've actually placed. Now, as far as where Moser plays into that, our legacy business is mission-critical to our power charge strategy. It solves the current real-world data crisis, I mean, crisis right now, data centers and industrial projects are being built without assured power. Counterparties have invested billions in facilities at risk, staying dark and grid connections delayed 3 to 5 years. Our existing assets deliver immediate bridge power. We deploy proven in-place generation to projects operational now. These solutions aren't space-optimal, but they're vastly better than 0 output. Customers aren't waiting for perfect. They're choosing to stay in business. This positions power as a strategic enabler, not just a legacy unit. It generates stable cash flow, derisks customer commitments, and buys time to scale permanent power solutions. In short, the legacy Moser business isn't just fitting into the strategy; it's unlocking it. James Rollyson: And as a follow-up, sticking to that same topic, I presume you have contracts or a line of sight to contracts to justify ordering the 240 megawatts of new capacity? And if so, do you guys plan, like some of the others in this business, to use those contracts to finance the equipment, kind of generally externally, other than deposits? John Turner: Yes. I mean, the answer to that question, as far as line of sight to contracts, the answer to that is yes, we wouldn't have ordered the equipment unless we had line of sight on contracts, and those negotiations are currently ongoing. I'll let Blake talk about the financing piece of it. Blake McCarthy: Yes. I mean, with respect to the financing, like we're thinking through the lens of more like project financing, ask where, as John said, these are permanent power solutions. That's one of the key things about the equipment we're ordering. They're built to go into place and be stationary, and operate under very, very long-term contracts. And as such, that type of cash flow is very financeable. So, certainly thinking about it long-term financing there. And the capital providers see the same market trends that we all see. And so, it's something that is very accessible right now. James Rollyson: Our next question comes from Derek Podhaizer with Piper Sandler. Derek Podhaizer: Maybe just sticking to the power theme. Can you help us understand the equipment that you ordered, the 240 megawatts from the third party? If you can provide us who the third party? I think you said there are 4-megawatt units. Are these turbines or these natural gas reciprocating engines? Maybe just a little bit more color on the actual equipment would be helpful. Tim Ondrak: Yes. Derek, this is Tim Ondrak, and I'll take that question. So, we're not going to disclose the OEM on the equipment, but these are resi units. We like resi units for a couple of different reasons. And those come down to efficiencies and redundancies. So, these are higher density. They're a 4-megawatt gross output. And again, we like them because of the responsiveness of the redundancy. Blake McCarthy: Yes. As we mentioned that these are designed to be put in place and not moved. So these aren't trailer-mounted or anything like that. These are effectively creating many power plants, or not even many, but power plants that go in place, and they stay there under a long-term contract. James Rollyson: Then maybe just on the CapEx related to the orders, maybe on a cost per megawatt basis. And does this include the balance of plant or any sort of battery that you'll need to support some of the high transient loads for some of these projects? Blake McCarthy: Yes. So the order includes the balance of plant, and I think, looking at it, we're in line with what others in the market have reported on a cost per megawatt. Until we have all of our contracts negotiated on the EPC side, I don't think we're ready to give a full cost per megawatt on the entire package. Operator: Moving on to Stephen Gengaro with Stifel. Stephen Gengaro: You mentioned some of the higher operating costs at Kermit in the quarter. Can you talk about what caused those costs and how we should think about them when they normalize? John Turner: Yes. So the issue at Kermit was really at Kermit was related to tailings in the pond where those tailings are kept. Our tailings are the waste product that remains after we extract the sand. We deposit tailings in the ponds where reserves have already been removed. And so every so often, a tailings pond fills up, and we have to go build a new pond. And this is all done in accordance with our 10-year mining plan. And so in August, we noticed that our current pond, which we were using, was near full. We began to build a new pond, but we were not able to build the new pond in time. So we had to put tailings into the pond where we were mining sand. The introduction of tailings to that pond led to inefficiencies in our wet plant and the Canyon process. So we ended up having to rerun all the wet sand that we had washed through the wash process the second time, which significantly increased our cost and also impacted the time it took for the sand to dry, and also led to elevated costs in the drying process. We have a new tailings pond that has been built. It was really the last pond we were mining reserves from. And the current dredges have been moved to their next reserve pond. And when the new dredges arrive in 2026, we'll open up another reserve pond. So we're also installing equipment to monitor the flow of tailings in the pond, so we'll be better informed and can better plan in the future. I would suspect that we're going to continue to see some elevated costs here as we begin the fourth quarter, but those costs are going to decline as we continue. And then once we bring those new dredges on next year, you're going to continue to see cost efficiencies and costs go down. Stephen Gengaro: The other one I just had was as we think about the balance sheet, maybe, Blake, on '26 capital spending, do you have an early read and maybe even the split between power and the sand business? Blake McCarthy: Yes, yes. We're still definitely in the middle of the '26 budgeting process. But I don't think it's going out on a limb, I want to say that CapEx in '26 is going to be down from '25 levels and likely very close to the maintenance levels we've always talked about, and I'm talking cash CapEx. With current conditions in the oil and gas market, the current price of sand, and incremental growth investments just aren't justified by the returns you can obtain in the market right now. So we're going to spend enough to keep the plants in good working condition and keep the Dune Express humming, but it's going to be significantly near year. With respect to the power CapEx, like I said, we're looking at the first large order through the lens of more project financing capital. And this initial order will have a minimal impact on '26 cash CapEx. That being said, the pace at which these projects are progressing, they're moving at a speed that we need to ensure that we're positioned to act. At times, this may require us to make down payments with cash before financing is fully secured, and we need cash on hand to do that. So that was currently a key part of the calculus of suspending the dividend so that we continue to build cash so that we're armed to take advantage of the opportunities down there. Operator: Our next question comes from Doug Becker with Capital One. Doug Becker: You're targeting to have more than 400 megawatts deployed by early '27. Just want to get a sense for how that reconciles with having about 225 megawatts of capacity in August and the old target of increasing 310 megawatts by the end of 2026. And just simplistically thinking about it, this would imply more capacity deployed than 400 megawatts. Blake McCarthy: Doug, it was a little garbled in the beginning, but I think what your question was is that with the target, the 400-plus target, how does that fit with the initial targets we gave when we announced the Moser acquisition? Is that correct? Doug Becker: Exactly. John Turner: I'll start, and others can add. When we originally announced our Moser acquisition, we talked about 2 numbers. We talked about our total fleet, and then we also talked about the deployed. So let's go look at what nameplate capacity was when we acquired Moser. It was 212 megawatts is which was in the presentation, what we announced. By the end of 2026, on the legacy fleet, that number is going to grow to 262 around 260. And then by the end of 2026, that number is going to be around 280 megawatts. You add so then on top of that, so that's total deployed. Then, if you add what we're adding to new, that's going to be another 240 megawatts. So your total deployable or nameplate capacity of our plant is going to be 500-plus megawatts. Now, if we go back, when we're talking about 400 megawatts, we're talking about what's deployed. That's not our nameplate capacity. That's what deployed. So when we bought Moser and announced it, our total deployed at that time was around 130 megawatts. That number will be around 160 by the end of 2025, and that number will grow to 180 to 200 by the end of 2026. So we continue to grow the Moser fleet. But then, if you add on top of that, you add with the new order of 240, you get 400-plus megawatts of deployed power. So we continue to grow that legacy business. And with the addition of these new assets, that's just an addition to that. Nothing's really changed. Blake McCarthy: Yes. And I think to distill it down to probably what matters most to you guys is that at the time of the acquisition, we talked about, hey, we're going to grow the fleet to 310 megawatts, and that's going to translate to an exit EBITDA run rate at the end of '26 to approximately $8 million. With this new target, the power EBITDA target is revised up. And so think about it as we're allocating incremental capital to a very high-return investment opportunity. John Turner: Yes. And I think just add a little more color to the fleet. So when we guided to -- I think it was 310 megawatts, which was based on our production capacity. So we have actually done some things to increase our production capacity, but we also want to be opportunistic with a portion of our fleet. We've got a portion that's out today working with oil and gas. We've got the new equipment that we've ordered that we expect to be deployed late 2026, early '27. And then we've got a portion of our fleet that allows us to be opportunistic to provide these bridge power solutions that end up leading to our team developing a bespoke, permanently installed solution. And so that flexibility and manufacturing capacity allow us to do that, and we'll continue to be opportunistic as we look to grow those megawatt numbers. Blake McCarthy: Yes. And I think that's a really key point, Doug, is that with respect to the Moser assets, they provide a vital link for a lot of these permanent power opportunities. These are customers that are coming to us in a bit of a state of panic, where they're like, hey, we've made hundreds of millions, billion-dollar investments in these facilities. And now we're being told, like, hey, like, yes, you can connect to the grid and you're going to get a fraction of what you actually need to run the facility. And they're like, well, hey, like we need to get into Phase 1 immediately, we need power now. And the thing is with these assets that actually, for the equipment you need for the permanent solutions, there are lead times on this. So there's a gap there. And most are assets, while not ideal from a footprint standpoint, that's a heck of a lot better than the lights not being on. And so it pulls forward the revenue opportunity for us, but more importantly, it allows them to operate their facilities. And we think, a key advantage in terms of these conversations where, hey, like we can be the problem solver for you. John Turner: Yes. As we said earlier, the legacy business is a critical part of our business, and it's unlocking the permanent power business for us. Doug Becker: Maybe just thinking about the market for reciprocating engines, a number of other players have announced orders without contracts signed. I think they probably have a good line of sight. But how do you assess just the supply of uncontracted recip capacity and how that plays into contracting for Atlas over the next several months? Ben Brigham: So I think the market for any type of natural gas-fired generation equipment is incredibly tight right now. And so when you go back to the press release we put out on the 240 megawatts of power that we bought, I think it was critical for us to get a hold of those assets. And that allows us to end up deploying them. I think when you look at the rest of the market, there are only so many engine blocks that are manufactured every year. And so we will continue to be opportunistic when assets become available if they fit solutions for customers that we're talking to. And the comments that John and Blake made about the motor platform opening doors for us, we expect the same thing out of these equipment orders, that they continue to open doors. And while we're in active negotiations for placing that 240 megawatts, we expect that that will bring more folks to the table. And when you go back to retaining capital in the business, we're doing that so we can act on all these opportunities. Blake McCarthy: Yes. I think it's really hard to understate the rate of growth that we're seeing in the opportunity set. Like, just over the last 3 months, we talked about that tangible opportunity set approaching 2 gigawatts. That was a heck of a lot smaller just 3 months ago. And it's increasing at a pace. And we drafted that number 2 weeks ago. And since then, the number of phone calls we've gotten, I think we updated that number, it's probably moving up. So the demand growth, I think Bud said, like he hasn't seen anything like this in his entire career, it's pretty wild. And I think we're all just trying to sprint to keep up with it. Operator: We'll go next to Keith MacKey with RBC Capital Markets. Keith MacKey: Maybe just continuing on the power generation opportunity. Can you just discuss a little bit more about what's in that 2 gigawatt number that you put out there for the potential market opportunity? What types of opportunities are those comprised of? Where do you see that growing over time? That type of commentary would be helpful. John Turner: Yes. So I think I can give a little bit of color on that. So I think when you look at that 2 gigawatts, there's a core of that that will continue to belong to oil and gas, and that's in the applications that we're using our units in today. It's in microgrids to continue to support oil and gas development. So that's going to be about 10% of our mix and our opportunity set. I think there's another 40% that's in C&I opportunities, which I would take the univers groups of our opportunities. I would say everything that's not a data center is a C&I opportunity. That's how we're defining that. So about half that opportunity set is C&I and oil and gas. And the other 50% is going to be data centers. And so we're getting a lot of inbounds from data centers. We're not actively hunting that market. But I think because we have power, they're finding us, and a lot of them are these smaller bridge opportunities where the conversation immediately goes to, can you solve this near term, and what solutions do you have for the long term? Ben Brigham: The near term could be 3 years, maybe longer. John Turner: A lot of that's driven by equipment lead times and what the proper solution looks like for that customer. And so again, we think we're uniquely positioned to provide a bridge that opens these doors for permanent installs that are 10-, 15-, 20-year power plants. Blake McCarthy: When you look at that split, 90% of that -- let's talk about the C&I space. In the C&I space, we're looking at 10-plus-year contracts on supplying that power. So these are all very attractive opportunities from a risk-adjusted basis for us to deploy capital. Keith MacKey: And I know Blake touched on the EBITDA or earnings generation and the increased target for what you can generate with the megawatts you'll have in the field. Would you be able to just put some maybe guideposts around how you're thinking about that? I know others in the market have said it's somewhere between a 4 to 6x EBITDA build multiple for the CapEx for these types of opportunities. Would you be roughly within that range? I know certainly a sensitive time for the negotiations, but any way we can think about the earnings power of this new opportunity would be helpful. Blake McCarthy: Yes. I'm going to refrain from going into specifics just because we have ongoing negotiations. But I think that with respect to how you think about it, I wouldn't be too far off on the EBITDA per megawatt generation that you've seen from others in the space. Operator: Moving on to Sean Mitchell with Daniel Energy Partners. Sean Mitchell: Just one for me. Just when you talk to your OEMs, I mean, I know you're not providing who's building these for you, but just OEMs at large, what are lead times like for gas recip engines today? And where is that going over the next 2 years? John Turner: Yes. So it varies, but the majority of the OEMs we're talking to are taking orders for 2028 and beyond delivery. It really depends on what you're looking for. I think there are some large players out there that have recently announced bigger deals and bigger orders. And so that has sucked up some of these blocks into 2030. And so, like I said, it varies. But typically, it's going to be 2028, and maybe there's somebody who has canceled an order, and we can step in and be opportunistic with picking up those assets if we've got line of sight to. Blake McCarthy: Yes. And that's why it's so critical, though, that we're armed with capital to pass on it. These slots are very valuable, and we're not the only ones looking to take advantage of them. So when an opportunity arises that aligns with the commercial opportunity, we have to be positioned to move quickly. Sean Mitchell: And then maybe Blake or John, just as you think about the traditional business and the 10 million tons Dune Express at some point, I mean, if we're at a $65 world next year or through next year, what price do you think these guys are going to get back to work? Because it feels like everybody is taking a pause right now. Blake McCarthy: Yes. I think that it's just it's continuing at the current pace. Like, I think everybody is just waiting to see which way the wind blows. I think guys like you are part of the problem. We all read the same stuff where it's like, hey, the price of oil is going to fall off here in the next 6 weeks. And so when crude hangs in the low 60s, but there's a risk that it's going to fall to the low 50s, nobody is going to put more equipment to work. On the flip side of that is that you are starting to see the production statistics start to move in the right direction. But I think it's just a wait-and-see. And then there's no impetus right now at the tail end of the year for people to spend more CapEx. So I think that we'll see the customers are a bit opaque in terms of, like, what their plans are. And I think that's because they're working through their own budgeting processes. But the signals that we have received through RFP season thus far have been very encouraging from our standpoint, and just in terms of being able to gather incremental share. And so like that's what we're focused on right now. Our expectation right now is that '26 is more of the same that we've seen in '25. And so it's up to us to go execute in that type of market. We know the playbook, and we're ready to go. Operator: Our next question comes from Eddie Kim with Barclays. Edward Kim: Just on the power business, do you currently contemplate the entirety of the 240 megawatts you just ordered to be deployed on a single project? Or is it going to be split up into multiple different projects? And just based on your discussion of the end markets, it feels like the 240 megawatts is going to be deployed in something other than like a Permian micgrid supporting artificial lift, so likely in other C&I or data centers. Would that be a fair assessment to make? John Turner: So we don't expect that to be deployed in the oil and gas. We've got multiple opportunities that 240 megawatts could deploy into. I would expect that it's probably not more than 2, and it potentially could go to one project. Edward Kim: My follow-up is on the base business, and apologies if I missed this. I know you haven't provided 2026 guidance yet, but any way you could help us think about your volumes for next year, even just directionally? It feels apparent that the Permian frac crew count is going to be down next year on a year-over-year basis. So, should we expect a similar trajectory for your volumes sold as a base case and maybe flat year-over-year in an upside case scenario? Just any thoughts there would be helpful. Bud Brigham: Yes. This is Bud. I might start, and these guys may add to my comments. Blake touched on it that none of us have a really good sense of when oil is going to bottom. And of course, oil drives sand consumption, whether that's the fourth quarter or whether it pushes out through 2026, it's really hard to say. But my personal view is that for Atlas, in terms of where we sit in this trough that the fourth quarter is the trough for Atlas, in part because our competition is getting weaker. We are the lowest cost producer, and we have significant logistical advantages, including, of course, the Dune Express. So, as we mentioned, our market share has grown. We think that will continue to happen through next year. And so that's why I feel like this is likely our trough from an Atlas perspective, even if oil prices do stay soft, which is probably likely through 2026. But we all know that the longer oil prices are down at these levels, the stronger. The upswing is going to be on the other side. And that's when Atlas is really going to be poised to perform extremely well. Blake McCarthy: Yes. And we're running through the RFP season right now. I said this in my comments. Everything is looking really good right now. I mean, we're looking like, as far as the volumes go, I mean, like Bud said, we're going to gain share. It's not good. Pricing is low, but we're doing what we should with our low-cost advantage. I mean, most other folks aren't producing any cash flow in the sand and logistics business. But we obviously still have really good margins and are generating cash flow. It's not the cash flow we want to generate, but it's good cash flow, and we're positioning ourselves for the upswing. I also think the adoption of the Dune Express was muted last year, with Liberation Day happening. But we are getting an opportunity to fill out those tons this year with opportunities that are coming up. So we're going to have more about that as we move into the fourth quarter, and when we report next year, we're going to have more to talk about. But we're optimistic about the volumes we're going to see next year. Operator: Lee Cooperman with Omega Family Office has our next question. Lee Cooperman: I tuned in a little bit late. I apologize if this question was addressed. Have you suspended your buyback program? Number one? Number two, how much stock have you bought back at what prices did you pay when you bought it back? Blake McCarthy: So we still have a $200 million share buyback authorization in place. We executed a very small amount of that a quarter ago, but we did not execute any during this current quarter. So, that is certainly when there are multiple means of returning capital to shareholders, and we're always looking for the highest return means of increasing shareholder value. We do think that the power opportunity is a once-in-a-generation opportunity. We announced the 240-megawatt order yesterday. This won't be the only one. We had the confidence to make this order because of where we are in negotiations. But I said that's 240 megawatts compared to an opportunity set that is rapidly, rapidly expanding. And so we are working to continue to grow that announcement training. That being said, based on our current forecast, we should be building cash over the course of 2026. And that creates a lot of optionality with respect to how we deploy that. Where the stock is currently trading, we think management believes that it's significantly below the intrinsic value of the stock, and that's certainly a very high return way of creating capital value for shareholders. Lee Cooperman: Despite the elimination of dividends, you would not rule out stock repurchase as a use of capital. Blake McCarthy: No, sir, by no means. Operator: This now concludes our question-and-answer session. I would like to turn the floor back over to John Turner for closing comments. John Turner: I want to thank everyone for participating. Thank you to our employees for all the hard work. To our customers and partners, thank you for your continued confidence. And to our shareholders, thank you for your support as we build the future together. We look forward to reporting our fourth quarter results and talking more about 2026 and some of the exciting developments that are happening on the power side at our next call. Thank you. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the Ferrari Q3 2025 Results Conference Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Nicoletta Russo, Head of Investor Relations. Please go ahead. Nicoletta Russo: Thank you, Rezia, and welcome to everyone who's joining us. Today, we plan to cover the group third quarter 2025 operating results, and the duration of the call is expected to be around 45 minutes. Today's call will be hosted by the Group CEO, Mr. Benedetto Vigna; and Group CFO, Mr. Antonio Piccon. All relevant materials are available in the Investors section of the Ferrari corporate website. And at the end of the presentation, we will be available to answer your questions. Before we begin, let me remind you that any forward-looking statements we might make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included on Page 2 of today's presentation, and the call will be covered by this language. With that said, I'd like to turn the call over to Benedetto. Benedetto Vigna: Gracias Nicoletta. Thank you, everyone, for joining us today. The past few months have been reach of important milestones for our company, among which the launch of the Ferrari Amalfi, the 849 Testarossa family, the first step of the reveal of the Ferrari Elettrica and the Capital Markets Day. Let's start from the Capital Market Day. On October 9, in Maranello, we gathered together and we shared our ambitions and plans for the future with investors, journalists and the entire world. In this current uncertain world, we shared an ambitious financial floor for the end of this decade, EUR 9 billion of revenues, 40% EBITDA margin and 30% EBIT margin. What did we say? What did we say at Capital Market Day exactly? Two things. We highlighted that Ferrari is a unique company, which combines 3 dimensions: heritage, technology and racing. It has a dual identity, both inclusive and exclusive capable to engage with tifosi, royalty and brand values across generations and geographies. We have set ambitions for each soul with unwavering goal to keep our brands strong for the longer term, well beyond 2030. In racing, we aim to win, we want to continue to be successful in Endurance and come back to victory Formula 1. We owe this to our P4 to fuel the passion and inclusive side of our brand. In sports cars, we continue to focus on managing and crafting the exclusivity of our product through an horizontal product diversification strategy, which ensures custody for each single model. We confirm our innovation pace. We will continue to offer our clients an average of 4 new models per year between '26 and 2030 across the 3 different powertrains: ICE, hybrid and electric to address different clients and different clients' needs. In 2022, we told you that the 2030 breakdown of powertrain offering would have been 20% ICE, 40% hybrid and 40% electric. Our plans were based on the environment in 2022 and our expectation about its evolution. Today, in 2025, we have deliberately recalibrated our powertrain offer to be 40% ICE, 40% hybrid and 20% electric. Why did we decide this? Two are the main reasons. One, market dynamics. We have always believed in electrification as an addition, not as a transition. Overall market adoption of electric technology has been more gradual than anticipated in 2022. At the same time, demand for thermal and hybrid models has been more sustained. Two, client centricity. We put our clients always at the center of what we do. We are very flexible and agile to adapt our product plans to the evolving environment, developing and offering models that best address our client needs and meet their preferences. Regardless of the powertrain, we will keep on harnessing each technology in a unique and distinctive way, enhancing the driving emotions and staying true to our belief that we have to be innovative, adapting to the changing times. That is what our founder did since 1947, when he dared to develop our first, first cylinder engine, although nobody believed in it. It's our responsibility. It's our responsibility to keep alive this will to progress. This technology neutrality approach is something we have chosen. We have planned for and invested in also from an infrastructure point of view. The e-building, our new facility in Maranello capable to manufacture the 3 powertrains is the perfect examples of this flexible approach. Our research and development efforts will not only focus on powertrain performance, but also on vehicle dynamics, experience on board and the new materials, all of which make our product unique. Moving to clients. We will continue to grow our Ferrari families, which today counts 90,000 active clients and to foster their sense of belonging in community through an ecosystem of unique experiences from track to road to brand. Lastly, lifestyle. This is the soul that is instrumental to enrich the client experience and to widen our audience beyond our tifosi and Ferrari. I personally believe the team did a great job in bringing brand consistency. We then cultivated everything I just said with the help of Antonio, and let me underline and -- let me highlight a couple of elements. One, we continue to grow our business to new heights in an organic and consistent way. We look at the 2030 target as a floor of our ambitions, always acting in the long-term interest of our brand, safeguarding exclusivity above all. The macroeconomic environment remains uncertain and extremely volatile. However, the visibility and solidity of our business model allowed us to commit to an ambitious plan of 6 years of growth, which we will execute with focus and discipline as we did for the previous one. We will continue to deliver on our promises. And then we concluded the Capital Market Day with our renewed decarbonization commitment. We have already achieved approximately 30% reduction in our Scope 1 and Scope 2 emissions and approximately 10% reduction per car in Scope 3 emission in 2024 versus 2021. We will capitalize on this achievement with a clear target to reduce our Scope 1 and Scope 2 emission by 10x in 2030 versus '21 and to decrease by 25% the absolute Scope 3 emission in 2030 versus the past year 2024. Moreover, the day before the Capital Markets Day, we unveiled the technology of our Ferrari Elettrica. This represents the first step of the wheel, which will be followed by the look and feel of the interior design concept in Q1 '26 and the complete car in Q2 2026. As a leaders, Ferrari as a leader takes its innovation responsibility very seriously. The Ferrari Elettrica is a new opportunity to reaffirm our will to progress as it has happened many times in the past with the introduction of innovative concepts such as with turbo engines, hybrid powertrain and most recently with the Purosangue, there is great anticipation to experience the driving emotion of the Elettrica. After the Capital Market Day, I met several clients in U.S.A., in Korea, in China and in Italy. And all of them appreciated the way we present the model. This is what they told me. The electric cars are generally heavy as elephants and not fun to drive. You did well to invest in active electronic system to transform the elephant in a horse and to engage the drivers with pedro shift like in all Ferrari. We are looking forward to driving it. We can continue to be innovative if we keep the pace of change and having the 3 powertrains in our portfolio is a clear advantage, especially in front of younger generations. With the first step of the reveal of the Ferrari Elettrica and unveiling in September of the 849 Testarossa, coupe inspired, we have concluded the 6 launches we had announced 1 year ago for the entire '25. I met many clients in Europe, in the U.S.A. and in China, who are in love with Testarossa. Last week in China, I met a young female client, younger than 40 years old, and she told me, Testarossa is the perfect harmonious blend of design and engineering, elegant and craftsmanship. I'm eager to own one and drive it. In the past few months, almost all range model in production were substantially sold out. The launches of the Testarossa family and Amalfi and the great traction in clients are initially contributing to the order intake. Indeed, the order book extends well into 2027. Over the next few quarters, we will have a significant change over of models. Indeed, in January '25, only 15% of our lineup was in ramp-up phase of production, while we will close the year with 35% of the lineup in ramp-up phase, and this is the result of all the activities of development that we did in the past years. Moving to the quarters, Q3 '25 saw continued growth. Just a few key numbers to highlight. One, total revenues reached approximately EUR 1.8 billion, a 7.4% growth year-over-year with flat deliveries. Two, strong profitability with EBIT of over EUR 500 million. And last but not least, industrial free cash flow at EUR 365 million. These are solid business performance. This solid business performance allowed us to revise upward the '25 guidance during the Capital Market Day in October. Our revised guidance exceeds the profitability target we had originally set for '26 in the previous business plan 1 year in advance. Moreover, the decision to complete the current share repurchase program within this year, once again 1 year earlier than planned, also reflects such progress and strong confidence that we have in the future. And now I will leave the stage to Antonio to explain the quarter in more depth. Antonio Piccon: Gracias Benedetto, and good morning or afternoon to everyone joining us today. Starting on Page 4, we provide the highlights of the third quarter, which once again delivered consistent growth and demonstrates solid progress. Product mix and personalization, along with rising revenues were the main drivers of revenue and profitability growth with shipments in line with the previous year. This resulted in a strong industrial free cash flow generation in the period. Let me underline that such results were accomplished notwithstanding the impact of the incremental U.S. import tariffs, which became visible in Q3, a greater foreign exchange rate headwinds and lower deliveries of the Daytona SP3, which was phased out in the quarter. On Page 5, we deep dive into our shipments. They were driven by the 296 GTS, the Purosangue, the 12Cilindri family, which continued its ramp-up phase and Roma Spider. The SF90 XX family increased its contribution. The 296 GTB decreased approaching the end of its lifecycle and the SF90 Spider phase out. Deliveries of the Daytona SP3 were lower than the prior year and concluded their limited series run. As anticipated by Benedetto, in the quarter, we started a significant changeover of models, which will be also visible in the next quarter. The SF90 family and the Roma were already phased out and the 296 family is approaching the end of its lifecycle. Indeed, those models will be progressively replaced starting from next year by the 849 Testarossa family, the Amalfi and the 296 special series, respectively, a record number of new models introduced at the same time. On Page 6, the net revenue bridge shows a 9.3% growth versus the prior year at constant currency. This translates into a 7.4% growth, including the headwind from currency, mainly related to the U.S. dollar dynamics. The increase in cars and spare parts was driven by the richer product mix as well as higher personalizations despite the lower delivery to Daytona SP3, which followed our plan. Personalizations accounted for approximately 20% of total revenues from cars and spare parts and were particularly relevant for the SF90 XX family and the Purosangue, also supported by the adoption of carbon and special paint. Sponsorship, commercial and brand also increased, thanks to higher sponsorships and the improved performance of the lifestyle activities as well as higher commercial revenues linked to the better prior year Formula 1 ranking. Moving to Page 7. The change in EBIT is explained by the following variances: Mix and price was positive, thanks to the enriched product mix. Indeed, despite the phaseout of the Daytona SP3, the product mix was sustained by the higher end of our product offering, namely the SF90 XX and the 12Cilindri families. The mix was also supported by the increased contribution from personalization. Please note that the impact from incremental U.S. import tariffs as well as from the update of our commercial policy in response are included in the mix and price variance. This resulted in a margin dilution at constant currency, particularly visible in the third quarter since the majority of our shipments in the United States was represented by model good price were protected under the updated policy. Industrial costs and R&D were lower year-over-year, in line with model life cycles, partially offset by higher development costs for racing. SG&A were also higher, reflecting racing expenses and brand investments. Other was positive, mainly thanks to racing and lifestyle activities. Percentage margins continued to be strong in the quarter despite the dilution from increased import duties with EBITDA margin at 37.9% and EBIT margin at 28.4%. Turning to Page 8. Our industrial free cash flow generation for the quarter was strong at EUR 365 million and reflected the increase in profitability, partially offset by capital expenditures, which were mainly focused on product development and the progress in the new paint of construction and the negative change in working capital provisions and others, mainly due to the reversal of the advances collected in previous quarters. Net industrial debt was EUR 116 million at the end of September, also reflecting the share repurchase program executed in the quarter, which is approaching its completion by year-end, as reminded by Benedetto, 1 year in advance compared to our plan as announced in June 2022. Moving to Page 9. We confirm our 2025 guidance, which was revised upwards during the Capital Markets Day on October 9 on the back of the solid business performance and reflecting improved sports car revenues, including personalization, a lighter-than-expected cost base despite a greater headwind from foreign exchange rate and increased U.S. tariffs. And with this in mind, for Q4, we project lower deliveries year-over-year, as we already told you in the second quarter call, and this is in connection with the changeover of models, as I mentioned earlier on, a positive product mix, although sequentially tighter, in line with the phaseout of Daytona and the first unit of F80, higher SG&A and a seasonal step-up in racing R&D expenses as well as higher SG&A dictated by the start of production of new models. Looking at 2026 and beyond, let me remind you that the introduction of the F80 will be gradual. As usual, it will take a couple of quarters to ramp up the production and the life cycle is expected to be around 3 years. The guidance of the F80 and the model changeover will imply a more back-end loaded 2026 and will shape the product and country mix throughout the year. Such developments are consistent with our plans to deliver in the year to come as smooth and as linear as possible expansion of our profitability in absolute terms. Be assured that we continue to execute on this plan with discipline and focus and today's strong results provide once again the evidence of our continued commitment. Thanks for your attention, and I turn the call over to Nicoletta. Nicoletta Russo: Thank you, Antonio. Rezia, we are now ready to take the questions. Please go ahead. Operator: [Operator Instructions] We are now going to proceed with our first question. And the questions come from the line of Michael Binetti from Evercore ISI. Michael Binetti: Just a couple for me. Antonio, I think you're saying that the mix impact in the second half will be a little bit better than what you anticipated. I saw that mix added about EUR 25 million in the quarter. I think last call, you said mix would be neutral for the second half. So can you just help us think what's driving a little bit of that upside? And maybe how much we can think about in fourth quarter from mix relative to the third quarter? And then I guess just as we think about the personalization comments you made about 20% now. You guided to personalization being closer to 19% longer term. It's like it's a little counterintuitive to us with the new tailor-made studios and the paint shop coming online next year. Maybe just walk us through what drives the moderation there? Antonio Piccon: Yes, Antonio. Thank you, Michael. On the first question, yes, the mix in the... Benedetto Vigna: Can you hear well, Michael? Michael Binetti: I'm sorry, what was that... Benedetto Vigna: I was saying, can you hear well? Michael Binetti: Not very well, no. Benedetto Vigna: That's why I asked you because we understood that someone was not able to listen that we hear well. I don't know if this is... Antonio Piccon: Okay. I'll try and answer. I hope you can hear me. Yes, the mix impact in the second half of the year has been slightly better than anticipated. So I remember I answered you in the second quarter call that we would have expected the mix more neutral in the second half. Now this is a slightly improved at least based on the third quarter results. And this is mainly due to personalization that remains very, very strong. With respect to your second quarter -- second question, we said we have prepared the plan on the basis of a 19% longer-term penetration of personalization. In this respect, the contribution of tailor-made and in particularly the tailor-made center, bear in mind that have been taken into consideration mostly to come closer to our clients. So the overall consideration on the penetration of personalization takes that into account with a view to be close to our clients also in countries where such tailor-made personalization are particularly relevant, such as Japan and the Western Coast of U.S.A. Michael Binetti: Okay. And can I just ask you one clarifying comment. You said the F80 will roll out over 3 years. Is that -- am I wrong or is that a little longer than the normal cadence for one of the strictly limited or supercar models like this? Is that -- and is there a strategy behind stretching that out a little longer? I would think normally would -- you'd see the bulk of those shipments in maybe 8 or 10 quarters? Antonio Piccon: [indiscernible] line with what we've been doing on the ICONA as recently, considering the overall number of cars involved and the start-up phase that is entailed by in order to get to run rate of production. Operator: We are now going to proceed with our next question. And the next questions come from the line of Stephen Reitman from Bernstein. It looks like the person just disconnected. We are now going to proceed with our next question. And the next questions come from the line of Flavio Cereda from GAM. Flavio Cereda: So my question is, I'm taking you back to the Capital Markets Day and your projections of top line growth to 2030. So a very simple question, volume price mix, volume, you got control it, mix to a point. And I was just wondering on price, your pricing power, given all that's been done and the great results that we've seen in recent years, Benedetto, where do you think you stand on this? Do you think you're coming to an end here? Or do you think there's more to come? Benedetto Vigna: Thank you, Flavio, for the question. It's not at all an end. Actually, we feel confident that with all the innovation that we have to delight our clients, we do not see any weakening in our pricing power. We will continue to offer Flavio, car with a different positioning. All of them will benefit of the pricing power because this pricing power, just to be clear, is not coming because we will just increase the price for the same, let me say, product as it is. No, we will make richer and richer innovative, more and more innovative with the product so that by delighting the client, we are confident that we will keep our pricing power. And this is what we are working on. And this is the goal of all the money that we invest in R&D, in innovation with all the team here. Flavio Cereda: So aligned to more models, fewer volumes? Benedetto Vigna: Yes. Operator: And the questions come from the line of Thomas Besson from Kepler Cheuvreux. Thomas Besson: I have 2 questions, please. First, on hybrids, I think the share was lowest in a couple of years. Is it linked with the changeover of product? Or is it driven by willingness to reduce overall hybrid share to eventually address excess deliveries in certain markets and residual values? That's for the first question. And the second, could you give us the delivery figures, please, for the Q3 data on us and what -- how many F80 you're already going to launch in Q4, please? Benedetto Vigna: Okay. So the first one, Thomas, is just depends on the offer that we have on the lineup we are offering to our clients. The number of hybrid cars that we are offering is reducing because there is a change in the model. So there is no if you want, there is no surprise over there. It's a consequence of the way we launched the car. No, that's it. There is -- don't extrapolate any trend over there, okay? And it's not related to the propulsion. The second is how many F80 -- we are planning to launch to sell? Antonio Piccon: Just the initial few units, Thomas, not its number. And I [indiscernible] 40 in the third quarter. Operator: We are now going to proceed with our next question. And the next questions come from the line of Stephen Reitman from Bernstein. Stephen Reitman: Apologies I had a problem with connection. And I apologize also if this question has been asked before because I was cut off, so I had to redial in again. So thank you for your comments about the contribution of 849 extending the coverage of your order book into 2027. I'd like to know if demand is similar for both the Coupe and for the Spider. And I know you don't comment on the order intake on a model-by-model basis. But could you talk about the level of interest you're seeing in the Amalfi? Is demand strong for the entry products as it is for your higher-end products? And my second question is regarding also on the hybrids. You've given us some detail in the past about the penetration rates you're seeing for your extended warranty program for the battery program and the like. And I think the last figure we had was running at about 15% to 20%. Obviously, that's a very good way of improving the residual values of these vehicles and making these Ferrari last being cars lost forever as your intention. So could you update us on where you are with that program? How well is it's understood? Benedetto Vigna: Thank you, Stephen, and I understand that electronics is not always working well before. That is why we manage carefully electronics in our cars. Having said that, how it's going Amalfi? I think Amalfi is proceeding better than the previous model. So this is very encouraging. The second point I can tell you is that I saw -- I was in China the 21st of October, and I saw the first 2 Amalfi sold over there to new client younger than 40 years old. I can also share with you that in order book, more than 50% of the new clients -- of the -- sorry, 40% of the people that want to buy the Amalfi are coming new to the brand. And this is, let's say, we are pleased because one of the objectives of this car was to bring on board, new to the brand. So that's the comment on Amalfi. The story of hybrid, that hybrid warranty, I think that -- I mean, it's picking up, continues to pick up. It's more than 20%. But we see one simple things. we have dealers that are able to explain it well, while we still see some dealers that have not yet explained properly. So we are in the process to retrain some of our dealers because some of them are not able to explain properly the advantage of this warranty scheme. So we see improvement, but I think there is more if all the dealers are able to explain properly. So that's on the hybrid -- side. Thank you Stephen. Operator: And the questions come from the line of Thomas Besson from Kepler Cheuvreux. Thomas Besson: I think I've already asked my question. So I think you can pass on to the next speaker. Benedetto Vigna: In fact, I was surprised. Thomas Besson: Yes, me too with. Operator: And the next questions come from the line of Robert Krankowski from UBS. Robert Krankowski: Just 2 questions from me, please. And just maybe starting with the Q3. Like I think we are expecting that it's going to be the weakest quarter in the year. So obviously, something went better and maybe we heard that it was personalization. But maybe if you could talk specifically about the U.S. Back in Q2, you mentioned that there is some change in consumer behavior because of the tariffs. Have you seen it normalizing right now after we have more clarity on tariffs? And maybe the second one also related to the U.S. Obviously, there is a lot of conversation about residuals and there is some kind of concern about potential increasing order cancellations. Have you seen any unusual or any pickup in orders cancellation in the U.S. as consumers are a bit worried about potential change in residual values in the market? Benedetto Vigna: I'll take this question, Robert. So one, in U.S., the business proceeds as usual, number one. Number two, the only difference we see in U.S. that if you compare today versus the previous call, at that time, the tariff were still at 25%. Now they are at 15%. Now it's carved out in the stone, it's 15%. So that's the only difference we see. And we have been -- you remember last time, we told you when it will become, how can I say, blessed by papers, then we will update the commercial policy, and that's what we did. That's what we did before we said the price increase up to 10% when the tariffs were 25%. And now we say price increase up to 5%. That's the only difference in U.S. Then the business proceeds as usual. Antonio Piccon: And with respect to Q3 being originally thought as the weakest quarter in the year, I think the reason is simple. We were -- the level of personalization was higher than we were expecting. So that has on the top line. And in terms of the cost basis, a point that I highlighted when we revised the guidance upward, the cost base actually ended up being lower compared to our initial expectations. Operator: And the questions come from the line of Tom Narayan from RBC. Gautam Narayan: My first one, Antonio, I think I didn't hear it, and you said it, but could you please review the bridge again from Q3 to Q4? I know the Daytona's are zeroed out, but then maybe review the -- maybe the R&D and SG&A. And then I have a follow-up. Antonio Piccon: Yes. With respect to Q4, Tom, I said that there will be lower deliveries year-over-year. That's a point that we already in the Q2 call. This is to be read in connection with the changeover models that we discussed. Then I said there will be a positive product mix, although we expect it sequentially lighter in line with the phaseout of the Daytona and the first unit of the F80. And the last point is that we expect higher SG&A and a seasonal step-up in racing expenses for development of the applications for the car as well as higher SG&A that are dictated by the start of production of the new models. Gautam Narayan: Got it. Okay. That's very helpful. And then I have a kind of high-level question. I think in the past, you said that when there's a new kind of form factor, like Purosangue was a very different vehicle than you had ever made in the past that initially, obviously, there is a -- I don't know, like a margin headwind relative to -- if it was a standard product that you've done before at the same price point. How do we think about the Elettrica from this standpoint, given that it's a completely different form factor, is it safe to say that there's a similar kind of margin headwind relative to models that you make at a much larger volume requiring less incremental new spend? Is that a safe assumption to make? Benedetto Vigna: I think, Tom, you have a good memory. That's what we said about Purosangue, but we said it when everything was announced and everything was clarified. So I don't want to look like unpolite but if you are patient a little bit, then we will be more precise on that. But before I said, like you remember, we told you everything when the shape was visible and not only the shape... Operator: We are now going to proceed with our next question. And the questions come from the line of James Grzinic from Jefferies International. James Grzinic: I guess I have really a philosophical question for Benedetto just to follow up on Flavio's. I think Benedetto, you've made it very clear that you expect a higher rate of innovation to continue to really support your pricing power for the brand -- when I consider your 2030 plan, you seem to assume that, that lever, that price/mix lever is going to be much less important than in the past. Is that -- should we be thinking that the rate of innovation in the next 5 years reduces to go hand-in-hand with that price/mix lever being less important than in the past 4 years? Benedetto Vigna: No, I think that innovation rate does not slow down, honestly. I think we have several innovation in the pocket that we plan to apply to the different cars, each one for its own positioning. And I mean if we would sit on the innovation, I don't think we would be call it Ferrari. So the reason why I was very clear with the question -- the answer to the question of Flavio Cereda is because we have several levers of innovation that go beyond the traction. There is the vehicle dynamics, there is user interface, there is architecture that is the driving trails that we feel confident that once we apply this to the different model, we will be able to delight the client and thus to use properly the pricing power because we are not -- I would like to maybe underline one point. We are not a company that is increasing the price of the same object just because time goes on. No. We increased the price of what we do because we put something more innovative in it and because this innovation is going to delight our clients. I think this is important. If you see also the way we increased the price in the past years, well, Ferrari has been unique in the sense that we have not increased the price of the same object, but we have put the innovation in the product and that because of a high degree of innovation, high degree of delightment of the client, we exerted properly the pricing power. That has been and that's going to be in this way, James. Operator: And the questions come from the line of José Asumendi from JPMorgan. Jose Asumendi: Just one question, please. I guess frequently asked the question after the Capital Markets Day with regards to, I think, very exciting future, I think right products that you're launching into the market, but they also require some investments such as the launch of Elettrica. I think some lesser investments like the paint shop and I think all the credit facilities we saw during the Capital Markets Day. The question is to create a stability of margins in the business model, how can we think about the offsetting elements, the positive contributions you're going to have in the medium term to create that margin stability? And there might be some doubts in the market about the margin stability of the business model. How can we think about that balance between investments and then the opportunities you have to maintain and create that margin stability that you've shown, I think, in the past years? Benedetto Vigna: Let me see because there was some noise just to make sure that I understood properly, José. I think that if you want this question for me, the answer is very close to the previous one. The only way -- first of all, we are living in uncertain time. Yes. There is no difference also if you want to many other cases in the history. Now the only things we can do is to make sure that we keep innovating so to offer something that is unique to our clients, unique in the performance in engineering, unique in the design, unique in the way we do it because why are we doing the paint shop? Why are we doing -- why did we do the e-building? Because we want to be unique in the way we manufacture our cars, whatever they are ICE, hybrid and green electric. Why we are showing in a multistep way the innovation of Elettrica because we want to make sure that all the work done by the engineers -- well, it's not going to be lost because there are so many new things in this car as well as in other cars that we will make sure that innovation is properly, is properly, let's say, explained to our clients. We noticed it -- let's put it this way, we noticed that for some cars in the past, there was a lot of innovation content or there were several innovation content that were not properly explained. And this is an area of improvement we have. When we do something new, even on technology, on design, on engineering, we have the responsibility to explain well to the world because behind that -- beyond that, there is the work of many people, blue collar and white collar. So this is the philosophical question or the goal of this question of this company is to make sure that on the innovation side, whatever we do is unique. And this is, if you want, the best guarantee of the long-term sustainability of what we do. That's it. I only if you are unique, we can do something that guarantees the long-term sustainability. That's the reason why we gave you a floor for the end of this decade, and we feel confident about that because of the uniqueness of what we do. Operator: And the questions come from the line of Michael Tyndall from HSBC. Michael Tyndall: Two questions, if I can. One for Antonio. Can we talk about the F1 budget for next year? So headline number, if I'm not wrong, is USD 215 million from current USD 135 million. From where you're sitting, is that just an incremental $80 million of cost or does the scope change mean that actually the impact on your P&L is considerably lower than that headline number? And then the second one is just around can you talk a bit about FX on the order backlog? What scope do you have? And how much do you really want to push in terms of trying to offset what's going on with currencies on a backlog that now runs into 2027? Antonio Piccon: Thanks, Michael. The first one really the fuel cost increase. That's an element we need to take into account. So if the F1 budget grows, this flows into our cost, and this is to be taken as a cost increase. On FX on the order backlog, based on the agreement that we have with dealers is in principle, we could change pricing with a 90 days anticipation, I guess. So that's something that in principle is possible. We decided on a country-by-country basis and depending also on the move in terms of the exchange rate on the size of the move. Operator: Thank you. Given the time constraint, this concludes the question-and-answer session. I will now hand back to Benedetto Vigna, CEO, for closing remarks. Benedetto Vigna: Thanks for your time today and also for all your interesting questions. Thanks a lot. We remain focused on executing our plans throughout the rest of this year. And also with confidence, we'll begin to build the next phase of our new business plan. It's a business plan that is ambitious, and we are highly confident that this is going to happen. We'll deliver on our promises as we already did so far. And this -- after this, I wish you a good morning or afternoon. And I thank you again for your attention and your questions. Gracias. Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a good rest of your day.
Operator: Good morning, and welcome to HealthStream's Third Quarter 2025 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded. [Operator Instructions] I will now turn the conference over to Mollie Condra, Head of Investor Relations and Communications. Please go ahead, Ms. Condra. Mollie Condra: Thank you. Good morning, and thank you for joining us today to discuss our third quarter 2025 results. Also on the conference call with me today is Robert A. Frist, Jr., CEO and Chair of HealthStream; and Scotty Roberts, CFO and Senior Vice President of Finance and Accounting. I would also like to remind you that this conference call may contain forward-looking statements regarding future events and the future performance of HealthStream that could involve risks and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements. Information concerning these risks and other factors that could cause the results to differ materially from those forward-looking statements are contained in the company's filings with the SEC, including Forms 10-K, 10-Q and our earnings release. Additionally, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HealthStream is included in the earnings release that we issued yesterday and we may refer to in this call. So with that start, I'll now turn the call over to CEO, Bobby Frist. Robert Frist: Good morning. Thank you, Mollie. Welcome to our third quarter 2025 earnings call. It's always good to start a quarter off with this. In the third quarter, we achieved record quarterly revenues. They were up 4.6% from the third quarter of last year. Operating income was also up 16.5%, while net income was up 6.3% and adjusted EBITDA was up 7.9%, all over the same quarter last year. Now with the first 3 quarters behind us, we updated our financial guidance for the full year 2025 by keeping the same midpoints as indicated in previous guidance while narrowing the range for each of the financial metrics. Later in the call, I'll provide some exciting developments in each of our learning, credentialing and scheduling enterprise application suites, but stay tuned because I'm also going to describe our career networks, which are an emerging part of our business that we're really excited about. First, I want to highlight our recent acquisition of Virsys12, which closed on October 8. Virsys12 is a health care technology company that offers payers and health plans an innovative provider data management suite for onboarding, credentialing and network management. Right from the start, Virsys12 strengthens and expands HealthStream's entry into the payer and health plan space, which we entered around 15 months ago with the launch of Network by HealthStream. Over that time, we have seen strong demand in the payer market for a dynamic provider data management solution, and we've also identified the need to expand HealthStream's payer-related expertise to better address this market. Not only does Virsys12 provide us with an excellent software solution and an expanded customer footprint, combined with our Network product, we now have over 25 active accounts, and it also brings world-class payer market expertise to HealthStream's leadership team. We're excited both by the quality of the Virsys12 solution and the quality of the expanded knowledge of leadership HealthStream has gained through this acquisition. We believe those things together position us well for success in this newly declared, about 15 months ago, market. Before we go further in the call, I want to briefly summarize for those that are new to the business the business for the benefit of those that are hearing it for the first time. First and foremost, HealthStream is a health care technology company dedicated to developing, credentialing and scheduling the health care workforce through SaaS-based enterprise-class solutions, each of which are becoming more valuable because of the interoperability they are achieving through our hStream technology platform. The company holds 20 patents for its innovative products, which have been awarded -- and we've been awarded over 40 Brandon Hall awards. Historically, we sell our solutions on a subscription basis under contracts that average 3 to 5 years in length, which makes our revenues recurring and predictable. In fact, 96% of our revenues are subscription-based. Through our new career networks, and we've coined that phrase, we have started to open our sales channels directly to health care professionals and nursing students across the continuum of health care training. We are profitable. We have no interest-bearing debt, and we report a strong cash balance of $92.6 million at the end of the third quarter of 2025. We are solely focused on health care, and more specifically, we're focused on the health care workforce and those preparing to enter it. The 12.6 million health care professionals and nursing students in the United States comprise the core total addressable market and target audience for our SaaS-based enterprise class solutions. At this time, I want to turn the call over to Scotty Roberts, our CFO, for a more detailed look at the financial performance, and then we'll circle back and do some business updates. Scotty, it's all yours. Scott Roberts: All right. Thanks, Bobby, and good morning. Now let's go over the financial results for the third quarter. Unless otherwise noted, the comparisons will be against the same period of last year. Our revenues were a record high of $76.5 million, which is up 4.6%. Operating income was $7.6 million, which is up 16.5%. Net income was $6.1 million, up 6.3%. EPS was $0.20 per share, up from $0.19 per share, and adjusted EBITDA was also a new record high, coming in at $19.1 million and was up 7.9%. Revenues increased by $3.4 million or 4.6% and were $76.5 million compared to $73.1 million in last year's third quarter. Revenues from subscription products were up $4 million or 5.7%, while professional service revenues were down $0.6 million or 18.6%. Our subscription revenue growth was supported by continued strong performance from our core solutions with CredentialStream growing by 23%, ShiftWizard growing by 29% and Competency Suite growing by 18%. While a portion of the strong revenue growth in CredentialStream and ShiftWizard are associated with conversions from our legacy credentialing and scheduling applications, revenues from these legacy applications declined by $1.7 million compared to last year. Excluding the impact of the legacy products from the core business, the core business grew by 8%. Our remaining performance obligations were $621 million as of the end of the third quarter compared to $549 million for the same period of last year. We expect approximately 39% of the remaining performance obligations will be converted to revenue over the next 12 months and that 67% will be converted over the next 24 months. Gross margin was 65.3% compared to 66.5% in the prior year quarter, and gross margin was impacted by an increase in our cloud hosting costs and software licensing costs, primarily for the CredentialStream application and the hStream platform. Operating expenses, excluding cost of revenues, increased by 0.6%. Product development expenses were flat compared to last year. Sales and marketing were up 5.6% and were primarily from additions to staffing. Depreciation and amortization was up 7.4%, and this was primarily from capitalized software amortization. And general and administrative was down 13.3%, and that's primarily due to the lower rent resulting from the sublease of a portion of our Nashville office space and also lower stock-based compensation expense. Our net income improved to $6.1 million and was up 6.3% over last year. And finally, adjusted EBITDA came in at $19.1 million, which was up 7.9%, and adjusted EBITDA margin was 25% compared to 24.2% last year. And moving on to the balance sheet. We ended the quarter with cash and investment balances of $92.6 million compared to $90.6 million last quarter. And during the third quarter, we deployed $7.5 million for capital expenditures. We paid $0.9 million to shareholders through our dividend program, and we repurchased $6.9 million of our common stock under the share repurchase program that we announced in May. Our days sales outstanding improved to a record low of 33 days compared to 37 days last year, and this improvement resulted from more timely customer payments compared to the prior year. On a year-to-date basis, cash flows from operations were $50.1 million, up from $46.5 million in the prior year, an increase of 7.8%. On a year-to-date basis, free cash flows were down about $0.5 million and came in at $24.7 million compared to $25.2 million last year, and that reduction is primarily due to a $4.1 million increase in payments for capital expenditures. Ending the quarter with $92.6 million of cash and investments, free cash flows and no debt, we are well positioned to deploy capital to improve shareholder value. As a reminder, we maintain a disciplined approach to capital allocation and how we prioritize our use of capital. Our utmost priority is making organic investments back into the business, which is evident by our annual capital expenditure and R&D plans. The second is pursuing acquisition opportunities, which we have a long track record of executing. The third is returning a portion of the profits back to shareholders in the form of cash dividends. And the fourth priority is that our Board may authorize share repurchase programs, which they did earlier this year. In fact, in May, our Board of Directors authorized a $25 million share repurchase program. And during the third quarter, we repurchased $6.9 million of our common stock, completing the full $25 million program. In regard to M&A investments, on October 8, we announced the acquisition of Virsys12 LLC, a health care technology company, which Bobby described earlier. The consideration paid for Virsys12 consisted of $11.2 million in cash, which takes into effect customary purchase price adjustments. It's also subject to a post-closing working capital adjustment. Up to an additional $4 million of cash consideration may be paid over a 3-year period following closing, which is contingent upon achievement of certain financial targets. In addition, we maintain an active M&A pipeline and continue to evaluate additional opportunities that align with our platform and product strategy. Now let's go over our financial outlook, which has been updated as we enter the final quarter of the year. We expect consolidated revenues to range between $299.5 million and $301.5 million. We expect net income to range between $20.3 million and $21.5 million. We expect adjusted EBITDA to range between $69.5 million and $71.5 million, and we expect capital expenditures to range between $33 million and $34 million. This guidance also includes the recent Virsys12 acquisition but does not include assumptions for any additional acquisitions that we may complete during the remainder of the year. Our revenue estimate includes contributions of approximately $900,000 from the Virsys12 acquisition, offset by a $3 million expected decline in our legacy credentialing and scheduling products. And finally, before I wrap up, in respect to our dividend program, yesterday, our Board of Directors declared a quarterly cash dividend of $0.031 per share, which will be paid on November 28 to holders of record as of November 17. Now I'll stop here and turn the call back over to you, Bobby. Thanks. Robert Frist: Thank you, Scotty. As we enter this last third here, I'm going to do things a little differently today. Typically, I follow Scotty's financial discussion with business updates on learning, credentialing and scheduling application suites, and we're going to do that. But before I do that, we want to reclassify and recharacterize some work we're doing. We've kind of coined this phrase career networks. And so I want to explain what we mean by that and what's happening there because it is actually very exciting. So let's talk about these emerging career networks, kind of what are they. It's an exciting new space for us. And after this update, I think you're going to share my excitement about that. So a quick framework. Our career networks provide value directly to the individuals who provide care. You can contrast that with our enterprise application suites, which provide value to the health care organizations, and then through them, to the individuals. So one set of solutions is geared to students and professionals, that's our career networks, and the other set of solutions is geared to businesses, that's our enterprise application suites. To really address the complex issues around today's health care workforce, we think you have to have both types of solutions. And I'll do one better. To really change the game, I think you have to connect those 2 in unique and powerful ways, and we're doing that through our common platform, which we call hStream. Those who follow us know that HealthStream has been steadily building robust solutions to support the lifelong development of individual clinicians, and we are now referring to those as our career networks. Prime examples of this include our myClinicalExchange network and our NurseGrid solutions, which empower individuals to build, track and evolve their professional identity, skills portfolio and career over time. This network includes over 250,000 clinical students using myClinicalExchange to prepare for their careers in health care and more than now 660,000 nurses using NurseGrid to manage and grow their career. myClinicalExchange streamlines the clinical rotation process for future clinicians, helping them match and schedule rotations required for graduation and licensure. These rotations not only deliver precepted experiential learning across nursing, allied health and medical disciplines, but they also expose students to diverse care settings and career opportunities within the organizations where they train. NurseGrid is the #1 app for nurses with over 660,000 monthly active users and more than 3 million social connections and a 4.9 star rating from 150,000 reviews in the Apple App Store. You could really think of NurseGrid as a social network. We like to do an analog, and, of course, maybe everyone likes to say this, but it is becoming, we believe, the LinkedIn for nurses in health care. I'll just give that as an example so you can kind of place it. It's a place for nurses to connect with colleagues, coordinate work and coordinate personal schedules. And that's a key interesting point there is they use it to coordinate their schedules, their personal calendars and their work calendars. They can also maintain a career portfolio. They can earn CEs directly as professionals. And similar to LinkedIn, users can discover learning that advance their careers, share career progress and explore work opportunities, full-time or part-time gig and travel assignments tailored to their specialty and location. And that's a relatively new capability in about the last 2 months. Now let me give you an example of how our hStream platform is connecting our career networks with our enterprise software application suites in ways that make both of them more valuable. When a clinical student or a nurse joins myClinicalExchange or NurseGrid, they either log in with or they create an hStream ID. This unique identifier is the key to HealthStream's platform-level identity management, which connects users to applications and organizes their learning data throughout their career journey. To date, users in our career networks have created 391,000 hStream IDs with approximately 6,000 new IDs added each week. A powerful example of hStream ID capabilities occurred just last month. We enabled users to automatically add their primary sourced verified credentials earned through the HealthStream Learning Center, our enterprise class learnings management application, directly to their portfolio, their career portfolio in NurseGrid. This seamless integration marks a significant step forward in empowering the health care professionals to manage and showcase their qualifications. It's a prime example of our hStream platform connecting the career network valued by the health care professionals to the enterprise application suite valued by the health care organizations. Now let's take a break here and turn our attention to the enterprise application suites that provide the foundation for who we are today and where we're going. Let's hit some of the highlights of the third quarter, and I'll take them in order. The learning application suite -- and again, enterprise class is called the HealthStream Learning Center. It's our flagship product, and it continues to be preferred in the market. It was named #1 best software application in all of the health care industry by G2 at the start of 2025. The HLC, as we call it, the HealthStream Learning Center, grew approximately 7% in the third quarter of this year over the same period last year. On the last day of the quarter, on September 30, we saw a record number of course and activity completions achieved by our customers. On that single day, 586,307 completions were accomplished through the HealthStream Learning Center. This milestone is a testament to the commitment of our teams in delivering reliable and powerful and scalable solutions to our customers. Importantly, when the HealthStream Learning Center is up for renewal, we frequently see customers purchase multiple new and additional products with it when they renew. This results in expanding wallet share from those customer accounts. In the third quarter, for example, Jefferson Health chose to add CredentialStream, another enterprise class application, to their suite of products already contracted with HealthStream. Similarly, Premier Health chose to add the American Red Cross Resuscitation Suite to their account for their clinical staff enterprise-wide. Many customers are increasingly taking advantage of the opportunity to purchase a bundle of several of our most popular applications and content libraries, which we call the Competency Suite. We bundle them together and the customer purchases a subscription to the Competency Suite for all of their nurse employees with unlimited use. The customer receives a discount compared to actual cost if all the applications and content have been purchased separately. This relieves the customer of having to go through the arduous process of making multiple one-off decisions and requests in the organizations and the budget process around separate products, while it is financially advantageous for HealthStream as well. Sales of our Competency Suite in the third quarter were up 18% over the same period last year. It is now one of our largest revenue drivers in our Workforce Development business. The third quarter was strong for sales of CredentialStream application, which is our flagship application within our credentialing application suite. Revenues from sales of CredentialStream in the third quarter were up approximately 23% over the same quarter last year, while we're seeing growth of approximately 25% year-to-date. We believe credentialing is a key area where we are well positioned to innovate in ways that will drive profits and productivity for our customers. Specifically, we are enhancing CredentialStream to help health care organizations reduce the time it takes between a physician starting work and actually generating revenue from providing care. Working together with our customers, we are developing solutions to reduce the approximately 120 days that it takes for a physician to onboard, enroll, credential and privilege a physician. We believe everyone benefits, including patients, from being able to expedite the time it takes to get physicians ready and available to deliver care. Finally, let's turn our attention to ShiftWizard, our core enterprise class scheduling application. And it continued to deliver strong revenue growth in the third quarter, revenues from sales up approximately 29% over the third quarter last year. In terms of quarterly revenue contribution, we announced last quarter that ShiftWizard eclipsed our legacy ANSOS suite of products in the second quarter. It continues to be our top-performing product in our scheduling application suite. We think the growth trajectory of ShiftWizard really speaks to the market viewing it as a best-in-class solution for clinical staff scheduling. Like previous quarters, our sales on ShiftWizard came both from competitive takeouts as well as growth within existing customers. I always like to remind everyone as we kind of summarize that if you're interested in a profitable recurring revenue, SaaS and now PaaS, Platform-as-a-Service health care technology company, that expects to deliver steady growth -- albeit incremental lately, but steady -- and is determined to share some of its gains directly with shareholders in the form of dividend, maybe HealthStream is a company and a stock for you to watch and invest in. With that, as our conclusion, I look forward to delivering the next year-end summary. Of course, that will be early next year in February. But for now, let's turn it back over to the operator to begin the Q&A session. Operator: [Operator Instructions] Our first question comes from the line of Matt Hewitt from Craig-Hallum Capital Group LLC. Matthew Hewitt: Maybe first up on the Virsys12 acquisition and just a little bit more color there. So you had made the move into the payer market a few months ago. And I'm just curious, what are the key differences in that market? What are the customers in that market using prior to you kind of getting in? And where do you see that opportunity going over the next few years? Robert Frist: Yes. I think we're learning that. We created a version that was tweaked for that market of our CredentialStream application suite, giving us some new capabilities and how they manage the payer -- the provider rosters and several other small details. I think we learned that there are still more things that, that market needed. And the acquisition of Virsys12 brings them more, the experience and the background. And so we'll look forward in the coming quarters for us to distinguish that. But now we have the team and some additional technologies, and just a more complete view of the customer needs set there. In the long run, we think there will be synergies between payers and providers using a similar architecture on the back end and particularly in the transfer of certain kind of core primary source verified data sets. So we're excited about that. But for now, it's a distinct market. It uses a mix of technologies from our acquisition and our adopted or adapted CredentialStream application. And we think we're going to be able to better meet the needs. And Tammy Hawes, the CEO of Virsys12, has joined us to help lead our efforts in this market, and her team are really deep in their knowledge of that market. So I think it's just going to add momentum to a market that has a clear need for better provider data management overall. Matthew Hewitt: All right. And then maybe kind of a separate question, but you've shown some nice EBITDA -- adjusted EBITDA margin growth or expansion this year. Where do you think that could go over time, especially with kind of the shift a few years ago where you're owning more of your content? Is that -- is there an opportunity for that to become a 30% EBITDA margin line? Or just what are your thoughts over the next few years there? Robert Frist: Yes. I guess what I could say is that if you look at kind of the core of classic HealthStream, if you go back 10 years even, it was really a model built on a razor blade strategy where this learning system, which is a high-margin SaaS application, was subscribed to. And then we delivered a lot of content. A lot of that was, as you point out, third-party content. Third-party content has a cost of goods, which is royalties. And sometimes we -- they sell and we get a high-margin fee to deliver their content. And sometimes we sell their content, where we collect the revenue and we pay out a high cost of goods or a royalty. And so the nature of that model, again, if you go back before we focused on where we are today, had a lower gross margin profile. And so you're right to observe 2 things. One, in that model, we've increasingly signed more partnerships and on more favorable terms, and we've launched some of our own libraries that we own both the content and the data and the delivery mechanisms. And so we boosted our blended margin there. Now the relative growth rate of some of those products determines our overall blended margin. And I think it's also right to point out in the last, say, 3 or 4 years, we've moved from kind of the 55% to 65% sort of range in this margin measure. And that was due to this increasing mix shift, because most of the things we've been building in the last 5 years are higher-margin SaaS and PaaS applications. And so where do we end up? Sure, I think almost every quarter or 2, we introduce new things. Those things generally have an intrinsically higher gross margin and EBITDA margin in their delivery because they're more SaaS and PaaS based. And so depending on the mix of sales, if we have a blowout quarter or 2 in partner products where we have a high cost of goods, it might pull that margin down a little bit. But I would say the overall trajectory would be upward pressure on the margins, meaning positive, moving towards a higher margin business because most of the new things we're introducing, and I talked about some of those today, are intrinsically higher-margin products than where we started as a business selling third-party content. And so again, now, in any given quarter for the next year or 2, if we sell a lot -- and there's still a lot of market to go in products like the American Red Cross Resuscitation Suite, where we have a high cost of goods, but it's a beautiful product. It has a good EBITDA margin. It is, though, intrinsically a lower-margin product, obviously, because we have an incredible partner. In fact, the American Red Cross is the most recognized brand on the planet. I believe, by most measures, the #1 most recognized brand on the planet. So it's a great honor and a privilege to partner with them to take their products into the market. But as I point out, has a lower intrinsic gross margin profile for us. But it's still exciting and it gains momentum. It's a unique product. But -- so the relative growth rate of that product versus CredentialStream and ShiftWizard and our policy management software and our now career networks, all of which are higher intrinsic margins, should in the future have a positive influence on our gross margin and EBITDA margins for the company. Operator: [Operator Instructions] Our next question comes from the line of Richard Close from Canaccord Genuity. Richard Close: Congratulations on a good quarter there. I got on the call late, but maybe wanted to hit on Virsys12 a little bit. I wasn't sure if you guys provided any revenue, I guess, details there on the business. I'm curious on the mix between maybe recurring and periodic revenue, maybe consulting, and the historical growth there. I don't know if you can provide any details. Robert Frist: Sure, Richard. The one number we did provide, and it doesn't mean -- there could be more when we guide next year. But the one number we did provide was our expected contribution of revenue in the fourth quarter. And that was -- it's approximately -- our estimate includes about $900,000. We did not break down the mix between subscription revenue and consulting. There is a decent component to consulting, which is really the implementation cycle. In fact, that's one of the things we like about the expertise of this group, is they seem to really know how to get enterprise class software implemented, and that should help us overall. But there is a decent mix between subscription revenue for their products and essentially consulting or configuration revenue. And so while we didn't break that down, just know it's a reasonable mix and the estimated quarter revenue in Q4 is about $900,000. Richard Close: Okay. That's helpful. And then just -- since you spent some time on the career network here, I was just curious if you could go over the monetization of, I guess, the offerings in career networks. And then the expansion of the TAM or the opportunity that these provide in terms of expanding your TAM? Robert Frist: Sure, sure. Let me spend a few minutes on that. That's a great question, and we're working on it. I mean we're really excited about what we're seeing, this organic growth in the subscriber base for both products. In fact, NurseGrid, as we mentioned, which we now consider and call our career network for nurses, is growing about 2,000 a week in subscribers organically with a very low marketing budget. So it's essentially a viral app. It's super exciting. Now monetization, we have over 6 strategies for monetization, and each of them is at a different stage. Almost all of them are relatively new. The first was to start to offer education on a credit card purchase directly to nurses in NurseGrid Learn, and that was the first of 6 strategies. And it's trucking along and doing, I think, $40,000 a month or so in sales through the education channels that are commerce enabled. So super excited to see that start to get a little traction. It's fast pay and fast revenue recognition and fast value delivery. So we're really excited about that. On the other end of the spectrum, we just launched a jobs capability, a little bit like LinkedIn. And so we don't have our first customers for that yet, but we've begun the process of helping people, and we see great activity with the initial job opportunities that we posted in there. So we're excited about that. Hopefully, we'll get our first enterprise customer for that soon. Given the size of our network, we have a lot of excitement around that. It's also -- we think of it as a career development network because we're building it like an ecosystem itself and bringing value directly to nurses. We have a partnership with a company called Plenary and Plenary is a preferred and referred partner from inside of NurseGrid that helps nurses lower their cost of student debt. It's been amazing. We've helped over $2 million worth of loan consolidation already through our network where nurses have selected the Plenary services, and we revenue share with Plenary as they help nurses save money, consolidating their student debt. A really fascinating solution. We're trying to only build value-added services to the individual into the NurseGrid network. And I've just given 3 examples of monetization and many more to come. We're working on a set of tools that will let enterprise customers communicate to the network and potentially finding former employees, for example, that we track now. We have -- now that we have a more longitudinal historical relationship through this app, where they use it even between jobs because of it's a social app. It's a way to find people and maybe communicate with them. And so look for more exciting opportunities there around the social and career network, as we call it, for nurses. It's getting exciting. But again, all of them in their infancy and we're new to this kind of monetization, so we don't want to get too excited. But we want to just define it and explain it and show you some of the interesting things, too, because it's not a stand-alone network. Both myClinicalExchange, which I'll talk about in a second, and NurseGrid are connected through the hStream ID. And remember, the hStream ID is one of the core functions of the hStream PaaS or Platform-as-a-Service capability set that we have. And so what that means is that, as you heard me mention, we're adding thousands of new hStream IDs to our total ecology. And there's a lot -- and now they can get them. In fact, all the students in myClinicalExchange are issued an hStream ID. That's the only way they can use the software. So it's really exciting. Both of those are using the platform service of the hStream ID, which essentially gives us a one-to-one relationship with those workers. Imagine they land in a hospital using other HealthStream products? They already bring a portfolio with them, which is super exciting. And some of those connections haven't been made, but that one is. The ID is used to log in now to both of those apps. On myClinicalExchange, the student network, the initial monetization is a straight-up fee. It's about 50% of the time to the student -- about 50% of the time, it's paid for by the student. About 25% of the time, it's paid for by the nursing school. And about 25% of the time, it's paid for by the hospital. And so it's an election model, where the hospital and the nursing school can choose who pays the nearly $30. And so typically -- and half of them are -- and it's grown about 0.25 million students. Pay about $30 to kind of register in the application, which then helps match them to rotations. And one of our bigger customers has learned now that they really need to pay attention to this network because a lot of those students doing rotations in hospitals are great future employees of those health systems. And frankly, from our research, hospitals and health systems do a really bad job currently of letting those students know that they're potentially valued future employees. And so another example, we built a little set of tools that exist in our application called My Team that enterprises are beginning to use to communicate to the students. And so it's kind of like plugging HR into the network directly. So for example, when students are rotating at their hospital, a manager on the My Team application will get a little alert at that hospital saying, "Hey, we have 3 students from Belmont Nursing School today rotating on the second floor. Go say hi to them." That's going to improve their odds of recruiting that student when that student eventually becomes a professional. And so little things like that where we're linking -- in that case, My Team is a feature of our platform as well, and that widget is a brand-new widget that lets them have an alert to know that, that student is in their hospital. And so we're connecting the enterprise to the individual, the individuals engaging through myClinicalExchange, the career network for students and the hospitals engaging through My Team, an application that ships with our platform. So I hope that provides some clarity. Again, one is a subscription model and the other has a bunch of kind of LinkedIn style monetizations. And we're new to all of this, so we're learning. But we're learning rapidly, and we're really excited about their organic growth. Richard Close: Maybe a follow-up on that. Whether it's either the career networks or some of the other parts of your platform, the enterprise side of it, do you see any opportunities to maybe monetize through something like how a Doximity does in terms of where there's some brand marketing, brand awareness from industry on the platform? Robert Frist: We do. I mean the clearest answer is if we had to say what we're modeling NurseGrid after, it would be LinkedIn or Doximity. And so we think -- I think it's fair to -- particularly NurseGrid, it's fair to think of it as the #1 social network for nurses and growing. And so again, we're new to that kind of monetization, but -- and nurses maybe have a different profile, value profile to industry than physicians like Doximity, where they're strong. But it is clear that they are valuable increasingly. Nurse practitioners, for example, are prescribing nurses. There's a shortage of nurses. So staffing. And large, large health systems have declared a lot of their strategy on building and strengthening their nursing core as central to their overall strategy for success. You see some of these large health systems even buying nursing schools. So I think it's an important audience, and we're going to learn how important in the coming years. But I do think it's fair to characterize our ambition there to be aligned with the way you would think of Doximity and LinkedIn. And of course, this is a big ambition for a small company, but we like it. And we're starting to see these multiple paths to monetizing it and start to have a little light at the end of the tunnel as we launch some of these services really in the last 6 months, a couple of them are brand new. Richard Close: Okay. And my final question, just a point of clarification. With respect to the HLC CredentialStream and ShiftWizard, the numbers that you gave in terms of the -- I think it was 7% growth -- what was it? -- 23% for CredentialStream, 29% for ShiftWizard. Was that bookings like new wins in the quarter? Or was that revenue contribution year-over-year growth? Robert Frist: They're smaller products, but that is revenue contribution. Scotty, please verify and take it forward. Scott Roberts: Yes, that's right. That's the growth in revenues Q3 of this year versus Q3 of last year. Richard Close: Congratulations. Operator: Our next call comes from Vincent Colicchio from Barrington Research. Vincent Colicchio: Yes, Bobby, a nice quarter with ShiftWizard. I'm curious, is the product at the point -- it's ready to penetrate large organizations? Did you sell to any large organizations in the quarter? Robert Frist: We've got a good pipeline of medium to -- of the large enterprise, smaller -- it's still not -- and I thought it would be here by now. It's still not quite ready for the biggest of the big. But we're making progress, and we are winning some, I guess, you could call them the upper middle class. And so good-sized contracts, $1 million-plus contracts. So we're excited to see that. But we've got work to do around the data management still. We're trying to leverage our platform data services, we call the Insights infrastructure, into both credentialing, for example, and into scheduling, and we're just not quite there yet. But we're on it and we're making headway. And I would say that we've got a nice pipeline of these upper middle-class opportunities, if you will. Vincent Colicchio: No, that's good to hear. Can you provide an update on the -- what you're seeing in the small hospital and rural hospital markets? Robert Frist: Yes. We're working on bundling strategies throughout to address kind of the overall challenge of the marketplace. You heard us mention that even at the big scale, when people cross purchase, we're working on bundling strategies. We want to be viewed as best-in-class and the most economical, especially when you're a big customer and you use more and more of our suites. And so in the small hospitals, this is also true. I think they're definitely under financial pressure. Our strategy there is to be the most complete, highest quality solution, but also with the way we're bundling and getting the features just right for those smaller hospitals, the most economical. And so you're going to see us move to more bundling strategies by market. We've launched our Critical Access bundle just a few months ago. And what it does, it's a blend of software and content. So instead of multiple decisions over time, like incrementally growing, we've kind of created a few opportunities to go a little bit more all -- not all in, but take a bigger chunk of our ecosystem under contract at a better price per unit, but a more complete selection of products. So the Competency Suite is another effort at bundling that has started to show success. It's kind of reflective of the current economic reality, but also it's just -- frankly, it's simplifying our product suites and making them easier, a one decision instead of 5 separate decisions. So in all cases, for both economic benefit to customers under stress, and because we think it's probably overall a better selling strategy, you're going to see an increase in our bundling efforts. So by way of example, in the small markets, we have our new Critical Access bundle, which we think kills the competition. We think it's got both software and content and multiple applications and a bundling of applications that our competitors don't have. And so instead of just buying like, for example, learning, which everyone has, we put in learning and a time management solution, which most of the competitors don't have. And if they have that, we add the policy management solution. So bundling is a key strategy and it reflects both, I think, a better selling strategy, but also addresses the economic pressures, we think, more effectively that the small hospitals are under. Operator: I am seeing that this concludes the question-and-answer session. Robert Frist: Thank you. I do have a closing remark or 2. For the analysts that are still on, I just really want to point out our guidance. We tightened the ranges, but they stayed the same, and they factor in everything we know today, including the acquisition. And so one of the things you could note from our disclosure and our discussion was that you heard all these great growth rates and they're super exciting, but also a little caveat about the drop-off in legacy software up to $3 million in the fourth quarter. So remember to listen carefully to our guidance as you think about how to model our growth rate and know that we're still working through these legacy issues, and that needs to be factored in and modeled. Now it's a positive and a negative at the same time. Some of the legacies are migrating and some are lost to the market, but that number in the fourth quarter is estimated to be about $3 million, offsetting all this wonderful and exciting new core growth in both our career networks and our enterprise class applications. So all I'm doing is reemphasizing that in spite of all the excitement, you look at our actual guidance as we provided. We maintain the exact same midpoints as prior guidance and we narrowed the range. So we provided more clarity on the range of our expectations. With that, I want to conclude the call, and I look forward to reporting again as we report year-end results sometime late February, I believe. Thank you all for your participation and following the HealthStream story. Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.