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Operator: Good afternoon. Welcome to Gaia's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Joining us today from Gaia are Jirka Rysavy, Executive Chairman; Kiersten Medvedich, CEO; and Ned Preston, CFO. [Operator Instructions] Before we begin, Gaia's management team would like to remind everyone that management's prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions, including, but not limited to, statements of expectations, future events or future financial performance. These statements do not guarantee future performance, and, therefore, undue reliance should not be placed upon them. Although we believe these expectations are reasonable, Gaia management undertakes no obligation to revise any statements to reflect changes that occur after this call. Actual events or results could differ materially. These statements are based on current expectations of the company's management and involve inherent risks and uncertainties, including those identified in the Risk Factors section of Gaia's latest annual report on Form 10-K filed with the SEC. All non-GAAP financial measures referenced in today's call are reconciled in the company's earnings press release to the most directly comparable GAAP measure. This call also contains time-sensitive information that is accurate only as of the time and date of this broadcast, November 3, 2025. Finally, I would like to remind everyone that this conference call is being webcast and a recording will be made available for replay on Gaia's Investor Relations website at ir.gaia.com. At this time, I'd like to turn the call over to Gaia's Chairman, Jirka Rysavy. Please go ahead. Jirka Rysavy: Good afternoon, everyone. During the third quarter, we grew our revenue 14% and our gross margin improved an additional 30 basis points to 86.4% from 86.1% a year ago quarter. Member count at the same period grew to 883,000. A year ago, we raised our subscription prices for most of our members by $2. So while the losses from the price increase resulted in lower member growth, our revenue grew to $100 million run rate or $25 million during the quarter, up from $22 million in the last year quarter. Our annualized gross profit per employee increased to $814,000, up from $730,000 in the year-ago quarter, which is also obviously driving further improvement in our free cash flow. The value of our subsidiary, Igniton, using pricing from its recent fundraising, it's about $106 million. But valuing Gaia's 2/3 ownership interest in Igniton, it's about $70 million. Igniton products are now available on Gaia Marketplace. You can get more information on igniton.com. The Gaia cash position improved significantly to $14.2 million from $4.4 million a year ago. Now Kiersten will speak more about business. Kiersten? Kiersten Medvedich: Thank you, Jirka. So last week marked an important step in Gaia's evolution as we continue moving from a traditional SVOD model to an AI-forward company, one that brings together conscious media, community and technology. We launched our new AI Guide in beta to our direct members, and the early results have been very encouraging. Session depth and repeat usage are both trending upward, confirming what we believed from the start, that Gaia's curated content library, paired with our customized AI, creates a truly distinctive and engaging experience. Now, as we move towards full rollout, this experience will expand to include personalized guidance, contextual recommendations and integrated chats across both app and web. Beyond helping members discover content that fits their evolving interests, our AI acts as a research companion, helping members find what's relevant to them faster while keeping the experience fresh and evolving. This direction reflects our commitment to grow in step with our members and the world around us, integrating intelligent technology in service of human potential and positioning Gaia at the leading edge of how people connect, how they learn and transform in an increasingly digital world. AI will also play a central role in how we express our brand. It will become an integral part of our marketing, helping people discover Gaia, understand our mission and meet them where they are on their spiritual path. In addition to AI, we're actively developing Gaia's community platform. While we're not ready to share specifics yet, we plan to launch next year. Our vision is for members to explore, learn, transform, and then naturally find their community of like-minded individuals to learn and share together. We expect 2026 to be a key transition year for us, focused on advancing the technology and infrastructure that will deliver outstanding value to our direct gaia.com members. This work will position Gaia for the next stage of growth as we fully integrate content, community and AI into a seamless, cohesive experience. As part of this evolution, we're also reframing how we define success. Traditional viewership metrics no longer capture the actual depth of connection we're building. With the intersection of AI, content and community, engagement actually becomes a true measure of value. This shift better reflects our mission, our technology and the growing resonance within our direct member base. That being said, our third-party members don't have access to these new AI or community features as they're not supported on external platforms. And with churn nearly double on the larger platforms and revenue per subscriber roughly half compared to our direct members, we believe our focus is better spent on deepening those direct member relationships. So going forward, we'll prioritize revenue and members with higher ARPU. Today, about 2/3 of our direct members have been with Gaia for more than a year, and that number continues to grow. This ongoing loyalty strengthens our foundation and positions Gaia for a greater long-term profitability. Now, over to Ned to talk about the financials. Ned Preston: Thank you, Kiersten. For the third quarter of 2025, Gaia delivered revenue of $25.0 million, up from $3.0 million, or 14% year-over-year, driven by growth in both ARPU and member count. Total members increased in Q3 to 883,000. Gross profit increased 14% to $21.6 million from $19.0 million in Q3 of 2024, with gross margins expanding to 86.4%, up from 86.1%. Net loss was negative $1.2 million or negative $0.05 per share, versus negative $1.2 million or negative $0.05 per share in Q3 of 2024. Operating cash flow was $0.3 million, with free cash flow of $0.9 million, representing the seventh consecutive quarter of positive free cash flow and further reflecting ongoing operational discipline. For the first 9 months of 2025, free cash flow was $3.2 million, up from $1.8 million during the same period of last year. Our cash balance increased to $14.2 million as of September 30, 2025, up from $4.4 million a year ago, with a fully available $10 million line of credit. In July, Gaia also renewed its credit line for an additional 3 years with improved terms, including a lower interest rate and a wider range of permitted use. The company's financial position continues to strengthen with double-digit revenue growth, improving margins, and a growing cash balance through accelerating cash flow generation. And we have all of this with 0 debt outside of the mortgage on our campus, which we are in the process of renewing by the end of this year. In summary, we continue to manage costs carefully and maintain healthy margins while investing in the strategic areas that will create long-term value for shareholders. I will now turn the call back over to Jirka. Jirka Rysavy: So for the summary, so we expect our annual growth rate for this year to be in the low double digits and similar, probably revenue growth for the next year, thus continually increasing our ARPU and obviously generating free positive cash flow. So this concludes our remarks. So I would like to open the call for the questions. Operator, Sachi? Operator: [Operator Instructions] The first question is from Ryan Meyers from Lake Street Capital. Ryan Meyers: First one for me, you called out some losses from the customers on price increases. So just curious what the churn number was during the quarter and kind of how that compares to what churn is historically? Jirka Rysavy: Well, for the price increases, you can roughly figure out you lose about half the price increase as additional churn from the -- because you increase prices. So there's definitely some people, they kind of respond to it, but if you get the delta, about half of it. And we kind of view it positively. That's where we kind of expect it. And we, based on the experience, we'll probably do another price increase next year. The churn, we don't really use a specific number because we tried to do it, and everybody does it different, like for, let's say, Netflix, if the customer comes back in 10 months, it's the same customer. For us, it's a different customer. And pretty much 80% of losses happen first 6 months. So it's -- the numbers on its own doesn't really make sense. Ryan Meyers: Okay. Fair enough. And then with the AI offering that you guys talked a little bit about, how do you think that changes the core subscription model? Any additional details on that, I think, would be helpful. Kiersten Medvedich: Well, I think keep in mind, it's still in beta, but it is considered a conversational experience that will connect our members with the right content. And the interaction will now be measured as an engagement. So our feeling is ARPU will increase and so will -- and churn will decrease. Ryan Meyers: Okay. Got it. And then lastly, did you guys see any significant growth in the Igniton offering on the actual Gaia Marketplace? Jirka Rysavy: Well, we didn't really launch Igniton on Gaia Marketplace until after Labor Day. So we started, I think, selling it like -- so we have only like 3 weeks in the quarter. And so it went pretty well. Obviously, there is no cost to that. We probably sold about $300,000. But it also was a new item. So -- but -- so it's, still for Igniton, it's to kind of stabilize all the lines. We find different outside fulfillment houses and stuff. And they will probably continue till end of the quarter, fourth quarter. So I don't expect to really push revenue in Igniton for this year until next year. Operator: The next question is from George Kelly from ROTH Capital Partners. George Kelly: First, just a couple of follow-ups from the prior questions. It sounded like you're a little uncertain about taking pricing -- core subscription pricing early next year. Did I hear that right? Is that still in the plan? And if so, how much do you plan to take? Jirka Rysavy: Our plan is to go like probably somewhere in mid-April time for another $2. George Kelly: Okay. Understood. And then there was also a discussion on the call about -- with your AI features really prioritizing the direct channel. How should we think about that as far as partner marketing spend, and you just allocating sort of marketing resources behind partners? Like is there going to be some churn or some slower growth by channel next year as you sort of really emphasize the direct? And how is that going to -- I mean, how are you thinking about subscriber growth next year with those kind of changes? Jirka Rysavy: Well, if we're going to raise prices, it's typically the most of the hit you take the months you introduce it, because all the monthly, which is like half of the business, monthly subscription compared to annual, will kind of decide if they will continue or not. So that's typically, I said about, if we don't raise the prices, the revenue growth and member growth as a percentage is about same. If we do price increase, the member growth is maybe half of the revenue growth. So you're going to -- I assume that's what we saw this year, that's what we're going to see next year. Kiersten Medvedich: And also, we continue to see challenges with advertising efficiencies and targeting at -- and targeting on our third-party platforms, which we can't fully control. So our focus will remain on sustainable profitable member growth and not short-term volume. Jirka Rysavy: Then as Kiersten said, because if you have -- go to third party, the churn is more than double of ours, and the revenue, what we book, is half of ours. So it's really what we need one person -- for the same revenue, just one person on -- as our direct rather than 4 on outside parties. So it's just -- that's what she meant by the higher value members. George Kelly: Okay. Understood. And then still on the core business, as you improve the sort of curation tools, and you're discovering, I know it's still early days, but you're discovering sort of what people are most interested, and wanting and learning about, do you expect to raise your content spend? Or do you think it's in a good place where it sits now? Kiersten Medvedich: No, we are raising our content spend about 23% from the prior year. So we will continue to make more content. George Kelly: So next year, I'm just thinking of round numbers, I mean, next year, like what's a good kind of ballpark? Maybe you're not ready to give that. But how should we think about content spend next year? Kiersten Medvedich: We're not ready to give that, but I could say it's 23% more. Jirka Rysavy: No. I mean, in a rough figure, because we're going to right now look at engagement, which includes community and AI, but if you would strip that and just look at pure content investment, probably about $15 million. George Kelly: Okay. And then just a last one for me, just back to Igniton. I thought that the official big launch was in September. It sounds like maybe you're pushing it out a little bit. Like what have you seen? Did you put much marketing oomph behind it in September, or is there any more detail you can give there? And that's all I had. Jirka Rysavy: All we did is to put it in Gaia Marketplace and sent e-mail to Gaia members. We didn't do any marketing push, and we probably won't do anything till, like, our Christmas time. Operator: The next question is from Jim Sidoti from Sidoti & Co. James Sidoti: Jirka, I think I heard you say the Igniton revenue was about $300,000. Was that for the month or for the quarter? Jirka Rysavy: No. That was just Igniton product on Gaia Marketplace, the revenue for the quarter was, I think, well, that's from the product. Yes, probably $700,000. James Sidoti: So once this is fully launched, do you think this is an over $3 million a year product? Jirka Rysavy: We expect to be pretty much close to it in this year. James Sidoti: Close to $3 million in 2025. Jirka Rysavy: Well -- yes. Ned Preston: Jim, I can get into it in a little more detail. Actually, for this year, it's going to be on a run rate of around $3 million. But for this year, because we launched it kind of 2/3 of the way through the year, we'll finish this year about half -- approximately half of that. Heading into 2026, I think that's when you would expect the higher number. James Sidoti: And what will the impact on gross margin be? Jirka Rysavy: It's run right now about 82%. So it's slightly below the 86%, which Gaia does. James Sidoti: Okay. But still a pretty healthy gross margin. Jirka Rysavy: Yes. James Sidoti: Okay. Right. And in terms of the AI, can you just kind of detail, how do you monetize that? Is that going to be greater member retention or helps support price increases? What is the ultimate goal of the AI investment? Jirka Rysavy: Well, there's several of them, but I kind of believe it would have pretty good engagement on its own as we see some people really spend more time on search through AI. We spend a lot of time, incorporated a lot of ancient books and videos from our side, so it's quite different than other AIs could be. So it's really proprietary. And then it will really function also as a search for Gaia for all the videos. So if you ask any questions, we will recommend videos, which we have on the topics. So that's really the kind of main function. And based by early indication, it was a good call because the engagements are already very good and increasing, and we launched it like a week ago. Operator: At this time, this concludes our question-and-answer session. I'd like to turn the call back over to Mr. Rysavy for his closing remarks. Jirka Rysavy: Well, thank you, everyone, for joining, and we look forward to speak with you when we report our fourth quarter results, which will be in early March next year. Thank you. Operator: Thank you for joining us today for Gaia's Third Quarter 2025 Earnings Conference Call. You may now disconnect.
Operator: Thank you for joining us for the V2X Third Quarter 2025 Earnings Conference Call and Webcast. Today's call is being recorded. My name is Steve, and I'll be the operator for today's call. [Operator Instructions] And now I'll pass the call over to your host, Mike Smith, Vice President of Treasury, Investor Relations and Corporate Development at V2X. Michael Smith: Thank you. Good afternoon, everyone. Welcome to the V2X Third Quarter 2025 Earnings Conference Call. Joining us today are Jeremy Wensinger, President and Chief Executive Officer; and Shawn Mural, Senior Vice President and Chief Financial Officer. Slides for today's presentation are available on the Investor Relations section of our website, gov2x.com. Please turn to Slide 2. During today's presentation, management will be making forward-looking statements pursuant to the safe harbor provisions of the federal securities laws. Please review our safe harbor statements in our press release and presentation materials for a description of some of the factors that may cause actual results to differ materially from the results contemplated by these forward-looking statements. The company assumes no obligation to update its forward-looking statements. In addition, in today's remarks, we will refer to certain non-GAAP financial measures because management believes such measures are useful to investors. You can find a reconciliation of these measures to the most comparable measure calculated and presented in accordance with GAAP on our slide presentation and in our earnings release filed with the SEC, both of which are available on the Investor Relations section of our website. At this time, I would like to turn the call over to Jeremy. Jeremy Wensinger: Thank you, Mike, and good afternoon, everyone. Thank you for joining us today. I am proud to share the results from this quarter. The dedication of our team continues to drive outstanding execution. Please turn to Slide 3. During today's call, I'm going to recap our third quarter results, discuss our positioning and how our strategic execution has created tailwinds for growth. Let's start with our quarter 3 results. Performance was strong, yielding both record revenue and adjusted EPS in the third quarter. Revenue increased 8% year-over-year to $1.17 billion, delivering adjusted EPS of $1.37. Adjusted EBITDA was $85 million in the quarter or 7.3% margin. Importantly, to date, we have not seen a material impact on our business from the current government shutdown. And if anything, this event has reinforced just how essential our services are to the government. Last quarter, Shawn and I described our capital allocation strategy to you. Since then, we've been executing on this strategy. During the quarter, we completed an acquisition that brings new capabilities and increases access to customers in the intelligence community. This customer access cannot be understated, and we believe it will add to our already robust pipeline. Additionally, we repurchased $10 million worth of shares in the quarter, further driving value for our shareholders. Our strategic execution is paying off. This quarter, we delivered a solid 1.2x book-to-bill ratio, which speaks to the strong demand we are seeing. We also recently achieved 2 of the 5 major captures we've been pursuing that I discussed in prior calls. This includes the T-6 and F-16 Iraq program, each worth over $1 billion demonstrates the momentum we are building. We remain optimistic about what's ahead. Given our performance to date and the trends in our business, we're increasing the midpoint of our revenue, adjusted EBITDA and adjusted EPS ranges. Although we have not seen a material impact from the government shutdown, we are proactively lowering the midpoint of our cash flow guidance to account for possible temporary delays in collections. I want to emphasize, this is only a timing related and not reflective of the underlying changes in our business. Please turn to Slide 4. Our customers are seeing differentiation in our solutions and offerings and the programs on this slide showcase those examples. From start to finish, we work alongside our customers, delivering a full spectrum of capabilities that maintain readiness around the globe. In the last 18 months, we've won 3 strategic awards greater than $1 billion using the breadth of the company and execution. The cumulative value of these awards exceeded $9 billion. An example is the previously announced T-6 award. This is a cornerstone award and critical to the readiness by ensuring that every single Navy, Air Force and Army pilot will be trained by V2X. This ties into the theme you're seeing in the training, mission support and modernization that are foundational to everything we provide. While this award is under protest, we're confident in our solution and continue to execute the transition activities to support our customer. We've been awarded what we expect to be a $1 billion foreign military sales for the Iraq's F-16 program. This, coupled with our $425 million cockpit modernization contract with the U.S. Air Force showcases our expertise in supporting the F-16 fleet for multiple customers. And finally, we were awarded approximately $275 million for rapid prototyping, engineering, integration and follow-on support for platforms like Tempest, our counter-UAS solution and our Gateway Mission Router family of systems. There's a strong demand for our technology, and I'll touch on that later. These awards are validation of our partnership with our customers and disciplined execution of our strategy. Please turn to Slide 5. V2X is capitalizing on large and growing market opportunities while investing in technologies that will shape our future and our industry. We see data and AI as a powerful tools that can deliver mission success. These tools help us enhance readiness, drive efficiencies and even change the way the marketplace operates. Combined with our operational experience and close relationships with our customers, we are in a strong position to turn data into real decision advantages. On the readiness front, we continue to expand our training portfolio and a good example is that of our support of the Army's Saber Junction training exercise in Germany, which simulated chemical attacks. This demonstrates how the scope of our training portfolio continues to expand. Additionally, our focus areas on readiness and modernization continue to align with our customers' mission and budgetary priorities. Our counter-UAS platform has demonstrated our capabilities to deliver rapid prototyping and hardware integration to support customers. In the near future, we are expecting orders from new customers looking to deploy the platforms in various theaters around the globe. We are now leveraging the core capabilities of that system to adapt it for use across other operational environments and emerging threat landscapes, positioning us for continued growth. With the combination of our investments in technology, our ability to convert opportunities into success and our over $50 billion pipeline, our path forward looks strong. With that, I'll turn the call over to Shawn for a review of our financials. Thank Shawn Mural: you, Jeremy, and good afternoon, everyone. Please turn to Slide 6. Our momentum continued in the third quarter, reflecting focus on operational performance. Revenue in the third quarter increased 8% to $1,167 million. Growth was fueled by the WTRS, F-5 and Iraq F-16 programs. Adjusted EBITDA in the quarter was $85.2 million, delivering a margin of 7.3%. Interest expense in the third quarter was $20 million. Cash interest expense was $18.4 million, improving $7.2 million year-over-year. Net income for the quarter was $24.6 million. Adjusted net income was $43.7 million, up 6% year-over-year. Third quarter diluted EPS was $0.77 based on 31.9 million weighted average shares. Adjusted diluted EPS in the quarter increased approximately 6% to $1.37 from the prior year. Adjusted operating cash flow in the quarter was $35.8 million. We are leveraging our strong balance sheet. And during Q3, we made notable progress executing our capital allocation strategy. As Jeremy mentioned, we completed a small acquisition that provides additional market opportunity and repurchased $10 million worth of shares. These activities clearly demonstrate our focus on delivering value for our shareholders. Please turn to Slide 7, where I'll discuss our year-to-date results. Year-to-date revenue was $3,261 million, up 3% year-over-year. Adjusted EBITDA increased 5% for the first 9 months of the year to $234.6 million, reflecting a 10 basis point increase in margin to 7.2%. Year-to-date interest expense was $60.3 million. Cash interest expense was $55.7 million, improving approximately $22 million compared to the prior year period. Year-to-date net income was $55.1 million. Adjusted net income was $117.5 million, increasing 22% year-over-year. Diluted EPS in the first 9 months was $1.73. Adjusted diluted EPS was $3.68, up 22% compared to last year. Year-to-date net cash used by operating activities was $27.5 million. Adjusted net cash used by operating activities was $24.1 million. Please turn to Slide 8. Our strategy and the continued demand for our solutions is yielding awards that support future growth and value creation. This was reflected in third quarter net bookings of $1.4 billion and sequential backlog growth of approximately $240 million. Total backlog at the end of the third quarter was $11.6 billion. Funded backlog was $2.3 billion. With respect to the current government shutdown, the impact on the funding or operations of the current contracts has been modest to date. We feel it important to note that backlog does not include the approximate $4 billion T-6 award as it is currently under protest. We continue to execute the transition activities supporting the customer at this time. Additionally, as it relates to the F-16 Iraq program, backlog does not reflect any value beyond the transition amount initially awarded in Q2 of this year. The contract is currently being definitized and we [Audio Gap] these programs will add substantially to our backlog and ability to continue our growth. Book-to-bill ratio for the trailing 12 months was 0.9x. Looking ahead, based on potential slippage of awards to the shutdown, we believe book-to-bill will be below 1 for the full year and accelerate to above 1 in fiscal year 2026. With that said, I want to be clear that we believe the company is in an excellent position to demonstrate top-line growth heading into 2026. Let's move to Slide 9 for our updated guidance. We continue our focus on execution. And given our solid performance, we are increasing the midpoint of our 2025 guidance for revenue, adjusted EBITDA and adjusted EPS to $4.5 billion, $316 million and $4.95, respectively. We're proactively lowering the midpoint of our adjusted operating cash flow guidance to account for potential timing delays and collections related to the government shutdown. These adjustments reflect potential near-term payments or contract actions that we had contemplated being completed by year-end 2025, which may now slip into 2026. Again, this is purely a timing adjustment and doesn't reflect any changes to the fundamentals of the business. Overall, we're very pleased with the execution of our strategic priorities, ability to deliver differentiated technology solutions and strong program performance. We are confident in a strong close to 2025 and continued momentum into 2026. Jeremy, back to you. Jeremy Wensinger: Thanks, Shawn. Please turn to Slide 10. We want to provide some additional color about 2026. With solid awards secured and minimal recompete exposure, we're confident of our future growth. In addition to our continued success in training programs like the WTRS, recent wins like our rapid prototyping awards and the Iraq F-16 program support top line growth next year. The completion of contingency task orders is partially offsetting this growth. Overall, the net of these items are expected to drive year-over-year revenue growth in 2026. A successful outcome of the T-6 protest would have incremental improvements in 2026. While we're keeping an eye on potential impacts from the ongoing government shutdown, our essential mission-critical work gives us confidence in the strength of demand. The maturity of the company is becoming increasingly apparent in our ability to capture and win new business. We continue to deliver on our commitments. We are proud of our third quarter performance. Our teams continue to bring the full spectrum of V2X to meet our customers' critical mission requirements. And with that, I'd like to open the call to questions. Operator? Operator: [Operator Instructions] The first question comes from Peter Arment with Baird. Peter Arment: Nice results. Shawn, could you just give us a little more color on the reduction in the cash? You said it's sort of being more cautious just given the government environment. But if the government reopens here relatively soon, does that change? Or how are we approaching that? Shawn Mural: Yes. Thank you. Good to hear from you, Peter. Yes. So in our guide, we've assumed that there are certain contract actions, and this is a normal course of the business, Peter, that we get change orders, things of that nature that routinely happen. They may not occur even if the government were to open tomorrow, the backlog of things and what we're seeing a little bit, Peter, is while we're still getting paid, that payment has been elongated a bit, on average, about 7 days difference between what we experienced in the first half of the year and what we're experiencing today. And so the adjudication of those contract items and then the ability to get paid, we felt it appropriate to bring down the midpoint about $25 million. Again, purely timing. We have -- we don't think there's risk to the receipts or anything like that. It's whether or not they slip into 2026. That's how we're thinking about it. Peter Arment: Got it. I appreciate that. And then just, Jeremy, you've talked a little bit about this year about just a much bigger qualified pipeline and ability to bid more. Maybe you could just give us a little more color on how you're doing and making progress there. Jeremy Wensinger: Well, I think I've talked in the past that we hired Roger Mason as the Chief Growth Officer. I think -- and I mentioned in the script that we're seeing the maturity of the company come to bear. And I feel really good about the fact that we've retired 2 of the 5 major pursuits that we had talked about previously as success. And again, we'll see where T-6 kind of rolls out. But again, I think the maturity of the company, along with the maturity in the growth organization is starting to come to bear on our ability to win, our ability to build a pipeline and our ability to pursue a multitude of things. I'm most excited about the fact the bids I'm seeing are bringing the entire company to bear on these pursuits. It is really making a difference, and that's the part I'm most excited about. Operator: The next question comes from Jon Siegmann with Stifel. Jonathan Siegmann: Just real quickly, a simple one for you. So you're very clear that you did not include T-6 award in the backlog. But just because there is some companies in the public arena that do include protested contracts in the backlog, I just wanted to confirm this is your standard practice and not an indication of any higher risk associated with this decision. Shawn Mural: Yes, absolutely. It's our policy that we have. Anything in protest, we would not take a booking on. There is a modest amount of work that we are doing today, to be very clear, on transition. We did book that, but it's low single-digit millions. The main award should it stick to the schedule that it was awarded under would have us begin work in February of 2026 and then go on for the period of 10 years. None of that work is in backlog, and that's our standard practice, Jon. Jeremy Wensinger: And John, just to be clear, that modest transition that we're doing was funded. Shawn Mural: Yes. Jonathan Siegmann: That's real helpful. And then the other 3 of the 5 contracts that you're elephant hunting there, is there any sense of when the timing of those could be? Is that probably all delayed with government shutdown as well? Jeremy Wensinger: It's a great question. I think it's still TBD and -- but we're actively bidding a few of those. So we'll see what transpires with the government shutdown and the timing of awards. But again, it's all a little bit of TBD at this point to see because, again, a lot of our contracting officers are not at work. Things are kind of, as Shawn said, in terms of the cash side of it, waiting for them to do the adjudication of contract modifications. So I think it's an unknown at this point. But again, I think it will -- once we have certainty around the standup of the government again, we'll know more because they'll be back to work and we can ask those questions. Operator: The next question comes from Andre Madrid with BTIG. Andre Madrid: Not to harp on the shutdown, but it is the elephant in the room here. I mean, how should we think about this weighing on the potential benefit of your previously disclosed recompete holiday? Does this kind of just get pushed out into '26, like what you guys teased on the 10 slide there? Shawn Mural: Well, yes, candidly, that's a lot of why we wanted to talk a little bit and give some color around '26. So I think we say, right, 7% recompetes next year. As we sit here today, one, that's a great spot to be in, of course. We'll see how those recompetes play out. I mean there's always the opportunity to do a bridge or exercise an extension or something, I don't know. But again, I think we feel good in terms of where we sit today, what we have in backlog and our ability to continue to grow. Andre Madrid: Got it. Got it. And I guess on that point, looking at '26, I feel like each quarter, it looks like growth could be kind of lumpy based on the service branch based on the geography. But I guess, as we look ahead into the new year, what do you really expect to be the fastest-growing branches and geographies and... Shawn Mural: Well, I think -- so a couple of things. Thanks for the question. I'll give a little bit of color. I think we'll see cost type revenue grow faster, I should say. And when we think about things, we see that becoming a greater percentage of the portfolio. I think we see from a region standpoint, the U.S. growing faster than some other areas. And that's, again, things like we've seen WTRS, things of that nature. So that's a little bit of additional color as we sit here today. There's a lot to go relative to funding, right? So again, we're trying to provide a little bit of color and context for '26. Funding, as you can imagine, in light of the shutdown is a significant variable, right? And we're seeing customers make changes and stuff like that to do as much as they possibly can. So I am certain that, obviously, we will provide additional clarity and visibility to you as we report Q4, but felt it very important because we're seeing good demand. I think you saw a very good book-to-bill in the quarter. That had been a question previously. And so I wanted to highlight a couple of those things. So hopefully, that gives you a little bit more color. Operator: The next question comes from Ken Herbert with RBC Capital Markets. Kenneth Herbert: When we look at the strong growth in the third quarter, you called out specifically F-16, F-5 and WTRS driving the 8% growth. Is it possible to parse that out a bit? And were any of those maybe a little better than expected or better performance on contracts in the quarter? Shawn Mural: Not really. I think things are playing out kind of as we expected. We did get some modest material that had previously been planned to come in, in Q3 came in, but it wasn't really significant, to be honest with you, Ken. I think we're, again, happy with where we sit. We see sequential growth continuing as we go into Q4. And obviously, you saw us bring up the low end of the range as a result of that. Still some variables out there, of course. But yes, I think, again, the strength of those 3 programs continues, and we expect that trajectory to continue into Q4. Jeremy Wensinger: Yes. And Ken, I would just add, I think Shawn has been very clear all year long. The second half of the year was going to be the opportunity for us based on program execution on F-5 and on the WTRS program. So again, I don't think anything we saw in the quarter was really unexpected. Program team is executing the way they should execute. They're doing great, and we're just bringing these programs online. Kenneth Herbert: That's great. And as we look at the revised guide, it implies a bit of a sequential step down in margins into the fourth quarter. Is that maybe just conservatism? Or is there anything else we should keep in mind on that? Shawn Mural: There's always some timing of expenses. And so we have some incremental expense in Q4. By the way, not -- again, not unanticipated per se. The teams have done a wonderful job of risk mitigation. You've heard us talk about that earlier in the year, specifically the first half. So nothing, I'd say, terribly significant, to be honest with you, Ken. It's how we see things playing out. We're happy with raising the midpoint of the guide, call it, $3.5 million, $4 million at the midpoint from where we were before and about 10 basis points in incremental margin. So again, from the prior midpoints that we have established. So mostly timing of expenses is the way that I'd frame it up. Kenneth Herbert: That's great. Nice results, you guys. Operator: The next question comes from Tobey Sommer with Truist. Tobey Sommer: What does the opportunity look like for sales ongoing and new sales outside the U.S., maybe just to push it outside the constraints of a shutdown? Jeremy Wensinger: Well, I think the one we announced on the F-16 with Iraq is an emerging opportunity for us on the FMS side. I think that is an opportunity that customers see what we're doing for our primary set of customers and those country customers are really saying, "Hey, I want that kind of support and I need that kind of modernization." So that part has been an opportunity for us to look at how do we take what we do for the U.S. government and take it to these other countries that are -- need our support and are allies of the U.S. So I think outside the country, that's a channel for us. But inside the country, it has been really the modernization side of it, along with the work that we're doing in the aero business. Tobey Sommer: If we fast forward 2 or 3 years from now, do you think you'll be -- you'll have a wider array of foreign military sales contracts that you'll be working on? Jeremy Wensinger: It's -- the foreign military sales take a lot of dwell time. So it's hard for me to tell you exactly what that would look like 3 years from now. We've been working the F-16 FMS deal for quite a while. So again, it's hard for me to say when a country will decide and what's the timing of that. But again, what I like is I like the demand pull. I guess that's where I would put it. They were looking at what we were doing for the U.S. government said, I want that. We are in region, and that's one of the things we talk about all the time. Being in region creates demand pull for us. So having logistics and everything in that region gives them the easy button to pull us through. So again, it's hard for me to look 3 years out and say what that looks like. All I can tell you is being shoulder to shoulder with our customer in region and our allies seeing that support has created some demand pull that I'm very happy with. Shawn Mural: I think a great example of that to amplify it is our Tempest product, right, that was highlighted at the recent AUSA. When we think about global demand for a product like that, that has applications around the globe and the team is sensing some strong demand pull. Jeremy mentioned it, I think, in his prepared remarks. So could those things go FMS? Could they go DCS? I don't know. We'll see. It's an emerging market for us. We're really happy with the rapid prototyping and our ability to deliver that capability in a very short period of time, and it's getting some good traction from customers. Tobey Sommer: Appreciate it. And then with respect to the timing of payments and the elongation of DSO, is that a widespread phenomenon with the shutdown? Or is it a, a discrete impact of some payment offices that just happen to be to matter for the company? Shawn Mural: Yes. It's interesting. There's a payment -- as I think I said earlier when Peter asked, there was a -- we're seeing payments take longer, roughly 7 days than what we saw earlier in the year. The knock down a bit here is there are sometimes contract actions that we need to be adjudicated, to get funding moved around whatever to the appropriate claims, things of this nature. That's kind of the -- this is the secondary effect of the inability to have those things occur today. So will they be done by the end of the year? Potentially. There's -- we don't see risk to them in aggregate, obviously. This is, like I said, purely timing in terms of the ability for if it's funding on a certain clin, for example, Tobey, to be moved, not issued, then issue the invoice and then pay in what are now elongated terms from what we've experienced previously. It's nothing more than that, if that helps give some color. Tobey Sommer: It does. Operator: Next question comes from Joe Gomes with NOBLE Capital. Joseph Gomes: Congrats on the quarter. I was wondering, maybe you can give us a little update on the efforts in the INDOPACOM and how that transpired in the third quarter and what you're seeing here for the fourth quarter? Jeremy Wensinger: I mean we continue to be very confident in our position in INDOPACOM. I mean, obviously, with being present in the region has given us an opportunity to participate with the customer, both directly and indirectly. So again, I think INDOPACOM is going to be and has been an emerging market for -- even think what Shawn just mentioned about the Tempest unit. I think there is an opportunity for us to continue to expand our presence in that region. A little disappointed that some of the training activities were a little less than what we anticipated for the year. But I think overall, I think the positioning is something that we're exceptionally proud of and look forward to a long relationship with that customer in that region. Joseph Gomes: Okay. Great. And then just don't want to beat a dead horse, but -- and I know it's difficult to answer completely here, but we've talked about the government shutdown, things getting pushed out. On the T-6 with under protest, I mean, how far can we get that pushed out where maybe that February, end of February expected start date gets pushed out significantly as opposed to maybe with some of the other things here we're talking about that might turn faster. I don't know if you got any sense of that? Or can you give any more color or detail on that? Jeremy Wensinger: Yes. That one is a hard one. Obviously, as you know, that's in the court of federal claims. So it's a hard one to predict. the exact timing on it. We continue to monitor it, and I know they're making progress. But again, that's going to be a hard one for us to predict if that will or will not slide. Shawn Mural: I think, Joe, that's a little bit why, again, the materials that Jeremy walked through at the conclusion of the prepared remarks, we wanted to give color around we're treating T-6 as kind of a binary event for '26 for exactly the reasons that Jeremy mentioned, and we're going to grow. Again, we're not issuing guidance for '26. But because of the nature of how that could play out, if it stays according to schedule, fantastic. If it slips, we'll see irrespective, this company is going to grow and continue to do that, like I said, in 2026. Operator: The next question comes from Trevor Walsh with Citizens JMP. Trevor Walsh: On the Tempest piece, really impressive just to see or understand the time to development to getting that system fielded. Just more broadly, I guess, within counter-UAS or even just training support around UAS generally, what things or opportunities might be out there that we're not necessarily thinking about? That Tempest just seem to come along very, very fast and ferocious. So what kind of things might there be within the realm of unmanned systems that we could be thinking about for you guys? Jeremy Wensinger: I think Tempest is a good example of what this evolving landscape of threat is showing us as a country. But I'll highlight something that we've talked about before. On the unmanned system side, when you think about an unmanned aerial vehicle, it has an airframe. It has many of the same characteristics that we support today on -- with the MRO front. And I look at modernization and upgrades and our ability to support those aircraft no differently than I do what we're doing on an F-16 or C-130. So when I think about the emerging market on UAVs, it can be what we're doing today with Tempest or it can go extend all the way down to flight line support, all the way down to modernization and upgrades of those aircraft. So I think it's an opportunity for us. I think we've shown that as an opportunity with Tempest, and I think we'll continue to demonstrate our toehold in the UAS market. Shawn Mural: The underlying capability is the engineering prowess and capability that the corporation has to move with speed and agility and deliver that rapid prototyping. That's what you saw. It has a variety of applications, as Jeremy just walked through. And so we're continuing to add to that capability set across the organization with delivering technology, infusing it into a variety of platforms and ways that, again, Jeremy mentioned. Trevor Walsh: Great. Maybe just one quick one or one last one. With respect to the acquisition that you closed, I understand it's probably kind of smaller in terms of kind of material contribution to '25. But can you maybe tell us about how the '26 pipeline or even beyond associated kind of with the opening up of that customer around that acquisition, if that's reflected in, I think, the $50 billion or so pipeline that you threw out there today in the slides? Or is there -- I guess, how much kind of ramp is required to sort of get that really going from kind of the broader opportunity that's kind of offered there? Jeremy Wensinger: Yes. No, thank you. It's a good question. It is not in the pipeline. We're just working our way through integration now. But again, there is nothing different on -- I've come from that side of the world. There is nothing different on that side of the world that isn't being done at V2X today. We just did not have access from a customer standpoint to demonstrate that capability to them. So this is more about customer access and not size. The size of the acquisition was modest, but to be able to get back to that customer set and be able to show them the things that we do as a core company and give them the confidence and the access to our talent was 100% why we did that deal. Operator: The next question comes from Mariana Perez with Bank of America. The current line has been disconnected. We'll move on to the next question. It's from the line of Kristine Liwag with Morgan Stanley. Kristine Liwag: Jeremy, you called out funding as the uncertainty with the government shutdown. And when you look at the strong book-to-bill of 1.2x in the quarter, was that a pull forward of contract awards for the customers anticipating this funding uncertainty and try to get those awards out the door? Jeremy Wensinger: I don't -- it was mostly just normal timing. I mean I didn't see anybody move anything around. Even -- I think we talked about in the past, even with some of the initiatives the government had in the first half of the year, we've seen awards basically occur on schedule. And so these were not unexpected. They weren't moved forward. They were all awards that we expected to happen. What I don't know is in quarter 4, whether the items that we thought were going to be adjudicated because there's no contracting officers around to do it, whether those will happen or not. So I feel confident about what we have in terms of our bid velocity. I feel confident about what the bids we've submitted. They just -- I just don't know whether they're going to get adjudicated with the government shutdown. Kristine Liwag: I see. And look, if I could squeeze a second question. The U.S. decision to withdraw some troops out of Romania was a surprise to many. So I was wondering, was that a surprise to you? Or was that anticipated? I know you don't have direct revenue from that specific base. But when you look at regional priorities, I mean, how do you think about potential incremental headwinds from Europe? And how does that balance with the stronger demand signals from INDOPACOM? Jeremy Wensinger: I think the work we do in Romania is an extremely important part of our, what I should say, defense strategy. And so we were not affected by that, and I cannot believe that, that would -- that work we're doing would go away anytime soon. It is extremely important and in terms of defense. So that's all I'm going to say. But it is -- the Aegis Ashore program is a very important program, and I don't see a strategic move off that unless there's a policy change in the government. Operator: The next question comes from Noah Poponak with Goldman Sachs. Noah Poponak: If I take the updated full year revenue guidance with just the last quarter of the year remaining, it implies -- the range implies 4Q either flat all the way up to up 7% at the high end. Can you -- is that just government shutdown related at the low end? Or are there other pieces that would move you around within that range? Shawn Mural: Yes. No, great question. So as you can imagine, funding is a dynamic situation, and we've got a wonderful cadence within the organization that looks at a typical contracts waterfall based on how funding may change or not. To date, we've had very modest impact, as I think we said in the prepared remarks. But if I look out through the end of the quarter, there could be more impacts in terms of reductions on current contracts we have. And hence, kind of the range of the guide, nothing more than that. We wanted to make sure that we took that into account because it's a variable. The teams are like I said, all over it. And to date, we have seen customers move funding to ensure that capability persists and remains. I think that speaks to the underlying critical nature of how our customers look at the services we provide. So that -- hence, the basis for the distribution on the range. Noah Poponak: Okay. And Shawn, I guess, if I kind of look at the progression through the year, close to flat in the first half. Now you have this up 8% midpoint of the range for 4Q, up mid-single. You guys had talked about needing WTRS to ramp to get to that higher growth rate in the back half. As we -- as I keep flowing through the model into 2026 with WTRS continuing to ramp, easy compares in the first half, I guess why wouldn't -- is it reasonable to think of '26 is looking like the exit rate of '25 in terms of top line growth? Or is it more complicated than that? Shawn Mural: Yes. There's a couple of things. I'll give a little bit of color, like I said, we wanted to make sure we talked about '26 because it's top of mind for obviously, everyone. So when I think about it, WTRS will continue to ramp next year, the F-16 Iraq award will ramp next year from an incremental standpoint. There is the contingency support activities, specifically in the Middle East that have largely ramped down throughout 2025. We've seen that. That will present rather a headwind going into kind of the first 3 quarters, if you will, of 2026. So I won't talk numbers specifically because funding is so variable right now, to be honest with you. But yes, WTRS and F-16 Iraq should continue to ramp at the exit rate that they conclude at in '26. Noah Poponak: Okay. That's really helpful. On margins, should we think of V2X as a multiyear margin expansion opportunity? Or should we think of it as top-line growth and hold the margins and convert it to cash flow? Shawn Mural: Listen, I think over time, we certainly see margin expansion opportunities. I mean that's the nature of what we're here to help generate and our program teams do it consistently. We're burning through what's in the backlog as you would expect. As new programs have come on, they -- and I've said this before, I think they typically start lower and then they ramp and improve sequentially. The great news in some of the awards that we have today is that these are long-term franchise programs when you think 5-plus years in just between WTRS, F-16 Iraq and then depending on what happens with T-6, that's up to a 10-year program. So good stability there, opportunity to go work margin expansion here, but it is -- I think you're thinking about it exactly right. It's a multiyear. Noah Poponak: Okay. Last one for me. If you do, in fact, have the $20 million to $30 million of cash flow slide from payment timing given the shutdown, should we then think of '26 as your normal 100% conversion from the adjusted net income to free cash flow plus getting that $20 million to $30 million back? Or is it the type of thing that kind of ends up being recaptured over a longer window of time and you never really quite see it in a shorter window of conversion? Shawn Mural: No, we're thinking of '26 exactly as you are as I sit here today. It's dependent on the revenue, of course, right? So as long as the revenue holds to, like I said, kind of the midpoint of the guide, then it would purely be a function of timing, and we wouldn't have -- we would be incremental and at or above 100% in '26. That's exactly the way to think about it. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Jeremy Wensinger for any closing remarks. Jeremy Wensinger: Thank you so much for the time today. I appreciate everyone taking the opportunity to share with us our quarter results. And again, just much appreciated for everything that you guys are doing in terms of showing interest in V2X. So thank you, and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you.
Operator: Good day, everyone. Welcome to Kosmos Energy's Third Quarter 2025 Conference Call. As a reminder, today's call is being recorded. At this time, let me turn the call over to Jamie Buckland, Vice President of Investor Relations at Kosmos Energy. Jamie Buckland: Thank you, operator and thanks to everyone for joining us today. This morning, we issued our third quarter 2025 earnings release. This release and the slide presentation to accompany today's call, are available on the Investors page of our website. Joining me on the call today to go through the materials are Andy Inglis, Chairman and CEO; and Neal Shah, CFO. During today's presentation, we will make forward-looking statements that refer to our estimates, plans and expectations. Actual results and outcomes could differ materially due to factors we note in this presentation and in our U.K. and SEC filings. Please refer to our annual report, stock exchange announcement, and SEC filings for more details. These documents are available on our website. At this time, I'll turn the call over to Andy. Andrew Inglis: Thanks, Jamie. And good morning and afternoon to everyone. Thank you for joining us today for our third quarter results call. I'll start off the call by taking you through Kosmos' priorities, reinforcing the consistent messages I gave last quarter, before updating you on progress across the portfolio. Neal will then walk through the financials and the work we've done recently to enhance the resilience of the balance sheet before I wrap up with closing remarks. We'll then open up the call for Q&A. Starting on Slide 3. As we navigate the ongoing commodity price volatility, our key priorities have not changed. In our first and second quarter results, I talked about growing production and reducing costs to prioritize free cash flow, while continuing to strengthen our balance sheet. We've made important progress across all 3 of these areas this quarter. Starting with production. At Jubilee, the partnership brought the first producer well of the 2025/26 drilling campaign online in July. We continue to see strong performance from the well, with gross production around 10,000 barrels of oil per day. The drilling rig is now back in Ghana, following a period of scheduled maintenance, and has just spud the second producer well in the campaign -- which is expected online around the end of the year. Through drilling efficiencies, the partnership has increased the number of wells in the '26 drilling campaign from 4 to 5, while staying within the original budget, which I'll talk more about shortly. On GTA, production has continued to ramp up with the partnership, lifting 13.5 gross LNG cargos through the end of October, along with the first condensate cargo -- a new source of revenue for the project. By the end of the year, we're targeting production to increase to the FLNG nameplate capacity of 2.7 million tonnes per annum. In the Gulf of America, production remains consistently strong, and we continue to progress future developments, such as Tiberius and Gettysburg. Finally, in Equatorial Guinea, production is set to increase with the partnership installing repaired subsea pumps at Tiberius, with the first pump complete, the second in country and the third due to be delivered in the first quarter of 2026. We're pleased to see production near record highs for the company with further near-term growth expected quarterly through 2026, as we push GTA towards nameplate capacity and bring on additional wells at Jubilee. Turning to costs, we're focused on three areas and making good progress across all. First, on CapEx. CapEx continues to fall, and we now expect CapEx for the year to be below our $350 million forecast, an absolute reduction year-on-year of around $500 million. Second, on overhead, we remain on track to deliver the $25 million targeted savings by the end of the year with the full benefit being seen in 2026 and beyond. Third, on operating costs, they're coming down across all of our businesses. As discussed last quarter, the biggest opportunity for additional OpEx reduction going forward is on GTA, where we're seeing unit cost improve as production ramps up and costs come down. We're targeting the refinancing of the GTA FPSO by year-end and are working with the operator to implement a lower cost operating model, which should further drive down costs across the project. Finally, the balance sheet, where we've done a lot in recent weeks. On liquidity, we've taken important steps to address our upcoming debt maturities through the $250 million term loan from Shell, with the proceeds being used to repay the outstanding 2026 bond maturities. On the RBL, we successfully completed the semi-annual re-determination in September, and passed the maturity test for the 2027 bonds at the same time. We also added more hedges for 2026 during the period. Neal will talk about all of this in more detail later. But in summary, we're making good progress against our financial objectives. The combination of rising production, lowering costs and lack of near-term maturities, gives us the resilience to weather a period of volatility. I remain confident that we have a unique, world-class portfolio of assets, and we remain focused on maximizing long-term value for our shareholders. Turning to Slide 4, which looks at operations for the quarter. Starting with Ghana, total net production was around 31,300 barrels of oil equivalent per day. Jubilee gross oil production in the third quarter was around 62,500 barrels of oil per day, 13% higher quarter-on-quarter, helped by the first new well of the 2025/26 drilling campaign coming online in July. Gross gas production was around 15,000 barrels of oil equivalent per day in the third quarter, sequentially lower due to a period of extended scheduled maintenance of the onshore gas processing plant. At TEN, gross oil production in the quarter was around 16,000 barrels of oil per day. At GTA in Senegal and Mauritania, third quarter net production was around 11,400 barrels of oil equivalent per day, an increase of just over 60% from the previous quarter. The partnership lifted 6.8 gross LNG cargos during the quarter, in line with guidance. We also lifted the first gross condensate cargo early in the fourth quarter. There were some start-up maintenance on 3 of the 4 LNG trains during the third quarter, that slightly curtailed production. But with all trains online, we're now running around 2.6 million tonnes per annum equivalent and on the path to nameplate production this quarter. Work on the last LNG train is planned for this quarter and has been incorporated in our guidance. In the Gulf of America, net production was around 16,600 barrels of oil equivalent per day, in line with guidance, driven by strong performance from Odd Job and Kodiak, and no major storm activity during the quarter. This was offset by some unplanned facility downtime and the abandonment of the Winterfell-4 well, which I'll talk about in more detail in a following slide. On Tiberius, we executed the production handling agreement with Oxy -- our 50-50 partner on the project and also the operator of the Lucius production facility -- which will host the volumes from the development when it comes online. We expect to take FID and farm down our interest to around a third in 2026. Equatorial Guinea net production was around 6,200 barrels of oil per day, down quarter-on-quarter due to the subsea pump issues flagged in May. As I mentioned, we're making good progress on the repair of those pumps with normalized production expected in the first half of 2026. Turning to Slide 5. We talked in depth last quarter about Jubilee and the opportunity to deliver the field's full potential as we return to drilling. As the chart on the slide shows, the first well of the 2025/26 drilling campaign was drilled in the second quarter and came online in July. The well continues to perform in line with expectations, delivering around 10,000 barrels per day of gross oil production. Drilling of the second producer well has commenced and is expected online around the end of the year, and we anticipate it will also be a strong producer. The next 12 months is an important period of activity for the field with a committed drilling program of 5 more wells in 2026. We initially plan to drill 4 producer wells next year but have worked with the partnership to drive a more efficient program that allows for a fifth well, a water injector, to be added in 2026, while maintaining the same budget. The blue dots on the chart show production may be higher through 2026 as the new wells come online. And while this upward trajectory won't be linear as individual wells contribute different volumes, we expect Jubilee production to be materially higher than current levels as we finish the current drilling program in late 2026. With improved water injection and a regular follow-on infill drilling program, we're targeting sustained production at those higher levels. The other important point to note on the chart is the OBN seismic acquisition, which is taking place this quarter. This state-of-the-art imaging technology, that I talked about last quarter, will further enhance our understanding of the subsurface, providing better data on historical fluid movement and help identify more undrilled lobes and unswept oil. This is a step change in imaging technology, which we expect will support optimum well selection in future drilling campaigns, ultimately enhancing resource recovery over the remaining life of the field. With the license extension expected to be completed by year-end, the partnership can now plan on long-term investment in Jubilee, which should drive a material uplift in 2P reserves. All the required documentation of the extension has now been prepared for submission to the government for their approval. Turning to Slide 6. At GTA, we continue to see a lot of positive progress as we work with BP, the national oil companies and the governments to improve profitability. As the green line in the chart shows, production continues to rise with net production of 11,400 barrels of oil equivalent in the quarter. This equates to 6.8 gross LNG cargos during the quarter, in line with guidance. The partial cargo number reflects the cargo that was loaded over the quarter end with the remainder of the cargo recognized in the following quarter. The project has now lifted 13.5 gross cargos through October with 7.0 to 8.5 cargos expected in the fourth quarter. Last month, the first gross condensate cargo was lifted, another important milestone for the project and was priced at a small discount to Brent. Looking ahead, we expect production to continue to rise, targeting the 2.7 million tonne per annum nameplate towards the end of the year. With this higher production level, we see the potential for the cargo count in 2026 to be almost double what we expect to see this year. On costs, the blue bars on the chart show the absolute operating expenses continue to fall. We expect further progress into 2026 with the re-financing of the FPSO and as we work with the operator to implement a lower cost operating model. Through rising production and its focus on costs, we expect unit cost to fall by over 50% next year. That said, we continue to advance Phase 1+ expansion targeting online in 2029, materially increasing the volume from our existing infrastructure. With that growth in production, we expect the unit economics to improve substantially. On CapEx, Neal will talk more about it in the financials, but the working capital outflow in the third quarter was largely related to the crude GTA CapEx post project completion that was due in the third quarter, effectively marking the end of the capital outlay for Phase 1 of the project. Turning to Slide 7. In the Gulf of America, third quarter performance was in line with expectations with continued strong performance from Odd Job and Kodiak, and a lack of storm activity, offset by some unplanned facility downtime and the abandonment of the Winterfell-4 well. As we communicated in this morning's earnings release, Winterfell-4 was abandoned in September by the operator due to challenges encountered during completion operations arising from the collapse of the production casing. Unfortunately, the operator has recently struggled with completion issues. So while we love the resource upside at Winterfell, which contains around 100 million barrels oil equivalent of potential, we plan to focus next year's activity just on restoring production from the Winterfell-3, Winterfell-4 block. This will allow time to better plan and design the future wells to capture the full resource potential of the field. On our development activities, we continue to progress Tiberius with Oxy with an improved lower cost development plan and an executed PHA, which locks in attractive commercial terms; FID and farm-down are planned for next year. We also continue to advance Gettysburg with Shell, which is a discovered resource opportunity we acquired in a previous lease out. We're progressing a single well development that will be tied back to Shell's operated Appomattox platform. That concludes the review of the portfolio, and Neal will now take you through the financials. Neal Shah: Thanks, Andy. Turning now to Slide 8, which looks at the financials for the third quarter in detail. Production was again higher sequentially due to the first new well on Jubilee and GTA ramping up, offset by expected downtime in the Gulf of America and EG, and lower gas volumes in Ghana. Current production is now in the low 70s, with more to come in the fourth quarter as GTA approaches nameplate, and the second producer well on Jubilee is expected online around the end of the year. Operating costs were down almost 40% quarter-on-quarter with improvements across all our business units, reflecting the focus on costs that Andy talked about earlier and also the 10 lifting costs that fell in the second quarter. G&A was also lower, highlighting the progress we are making in reducing overhead. CapEx of $67 million came in lower than guidance and with year-to-date CapEx of just under $240 million, we are firmly on track to close out the year with full year CapEx below our $350 million forecast. Last quarter, I flagged an expected working capital outflow in 3Q, largely associated with the final accrued CapEx on GTA. With Phase 1 now delivered and the CapEx behind us, we don't expect any material capital outflows at GTA for several years. So to summarize, production is growing and approaching record high levels, while CapEx, OpEx and overhead have all fallen quarter-on-quarter, reflecting our efforts to improve the overall cost base of the business and enhance profitability and cash flow generation. Turning to Slide 9. As Andy said in his opening remarks, one of the priorities for the company this year is enhancing the resilience of the balance sheet, and we've made progress in several key areas recently. On liquidity, we announced a full-year senior secured term loan with Shell for up to $250 million with attractive terms for Kosmos. We used the first tranche of the facility to repay $150 million of our 2026 unsecured notes early in the fourth quarter and anticipate using the remainder to repay the outstanding $100 million in the first quarter of 2026. On the RBL facility, we completed the semi-annual redetermination with the borrowing base remaining in excess of the $1.35 billion facility size. Alongside the exercise with our lending banks, we updated the liquidity test for the 2027 bonds, which was successfully passed. Our lenders remain supportive of the company as we complete our project delivery phase, and we appreciate their continued support. With the Shell transaction complete, we have created more space until our nearest maturities as can be seen on the top right chart. We remain proactive in securing additional sources of liquidity that enables us to repay some of our other upcoming maturities. On hedging, we have continued to increase downside protection against near-term commodity price volatility. For the remainder of 2025, we have 2.5 million barrels of oil production hedged with a $62 per barrel floor and a $77 per barrel ceiling. We also took advantage of higher prices in the third quarter to add more hedges for 2026. We now have 8.5 million barrels of oil hedged next year with a floor of $66 and a ceiling of $73 per barrel with more than 50% of oil sales hedged through the first half of 2026. We've talked on today's call about our focus on costs and the chart on the right shows the progress we're making with quarterly CapEx reductions over the last year. As we start to look ahead to next year, the capital program is largely focused on Jubilee drilling, and we are confident we can stay within this year's budget or below to maximize near-term cash generation and reduce leverage. At current prices, backwards leverage remains elevated given the ramp-up in GTA and lower production in Jubilee in the first half of the year. We expect that to improve quickly into 2026 as production and cargo sales increase and the lower first half 2025 EBITDAX is adjusted out of the trailing 12-month leverage calculation. As you will see with our fourth quarter guidance, we remain close to our revised year-end covenant, but are actively working solutions such as the 10 FPSO purchase to remain compliant. So to conclude, we will continue to be proactive in improving our financial position by reducing costs, raising new liquidity to manage our maturity schedule at attractive rates and adding new hedges. While we have more to do, I'm pleased with the progress we have made, and we will continue to focus on delivery of that agenda. With that, I'll hand it back to Andy. Andrew Inglis: Thanks, Neal. Turning now to Slide 10 to conclude today's presentation. As I stated in my opening remarks, we have 3 clear near-term priorities. We are growing production with current production approaching record highs with more to come through the end of the year and into 2026 with the Jubilee drilling campaign in GTA at nameplate. Longer term, we have an attractive portfolio of growth opportunities across both oil and gas within our existing discovered resource base, both internationally and in the Gulf of America. On costs, we're seeing solid progress across our 3 main areas of focus: CapEx, OpEx and overhead; and continue to work hard on further reductions. Finally, Neal just talked about the work we're doing to protect the balance sheet to ensure we have a sustainable business in a lower price world while retaining the significant opportunities for future upside. We look forward to delivering on these near-term objectives to support long-term value creation for our investors. Thank you. And I'd now like to turn the call over to the operator to open the session for questions. Operator: [Operator Instructions] Our first questions come from the line of Matthew Smith with Bank of America. Matthew Smith: Perhaps a couple. Could I first start with the reference to the 10 FPSO and the sale and repurchase agreement that you're finalizing. I mean, could you give us any sort of further details on the financial implications here? And also, just remind us on the timing for that lease finishing, please? I mean that would be the first one. Then perhaps the second one, just sort of taking a step back, I guess, a million-dollar question, production sort of finally now ticking higher costs coming down, as you've alluded to. Could you give us a bit of a sense of the cash flows and perhaps the deleveraging that you might expect for 2026? Neal Shah: Yes. Sure, Matt. This is Neal. I'll take those. So if we start on TEN, again, one of the themes we talked about today is sort of reducing the cost across the business. When we look at TEN specifically, it's been high operating costs at the field. A large portion of that is because of the lease. The lease makes up more than 60% of the operating cost at TEN. And so it's been naturally an area for us in the partnership to focus on how do we get that cost down. And so we've been working the purchase option together with the rest of the partnership and the FPSO owner to get that concluded here in the fourth quarter. In terms of specific details on consideration and things, we can't disclose those terms until it's signed. But what I can tell you is what we're trying to do, what we've agreed to is sort of no additional payments in terms of what we're paying for the lease until a sort of closeout payment in 2027. And that payment would be basically a reduced buyout payment for the FPSO. And it would be done on very attractive terms with paybacks similar to what we've seen on M&A transactions like Oxy, Ghana, et cetera, that we've looked at. And so no additional cash up front. We serve out the lease until '27. We have a discounted purchase option at that point, which lowers the operating cost and allows us to get access to the extended life of the field and additional sort of upside and opportunities in the future. And so again, it's a good transaction. We're happy to see it progressing and hope to see more news on that here before the end of the fourth quarter. On your second question, just in terms of cash generation, you're absolutely right. We're sort of getting to that point to where production quarter-on-quarter, we can see it increasing and costs across the business are coming down. In terms of where we get to in terms of free cash flow into '26 and beyond, I don't think it's very different in terms of what we've said. We've talked about a company that can breakeven in the mid-$50 per barrel range across all of the costs and then how much excess free cash flow we generate will really be a function of oil prices beyond that. And what we've tried to do is remain proactive on the hedging side to ensure that there Is some price floors at rates ahead of that, that would ensure that we're generating some free cash flow into '26 and then have the optionality in the portfolio for the future. So again, I think directionally, everything is headed the right way across both the production side and the cost side, which you'll see progress both in the 4Q and sequentially into subsequent quarters into '26. Operator: Our next questions come from the line of Bob Brackett with Bernstein Research. Bob Brackett: I'd like to talk a little bit about GTA OpEx. You've disclosed a little more this quarter. It looks as if, if I got my math right, running around $60 a barrel, and you talking about taking half of that roughly away. Is that the right way to think about it, getting towards $30 of OpEx? Neal Shah: Yes. So again, I think 2025 is a tricky year to baseline off of, Bob. But if when you look at sort of the quarterly OpEx, we're at $70 million in 2Q, $60 million in 3Q, and we're expecting at the midpoint of guidance about $50 million per quarter net to Kosmos in 4Q. And beyond that, we see upside or downside there in terms of being able to run at a slightly lower operating cost into '26. I'd say today, we're closer to -- and again, we're referencing in gas terms, but closer to a $6 per million-ish breakeven on just where we are from a production perspective with the goal to get that a bit lower. Bob Brackett: A follow-up -- any lessons learned on Winterfell? Is there a common theme to some of the challenges? Or is it too early to know? Andrew Inglis: Yes, Bob, I'll take that. I think the first thing to say these are operational issues, not reservoir issues, yes. So we've had 2 mishaps. The first was placing the screen in the horizontal wasn't fully packed off and therefore, we had the screen collapse. So that's one issue. I think the issue of the casing collapse sort of on exit itself, actually, is a little early to come to a final conclusion on the root cause. But what it does when you step back from it is we need to be very, very rigorous now about the future operations. We are, as Kosmos focused on a single activity in 2026, which will be coming back to the Winterfell-3 fault block, probably re-using the wellbore to recomplete the well, but it will be a very simple completion. And I think if you were to just go to a very high-level view of it, I think, a lesson learned is to "keep it simple", make sure you've got rigorous planning and then you execute. So I think there isn't anything new in that, but I think it's something that we need to come back to. Operator: Our next questions come from the line of Charles Meade with Johnson Rice. Charles Meade: Andy, on Slide 5, thank you for all this detail on Jubilee. But I want to ask a question about what's going to drive 2 cargos versus 3 cargos from Ghana in 4Q. Is the big variable, just the performance or how well this J-72 well holds up, or is there a 10 cargo that may or may not fall in 4Q? Can you give us a sense of what the drivers are there? Andrew Inglis: No, Charles, it's just really just around, this is a year-end cargo, so it's a timing issue. And ultimately, the timing of that will be dictated by performance. It's sort of holding flat at the moment where we can sort of see a relatively flat profile in Jubilee as we end the year. But it's going to be just literally around the timing effects of that on a year-end cargo. Charles Meade: Great. And then another cargo question, but from GTA, the condensate cargo that you mentioned you sold, how does that fit in your guidance? And how is that going to appear when you report 4Q? Andrew Inglis: Right. I'll let Neal handle the detail of that, Charles. Neal Shah: Yes. And it's a bit tricky, because you don't get them all the time. There is probably lifting on a gross basis out of the field, maybe quarterly, but this is the first one for the partnership until we split it evenly. Again, the thinking going forward is they'll all be allocated on a entitlement basis going forward. And so again, I think between us and the NOCs potentially lifting every one out of or 2 out of every 5 condensate cargos. So there'll be a bit regular, Charles. But there will be, again, a nice source of additional income for the partnership. Charles Meade: So if I understand you correctly, Neal, you're taking turns the way you are at Ghana. And so even though you've lifted this first cargo to someone else's cargo, and it's not going to have no financial impact on Kosmos for 4Q. Is that right? Neal Shah: Yes. This one, we listed altogether. I'm saying going forward. So we'll get our pro rata piece of that cash flow in 4Q. Going forward, we'll list it like, as you mentioned, which is sort of taking turns between us and the NSCs. Operator: Our next questions come from the line of Neil Mehta with Goldman Sachs. Neil Mehta: There's obviously a lot of focus on the balance sheet and credit hasn't traded very well here because of the macro, but also because of some of the challenges you guys talked about. So maybe you could just take some time for investors who are worried about the balance sheet to talk about how you are feeling about liquidity, why you have confidence? What are you doing to mitigate some of the risks and spell it out into detail? Andrew Inglis: I'll get Neal to talk through it. But I think the first point actually to make is sort of how much progress we've sort of made actually this quarter. Neal will talk you through the term loan, the RBL redetermination. That's allowed us to do with the most immediate issue, which is the '26 bond maturities. But then thereafter, what are the steps we're going to take to address the upcoming maturities beyond that. So I think it is a real growth focus for the company, and it's one where I believe that we're genuinely making the right progress at the right pace. But Neal, just the details? Neal Shah: Yes. And just like Andy said, I think, we continue to be proactive in terms of getting in front of the refinancing issues. The Shell term loan was important to get to early repay the '26s. We've gotten through the redetermination liquidity test that people have some questions around. So hopefully, we have addressed some concerns on that side. And then now we're being proactive around the '27s and looking at, as I mentioned, secured debt options, potentially at the MS level to early attack clear the maturities and create a bit of runway, so that we can focus on with the near-term volatility in the oil price. We've created a lower cost company without any debt maturities, we can use all the free cash flow to repay debt on the revolver and then create more financial resilience through that process. So again, I think, we're doing all the things we said we would. We're going in a step-by-step fashion and continue to look for cost-effective ways for us to get ahead of issues, while we're finishing out the project delivery phase. And again, like I said, I think, the most important thing for us as well as the creditors and the equity holders is we're seeing the benefit of rising production coming through as well as the lower of the overall cost structure. So again, I think we're doing the right things in the business will continue to be proactive around securing the financial resilience of the company as we go through sort of a bit of a wobble in the macro. Andrew Inglis: Yes. What I'd add, Neil, is in addition to looking at secured debt against the GTA asset, I think, we're also looking at divestments of non-core assets. We're through the build phase, we have some very strong assets, both in Ghana, in MS, Gulf of Mexico. So what are the options we have now to sort of high grade the portfolio and use that as an additional source of debt reduction. So I think that's another area where we're being proactive. So I think there are 2 bigger agenda items that Neal is working on both secured debt against MS and the non-core assets. Neil Mehta: Then the follow-up is just -- can you talk about the upfront investment required for the GTA expansion? And how do you think about the differences in leaps rates for a 5 MTPA floating LNG facility versus the Golar facility you had previously? Andrew Inglis: Yes. Thanks, Neil. I think it's sort of maybe that is an important question. I think it would be good to give you a little bit of detail. I'm fresh back from a meeting where I think last week in Paris, where we spent a lot of time with the NOCs and governments of Mauritania and Senegal sort of thinking through the future needs. And it's clear in both countries, but in particular, in Senegal, the need for additional near-term domestic gas. So I think that we see the next phase, the Phase 1+ expansion actually targeting the domestic market. I think we're sort of almost ambivalent to the pricing there. We were sort of looking at pricing that would be equivalent to the FOB of the LNG without the liquefaction cost. So ultimately, it's a win-win for everybody at that point. The government gets a source of gas, which is very competitively priced and we can secure the expansion of Phase 1+ without having to go through complicated redesign of the facilities. So I think that's the way to think about it, Neal. I think the other thing I'd add to you on the cost side is that actually, the FPSO and the current well stock can supply around 200 million standard cubic feet of additional gas without any investment with 0 investment. And that means that from the government's perspective, they could get domestic gas earlier. And they need to build out the infrastructure to do that. There's a pipeline system being built in Senegal to get access to the power stations, the power stations are being both new build and modifications to gas burning. And their view would be is that they could probably accelerate their demand to pull gas earlier than the '29 date that we talked about. So actually, one of the things that we talked about in Paris was getting on with an early negotiation of a gas sales agreement. So I think if you think about it, there's sort of 200 that you can get at 0 cost today, that's the way to think about it, then there's another 100 that you would get if you debottleneck the FPSO. And that is just debottlenecking. That is small modifications to the gas system to give you that extra 100. So I think the great thing about GTA is you can expand it now at very, very low costs. So there is no additional cost to go in other than the FPSO debottlenecking. And then at some point, you will need additional wells, but that's sometime in the future. So it is about an aligned agenda, I think, with both how do you get the most out of the infrastructure with the least amount of capital going in and then how do you get the most benefit actually for the host countries and build a true win-win. So that for me is the way to think about the project, Neil, rather than -- I think Phase 2 and Phase 3 can be more biased towards LNG, but I think, that initial sort of expansion as we call it Phase 1+ of the existing facilities being more targeted to the domestic gas. Now there is some debottlenecking you can do on the Gimi as well, to move it beyond the 2.7 nameplate. So I think there's an increment of LNG to come there. And so, when you think about it, there Is a piece of it goes to that increment of the Gimi, but it's not 5 million tonnes. It's an increment on the Gimi. And then there Is the residual amount that would go to domestic gas. So all in all, this essentially comes at very, very low CapEx. Operator: Our next questions come from the line of [ Christopher Bake ] with Clarksons. Unknown Analyst: I have three questions today if I may. So the first is on Jubilee performance. First of all, could you briefly touch upon the underlying decline rates at Jubilee right now? And what exit rate should we expect from Jubilee in 2025? The second question is related to CapEx. CapEx came in below expectations this quarter and full year guidance is now below $350 million. This primarily driven by timing and deferrals? Or is it real cost savings? And in addition to that, related to the FPSO lease refinancing for GTA, what kind of cost savings could be realized once completed? I think we can start with these two. Andrew Inglis: There's a lot there, Chris. I'll do the first one on Jubilee and then probably I'll hand over to Neal. Yes, on Jubilee, I think, the way to think about it, Chris, is this and how to keep it sort of simple but straightforward. What I would say, surfing around sort of 62,000, 63,000 barrels of oil per day today. We've got a new well coming on we just started drilling, by the way. We're drilling the 26 in section as we speak. And pleased to get back to drilling and sort of actually getting back on the timeline that we targeted. So we expect that well to be on at the end of the year. And so you're going to exit at sort of around sort of 70,000 barrels of oil per day on Jubilee. So as you go to 2026, the question is, of course, well, what's going to happen? And what's your view of the future? We've got 4 more producers to drill. We've always talked about them doing between 5,000 and 10,000 barrels a day. So if you sort of say, okay, 7,500 or something on average, if you add it up in a simplistic sense, that gets you to around 100,000 barrels a day. Then you got to put on the decline rate. So let's say, you put on decline rate of 20%, which is both on the new wells, which is probably a little high on aggregate, if you apply that 20%, then it brings you down to the 80s. And that's the rate we'd anticipate getting to as we go through the year. So I think we've got a clear path going forward. We're clear about the well selection. I'd say that the producers where we're targeting in the main part of the field, they're targeting areas where we've got good pressure support. Challenges we've had in the past at the end of the last drilling program we're in Jubilee Southeast area where there is less concentration of injectors. And therefore, I think we had challenges around the connectivity in particular on one well. So you've got to be careful when we talk about decline rates as you've got to think about it, both the 2 dynamics, where you put in the wells, what's the pressure support and also the difference in the -- as you change the well, the production between the new wells and the existing wells here. But I think that's the right way to sort of think about Jubilee. So I think there are things to monitor going forward. First thing, have you started drilling? Yes, we have. The objective then will be to get the well on production around the end of the year, what production rate do we get there and then you start to build it up as you drill the next. So it's 12 producers in '26. And as I said in the remarks, we've actually sort of high-graded the program a bit to optimize it so we can squeeze in a water injector, which is important for the next program all within the original capital budget. Neal Shah: Yes. And with that, Chris, it goes to your second question, which is what are the savings. Again, I think there's a bit from Ghana, which is, as Andy alluded to, is from drilling efficiencies and some lower contract rates for the program in Ghana. And again, that's part of what allows us to squeeze an additional well into '26. And so those are real savings in '25. And then there's part in terms of lower costs in the Gulf in terms of the '25 program in terms of why we think we'll be lower than the $350 million in terms of what we're projecting for this year. So those are real savings, not just deferrals of capital from. Andrew Inglis: Yes. And maybe the thing I'd add to that is, Chris, is it's a lot of small things that add up. And I think one of the big messages we want to get across, I think, today in the results is we're really managing our cost base rigorously. So every dollar counts, whether it's CapEx, whether it's OpEx, and you can see the momentum on the OpEx side. You can see us continuing to make progress on CapEx. And then how do we sustain that as we go forward into the '26 program. But it's about the rigor and discipline, and I would say, both in Ghana and the Gulf, it's adding up small things that ultimately allow you then to make savings of $10 million to $20 million overall in the year. Neal Shah: Yes. And again, that sort of feeds to your third question as well around sort of the FPSO lease costs and we're spending about $60 million this year, $15 million a quarter on the lease. And the goal would sort of get that into sort of the $40 million to $50 million range. So again, I think there's still some work to be done to figure out where exactly we get an instrument priced, but it would be a material CapEx savings or an OpEx savings as we get that complete. Unknown Analyst: One last question on GTA, if I may. And I know you touched upon this earlier, but with the Phase 1 nearing nameplate now, how do discussions or evaluation for Phase 1 look like? And what are the key factors for FID timing? And to follow-up on that as well, what upside do you see on Gimi from current nameplate capacity? Andrew Inglis: Okay. Yes. I don't want to sort of repeat everything I said in answering Neal's question. But if you go back to Phase 1+ your last question about FID timing, the point I'd like to make is that you can get $200 million today of extra gas without spending any money. So no FID required on that, actually, the big driver is you need to get a GSA signed and that was a big action item that came out of the conversation in Paris with the NOCs and the government, in particular, in Senegal is they want to accelerate that. They've got a very strong domestic demand. Those of you who are Senegal watches will know that the President and the Prime Minister have been clear about the importance of getting domestic gas. And therefore, this is a real win-win where you're able to leverage that. So that comes sort of without any extra money. The last 100 does require us to do some work on the FPSO. What we've got to do is do the FEED work to do that. FID is probably within the next 12 months. What happens is that you've got to get the work done in the 2028 turnaround, yes. So you need a lead time to get you to that time period. So when the FPSO has a normal shutdown, that's when you do the work, then that means that the additional $100 million would be available in '29, yes. In terms of the Guinea it can do -- we're targeting getting up to nameplate, and I think we're demonstrating that. So I think the progress we're making really month-on-month, quarter-on-quarter, we will get to that position at the end of this year. Beyond the nameplate, you really have to do some modifications to the Gimi, which is really about better cooling and more power. That are the 2 things that influence LNG plants. And that work is ongoing with Golar at the moment. So I don't want to give you a hard number, Chris, until we get through that work. But it's probably in the range of maybe 10% to 20% depending on where that work comes out. So you can get more out of the Gimi, but the two things you've got to work on -- the power and the cooling. And again, when would you do that, you probably do it at the turnaround time so that you did at the same time as the FPSO work was going on. So I don't think in terms of sort of putting out spreadsheets, I wouldn't include anything until sort of '29 on that. Operator: Our next questions come from the line of Stella Cridge, Barclays. Stella Cridge: I wondered if I could just follow-up on the point of looking at secured borrowing on GTA. And could you just say what you think the borrowing capacity of this business may be at the moment? And what sort of structure might be possible given that it has a different profile to the more kind of liquid businesses that you have elsewhere? That would be great. Andrew Inglis: Yes. So without sort of getting too far ahead of ourselves, we think there's enough capacity there to take care of the '27 bonds from a secured capacity perspective at, like I said, relatively attractive rates. And we're looking for sort of more bond-like solutions for that access. And again, we're pretty dead. We test the options before we look at anything and go live. But I think I feel pretty good about our ability to go do something there at the right time. Operator: Our next questions come from the line of Nikhil Bhat with JPMorgan. Nikhil Bhat: I have a couple. First one, the second quarter report mentioned that your net leverage covenant on the RBS will be raised to 4x as of September 2025, and the quarter end leverage is higher than the threshold. Can I check if Kosmos is under a cure period or the covenant has been waived? Has this affected the March 2026 covenant test as well. There's also a question I had on the liquidity test for the 2027. Does this by any chance need to be redone in March 2026? Or now that you've completed the test in September, there is no more of redoing this test? Andrew Inglis: Correct, Nikhil. So just to your two questions. So the waiver we got through 4x was for the September test, which uses the June financials on an LTM basis. And so the June financials, we were at 3.8x. We increased it to 4x from the banks. So that gets officially tested as of September 30, not using the September 30 financials. So the September 30 financials don't technically get tested from a leverage covenant perspective. So again, I think we got the waiver in advance of any breach to avoid any issues. The 4.25% is the relevant test at the end of this year, which gets tested using December 31 financials that actually gets tested by the end of March. And that's what I referred to on the call that we're pretty close to that. And we're working some mitigation options to stay to make sure we're compliant with that. But there wouldn't be any test of that covenant until all the way until the end of March from a timing perspective. Does that make sense? Operator: Our next questions come from the line of Mark Wilson with Jefferies. Mark Wilson: Most of my questions have been answered already, but I would like to know just to check, a big drilling program now underway at Jubilee and there was the additional ocean bottom seismic that was being taken and reprocessing of other seismic. I just wonder where that is, do you have all that and what it has given you in terms of new knowledge. Andrew Inglis: There's a lot going on at Jubilee. We've started the current drilling program. As I said in the earlier remarks, we're targeting that at the main field areas where we have very good well control. And therefore, we're drilling low-risk targets. We've used the fast track of the nets for that. So it's an early product but incredibly good when I look back in my days at what a fast track look like to what you're getting today. So in essence, we have been able to leverage that NAS data, which is the 40, therefore, the comparator of the 40 on a 2025 back to 2027. So I think that drilling program is well underpinned by the nature of the targets that we picked, the well control and the ability to leverage the early products of the NAS. Then I think you sort of think through time is to sustain Jubilee production at the elevated levels that we've talked about, you need to be drilling 3 to 4 wells per year. And we've been clear about that. And we have a deep hopper of opportunities that will only get high graded as we start to leverage the full, final product of the NAS. But most importantly, OBN, which ultimately gets you a much better velocity model. And that velocity model, therefore, high grades the quality of that 4D picture, and we think will lead to greater clarity on that high grading of the hopper. All I'd say it's early days, but we've got a really good view now today of new targets that we haven't been able to see before. It's all about identifying un-swept oil, undrilled lobes, correlation of that from the 4D with a much higher uplift in the seismic and ground truthing it with the history match reservoir model gives you a much, much better view of the future. So what I'd say is our view of the long-term potential of the field remains absolutely unchanged. I'd say that sort of 3 months on, having a chance to play with the NAS, we've probably got a stronger view. There is more opportunity rather than less. And then ultimately, it's about now high-grading the next set of wells for a drilling program that we would target starting in '27. So I think that's sort of where we are with the program, Mark. We'll see the results of this '25, '26 program. The first well has gone well, the next well on by the end of the year, you then got 4 more producers and a water injector that will take us through the back end of '26. And then it's about optimizing the next set of wells. The only bit I'd add is that the 40 does help you optimize the water injection patterns as well. So I think that we've talked about voidage replacement. I think we need to be above 100%, we need to be targeting water injection levels above that. We're now at a level today where we're injecting water where we can do that. But then it's about where you put it. And I think the AI-driven reservoir model we've got now is bringing up some new ideas about how you optimize the water injection patterns. So I think all of that is to say a big step-change in technology. The opportunity set is probably larger. And now it's about delivery. And as you rightly sort of pushed at times, you've now got to deliver those 5 producers going forward, and that's our objective. Operator: Our next questions come from the line of Kay Hope with Bank of America. Kay Hope: I just have a quick one. I can see on Slide 11, you say you expect production in the fourth quarter of 66,000 barrels a day to 72,000 barrels a day. But you mentioned in the comments that you're at about 72,000 barrels a day now. I mean is there a reason we should expect that average to be as low as 66,000? Neal Shah: Kay, this is Neal. So we have started off production pretty good in October so far. Again, I'd say there is normally some downtime, both planned and unplanned. We talked a bit about there's one more train in GTA that will be down for a few days within the quarter that stops you from producing at sort of, call it, sort of full rates. And then we have some sort of recurring downtime to the field. So again, I think on a regular basis, we should be doing better than that. But again, we allocate some for sort of unplanned downtime and things to go wrong. But that's just generally how we sort of get into the forecasting process. Kay Hope: Then I know that you flagged the working capital issue on the second quarter call on, I think it was August 5, I'm not sure, but on that call. Should we expect any of that to come back, or alternatively, do you expect to be free cash flow positive for the fourth quarter alone? And for the full year, it may be a bit tough. But what about the fourth quarter on its own? Neal Shah: You are right. We saw some big working capital flags as GTA sort of finished the commissioning phase and went into the operational phase at the end of the second quarter and into the early part of the third quarter. So we flagged that into the third quarter call. We haven't seen any of those into 4Q. Again, working capital is really hard to predict in terms of where we are. And again, I think, Andy mentioned sort of there is a cargo timing piece that sort of moves on one side or the other, which has an impact as well. But again, I think we don't flag. If we see any big working capital, we usually flag it. We don't see any at the moment. And there is no reason to expect that to sort of occur going forward given we were in the project delivery phase before and now we're into more normalized operations. But cargo counts still make a sort of quarterly difference in terms of variation and then some of the cash flows, it will be sort of different. But again, I think with our view today, it's hard. We don't see anything immediately, but it's something we'll have to continue to manage. Kay Hope: You are not telling me that you're going to be free cash flow positive in the fourth quarter? Neal Shah: If you tell me what oil prices are going to be. Kay Hope: Well, we're up to November. We'll cross our fingers. Andrew Inglis: Yes. What I'd say Kay is look, we've had a strong start to the first month. So obviously, we sit here today, we know what October was like. And we're well within the guidance that you talked about for 4Q. So I think this is about -- you talked about the downside of what would cause you to hit $66. The alternative question would be is what would you have to do to be at the upper end of that range. And that's clearly what we're targeting. So we're targeting to deliver well within the range in 4Q. And all I'd say is we're off to a strong start so far in the quarter. Operator: Thank you. Since there are no further questions at this time, I would like to bring the call to a close. Thanks to everyone joining today. You may disconnect your lines at this time, and thank you for your participation.
Operator: Good afternoon. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to Halozyme's Third Quarter 2025 Financial and Operating Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I will now turn the call over to Tram Bui, Halozyme's Vice President of Investor Relations and Corporate Communications. Please go ahead. Tram Bui: Thank you, operator. Good afternoon, and welcome to our third quarter 2025 financial and operating results conference call. In addition to the press release issued today after the market close, you could find a supplementary slide presentation that will be referenced during today's call in the Investor Relations section of our website. Leading the call will be Dr. Helen Torley, Halozyme's President and Chief Executive Officer, who will provide an update on our business; and Nicole LaBrosse, our Chief Financial Officer, will review our financial results as well as our outlook. On today's call, we will be making forward-looking statements as outlined on Slide 2. I would also refer you to our SEC filings for a full list of risks and uncertainties. During the call, both GAAP and non-GAAP financial measures will be discussed. Certain non-GAAP or adjusted financial measures are reconciled with the comparable GAAP financial measures in our earnings press release and slide presentation. I will now turn the call over to Dr. Helen Torley. Helen Torley: Good afternoon, everyone, and thank you for joining us today. I will begin on Slide 3. I am very pleased to report another quarter of record royalty revenue of $236 million, representing a remarkable 52% increase year-over-year and resulting in total revenue of $354 million, representing 22% growth year-over-year. These results were driven by the continued momentum of our 3 established blockbuster subcutaneous therapies, DARZALEX subcutaneous, Phesgo, and VYVGART Hytrulo. Adjusted EBITDA growth exceeded top line growth, increasing 35% over prior year third quarter to $248 million, reflecting the strength inherent in our royalty-based business model. Our core ENHANZE drug delivery technology continues to drive the significant momentum in our business and reflects the powerful and growing opportunity for subcutaneous delivery to reshape the future of health care. ENHANZE can allow treatments that once required lengthy infusions in hospitals or infusion suites to be administered in minutes, more conveniently, including in the doctor's office and in the patient's home. For patients, it means less time spent traveling, fewer invasive procedures and greater independence, all while maintaining efficacy and safety. At the same time, it is reducing the burden on the health care systems, lowering total cost of care and freeing up capacity in hospitals and infusion centers. Turning now to Slide 4. Year-to-date, 13 of the 15 growth catalysts have been achieved, including new product approvals, expanded indications, reaching new regions and achieving key reimbursement milestones across major markets. These new growth catalysts support our near- and long-term revenue opportunity. This quarter, there were 2 notable indication approvals for our 2 leading growth drivers. Firstly, DARZALEX subcutaneous received European Commission approval for a new indication in smoldering multiple myeloma, providing another meaningful growth catalyst for the franchise. Smoldering multiple myeloma is a precursor condition to active multiple myeloma, expanding DARZALEX subcutaneous reach into a new early disease stage patient population and potentially increasing treatment duration and the lifetime value per patient. And the second indication was Argenx’s VYVDURA pre-filled syringe with ENHANZE approved in Japan for self-injection for generalized myasthenia gravis and chronic inflammatory demyelinating polyneuropathy. Delivered as a once-weekly 30- to 90-second subcutaneous injection, VYVDURA can be self-administered at home, eliminating the need for lengthy infusions in clinical settings. The pre-filled syringe with ENHANZE is a key enabler of broader adoption because it simplifies administration, reduces treatment burden and potentially ENHANZEs patient adherence. Rounding out the 15 growth catalysts, we project 2 additional meaningful U.S. approvals this year, one for DARZALEX subcutaneous in smoldering multiple myeloma and the second for RYBREVANT subcutaneous in EGFR-mutated non-small cell lung cancer. I'll move now to Slide 5. Driven by the continued strong performance of our core ENHANZE technology, we are pleased to raise our full year 2025 guidance ranges. Driven by royalty revenues, we now project total revenue of $1.3 billion to $1.375 billion, reflecting 28% to 35% growth over 2024. Royalty revenue is now expected to grow 49% to 54% to $850 million to $880 million for the full year, primarily driven by our 3 established blockbuster subcutaneous therapies, DARZALEX subcutaneous, Phesgo and VYVGART Hytrulo with ENHANZE. We now anticipate adjusted EBITDA of between $885 million and $935 million, representing year-over-year growth of 40% to 48% -- and we expect non-GAAP diluted earnings per share of $6.10 to $6.50, representing year-over-year growth of 44% to 54%. Moving now to Slide 6. Recently, we announced the acquisition of Elektrofi, furthering our vision to enable at-home administration of biologic therapies. This strategic move supports our ambition to expand our portfolio of drug delivery technologies. With Elektrofi's innovative technology, we aim to extend subcutaneous delivery to a broader range of biologics, reinforcing our focus on patient-centric drug delivery technology solutions. By applying Elektrofi's Hypercon technology, concentrations of 400 to 500 milligrams per ml or as much as 4 to 5x higher than many current conventional formulations can now be achieved. This breakthrough technology will enable more drugs to be delivered at home via auto-injector, a treatment option we know is of high interest and demand for pharma and biotech companies, particularly those working in inflammation and immunology, neurology, nephrology and oncology. By bringing together now 3 innovative drug delivery technology solutions, ENHANZE, our auto-injectors and Hypercon, we will create a new commercial opportunity for our partners and further strengthen Halozyme's role as the partner of choice in patient-centered drug delivery, expanding our long-term growth horizon. Moving now to Slide 7. Importantly, Hypercon is at a value inflection point. The 3 partner agreements in place have resulted in 2 products projected to enter the clinic and begin clinical development of the Hypercon formulation by the end of 2026 or earlier. Each of these 2 products as a different formulation is already approved and has achieved blockbuster sales already. With Halozyme's established expertise in subcutaneous drug delivery, we are well positioned to identify opportunities to accelerate the time to approval and to unlock significant new revenue potential through advancing new nominations and signing new agreements. The addition of Elektrofi Hypercon technology further ENHANZEs our offerings, enabling us to provide best-in-class solutions and maintain strong momentum in transforming the subcutaneous delivery landscape. Now let me move to Slide 8, where I will review our current growth drivers for the quarter. Let me begin with DARZALEX, which continued its exceptional performance this quarter. Sales for DARZALEX increased 20% on an operational basis to $3.7 billion, primarily driven by the continued strong share gains of approximately 5.7 points across all lines of therapy and nearly 9 points in the frontline setting as well as through market growth. This marks the seventh consecutive quarter of frontline growth of 5 or more points, underscoring the continued momentum of the brand. With 96% share of sales resulting from the subcutaneous formulation with ENHANZE in the United States and more than 90% global subcutaneous share, ENHANZE is bringing value to patients earlier in treatment as they live longer on therapy. DARZALEX is and we project will remain the gold standard of treatment for multiple myeloma, holding more than 50% market share across all lines of therapy. And there are 2 additional new catalysts that are projected to continue the strength of DARZALEX subcutaneous. These include the recent European Commission approval of DARZALEX subcutaneous for patients with high-risk smoldering multiple myeloma, which occurred in July, and it marks the first approved treatment for this early stage of the disease. We also anticipate potential U.S. approval for smoldering multiple myeloma following the FDA's favorable vote on the risk-benefit profile earlier this year. And separately, Johnson & Johnson reported positive top line results from the Phase III MajesTEC-3 study, which further validated the role of DARZALEX FASPRO in later lines of multiple myeloma treatment. The combination with TECVAYLI and DARZALEX FASPRO in relapsed/refractory multiple myeloma demonstrated at a planned interim analysis a statistically significant improvement in both progression-free survival and overall survival when compared to standard of care for patients who had received 1 to 3 prior lines of treatment, highlighting once again the clinical value of DARZALEX FASPRO with ENHANZE. These milestones add to the growing list of approvals and clinical successes that continues to expand the reach of DARZALEX subcutaneous and to support analyst projections for the brand to reach more than $18 billion in 2028. And Halozyme will continue to earn royalties on the subcutaneous formulation of DARZALEX through 2032. Let me move now to Phesgo, which is shown on Slide 9. Phesgo continues to be Roche's #1 growth driver with 9-month revenue of CHF 1.8 billion or approximately $2.3 billion, reflecting a 54% year-over-year increase. In the third quarter, the increasing conversion from intravenous Perjeta and Herceptin reached 51% in 78 launch countries, up 5 points from the prior quarter. Conversion of Perjeta to Phesgo is now projected to achieve 60%, increasing from the prior 50% peak conversion, and this is driven by the strong value proposition. We are pleased with Phesgo's growing adoption with royalties secured at the full mid-single-digit rate through 2030. I'll turn now to VYVGART, which is shown on Slide 10. VYVGART Hytrulo continues to be a key driver of the exceptional growth of the VYVGART franchise, with total sales of VYVGART increasing 96% year-over-year in the third quarter to $1.13 billion. The subcutaneous formulation enabled by ENHANZE has been instrumental in expanding access to new prescribers and patients across both approved indications of generalized myasthenia gravis and chronic inflammatory demyelinating polyneuropathy. Supporting both of these indications, the pre-filled syringe with ENHANZE, which was launched in April of 2025, is now approved in most major markets. By enabling self-injection in just 20 to 30 seconds, whether at home, in the clinic or while traveling, this innovation has expanded access to new patient populations, simplified treatment logistics and accelerated adoption in earlier lines of treatment for both gMG and CIDP. The pre-filled syringe has expanded the number of prescribers by 260 physicians, opening up new pockets of patients in gMG and CIDP. With approximately 50% of patients using the pre-filled syringe who are new to VYVGART, argenx stated that this is still the beginning of the growth curve for both indications. Argenx also stated that they project VYVGART's total addressable gMG market could ultimately approach approximately 60,000 patients globally versus roughly 17,000 at launch as the biologic opportunity expands and with the future potential addition of ocular and seronegative patient populations. I'll turn now to the CIDP indication. Argenx commented that they are seeing consistent growth in both patient starts and prescriber engagement, driven by physician trust in the safety profile of VYVGART Hytrulo and its ability to deliver meaningful functional improvements. The pre-filled syringe is driving additional demand, offering convenience of self-injection and enabling flexible administration. 85% of CIDP patients are switching from IVIG, and there is also early adoption amongst treatment-naive patients. Argenx believes they are at the beginning of the growth curve for CIDP and that they will see continued expansion of the prescriber base. VYVGART Hytrulo's strong commercial success, growing approvals, launches in gMG and CIDP and plans to expand its autoimmune disease indication footprint represent a compelling royalty growth opportunity for Halozyme. We project VYVGART Hytrulo will be a durable contributor to our long-term financial performance with analysts projecting total VYVGART sales of $7.7 billion in myasthenia gravis and CIDP in 2028 and with Halozyme earning royalties through the early 2040s. It is truly remarkable how only these 3 products I've just described, DARZALEX subcutaneous, Phesgo and VYVGART Hytrulo are driving our 52% year-over-year growth in royalty revenue this quarter and will have continued growth opportunity for years to come. Moving now to Slide 11. I'll review the progress of our recently launched products, which will begin to contribute meaningfully in 2026. Beginning with OCREVUS. Roche reported continued strong momentum for OCREVUS, which represented CHF 5.2 billion or approximately $6.5 billion, up 7% for the first 9 months of 2025. The company reaffirmed its expectation for high single-digit growth of OCREVUS this year. OCREVUS ZUNOVO, which utilizes our ENHANZE technology, received approval in 2024 and offers a rapid 10-minute subcutaneous injection, a significant improvement over the multi-hour intravenous administration and monitoring process. The subcutaneous formulation of OCREVUS is a key growth driver for Roche's neurology franchise. It enables penetration into community neurology practices and rural areas where IV infusion capacity is limited, which unlocks access to previously underserved patient populations. More than 12,500 patients are now on the subcutaneous formulation globally, representing more than a 75% increase from the 7,000 patients receiving subcutaneous OCREVUS that we reported last quarter. Uptake is also increasing in the United States following the permanent J-Code, which was granted on April 1, which is simplifying reimbursement and enabling broader adoption. In the United States, approximately 800 health care providers are now prescribing OCREVUS ZUNOVO with ENHANZE, and 60% of the subcutaneous volume is coming from community practices, demonstrating strong traction outside the traditional site of academic centers. 50% of OCREVUS ZUNOVO patients are new to brand, indicating market expansion beyond IV conversions. In early launch countries like Germany, similar trends are being observed, reinforcing the ENHANZE formulation's ability to grow the overall OCREVUS patient base. Roche anticipates the subcutaneous formulation to represent an incremental $2 billion opportunity, while analysts project the total OCREVUS brand opportunity will reach $10 billion by 2028. We are pleased with how OCREVUS ZUNOVO, powered by our ENHANZE technology is transforming the multiple sclerosis treatment landscape with its rapid 10-minute subcutaneous delivery, unlocking new patient access, accelerating adoption across community practices and driving meaningful franchise growth. Halozyme will earn royalties on the subcutaneous formulation at the full mid-single-digit royalty rate through 2030 and at a step-down rate until at least 2034. Let me turn now to Roche's Tecentriq Hybreza with ENHANZE. Tecentriq Hybreza was approved in the United States and Europe in 2024 for all of the IV indications, offering patients and providers a more convenient 7-minute subcutaneous injection. Roche has stated its strategy is to drive conversion from IV to subcutaneous use. Tecentriq generated CHF 2.6 billion in revenue for the first 9 months of 2025 or approximately $3.3 billion, and analysts project revenue of approximately $4.5 billion by 2028. Halozyme earns royalties on net sales of the subcutaneous formulation at the full mid-single-digit rate through the 2040s, underscoring the long-term value of this partnership. Let me move now to Bristol-Myers Squibb's OPDIVO. In the third quarter, global OPDIVO sales reached approximately $2.5 billion, reflecting a 6% year-over-year increase driven primarily by strong demand. The U.S. launch of OPDIVO Qvantig with ENHANZE is progressing well with growth fueled by the continued use of OPDIVO Qvantig across all of the indicated tumor types as well as the permanent J-Code, which was received in the quarter. Sales in the third quarter were $67 million, a doubling from $30 million in the second quarter. OPDIVO Qvantig offers the convenience of a 3- to 5-minute subcutaneous administration and the flexibility of outpatient infusion, features that are driving growing adoption among both patients and providers across all of the indicated tumor types. Based on the strong year-to-date performance of OPDIVO and OPDIVO Qvantig, BMS now expects stronger growth than previously guided, with sales expected in the high single-digit to the low double-digit range for the full year. Analyst forecasts total brand sales of $9.5 billion by 2028. And let me move now to RYBREVANT. RYBREVANT continues to demonstrate strong growth. In the third quarter, Johnson & Johnson reported total RYBREVANT IV and SC revenue of $198 million, reflecting triple-digit year-over-year growth. The European approval of RYBREVANT subcutaneous with ENHANZE in April marks Halozyme's 10th commercialized partner product and is a key milestone in our global expansion. The subcutaneous delivery of ENHANZE provides the strong efficacy profile of IV RYBREVANT while reducing administration time from multiple hours to just minutes and results in a fivefold reduction in the potentially serious adverse event of infusion-related reactions when compared to the IV formulation. J&J's strategy to simplify treatment and ENHANZE patient convenience is resonating with physicians for use in combination with lazertinib in the first-line treatment of adult patients with advanced EGFR-mutated non-small cell lung cancer and for the same population following failure of a platinum-based regimen. RYBREVANT is an important brand for Johnson & Johnson, who are continuing to invest in clinical studies to demonstrate the full potential. Recently published results in the New England Journal of Medicine from the Phase III MARIPOSA study reported that RYBREVANT plus lazertinib significantly reduced the risk of death when compared to osimertinib, which is the current standard of care in EGFR-mutated non-small cell lung cancer. Recall, osimertinib is marketed as Tagrisso by AstraZeneca and generated $6.6 billion in 2024, which underscores the potential commercial opportunity for RYBREVANT. And at ESMO 2025, Johnson & Johnson also presented new data in a different high unmet need patient population from the OrigAMI-4 study, showing that subcutaneous amivantamab enabled by ENHANZE achieved a 45% overall response rate in patients with recurrent or metastatic head and neck cancer. These results could mark a turning point in the treatment paradigm and certainly could provide further support for Johnson & Johnson's statements that RYBREVANT will be a $5 billion product. Dimensionalizing all of the opportunity for Halozyme, our 3 blockbusters that are driving today's strong growth, DARZALEX, Phesgo and VYVGART represent an approximately $30 billion in TAM opportunity in 2028. What is very exciting is that these newer launches I've just described also represent an additional approximately $30 billion in opportunity in 2028. With the recent approvals, our total opportunity doubled, setting the stage for our strong continued royalty revenue performance. Our portfolio of 10 launch products is well positioned to deliver $1 billion in annual revenue in 2027. And this milestone reflects the strength of our long-term strategy and our partnerships. Importantly, we anticipate sustained royalty contributions from all products through at least 2030 with several extending into the 2040s, ensuring a robust and durable revenue stream. Let me turn now to Slide 12, and I'll review the development opportunities that are not reflected in our royalty revenue projections to date. We have 8 programs that are currently in various stages of clinical development with 2 additional programs anticipated. Among the most advanced opportunities are Bristol-Myers Squibb's subcutaneous nivolumab with relatlimab and Takeda's TAK-881, both of which are in Phase III development. These programs represent potential new royalty growth opportunities beyond what is currently reflected in our forecast through 2028. And let me now turn to our progress in new deals. I have said before that we will sign a new ENHANZE agreement this year and remain confident that we will. This confidence is supported by the stage of the discussions we are having and the proximity to finalization. Interest in ENHANZE is strong as more companies seek meaningful competitive differentiation. And on our 2 development auto-injector agreements, I am pleased to say we are making progress and project completion of planned human factor studies by mid-2026. With that, let me now turn the call over to Nicole. Nicole LaBrosse: Thank you, Helen. Our strong third quarter performance continues to reflect the momentum of our core ENHANZE technology. Total quarterly revenues grew by approximately 22% to $354 million, with royalty revenue increasing 52% to $236 million. Adjusted EBITDA grew 35%, outpacing top line growth and showcasing the exceptional leverage of our high-margin royalty-driven model. Let me start on Slide 13. We continue to generate robust cash flow, which supports our balanced capital allocation priorities. Year-to-date, we repurchased $342 million of shares with $158 million remaining under the current authorized plan. Since 2019, we have returned approximately $1.9 billion to shareholders through repurchases, representing greater than 100% of cumulative free cash flow over that period. We have a strong balance sheet with cash, cash equivalents and marketable securities of $702 million on September 30, 2025, compared to $596.1 million on December 31, 2024. The increase was driven by an increase in cash generated from operations, primarily offset by share repurchases. Our net debt-to-EBITDA ratio was 0.9x at the end of the third quarter. As Helen mentioned, we announced our acquisition of Elektrofi in the third quarter, a transaction that strengthens our leadership in drug delivery and complements our strong organic growth opportunities. We are pleased that the acquisition is expected to have a minimal increase in our net leverage, estimated to be at approximately 2x net debt-to-EBITDA at closing. Our goal is to delever in the subsequent quarters, supported by our robust free cash flows. Let me now turn to our detailed third quarter results on Slide 14. Total revenue grew 22% to $354.3 million compared to $290.1 million in the prior year period. Royalty revenue of $236 million increased by 52% from $155.1 million in the prior year period. The commercial success of subcutaneous DARZALEX, Phesgo and VYVGART Hytrulo continue to drive robust royalty revenue growth. Product sales of $94.2 million increased by 9% from $86.7 million in the prior year period, mainly driven by the contribution from proprietary product sales. Collaboration revenues of $24 million compared to $48.4 million in the prior year period. The difference was primarily due to the timing of milestones achieved. Research and development expenses were $17.3 million compared to $18.5 million in the prior year period. The decrease was primarily due to lower compensation expense driven by resource optimization and labor allocation initiatives, offset by the timing of planned investments in ENHANZE related to the development of our new high-yield rHuPH20 manufacturing process. Selling, general and administrative expenses were $46.1 million, up from $41.2 million in the prior year period, primarily due to increased consulting and professional service fees, partially offset by compensation expense. Adjusted EBITDA increased by 35% to $248.2 million from $183.6 million in the prior year. GAAP diluted earnings per share was $1.43 and non-GAAP diluted earnings per share was $1.72. This is compared with GAAP diluted earnings per share of $1.05 and non-GAAP diluted earnings per share of $1.27 in the third quarter of 2024. Turning now to Slide 15. Based on our strong performance year-to-date, we are raising our guidance ranges for the full year. As a reminder, our expectations exclude the impact of the accounting treatment of the Elektrofi transaction. The final determination of whether this transaction will be accounted for as a business combination or an asset acquisition will be determined at the close. We now expect total revenues of $1.3 billion to $1.375 billion, representing year-over-year growth of 28% to 35%, driven by an increase in projections for royalty revenues. Royalty revenues of $850 million to $880 million, representing year-over-year growth of 49% to 54%. We continue to expect DARZALEX SC, Phesgo and VYVGART Hytrulo to drive the strong expectations with VYVGART Hytrulo being the largest royalty dollar growth driver. Product sales of $340 million to $365 million, representing year-over-year growth of 12% to 20%; collaboration revenues of $110 million to $130 million. Adjusted EBITDA of between $885 million and $935 million, representing year-over-year growth of 40% to 48%. And non-GAAP diluted EPS of $6.10 to $6.50, representing year-over-year growth of 44% to 54%. Regarding the future financial expectations of our acquisition of Elektrofi, we continue to expect the transaction to be less than 5% dilutive to non-GAAP diluted EPS over the medium term, excluding potential milestone payments related to the programs in development, which could offset dilution prior to the projected royalty revenues in 2030 and beyond. We also expect full year 2026 incremental operating expense of approximately $55 million. With that, I'll now turn the call back over to Helen. Helen Torley: Thank you, Nicole. In closing, our third quarter results reflect the continued strength of our core ENHANZE business and the accelerating momentum across our partner portfolio. With 10 launch products, a robust pipeline of future royalty streams and the addition of the Hypercon technology, we are well positioned to deliver strong revenue and shareholder value for years to come. And let me just close with a few words on Nicole. While Nicole will be with us on our fourth quarter call in February, I did want to take this moment to thank Nicole for her many contributions to Halozyme. These have really helped us accomplish our growth strategy to date. Throughout this time, Nicole has helped design and lead multiple financing transactions that provided the capital that enabled the strong growth that you see today. Nicole will be transitioning to a new opportunity in 2026 when a new CFO is hired or by March 30, 2026. Operator, with that, we are now ready to open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Sean Laaman with Morgan Stanley. Sean Laaman: Yes, on capital allocation, you're 2x levered now. How do you think about paying down debt, getting even more conservative balance sheet and weighing that up against potential buybacks for next year and what opportunities -- the Elektrofi-like opportunities there might be out there? That's the second -- first question. And then the second part would be, how are investors going to be able to monitor the performance of Elektrofi going forward? Helen Torley: Yes. So I'll start by just saying with regard to opportunities like Elektrofi, we are continuing to look for those opportunities, Sean, because we do believe that we're in a great position to be the partner of choice for our pharma and biotech partners as they're looking to optimize the patient treatment experience. So keeping looking. And obviously, we will transact when we do find appropriate things. Let me ask though Nicole to comment on the capital allocation and the plan to delever. Nicole LaBrosse: Yes. Thanks, Sean. So we do have robust cash flows and cash growth in the coming quarters. And so while we will have a modest draw on our credit facility to fund the Elektrofi acquisition, we do expect to pay that down in the coming quarters and to delever very quickly. And so what you've seen us be able to do this year is have capital to fund share repurchases. We've done $342 million within the year and be able to fund the Elektrofi acquisition, and you'll see us continue to have that balanced approach going forward. Helen Torley: All right. And Sean, the last part of it, how to monitor the success of Elektrofi. I'm going to give you 3 metrics there. One is we are anticipating the potential for 2 partner first-in-human starts, both with already blockbuster products in their current formulation. That will happen by the end of 2026 or before. So that will be the first metric. I do think as we work through working with Elektrofi closely, we'll be finding opportunities to develop and be able to communicate a streamlined development plan approach, which we see as another benefit of bringing our 2 expertise together. And then the third one, we will continue to look for Elektrofi and support the advancement of Hypercon with the current partners potentially agreeing to move more products into the clinic from their open nomination slots or indeed signing new deals. And so we're very excited about the Elektrofi acquisition, still in the planning phase, obviously, at this point in time, but we see great opportunity for the business synergies that are going to come from being able to bring our 2 companies together. Operator: Your next question comes from the line of Jason Butler with Citizens JMP. Jason Butler: Congrats on the quarter. Let me pass my congratulations on Nicole as well, been great work. So let me start on Elektrofi. Understanding that the deal hasn't closed yet, can you talk about what you think the awareness level of the company and the technology is with your current ENHANZE partners? And just any feedback you've gotten from partners on the company? And then second, on OCREVUS, can you talk a little bit about where market growth is coming from? Are they taking share from other therapies? Are they getting used earlier in treatment? Just how should we think about how that market opportunity is growing? Helen Torley: Yes, thanks. With regard to the knowledge level of our current partners for Elektrofi, I can say we're only aware of that really by the diligence we've done because we're still at a stage of -- we're not talking about Elektrofi and they're not talking about us, obviously, given that the HSR review hasn't closed. But I would say just based on our diligence and market research we did prior to the acquisition, there is a good awareness of the Hypercon technology. But obviously, one of the benefits of bringing our companies together is to elevate that awareness and broaden that awareness within each of the companies based on who we're each talking with. We've received small amounts of spontaneous feedback. Again, I think people are being thoughtful and cautious that the deal hasn't closed, but a number of our partners, particularly the ones who are working with both companies have provided feedback that I would say signals strong support for the additional opportunities that might exist of being able to work across both of our platforms. So definitely a resounding support from everything that we are hearing with regard to that. On OCREVUS, yes, based on the comments that Roche made on the last call, obviously, delighted to see that they grew 5,000 patients from the 7,500 patients on therapy that was the number in the second quarter. They are saying that in U.S. and Germany, in particular, 50% of the patients are new to brand. Jason, I didn't hear them say exactly where the -- those patients were coming from. So I don't know if it is brand new to treatment patients or it is switched from other therapies. We haven't been provided that level of granularity. But what I do obviously think is terrific to know is that this is expanding the market footprint for OCREVUS exactly as Roche had anticipated, now allowing patients to be treated in physician offices, community hospitals and opening up access that was a bit restricted before because of the capacity constraints in infusion suites. So sorry, I can't answer that specifically. If we do find out about that, we will make sure to update on the next call. Operator: Your next question comes from the line of Michael DiFiore with Evercore ISI. Michael DiFiore: Congrats on the continued progress. Two for me. The first, I want to expand upon the M&A question that was asked before. Obviously, your press release said in no uncertain terms that the next chapter of growth will include M&A. And I guess my question is, how high are you willing to lever up for this transaction? I know you said that we could expect for you to delever in the next few quarters. And so I guess the ultimate question is, could we possibly expect another transaction towards the end of the year? And I have a follow-up. Helen Torley: Yes. Thanks for that. Mike, obviously, our focus at the moment is completing the Elektrofi acquisition. And so I think I can say that it's unlikely that there will be another acquisition this year. But we are actively looking because we do want to be able to continue to add to our growth and our momentum that is so strong at this point in time. Nicole, will you comment on the approach we're taking to leverage? Nicole LaBrosse: Yes. As Helen noted, while we will evaluate targets, I can say from a firepower perspective, we do have the capacity. We're willing to go up to 3x net leverage. We mentioned with this transaction at close, we expect to be at about 2x, but that will quickly come down. And so there will be capacity. And again, we'll just be patient and find the right next opportunity. Helen Torley: Yes. And I think just to kind of emphasize what Nicole said, you've seen us demonstrate a lot of patience in terms of finding the right asset, doing the appropriate diligence and seeking to only transact and make a formal offer to the company once we have completed all of that. So we will take that same very thoughtful approach. We are in a great growth position. We're excited about the growth that's going to come from Elektrofi. So don't think of this as something we're rushing into. We're just going to continue to execute the strategy we've had in place for the last several years. And because of our strong cash flow, we're in a position to contemplate that in 2026, but only if we find it meets our criteria and is the right next move for Halozyme. Michael DiFiore: Excellent. And my follow-up question is, again, I know it's super early regarding Elektrofi and -- but on the prior call, I think I asked about the potential to combine ENHANZE with Hypercon. And I think you had said that feasibility studies regarding the combinability still need to be done. When might we see such studies be conducted? And yes, I'll just leave it there. Helen Torley: Yes. Thanks, Mike. Yes, it is something, obviously, that we are interested in, and it is one of the work streams that will be one of the early conversations that we're going to have between the technical experts on both -- from both companies to determine what the path would be for that. But I think my more important message each company has its own pipeline of ongoing conversations for a great fit for each of our technologies to different partner products. And so that is where the initial focus is going to be just based on the fact that for those people who are seeking a more high-volume rapid delivery, ENHANZE is the way to go if they are wanting a potential for an auto-injector in the patient's home, perhaps the Elektrofi technology and Hypercon is going to be a better one. You will see the initial focus most assuredly being on pursuing those 2 successful strategies to date. We're interested to see can they come together, but we don't have to wait for that data. The strategy will be to pursue each of them separately as we know there's opportunity for them individually. Operator: Your next question comes from the line of Jessica Fye with JPMorgan. Adam Ferrari: This is Adam on for Jess. I really just had 2. Can you share your latest thoughts on potential for new ENHANZE deals near term? I think you mentioned one in the prepared remarks, but any details around that? And second, which product or products contributed the most to the guidance upside this time around? Helen Torley: Yes. Let me take the first one, and then Nicole will talk about the guidance. Adam, with regard to new deals, I did say in my prepared remarks, we're very confident to have a new deal this year. That confidence comes from proximity to completion of discussions. We have several discussions that are ongoing. And so it isn't our practice to preannounce anything, but all I can say is that we are excited with the continued interest in ENHANZE and whichever of these conversations, we cross the finish line first, we're very excited and think it represents a great opportunity for patients, but also for Halozyme. Nicole, would you talk about the guidance? Nicole LaBrosse: Yes. So our guidance is driven by the strength of our royalties, and we continue to see royalties being very strong in our main royalty drivers, which are VYVGART Hytrulo, Phesgo and DARZALEX. And I'll also point out, just recall that DARZALEX and VYVGART Hytrulo both had new indications launching this year. As you can are aware, first year launch estimates are notoriously hard to project exactly, and that's where we're seeing the upside and reflecting that now given that latest data trend in the full year projections. Operator: Your next question comes from the line of Mitchell Kapoor with H.C.W. Mitchell Kapoor: I wanted to ask about forward guidance, of course, recognizing that you only formally update the 5-year guidance once a year, we're getting close to 2026. So wondering with the strong momentum that we have been seeing quarter-to-quarter and the subsequent guidance raises for this year, how you're thinking about maintaining that growth into the next few quarters in 2026? Does the current trajectory suggest that the previous 2026 ranges might already be tracking towards the upper end of what was outlined earlier this year? Nicole LaBrosse: Yes. Thanks, Mitchell. So we will be able to provide more details on that in early in 2026 when we are able to really collect all of our trends and input from our partners comes in towards the end of the year. So more details to come, but we are tracking, as you can see, to exceed 2025 original expectations, but we will be able to reflect the latest information when we give full year guidance and update in the new year. Mitchell Kapoor: Okay. Great. And then the second one is just on how you're doing -- conducting outreach for prospective partners between ENHANZE and Hypercon. Are these parallel tracks? Or how do you kind of discuss those with prospective partners? Helen Torley: Yes. Thanks, Mitch. At the moment, until the HSR view period is completed, our 2 businesses are operating separately. We can have conversations about planning as to how we're going to operate together, but we do not share any information with regard to partners each of us is talking to or anything like that. So I would expect upon completion and the close, which we do expect to happen in the fourth quarter, will be in a position to have conversations and identify who's talking to them. But at this point in time, that's not something we are aware of or want to share. We're each pursuing our own separate conversations and targeted outreach. Again, each of the products works in a slightly different space. All of them are for subcu delivery. ENHANZE is more focused towards the larger volume, which is often in the doctor's office or occasionally at home, whereas the opportunity with Elektrofi is a bit more focused at that at-home potentially auto-injector delivery because the volumes can be potentially reduced to as low as 2 ml. So I would expect we may have -- we're talking to the same companies, but probably not talking on exactly the same products, which is why this is such an attractive deal expanding our TAM because each of them is going to have a different best use case. And that's what I expect to see when we're able to talk in more detail. Mitchell Kapoor: Congrats on an impressive quarter. Operator: Your next question comes from the line of Brendan Smith with TD Cowen. Brendan Smith: Congrats on the quarter as well. Maybe just a couple of quick ones from us. First, actually on the auto-injector business. Can you maybe just remind us what the development path there is looking like and how we should think about the economics and timing of that over the next couple of years? If you think that would be compatible with Hypercon or that would require something different with separate validation? And then just maybe quickly on the earlier pipeline. Can you remind us when we can expect updates from the ViiV and Acumen products? And if you disclosed anything about those economics that we should make sure that we flag as we try to think about royalties for the next wave of the [indiscernible] drugs? Helen Torley: Yes. Thanks, Brandan. With regard to the auto-injector business, so the small volume auto-injectors are obviously for products that are 2.25 mls or less. And there is an immediate applicability and use with the Hypercon products if a partner is developing that. So those are basically -- there's some customization that's possible. But for a partner who wants to integrate it into their development, that's pretty straightforward. With the high-volume auto-injector, we have progressed to having very strong clinic-ready prototypes that are able to be integrated into development plans now. And so for a company who is wanting to use those, that is also going to be pretty straightforward for them to put into whatever clinical trial they're going to do to test it and start doing the development. The actual separate development you need for a device can all happen in parallel to the clinical development. You've got to do stability studies. It's usually human factor studies, but that is usually all happening in parallel to what's the traditional clinical pathway and integrated into a single filing. So I would say we're in a great position for partners who want to use Hypercon to be using either small volume or high-volume auto-injectors and integrating them immediately as soon as they want to be able to do them. On the economics, if you recall for the auto-injectors, this is much more of a business model where for the small volume auto-injector, it is generally a cost model where there's a certain charge per device. For the high-volume auto-injector, it will, because of the size of injection need to be used with ENHANZE. So we think of those as being associated with royalties because of the need to have ENHANZE used with them, but they will also come with a cost per device adding additional revenue there. Brendan, did that answer your question on that, and I can move to the pipeline? Brendan Smith: It is. Yes, that would be great. Helen Torley: Okay. So with regards to the earlier pipeline, there haven't been any public updates from ViiV or from Acumen in the last couple of quarters. And so we're not in a position of being able to share any additional information. The last update from Acumen, as you probably are aware, was that they had finished their Phase I testing. And so that was great to see, and they reported the results actually publicly. But we're awaiting being able to provide any updates beyond that. On the economics, in the -- when the deals were announced in the press releases insofar as what was permitted to be made public, it does include some high-level description of the milestones and royalty structure of these agreements, Brandan. So I would recommend if you could maybe just go back and look at those, you'll get a bit of color, not granular, but a bit of color that might be helpful. Operator: [Operator Instructions] Your next question comes from the line of Corinne Johnson with Goldman Sachs. Corinne Jenkins: Maybe following up on some of the BD commentary earlier. I guess, how do you think about whether you currently have the partnerships you need to drive revenue growth kind of into the next decade, particularly as some of the key products like DARZALEX contracts terminate in that early 2030 period and given there's a 5-year development time line for new partner products? Helen Torley: Yes. Thanks, Corinne. Let me start by saying for each of the products that are in our development, we kind of group them into 3 groups. Now we've got the current blockbusters. And I think what's the first thing to note about those is those products, and Nicole commented on it, VYVGART and DARZALEX are having new indications every year at this point in time, which is super in terms of driving their continued growth for a period of time. We talked about DARZALEX with smoldering multiple myeloma with first line, which is why despite that being a product that's been in the market now for many, many years, it's still putting up 19%, 20% year-over-year growth. And we do are excited to see that continue to grow for years to come. VYVGART is a very interesting one. That's very early in its life cycle. And obviously, all the growth we're seeing today are driven by gMG and CIDP. But next year, as you're aware, there's going to be readouts in thyroid eye disease, ocular myasthenia gravis, myositis and Phase II data in systemic sclerosis, so we think of VYVGART where we get royalties out to the 2040s as being an incredibly valuable growth engine for multiple years to come. And then if we go to the second block, which are the most recently launched ones, so OCREVUS and OPDIVO and Tecentriq and amivantamab, those are also just at the beginning of their growth trajectory where we expect growth for many years to come given they are just at the start. And in many of those cases, we've got royalties going out certainly well into the 2030s and in some instances, into the 2040s. So that's another set of sustainable royalty revenue streams. And then behind that, let's look to our development pipeline. The products that are in Phase I, II and III, so they're going to have different timings for of them potentially launching before 2028, other ones shortly after 2028. So again, another set of new royalty streams adding in, in that. And your point of the 5 years really does say that for any new deals we sign now, which we're very actively working on and have new products starting next year, those have the potential to be launching in the early 2030s, adding once again, new royalty revenue streams. So we continue to be very excited by these not just waves, which are a very important part of it. But within each -- several of our products, they are being developed in a way that is having them grow and grow beyond probably what we all thought initially because of the value of the new indications and the investments in the companies are making to have these become truly mega blockbuster drugs. So that's the way we think about it, and that's what we work towards just a wave upon wave of new royalty revenue. Operator: Ladies and gentlemen, this concludes Halozyme's Third Quarter 2025 Financial and Operating Results Conference Call. Thank you all for joining. You may now disconnect.
Operator: Najim Mostamand: Thank you. Good evening, everyone, and thank you for joining us. With me today are Martin Sjolund, President and Chief Executive Officer; and Rakesh Sehgal, Executive Vice President and Chief Financial Officer. We will make forward-looking statements during the call, which are based on management's current beliefs, projections, assumptions and expectations. We assume no obligation to revise or update these statements. We caution listeners that these forward-looking statements are subject to risks, uncertainties, assumptions and other factors that could cause our actual results to differ materially from our expectations. Please refer to our earnings press release issued today and our SEC filings for a detailed discussion of these factors. The earnings release, the slide presentation that we will use during today's call and our SEC filings can all be found in the Investor Relations section of our website at www.pragroup.com. Additionally, a replay of this call will be available shortly after its conclusion, and the replay dial-in information is included in the earnings press release. All comparisons mentioned today will be between Q3 2025 and Q3 2024, unless otherwise noted, and our Americas results include Australia. During our call, we will discuss certain financial measures on an adjusted basis. Please refer to the appendix of the slide presentation used during this call for a reconciliation of the most directly comparable U.S. GAAP financial measures to non-GAAP financial measures. And with that, I'd now like to turn the call over to Martin. Martin Sjolund: Thank you, Najim, and thank you, everyone, for joining us this evening. It's been great to meet so many of you during these past few months, both here in the U.S. and across Europe as I've stepped into the CEO role. I want to start by providing an update on our Q3 performance, followed by a review of how we're tracking against the strategic priorities I laid out on our last call. On this slide, we present 4 key areas of our business that I think provide a good perspective on our performance. Let's start with portfolio purchases. While we were somewhat more selective this quarter as we sought to balance portfolio returns and leverage, we are still tracking towards our investment goal of $1.2 billion for the year. This will represent our third highest annual investment level ever. Cash collections grew 14% year-over-year to $542 million, reflecting strong recent purchases and the continued momentum of our operational initiatives. Globally, we collected 8% above our expectations with the U.S. overperforming by 6% and Europe overperforming by 10%, a strong result in both regions. We've been ramping up our investments in the U.S. legal collections channel for some time now, which led to a 27% increase in U.S. legal cash collections for the quarter. As you can see on the slide, our cash-based metrics continue to improve. However, we recorded a nonrecurring noncash goodwill impairment charge of $413 million in the third quarter. This goodwill is related to a number of historical acquisitions that have been on our books for many years, primarily in Europe. The impairment was triggered by the sustained decline in our stock price. I want to be absolutely clear that our underlying European business continues to perform well, and I believe we're well positioned for future success. Year-to-date, Europe has overperformed our cash expectations by 11%. And in Q3, we once again made positive adjustments to our European ERC. The net loss was $408 million for the quarter, but if you exclude the noncash impairment charge, we reported $21 million of adjusted net income, which translates into an adjusted ROACE of 9%. Adjusted EBITDA for the last 12 months continued to grow, up 15% to $1.3 billion. I'd like to point out that adjusted EBITDA grew faster than cash collections over the same period. This suggests that we are gaining operational leverage. Strong adjusted EBITDA growth, combined with moderated buying resulted in a reduction in our net leverage. Overall, Q3 represented another step forward. We're heading in the right direction, although we do have a lot of work ahead of us to continue to improve the returns of our business. It has now been just over 100 days since I stepped into the CEO role, and my focus has been on accelerating what is working well and tackling areas of our business that need to be improved. On the last earnings call, I outlined 5 main priorities that we're focused on, and I'd like to report on the progress we're making against each. My first priority has been cost efficiency. Our focus has been to ensure that we drive efficiency throughout our operations and that we address corporate and overhead costs. As a result, we have already implemented a cost reduction program in the U.S. aimed primarily at corporate and overhead roles. After a detailed review of our staff, we reduced our U.S. headcount by more than 115 employees. This is in addition to actions taken earlier in the year to cut headcount-related costs. Altogether, these initiatives will result in gross annualized cost savings of approximately $20 million, although around $3 million of those savings will be offset by increased outsourcing costs. As it relates to our U.S.-focused call centers, our headcount reduced by 170 agents during the quarter as we rightsize capacity needs, balance onshore with offshore and drive towards a higher-performing organization. As of September 30, our total agent head count had declined by 25% compared to last year, while our U.S. core cash collections grew by 21%. We now have around 1/3 of our calling capacity offshore. We expect offshoring to become a bigger part of the overall mix next year, but we're taking a gradual approach with a focus on delivering on our cash targets. The second priority that I announced last quarter was reorganizing our U.S. operations to create a more empowered and agile team with greater visibility and accountability. This was based on my experience successfully managing 15 markets across Europe, Canada and Australia. By creating a cross-functional U.S. team and empowering leaders, we will increase focus on collections and costs while speeding up decision-making. We have now fully implemented the new structure, which will be led by our Global Operations Officer, who has more than 30 years of collections experience at Citigroup. The team has talented leaders from across the company, and I'm confident that they will deliver for PRA. The third priority I talked about was the importance of accessing top talent, especially in specialist areas like technology and analytics. Based on the success we've had with talent hubs in places like London, we decided to set up a second hub in the U.S. beyond Norfolk, where we're headquartered. After assessing several options, we selected Charlotte, North Carolina to be our second hub. We think this is an ideal location based on its vibrant financial services industry and strong talent pool. In fact, we've already started hiring specialized talent at this location, and we expect to open a new office space in early 2026. The fourth priority I talked about was bringing our headquarters, corporate, and support staff back to the office, which we implemented right after Labor Day. It's great to arrive at our headquarters and see the parking lot full of cars and the office buzzing with people. I believe this will create a longer-term performance culture, and it's been encouraging to see the increased collaboration both within and across departments. And finally, the fifth priority was modernizing our IT platform. During the quarter, we spent time assessing our entire technology stack and considering how technology will evolve in the future. The team met with both external technology providers as well as a number of large bank partners across the world to understand how they are approaching technology. We want to ensure that we're taking full advantage of the rapidly evolving technology opportunity. We're also leveraging our experience in building a modern platform for our European business. For example, we have all the European markets on one common cloud platform and one cloud-based omnichannel contact platform. We've been on a multiyear journey of consolidating collection systems in order to simplify our operations while retaining the local entrepreneurial drive. Our U.S. business had already started a similar journey and is making good progress. Globally, we have been piloting AI applications for areas like document processing, call monitoring and coding. We see a lot of opportunity in the future and are exploring a range of AI use cases. Overall, I'm very pleased with how the team has responded and how fast we have been executing against all the priorities I outlined. As you can see from the progress being made, we are focused on building a foundation for long-term success and creating value for all our stakeholders. Along with those 5 priorities, the team has also made significant progress in other areas. For example, in addition to our quarterly reforecasting process, I had the team perform a deep dive analysis of our U.S. vintages after I stepped into the CEO role. This included an evaluation of the impact from our legal and other initiatives now that they have had time to season. Overall, we had positive changes in expected future recoveries even while absorbing some negative adjustments in our challenging U.S. core vintages of '21, '22, and '23. We refer to these internally as the COVID vintages since they were underwritten as we came out of COVID. As we move forward, the U.S. COVID vintages, which currently accounts for around 10% of our global ERC, will continue to comprise a smaller percentage of the global ERC. After having gone through this process, I'm confident with where our global ERC stands. The final point I wanted to make was to congratulate our team in Poland on their 10-year anniversary. I personally attended the celebrations in Warsaw a few weeks ago, which included a dozen Polish banks as well as senior representatives from a number of major global banks. Poland is a competitive market, and our team has done a fantastic job in establishing PRA as a leading player there. I'll now turn it over to Rakesh for a summary of our Q3 financial results before returning to provide some closing remarks. Rakesh Sehgal: Thanks, Martin. We purchased $255 million of portfolios during the quarter, of which $154 million or 60% were in the Americas and $101 million or 40% were in Europe. The total $255 million amount is lower on a year-over-year basis as it reflects our heightened focus on prioritizing net returns over volumes purchased while balancing investments versus leverage. Looking to the remainder of 2025, we expect portfolio supply to remain at elevated levels in the U.S. and to be relatively stable in Europe. We expect U.S. supply to continue to benefit from elevated credit card balances of approximately $1.1 trillion. On a year-to-date basis, our 2025 purchase price multiple was 2.14x for Americas Core and 1.88x for Europe Core. This compares to 2.11x in 2024 for Americas Core and is significantly higher from the levels seen in early 2023 when the Americas Core multiple was 1.75x. Keep in mind that the purchase price multiples are determined in part by the age of the nonperforming loans that come to market and the cost to collect, resulting in our European multiples being lower, primarily due to a lower cost to collect in certain countries. However, what we are ultimately focused on are the net returns, which incorporates the cost to collect and funding cost. We implemented an enhanced global investment framework a couple of years ago that continues to help us improve returns as we seek to achieve minimum return thresholds on our investments, irrespective of product, geography and other vectors. As we move forward, we intend to continue operating with an increased focus on portfolio returns to ultimately drive net income. ERC at quarter end was $8.4 billion, up 15% year-over-year and up 1% on a sequential basis. Based on the average purchase price multiples we recorded year-to-date, we would need to invest $952 million globally over the next 12 months to replenish and maintain current ERC levels. Total cash collections for the quarter grew a healthy 14% year-over-year to $542 million. This is on top of the 14% growth we experienced last year. The cash collections growth was driven by both higher levels of recent portfolio purchases and the uplift in cash generation from the investments and process improvements we have been making in the U.S. legal collections channel. Globally, our cash collections exceeded our expectations by 8% this quarter. In the Americas, cash collections exceeded expectations by 6%. U.S. legal cash collections grew 27% year-over-year to $125 million. This is up approximately 90% since year-end 2023 when we first began benefiting from the improvements made in the legal collections channel, including reducing cycle times, leveraging specialized third parties and adding new legal collection capabilities. It's important to note that legal is not the channel that we lead with, but when appropriate, it typically provides greater collections certainty and a higher overall amount of cash collected versus other channels. In Q3 2025, the legal collections channel represented 46% of cash collected in Americas core compared to 38% 2 years ago. We also were able to drive strong growth this quarter in our U.S. digital collections, which continues to be an important channel for us. Turning to Europe. Europe collections exceeded our expectations by 10%. We continue to deliver strong performance across our core markets in the region. We also had good performance across the U.K., Nordics and Central Europe and are starting to see signs of market stabilization and healthy performance in Southern Europe. Regarding Southern Europe, we also witnessed more opportunities this year to invest in those markets that met our return thresholds. Moving on to a summary of our income statement. Portfolio revenue for the quarter increased 12% year-over-year to $310 million. Portfolio income, which is the most stable and predictable yield component of our revenue, grew 20% year-over-year to $259 million. Over the last 2 years, we have continued to benefit from a healthy supply environment and improved returns, resulting in our portfolio income growing 36% compared with Q3 2023. Changes in expected recoveries was $51 million this quarter. This was comprised of recoveries collected in excess of forecast, which represents cash overperformance of $27 million and changes in expected future recoveries, which is the net present value of changes to our ERC of $24 million. The cash overperformance of $27 million is net of a $15 million onetime payment we made to a long-time selling partner for previously purchased portfolios. Both parties agreed to modify the terms and conditions of certain portfolios we had previously purchased. This enables us to enhance the use of legal collections and increase our estimate of remaining cash collections versus what we had previously expected for these portfolios. While the agreement is economically positive for us, the accounting guidance requires us to record the $15 million onetime payment as a purchase price adjustment that reduces revenue, given it is a modification of an existing investment. This is in contrast to a new portfolio purchase that would be capitalized on our balance sheet. Excluding this onetime payment, the recoveries collected in excess of forecast would have been $42 million. Changes in expected future recoveries was $24 million this quarter and was primarily due to additional ERC we expect to collect in both the U.S. and Europe. We are benefiting from the continued performance of our European business, resulting in positive adjustments to our ERC. In the U.S., the increase included the impact of the arrangement we made with the seller, which I mentioned previously. In addition, there were puts and takes across the vintages with our pre-2021 and our 2024 U.S. vintages seeing an increase in ERC, while our U.S. COVID vintages of 2021, 2022 and 2023 being negatively impacted. The overall impact is that we have increased the ERC in the U.S., resulting in a positive NPV adjustment this quarter. This increase in our ERC should lead to higher portfolio income moving forward. Turning now to the rest of the income statement summary. As Martin mentioned, we recorded a nonrecurring noncash goodwill impairment charge of $413 million in the third quarter, which was triggered by the sustained decline in our stock price. We made a number of acquisitions between 2012 and 2019, leading to an accumulation of goodwill, the largest contributor being Active Capital, which we acquired in 2014 with a total enterprise value of $1.3 billion. Active Capital is our highly successful European business as evidenced by its strong track record of disciplined investments, cash collections growth and profitability. Overall, despite the impairment charge, we are pleased with the momentum we are generating in our global business as we execute on our strategic priorities. Operating expenses for the quarter were $627 million. Excluding the goodwill impairment charge, adjusted operating expenses were $214 million, up 12% from the prior year period, primarily due to the continued investments in the legal collections channel, which has been generating strong cash collections in recent quarters. Legal collection costs were $47 million this quarter, up $18 million from the prior year period. We expect legal collection costs to be in the $40 million area in Q4. Cash efficiency ratio was negative 15% for the quarter. Excluding the goodwill impairment charge, adjusted cash efficiency was 61% in Q3, essentially stable with the prior year period, even though we had higher legal collection costs this quarter. Net interest expense was $64 million, an increase of $3 million from the prior year period, primarily reflecting an increase in debt balances from a year ago. Our effective tax rate was negative 6% for the quarter. Excluding the goodwill impairment charge, our adjusted effective tax rate was 25% for the quarter. Net income attributable to PRA was negative $408 million. Excluding the goodwill impairment charge, adjusted net income attributable to PRA was positive $21 million or $0.53 in diluted earnings per share. Our focus remains on growing the bottom line and improving returns, but we continue to monitor other metrics as well. Given the variability in the industry's accounting, we believe it is also important to look at adjusted EBITDA in addition to net income. Adjusted EBITDA for the last 12 months was $1.3 billion, up 15% year-over-year. Looking at the longer-term trend, adjusted EBITDA has grown for the last 9 quarters in a row. When reviewing our adjusted EBITDA generation, we also keep an eye on total capital invested used to generate that adjusted EBITDA. This is to ensure we are optimizing our returns on capital invested. As we continue to deliver increased adjusted EBITDA while becoming more selective with our purchases, we expect to calibrate between investments and leverage levels. This quarter, our net leverage, defined as net debt to adjusted EBITDA was 2.8x as of September 30 compared to 2.9x in the prior year period. When excluding the $15 million onetime cash payment mentioned earlier, our net leverage would have been 2.7x. In terms of funding capacity, we have ample capacity and financial flexibility under our current debt structure. As of September 30, we had $3.2 billion in total committed capital under our credit facilities with total availability of $1.2 billion, comprised of $301 million available based on current ERC and $889 million of additional availability that we can draw from, subject to borrowing base and debt covenants, including advance rates. During the quarter, we issued our first euro-denominated bond in Europe. We want to thank our investors who supported us during the offering. We raised EUR 300 million with a 7-year term with proceeds used to pay down our bank debt. Approximately half of our business is outside the U.S., and we believe it is prudent for us to access capital markets beyond the U.S. The bond offering enabled us to expand our investor base, access new pockets of capital, stagger maturities, better match currencies and rebalance our mix of secured and unsecured debt. Over the last 18 months, we have taken numerous actions to diversify and strengthen our capital structure and provide ample liquidity for capital deployment. We have no debt maturities until November 2027 when our European credit facility matures, enabling us to continue supporting the growth of the European business and transforming our U.S. business. Looking ahead, we continue to monitor the consumer environment, especially in the U.S. While there has recently been an uptick in headlines around the bifurcation between higher and lower-end U.S. consumers, our overall customer profile continues to be stable. We believe our global diversification and increased investment in the legal channel helped to lessen the financial impact of any near-term pressures on U.S. consumers. It's important to remember that approximately 50% of our global cash collections comes from outside the U.S. In addition, 43% comes from our global legal collections channel, which is less impacted by near-term consumer pressure given the longer time period over which we collect cash. Overall, we believe we are moving in the right direction as we continue to improve our financial profile, further strengthen our capital structure and stay focused on delivering higher returns while reducing leverage. We are reaffirming our key financial targets for 2025. We expect to deliver on our 2025 purchase target of $1.2 billion, cash collections growth target of high single digits and cash efficiency target of 60% plus for the full year. I'll now turn it back over to Martin. Martin Sjolund: Thanks, Rakesh. In summary, the third quarter was about execution and delivery on the near-term priorities I set out a few months ago. We restructured our U.S. operations, eliminated more than 250 roles, drove $20 million in gross annualized cost savings, began to establish our new talent hub, brought our headquarter staff back to the office and made progress in developing our IT modernization road map. We also continue to improve our financial results while lowering our leverage and strengthening our capital structure. As I mentioned last time, we are also reviewing our longer-term strategy and are looking at themes like cost efficiency, capital allocation, operational execution and our technology road map. I expect to provide more updates on this early next year. Ultimately, I'm very encouraged by how far we've come in these first 100 days. We have a great team, a 30-year track record and one of the most globally diversified footprints in the industry. We are focused on executing our strategy and improving our business. And I am confident that if we stay disciplined and focused, we will deliver on the full potential of PRA. Thank you, everyone, for tuning in and for your continued support. And with that, we'll open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of David Scharf from Citizen Capital Markets. David Scharf: A lot to digest. I guess I'll start off with just on the $50 million payment, I understand the mechanics. Just curious, are there other contracts you've entered into in which you would anticipate similar type modifications? Or should we view this as a kind of extremely rare event? Martin Sjolund: Yes. Thanks. As you say, it's been a busy quarter. So on that one, as Rakesh was saying, this was an opportunity that we developed together with one of the partners that we buy from to make modifications to the terms around portfolios we'd already bought some time ago. I would say this is a very unusual situation and a one-off. We invested -- we assessed it the way we would any other investment. We needed to run it through the P&L the way Rakesh described there. The benefit of that investment is spread across a couple of different vintages, and it's quite unusual. Normally, these things would be priced in when we bid or buy on a portfolio segment. And this just for a number of reasons that are between us and that partner, it ended up being booked in this way. Anything else, Rakesh? Rakesh Sehgal: Yes. And I think -- and David, good to hear your voice. Look, I think this also exemplifies the unique relationships we have and the length of relationships with our sellers. This is, as Martin said, a unique one-off situation, and this was developed over multiple weeks and months talking to a partner that we have bought from for years. And so it's an opportunity that is economically positive for us. And as a result, we saw the increase in ERC, as I mentioned on the call earlier. David Scharf: And I was going to ask about kind of the macro in the U.S. and any early indicators on consumer health or changes, but you addressed that at the end, Rakesh. So maybe I'll shift to -- I guess, a question that gets asked every quarter, maybe I'll try to phrase it a little differently. You've often used the term journey to talk about how all of the operational changes and improvements over time will ultimately get the company to a point in which think GAAP profitability would -- can flow entirely from just regular portfolio income, not a change in expected recoveries. I'm wondering if there's a way that you could help investors, maybe understand your thinking of the timeline. I think there's 10 quarters in a row of that change in expected recovery line, both components combined being positive, I think, 15 of the last 16 quarters. So we're multiple years into the journey. And is there sort of a number of quarters or years going forward that an investor can think about in which either the yields at which you're purchasing or the write-up of the assets currently on the books will get us to the point where portfolio income alone kind of gets you to the earnings power that you're showing now? Rakesh Sehgal: Yes. I mean that's a good question. And as you say, it comes up. I mean we tried today in the comments earlier to illustrate the breakdown of those components and showing the proportion of the revenue that's coming from cash overperformance versus increases in the future expectations. So that's one, trying to be more clear about that. The other thing is some of the things, you're right that there is, I guess, a journey is the word that you used -- we are going through that. We did show a chart earlier where you could see the purchase price multiples over time. And you can see that the purchase price multiples have been generally increasing on average. There's been a few vintages here and there that didn't. Those were the COVID vintages that I talked about. But other than that, they've been going up. And I think there's a few reasons for that, that I would mention. One is the way we do the underwriting, we do that based on reference data at the time when we underwrite them. So if we then see operational improvements or changes in how we operate or additional investments in legal channel, in all of those examples, those could create higher collections than what was originally underwritten. So that's one dynamic that could increase the future expectations. And I would say that we're quite prudent in baking in those assumptions that are -- when their assumptions. Once they're proven out through data, we'll typically start taking them, and that's where you see those things going up. The other one is just on the overperformance as such. If we overperform our underwriting targets, it always raises the question, is that overperformance an acceleration of cash, i.e., cash that was expected in the future that we now collected faster? Or is it a betterment of the overall ERC in a given portfolio. And so again, we're prudent that we do the CECL accounting on this. And the combination of those factors and the fact that I think we've had good performance over a long period of time are some of the factors that result in those increases. David Scharf: And maybe just one last one. I'm sure others will ask about more of the intricacies of the goodwill write-down. But with or without the goodwill write-down, your tangible book is still at a level that's substantially above your share price. And I wanted to ask about kind of capital allocations and how covenants impact that. I mean in terms of share buybacks, I know the usual response is you're in the business of purchasing portfolios that generate a strong ROI, and that's kind of always going to be first and foremost. But you're trading at about a 40% discount to tangible book. And is there any level at which allocating some capital to buybacks is almost too hard to not consider? Rakesh Sehgal: I mean that's a good question and a fair question. We did -- we laid out our capital allocation framework in our investor presentation a few months ago. And as you said, our primary goal is to invest in profitable portfolios, especially at a time when we have a healthy supply environment. We're always looking at trade-offs between different uses of capital, be it portfolio investments, our overall debt and leverage level or investing in legal collections, for example, which is something we've been doing. And clearly, buybacks, especially given where the share price is, is a very important consideration. And we do hear that from investors, and we recognize that. We did do some limited buybacks in the second quarter. We did not do any buybacks in the third quarter. That was just based on our overall assessment of the various opportunities that we had for using our capital and also keeping an eye on the leverage. We're very focused on making sure that we're prudent on managing our leverage levels as well. We do have a remaining authorization of $58 million that was authorized by the Board a couple of years ago. That's still there. We have some restrictions related to debt covenants that are in place. But buybacks is definitely something that is, I would say, in our arsenal. And when we feel that that's the best use of capital for value creation for shareholders, we'll consider doing that. David Scharf: Congratulations on all the operational improvements. Operator: Your next question comes from the line of Mark Hughes from Truist. Mark Hughes: The $15 million purchase price adjustment, that is -- I hear you that it has a positive long-term economic benefit. But in the quarter itself, it shows up only as an expense. There was not any offsetting increase or change in expected recoveries. Rakesh Sehgal: Yes. So Mark, it's Rakesh. You actually have a benefit as well. So it does show up as a $15 million change in expected recoveries line item as an expense, but also there is an ERC benefit that we recorded. It spans multiple vintages. And so we're actually very happy with the arrangement that we had because that increase in ERC is we know going to be real, and it's derived from our continued emphasis on the legal channel. And as a result, going to the earlier question around portfolio income, that should continue to drive increased portfolio income as we move forward as well. Mark Hughes: And so the net-net, did you disclose the net-net the $15 million expense and then the benefit? Is it a net positive benefit when you take the-- Martin Sjolund: Yes, Mark, we haven't. But the way you should just think about it is just like in any new deal where you have a purchase price multiple, there is a purchase price multiple associated with this. And it is positive, both from nominal dollars as well as from an NPV perspective. Mark Hughes: Yes. Very good. The goodwill charge, was there any part of that, that was tied to the underlying financial performance of the assets? I heard you saying that it has an impact on ERC, et cetera. But is it maybe just kind of a reduced level of business activity that could trigger some of that? Or is it entirely just this public equity? Martin Sjolund: Yes, I can take that. So as we said, it's a nonrecurring, noncash balance sheet adjustment. And as Rakesh said, it's primarily related to acquisitions that were done in Europe, the biggest of which was Active Capital, which is more than 10 years ago. The European business continues to perform really well. We delivered 10% overperformance against cash in the third quarter. Year-to-date, Europe is up 11% against target. Europe contributed again to the upward revision in the expected future recovery. So that's a sign that it's overperforming. If you saw that table we showed earlier, Europe has had 6 consecutive years of overperformance against underwritten targets. So generally speaking, Europe has contributed very positively to PRA's results and continues to do so. So this goodwill charge, it's really just a mechanical accounting adjustment. Rakesh, you can maybe describe that a little bit more, but I really think it's important to make that point that the European business continues to perform well. Rakesh Sehgal: Yes. And I'll just start by saying, first of all, there is no impact to our operations, to our portfolios, to our ERC from the goodwill charge. It is completely noncash, as Martin said. And Mark, the goodwill amount, it's basically writing off the entire amount of the goodwill that is associated with our debt buying business. So what you will see is a slight amount of $27 million left on our balance sheet. That is related to our claims servicing business that is servicing securities and non-securities claims. And so from our perspective, this charge -- we took it this quarter. It's really driven by the goodwill impairment test that you're required to do annually. And we had a trigger just given the sustained decline in our stock price. So given that, we had to undertake an assessment of our goodwill. And based on the assessment, we made a determination just given where our stock level is relative to the fair value of the business, we had to make a comparison and then that analysis led to a write-off of the goodwill. Mark Hughes: And I hear you clearly that you've been outperforming in Europe, but has no impact on the ERC or collections, anything like that. Rakesh, the guidance for high single digits collections growth. If I look at your strength through the first 3 quarters, that implies a bit of a deceleration in the fourth quarter, maybe down into the mid-single digits in terms of year-over-year growth. Is that the message we should take? Or is this just kind of keeping the guidance in place, but not necessarily giving us any strong message about Q3 versus Q4 growth? Martin Sjolund: Yes. So Mark, good observation. I would say that it's the latter, which is we didn't want to change our target. But as you highlighted, we've been delivering growth that is north of 10%. We do expect typically, Q4 tends to be slightly lower than Q3, and we would expect that Q4 would be slightly lower, but we feel very comfortable with the target that we have put out there. And to the point you made, we expect that we would continue to hit or meet -- continue to hit or exceed that target for the full year. Operator: [Operator Instructions] Your next question comes from the line of Robert Dodd from Raymond James. Robert Dodd: At the risk of beating the dead horse, on the $15 million payment, and I think you've been very clear, but one-off related to purchase some time ago. But the question is, is it one-off because it was the only one that you could figure out how to adjust? Or another way of putting it, like what percentage of your book as it exists today is ineligible because of contracts to go through the legal collections channel. I mean, was this the only one? Or is there more, but you think it's not worth making the change? I mean, obviously, legal collections have been performing really well. So is there some meaningful chunk of the book that's just ineligible for the channel? Martin Sjolund: Yes. I would say that this was just a unique set of circumstances that were related to this particular partner. When we price portfolios, we know upfront if there are any criteria around legal collections. So some sellers will have certain thresholds for face values. Some will have certain thresholds for a proportion that they want us to go legal. There are some sellers that don't want us to do legal at all, and there are others that have no restrictions whatsoever. So we would always price -- we would price into our curves an expectation around that. And normally, it doesn't change. Once we've set that upfront, that's the way it is. But it does happen from time to time that the sellers revise their own criteria. So it's not like we're taking more risk or anything like that, but they might -- there are cases where they decide that actually, we had a certain threshold and now we're going to change that. And so when and if that happens, we can go back and review that. So it's -- I would say it's -- all of those things are priced into the ERC of the portfolios. And this was just an unusual case where we determined by working together with this partner that there was an opportunity to make this adjustment. And as Rakesh said, I think it reflects a good relationship, but it's not something that I would expect to happen very often, and it hasn't happened very often either in the past. Robert Dodd: I mean if I can -- on the COVID vintages. I mean, when I look at the '23 to '24, for example, I mean, when year-to-date, the '23 -- and this isn't a new issue. Obviously, we've been aware that '21 in the COVID vintage for a while. But it just the discrepancy between how the '23s are performing in the '24 seems just so pronounced to me. So can you give us any more -- in the change in expected recoveries on the '23 so far this year, it's a negative 33%. And the '24 it's a positive 27%. I mean, are there real material differences in type of client who you purchased for in '23 to '24? I mean it just seems that the trends are so different but it's less than 12 months between many of those portfolios within those vintages. I mean, how is the mix still so different for those vintages? I mean it's not like the '23s are kind of leveling out. It's 33% negative now. It was negative 20. So it's continuing to deteriorate, but the '24s are continuing to accelerate is what it looks like. They're becoming further and further apart. Can you help me understand kind of what's going on there? Martin Sjolund: Yes. So first of all, the -- what we did this quarter was to do a an additional deep dive, as I described it. Every quarter, we do review and assess our forward-looking expectations on all the curves. That's the CECL process. And even if we make minor adjustments on the ERC, those can have a significant impact on a given quarter. So that's what creates this dynamic of the shifting around of the revenue sometimes in a given quarter. That's just one of the dynamics. We did this additional deep dive. So in addition to the normal process, we brought in additional analysts who are strong underwriters. We leveraged people from a few different markets, and we went through it in more depth than we normally would. And this is what led us to these revisions that we have done here. Every portfolio and every vintage has its own story, I would say. A lot of it is a matter of the shape of the cash flow curves, the underwriting data that was used at the time and so on. So some of these adjustments here just reflect that. And that's why we call the COVID vintages kind of like loosely, but it was just coming out of the COVID period, we had reference data that was affected by the stimulus that went on. So that had to be adjusted for. You had sort of a selection bias in the kinds of customers that flowed through and charged off in that environment as well. So all of those things created an environment that, for us, made those vintages struggle. So I think we're on firmer footing there. And that the -- as you point out, the performance so far on the more recent vintages is looking better. And we obviously monitor very closely where we are by months on book. So at this stage in the curve, how is it performing? So on that basis, we're more comfortable with where those things sit. And the last thing I'd say is just to keep in mind the global diversification here. These U.S. vintages get a lot of focus on these calls. They're only 10% of the global ERC right now. And we benefited from the global diversification of having really strong performance in Europe over many years, including during the COVID period. And it was just that the COVID dynamics played out differently there and didn't affect the data in the same way. And so on a global level, we've had that stability and benefited from the diversification of the ERC. Robert Dodd: One more, if I can. In Europe, to your point, and then in prepared remarks, I mean, it sounds like Southern Europe, you seem to reach the standard for you to call it out particularly in terms of performance and also more opportunity to purchase. I mean are the return dynamics in Southern Europe really shifting significantly in your favor in terms of like should we expect greater deployments into that geographic area? And if so, I mean, does that change any of the dynamics about how you go about your outsourcing efforts, et cetera, et cetera? I mean does that -- is it really -- am I reading too much into that? Or has it really changed? Or how does that play out over the next year or so? Rakesh Sehgal: Yes. So I'm answering -- next month will be my 14th year in the company. And so I've sat on our investment committee in Europe for 14 years. And if I look at Southern Europe, it's gone through an evolution. Coming out of the global financial crisis, there were quite, I think, quite good opportunities there. However, there also was a flurry of competitors flooding into those markets. And so for many years, we struggled to invest there. And it's not like we've wildly changed our investment hurdles. It's just that the market went into a situation where we just couldn't win anything at our investment criteria. And we tried to be very disciplined, and we just sort of stand it out. We bid on all the portfolios. We always would do that, but we struggled and we struggle to win. So we went as much as -- we went over 1 year, in one case, 2 years without buying a single account. And that's tough to maintain a business. You may remember those years. And then -- if I fast forward a bit, I would say that over the -- our observation over the past year or so has been that the competitive dynamic in Southern Europe has sort of stabilized. It's still competitive. So don't get me wrong. It still remains competitive. But we've gotten into a situation where -- we went from a situation where we couldn't even make it to the second round on most of the bids. Even though we have not changed our return hurdles all that much, we've been able to successfully deploy more capital there. And this goes back to the point I was making earlier. We do have a global capital allocation framework. So if a window of opportunity opens up in a market, we'll be ready to move there. But we also have to be really disciplined about it. So in terms of Southern Europe going forward, I'm not -- I don't really know what the dynamic is going to be. I think right now, if it remains at a competitive level like it is now, we'll win some, we'll lose some, and those could be decent markets. So I'm glad looking back that we hung in there in those markets. I don't expect huge needle-moving dramatic shifts there. But I think the commentary we put in was just to explain a little bit about why after having such a low share of our ERC in Southern Europe, did we -- are we looking -- have we been deploying more capital there? And it's really a matter of us taking the opportunity that the market has, in our view, stabilized to the point where we're able to make investments there. Operator: [Operator Instructions] There are no further questions at this time. I would like to turn the call back to Martin Sjolund for closing comments. Sir, please go ahead. Martin Sjolund: Yes. Thank you. So thanks, everyone, for getting on and for listening and for good questions. Just looking back, I think this was a quarter of real execution on a range of areas. I think we continue to make good progress. And as I said, I think we have a great team, a good opportunity, and we look forward to continuing to deliver results for PRA. So thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
Operator: Greetings, and welcome to the TrueBlue Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I want to remind everyone that today's call and slide presentation contain forward-looking statements, all of which are subject to risks and uncertainties, and management assumes no obligation to update or revise any forward-looking statements. These risks and uncertainties, some of which are described in today's press release and SEC filings, could cause actual results to differ materially from those in the forward-looking statements. Management uses non-GAAP measures when presenting financial results. You are encouraged to review non-GAAP reconciliations in today's earnings release or at trueblue.com under the Investor Relations section for a complete understanding of these terms and their purpose. Any comparisons made today are based on a comparison to the same period in the prior year unless otherwise stated. Lastly, a copy of the company's prepared remarks will be provided on TrueBlue's investor website at the conclusion of today's call. And a full transcript and audio replay will be available soon after the call. It is now my pleasure to turn the call over to Taryn Owen, President and Chief Executive Officer. Taryn Owen: Thank you, operator, and welcome, everyone, to today's call. I'm joined by our Chief Financial Officer, Carl Schweihs. Our third quarter performance exceeded expectations as business trends continued to stabilize and we gained traction with our strategic focus. We've made meaningful progress advancing our growth strategy, including enhanced performance in attractive end markets, most notably within our skilled businesses. Energy sector revenue more than doubled this quarter, reflecting our continued success and strong position in this growing market. Our commercial driver business delivered its fifth consecutive quarter of double-digit growth. This growth is driven by our decades of commercial driver industry experience and deep expertise in the skilled trades labor market, where we are helping to address structural labor shortages and serving rising demand that is aligned with strong secular growth drivers. Our results demonstrate our commitment to realizing improved profitability. We continue to execute with operational discipline, driving efficiencies, leveraging technology to scale and positioning the business for sustainable margin expansion. These efforts are delivering results. We reduced our operating costs while growing revenue as our targeted actions to streamline our cost structure are translating into stronger leverage and enhanced profitability. We continue to lead on the digital front. Across the enterprise, we are integrating enhancements to our full suite of proprietary technology platforms to deliver faster, more precise and transparent workforce solutions. This progress has earned us strong industry recognition and third-party validation for our intuitive, high-performing digital platforms, which are focused on improving engagement across the client and talent life cycle. One recent enhancement I'd like to highlight is the price estimate feature we enabled within our PeopleReady JobStack platform. This feature allows existing customers to view and accept a price quote directly in the app when placing new orders, enhancing transparency and improving efficiency of the overall workflow. The new functionality has been well received by our existing customer base, and we are expanding this feature to new customers later this quarter as we continue to elevate the user experience. Advancing our digital ecosystem remains a priority, positioning us to meet the evolving needs of employers and talent while driving higher engagement, satisfaction and retention. Alongside our digital transformation, we continue to optimize and expand our sales function to accelerate growth and capture demand. In our on-demand staffing business, our transition to a territory-based go-to-market structure with expanded sales resources is driving improved results, enabling us to pursue opportunities in priority markets more effectively and to accelerate new client acquisition. By reorganizing our sales model, we have been able to expand our sales capacity in the field by 50% and deploy localized sales strategies while maintaining operational excellence and discipline. This investment in local sales is driving favorable progress with our on-demand business showing improved sequential trends at both the state and regional level. We continue to see momentum in our enterprise-wide strategic partnership program and cross-selling initiatives as well. Our recently announced strategic partnership with a leading group purchasing organization is unlocking new client acquisition channels and generating opportunities across our brands. The robust pipeline includes several multi-brand prospects and has already resulted in multiple new business wins. Greater enterprise alignment and collaboration is also building stronger partnerships across our brand portfolio. For example, collaboration between our PeopleReady and commercial driver business teams recently helped secure a multimillion-dollar deal with a leading energy solutions manufacturer, strengthening our enterprise relationship and fueling future growth. As we continue to build on this momentum, we are also successfully expanding our share in high-growth and underpenetrated markets. Since our acquisition of Healthcare Staffing Professionals earlier this year, we have continued to strengthen our position and expertise in the U.S. health care market. As a TrueBlue brand, HSP has expanded into 3 new states, highlighting the growth potential when backed by TrueBlue's extensive reach, technology and recruitment agility. Health care remains a significant long-term market opportunity with strong secular tailwinds, and we are scaling this business thoughtfully to capture sustained demand. We are also capturing market share with our commercial driver business in underpenetrated and growing geographies, while our RPO solutions continue to expand coverage in attractive verticals such as engineering and technology through higher skilled roles. For example, after implementing an RPO engagement earlier this year with a large U.S. industrial distributor for engineering roles, we have now expanded to encompass 100% of their hiring needs, driven by our team's exceptional service and execution. This reflects the transformative value of our specialized and scalable workforce solutions. In summary, this quarter underscores the progress we're making on our long-term enterprise strategy as TrueBlue continues to strengthen performance, anticipate market shifts and advance towards sustainable, profitable growth. Our key priorities are taking hold as we further expand in high-growth markets, accelerate our digital transformation and optimize our sales function. The staffing market is large and highly fragmented with significant untapped potential, and TrueBlue is well positioned to capitalize on these growth opportunities and deliver greater shareholder value as the market rebounds. I will now pass the call over to Carl, who will share further details around our financial results and outlook. Carl Schweihs: Thank you, Taryn. Total revenue for the quarter was $431 million, up 13% and exceeding our outlook, driven in large part by our skilled businesses, which continue to outperform the broader market with double-digit growth. Overall, business conditions continue to stabilize with our on-demand, on-site and RPO businesses, all showing improved sequential trends. Our recently acquired HSP business drove 4 percentage points of year-over-year growth with solid momentum going into the fourth quarter. These are all encouraging signs that our strong value position is enabling us to both capture demand and to build on this momentum as we finish out the year and enter 2026. Gross margin was 22.7% for the quarter, down from 26.2% in the prior year period, primarily due to the changes in revenue mix and less favorability in prior year workers' compensation reserve adjustments. The revenue mix impact stems from more favorable trends in our lower-margin staffing businesses and outsized growth in PeopleReady renewable energy work. As a reminder, renewable energy work carries a lower gross margin than the general PeopleReady business due to the pass-through travel costs involved. As for the workers' compensation impact, you may recall last year's gross margin benefited from a significant reduction in workers' compensation costs due to a favorable development of prior year reserves. As expected, that degree of favorability did not repeat this year. Certain software depreciation now being reported in cost of services also contributed to the margin decline. Keep in mind, software depreciation is noncash and excluded from our EBITDA and adjusted EBITDA calculations. As Taryn mentioned, even while revenue grew double digits this quarter, we successfully reduced our SG&A by 8%. This improved leverage demonstrates our continued discipline in managing costs and driving efficiencies. We've made significant progress in creating greater flexibility to scale and are well positioned to drive enhanced profitability with our simplified cost structure and improved efficiencies as industry demand rebounds. We reported a net loss of $2 million this quarter, which included a small amount of income tax expense primarily associated with our foreign operations and essentially zero income tax benefit on U.S. operations due to the valuation allowance and effect on our U.S. deferred tax assets. As a reminder, the valuation allowance has no impact on our operations or liquidity. Adjusted net income was $1 million, while adjusted EBITDA was $11 million. Now let's turn to the segments. PeopleReady grew 17%, driven by heightened demand in the energy sector. Revenue more than doubled in the energy vertical as we continue to leverage our deep expertise and strong client relationships to capture demand. Our on-demand business is also showing improved trends with sequential growth during the quarter and the Eastern region of the U.S. returning to year-over-year growth as we exited Q3. PeopleReady segment profit margin was up 180 basis points as our disciplined cost management and increased efficiencies drove improved operating leverage. PeopleManagement grew for the third consecutive quarter with revenue up 2%. This growth was driven by continued outperformance with our commercial driver business, which delivered its fifth consecutive quarter of double-digit growth. While on-site client volumes declined for the quarter, our team continues to outperform the prior year in new business wins, securing $27 million of annualized wins during the quarter and positioning the business for a strong start to 2026. PeopleManagement segment profit margin was up 90 basis points as our disciplined cost management actions continue to drive improved efficiencies and greater operating leverage. PeopleSolutions revenue grew 28%, with HSP performing in line with expectations and contributing 39 percentage points of growth, offsetting the segment's organic decline of 11%. While overall hiring volumes remain subdued, our teams are doing a great job of adding new clients to our portfolio and expanding existing relationships, especially with higher skilled roles and serving attractive end markets such as health care, engineering and technology. As customers' hiring volumes return, the scale of these engagements positions us well to drive further revenue expansion aligned with long-term secular trends. PeopleSolutions segment profit margin was up 200 basis points, largely driven by cost actions to deliver efficiencies and greater scalability. Now let's turn to the balance sheet. We finished the quarter with $20 million in cash, $68 million of debt and $75 million of borrowing availability, resulting in total liquidity of $95 million. During the quarter, we increased our working capital by $19 million, demonstrating our continued focus on operational efficiency and enhanced financial flexibility. We maintain a very focused capital strategy, managing a strong liquidity position and financial foundation to ensure we're well positioned to capitalize as market demand rebounds. Looking ahead to the fourth quarter, we expect revenue growth of 4% to 10% year-over-year as we continue to build on the progress achieved in the third quarter. Our recently acquired HSP business is expected to grow sequentially from the third quarter, contributing 4 percentage points of growth in the fourth quarter and position us well going into 2026. I also want to provide additional details around the sublease agreement for our Chicago support center referenced in our 10-Q filed today. Our extensive national footprint differentiates us in the market. We're always evaluating our real estate portfolio for opportunities to maximize our reach, which includes both our branch locations and support offices. While there will be a noncash expense to align our right-of-use and leasehold improvement assets with the sublease terms, this reduction in corporate office space unlocks over $30 million of cash flow over the remaining 10 years of the lease. By continuing to optimize our fixed cost structure, we are better able to invest in the markets with the greatest opportunities for growth. Additional information on our outlook can be found on our earnings presentation shared on our website today. Before we open up the call for questions, I want to turn it back over to Taryn for some closing remarks. Taryn Owen: Thank you, Carl. As you have heard from us today, our strategic focus is driving meaningful results, strengthening our market position and unlocking new avenues for growth. Our digitally enabled specialized workforce solutions are uniquely positioned to help businesses solve complex talent challenges with precision, scale and agility. By continuing to execute our long-term strategy, we're not only accelerating growth and enhancing shareholder value, but also advancing our mission to connect people and work. This concludes our prepared remarks. Operator, please open the call now for questions. Operator: [Operator Instructions] And your first question comes from Marc Riddick with Sidoti & Company. Marc Riddick: So I was wondering maybe we could start with the strength that you're seeing, the improvement in on-demand that you shared in prepared remarks. Maybe you could talk a little bit about maybe parse that a bit as to how much of that is being driven by the PeopleReady sales territories initiative and maybe how much of that is sort of just general broader market demand growth? Taryn Owen: Great. Thanks for the question, Marc. We continue to see strong performance across our sales-enabled territories and throughout our on-demand organization with metrics that highlight both sequential growth and year-over-year profit improvement. Our sales-enabled territories saw stronger sequential growth versus the comp group, and we saw improved profitability in those territories. As I mentioned in prepared remarks, we have increased our sales capacity by 50% this year and aligned those sales reps in high-value MSAs. You might have also saw our announcement today that we have added a new Head of Sales to our PeopleReady on-demand business. Mike joins us with a track record of more than 25 years of sales, operations and growth experience, and he comes from companies like ServiceMaster and Aramark. So we're really excited about his addition and he'll be a strong complement to that local sales strategy that we've implemented. Marc Riddick: Okay. Great. And then maybe to switch gears a bit. You talked about maybe some of the client verticals and positives that you're seeing there. Maybe you could share a little bit as far as differences between geographies or national or local customers. Maybe you could talk a little bit about those trends and maybe how that paced through the quarter and then maybe into the beginning of the fourth quarter as well. Carl Schweihs: Great. Thanks, Marc. Let me take that first. I'll kind of give end market geography and then we'll go into intra-quarter trends following that up. Look, in our PeopleReady on-demand business, we saw a stronger performance actually in our local business versus our national accounts, which has really driven a lot of those sales investments that Taryn just walked through. From an end market perspective, we saw the biggest improvements in our energy sector, hospitality and manufacturing. Retail continues to be -- continues to show some softness for us. One other thing that's really important to note is our East region within our PeopleReady on-demand business achieved year-over-year growth in September, really marking the first region to do so in 2025. Notably, it's about a majority of our markets in this region grew year-over-year, so more widespread with some of them even achieving double-digit growth. From an intra-quarter trend, PeopleReady exited Q2 at minus 3%. We exited Q3 at plus 18%, and the monthly trends were plus 14%, plus 19, plus 18%. Our PeopleManagement monthly trends were largely in line with the results for the quarter. And as you're kind of thinking about outlook, look, our outlook typically reflects kind of the seasonal step down that we see in Q4, along with some known headwinds. PeopleReady has historically seen some weather impact in Q4, specifically in our skilled businesses, and that impact is factored into our outlook. PeopleManagement's decline in Q4 is driven by some site shutdowns due to supplier disruption in the automotive industry, which is going to lead to about 2 points of that impact in the quarter as well as some softness -- continued softness in retail. But as we mentioned in the prepared remarks, a lot of new site implementations are positioning that business really well for a strong start to 2026. Marc Riddick: Great. And then the last one for me. I'd be remiss if I didn't ask about my drivers. I think you mention of double-digit growth, I believe, on commercial driver. Maybe talk a little bit about what's leading to that as well as current bandwidth for taking advantage of further growth opportunities there. Carl Schweihs: Yes. Thanks, Marc. Yes, we're really pleased with this business. Our commercial driver services delivered its fifth consecutive quarter of double-digit revenue growth in Q3, and it's coming at a time in a very challenging environment for transportation. We're really getting this largely due to taking share in our managed offering. And we feel that we're really well positioned that when volumes do rebound across the transportation market, we'd expect more opportunity for growth in Centerline as much of that growth has been coming from that managed offering. Operator: And your next question comes from Jeff Silber with BMO Capital Markets. Jeffrey Silber: Just a follow-up on that line of questioning. There's still a lot of uncertainty out there in the marketplace. I'm just wondering from a conversational or tone perspective, what are your clients telling you? Are things getting a little bit more certain or less uncertain? I'm just curious what they're saying. Taryn Owen: Yes. Thanks for the question, Jeff. We're seeing early signs of momentum and a return to growth among some of our clients and geographies. As you know, we stay very close to our clients to hear what they're saying. Generally, we understand an inflection point when we're hearing from our customers that they need staff. But I would say, overall, that the customer sentiment remains cautious due to ongoing uncertainties. So it's certainly still a cautious environment. Jeffrey Silber: Okay. That's helpful. And I get this question from investors, so I'll just ask it to you. There's been a lot of noise about immigration reform, ICE rates, et cetera. Any impact on your business either from a positive or negative perspective? Taryn Owen: Yes, it's a great question. We're seeing a mix of tailwinds as well as some challenges. So when we're looking at kind of the opportunities, particularly for us in the Southwest, it's created some opportunities for us where we have added a handful of new customers that are really focused on ensuring that they have a compliant workforce. Conversely, we do have some regional impacts tied to ICE activity where we're experiencing higher absenteeism from some of our staff as are our customers from a full-time staff perspective, even when workers are E-Verify compliant. So we're definitely seeing a mix of headwinds and tailwinds. We feel really good about TrueBlue's position in this space. The changes that we're seeing will create longer-term demand for a compliant staffing solution, which is a key strength of ours. Operator: Your next question comes from Kartik Mehta with Northcoast Research. Kartik Mehta: Carl, you've made a lot of progress on the SG&A leverage. And I know we've talked about this in the past, but as revenue stabilizes, how much incremental margin expansion would you expect before you have to start reinvesting in the business? I know Taryn said you've hired some salespeople. So I guess I'm trying to figure out maybe capacity and margin opportunity before you have to start reinvesting. Carl Schweihs: Yes. Thanks for the question, Kartik. Look, we've done a really good job kind of managing costs and controlling what we can in this market. I think Q3 was a good example of kind of our abilities to drive incremental margins, right? We ended up delivering better incremental margins here in this quarter based on increased revenue than we thought in our guide. And I think that pointed to over that 20% incremental margins when we've talked about historically between 15% and 20%. We feel like with our cost actions, we'll do north of that. So we've done that this quarter, and I think we continue to expect that. We will continue to look for opportunities for growth, as we've talked about, investing in sales and other areas to drive the top line. But we feel like with our optimized fixed cost base, we're poised for significant incremental margins and expanding our profitability as demand rebounds. Kartik Mehta: And then just, Taryn, just the pricing environment out there. I know in certain areas, there's been a little bit greater price competition than others. And I'm wondering, as you're competing with some of the smaller players, what the environment is. Taryn Owen: Yes, it's a great question, Kartik. We're seeing the typical pricing pressure that you would expect in this kind of environment, not only from competitive forces, but also our clients are looking to -- they're remaining very cost conscious during this uncertain time as well. I think the team has done a really nice job of maintaining pricing discipline and really continuing to look for ways to drive enhanced efficiencies so that we can remain competitive there. Operator: And ladies and gentlemen, there are no further questions at this time. So I'll hand the floor back to Taryn Owen for closing remarks. Taryn Owen: Thank you, operator, and thank you, everyone, for joining us today. I want to take an opportunity to thank the TrueBlue team for their tremendous efforts and dedication to providing our customers and associates with exceptional service as well as their commitment to advancing our mission to connect people and work. We look forward to speaking with you at upcoming investor events and on our next quarterly call. If you have any questions, please don't hesitate to reach out. Operator: Thank you. And this concludes today's conference. All parties may disconnect. Have a good day.
Operator: Good day, everyone, and welcome to the Kforce Q3 2025 Earnings Call. Just a reminder that this call is being recorded. I would now like to hand the conference over to Mr. Joe Liberatore. Please go ahead, sir. Joseph Liberatore: Good afternoon, and thank you for your time today. This call contains certain statements that are forward-looking, are based upon current assumptions and expectations and are subject to risks and uncertainties. Actual results may vary materially from the factors listed in Kforce's public filings and other reports and filings with the SEC. We cannot undertake any duty to update any forward-looking statements. You can find additional information about our results in our earnings release and our SEC filings. In addition, we have published our prepared remarks within the Investor Relations portion of our website. Results for the third quarter exceeded our expectations across the board, with overall revenues of $332.6 million and earnings per share of $0.63, both surpassing the high end of guidance. We mentioned on our last call that we experienced unexpected early quarter assignment ends at a select few clients in our Technology business. Subsequently, we were successful at driving a consistent expansion in the number of consultants on assignment throughout the third quarter. I also want to recognize the progress our team has made stabilizing and now meaningfully growing our FA business. I'm very proud of our team's accomplishment in driving this business forward against a persistently challenging macro backdrop. The momentum that we've seen has carried into the fourth quarter, which puts us in a position to expect to deliver sequential billing day growth in the fourth quarter in both our Technology business and our FA business. The ongoing federal government shutdown, along with the continuing global trade negotiations and potential derivative negative effects on the U.S. consumer and broader U.S. economy continues to make the near-term outlook hard to predict as exhibited by the continuation of mixed economic data. Recent data continues to suggest a persistently weak and largely frozen labor market, marked by prolonged stagnation in job gains coming off the post-pandemic euphoric period. However, our internal KPIs improved throughout the third quarter, and this translates to an increase in consultants on assignment, which has continued into early Q4. While it is too early to suggest that we will see sustained broad-based improvements in demand, our team's consistent execution of activities across our portfolio of market-leading companies that typically lead their industries in capital deployment within technology was a significant driver to strong Q3 results and early Q4 trends. Recent trends, when combined with the increasing backlog of critical technology initiatives suggest to us that companies may not have sufficient capacity once the current macro uncertainties subside. In addition, our historical experience is that companies typically turn to flexible talent solutions as an initial step prior to making core hires while they assess the durability of the macroeconomic conditions. The relative impact of AI on revenue trends versus the impact of weakening economic and softening labor markets continues to be hotly debated. Regardless, this uncertainty may intensify the use of flexible talent as companies prioritize agility until they gain clearer insight into how these technologies will reshape their overall business and talent strategies. Generative AI remains a central topic in our discussions. We are confident that AI and other emerging innovations will become increasingly vital in driving business success, though these benefits are likely some years away and will require investments that we are well positioned to support. We have witnessed transformative shifts before, such as the migration from mainframe to distributed processing, the emergence of the Internet, the mobile revolution and the move to cloud computing. The emergence of the Internet likely most closely aligns with AI. Unlike other secular technology shifts, the Internet and AI directly impact operating models and broadly touch virtually all white-collar roles in some manner. The Internet secular shift followed a typical investment and integration cycle pattern. Initial exuberant, massive infrastructure investment combined with fear-driven investment, premature abandonment of legacy systems, realization of integration and modernization needs, a return to balanced strategic investment and finally, workforce transformation and skill shortage. In speaking with many executives, it is clear the realization stage is set in, and we might be in the early stage of transition to a return to balanced strategic investment where demand for our services began to accelerate during the Internet cycle. While initial phases of technology secular shift often bring concerns about workforce disruption, these transitions ultimately created new opportunities, expanded existing roles and redefined responsibilities, fueling further investment in technology. We believe generative AI and its offshoots into agentic AI and cognitive AI is in the early innings of evolution and may just be starting to mirror this historic pattern, which has in the past cycles, been an opportunity for Kforce. Securing the right talent, organizing the right teams and launching focused initiatives is essential for organizations to successfully adopt and maximize these new tools. We are well equipped to meet the growing need for foundational AI readiness and to deliver access to evolving skill sets as businesses advance their AI strategies. Our strong position should allow us to increase client share and expand into new clients, continuing our track record of gaining market share and reinforcing the solid foundation that drives lasting value for our shareholders. We have established a strong foundation at Kforce and remain committed to investing in the evolution of our business through our strategic priorities, all of which are meaningfully progressing. Our domestically focused organic growth strategy continues to serve us well, minimizing distraction and enabling our people to fully concentrate on partnering with clients to solve their most critical business challenges. Before I conclude, I'd like to take a moment to thank the remarkable people who make up our Kforce team. I am deeply proud of the performance, resilience and unwavering commitment shown across the organization. We're privileged to work alongside such a talented, united and passionate group of professionals. It's because of the people who make up Kforce, we're in such a strong strategic position, one I wouldn't trade with anyone in our space. We are confident in our path forward, and I couldn't be more excited about what lies ahead. Dave Kelly, our Chief Operating Officer, will now give greater insights into our performance and recent operating trends. Jeff Hackman, Kforce's Chief Financial Officer, will then provide additional detail on our financial results as well as our future financial expectations. Dave? David Kelly: Thank you, Joe. Total revenues of $332.6 million exceeded the high end of our expectations. Revenues in our Technology business declined 1.1% sequentially and 5.6% on a year-over-year basis, and our Finance and Accounting business grew approximately 7% sequentially and declined slightly more than 8% year-over-year. Macroeconomic uncertainties have largely persisted throughout the quarter. However, our clients continue to prioritize mission-critical initiatives, although many are taking a measured approach as they await greater confidence in their technology road maps and AI investment strategy, along with greater visibility in the macroeconomic environment, we saw a sustained improvement in our KPIs and consultants on assignment throughout the third quarter. As a point of reference, consultants and assignment grew roughly 4% from the early third quarter lows. The improvements in our business spanned many industries and were not driven by a few large projects. Rather, we saw positive impacts across many clients and talent acquisition models, inclusive of both our legacy staff augmentation business as well as consulting engagements. The increase in demand also spans skill sets from application development to digital, data, AI and the cloud. Impacts from earlier DOGE efforts and the more recent federal government shutdown have been and are expected to be nominal given our limited exposure to this space. We continue to execute on our strategic enhancement of our consultant-oriented solutions capabilities, responding to increased client demand for cost-effective access to highly skilled talent. This evolution positions us to deliver greater value through flexible delivery structures and differentiated expertise. Our consulting-led offerings have continued to contribute positively to the overall results of our Technology business, supported by a robust pipeline of qualified opportunities. This approach has been a key driver to the performance of our Technology business and has enabled us to maintain stability in our margin profile and average bill rate. The expansion of solutions-based engagements underscores our adaptability and commitment to meeting evolving client needs, strengthening long-term relationships and market relevance. Although traditional staffing revenue has declined year-over-year, the continued growth of consulting-led engagements validates our strategic direction and positions us for sustained growth and enhanced profitability. An increasingly important aspect of providing cost-effective solutions is our ability to source highly skilled talent from outside the United States. Our development center in Pune, combined with robust U.S. sales and delivery capabilities and a high-quality vendor network enables us to comprehensively address client needs through onshore, nearshore, offshore and blended delivery models. The average bill rate in our Technology segment has remained steady at approximately $90 per hour over the last 3 years, even amid macroeconomic uncertainty. This stability is driven by a growing mix of consulting-oriented engagements, which typically command higher bill rates and deliver stronger margin profiles. Demand across our core practice areas, data and AI, digital, application engineering and cloud continues to be robust, and our pipeline of consulting-led opportunities is expanding. These disciplines are essential for the development and deployment of AI tools, and we expect companies will increasingly require access to specialized talent to achieve their objectives, creating significant opportunities for our firm. Our ability to provide flexible talent, whether through traditional staff augmentation or consultant-oriented engagements positions Kforce to capitalize on growing investments in AI, including readiness initiatives while continuing to support core technology areas that remain active. Many companies lack in-house AI expertise, so they rely on external providers such as Kforce for strategy conversations, talent sourcing and solutions engagements and execution. Our core strength lies in delivering quality talent at scale and adapting to evolving skill demands. By providing access to top-tier professionals, we can solve complex technological challenges. We ensure our services remain indispensable even in broader industry as trends fluctuate. As technology has advanced over the decades, we've consistently evolved alongside it, reinforcing our role as a trusted partner in driving clients' technological progress. Our client portfolio is diverse and is predominantly comprised of large market-leading companies. Staying focused on their evolving priorities remains essential to driving sustainable long-term above-market performance. Looking ahead to Q4, with momentum in new engagements building throughout Q3 and carrying into early Q4, we anticipate a sequential billing day increase in our Technology business during the quarter. Flex revenues in our FA business, currently about 7% of total revenues, declined 7.3% year-over-year, but saw a 6.9% sequential growth in the third quarter, the first time in several years that FA has shown consecutive quarters of sequential growth. Our average bill rate of approximately $53 per hour notably improved year-over-year and is reflective of the higher skilled areas we are pursuing. We expect Q4 revenues in F&A to be up sequentially on a billing day basis. I want to thank this team for its perseverance in driving positive momentum in this space. We continue to align our associate staffing levels with productivity expectations, prioritizing the retention of our most productive associates while making targeted investments to ensure we are well positioned to capitalize on accelerating market demand. Over the past 3 years, we've selectively invested in our sales teams while rationalizing delivery resources, which have decreased by nearly 45% during that period and investing in productivity tools. Despite these reductions, we believe we have sufficient capacity to absorb several quarters of increased demand without adding significant resources, particularly as we enable AI solutions to gain greater efficiencies. Additionally, we remain committed to investing in our consulting solutions business. We believe the stabilization we experienced in Q3 signals growing confidence in the market and reinforces the strength of our strategic positioning. We are energized by the opportunities ahead and remain committed to delivering exceptional results. With a proven track record of above-market performance in our Technology business for well over a decade, we are confident in our ability to sustain this momentum. Our success reflects the deep trust and partnerships we share with our clients, candidates and consultants, relationships that continue to drive our growth and innovation. I'll now turn the call over to Jeff Hackman, Kforce's Chief Financial Officer. Jeffrey Hackman: Thank you, Dave. Third quarter revenue of $332.6 million and earnings per share of $0.63 exceeded our expectations. Our teams have done a nice job working effectively with our clients to recognize the value of our services from a pricing perspective. Overall gross margins of 27.7%, up 60 basis points sequentially, meaningfully exceeded our expectations due to an increase in Flex margins of 50 basis points and a slightly better-than-expected mix of direct hire revenues. On a year-over-year basis, overall spread has been stable, though gross margins declined 20 basis points due to lower direct hire mix. Flex margins in our Technology business increased 50 basis points sequentially due to lower health care costs and slightly expanding spreads and were stable year-over-year. As we look forward to Q4, we expect Flex margins to remain stable outside of typical seasonal impacts due to higher consultant utilization of PTO around the holidays. Overall, SG&A expenses as a percentage of revenue of 22.8% increased 60 basis points year-over-year, primarily driven by deleverage from lower revenue and gross profit levels. We continue to make targeted investments in our sales capabilities while maintaining disciplined cost management across the rest of the business. At the same time, we are advancing key enterprise initiatives that while contributing to near-term SG&A pressure are critical to our long-term strategy. These include the implementation of Workday, the ongoing maturation of our India development center and deeper integration of our solutions portfolio. Our consulting business and offshore capabilities are positively contributing to stabilizing revenues and gross margins, and we expect all of these initiatives to drive higher levels of profitability as the demand environment improves and revenues grow. We anticipate beginning to realize benefits from our Workday implementation more significantly in 2027 as we stabilize post go-live. Our operating margin was 4.5%, and our effective tax rate in the third quarter was 22.3%. During the quarter, we remained active in returning capital to our shareholders with $16.2 million in capital being returned through dividends of $6.8 million and share repurchases of approximately $9.4 million. We continue to maintain a strong balance sheet with conservative leverage relative to trailing 12-month EBITDA. Looking ahead, we expect to reasonably maintain net debt levels consistent with the third quarter with any excess cash generated beyond our capital requirements and quarterly dividend program to be directed towards share repurchases. Our dividend remains an important driver for returning capital to shareholders, the level of which leaves ample room for continued share repurchases. We continue to maintain significant capacity under our credit facility, which provides ample flexibility to accelerate repurchases should we see fit. In addition, in October 2025, our Board of Directors approved an increase to its share authorization to an aggregate of $100 million, which we believe reaffirms to our investors our future intentions to continue driving our business forward organically and returning significant capital to our shareholders. Our current credit facility is scheduled to mature in October 2026. As a result of favorable market conditions, we have taken steps to refinance our existing credit facility with a new credit facility that we expect to close over the next week or 2. We expect to retain essentially the same very attractive terms and conditions as are currently in place over the next 5-year term. Operating cash flows were $23.3 million and our return on equity continues to exceed 30%. We continue to execute our organically driven strategy with strong results, and we believe our industry-leading performance reflects our focused approach in providing U.S. technology staffing and solutions complemented by our nearshore and offshore capabilities. Our balance sheet remains pristine with conservative debt levels, and we consistently return significant capital to shareholders. Share repurchases remain highly accretive to earnings. And since 2007, we have returned approximately $1 billion, representing about 75% of cash generated while growing our business and building a foundation for meaningful profitability gains as revenues expand. Our threshold for any potential acquisition remains very high. The fourth quarter had 62 billing days, which is 2 fewer days than the third quarter of 2025, but the same as the fourth quarter of 2024. We expect Q4 revenues to be in the range of $326 million to $334 million and earnings per share to be between $0.43 and $0.51. This guide implies a midpoint of $330 million in revenue, which reflects a sequential improvement in both technology and FA revenues on a billing day basis and a further improvement in our year-over-year comparisons. The expected income tax rate for the fourth quarter of approximately 32.5% contemplates a lower deduction on the vesting of restricted stock given the decline in our stock price. This presents an EPS headwind of approximately $0.04 in the fourth quarter relative to last year and a $0.07 impact from Q3 2025 tax rate levels. Our guidance assumes a stable operating environment and excludes the potential impact of any unusual or nonrecurring items. We remain confident in our strategic position and our ability to deliver above-market results while continuing to invest in initiatives that drive long-term growth and support our profitability objective of achieving double-digit operating margins and approximately 8% when annual revenues return to $1.7 billion, more than 100 basis points higher than when that level was achieved in 2022. These objectives reflect anticipated benefits from our strategic investments, which are expected to reduce operating costs. On behalf of our entire management team, I want to extend our sincere appreciation to our teams for their outstanding efforts. We would now like to turn the call over for questions. Operator: [Operator Instructions] We'll take the first question today from Trevor Romeo with William Blair. Trevor Romeo: First one I had was, I guess, the 4% increase in consultants on assignment you talked about from the low point of the quarter to the end. Nice to see that for one. I guess my question is, can you give us a sense maybe considering, I guess, we haven't had a normal year in a while, but what a typical July through September period would look like in a prior year? Just maybe trying to get a sense of would you view this as a return to normal seasonality or just kind of more than that? Or how are you kind of thinking about that pattern? David Kelly: Yes. Trevor, this is Dave Kelly. So to your point, we did see some nice improvement in consultants on assignment, the 4% you mentioned, and I'll just reiterate the comment that, that has continued through the month of October as well. So we're seeing some nice sustained growth. As I kind of compare it, hard to compare it, right, because what is normal. But if I kind of think about pre-pandemic levels, it probably was slightly higher than that, although this is, for us, a reasonably healthy growth rate here. But certainly, we've seen higher growth rates in the past. But again, this is a positive statement, we think. Trevor Romeo: Okay. Great. And then Question on your gross margins. I think Flex gross margins came in above the guide coming into the quarter, it sounds like health care was less of a drag from the cost side. You did have, I think, a comment about slightly expanding spreads. So I just wanted to ask, one, I don't know if the mix shift to consulting is included in that comment. So how much did that help? And then if there was an increase in sort of the underlying spreads on a like-for-like basis, what do you think were the drivers of that? Jeffrey Hackman: Yes. Trevor, it's Jeff. Good to talk with you. I think certainly, we talked about health care costs for the last couple of quarters. And certainly, what you heard from the scripted comments in the third quarter, that was certainly much less so it was actually favorable in the quarter. So that ran better than we expected. When you look at the spreads in the business, I guess I'll start what I mentioned in my prepared remarks, and I think our teams have done a really nice job of working closely with our clients to ensure that we're effectively pricing the value that we're bringing to the equation. I think, Trevor, you look at the components of this, and certainly, we've talked in the past, we look at our overall Technology business, both in terms of traditional staffing and the solutions work that we do. I think certainly, a mix of growth is definitely a driver there. We've talked about our consulting-oriented engagements contributing positively to our Technology performance. Those historically and is still today, those typically carry 400 to 600 basis points of higher margin. So with that mix of growth, that's certainly benefiting us there. I also think when you look at the client drivers, there are some puts and takes, certainly from a mix perspective that's benefiting us from a spread perspective. Traditionally, for us, we've talked about the higher skilled areas that we play in. Our average bill rate being roughly $90 an hour has been very stable for several years. Certainly, in that higher skilled area, you would expect a little bit more durability from a pricing perspective. So I think the higher quality skill sets that we continue to focus in and technology is certainly boding well. And then I'd say the other is internal. This is a continued emphasis for us, even more so in 2025. And I think our people have stepped up to the plate and recognizing the value that we're bringing to the equation. Trevor Romeo: Okay. Great, Jeff. And then if I could maybe sneak one more in just on H-1Bs and potential for the much higher fees just to kind of get you on the record here. I believe you do essentially no, maybe very little new H-1B sponsorships. You do have some experienced people on H-1Bs. So maybe just help us understand your overall exposure there. Is there any concern that eventually this could flow through to your talent pipeline? And then conversely, is there any potential benefit to your domestic talent? David Kelly: Yes. Trevor, Dave Kelly again. So to your point, the proclamation that came out, I guess, what, about a month or so ago, 1.5 months ago, and the $100,000 fee. As we understand it, I think there's been some clarification in the proclamation just over the last couple of weeks that this fee specifically relates to new visas, right? So to your point, we do virtually 0 new H-1B visas. We don't bring anybody in. So our model is to sponsor visas and transition employees from people who are already in the United States. So to your point, our exposure in the immediate sense is essentially nothing effectively. And I think important to note for the individuals here, they have an opportunity to renew their visas. That also is not covered by the proclamation and eventually maybe a half the citizenship. So for us, in the near term, as at least it relates to the access to talent, we don't expect there to be any real impact to our business. Now obviously, theoretically, if this is a permanent change, that will have an impact on where we source talent. But I'll remind you, right, our core competency here is in recruitment. So we have -- in many ways, have the ability to access talent through H-1B visas, other visas, domestic talent. So for us, we just see this as something that we're going to have to think about it as it evolves and make sure that we still got access to talent. The other thing that I would mention to you, as we think about this, scrutiny in the visa process is probably even more important. And we're very proud of our compliance record and the approval rates that we have in transitioning visas amongst, if not the best in the industry. So for us, from a competitive standpoint, we feel good about where this is and the minimal impact it will have on our business. Frankly, we've got companies who have come to us when they've got difficult situations still the case. And if there is uncertainty, they look to us from a quality standpoint as, in some cases, the first place they'll go when they want to transition H-1B or other employees from other providers that they might have. So there is a competitive opportunity for us here in the near term as well. Joseph Liberatore: Yes. And this is Joe. The last thing I would give you, if you play it out, if -- one, obviously, there's a number of lawsuits that have already been filed. So we're not sure where this will end up. But if it were to become law and play out, when do you start to feel that probably 4, 5, maybe 6 years from now, 6 years, obviously, which would impact all the people that are currently on visas. But it's important to note as well. There's 85,000 visas that are typically approved on an annualized basis. The applications are typically in any given year, 4 to 10x the amount that are granted. And we play in the high-end skill, the highest demand skill area. So more than likely, those are the individuals who are going to be gobbling up the majority of those visas. So really don't see any long-term impact for us as well. Operator: The next question is Alex Sinatra from Robert Baird. Alexander Sinatra: This is Alex on for Mark Marcon. I was just wondering, you mentioned higher interest in AI-related projects. I was kind of wondering if you can give some more detail on the types of engagements you have been more involved with and what kind of work that entails? And also, I guess, what outlook you're seeing so far on demand for those services and how those engagements may change over time? Joseph Liberatore: Yes. I would say the majority of the work that we see our teams onboarding, it continues to be in and around foundational readiness work aspects associated with data. I just came back from the IT Gartner Symposium, and you didn't -- I don't think there was a conversation I was engaged with whether it was with a CIO, a senior tech person or a CEO where they're not dealing with data challenges. Tremendous amount of modernization of legacy systems as well to prepare for AI. And obviously, cloud touches everything, and then you have security and governance. So most of the organizations, they are really getting after the preparation phase associated with AI. And what we're also seeing on the use case side of the equation, we've seen a number of clients that are ahead of the curve, predominantly technology-oriented companies that are executing some AI initiatives. I would say in general business, we've seen general business pull back a lot on their AI use cases and they have really narrowed their focus to more of an operational type AI use case where they have a very centralized data repository where they can control that data to look at those opportunities. We're also hearing the ROI challenges out there. People, as they get deeper into these projects, are really being challenged to get the ROI from things that they're doing on the AI front. So the good news is all this preparation work still has to happen to take advantage of it, irrespective of how long it takes AI to ultimately play out. So I would say that's pretty much the backdrop. So it's been broad-based and pretty much the things that we're really aligned in and around, especially from our solution side of our business. Those are all areas that we have key practices in. David Kelly: The only other thing I would add to what Joe said, and I think this is particularly relevant in the readiness work that's being done, the buying behavior of clients is not exclusive to long-term project acquisition as well, right? We're seeing demand in any number of our talent acquisition models, all the way, obviously, from solutions-based, deliverable-based project work, but all the way through to staff augmentation. So this is a positive contributor to the demand and staff augmentation as well. So important to kind of make sure you don't take a specific distinction in how the buying behavior is being done by clients. Alexander Sinatra: Got it. That makes a lot of sense. And then on the consulting side, obviously, that's been a positive contribution to your results, both from a growth and margin perspective. I was wondering if you could give some more color on the type of engagements you're in and the magnitude of that contribution as well as where you expect that to go as things like AI become a bigger focus? David Kelly: Yes. As I think I mentioned and Jeff mentioned, that continues to be a real bright spot for us, right? When we think about the revenue trajectory, certainly, the engagements that are being supported by our consulting team have been a real bright spot. And their practice areas, as we've said in the past, right, are in cloud. They're in digital, data, AI and application development engineering. So pretty broadly across all those things. I would tell you, as we think about the demand environment there, we've seen a real uptick. And I think you mentioned this last quarter, even more so this quarter, the pipeline of opportunities in the digital and data space continues to grow as well. So you're certainly seeing the investment in the readiness work that Joe was just alluding to coming our way as well. So just where you would think it's coming. Operator: We'll take our next question today from Tobey Sommer with Truist Securities. Tyler Barishaw: This is Tyler Barishaw on for Tobey. I want to go back to the AI point and how you're helping companies with road maps. Can you maybe touch on how much revenue engagements are contributing today? And maybe what is the margin profile of the engagements like? Joseph Liberatore: Yes. So it certainly is a growing part of our business, right? It has been, as I said, a bright spot for us, but we've never really disclosed the percentage of the revenue stream that we're seeing here. It's certainly a significant portion, but it is not the majority of the business at this point in time. Margin profile, Jeff alluded to the fact that we've had very stable gross margins. Part of that is because this has been a growth part of our business for the last couple of years, and we typically see margins for a lot of these consulting-related projects could be as much as 400 to 600 basis points higher than the traditional staff augmentation model. So it is a benefit in terms of mix because of the growth trajectory. Tyler Barishaw: Got it. Makes sense. And then you mentioned on consulting growth with being -- this has -- facing staffing revenue declines. Can you maybe talk about how close you are to a staffing revenue bottom and when we can return to growth? Or maybe what are some of the elements that could allow us to return to growth in staffing? David Kelly: Yes. So I would -- maybe I'll reiterate the trajectory of the business that we've seen, right? So we've mentioned some of the declines that we saw right at the end of the second and the beginning of the third quarter. But prior to that, if you think about the last couple of quarters, we really have seen a stabilization of the consultants that we've had assigned. And that is across the spectrum of business we've seen, right, staff augmentation and our consulting services both as well. And as I mentioned in my prepared remarks, as we saw the consulting growth of 4%, growth from that low point that we saw at the beginning of the quarter and then even higher than that as we moved into October, again, broad-based that is inclusive of contribution from staff augmentation and consulting. So I don't want to say we're going to call a bottom, right, because we haven't seen many, many data points of growth, right? I don't want to go out and limb here, but it is certainly promising as we saw stability Q1 to Q2 absent those specific client dynamics and then some growth in our staff augmentation business in Q3 and what appears to be a positive Q4, we guided sequentially up again in our Technology business. So we're certainly seeing some signs here that things are certainly firming, and we'll see where it goes from here. Joseph Liberatore: Yes. And what I would add on to what Dave just mentioned there, being there, we saw growth in both staff augmentation and the solutions side. I would really attribute that to the integrated model that we've deployed within our organization, where we're really leveraging relationships and being able to bring those services to the customer that the customer needs at a given point in time versus trying to push one service versus another. So I think unlike many others that we've heard about out there that are talking about declines on the staff augmentation side with growth more on the consulting side here in Q3, we saw growth in both of those and our forward-looking trends also point to growth in both of those areas into Q4. David Kelly: And the other thing I would say is it's really promising about this, and again, I alluded to this, this is not industry specific. This is not geographically specific either. So we're seeing it pretty broadly, right? I mean obviously, we've got a high-level skill set that we focus on. But we're seeing it across industry. We're seeing it across geography. And so we've had a lot of positive contributions from a number of markets this quarter. So it seems to be, again, relatively broad-based. Operator: The next question will come from Josh Chan from UBS. Karandeep Singhania: This is Karan Singhania on for Josh. So I'm just curious if you're seeing any benefits from the reallocation of budgets [indiscernible] that you saw last quarter. I think in the last quarter, you highlighted some negative impacts from that. So I'm just wondering if that kind of liked flipped this quarter and you saw some of the projects that you're working on to see some additional funding over there. David Kelly: Yes. If you recall last quarter to your point, there were a couple of specific clients where we have seen some reallocation of budgets, which is I think what you were referring to. I would say, as we've gone through the third quarter, we haven't heard that. As a matter of fact, obviously, as we've been talking about, there's a lot of pent-up demand, a pretty significant pipeline of activities. Joe alluded, I think, in his remarks to the fact that if there are critical things that need to get done, it is a natural tendency for companies when there's uncertainty, and I think there still is uncertainty in the marketplace that they will look for flexible talent first. So we could be, as I think you alluded to, be entering a typical period here that we've seen in previous beginnings of recoveries in the flex cycle. Karandeep Singhania: Got it. Okay. That's helpful. And as my follow-up, I'm just wondering, I think it looks like the line is pretty big, but just hoping if you can provide some color on the [indiscernible] and markets or where it goes? Are there any specific industries that are showing like early signs of stabilization or any green shoots over there? Jeffrey Hackman: Yes. I'll just reiterate the comment I previously made. It is -- I mean, has every industry been up? No. But has there been many disparate industries that have grown for us sequentially? Absolutely. Now I've said in the past, we need to be careful here because the demand that we see, we don't do business with every client in every industry. So clients are driving behavior and there in every industry clients that we see increases from and probably some mild reductions in projects and there as well. So no, it is not industry specific. It is broadly -- if we were trying to pinpoint a driver, I wouldn't pinpoint a driver of any type of activity. I mean -- so no, it is definitely broad-based. Joseph Liberatore: One of the drivers for potentially this being broad-based is, I don't want to date myself here, but if we go back to the dot-com era, and we look at how that cycle played out, the first phase was hype investment surge in new technologies driven by fear of missing out or being disrupted as well as investments in building out infrastructure. Then right shortly thereafter, we saw a halting of legacy investments with organizations pausing or reducing their spending out of fear of those systems imminently being obsolete. And then ultimately, what happened was a reality check hit, where organizations realized that the new technology is not a cure all with significant work needed to integrate and modernize their legacy systems. And then once that reality hit, basically, we saw a balanced investment come back in where they really returned to investing in legacy modernization while strategically positioning to leverage new technology. Then the last stage was really an overall workforce and skill redistribution where technologies roles shifted. Some disappeared, many new roles created, many others had to integrate additional skills. It's clear when you start to read white papers, when you start to read some other mainstream things out there, reality check has hit. And again, coming out of the Gartner IT Symposium, that was a main theme that you heard in speaking, whether it be the presenters that reality has hit everybody on what it really takes to leverage AI and what organizations have to do. And if we are coming out of that reality into that rebalancing, it's the same thing that we saw during the dot-com. Coming out of that is when we saw the need for our services start to pick up as people started to rebalance their investments across the board. So I'm not calling that, that's exactly where we are, but there are an awful lot of similarities. And I use the dot-com specifically because out of all the secular technology shifts that I've seen in my career, I've been doing this for 38 years. That one parallels AI most because those -- both of those impact work models, operating models and they touch all white-collared individuals within organizations. So there's a lot of parallels and a lot of similarities. Operator: [Operator Instructions] We'll go next to Marc Riddick from Sidoti & Company. Marc Riddick: A lot of my questions have already been touched on. I just maybe want to throw in maybe 1 or 2 others as far as what you're seeing with AI, digital and the like. I was wondering, could you maybe talk a little bit about -- do you have a sense as to current growth drivers, maybe the mix between cost savings driven versus growth driven? Joseph Liberatore: Yes. I think -- and again, a lot of this was discussed at the Gartner conference as well. I think everybody started out on the productivity side and everybody is struggling with getting the ROI on the productivity side. I was with -- I had the opportunity, I was invited to spend time with 19 other CEOs to really hear firsthand what they're experiencing. And there was one key theme that I heard is everybody started out because of a lot of pressure from boards and to get after AI, out of disintermediation, fear of missing out, went after a lot of use cases. Most of them have really scaled back those use cases. Many of them went after productivity. And where I was hearing where people are having success are really on what I'll call operationalizing business processes that are very focused and very narrowed where it's very measurable to get the return. And so that's really where we're seeing organization shift. And again, I'm not talking about the large tech organizations that obviously are getting after AI to embed into their products so that they can sell their products. I mean I'm talking general mainstream business. So we've really seen and what I heard is a real narrowing of the focus to get after an AI initiative. The other thing that many are struggling with is the ROI in terms of everybody scoped the AI initiatives out just based upon the technological cost and then the added cost that people are now experiencing because of the amount of change management, training and all the post-implementation costs, that's really making the hurdles even that much more difficult from an ROI standpoint. Operator: Everyone, at this time, there are no further questions. I'd like to hand the call back to Mr. Joe Liberatore for any additional or closing remarks. Joseph Liberatore: Well, I'd like to thank you for your interest and your support in Kforce. I'd like to express my gratitude to every Kforcer for your efforts and to our consultants and clients for your trust and faith in partnering with Kforce and allowing us the privilege of serving you. We look forward to talking to you again after our fourth quarter of 2025. Thank you. Operator: Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.
Operator: Welcome, ladies and gentlemen, to the Third Quarter 2025 Earnings Conference Call for Tactile Medical. [Operator Instructions] Please note that this conference call is being recorded and will be available on the company's website for replay shortly. I would now like to turn the call over to Sam Bentzinger, Investor Relations at Gilmartin Group, for a few introductory comments. Please go ahead. Sam Bentzinger: Good afternoon, and thank you for joining the call today. With me from Tactile's management team are: Sheri Dodd, Chief Executive Officer; and Elaine Birkemeyer, Chief Financial Officer. Before we begin, I'd like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties. These could cause actual results to differ materially from those indicated, including those identified in the Risk Factors section of our annual report on Form 10-K as well as our most recent 10-Q filing to be filed with the Securities and Exchange Commission. Such factors may be updated from time to time in our filings with the SEC, which are available on our website. We undertake no obligation to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise. This call will also include references to certain financial measures that are not calculated in accordance with Generally Accepted Accounting Principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. With that, I'll now turn the call over to Sheri. Sheri Dodd: Thanks, Sam. Good afternoon, everyone, and welcome to our third quarter 2025 earnings call. Here with me is Elaine Birkemeyer, our Chief Financial Officer. We are looking forward to sharing our strong third quarter financial and business results with you today. As we'll discuss, these results reflect our progress in both strategy and operational execution, demonstrated by meaningful advances in business transformation, product innovation and market leadership. In the third quarter, we delivered total revenue of $85.8 million, representing growth of 17% year-over-year. By business line, lymphedema revenue increased 11% year-over-year to $72.4 million, and airway clearance revenue increased 71% year-over-year to $13.4 million. We were also pleased to see sequential growth in both business lines with lymphedema revenue up 10% versus Q2 and airway clearance revenue, which is typically more seasonally depressed in Q3, up 3% versus Q2. Q3 gross margins increased 80 basis points year-over-year to 76%, while on the bottom line, adjusted EBITDA increased 34% year-over-year to $14.4 million. We also made progress with respect to our balance sheet in terms of strong cash generation. Based on our performance through the third quarter and sustaining momentum, we are raising our full year 2025 total revenue guidance to a range of $317 million to $321 million, representing growth of approximately 8% to 10% year-over-year. I will now focus on a deeper review of performance by individual business line and share progress updates on our key 2025 strategic priorities, which, as a reminder, center on: one, improved access to care, a core element of our growth strategy given our massively underpenetrated markets; two, expanding treatment options to optimize patient care and reinforce our market-leading position; and three, enhancing the lifetime patient value given the chronic nature of the disease states we support with both products and services. Elaine will follow with a review of our full third quarter results and additional details of our updated guidance. Our lymphedema business is continuing to demonstrate a steady recovery, and we expect this momentum to persist. In Q3, lymphedema revenue grew 11% year-over-year and 10% sequentially, driven by execution excellence of our go-to-market commercial strategy. With 2 full quarters behind us following the rebalance and optimization of our field sales organization, in addition to a new CRM launch, we have increasing conviction that our approach to field headcount, investments and the hardwiring of Salesforce CRM into daily sales activities and productivity visibility is delivering as intended. We ended Q3 with 329 total reps, well ahead of our year-end goal of 300 reps and split roughly evenly between 167 account managers and 162 product specialists. This represents a 25% increase in total reps compared to the end of Q1. With these additions, we now have the largest field presence in Tactile's history, and we have them placed in the right roles in the right geographic location to meet and drive demand. My confidence in our field organization goes beyond the number of heads, depth and breadth of provider relationships and sales leadership, although these are all very important. We have a strong CRM technology adoption and have embedded market data algorithms and 3 tech enhancements since July, all of which support a data-driven and efficient approach to sales activities. The CRM is not a documentation tool, but rather a daily sales guide to opportunity identification, next best action, incomplete order details and tracking productivity performance. We have recruited and onboarded high-caliber reps, engaging them immediately in new sales hire training and giving them early exposure and experiences in all sales channels. Our tenured account managers are now experiencing the multiplier impact of a robust CRM in-territory support resources and focused channel strategies. Our go-to-market philosophy and staffing model of roughly 1 account manager to product specialist in similar sized territories supports our Q4 productivity expectations and positions us well for next year. Shifting to a review of our Q3 lymphedema payer mix and respective year-over-year comparisons. This quarter, sales in our Medicare channel increased 130% year-over-year, while our commercial and VA channels declined 9%. While these appear to be dramatic swings, there are a few dynamics to note. As you know, a change in documentation interpretation by Medicare administrators in Q2 of 2024 created a pervasive headwind that lasted throughout the year. During that period, we focused on understanding the MAC position and redirected efforts to call points with higher concentration of VA and commercial patients, which were unaffected by these documentation challenges. As a result, non-Medicare business growth was unusually strong in Q3 last year. Since then, we have adapted to the new Medicare documentation requirements by launching e-prescribing, adding headcount to the back office, deploying our go-to-market headcount strategy and reimagining our order management processes. While there will always be order management paperwork, we have effectively neutralized last year's coverage headwind and have several initiatives underway to support scale and operating leverage. Year-over-year, our Q3 2025 payer mix illustrates the impact of these dramatic policy shifts. We're recovering from a softer Medicare comparison, aided also by these newly implemented initiatives and our increased focus within vascular practices while simultaneously facing stronger prior year results in our commercial and VA channels. Importantly, our Q3 payer mix itself indicates a return to a more normalized mix environment, which we expect to sustain, supporting more balanced year-over-year comparisons moving forward. Our commercial go-to-market plan remains focused on deploying reps across each of our lymphedema call points, VA, Oncology, Vascular and Lymphatic therapy practices. Further, the transition from the LCD to the NCD is an additional tailwind that should help drive continued improvement in Q4 and beyond. Elaine will speak to this in more detail shortly. Turning now to our Q3 airway clearance business line performance. What a fantastic quarter on top of a great year thus far. Sales of AffloVest increased 71% year-over-year and 3% sequentially. The key drivers of Q3's growth remain consistent with what we have shared previously. We have secured partnerships with the top 10 respiratory DMEs and prioritized placement agreements among a select handful of these DMEs, and we are executing well across these partnerships. We are seeing growing demand for AffloVest as broader awareness of bronchiectasis and its available treatment options continue to expand. And we have an excellent product with AffloVest and are continuing to take market share. While the claims data are lagging, we know we are very close to achieving a market-leading position as our commercial momentum accelerates. Looking ahead, we remain focused on strengthening relationships with each of our top DME partners and penetrating deeper within these accounts. With our highly focused and skilled airway clearance field team, we are deploying a proven strategy of a differentiated product, strong partnerships and high-quality medical education and training for providers and DME staff. We are expecting this strategy to continue to drive AffloVest penetration to the 5 million diagnosed and undiagnosed bronchiectasis patients in the U.S. I would like to now share a few new progress updates on each of our 3 strategic priorities that are designed to unlock our TAM and enable scalable, profitable growth. Let me begin with an update on our foundational priority to improve access to care. As mentioned on previous calls, clinical evidence generation is a key element of improving access to care. And as the market leader, we are proud to be associated with robust evidence generation and peer-reviewed clinical evidence publications. Last week, we announced late-breaking 6-month data from our head and neck lymphedema RCT, which was presented at the American Congress of Rehabilitation Medicine 2025 Annual Fall Conference. This trial examined the effectiveness of Flexitouch Plus compared to usual care in treatment-naive head and neck cancer survivors with lymphedema, and this new long-term data follows an earlier presentation of 2-month data at the ASCO Annual Meeting in June. The study was designed to support treatment guidelines, patient care pathways and reimbursement coverage for advanced pump therapy in this population. The results confirm what we had suspected, and we are very pleased to now have high-quality data demonstrating the sustained long-term effectiveness of Flexitouch Plus as an evidence-supported alternative to usual care at 6 months. Specific areas of Flexitouch Plus differentiation versus usual care demonstrated reduced internal swelling across the majority of anatomical sites with statistically significant improvement achieved in 2 sites in particular. Clinician-reported outcome measures of both internal and external soft tissue swelling also favored Flexitouch Plus over usual care. The 6-month manuscript is in the investigator review process right now and will be submitted in November. Additional manuscripts include a deeper analysis into usual care, defined in this study as therapist-guided lymphedema treatment and lifelong home-based self-care, which will be submitted in early 2026. In the meantime, we continue active discussions with commercial payers regarding their current experimental and investigational policy language for head and neck lymphedema, and we aim to influence those policies and reduce barriers for patients. A second update related to improving access to care is specific to a recently implemented pilot integrating AI-enabled technology into our order operations to improve speed, accuracy and leverage throughout the order intake and medical record review processes for traditional non-eprescribed orders. The first phase of this pilot focused specifically on the medical record review process, which identifies if payer required medical necessity criteria is documented in the patient medical records. Early results from the pilot have been encouraging. Not only can the tool deliver efficiency in scanning the records themselves, but it is also able to quickly inform our sales team as to what's missing in the medical records. From there, our team can work more easily with our provider partners to obtain the necessary documentation. The next phase of the rollout will focus on the order intake process, and we look forward to sharing additional details on our next earnings call. Our second strategic priority is focused on expanding treatment options. In our lymphedema business line, sustained demand for Nimbl continues through the third quarter. Nimbl's full upper and lower extremity offerings launched just 9 months ago, and we remain pleased with the feedback we've received from both providers and patients. Nimbl's unit growth continues to outpace market growth. And in a short period of time, we have moved into a market leadership position in the basic pneumatic, non-pneumatic compression pump category. We look forward to serving more lymphedema patients with this therapy. On the advanced compression pump side, we are making good progress on our product innovation road map, and we'll have more details to share on our fourth quarter call. I have exciting product innovation news to share in the airway clearance business. In early Q4, we submitted a 510(k) to FDA for our next-generation AffloVest product. The product is currently under FDA review. And while we are not yet able to provide more details regarding expected clearance, I'm pleased to share a brief preview on the product itself. The most notable enhancements with this new next-generation AffloVest include reduced weight, the addition of digital connectivity and improved sizing adjustability to allow for a more customized patient fit. The current AffloVest is already proven to be patient-preferred versus other high-velocity chest wall oscillation products and is effective in managing the symptoms associated with bronchiectasis and other airway clearance conditions. We look forward to introducing this next-generation AffloVest, and I believe the enhanced features will support the patient experience while promoting adherence. Finally, our third strategic priority is aimed at enhancing the lifetime patient value. We are seeing increasing opportunities to enhance support for lymphedema patients across the full care continuum. This includes more efficient and personalized engagement before, during and after the order and delivery process. One way we are approaching this is through expanded utilization and efficient operations of our patient services organization. This organization is composed of our Patient Education Consultants or PECs, who support the majority of patient product demos and training and our back-office patient support team who support patient advocacy, financial services, clinical and product support and other patient-related services. These 2 teams interface directly and most frequently with our patients. Last quarter, we announced plans to launch a small care navigation pilot designed to proactively reach out to patients earlier and more consistently throughout the order process to better understand the moments that matter most for patients to receive more information and solidify their engagement in the process. This is important because often the order progression requires the patient to do something, such as follow-up with their clinician post 4 weeks of conservative therapy or to be available for a product demo and initial treatment. We are taking a measured approach with care navigation pilots as we want to ensure efficient scalability, a positive patient experience and improved yield impact. Our first pilot demonstrated proof of concept that patients appreciate more information about the order process and expectation setting. One outcome we identified is a clear need to meet patients where they are by modernizing our communication infrastructure. To do this effectively, we're investing in a comprehensive omnichannel platform that integrates text, e-mail, chat, self-service and phone support, ensuring seamless personalized engagement through the patient journey. Our future plans include technology infrastructure investment in this area. In the interim, we will continue to leverage current resources to pilot targeted care navigation initiatives at key engagement points in the order process. These pilots will help us define our future patient engagement strategies and optimize communication scripts to better support the patient experience. With continued expansion in scope, we expect care navigation to further reduce the need for sales rep involvement in the order process, help mitigate patient leakage and enhance the overall patient support connectivity and experience. As you can see, we are executing well across a diverse set of strategic priorities, supported by key investments in our sales organization, order operations, clinical evidence generation and new product development. As we've shared previously, these initiatives are designed to unlock our TAM and position the business for sustained profitable growth. We are already seeing the impact of these investments on our top line through our commercial go-to-market strategy, and now those benefits are beginning to flow through to the bottom line as well. In Q3, our profit margin was flat year-over-year despite these ongoing investments and adjusted EBITDA grew 34%. As Elaine will discuss shortly, we are raising our full year adjusted EBITDA guidance to reflect the increasing operating leverage these investments are generating. We have made these investments with a clear goal of driving profitable growth, and we're pleased to see those returns materializing earlier than expected. Before turning the call over to Elaine, I want to share a brief update on our capital allocation strategy. As we have shared previously, we are increasingly benefiting from generating free cash flow, a trend we expect to continue. This provides us the luxury of continuing to evaluate various investment opportunities to drive growth and increase shareholder value while also initiating a second share repurchase program of up to $25 million of outstanding stock. We believe this strategic action and near-term use of cash aligns with our conviction in the trajectory of our business as well as our ability to execute our financial and operational initiatives. To be clear, our strong balance sheet affords us a multitude of options in terms of meaningful capital deployment, and we will continue to evaluate ways to leverage our market leadership and strong commercial and operational footprint to invest and drive incremental growth. With that, I will now have Elaine review our Q3 financial results in more detail and provide an update on our guidance for 2025. Elaine Birkemeyer: Thanks, Sheri. Unless noted otherwise, all references to third quarter financial results are on a GAAP and year-over-year basis. Total revenue in the third quarter increased by $12.7 million or 17% to $85.8 million. By product line, sales and rentals of lymphedema products, which includes our Flexitouch, Entre and Nimbl systems, increased $7.1 million or 11% to $72.4 million and sales of our airway clearance products, which includes our AffloVest systems, increased $5.6 million or 71% to $13.4 million. Continuing down the P&L. Gross margin was 76% of revenue compared to 75% in the third quarter of 2024. The increase in gross margin was attributable primarily to lower manufacturing and warranty costs, reflecting enhancements in product design and stronger collections reflected in our revenue. Third quarter operating expenses increased $6 million or 13% to $54 million. The change in GAAP operating expenses reflected a $3 million increase in sales and marketing expenses, a $0.2 million increase in research and development expenses and a $3.3 million increase in reimbursement, general and administrative expenses, including and primarily driven by strategic investments. Operating income increased $4.2 million or 62% to $11 million. Interest income declined by $0.3 million or 31% to $0.7 million due to a lower cash position following the repayment of our term loan. Interest expense decreased $0.3 million or 63% to $0.2 million. Income tax expense increased $1.2 million or 55% year-over-year to $3.2 million. Net income increased $3.1 million or 59% to $8.2 million or $0.36 per diluted share compared to $5.2 million or $0.21 per diluted share. Adjusted EBITDA increased to $14.4 million compared to $10.7 million. With respect to our balance sheet, we had $66 million in cash and cash equivalents and no outstanding borrowings at quarter end. This compares to $94.4 million in cash and $26.3 million of outstanding borrowings as of December 31, 2024. As mentioned during our last call, subsequent to the end of the second quarter, we retired our $24 million term loan and refinanced our revolving credit facility to increase capacity from $25 million to $40 million. Excluding the impact of the debt repayment, our third quarter ending cash balance increased $9.2 million. Turning to a review of our 2025 outlook. For the full year 2025, we are raising our guidance and now expect total revenue in the range of $317 million to $321 million, representing growth of approximately 8% to 10% year-over-year. By product line, our updated total revenue guidance range assumes that growth for our lymphedema products will be 3% to 4% and growth for our airway clearance products will be 52% to 55%. This updated guidance is driven by several key factors. In addition to the continued strength of our airway clearance business and the commercial momentum in lymphedema that Sheri highlighted earlier, we are also benefiting from a favorable Medicare policy environment, an important tailwind for our business. As Sheri mentioned, this stems from the retirement of the LCD and the transition to the less restricted NCD, which expands access to advanced pump therapy. Nearly a year into this transition, we now have a clearer understanding of the NCD. Patients with complex lymphedema affecting areas such as the head, neck, chest or trunk can now access advanced pumps like the Flexitouch directly without first undergoing a basic pump trial. This change eliminates a significant administrative hurdle and accelerates access to the appropriate therapy. We are actively engaging with providers to educate them on the NCD and reinforce that with proper documentation, patients with unique clinical conditions now have a direct pathway to coverage for advanced therapy. We expect to begin seeing positive impacts in Q4 with more meaningful momentum building into next year. For modeling purposes for the full year 2025, we now expect our GAAP gross margin to be approximately 75%, our GAAP operating expenses to increase approximately 11% year-over-year as we invest in our sales organization and advance our tech-related investments, net interest income of approximately $1.8 million, a tax rate of 28% and a fully diluted weighted average share count of approximately 23 million shares. As a result of our stronger-than-expected revenue, we now expect to generate adjusted EBITDA of approximately $38 million to $39.5 million in 2025. Our adjusted EBITDA expectation assumes certain noncash items, including stock compensation expense of approximately $7.8 million, intangible amortization of approximately $1.3 million and depreciation expense of approximately $5.3 million. Finally, we continue to expect the full year tariff impact on our business to be approximately $1 million after the successful implementation of a range of tariff mitigation strategies as announced last quarter. Looking ahead, if no further changes occur, we anticipate an ongoing annual impact beyond 2025 of roughly half that amount. With that, I'll turn the call back to Sheri for some closing remarks. Sheri? Sheri Dodd: Thank you, Elaine. Our financial performance and operational execution in the third quarter leave us incrementally confident in our ability to achieve and exceed our full year 2025 expectations. Both of our business lines are performing well with healthy call points. We are generating meaningful clinical evidence to support improved access to care for currently underrepresented patient groups. Our investments in people and various workflow processes are materializing and paying off as expected. And our commercial organization is robust, well organized and poised to take advantage of the tailwinds in front of us over the near, medium and longer term. We are confident in the trajectory of our business as reflected in our guidance update and new stock repurchase program. And our healthy balance sheet affords us a multitude of additional options in terms of meaningful capital deployment to drive growth and increase shareholder value. We look forward to closing out 2025 from a position of strength and continuing to execute in 2026 and beyond. With that, operator, we'll now open the call for questions. Operator: [Operator Instructions] And our first question comes from Adam Maeder with Piper Sandler. Kyle Edward Winborne: This is Kyle Winborne on for Adam. Congrats on a good quarter. I guess, first, maybe like to double-click on the AffloVest performance. It was another really strong quarter, and would just love to hear more about what continues to drive the good performance there. You gave helpful color on the progress with the different DMEs. So maybe just be curious how did these different accounts perform in the quarter? Are you seeing growth across most of the accounts? And I know there's also this effort to continue increasing awareness. So just any additional insights you could give would be helpful as we try to just kind of understand the sustainability of the growth in this business here as we exit 2025 with another guidance raise. Sheri Dodd: Sure. Kyle, we are, as I said, really pleased with just a fantastic quarter of AffloVest performance. And as you can see, the revenue contribution now for AffloVest is about 16% versus prior year was 11%. I wish I could share something more colorful actually in terms of what's happening with that growth, but it is exactly what we've been saying all year. We really have 3 strategies that are working in our favor, and they're ones that we've been working on for a while, and they've really come to fruition this year. The first is we do have those deep relationships with the top 10 DMEs. And while we don't report out growth or call out any one of those, where we have those relationships, again, and we do across all 10, certain things are working very well. One, we have preferred product position in several of those top 10 DMEs. That is compensating their reps for this product. And so it's in their bag of respiratory products and one that they continue to sell and see appropriate placement. The other thing is we have got really good alignment on inventory and the cadence of when they want the product aligned with their financial team. So there's no surprises as to what those ordering patterns look like. And then we're able to continue our supply chain in a way that's super healthy and able to get -- and keep up with the demand. So from the DME partnership standpoint, that's all going very well. You are right that there is increased awareness of bronchiectasis, and we're both driving that with our medical education that we're providing not just to DMEs across their operations team and their reps, but also we're providing that medical education to clinicians themselves. And so that is going very well and just general market awareness is coming up. And then really last but not least, we just have an excellent product. We have a differentiated product, and we're taking share and are achieving this market-leading position. As it relates to growth, we're also comparing against what was a pretty low growth year from last year. So I don't think there's -- not projecting into 2026, but we shouldn't be expecting that we're going to see this type of growth next year, but we are happy with where we're at. And of course, the growth in AffloVest contributed to our overall guidance that we're taking up for the end of the year, and we'll be able to share more on what we think our 2026 growth should be. Kyle Edward Winborne: That's super helpful additional color there. Maybe just to follow up on the Vest business. Could you maybe give us any color, remind us where AffloVest sits in terms of market share? And maybe if you aren't able to kind of share specifics there, could you just give us an idea of how quickly this market is growing and maybe just kind of some of the broader market trends to understand how this -- how it fits into -- in the broader market? Sheri Dodd: Sure. So while I can't -- what I can share is the key players kind of in this space, Baxter has been #1 for a really long time. I think they've been on the market for over 30 years. And as we have said, we feel like we are in a very close #1, if not already #1 in taking over them as the market leader. In terms of overall growth of the market, very hard to share. It's growing clearly double digits, and that growth is really coming from I think you've got more therapies in this space, but I think more -- that's what's more relevant right now is the fact that there's just more awareness of the disease. There's been an introduction of a pharmaceutical product that's helped bring overall awareness. They were very prolific within some of the most recent conferences. But the good news is, is that regardless of whether or not there is a drug in place, it's really complementary to the Vest therapies. So as awareness grows, so grows the opportunity for us to penetrate the 5 million patients that are currently underserved. So we don't anticipate any change happening in this market from a negative standpoint, negative change. Operator: And moving on to Ryan Zimmerman with BTIG. Ryan Zimmerman: Sheri, Elaine congrats on the nice quarter here. So I want to ask about guidance a little bit, and I appreciate you giving the color on the segments, Elaine. Just to be clear, it looks like certainly AffloVest is coming up for the fourth quarter. It looks as if lymphedema is coming down maybe into the low single digits. I want to first make sure I'm clear about that. But then as I think about kind of historical performance from 3Q to 4Q, particularly in lymphedema, it's typically stepped up more than kind of what you're assuming from 3Q to 4Q, at least for this year. And so I just want to understand, was there anything that was maybe pulled forward or onetime in nature in the third quarter, particularly in the lymphedema business? And then I do have a follow-up. Sheri Dodd: Yes. So I would say there's nothing that was pulled forward. I think from a comparison to last year, just to reset, and I'm remarking on this because it's been a year now, really when I joined on kind of what was my first quarter. At that time, if you remember, there was the change in interpretation of the NCD. I know we've talked -- LCD, sorry, we've talked about that a lot, but our entire lymphedema went into a major slowdown with that headwind. More documentation was required. We -- if you think about the number of reps that we had, it was considerably less than we have today. And so the business was just incredibly slow last year, and it dragged on for the remaining of the year. We don't have anything happening this year. In fact, we've got the opposite where we have some tailwinds starting with the NCD, while we haven't seen that completely materialize as much as it will happen in a little bit in Q4 -- sorry, in Q4 as well as in next year. That's more of a tailwind where before it was very much of a headwind. So we did step up our overall guidance in lymphedema. We did have it at 1% to 2%, and we've raised that 3% to 4% for the end of this year. Elaine Birkemeyer: Yes. I think specifically on -- why does year-over-year growth kind of look like it's slowing down for Q4. I think this is a little bit what Sheri is talking about is that comparable to last year. Unfortunately, last quarter 3, which is really depressed with us kind of being at that bottom trough of the impact. We started to have that recovery in Q4 and then more so into 2026. So I think that's part of it. And then you mentioned kind of sequential. So yes, sequentials were a bit different this year. And I think we alluded to that we expect to see that based on the hiring that we're doing. So we hired close to 30 additional reps there in Q2. So we had just a much bigger workforce as we moved into Q3. So that sort of created this kind of a naturally higher growth from Q2 to Q3 than we normally see and that also moderating that Q3 to Q4 growth as well a bit there. So sequentials are a bit different, but I would say, looking at half 2 altogether, it's still, I would say, actually on the high end when you think about a sequential year-over-year growth for us. I think the Q3, Q4 cadence is a little bit different this year just due to the sales rep hiring. Ryan Zimmerman: Okay. Very helpful, that color. And then as I think about '26, and I don't know if you'll comment on this, but what do you see as the market growth rate in lymphedema? Because I mean, right now, I think the Street is assuming that you guys can get back to that high single-digit kind of growth in lymphedema for next year. And I want to make sure that, that's not unreasonable in your mind or -- and I know, Sheri, I've asked you this certainly when you joined, which is if you have any commentary on the long-term targets that were kind of set out before you joined and what you -- whether you feel those are appropriate, I guess? Sheri Dodd: Sure. Thanks, Ryan. Well, I can -- the market is growing at 10% in the lymphedema market. So there's nothing at this point that indicates to us that we should underperform the market. So I'm not going to comment on next year. But certainly, we believe that this is a market that's growing 10%. And with our products and our sales force and our productivity and supporting our back office and the investments we've been making, we believe we should be able to be in this range as well. Our new guidance for the end of this year ticks us up between 8% and 10%. And so that is a nice recovery than what we had at the beginning of this year. This recovery is fueled by, again, adding to our sales headcount, having our CRM, our channel strategies as well as our back office support. all of these things were part of our strategy. They're all building. We're executing. We've got the momentum. So again, not providing any guidance on 2026, but I don't have any reason to believe that we should be underperforming the market. Operator: Our next question comes from Brandon Vazquez with William Blair. Brandon Vazquez: Maybe first on a high level, there's a lot of tailwinds going on for you guys. It's really encouraging. Can you -- is there anything 1 or 2 top initiatives or reimbursement improvements that you would call out that's driving growth? It feels like this quarter was a bit of inflection, frankly, in both sides of the business. So curious if there's anything you'd call out? Or is it just really broad-based across all the initiatives? Sheri Dodd: I would say what we -- and AffloVest, I already spoke to with the previous question from Kyle. I think that one just reflects again our strategy in action with our DME relationships as well as growth of the market with awareness of bronchiectasis as well as just great products. On the lymphedema side, a few things that we're seeing, again, it's also very aligned to our strategy. So our go-to-market strategy, our Q1, we did a rebalance. We did an optimization. We said we reevaluated the number of account managers we needed versus the number of product specialists. We did that. We executed. You saw some of that lift happening in Q2. You're seeing it in Q3, and we're going to continue to see that in Q4. That essentially boils down to productivity. We measure productivity as the revenue per territory. So now we've got the right headcount in the right geography with the right scopes, and so we're going to continue to see that materialize and get optimized as a multiplier as we go into latter half -- Q4 and as we go into 2026. So that's a big part of the lymphedema growth standpoint is on that productivity. We also are going to see, and we'll see it more in Q4 is really the impact of the NCD. The NCD was announced in November of last year. As a reminder, we didn't get trained until February. Between February and early summer, there were some changes in their interpretation. So the NCD itself in terms of what is the interpretation has only really been on stable ground now for about 4 months. We now are doing our appropriate shift and making sure that we're set up well so that patients who meet the criteria for advanced pump therapy like Flexitouch can get to that directly without having to go through the 4-week basic pump trial. So that's also going in our favor. And then we're starting to see some of the impact of our initiatives. So sales force, certainly, again, not just documentation tool, but really like a job aid. It is the go-to for all of our sales reps in terms of how to plan their work. And we're starting to see efficiencies in the back office. This is also realized not just on the top line, but we're seeing some of that come through on the bottom line. So we feel really well positioned for continued financial performance on both the top and bottom line as we go into Q4 and beyond. Brandon Vazquez: Okay. That's great. And 2 quick follow-ups to that on 2 of the points that you had made. First, on the sales side or the sales rep side, I think you said 329 reps you're at now, you're above your goal that was for 300. So help us think about where do you go from here? Do you need more reps? Are you pretty good on sales force count? And how does that trend into next year? And then the other follow-up is just on the NCD side, if you could spend a minute talking about I think you mentioned that it was an easier pathway now for patients to get on Flexitouch. Is that a shortened cycle? Like any data that you can give us around what that pathway looks like now for those patients under the new NCD would be helpful. Sheri Dodd: Sure. So on the reps standpoint, I mean, we feel really well positioned on our headcount strategy and execution. We'll make new headcount additions with this balance of 1:1, again, one account manager to one product specialist. We'll staff based on how these territories grow. And so we feel in good shape. We're going to continue to round that out, and we'll get to the right headcount based on that strategy that we set in Q1. As it relates to the NCD, so the NCD does allow a path for patients with unique characteristics to go directly to an advanced pump. And those unique characteristics have to do with where the edema is located as well as different type of skin conditions. We understand and have better clarification from the MACs of what they're looking for from a documentation standpoint. The documentation requirements are still there. It's just that now there is a path for that patient to go directly to that therapy without having to go to a basic pump therapy. We aren't yet going to be reporting nor do we report specifically on the breakout of the -- what will have changed. But we are anticipating that the NCD is a tailwind, will allow more patients to go directly to the right pump that they need based on what their conditions are. And again, this is just getting started, but until there is a policy change, we anticipate the NCD to be in place, and this is the policy that our Medicare patients can progress to as they are and working with their provider to determine what is the right therapy for them. Hope that answers your question. Operator: Our next question comes from Anderson Schock with B. Riley Securities. Anderson Schock: Congrats on a really strong quarter. So first, on the lymphedema revenue growth, could you just break down the main drivers here? And then what percentage of lymphedema revenue is now Nimbl versus Flexitouch? And has that mix stabilized from the second quarter to third quarter? Or when do you expect to reach a target mix? Sheri Dodd: Anderson, so I'll start with the mix first. We don't report out Nimbl versus Flexitouch. So what we have said in the past and will say is currently happening is that Nimbl is growing faster than the market. And so as a reminder, we are just less than 9 months into a full product launch of Nimbl. So it continues to have great adoption from providers, great adoption from patients. It's doing incredibly well. It's a great addition. And with that introduction, we now have taken a market leadership position in the basic pump category. So we're feeling really good about where that is. The NCD allows us a path to see even greater unit growth from Flexitouch. But again, we won't be breaking that out, but we are really pleased with what the policy environment is as well as the success of Nimbl. And Flexitouch is a great product. I mean we're glad that patients can get direct access to it that need it, especially those that have head and neck lymphedema, chest lymphedema, trunk lymphedema. These patients were definitely not served with a basic pump prior. And now I forgot what your second question was. Elaine Birkemeyer: Yes. I think you asked the question around just the drivers of lymphedema. And so I think just again, to hit on what I think Sheri [ also was ] talking about before was really expanded headcount. So if you look at -- we've added a significant number of reps, 66 reps or 25% more than the end of Q1 there. So it's a big amount of growth. And each quarter that goes by, they're getting more and more tenured. And so that leads into increased productivity. So we've got sales reps that are ramping as well as now the CRM tool that maybe we've never had before that not only helps them organize their work, but really identify where they should be best spending their time and which clinicians that are seeing a lot of these lymphedema patients there. And then again, lastly, that strong airway clearance performance that Sheri also talked about. Anderson Schock: Okay. Got it. That's helpful. And then what are you seeing in growth in bronchiectasis awareness and diagnosis in the third and fourth quarter following the approval of the first bronchiectasis drug in August? Sheri Dodd: Where are we seeing it? Did you say? Anderson Schock: I guess, just how are you seeing this impact the overall bronchiectasis market as far as diagnoses and growth there? Sheri Dodd: Well, we certainly believe that it's creating an uplift. Market awareness, both for lymphedema and for bronchiectasis has been one of the bigger challenges when we think about addressing the total addressable market is simply that these patients are undiagnosed and untreated. So with the launch of a pharmaceutical product and those dollars going into awareness, we believe that, that's a lift. We also believe that it is a market share gain. So I'm not going to attribute it all to increased awareness. We know and we can see in our DMEs that we're seeing growth in those areas, and we believe that's coming directly from share growth as well. Operator: [Operator Instructions] We'll go next to Ben Haynor with Lake Street Capital Markets. Benjamin Haynor: Congrats on both the quarter and the Flexitouch study. And regarding the study in the head and neck cancer-related lymphedema, you mentioned that I think that you had some payer -- you've had some payer discussions or you have some payer discussions coming up. What should we kind of expect in terms of how quickly some of these policies could get reviewed? Or do we need the manuscripts out? Do we need the scheduled review to come around? Or could some of these folks or some of these entities act a little bit faster? Sheri Dodd: Yes. Thanks, Ben. Regarding coverage, we're engaging with commercial payers and bringing awareness of their current policies for head and neck lymphedema because many of them have classified it as experimental and investigational. And we know that is a market access barrier for patients that could otherwise benefit from therapy. So these conversations have been ongoing. We have a dossier. We've been engaging with payers. And many of them have been open to understanding more what data is currently available as well as understanding and investigating more of their current policy. In general, been really receptive to our outreach, and we expect that they will be reevaluating their current coverage policies. That said, the time line for policy changes are likely more in the 2026 time period. This is really consistent with what we have seen previously and what we've shared previously. I wish it could go faster. They're on a schedule for policy review, and some of them will do off-cycle review. I'm sure having the 6-month data and especially this being such a landmark study that's showing the benefit of Flexitouch, particularly in treatment-naive patients. These are patients that did not receive a basic pump nor have they ever received therapist-guided lymphatic therapy that we'll be able to have a really robust conversation. But I would anticipate that the bigger changes in policy are going to happen more in 2026 and unfortunately, probably throughout that year, not necessarily in the beginning. Benjamin Haynor: Makes sense. And then lastly for me, you just -- you've done the kind of the strategic optimizations, rebalances, kind of some tech upgrades internally. What -- how would you characterize kind of what inning of the impact that we'll ultimately see from some of these maneuvers as they kind of play out in terms of revenue growth and leverage on expenses? Sheri Dodd: Sure. Well, I'm pleased that we're already starting to see that come through. And I think that, that's even better than we had expected. But let me break these down kind of individually. When I think about the CRM tool itself, right? So that got put into place. We knew that would help with productivity, but then we also added 50-plus sales heads between Q2 and Q3. So what -- a 25% increase actually, we've added since the beginning of the year in sales. And these sales reps are starting to use the tool, the Salesforce tool versus our more tenured reps had to actually make a conversion between their older handmade tools into the CRM. So we'll continue to see the benefit of that, and we're not stopping our investment. We'll continue to refine that tool, make it better for the reps, help them really understand what is the best opportunity, where do they need to go. And then we'll be looking at incorporating more of our back office order process pieces into Salesforce as well. So it becomes basically the tool on record, not just for the CRM activities that the sales reps are doing, but for the order. This is a big part of the investment that we're making into next year. We've already spent dollars this year. It will continue to evolve next year. So when you kind of talk about innings, not necessarily like the World Series where a wrap-up in 7 games and either your team won or didn't win, this is going to be an ongoing game. And our commitment has always been that we needed some of these dollars in 2025 to get us going, and then we committed to continuing to show a return on that investment. So I mentioned our care navigation, we're going to stand up more of that omnichannel platform for next year. That's going to have returns, but those returns will be in late '26 and into '27. Our investments in Salesforce, big stand up in investment dollars now, that's going to return in order operations efficiency, yield, leverage, all of those things will happen. So we are transforming our business, both in terms of what that go-to-market strategy looks like, but also that order process streamlining and making it easier, and we know that will have a return. So it will be a multi-inning game, but we'd continue to commit to being able to show return on that investment, and we'll be teeing a lot of that up when we talk about our 2026 plan when we're all back together at the beginning of next year. Operator: And 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: Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Navitas Semiconductor Third Quarter 2025 Earnings Call. [Operator Instructions] I'd now like to turn the call over to Lori Barker, Investor Relations. You may begin. Unknown Executive: Good afternoon, everyone. I'm Lori Barker, Investor Relations for Navitas. Thank you for joining Navitas Semiconductor's Third Quarter 2025 Results Conference Call. I'm joined today by Chris Alexandra, AI President and CEO; and Todd Glickman, CFO. A replay of this webcast will be available on our website approximately 1 hour following this conference call and available for approximately 30 days. Additional information related to our business is also posted on the Investor Relations section of our website. Our earnings release includes non-GAAP financial measures. Reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measures are included in our third quarter earnings release and also posted on our website in the Investor Relations section. Non-GAAP expenses and operating margin excludes stock-based compensation, amortization of intangible assets and other nonrecurring items. In this conference call, we will make forward-looking statements about future events, our future strategy or the future financial performance of Navitas. We may make predictions or describe trends in our industry and markets. You can identify some of these statements by words like we expect or we believe or similar items. We wish to caution you that all such forward-looking statements are subject to assumptions, risks and uncertainties that could cause actual events or results to differ materially from expectations expressed in our forward-looking statements. Important factors that can affect Navitas' business include factors that could cause actual results to differ from our forward-looking statements are described in our earnings release. Please also refer to the Risk Factors section in our most recent 10-K and 10-Q. Our actual performance may differ from our projections and our estimates, assumptions and strategies may change. Navitas assumes no obligation to update forward-looking statements to reflect actual results, changed circumstances or other events that may occur except as required by law. And now over to Chris Allexandre, CEO. Chris Allexandre: Good afternoon, and thank you for joining us. I am very excited to have the opportunity to address you today. I have now been in my role for approximately 60 days, and I would like to take this opportunity to share with you my vision for the future of Navitas. I will start by saying that I feel incredibly proud to be leading the Navitas team, a world-class team that has been at the forefront of both gallium nitride or GaN and high-voltage silicon carbide or SiC since the very beginning of their development. Today marks a crucial moment for Navitas as we enter a transformation of our company. Over the last 60 days, I've been on the road meeting and collaborating with customers, employees, suppliers and partners. That strategic tour gave me a clear view of our strengths and challenges and most importantly, the opportunity ahead. The conclusion is straightforward. Navitas is a company with enormous potential, underpinned by strong foundational elements already in place in both GaN and high-voltage SiC. And we have a tremendous opportunity to win in high-power, high-growth markets such as AI data centers, performance computing, energy and grid infrastructure and industrial electrification. Customers are eager to adopt those technologies into their application, and we have the experience and track record of delivering those technologies in scale and volume, and they want to collaborate. Simply put, we are in the right markets with the right technologies, and we can win with focus on strong execution. We will accelerate, pivot and double down on those high-power markets and customers as we move away from consumer and mobile. I call this Navitas 2.0, a transformation to a high-power sharp focused company serving grid to the GPU to drive more consistent, profitable and sustainable results. Before we dig into what we are doing, let's quickly cover what is happening in the market right now. Across the entire market, electrification is accelerating and moving up in power demand. AI data centers necessitate accessing power distribution to achieve higher efficiency and density, and they are doing so exponentially. In parallel, the energy grid is transforming with storage, solid-state transformers, utility scale renewables and megawatt charging to support the AI catalyst, but also the overall growing energy demand. This is not a short cycle. It is a durable, multi-decade sustainable trend that will reshape power architecture at rack, system and grid type levels. This requires fundamental change in customer system architecture, design and technologies and simply means the total market size Navitas is addressing has increased multiple folds. It opens immense opportunity for high-power players such as Navitas 2.0. I spoke to a variety of customers over the last 60 days. Every single customer I met in those segments from leading U.S. hyperscalers and AI GPU vendors performance computing OEM and ODM to the many and very innovative customers [ in having a complete architecture ] in the energy grid told me the same message. GaN and high-voltage SiC technologies are the solution to the problem they are trying to solve and the revolution they are driving, and they view Navitas at the center of this transformation given our long history and track record in shipping those at scale. We have heard that message loud and clear, and therefore, will immediately accelerate accordingly. We are one of the few companies with a complete high-power portfolio, GaN, GaN integrated with IC and high-voltage SiC. This combination, along with very strong system expertise built over the last many years, offers more value to customers. 10 years ago, Navitas was looking ahead at global energy demand, which was projected to grow by 200% to 300%, doubling to tripling over the next decade. EV, wind turbine, cloud computing, data centers, solar power, climate change, quantum computing, all those energy platform requiring significant reformats to consume efficient high-voltage technologies, which did not exist at that time. This enormous forecasted demand made it clear that power electronics would need a transformative leap in efficiency and power level. Standing back, it was obvious even 10 years ago that existing silicon-based chip and technology would simply not get us there. And we didn't even consider AI and its power hungry implication back then. Navitas led the introduction of GaN into power electronics, leapfrogging established silicon players. Then we acquired and merged with GeneSiC, the leading advanced technology in high-voltage SiC. We've shipped over 300 million GaN units with proven quality and reliability over the last seven years, and GeneSiC brought leading-edge high-voltage SiC technology, both together enabling power architecture evolution in AI data centers, performance computing, energy and grid infrastructure and industrial electrification. GaN is now mainstream for AI data centers, performance computing and industrial electrification. The NVIDIA 800-volt DC AI factory ecosystem announcement is the first proof point, and we expect it to be adopted across many other players. High-voltage SiC is also supporting and enabling the energy grid transformation necessary to enable AI and the associated demand for more power. Both markets are intertwined. Underneath our portfolio are long-standing partnership with leading fabs, back-end and module partners, a deep co-design with customers and a very advanced solution and system architecture understanding with more than 300 patents issued or pending. Our team has been on the forefront of GaN and high-voltage SiC from the early days, now reaching over 2 decades combined, and that experience matter when customers move fast and execution is critical. Going back to Navitas 2.0 and the transformation from a mobile and consumer-focused foundation to a high-power company, that pivot is backed by decisive actions that we have begun to take. Number one, resource realignment. We are reallocating engineering, commercial and application support and R&D program towards high-power platforms and customers. We're ensuring we have the right people in the right markets and the right geographies, led by a renewed global high-performance leadership team. Number two, road map acceleration. We are accelerating the release of new products tailored to high-power markets targeted at rack, system and grid type nodes. We expand medium-voltage GaN devices, high-voltage GaN devices and IC and high-voltage fixed module. Number three, go-to-market restructuring. We are focusing on hyperscalers, GPU vendors, Tier 1 OEM and ODM and leaders in our focus markets, AI data centers, performance computing, energy and grid infrastructure and industrial electrification. We intend to streamline our distribution network to align with those high-power focus markets. This also means a change in geographical resource deployment, including creating a stronger presence in the U.S., where we have growing and promising engagement. Number four, portfolio and customer pruning. We are deprioritizing lower margin, short life cycle projects, transactional markets and customers such as mobile and selected China-based segment to redeploy capacity and attention to durable high-power program. Our focus is on the long-term engagement where technological innovation makes a difference. We believe this will ultimately drive high-quality business with greater predictability, consistency and higher margin. Overall, this change will impact our business model. High-power engagement are indeed deeper, longer-lasting and multigenerational. We may often engage across multiple subsystems within the same customer, some served by GaN, others served by high-voltage SiC. That breadth is expecting to increase win rates, raise the blended margin and produce more predictable, repeatable revenue compared with transactional, lower-margin segments such as mobile. This is the foundation for Navitas 2.0, a scalable, profitable and sustainable enterprise. At the OCP Global Summit, NVIDIA named Navitas a power selector partner for its next-generation 800-volt DC AI factory power architecture. That validates our ability to serve the entire power path from the grid to the GPU. In support of this ecosystem, we announced our first 100-volt GaNFast alongside our portfolio of 650 GaN discrete Fast and our GaN Safe IC and expanded high-voltage SiC products. This is our first formal entry into medium voltage GaN, the critical range for AI server power stages and rack level distribution. We're sampling now 2.3 kilovolt and 3.3 kilovolt high-voltage SC module to leaders in battery energy storage system, solid-state transformer program and megawatt charging. The strategy and opportunity are clear. To get there, our plan is grounded in 4 pillars: number one, market focus, AI data centers, performance computing, energy and grid infrastructure and industrial electrification. We will stay sharply focused on those high-power markets only. Number two, technology and manufacturing leadership, continuous innovation in GaN, GaN IC and high-voltage SiC informed by customer requirements and co-design. We have a strong foundation in technological innovation, and we'll continue to lead the industry. We will also expand our manufacturing footprint to better serve our high-power customers. You may also see us doing more partnership to enable faster adoption. Number three, operational efficiency, a streamlined and rebalanced geographically deployed organization, a scalable foundry and packaging and module partnerships. Number four, financial discipline, prioritized investment, leverageable OpEx and a shift towards high-margin program. In the near term, this transformation will have an impact, including a reduction in guidance before returning to growth. We expect Q4 to mark the bottom as we take decisive actions, including reducing channel inventory, consolidating distribution channel and adjusting our inventory to better align with our new high-power markets and customers. By deprioritizing lower-margin revenue and redirecting our road map and investment away from non-high power businesses, we believe we will accelerate our transformation and gradually improve the overall quality and profitability of our business throughout 2026. This is expected to yield more consistent growth and margin expansion. We'll continue to provide transparent updates on our progress throughout this transition to ensure accountability at every step. AI data centers and performance computing are already shaping product [ requirement and designing ] and design wins. On the AI data center front, we expect material P&L contribution starting 2027. Our work with NVIDIA and other hyperscalers, GPU vendors, OEM and ODM, however, established already in 2026, a durable design win foundation for long-term growth. On performance computing, we continue to make progress in engagement as GaN technology is gaining rapid adoption in higher power, and we expect this to drive growth already in 2026. In parallel, energy and green infrastructure are multibillion-dollar markets with multi-decade opportunity where high-voltage SiC is exceptionally well suited to our customer road map. As we embark in this transformation and execute this transition, we will share information for you to track our progress through transparent and clear update in the following area. First, a sharper focus on high-power account and program, which will be seen in growing importance and weight in our revenue, driving a change in mix. Second, operating expense, financial discipline and return on investment-driven road map decision solely focused on Navitas 2.0 North Star. Third, gradual gross margin improvements as we reduce lower-value shipments, grow more higher power engagement and overall improve the mix. In conclusion, our GaN and GaN IC built a strong presence in mobile fast charging, and we are very proud of the 300 million units shipped. This gives us an in-depth understanding and [indiscernible], and this is the business that brought us to where we are today. We have complementary high-voltage SiC technology, products and modules, enabling us to cover more of this high power chain. High power markets are different and more rewarding. Engagements are deeper, the past cycles are longer and the value we deliver is measured in system-level performance and efficiency over multiple generations. This is where Navitas 2.0 will focus on. We're executing a clear pivot to high-growth, high-power markets focusing on AI and data centers, performance computing, energy and grid infrastructure and industrial electrification, anchored by a complete GaN plus high-voltage SC portfolio with long-standing customer relationship and disciplined operation. We're aligning our organization, resource allocation, road map and channels to the markets that matter. We firmly believe that the change we are making will improve the quality of our business and position us for sustained growth and margin expansion throughout '26 and beyond. From the grid to the GPU, Navitas 2.0 is a high-power company built for scale and profitability. Thank you to our employees, customers, suppliers and partners for their support during this transition. I look forward to deepening our partnership with stockholders, analysts and investors with transparent updates as we execute. With that, I'll turn the call over to Todd to review our third quarter results and our guidance. After Todd's remarks, I'll return for Q&A, including detailing our high-power Navitas 2.0 strategy, the actions behind the transformation and what it means for our business. Thank you. Todd Glickman: Thank you, Chris. In my comments today, I will take you through our third quarter 2025 financial results, and then I'll discuss the financial implications of Navitas 2.0 with our accelerated transition to a high-power company with focus on AI data centers, performance computing, energy and grid infrastructure and industrial electrification markets. Also, I will outline how we plan to reallocate our resources with our new, more focused approach designed to grow revenue and seek profitability. Revenue in the third quarter of 2025 was at the midpoint of guidance at $10.1 million. While the industry environment remained relatively static compared to the second quarter of 2025, the expected revenue reduction reflects both adverse impacts from the China tariff risk for our silicon carbide business and pricing pressure in our mobile business, particularly in China. Before addressing gross profit and expenses, I'd like to refer you to the GAAP to non-GAAP reconciliation in our press release. In the rest of my commentary, I will refer to non-GAAP measures. Gross margin in the third quarter was 38.7%, which was up sequentially compared to 38.5% in the second quarter, primarily due to a slight favorable change in end market mix. In the third quarter, we executed on further operational efficiencies, and we reduced operating expenses sequentially from $16.1 million to $15.4 million. Operating expenses were comprised of SG&A expenses of $7.1 million and R&D expenses of $8.3 million. These expenses align with our cost reduction target. Adding all this together, the third quarter 2025 loss from operations increased sequentially to $11.5 million from $10.6 million in the second quarter of 2025 as cost reductions did not fully offset the sequential decline in revenue. Our weighted average share count for the third quarter was 213 million shares. Turning to the balance sheet. Accounts receivable was down to $9.8 million from $12.5 million in the second quarter. Inventory was relatively flat since last quarter at $14.7 million. Our balance sheet remains very strong as we exit Q3 2025 with high levels of liquidity and an improved working capital position. Cash and cash equivalents at quarter end were $151 million, and we continue to carry no debt. Moving on to guidance for the fourth quarter. We currently expect revenues at $7 million, plus or minus $250,000. This expected revenue reduction reflects our strategic decision to deprioritize our low-power, lower-profit China mobile business as well as our efforts to level set channel inventory and streamline distribution network to align ourselves with our high-power directive. We believe that Q4 will represent the bottom for revenue as these actions will allow us to move faster to concentrate on the high-power business and customers that will, in turn, enable consistent gradual revenue growth throughout 2026. Gross margin for the fourth quarter is expected to be relatively flat compared to the third quarter with our guidance at 38.5%, plus or minus 50 basis points. However, we anticipate the technological innovation we bring to high-power, high-growth markets will result in a progressive increase in gross margins going forward. Turning to operating expenses. We anticipate continuing to trim expenses to $15 million in the fourth quarter, reflecting a 24% year-over-year reduction. We expect to continue to reallocate resources and expenses as we redeploy the company towards higher power customers and markets, notably U.S. customers. The redeployment and an appropriate downsizing of our facilities will result in a lower quarterly operating expense level, and we believe we will be well positioned with our personnel and resources to execute on our pivot to higher power, resulting in quarter-over-quarter quality sales and margin growth and route to profitability. For the fourth quarter of 2025, we expect our weighted average share count to be approximately 214 million shares. In closing, it is an exciting time at Navitas 2.0 as we leverage our leadership in GaN and high-voltage SiC to pivot to a high-power company and capture the exponential growth expected to come from AI data center, performance computing, energy and grid infrastructure and industrial electrification. We are moving fast to transition from consumer and mobile markets to more sustainable, higher power segments where Navitas is well positioned as the leader in GaN device shipped and high-voltage SiC to deliver a high-quality, scalable business. We are confident these strategic moves position the company for its next wave of more profitable growth. Operator, let's begin the Q&A session. Operator: [Operator Instructions] Your first question comes from Kevin Cassidy from Rosenblatt Securities. Kevin Cassidy: Welcome, Chris. Looking forward to working with you. Maybe just to understand a little better the shape of this transition. How long of a tail is the mobile market? Do you have some higher voltage applications in the mobile market that could continue on and then cross over to the power supplies, high-voltage power supplies. When do you expect that would be more than 50% of the business? Todd Glickman: Yes. No, that's a great question. Maybe I could start there and Chris can add color. So when we're looking at the business today, right, I think as we look at Q3, mobile represent the vast majority of our business. And as we move into Q4, it's going to actually represent less than 50%. And all the growth going forward in our company as we go quarter-on-quarter, as we discussed, the gradual growth is going to come from these new markets of AI data center, performance computing and grid infrastructure. Chris Allexandre: [ Ralph ], nice to meet you and a very good question. As we move towards '26, what we see is as mobile continue to decline, we see an acceleration of the high-power market that Todd just listed. And we believe this is going to enable us to drive the quarter-over-quarter gradual growth that we talked about. When it comes down to mobile, I think you have to differentiate the high end of the mobile to the low end of the mobile. The low-end side has quickly commoditized over the last year or 2. The high end, however, we've reached a plateau. And if you think about 100-watt chargers today, there is less and less differentiation, and we anticipate an acceleration of the commoditization. That's why we decided along with the speed and the opportunity in the hyper market that Todd mentioned, we decided to accelerate that pivot that we have planned for a while. Kevin Cassidy: Okay. Great. And just as a follow-up, just to understand the AI data center, I see it as 2 stages. One, you have the power supply companies that tend to be more conservative, we'll say, in making transitions and compared to the AI data centers that are starving for more power and would probably want to switch over more aggressively. So what is the strategy there? Do you work with the end users and pull the power supply customers along with them? Or do you work behind the power supply customers? Todd Glickman: It's a very good question, [ Ralph ]. It's actually -- we do both. But as we pivot, the orientation of our engagement is definitely more towards the OEM and the hyperscalers. Let's start by AI because everybody talks about AI. AI is really a catalyst that drive change across all the markets we talked about, data centers, of course, but we'll talk about performance computing that is also disrupted by AI as well as the grid energy infrastructure. So as we ship today to AI, we ship to the, as you said, the power companies, mostly sitting in Taiwan. However, as the hyperscalers are taking control and driving the disruption of the architecture, we see engagement is pivoting towards the U.S. And the announcement made by NVIDIA with the 800-volt DC AI factory is really just an amplified example of how the hyperscalers are now trying to drive from the grid to the GPU and driving the architecture change at all stages. So we talk to those hyperscalers on all level of the stages. We, of course, work with their partners to implement those solutions, but the system-level discussion that we have and that we had had over the last few weeks and months are really kind of enabling this transition that NVIDIA talked about, both for GaN as well as high-voltage SiC. Sorry, I called you -- I didn't use the proper name Kevin. Operator: Your next question comes from the line of Ross Seymore from Deutsche Bank. Ross Seymore: Chris, welcome aboard, and you can call me, Kevin, if you want. So I guess a bigger picture question just to start. So when you guys were added to the collaboration list for the 800-volt data center stuff at NVIDIA, there were 10 names. The line at the time was you were the only one with GaN and silicon carbide. Now there's 14 names and the incremental 4, a bunch of them do have the GaN side, maybe not as much silicon carbide. So I guess the question is, when you look at 14 potential competitors or whatever subset you align to, what do you think the true competitive differentiation is for Navitas? And is it more on the silicon carbide or the GaN side? Chris Allexandre: Thank you. Very good question. I would say -- I would start by saying that the fact that we have both high-voltage SiC and GaN has not changed. And this is truly, as you said, a differentiator and not many of our competitors are having that. The other thing, and I've spent over the last 8 weeks, a lot of time with those customers, right? They all told me the same. When it is about enabling that pivot that technology disruption, that adoption of GaN track record matters. And we have through the pioneering of GaN into the first market that got GaN at scale, which is mobile charger, developed expertise, deep technology understanding and experience that really matter. So I would say beyond the technology understanding, the fact that we have both speed and track record is going to be a key differentiator. And as I talked to NVIDIA and a few other of the hyperscalers, they all told me the same. It's about speed and support to have them enabling that transition with safety and execution. And that's where we're going to differentiate against our competitors. Ross Seymore: And I guess whether it be you or Todd, it's nice that the fourth quarter is the bottom. When you think about growth going forward, I thought I heard, and forgive me if I missed out a little bit on this, but I thought I heard a significant portion of the data center side would be more in 2027. So just not putting absolute numbers around it, but the tailwinds sequentially in 1Q, 2Q, et cetera, of '26, what gives you the confidence this is the bottom? And just kind of conceptually, what are the areas that are going to grow off of the $7 million in the fourth quarter? Todd Glickman: Yes. I think what gives us confidence that this is the bottom is we actually proactively are walking away from revenue in mobile. We want to make sure that there's not a distraction in the business and we can concentrate on the long-term goal here, which is data center performance computing and grid infrastructure. So that's how it gives us the confidence. And going forward, the growth is going to come out of those markets and not mobile. And with today, mobile represent a large majority going forward, that's going to continuously go down as we move through 2026. So that gives us confidence not only the better revenue, but it will be more sustainable and more profitable. Chris Allexandre: Let me add just one comment. First of all, as Todd said, by walking away from short term, less long term, less innovation-based engagement with customers and applications, we are pivoting our resource a lot faster to drive this new growth. Number two, there's a clear acceleration in those markets. Should it be the growth in data centers itself, even in the form of the traditional, should I call it this way, traditional power implementation before we move to the 800-volt DC, and we benefit from that through the power vendors. If you look at the impact of AI in performance computing with those notebooks and other high-end computers getting more powerful, they also require a lot more power. And we see an acceleration of that demand to higher power in '26 is going to drive a lot of growth. Last but not least, we also see an acceleration of demand in any form of energy and green infrastructure. So we have a lot of pull from midsized to large-sized customers really trying to accelerate how they can enable the AI revolution. So long story short, the AI is a catalyst across multiple markets. And yes, data centers itself through the 800-volt DC will drive a lot of accelerated growth, but we see that catalyst already [ yielding ] the fruit in '26. Operator: Your next question comes from the line of Quinn Bolton from Needham & Company. Shadi Mitwalli: This is Shadi Mitwalli on for Quinn. Obviously, the move away from China Mobile is having a bigger impact than expected. But I just want to get some more color on the puts and takes here. And just overall, has anything new changed over the last 90 days? Todd Glickman: You know, nothing's new changed besides the fact that Chris has been on the road talking to customers, and they've asked us to go faster. And so instead of focusing and sort of allowing mobile to still represent a large majority of our business going forward, we did a more proactive approach to walk away from that. And so that's really the key difference in the last 90 days that's happened just because the growth in these new sectors is extraordinary, and we want to make sure we're in the best position to take advantage of that. Chris Allexandre: [ Sean ], let me add some color because I joined 8 weeks ago. So if any change, I'm probably the one behind the change, right? I would say the market itself has not changed, okay? There is a clear acceleration, and it is faster than it was just a few months ago. But what has changed is the clarity that we have that we can't continue to transition smoothly. I come from a background where if you double down on the greatest opportunities, you have more chance to capture it. Again, as I said, I have met a lot of customers, all of them in data centers, computing, infrastructure, all told me the same. They want to move faster, they want to enable the transition. So it was very clear for me after a couple of weeks on the road that we cannot transition this keeping some of our resource maintaining the past. So we have to double down and move our entire resource or most of our resource into enabling the future so that we can capitalize on the opportunity we have and maximize our chance of winning. So I would say the one thing that has changed is the clarity and the pivot. I think historically, we've been trying to manage the past and the future. And with the amount of resource we have, we just have to accelerate that transition, in my opinion. Shadi Mitwalli: Great. That was helpful. And then my follow-up is on the solar end market. I believe in Q1, you guys talked about ramping a solar microinverter win in the second half of this year. And I was just curious if this is still on track? And if so, how is the ramp going? Chris Allexandre: Yes, nothing has changed. I mean you're referring to the GaN BDS, which will ramp in '26 with our lead customer, which is part of the energy and green infrastructure segment that we talked about. Operator: Your next question comes from the line of Jack Egan from Charter Equity Research. Jack Egan: Chris, congrats on being appointed CEO. So Navitas, I mean, I guess kind of a high-level question. Navitas certainly has some exciting opportunities ahead of it. You came from Renesas, you had experience with quite a few large companies in the analog and power space. And so obviously, one big difference is going to be the culture of moving from a company with 10,000 employees to a few hundred. So yes, just from a high level, what are some of maybe the cultural or operational characteristics, I guess, from your prior experiences that you might plan to install at Navitas? Chris Allexandre: Thank you for the question. Of course, we are transitioning the culture as we speak. I come from a culture of strong execution and pivot with clarity, and that's what we are bringing here. What I would say as well is have learned very well some of the pitfalls of big companies that do not always move the fastest. So the culture that we are building in Navitas and what you are seeing in the choice we've made walking away from our historical business is, number one, clarity and being solely sharply focused on what's going to make us more profitable and more sustainable from a result point of view in the future. Number two, speed -- speed so we can transition faster and execute the plan for our customers in a faster way. And number three, execution, which I think was probably missing in the culture that we had here so far. Jack Egan: Great. Okay. That's helpful. And then for the mobile business in China, you are sticking with the longer term, some of the higher voltage, higher value opportunities. Is there any reason why the competitive and pricing pressures won't eventually kind of move up to that side of the business, like kind of like what's happening with the lower value chargers now? Chris Allexandre: I think it's a very good question. What I would say is what's happening in mobile today is the fact that innovation has stopped bringing any value. We've been in the last few years about how do we basically get more power into a smaller form factor. Today, we've reached a plateau. 100-watt charger is fairly small, and it's all about getting it cheaper. When you look at data centers, even if you look at performance computing, we are not at that point. At this point, this is about how do we basically accelerate the efficiency? How do we accelerate the transition, the adoption of high-voltage SiC, the adoption of GaN. And we are at complete different power level. So if I give you an example about high-performance compute with AI going to the client, we are talking about how do we get those super high-end computers into multiple hundred watts. And this is a complete different ball game compared to what we've seen in mobile, where content is much higher, expertise and ability to execute is much harder. And I think this is going to benefit companies like Navitas who have mastered GaN for the last few years into the first market that took it to scale. So I think the answer to your question is yes. Ultimately, when power level will plateau, and innovation will not make a difference. You're going to get there. But what I see is we are very far away from this in any of the market that we're talking about, in particularly anything that touch AI. We're talking about 10x, 100x every generation after generation [ in power ] delivery. Operator: Your next question comes from the line of John Tanwanteng from CJS Securities. Jonathan Tanwanteng: My first one is, could you just talk about the data center prospects in '26 before you ramp the 800-volt products? Just what kind of growth are you expecting in the next year with the legacy servers and ecosystems that are out there currently? Todd Glickman: Yes. That's a great question. So Jon, I mean, today, we do -- we are shipping into AI data centers today. It's not material. As we look into '26, we'll continue to grow that revenue. But at the end of the day, the materiality when this is going to become a larger portion of our business is going to wait until 2027 when 800-volt becomes prime time. So that's when we really expect the exponential growth happening from data centers. Chris Allexandre: Sorry, do you mind if I just add a few color? The way I view it is, again, there is a disruption in the adoption of GaN and high-voltage SiC coming with this new concept of basically breaking the traditional way the data centers were built, okay, moving from the super high voltage going through AC/DC and then converting it down to lower power. With the NVIDIA announcement, we are talking about volt down to GPU. So that will drive a lot more content and the rapid adoption of GaN. In the interim, as I said, AI is a catalyst. There's more server and AI deployment out there that drive ultimately growth for anybody serving power, right? So that's what Todd said. If you look at we are shipping today in data centers, that revenue will grow. It's not material, and it will not represent a material impact. But in '27, as we pivot to the new architecture, this is where the content in GaN, mid-voltage GaN and high-voltage GaN is going to drive to a complete different level. Jonathan Tanwanteng: Great. And then I was wondering if you could talk about your cash position and your burn rate, and if that leaves enough for you to ramp growth to meet that next-gen data center demand as you enter '27? Todd Glickman: Yes, absolutely. So we finished the quarter at $151 million, and it's a very healthy balance sheet with no debt. Right now, we're burning around $10 million to $11 million a quarter, and that should be plenty to give us ongoing -- for ongoing operations. So that's where we stand today. Operator: Your next question comes from the line of Tristan Gerra from Baird. Tyler Bomba: This is Tyler Bomba on for Tristan. Navitas was initially planning on starting to ramp silicon carbide [ epitaxy ] internally mid-2024. How much of your silicon carbide output is currently in-sourced? What is your target for that either in terms of dollars or percent of revenue? Todd Glickman: Yes, that's a great question. So yes, we did initially when the market was tight, and we wanted to generate some epitaxy in-house. But however, given the market has loosened, we no longer do that. So we never initiated that project. And we are -- all of our substrates and epi as it relates to high-voltage silicon carbide is outsourced today. Operator: The next question comes from the line of Richard Shannon from Craig-Hallum. Richard Shannon: Chris, welcome to Navitas. I look forward to working with you as well. Let me ask my first question on data center here and talk about the engagement and how things are going here and ultimately when you expect to get to wins here. I think the kind of one of the part of the engagement model, which we didn't hear about any in your prepared remarks is working with Infineon as a second source into this area. Wondering if that's still part of the strategy here. And then ultimately, when do you expect to be able to talk about getting wins and having visibility on when they ramp? Chris Allexandre: Thank you for the question. So first of all, I'll answer on the Infineon. We continue to communicate with Infineon. You know that we have a cross-licensing going on. We continue to be aligned on the vision that we want to enable the adoption of GaN and high-voltage SiC into those hyper markets. When it comes to the engagement with NVIDIA, and I would say broadly with the hyperscalers because we don't only spend time with NVIDIA, but we also spend time with a lot of the other hyperscalers, OEM as well as ODM, right? For me, '26 is about enabling the transition. First of all, we are not focusing only on the mid-voltage and closer to GPU. We are focusing on the whole chain. We talked about energy and grid infrastructure. If you think about the first stage of the 800-volt DC, it requires to basically move from transformers to solid-state transformers where high-voltage SiC is a prime technology. Then you have to go to multiple stage of power conversion. So -- if I -- your question is when can you basically give us color on the engagement. We'll continue to give you in a transparent way how we expand our partnership. We can't be specific on any form of engagement. But what I can tell you is the number of interaction at system level, product level, technology level with some of the hyperscalers that you mentioned is all-time high. Richard Shannon: Okay. Great. Second question, I really just kind of looking at calendar '26 here, and it's kind of a multipart question here. Please bear with me here. wonder if you could give us some sense of the relative contribution of your lower voltage GaN here and also silicon carbide? And then ultimately, I think the question we're going to get asked a lot tomorrow morning is, can you -- how do we think about calendar '26 sales? It seems like it's almost no chance it's going to grow year-on-year based on the dynamics you've discussed here. But if you could make any comments about how that looks, that would be great. Chris Allexandre: So I'll start by answering your question about GaN versus SiC, right, and the growth towards '26, and I'll let Todd add some comment with a bit more detail. First of all, we don't look at the business at GaN versus SiC. As I mentioned early on, we are focusing on enabling this low power to high power. And we look at revenue really from a segment point of view, okay? That's number one. Now if you want a bit more color, and we talked about the fact that starting Q4, which is the bottom, we're going to grow quarter-over-quarter gradually as the high-power markets are offsetting the decline in mobile. Both GaN and SiC will grow in high power markets. That's the fact for '26. Now if you look at segment level, mobile will be down. Mobile consumer will be down. But high-power computing and energy grid infrastructure will be up. And data centers will grow even though not material throughout '26 and really kind of accelerate the growth in '27. Todd Glickman: Great. And I think one of the other questions was on when was low voltage going to go into revenue? Is that's correct, Richard? Richard Shannon: Yes. and some characterization of what kind of contributions you'll see for next year. Todd Glickman: Yes. So low voltage, we went to market with low voltage, as you saw, PSMC. That's designed right now for the 800-volt data center. So when that ramps, you're going to see material revenue from low voltage taking place. Chris Allexandre: Yes. We just announced a couple of weeks ago, our first -- it's actually a mid-voltage GaN 100 volt, which was the first outcome partnership with TSMC that we had for a couple of years. That's really tailored towards the last stage of power conversion into the AI 800-volt DC, and we expect that to start to ramp in 2027. Operator: Your final question comes from the line of John Tanwanteng from CJS Securities. Jonathan Tanwanteng: I was just wondering if you could talk about the incremental margins in the high-voltage data centers and the great opportunities, if they're any different from the existing high-voltage businesses that you have for high-power businesses? Todd Glickman: Yes. I think both those margins, we expect those markets to have higher margins and more sustainable than our current mobile and consumer business, which is what is contributing to our guide to basically go quarter-on-quarter growth as margins as revenue picks up in 2026. Chris Allexandre: And Jon, what I would say is the high-power markets are very different in nature. First of all, as we talked about, they are at the beginning of the adoption of those high-voltage technologies, so be GaN and high-voltage SiC. Number two, it's about innovation. It's about speed, it's about execution. Yes, all those customers want us to be cost competitive. Yes, cost is part of the criteria that they make decision. What I can tell you, having met many of them over the last 60 days is that they don't lead with that, very different from mobile, where we've plateaued from an innovation standpoint. And now it's about how can you make my charger cheaper. When we talk to the OEM, ODM, hyperscalers, they are asking us, how do you do what you do faster. So I think margin and value that we bring and value that we extract will help us to uplift the margin as the high-power portion of our revenue increase over time. Jonathan Tanwanteng: Got it. And actually, the second question is a follow-up to that. How are you planning to accelerate that development? Is it -- what are the remaining things that you need to do to produce products for these markets that work and do you have -- you can scale? Chris Allexandre: Well, this is why we've decided to basically move faster away from mobile, right? It's application engineering, it's support to customers. It's system engineering. It's R&D. It's basically moving most of the R&D, if not the entire R&D towards making road map for those markets instead of maintaining generation over generation presence in the low-end mobile market. So it is basically pivoting -- and I think I've heard the word pivot and transformation. It is pivoting the entire resource level to capture on that growing opportunity moving forward. Jonathan Tanwanteng: Okay. Great. Last one for me. Can you just talk about the capacity to ramp for these customers? I know you have that new agreement with Powerchip. Just help me understand what the capacity there is to meet the demand if you do get a significant amount of share there. Chris Allexandre: So what I would say is, first of all, TSMC has been a great partner, and they are helping us to transition for the next few years. We expect to continue to ship from TSMC for the next multiple years. Number two, we are ramping TSMC. We are in transition. We announced the first product from mid-voltage GaN. We're going to transition the high-voltage GaN in '27. And last but not least, we continue to look for new foundry partners to be able to capitalize on the opportunity that we have, either from a geographical supply chain point of view or a cost point of view as well as volume point of view. Operator: That concludes the Q&A session for today's meeting. You are now able to disconnect. Everybody, have a great day.
Operator: Good afternoon. Thank you for attending the Offerpad's Third Quarter 2025 Earnings Call. My name is Cameron, and I'll be your moderator for today. [Operator Instructions] And I would now like to pass the conference over to your host, Cortney Read with Offerpad. You may proceed. Cortney Read: Good afternoon, and welcome to Offerpad's Third Quarter 2025 Earnings Call. I'm joined today by Offerpad's Chairman and Chief Executive Officer, Brian Bair; and Chief Financial Officer, Peter Knag. During the call today, management will make forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently uncertain, and events could differ significantly from management's expectations. Please refer to the risks, uncertainties and other factors relating to the company's business described in our filings with the U.S. Securities and Exchange Commission. Except as required by applicable law, Offerpad does not intend to update or alter forward-looking statements, whether as a result of new information, future events or otherwise. On today's call, management will refer to certain non-GAAP financial measures. These metrics exclude certain items discussed in our earnings release under the heading non-GAAP Financial Measures. The reconciliation of Offerpad non-GAAP measures to the comparable GAAP measures are available in the financial tables of the first quarter earnings release on Offerpad's website. With that, I'll turn the call over to Brian. Brian Bair: Thank you, Cortney, and thanks to everyone joining us today. The housing market remains in a period of transition. Affordability challenges and limited mobility have defined the past 2 years, but signs of stability are beginning to appear. Mortgage rates are easing, buyer confidence is improving and sales activity is picking up in key markets. For Offerpad, that shift represents opportunity. We built this company to adapt, not depend on market conditions. That flexibility has carried us through the toughest housing cycle in a generation and positioned us to lead as the industry transforms around efficiency, technology and customer experience. Now we're channeling the strength into growth. We're playing offense with control, intentionally keeping inventory lean and turning it faster while scaling asset-light services that meet sellers where they are, whether that's speed, certainty or listing-led path. Over the past year, we have taken deliberate steps to strengthen every part of our operation. We refined our buy boxes using proprietary data to sharpen acquisition criteria and improve decision-making. We have also made meaningful progress in deploying artificial intelligence across our operations to drive efficiency and scalability. We're integrating AI-driven picture recognition and smart scoping technology into our workflow. By the end of the year, we plan to launch the first phase of that capability. It will enable our system to analyze property photos, automatically identify condition issues, estimate renovation needs and feed that data directly into our pricing model. Combined with our continuously improving AI pricing engine, which has become more accurate even in today's uneven environment, these tools help us price homes more precisely, reduce manual inspection time and human variability and increase margin confidence before we deploy capital. In parallel, we are creating new process flows to scale our Direct+ business, which enables us to sell homes directly to strategic and institutional buyers. As part of this effort, we are evaluating a new segment of properties with characteristics distinct from our current Direct+ portfolio, broadening our opportunity set and positioning us for future growth. Automation and data power our operations. This allows us to scale efficiently, reduce cost per transaction and deliver more consistent results across every solution we offer. At the same time, we continue to refine our pricing models to optimize margins and support disciplined, profitable growth in any market. Although we are encouraged by early signs of stabilization, we're also realistic that recovery will unfold in phases. Before expanding acquisition volume meaningfully, we are taking the time to ensure we buy the right homes in the right markets under the right conditions. This approach is very intentional. Our outlook is steady today and positioned for tomorrow. We expect heightened seasonality as we move through the winter months. And even with more acquisition and overall transaction opportunities, it takes time for those homes to progress through our inspection, renovation and disposition process. Our disciplined approach keeps us well positioned to benefit as transaction volumes increase and our recent acquisitions convert to closings. We expect that momentum to bring us back towards our near-term goal of 1,000 transactions per quarter. To help drive that next phase of growth and execution, we strengthened our leadership team with the addition of a proven operator. I'm very pleased to share that effective today, Chris Carpenter has joined Offerpad as our Chief Operating Officer. Chris brings more than 20 years of experience leading transformation, operations and strategy across Fortune 500 companies and private equity-backed ventures. He previously served as lead transformation executive at WarnerMedia, where he oversaw large-scale integrations and business strategy initiatives. Chris is known for driving efficiency and execution at scale. His leadership experience and operational mindset will help us strengthen the connection between technology, operations and customer experience, enabling us to scale efficiently and deliver even greater impact for our customers and overall conversion. Everything we have built from our data-driven processes to our diversified solutions comes together into 4 strategic pillars that create value, strengthen resilience and position Offerpad to lead the next phase of real estate innovation. These pillars define how we operate today and how we will continue to grow. Cash offer remains the foundation of our model, providing sellers with speed, certainty and control. We're deploying capital deliberately, prioritizing contribution profit and velocity over volume. That's how we protect returns and optionality in a rate-sensitive environment. HomePro extends that foundation through an agent-led approach that gives sellers in-person guidance and flexibility without requiring incremental capital. Renovate continues to grow rapidly, achieving our third consecutive record as we help partners transform inventory into move-in-ready homes at scale with repeatable workflows and predictable margins. Direct+, our cash offer marketplace, deepens institutional relationships and funnels more transactions through an asset-light channel, lifting margins per unit. Together, these pillars create an integrated ecosystem that adapts to a range of market conditions. With that, I will turn it over to Peter to walk through our financial performance. Peter Knag: Thank you, Brian. In the third quarter, we reported revenue of $133 million and sold 367 homes. Gross margin was 7%, resulting in $9.3 million of gross profit. Operating expenses, excluding property costs, totaled approximately $12 million, a reduction of 37% year-over-year. That improvement reflects the work we have done across every function to drive lasting efficiency from marketing and vendor management to automation and organizational structure. Our teams continue to execute with precision. Every dollar we spend today is focused on performance, margin and scalability. We are not only operating leaner but smarter, making decisions guided by data, automation and technology that give us greater control over both cost and outcomes. Adjusted EBITDA improved sequentially by 4% to a loss of $4.6 million. This progress demonstrates how our disciplined approach and operational improvements are steadily flowing through to results. We have seen higher marketing efficiencies, stronger vendor terms and meaningful savings, all of which position us for continued EBITDA improvement in the quarters ahead. We ended the quarter with an inventory of 498 homes and acquired 203 homes in selective markets that met our margin thresholds. Our balance sheet remains strong with $31 million in unrestricted cash and total liquidity exceeding $75 million at quarter end. We have also expanded our lending relationships to reduce cost of capital and increase flexibility as we scale our asset-light businesses. Looking ahead to the fourth quarter, we expect revenue between $100 million and $125 million and homes sold in a range of 300 to 350. Adjusted EBITDA is expected to remain roughly in line with third quarter levels. We're guiding with discipline, grounded in what we see across our business today and where we have clear visibility to execute effectively. Our intermediate-term goal remains at approximately 1,000 real estate transactions per quarter across cash offers, traditional listings and investor services. That level of activity supported by our ongoing efficiency initiatives sets the foundation for our next milestone, a return back to profitability. Even as acquisition opportunities expand, we are managing volume carefully until demand becomes more sustained. This approach gives us control today and flexibility to capture upside when the market accelerates. A larger share of revenue and margin will continue to come from asset-light services, HomePro, Renovate, and Direct+, as we advance towards a more diversified and capital-efficient model. These businesses demonstrate the strength of our platform and the value of disciplined execution. Finally, I want to echo Brian's enthusiasm about Chris Carpenter joining Offerpad as Chief Operating Officer. His experience in large-scale transformation and operational excellence perfectly complements our focus on financial discipline and scalable growth. I am excited to partner with him as we continue driving efficiency and performance across the business. With that, I will turn it back to Brian. Brian Bair: As Peter highlighted, our disciplined execution and operational strength have created a foundation that allows us to move forward with confidence and control. The past few years have tested this industry, but they have also proven the strength of our model. Our platform is more diverse, our operations are more efficient, and our technology is driving measurable results. The market is still tight on mobility, but it's showing early signs are fine as rates ease and inventory inches higher. In that context, our strategy is simple: Keep inventory tight, turn it fast and scale the asset-light platform. As conditions improve, Cash Offer, HomePro, Renovate, and Direct+ give us multiple ways to win with more capital efficiency, better unit economics and greater resilience than a single path model. We are energized by what is ahead and confident in our future, a company where every part of the business works together to drive growth, efficiency and exceptional customer outcomes. Thank you for your time and continued support. We are now ready for your questions. Operator: [Operator Instructions] The first question is from the line of Dae Lee with JPMorgan. Dae Lee: I have 2. So first one is for Brian. You talked about strengthening the foundation of your business and expanding the reach through asset-light services. So looking ahead, like what are your top priorities to ramp HomePro, Renovate, and Direct+ from here? And as you look out to 2026, where do you see the biggest upside across those 3 asset-light services? Brian Bair: Yes. Dae, there each one of them has its own story about where we're seeing opportunity. And what we're highly focused on with all of them, just in general is conversion. On the HomePro side, we're seeing some really positive signs. Obviously, it's early there, but some very positive signs of meeting the sellers where they're at and the ability to talk to sellers about different products that potentially if the cash offer doesn't work, having them have another cash buyer's opportunity to bid on their home as well and then the listing opportunity as well. And so we're really seeing that with sellers. So I think the opportunity there is just really to maximize conversion. And there are obviously a lot of learnings as we're building out this program and getting better and meeting sellers faster and some different things that we're learning along the way. But I think that is -- that has tremendous opportunity. I think as you start seeing the market pick up and different things happen, I think that's going to expand our Direct+ as we start to buy more homes or as the market starts to loosen up a little bit, you're going to see a lot of our other cash offer partners start to buy as well, which leads to 2 things, more of our Direct+ business, but the second part is really helping our renovation business as well. And -- as you saw with some of the numbers, Renovate continues to grow even in these market conditions. And what I like about that, we have a lot of really diverse customers in that, the Renovate and the Direct+. And so they're going to be there and they're more diverse than any other market opportunity, they'll be able -- would be able to use our services. That's either Renovate or the Direct+ services. So a lot of opportunity that we're seeing. And I will tell you, just to finalize that with the Cash Offer, which is kind of the base of what we do in this environment, we're seeing more and more people that are in moments that really value the Cash Offer. And so obviously, we're working on our efficiency, our timing and making our Cash Offer better every day, but making sure that we're also buying the right type of homes that we want in this environment. So really liking what we're seeing for setting up for 2026. Dae Lee: Got it. And then second one could be either for you, Brian, or Peter. As you work towards that 1,000 transaction target that returns you to breakeven, like how should we think about the mix between asset-light services and traditional cash offer deal? And is there like an optimal blend for margin and growth? And just as a quick follow-up to that, is there like an equivalent number that you guys can provide for 3Q or in your 4Q guide that's equivalent to that 1,000 transaction because understanding that's different from homes selling now going forward. Peter Knag: Sure. So the 1,000 transactions, right now, the mix is roughly whether you look at it based on a gross profit perspective or based on a volume perspective, the mix is directionally around 1/3, 2/3 with the larger piece coming from our Cash Offer, and this is excluding Renovate services, just focused on our real estate transactions. The -- where we're moving is -- the most important thing on this topic is conversion. So as we move from where we were 2 years ago with really primarily one product to today where we have 4 or 5, if you include Renovate, conversion goes up significantly. And as we bring those new products in the market, it becomes the approach to and the execution around getting to 1,000 transaction is easier and more straightforward. We expect the mix to -- as we move across next year to move up and get to at some point next year, over 50% from the asset-light products. And we are going to -- as I mentioned last quarter, we are working towards providing better detail. We do break out other services and Cash Offer in a separate segment in the Q, but we are going to provide more detail on each of the products and the volume on the IR website and the trending schedules as we get into next year. So that will help you from -- just from the perspective of guidance. And finally, what I'd say is we have guided on homes sold for next quarter like we have historically. We are -- if you add it in, we're not guiding towards or disclosing the exact number of real estate transactions. But I'd say at a high level, if you look at the 1,000 transactions that we're working towards this quarter and next quarter, we're about halfway there if you include both the cash offer and the asset-light transaction. So it's a matter of moving to 500-ish -- from 500-ish to 1,000. Brian Bair: One other thing I'll just add there, Dae, is that as we look at it, I continue to think the cash offer is the best product in real estate. It solves the most friction from the customer, the speed, the certainty. And so that is always going to be the foundation. But I also like what we're setting up is it lets them choose their own path, what's best for them. And so if they want to try to explore the open market, we can help them with that as well to see if anyone else is willing or able to pay more money than they can or we can. But also, we're shopping their home through other -- with our Direct+ through other cash offers to see if we can get them a higher offer than even ours. And so I really like where -- what we're doing with the seller to put them in control. And it leads and starts with the cash offer. But overall, we want the seller to eventually choose what's best for them. But I think the Cash Offer is always going to be a really powerful tool in there. Operator: The next question comes from the line of Ryan Tomasello with Keefe, Bruyette, & Woods. Ryan Tomasello: Regarding HomePro, can you just discuss the hiring needs that you envision are needed to support the growth in that channel, just given that it's obviously more high touch with human involvement from these agents? And then I think you alluded to this on your prepared remarks, Brian, but any color just on early stats on impacts to conversion rates that you're seeing? And also, if you have the data, what the mix is on that conversion on Cash Offer versus a traditional listing? Brian Bair: Yes. So I'll talk high level about HomePro and then we can get in a little bit more detail. But as far as headcount, what I really like about HomePro is that whole division is primarily ran from our HomePro and the agents in the field. And so we can run a lot of that through our data. And like, for example, when people come to Offerpad, they can schedule their inspection. That is -- all that is automated through different vendors through HomePros on that end of it. And so we can do a whole bunch with fewer heads internally, especially as I kind of -- again, I talked about in our prepared remarks, we're really leveraging our technology and figuring out how we can grow it and scale the company smarter than we did and as we come into this next market and especially with all the advances we're seeing with AI and some of that. And so -- but as far as the headcount, it's going to be mainly on the HomePros and then we'll use and leverage data and technology on that side. As far as the conversion, what we're seeing -- and again, it's early, but we're seeing right now in this environment, more people choosing the Cash Offer. More people that we're seeing than before are in a life moment that they don't have the time or the patience to wait and try to maximize and on the listing side. So we're definitely seeing more of an appetite for the Cash Offer on that side of it. And we think that will change over time. Obviously, there's a macro environment that comes with all of these products. And we want to be built for every -- anything that's happening in the macro environment, we'll have a product built for that. So that's what we're seeing from the early days of HomePro. Peter, I don't know if you have anything you want to add. Peter Knag: Yes, I'd add 2 things, I mean we will -- we recognized we need to provide more breakout on the mix, Ryan. So we will -- we're 3 months in. So we're still a little bit early stage to have meaningful numbers, although the trends are developing. So that's to come next quarter. But moving from 1/3, 2/3 to kind of 50-50 between asset-light and Cash Offer is where we're headed and HomePro's part of the asset-light and then the Direct+ piece is also part of the asset-light. The other piece that I just mentioned is we also do -- on the HomePro opportunities, do we do receive some revenue or a fee from the broker as they go out to the home effectively for the lead. So regardless of whether we -- if we transact on the home, we end up with a gross profit that's roughly the same magnitude as the gross profit from a Cash Offer for those HomePro traditional list transactions that we don't transact on and those that we do, we still receive a smaller, but we still receive some revenue for each one of those -- each transaction or each conversation in each home visit. Brian Bair: One other thing on that, Ryan, just to kind of double down, and I mentioned in the prepared remarks, but one of the biggest, I would say, manual processes that we have is the ability that we're inspecting thousands of homes to make sure we're buying the right type of product we go out there. And so -- the inspection process is, we've put a lot of tech into that over the years, but nothing like what picture recognition and some of the learnings from machine learning and AI that we're really focused on. We're hoping to have something by the first of the year, and we should have something by the first of the year that's really going to speed up that process. And that's one of the times -- and there's 2 wins on that, obviously, from a headcount and from getting just the AI that can learn from picture recognition and the tens of thousands or hundreds of thousands of homes that we've inspected over the time. But also we can get the seller their final price much, much faster as well, which is also a key to that. So those are some different things that we're doing and leveraging from a tech perspective that we don't have to add a bunch of headcount that we can leverage. Ryan Tomasello: And I guess what's the logic for excluding Renovate services from this math? Just as a quick follow-up to that discussion. And then a separate topic, in terms of institutional homebuyer activity, obviously, that's more impactful to your B2B products like Direct+ and Renovate. Any update on what you're seeing there in terms of demand trends and transaction activity would be helpful. Brian Bair: Yes. I'll take the second one. You can take the first one, Peter. Peter Knag: Okay. Yes, on Renovate, it's just -- it's just the way we think about it, right? We're focused on 1,000 real estate transactions, and those are transactions where a home is purchased and the home is sold. And so from us, the economics on those are very similar when you set aside the GAAP revenue recognition, differences on revenue and net revenue regardless of whether it's a Cash Offer where we balance sheet it, it's a traditional list where a broker lists and we participate in the fee or we underwrite it and the home is purchased by an SFR or an investor or it's on our platform and a partner Cash Offer business buys the -- purchases the home and pays the fee. The economics are very similar on a gross profit perspective. So we think of those as real estate transactions. Renovate is a related business and supports the Cash Offer, but it's a separate business and not necessarily associated with a home transacting. So that's just how we think about it. But, of course, is incremental to our profit and to our business. Brian Bair: Yes. And then on the second one, we have obviously some great partnerships with the Big 5 that buy a lot of our platform. Right now -- sorry, from the single-family rental side, they're buying, but not at the volume that we're normally used to or they're used to for that matter. And -- but what we have done with Direct+ is we continue to add different types of buyers to that division. And for example, and I think I mentioned this in the prepared remarks, but we get a lot of homes that come to us that we just don't have an appetite for. They are more as is conditioned homes or homes that are hard lived in. And those are homes that we now have Direct+, people that can come into or buyers into our platform that they can buy those type of homes, and we can actually help the seller by getting them an offer. It's a little bit different process. But -- so just adding more and more of those. We're having a lot of success with the -- from the long term -- we categorize people in Direct+ by short-term hold and long-term hold. From the long-term holders, we're having a lot of success with -- there are some newer funds that have started. But with that mid-tier fund, they're actively buying in segments of homes across the country, and most of them are more of 1 or 2 market experts that they want to buy in or they have appetite for those 2 markets. But we continue to add more and more to that Direct+ with a variety of different buyers in there to buy homes. Operator: The next question comes from the line of Michael Ng with Goldman Sachs. Michael Ng: I was wondering if you could talk a little bit about what you need from a transactions or Cash Offer versus kind of value-added services mix to get to breakeven? What does the environment look like for breakeven? Is that something that you think you might be able to achieve next year? Peter Knag: Michael, for sure. And first of all, yes, as we identified in the prepared remarks, at least directionally, we're focused on getting to 1,000 transactions. The mix, as I've said -- as I mentioned earlier, is going to move up to -- we expect it's going to -- will move up to around 50-50 as a next step. And both of those steps will happen as we move across 2026. So we're not ready to guide towards which quarter, but we were expecting this to happen almost regardless or really regardless of the real estate environment, and that's part of our strategy around diversifying the product set to a greater -- a larger set of products, 5 products and also products that we can transact on regardless of the market that we're sitting in and reach the conversion levels we need to get to 1,000 transactions in any real estate environment. And the second thing that I'd highlight is we ended -- and we've really made a lot of progress on our fixed expenses. We've taken -- we've removed about $150 million in fixed expense, annual expense from our operation. We -- just going sequentially quarter-over-quarter, we moved from $16 million down to $12 million in operating expenses, and we're going to continue -- we've -- there's been some actions already this quarter. We're going to continue to focus on cost reductions and execute that number down even lower. And so as you match the 1,000 transactions and the lower OpEx, that's when profitability kicks in. Brian Bair: And just on that, too, Michael, just one of the things I will just say on that as well is, we're definitely seeing some on buying a little bit. And hopefully, it's not a glitch. But over the last little bit, we are definitely seeing more sellers that are jumping into the market wanting to sell. And from our perspective, but also from just the overall macro perspective, starting to see more of that. And I think what's also key is being a little bit more patient as well. We saw sellers come on but also pull their houses off the market. So we're seeing sellers that are more willing to engage. And on the buying side of it, we're seeing early signs of purchase loan apps going up. We're seeing more -- some of the showing activity. We're definitely seeing in segments in some of our markets where sellers are selling and buyers are wanting to trade and they're together there in certain segments. And so obviously, a lot of work to still do in this market, but we're definitely seeing some things that are encouraging on that end. And a lot of this is just driven by the interest rates that are in the lower -- at lower 6s now. And so anyway, so we're seeing some of that and obviously, in effect, it makes us more willing, more able to buy homes and we're more comfortable with and then get more aggressive on that end. And also that's going to build the other products as well up over time. Right now, we're staying very disciplined, but we're liking what we're seeing in the market early, early signs. Peter Knag: And just one last thing I want to add to it because I want to make sure that it's come out and it's clear based on these questions in our prepared remarks is we are guiding towards a fourth quarter that's -- from a volume perspective is similar or a little bit less than third quarter. It's for a couple of reasons, including the seasonality of the holiday season and all that. But more importantly, we're guiding towards from a sign perspective, that's ticking up -- and from a close perspective, that from a purchase perspective, transactions are ticking up. And the most important guide for this quarter is for next year and that we expect to ramp back up to 1,000 transactions. Michael Ng: And just as a follow-up, I was wondering if you could just talk a little bit about the appointment of Chris as kind of the -- as somebody who's going to be leading transformation. Your most significant peer also has some leadership changes. I was just wondering if you could talk a little bit about like what are the key things that need transformation in this sector? Is it an acknowledgment that we might be in a kind of lower for longer type of environment? Is there something structural that needs to change about the current business model? Brian Bair: Yes. No, but great question. Yes, very excited about Chris. Chris is here to help on a few main key points. One of them is conversion. One of them is helping us get ready and prepared for scale again as we buy. And we're talking about the 1,000 as getting profitable -- the 1,000 per quarter to get it profitable. And that's our very -- it's our near-term goal where we want to be, but that's not what this company has built for long term. We've -- we want to grow and scale this company. Again, we want to be more disciplined. We want to be smarter, but I want to bring in key talent to help us do it again and do it smarter this time and to have different skill sets and fresh perspectives. And so I think Chris can be able to deliver on all of those fronts. And -- but I will just tell you from the -- the one thing that the 4 product lines that we have, they're all somewhat it's a big wheel tied together. But also I want to even get more efficient of how all those are tying together and how they can help in every one of those, for example, Direct+ helps conversion with Renovate because when people use us for their sourcing for Direct+, especially the mid- to smaller Direct+ partners, they're going to use us on our renovation services. And that's just one example. But to make sure we're -- our logistics, our efficiency and we're getting better and getting some fresh eyes and fresh perspective as we scale again, I think it's going to be extremely helpful. Operator: There are currently no questions registered. [Operator Instructions] There are no further questions waiting at this time. That will conclude today's call. Thank you for your participation, and enjoy the rest of your day.
Operator: Good day, and welcome to the Realty Income Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note today's event is being recorded. I would now like to turn the conference over to Andrea Behr, Director, Corporate Communications. Please go ahead. Andrea Behr: Thank you for joining us today for Realty Income's 2025 Third Quarter Operating Results Conference Call. Discussing our results will be Sumit Roy, President and Chief Executive Officer; Jonathan Pong, Chief Financial Officer and Treasurer; Neil Abraham, President, Realty Income International; and Mark Hagan, Chief Investment Officer. During this conference call, we will make statements that may be considered forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in any forward-looking statements. We will disclose in greater detail the factors that may cause such differences in the company's filing on Form 10-Q. [Operator Instructions] I will now turn the call over to our CEO, Sumit Roy. Sumit Roy: Thank you, Andrea. Welcome, everyone. Realty Income's platform, which is 56 years in the making, is a historically proven income generator with the ability to perform through a variety of economic conditions. The data-driven nature of our model, accompanied by decades of institutional experience and our top-tier talent, positions us to capitalize on an ever-increasing investor appetite for consistent long-duration income given aging global demographics. Additionally, our scale and diversification, spanning over 15,500 properties across 92 industries and more than 1,600 clients provide strategic proprietary data insights that position us advantageously comparative to subscale platforms. Recently, we have seen an acceleration in capital formation for net lease vehicles in the marketplace, and we believe our platform is especially positioned to benefit from capital floors yearning for long-duration income. As we establish ourselves in the private capital arena, our long track record of producing equity-like total returns with bond-like stability is resonating with investors. We recently launched a perpetual life fund and expect that initiative will provide additional capital to support our growth objectives and enhance our liquidity position. Turning to our operating results for the third quarter. Our investment activity continues to reflect the multiple levers of growth we have at our disposal. Our addressable market is sizable, enabling us to look at opportunities substantially free from geographical property or industry constraints. This allows us to pursue the most optimal risk-adjusted returns for our shareholders and to pivot with ease when we identify capital allocation opportunities that others might be unable to execute on. Globally, we invested $1.4 billion at a 7.7% weighted average initial cash yield, equating to a spread of approximately 220 basis points over our short-term weighted average cost of capital. This brings our total year-to-date investment volume to north of $3.9 billion, surpassing the investment volume we completed in all of 2024, excluding the Spirit merger. This quarter, we sourced $31 billion in volume, resulting in a selectivity ratio of 4.4%. This brings our total year-to-date sourcing volume to $97 billion, eclipsing our prior high watermark for annual source volume of $95 billion reached in 2022. This is a testament to the size of our addressable market and our visibility to global net lease transaction opportunities given the breadth and depth of our platform. Turning back to our investment volumes for the quarter. We again leaned into Europe, which accounted for approximately $1 billion or 72% of our investment volume at an 8% weighted average initial cash yield. The European investment opportunity continues to screen more favorably on a risk-adjusted basis relative to the U.S., which has become increasingly competitive from smaller platforms competing for similarly sized transactions. In contrast, the European investment opportunity remains compelling, driven by a fragmented competitive landscape a larger total addressable market than the United States, and a current cost of debt for euro-denominated 10-year notes that is approximately 100 basis points inside of U.S. dollar costs. Since entering the U.K. market in 2019, our disciplined underwriting and balance sheet strengths have enabled significant expansion across the continent, with Europe now representing almost $16 billion in gross asset value and approximately 18% of our total annualized base rent. Transitioning to the U.S, we invested $380 million at a 7% weighted average initial cash yield. While transaction volumes have moderated domestically, this reflects selectivity, not a lack of opportunity, as we continue to prioritize long-term risk-adjusted returns over pace of deployment of capital. Moving to our operations. The third quarter reflects the structural advantages of our business model, including portfolio diversification, which mitigates exposure to idiosyncratic credit risk and supports advanced data analytic capabilities. To that point, our proprietary predictive analytics AI tool developed over the past 6 years informs decision across sourcing, underwriting, lease negotiations and capital recycling. We believe this allows us to be proactive operators and reinforce the reliability of our long-term cash flows. As of quarter end, our portfolio comprised over 15,500 properties spanning 92 industries and more than 1,600 clients. The naturally defensive nature of our essential retail-oriented portfolio, including grocery and convenience stores, combined with our scale and diversification, position us to perform through a variety of economic environments. We ended the quarter with 98.7% portfolio occupancy, approximately 10 basis points ahead of the prior quarter. During the quarter, our rent recapture rate across 284 leases was 103.5%, representing $71 million in new cash rents, with 87% of leasing activity generated from renewals by existing clients. And we remained active in our approach to optimize the portfolio. In the quarter, we sold 140 properties for total net proceeds of $215 million. During the quarter, we sold 18 convenience store properties for approximately $55 million at a blended 5.5% cap rate and a weighted average remaining lease term of 11.3 years. This pricing is approximately 75 basis points lower than where we are acquiring portfolios of superior assets. This transaction reflects strategic portfolio optimization, first, by leveraging our scale to acquire assets at a portfolio discount and then by monetizing more mature properties individually at tighter cap rates. The sale allowed us to redeploy capital into superior opportunities and demonstrates our ability to unlock value through selective dispositions. Finally, we recognized $27.3 million or approximately $0.03 per share of lease termination income during the quarter. We realized such income in situations where our asset management team, in conjunction with input from predictive analytics, determines that lease termination presents the best probability weighted risk-adjusted net present value outcome. While we do not guide to this line item, we have added historical lease termination disclosure at the bottom of our consolidated income statement in our supplemental. The purpose of the disclosure is to add improved transparency on the separate and inherently different revenue streams of base rent and termination income. Overall, the stability of our results continue to demonstrate how the benefits of our platform enable us to stay agile, manage risks effectively and drive long-term portfolio performance. Now moving to our outlook for 2025. Given the continued momentum in our acquisitions pipeline and our progress year-to-date, we are increasing our 2025 investment volume guidance from $5 billion to approximately $5.5 billion. In addition, we are increasing the low end of our AFFO per share guidance, now anticipated to be in the range of $4.25 to $4.27. As discussed previously, our guidance contemplates approximately 75 basis points of potential credit loss, most of which results from certain tenants acquired through public completed M&A transactions. Our credit watch list remains manageable and granular, staying flat to the prior quarter at 4.6% of our annualized base rent and with median client exposure of just 2 basis points. With that, I will turn it over to Jonathan. Jonathan Pong: Thank you, Sumit. Realty Income has a proven track record of providing equity-like returns with bond-like stability. The inherent consistency of our earnings has allowed us to produce predictable leverage metrics as well. We finished the third quarter with net debt to annualized pro forma EBITDA of 5.4x, a fixed charge coverage ratio of 4.6x and $3.5 billion of liquidity. Additionally, only 6.5% of our debt at the end of the quarter was variable rate, all coming from our revolver and commercial paper program. Subsequent to quarter end, we closed on an $800 million dual-tranche unsecured debt offering, with a blended tenor of 5.3 years and weighted average yield to maturity of 4.4%. Most of the proceeds were used to repay $550 million of unsecured notes that carried a coupon of 4.6%, and we are pleased to execute on this offering amid historically tight spreads in our secondary curve. As always, we thank our loyal fixed income investors for their continued support of our platform and their long-standing appreciation for the relative safety of our business and its consistent production of predictable cash flows. As of today, we also have approximately $1 billion of unsettled forward equity which we believe is sufficient to fund all of our external equity capital needs to fund our investment volume guidance for 2025. I would now like to hand back to Sumit for closing remarks. Sumit Roy: Thank you, Jonathan. We believe that the structural advantages we've cultivated, including scale, diversification, discipline and data analytics, will continue to create value through a range of economic backdrops. Looking ahead, our focus remains on operational consistency and disciplined investment principles that have guided us throughout our 56-year operating history. Our long-term objective remains unchanged, deliver resilient and growing income through a diversified net lease platform. With meaningful scale and strategic flexibility, we believe we are well positioned to remain selective in today's environment and deliver lasting value for shareholders over time. I would now like to open the call for questions. Operator: [Operator Instructions] Today's first question comes from Brad Heffern with RBC Capital Markets. Brad Heffern: Sumit, you talked about Europe continuing to be the preferred market, and at least part of that was attributed to higher competition in the U.S. Is that something that you're starting to see as more structural? Or do you think the relative attractiveness and preference between those 2 markets will continue to swing back and forth? Sumit Roy: Well, it is a fact that there are more competitors here in the U.S. than in Europe. As you know, Brad, if you just look at the private side of the equation and the recent capital formation that's focused on net lease investing by Blackstone, BlackRock, Starwood, there's a whole series of new entrants into the market. So it is patently true that there is more competition here in the U.S. For us, it's a combination of what is available, which, by the way, we continue to source -- of that $31 billion that we talked about, the majority was sourced here in the U.S. It's not a lack of product. But the more competition that you have chasing the same products, we have to then sort of overlay where do we have the best value adjusted, risk-adjusted return profile. And that continues to push us in the direction of Europe, which is why you saw us do 72% of our investment volume there. If you look at the situation going forward, I would say that, that should continue. The majority of what we are seeing will continue to be in Europe, but we are starting to see some level of momentum here in the U.S. as well. Brad Heffern: Okay. Got it. And then you obviously held the initial closing for the Core Plus Fund. Can you talk about what you've acquired in the fund so far and how that differs from the acquisitions you've completed outside the fund? Sumit Roy: Yes. So Brad, unfortunately, there's very little I can share with you outside of what has already been disclosed. As you can see from our supplemental, we have increased the disclosure on what is going into the fund versus what's staying on balance sheet. Given the fact that we are currently in the marketing stage of our open-ended fund, we are very limited in what we can share with regards to the fund. But what we've tried to complement is give you more disclosure, and hopefully, you'll find this additional disclosure in the supplemental helpful in terms of your modeling, et cetera. Operator: Our next question today comes from Michael Goldsmith at UBS. Kathryn Graves: This is Kathryn on for Michael. My first question, so similar to the second quarter, the majority of your dispositions were vacant assets, and I'm just wondering if you can provide some color on the re-leasing process. So specifically, who are the buyers? What was the downtime for some of these assets? And how does that compare to the remaining assets that you're looking to sell? And then maybe just sort of the spread of the different categories of assets that you've been selling down. Sumit Roy: Yes. So Kathryn, this is very much part and parcel of a continuation of what we started doing in 2024. We talked about a similar quantum of disposition that we are going to achieve this year, and the makeup of that should be along the lines of what we had in 2024. Clearly, if you look at year-to-date, there was more vacant asset sales, but we did say that the back half of the year was going to be a bit more of occupied asset sales. And so that mix will continue. For us, it really comes down to us taking a look at a particular asset and deciding whether the lineup that we have of alternative clients who could step into that asset -- what is the return profile we could generate based on what they're willing to pay in terms of rent versus what are the proceeds we are able to get when we are selling these assets vacant. And in terms of -- and we are indifferent as to which path we follow. Our only criteria is where do we maximize the economic returns on that particular asset. And that really is what's determining when do we sell a vacant -- asset vacant versus trying to find a new client to retenant that particular asset. And so the fact that we sold 100-plus vacant assets was part and parcel of our strategy, saying that we were better off selling those assets and then reinvesting the proceeds in the current environment than we were holding the assets, incurring the holding cost and then tenanting it to a new client. So that was really the rationale. The makeup of that is across the board from casual dining, quick service restaurants, home improvement. It's across the board in terms of what we have sold, drugstores. And it really is a function of assets that are coming up for renewal, what is the expected outcome and whether we are better off selling the assets vacant. And so that is part and parcel of our strategy and will continue to drive how we think about disposing assets and recycling the capital. Kathryn Graves: Got it. That's really helpful. And then my second question is you mentioned the predictive analytics platform, and I'm just wondering if you can comment a bit about how you expect that to help reduce G&A in the longer term and just how you sort of expect to maybe be able to use that to imply a few labor efficiencies and other components that could help bring down G&A in the longer term. Sumit Roy: Yes, Kathryn, that's a great question. So let me talk about the AI strategy in twofolds. I'll specifically answer your question on predictive analytics. This is a tool that effectively uses machine learning to continue to refine the outcome of this -- of its ability to predict renewals, et cetera. And this particular tool continues to learn every quarter, right? We are going through lease expirations every quarter. The model predicts a particular outcome. We check that outcome against what actually happens. And more often than not, the model is correct, north of 90% of the time in a lot of cases. And then where it isn't, it tends to learn from that particular error by modifying its -- the internal workings and the algorithms of the particular model. So that's how the model actually continues to become better and better at predicting at a much higher level of certainty what the outcomes are going to be. And this model is utilized when we are underwriting transactions on the front end, when we are making decisions on the asset management side as to whether we should hold an asset or dispose of an asset. It is also very much used when our asset managers are negotiating with our clients, where we have a high level of confidence going into a negotiation that this is a particular location that is actually doing very well. And that level of confidence obviously translates into the results that we talk about, the re-leasing spreads, et cetera. So that's one piece of it. And that particular model is more utilized as a tool to help complement the years of experience that our team has to make better decisions. The scale benefits will come from other AI implementations that we are doing, where we are using tools like PredictAP, for instance, is a perfect example where we had individuals doing -- basically getting invoices, tracking the invoices, inputting the invoices into Yardi, et cetera. All of that initial front-end stuff is now being done by an AI tool called PredictAP. And so that's where you were starting to get the scale benefits and personnel are shifting from doing clerical work to doing more quality assurance and doing approvals to make sure that the coding has been done correctly and the verification of that coding is being sort of validated by personnel. And that's where you're going to start to see -- and examples like that, which we are running through across the organization with various different tools under consideration, that's where you're going to start to see scale benefits of implementing AI tools. And we are at various different stages of maturity, depending on which particular department we look at and the kind of AI implementation that we are going to be doing. But this is a -- it's a journey that we are on, and the benefits of which will be realized by the company in years to come. But this is something that we are very focused on and something that we are very excited about embracing. Operator: And our next question today comes from Smedes Rose at Citi. Bennett Rose: I wanted to ask you a little bit about the loans you made in Europe in the quarter. It looks like you found some very healthy opportunities on the yield side. Can you share maybe who those were with and if you would expect to see significant opportunity in that kind of arena over the next quarters or so? Sumit Roy: So Smedes, as we've said, when we started going down the credit investment path of one of the verticals that we wanted to sort of lean into, there was a strategic rationale behind it. We were -- what we had shared with you was we were already long the clients. We were doing 15-year, 20-year sale leasebacks with these clients. And we were long the credit. We were very comfortable the credit. And so our ability to be viewed as a one-stop shop, a true capital provider across the balance sheet for some of these clients was something that we wanted to lean into, and that was the makeup of the entirety of the loans that we did in the third quarter, so with existing clients that we are very comfortable with, and we are higher up on the capital stack. We have a lot of collateral that underlies these loans, and we are able to generate a higher yield. And the added benefit of doing credit investments in an environment where you have elevated rate environment is the fact that we do have about 6%, 7% of our own balance sheet that is exposed to floating rate debt, and so -- which acts as a headwind for our financing. And so to be able to take advantage by investing in credit investments with elevated yield, again, a function of the rate environment that we find ourselves, helps mitigate some of this -- some of these headwinds. So for a variety of reasons, this is an avenue that we will continue to lean into, but we are going to be selective. The idea here is ultimately to create closer relationships with our clients, and the hope is that it leads to more sale-leaseback opportunities with this client, which, by the way, was the case in the third quarter in 1 of these loan investments that we made, where we ended up doing an off-market $100 million sale leaseback as well. Bennett Rose: Okay. That's helpful. And then, Jonathan, I just got to ask you on the guidance. So you talked about these higher lease termination fees that, I guess, we wouldn't have been expecting at that level. Is that -- what's driving down, I guess, or the implied decline in your same-store rentals through the balance of the year? Or are those totally separate issues? Jonathan Pong: Smedes, I would say the same-store calculation is separate from the lease terminations. The lease terminations are onetime in nature. I would say if you're trying to back into kind of a like-for-like excluding lease terminations, AFFO run rate, I think there are some offsets, obviously, that come into play for the back half of the year predominantly on the G&A side, which we view as just an investment in the future of this company and expanding the competitive mote that we benefit from. And that takes dollars. That takes head count. That takes technology, process improvement, et cetera, et cetera. So I would say the reason why you're not seeing that flow through in Q4 on the AFFO run rate is really investments in that realm. Operator: Our next question today comes from Jana Galan with Bank of America. Jana Galan: Sorry, just one more follow-up on the lease term income in the quarter. Can you discuss whether this was 1 or 2 larger tenants? Or is this a mix of tenants? Jonathan Pong: It was predominantly one tenant, and it's something that is really a function of our asset management team's proactiveness and getting ahead potential move-outs and potential credit issues. And so this is something that you're going to see as part of our regular way business, maybe not to the extent that we saw in Q3 but certainly more active than we have historically. In 2024, we recognized about $16 million in lease termination fees already year-to-date. We're at around 30. And so on a go-forward basis, maybe we'll be closer to that 20-ish area. But with more churn, with more proactive asset management activities, I think you're going to see this be more of a regular way occurrence going forward but perhaps not as drastic as what we saw from one client in particular in Q3. Jana Galan: And congrats on a very active sourcing quarter on the investment side. I saw the allocation of new clients, leases as a percent of the leasing then tick up to 13%. I was hoping you could maybe discuss kind of what industries or segments those new relationships fall into. Sumit Roy: Jana, we certainly did have a few new clients join our portfolio, certainly some in Europe. There were some logistics deals that we did that introduced some new clients into our portfolio. They tended to be, by definition, some of the larger investments we've made. But I wouldn't read too much into the fact that this particular quarter we had a larger number of newer clients than in previous quarters. This is more a function of as we are becoming more entrenched in Europe, we are starting to see new clients that we are cultivating relationships with. And they may be new to us, but they've been around for many, many years in these markets. And so we -- that was the whole purpose of going into a market like Europe, where it's green fields ahead for us. And so that really is the makeup of what we ended up doing in the third quarter. But I wouldn't read anything more than, okay, new relationships means better repeat business possibilities going forward. Operator: And our next question comes from Anthony Paolone with JPMorgan. Anthony Paolone: Not to beat a dead horse on this lease term income, but just trying to understand like how much revenue, like annualized revenue do you kind of give up taking the lease term right now. Can you maybe help us with that? Sumit Roy: Yes. Anthony, as you can realize, again, we're doing the math, and we are saying these are clients who will certainly pay, and despite what Jonathan said, in some cases, there might be credit issues that we are forecasting down the road that we want to take advantage of. But that was not necessarily the case in this particular client's situation. But if we are able to get the vast majority of the rent upfront and continue to cultivate a stronger relationship and solve an issue for our particular client because these are locations that are not doing as well as most of their other locations are, it's a win-win. So that was the case. When we structured this lease termination, we are coming out, in our opinion, ahead of what would have happened had we collected the rent for the remainder of the term. And then we would -- we were sure that they were going to not renew the lease and then looking at the landscape of, okay, who are the alternatives that could come in and comparing that to, okay, getting it vacant today, collecting the lease termination and selling it and recycling that capital is a far better outcome for us and better for our clients than just staying passive and collecting rent. We could have easily done that and we would have been just fine. But the economic outcome wouldn't have been as favorable, in our opinion, as it turned out to be taking the lease termination, solving an optimization problem for our client and reinvesting that capital. Anthony Paolone: Okay. Got it. And then just my follow-up. Sumit, you mentioned about, I guess, private equity and other private capital being more competitive in the U.S. market. Can you maybe just give us a little bit more color around maybe what kinds of assets you see them going after or what the impact on cap rates maybe has been? Or is there a certain segment of the market that, that just kind of keeps you out of? Sumit Roy: I wouldn't say it's any segments that it's keeping us out of. What I am sharing with you, Anthony, is -- you know of these capital formations. These companies exist. Some of them have gone so far as to tell you exactly the strategy that they're going to be following. Some are fairly small. So by definition, they're going to go after the one-off market, and it's going to be across the spectrum on the lease -- on the net lease side. So from investment grade, lower cap rate deals with growth, that tends to be industrial. You're not going to have a whole lot of retail investment-grade, low cap deals that have a lot of growth built into them to higher yielding retail assets with growth. And that's what they've defined as their area of expertise. Some are basically focusing on build-to-suit industrial assets, which they feel like they can strike longer-term deals with a lot of growth in them. And in this environment, those are -- that's their very well-defined, clear strategy. Others are playing retail across the spectrum of credit, so it's -- you'll find them more in the one-off market than you would in these very large-scale sale leasebacks that we are tending to pursue here in the U.S. Having said that, we absolutely look at the one-off market and where it makes sense and where we have a relationship and where people are showing us transactions that are not marketed or not heavily marketed. We act on those. But it is patently true that you have more investors in net lease today than you did a year ago. And this is not a function of more public companies. It's a function of what's happening on the private side. Operator: And our next question comes from Ronald Kamdem of Morgan Stanley. Unknown Analyst: This is [ Jenny ] on for Ron. Two quick questions. First one is same-store revenue growth of 1.3% year-to-date, but the guidance suggests 1% in 2025. So does it suggest a deceleration of same-store revenue in Q4? Like how should we think about it? Jonathan Pong: [ Jenny ], I wouldn't necessarily say it's a massive deceleration. The guidance number continues to be approximately 1%, but there is obviously a fair amount of conservatism when you still got 3 months ago because any type of bad debt expense does roll into that. And so even though we're not seeing anything material show up, that's why we kind of hedge a little bit from that perspective. Q3 also benefited from the theater industry. We did recognize some percentage rents that took that theater same-store number into the 5% area. And so that's something that will obviously moderate back down or at least from a modeling standpoint, that's how we're modeling it for the fourth quarter. Unknown Analyst: Perfect. That makes sense. Second question is I noticed the IG client represent like 31.5% as of 9/30 versus 33.9% in June. Like maybe comment a little bit on like what's driving the change? Like which tenant kind of moved out? Or, yes, just what's driving the change would be great. Sumit Roy: It wasn't moving out. It was simply Dollar Tree selling Family Dollar. And Dollar Tree remains an investment-grade company, but Family Dollar is now a private company, and that no longer has the investment-grade rating associated with it. So I believe Family Dollar represents circa 2% of our tenant registry. And so that's the delta between the new number that you're seeing in our supplemental versus what you're comparing it to in the second quarter. Operator: And our next question comes from Jay Kornreich from Cantor Fitzgerald. Jay Kornreich: Just a question on -- I saw that the investment yields for Europe jumped to 8%, so just curious if there's any key investments that you could call out or different types of assets maybe that you're investing into that commanded higher yields. And is this something that is sustainable to get these upper 7% or 8% yields going forward? Sumit Roy: Yes. So Jay, obviously, what's blended into that number, that 8% number is circa $380 million of investments that we did on the credit side, which had a profile closer to 9%. And so you blend that in with what we did on pure investments on the real estate side, which is circa 7.3%, that's the blend that gets you to that close to 8%. But it was largely being driven by these higher-yielding credit investments. Jay Kornreich: Okay. Appreciate that. And then for the re-leasing rent recapture rate, which has been 103.5% throughout 2025. Now as you look at the lease expiration schedule going forward and bumps up a bit starting in 2027, are these levels of recapture rates something that you think you can continue to get in those forward years and provide a boost to revenue? Sumit Roy: Jay, I can't comment on anything in 2027, in the future years. But what I will tell you is the way we are thinking about being a lot more proactive on our asset management side, if you look at what we've achieved in the last 3, 4, 5 years, it has been well north of 100%. And the average since we've been tracking re-leasing spreads has been slightly above 100%. It's been 101%. And so more recently, that number has gone up largely because we become a lot more active on the asset management side of trying to get ahead of situations that could result in degradation on this recapture rate. So the expectation and hope is that we will continue to be north of 100%. And this active -- proactive, I would say, implementation by the asset management team, we hope, will continue to generate favorable results. Operator: And our next question today comes from Haendel St. Juste with Mizuho. Ravi Vaidya: This is Ravi Vaidya on for Haendel. I wanted to ask a bit more about the AFFO guide for 2025. It looks like there were a couple of onetimers with the lease term fees, and you also raised the investment volume. I guess, why take down the high end of the AFFO guide at this point? Are there any offsets, maybe tenant credit or anything else that you might have considered as part of that? Jonathan Pong: Ravi, I think as we sit here today in November, we want it to be more precise. And I think the track record that we've had recently is we'll start relatively wide, and then we'll narrow as we get greater and greater visibility into some of the puts and takes. And so that's really what it is right now. The higher end of guide, I think at this junction, we feel is probably a less likely one if you're looking at just deal volume because, at this stage, a lot of that deal volume we're just projecting to be December or towards the later end of Q4, so very little impact. I'd also say from a seasonality standpoint, there are some expenses that come through a little higher in Q4, and that's certainly in our projection. And I think leasing commissions is certainly one of them that might be a little higher in Q4 than it was for the first 9 months of the year and then obviously, as I mentioned earlier, a little bit higher run rate on cash G&A. But that's really yet to flag. Ravi Vaidya: Got it. That's helpful. Just one more here. How do you think about your balance sheet here and the ability to generate maybe better AFFO growth into 2026? Are there any -- because right now, we have stronger investment volume, better cost of capital. Are there any other headwinds that we should be aware of or think about as we think into '26 growth? Jonathan Pong: Yes. So I think the big refi that we have coming up is about a $1.1 billion multicurrency term loan in January. That is just shy of 5% right now. We have pretty good visibility in being able to refi that at a lower rate, and so that should be one tailwind that if you ask maybe 6 to 9 months ago, I wouldn't have expected it to be a tailwind. And so that's certainly a positive on the European side of the house. We make a big deal about how we're leaning into the continent. And a lot of that is really fundamentals that we see good risk-adjusted returns, but also a lot of it is euro-denominated debt offers us the lowest cost of debt in the capital stack. And so you can issue 10-year European debt at 3.9%. That can obviously be quite a bit of a tailwind and support your investment spreads. But we are not going to over-lever and issue more debt than we have assets that can offset that liability. And so that's going to be really driven by how much we can source and how much we can source in European currency so that we can issue that 10-year very attractively priced European debt. I think in terms of leverage ratios overall, we're at 5.4x right now. And if you look at really what we've done over the last however many years, going back at least 3, 4 years now, we've been extremely disciplined about staying within that, call it, mid-5% area. The A3- credit rating is incredibly important to us, and I think the regularity and really the very, very thin volatility that you see in that metric is testament to our commitment. And so you're not going to see us utilize more leverage in order to generate faster AFFO per share growth. Operator: And our next question today comes from Spenser Glimcher with Green Street Advisors. Spenser Allaway: And just in regards to your comments on competition here in the U.S., your advantage of scale really comes into play with the larger sale leasebacks and the portfolio deals you mentioned. Are you just not seeing as many of these large deals where that advantage of scale can be leveraged? Sumit Roy: Well, we did see one, and we talked about it in the fourth quarter of last year, where it was north of $700 million in sale leaseback, and all of the advantages that you just laid out, Spenser, sort of played out for us. But yes, seeing $1 billion transaction sale leasebacks here in the U.S., we haven't seen as many. And that doesn't mean that those discussions are not taking place. There are some pretty interesting transactions that are going on. But it's not something that happens every quarter. And those are specifically the types of transactions where we will be able to lean into our advantages. We are seeing a lot more transactions in size in Europe, and that's why we are able to do what we are able to do. Spenser Allaway: Yes, that makes sense. Maybe with that thought and with the greater competition you're seeing here in the U.S., would it be fair to say that your growth in the U.S. or maybe even Europe is going to be dictated a little bit more by the composition of deals more so than in the past? Sumit Roy: The composition of deals, yes, I think that is precisely the way to think about it. That doesn't mean that we won't see a quarter where we are back to doing the majority of the transactions here in the U.S. But it will be a function and the types of transactions that are available that we believe creates the best risk-adjusted returns on a relative basis. Those are the ones that we are going to pursue. And I think that is one of the advantages of the Realty Income platform, is the fact that we have so many different swim lanes to evaluate, and we are seeing opportunities across all of those different swim lanes. And so it just so happens that a lot of what we have done year-to-date, more than 2/3 of the transactions, has been in Europe, which is where we have seen the best risk-adjusted returns. But again, I think if you unpack the sourcing numbers, the majority of the sourcing is still here in the U.S. U.S. continues to be a very active market, is when you then start to look at the individual transactions and you do the analysis and you say up on a relative basis, there are better transactions in Europe, then that's where we're going to invest. Operator: And our next question today comes from John Kilichowski with Wells Fargo. William John Kilichowski: Jonathan, maybe if we could just go back to the question earlier on the guide. You talked about the high end of the AFFO guide. Just thinking about maybe where the midpoint was and where you all came in at. There was the $0.03 of the termination fee that we've talked about. So what was the offsetting [ 2 ] to get you to plus 1 versus the quarter? I know G&A is a little bit higher. Nonreimbursables are a little bit higher. Is there anything else that we're -- that I should be thinking about? Jonathan Pong: Yes. It's those 2 areas. Plus, the leasing commissions, as I mentioned earlier, tends to be a little higher in Q4. Just from a forecast standpoint, that is an AFFO deduct. And so that's one thing to maybe be on the lookout for Q4. I'd also say there's always going to be very short-term headwinds when you are doing the right thing for the long term. Sometimes that's vacant dispositions. It was a record quarter for vacant dispositions for us in this past quarter. And so rather than just taking any type of re-leasing spread just to keep someone in there, I think, moving on disposing and recycling that capital is really something that maybe, on a very short-term basis, could result in small dilution. But that's really it. It's nothing that I would flag as a significant item one way or another. It's a little bit of everything here. William John Kilichowski: Okay. Very helpful. And Sumit, apologies if I missed this in the opening remarks. I know sometimes you will say this. But could you give us where your watch list stands today and then maybe how bad debt has performed relative to expectations? Sumit Roy: Sure. So it is the same as the second quarter, 4.6%. So it was 4.6% at the end of the second quarter. It's the same. And the other comment I had made in the prepared remarks was that if you look at the main of who makes up this particular watch list, the exposure is 2 basis points. So it's very granular in terms of the makeup of this watch list, and so any one client is going to have a very minimal impact in terms of the overall impact. In terms of year-to-date bad debt expense, it remains the 75 basis points that we came out with, and we are continuing to track to that. And we feel like we are -- our latest earnings guidance reflects that 75 basis points. So there's no change there. Operator: Our next question today comes from Linda Tsai with Jefferies. Linda Yu Tsai: On capital allocation, would it have been more accretive to utilize free cash flow for your loan book and then not buy the other $1 billion of properties using equity? Sumit Roy: Explain that a bit more, Linda. I'm sorry. Linda Yu Tsai: Just meaning if you use your free cash flow for lending purposes and then just refrain from buying as much by raising equity. Sumit Roy: Yes. So we obviously have circa $200 million of free cash flow that we're generating every quarter, and that is part of the mix of proceeds available for investments. And when we have a menu of investment choices, we are looking at which particular investment is most favorable. And obviously, if we are raising public capital either via the ATM on the equity side or debt side, we are trying to see, are we better off not raising that capital, using our free cash flow to buy back our stock, which, by the way, we have the ability to do, versus investing it in opportunities accretively, those are decisions that we are making constantly. And so Linda, obviously, we chose to make $360 million worth of credit investments. We have the ability to do a lot more. But again, we are looking at what is the risk of making those investments for the returns that we are getting and getting comfortable with it within the construct of what we've said, we're going to make credit investments in, which is with clients that we believe we want to be viewed as their long-term real estate partners and with whom we can have the opportunity to do more sale-leaseback opportunities. So I'm not 100% clear if I've answered your question, Linda, but never are we going out and trying to invest capital in a dilutive fashion. I mean that is precisely why even -- and I think I shared this in the second quarter, and I'll share it with you now. There was about $2 billion of investments in the third quarter that we could have made had we the right cost of capital. And it was because we couldn't generate that initial spread, accretive spread, we chose not to pursue it. So we are being super selective in terms of what we are doing. And part of the reason why we've gone down this private capital to figure out an alternative form of capital to help us continue to invest was to be able to do things like the $3.6 billion that we had year-to-date in the first 2 quarters and another $2 billion that we would have loved to have invested in the third quarter. Linda Yu Tsai: My second question is on lease term fees. Was that -- thanks for the disclosure. Did you include that in your earnings guidance? Sumit Roy: Yes. So it's -- everything is included, Linda. So our latest earnings guidance is reflective of all of the lease terminations, the bad debt expense and any other expectations that we have inclusive of the increased acquisition guidance that we've come out with this quarter. Operator: Our next question comes from Upal Rana with KeyBanc Capital Markets. Upal Rana: I just want to get a clarification on the investment guidance increase. Does that include the fund investments? Just trying to get an understanding of how we should break down the investment guidance between the core portfolio and the private fund. Sumit Roy: Yes. So definitely, we've given you that guidance and that disclosure in the supplemental. I know it's a new form supplemental. We, by the way, love to get feedback on it given that we have now entered into a new area of our business. So you will be able to see precisely what portion of total investments is going on balance sheet, what portion is going towards the fund, what is our pro forma. All of that will be, I hope, very clear if you just go through the supplemental, and I recognize that you guys haven't had too much time to digest that. So please go through it. The idea here is to make your lives much simpler in terms of modeling. But everything that you just asked, Upal, you should be able to figure out from the disclosure, which we hope is very clear. And we've tried to mimic others to come up with this disclosure. But if there's feedback, please do come back to us. Upal Rana: Okay. Great. And then appreciate all the color on the guidance so far. But could you talk about the other adjustments in your guidance? It increased by $0.04, but it didn't really help the -- increase the full year AFFO guidance. So just trying to get a better understanding of what other adjustments are and what drove the guidance change there. Jonathan Pong: Upal, are you talking about the AFFO guidance? And so I think we've talked about the AFFO guidance, the puts and takes, where the midpoint of our guide is unchanged. And really, the bridge to think about with that is, yes, we picked up about $0.03 from lease termination fees, but there were some offsets to that, predominantly leasing commissions, G&A and unreimbursed property expenses that I think are offsetting some of those gains. Operator: And our next question today comes from Wes Golladay with Baird. Wesley Golladay: Just a quick one on debt capacity when you look to the Europe and U.K. How much more can you borrow out there assuming no more investments as of today? Jonathan Pong: Wes, we're pretty much right where we need to be from a euro standpoint. And so that's going to be driven by incremental volume. There's no unused capacity at this junction. We do have some European commercial paper that's outstanding, and so any type of issuance in longer-term debt financing will really be to term that out. But in terms of net new debt capacity, we're really going to follow the lead of the volume side of things from here. On the U.K. side, we're at about 75% LTC right now. And so we do have some capacity there on the GBP side. With that, we're going to continue to wait for a better opportunity all in at cost or a bit elevated there compared to the 2 other currencies we're exposed to. Operator: And our next question today comes from Eric Borden of BMO Capital Markets. Eric Borden: I just wanted to talk quickly about the disposition program. I know over the last couple of years, you've really ramped that up as you look to recycle maybe vacant or less desired assets and reinvest into better opportunities. But just curious, as we look forward, is this going to be a bigger part of the picture? Will it remain the same quantum? Or should we expect that to tail off in the subsequent years? Sumit Roy: So obviously, I don't want to give guidance, but what I can tell you, it's not tailing off. This is very much part and parcel of our business going forward. Part of what I do want to share with you is there was some debate around our portfolio discount. And what we wanted to make sure that we were able to share with the market with facts, not our impressions was to recycle some of our assets. And I think I gave you that disclosure in my prepared remarks, to continue to emphasize that when we are able to recycle capital, part of it is to realize this inherent portfolio discount that we see when we are doing large-scale transactions. And so that is much more strategic. But then there are other things that we are going to be doing that is continuing to expand just given that our denominator has expanded over the years that -- where we are being a lot more proactive in terms of recycling assets be it on the occupied side or be it on the vacant side, where rather than holding it for a year, 1.5 years, to try to find that one client that we anticipate we'll find but at rents that don't make sense for us versus recycling the capital today, taking into account the holding costs associated with these assets. So this is purely an economically driven analysis that we are going through. And with our ever-increasing portfolio size, you can expect recycling to be very much part and parcel of our strategy going forward. Eric Borden: Great. And then my second question is just on the data center opportunity front. I understand that there's a tremendous demand in the United States but curious if you're seeing similar or increasing demand in Europe, where you may be able to achieve better pricing or be able to close quickly or acquire these assets just given it's a more fragmented landscape. Sumit Roy: So yes, Eric, we are very much focused in Europe as well. Data centers continue to be very much part and parcel of our investment strategy going forward. Some of the biggest developers here in the U.S. are also some of the biggest developers in Europe. And so when we are cultivating these relationships, making certain investments to further align ourselves with these very large-scale developers, it's not just on products here in the U.S. but on potential products in Europe as well. So I think we are -- we're very happy with where we are today and the relationships that we've formed, and we hope that it will translate into future transactions. And yes, some of it will be in Europe, and a lot of it will be here in the U.S. Operator: That concludes our question-and-answer session. I'd like to turn the conference back over to Sumit Roy for any closing remarks. Sumit Roy: All right. Rocco, thank you again for your help, and thank you, everyone, for joining us. We look forward to seeing you in some of these upcoming conferences. Take care. Operator: Thank you. That does conclude today's presentation. You may now disconnect your lines, and have a wonderful evening.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to Ameresco, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn your conference over to Leila Dillon, Chief Marketing Officer. Please go ahead. Leila Dillon: Thank you, Demi, and good afternoon to everyone. We appreciate you joining us for today's call. Our speakers on the call today will be George Sakellaris, Ameresco's Chairman and Chief Executive Officer; Mark Chiplock, Chief Financial Officer; and Nicole Bulgarino, President of Federal and Utility Infrastructure. In addition, Josh Baribeau, our Chief Investment Officer, will be available during the Q&A to help answer any questions. Before I turn the call over to George, I would like to make a brief statement regarding forward-looking remarks. Today's earnings materials contain forward-looking statements, including statements regarding our expectations, all forward-looking statements are subject to risks and uncertainties. Please refer to today's earnings materials, the safe harbor language on Slide 2 of our supplemental information and our SEC filings for a discussion of the major risk factors that could cause our actual results to differ from those in our forward-looking statements. In addition, we use several non-GAAP measures when presenting our financial results. We have included the reconciliations of these measures and additional information in our supplemental slides that were posted to our website. Please note that all comparisons that we will be discussing today are on a year-over-year basis unless otherwise noted. I will now turn the call over to George. George? George Sakellaris: Thank you, Leila, and good afternoon, everyone. We are very pleased to report that this was another quarter of excellent execution for Ameresco. We delivered strong financial results with growth across our key metrics. We also further strengthened our tremendous visibility with significant business development achievements in all our business lines. This is a very exciting time for our industry. A combination of factors, including increasing demand for electricity due to the move to electrification and data center demand, rising utility rates and growing grid instability are driving robust demand for our energy infrastructure solutions. And this demand is not only coming from our traditional federal, municipal, utility, school and hospital customers. We are also seeing considerable opportunities in new end markets, with demand coming from electric co-ops, industrials such as steel manufacturing and cutting-edge industries such as data centers, all of which are looking for quick deploy, large -- to quickly deploy large amounts of highly resilient megawatts. While, the customized solutions we are providing have evolved over time. We see Ameresco's domain knowledge and ability to deliver these large and complex solutions as a core capability. We also believe our business model gives us the ability to tailor financial solutions to the needs of our customers and is a meaningful differentiator for Ameresco setting us apart from engineering and construction and ESCO companies. Our mix of project, O&M and energy asset business enables us to design and build a project also operate and maintain it or we can use our balance sheet and all the solution as an Ameresco energy asset, providing our customer with a long-term offtake agreement. This flexibility we offer to our customers is core to Ameresco's DNA, and we believe it provides us with another important long-term competitive advantage. While we are in the early innings of growth in many of these areas. The impact on our business is already apparent. If you look at our breakdown of total project backlog on our slides, you can see that energy infrastructure-related projects are almost half of our total project backlog. We are also seeing the impact with the energy asset side of our business. You will note the recently aired category of assets called Firm Generation Energy Assets in construction and development side. Firm generation assets such as natural gas generators already account for 22% of our total assets in development. Also note that batteries now account for 41% of our assets in development compared to only 22% of battery-operating assets, showing how we are able to pivot to a large and profitable opportunities present themselves. Now I would like to turn the call over to Nicole to provide additional commentary on a few of our recent energy infrastructure wins and give an update to our business with the federal government. Nicole? Nicole Bulgarino: Thank you, George, and good afternoon, everyone. Ameresco has delivered energy infrastructure solutions since its founding, but recent industry dynamics, like those that George mentioned, are driving a surge in large-scale opportunities. While data center wins often make headlines, the demand for resilient firm power spans a wide range of customers, including utilities, government agencies, industrial firms and tech companies, Among these markets, data center customers also present a compelling growth area for Ameresco and our opportunities in this space extend well beyond federal sided projects but the common driver across our customer segments is clear. We are seeing a critical need for an increasing supply of resilient firm power. An example of this need is the 40-megawatt firm power plant we are building for Hawaiian Electric on Maui. This project, which includes multiple dual fuel engines, is designed to bring resilient firm energy, enhance power grid reliability and provide a highly flexible capacity resource. In addition, it will enable the island to reduce its dependence on foreign sources of fuel. Another great example is the recently announced 50-megawatt battery energy storage system with Nucor, North America's largest steel producer. As Nucor continues to expand production at its Arizona facility, driving increased electricity demand a behind-the-meter battery energy storage solution was a natural choice for the company and its utility. The project was completed in just under 1 year and will supply rapidly deployable on-demand power as well as provide significant resilience to that facility. We will also be adding solar to the facility, providing additional on-site generation as the plant continues to scale its production. As I have just highlighted, we are seeing tremendous interest from a variety of customer segments, including industrial, looking for rapidly deployable and highly resilient solutions. And with the recent push to scale onshore industry in the U.S., these opportunities are expected to grow. And of course, I'm excited to share more about our Lemoore data center initiative with CyrusOne for which we are finalizing the agreement. This solution will be designed to deliver cutting-edge energy infrastructure tailored for AI-driven, high-density computing environment serving hyperscalers. CyrusOne will build and operate the data center while Ameresco will provide the energy infrastructure through a long [ off-territ ] agreement to meet its 24/7 power demands. Our solution will combine firm energy via fuel cells, solar and battery storage that will complement local utility power. As the facility scales, we would install up to 350 megawatts, making this 1 of our largest deployments to date. We expect to own a portion of the asset and the balance will be owned by a financial partner. And this is just the beginning. We have a strong pipeline of future opportunities with data center developers, gas providers, real estate partners and direct tenants. Notably, these projects are not just cited on better land but also on customer and properties. Before I turn the call over to Mark, I want to briefly address the current federal government shutdowns. Since this was anticipated, we were able to proactively coordinate with our agency partners to implement contingency plans, which has enabled us to maintain operations with minimal disruption. Ameresco has successfully navigated previous shutdowns in the past, and our team is well prepared. Although a prolonged shutdown could delay some project award conversions and shift some revenue timing, we do not anticipate a material impact on our Q4 results. Now I will turn over the call to Mark to provide financial commentary on this quarter's results and our outlook for the remainder of the year. Mark? Mark Chiplock: Thank you, Nicole. I'd first like to reiterate that this was another quarter of strong execution with growth achieved across all of our key metrics. Ameresco delivered solid results in a challenging operating environment. demonstrating the strength and flexibility of our diversified business model. Revenue grew 5% year-over-year, reflecting robust execution across our project portfolio, sustained momentum in our Energy assets segment and reliable recurring income from our O&M business. Adjusted EBITDA increased 13% from the prior year, driven by higher project margins expanding contributions from Europe and our energy asset portfolio as well as disciplined operating cost management. Projects revenue grew 6%, supported by strong results from our European joint venture with Sunel. This partnership continues to be a key part of our strategy to diversify revenue streams and expand our international footprint. And as Nicole mentioned, we have not experienced a notable slowdown in our work even with the current federal government shutdown. The projects team continued its focus on converting awards into contracts and contracts into revenue. We saw strong demand for our comprehensive energy infrastructure solutions that combine efficiency, generation and resiliency, which drove substantial growth in our total project backlog to $5.1 billion. Importantly, we secured another $450 million in new project awards this quarter and converted $467 million of awards into signed contracts driving our contracted project backlog up 33% to $2.5 billion. Energy asset revenue also grew 6%, driven largely by the growth of our operating assets portfolio. We placed an additional 16 megawatts into operation during the quarter, including the [indiscernible] facility, bringing our total operating assets to 765 megawatts. We also added 32 megawatts during the quarter, bringing our net energy assets in development to 626 megawatts. We remain on track to reach our annual target of placing 100 to 120 megawatts of additional assets into operation. Our recurring O&M revenue increased by 8% this quarter as we continue to win more long-term O&M business associated with our completed project work. These wins helped to add over $158 million to our long-term O&M backlog, which now stands at approximately $1.5 billion. Combined, our project backlog and together with our recurring O&M and operating energy asset portfolios gives us long-term revenue visibility of over $10 billion. And finally, while revenues from the remaining businesses within our other revenue segment continue to experience growth, our other line of business was lower year-over-year due to the divestiture of our AEG business at the end of 2024. Gross margin improved to 16%, up both sequentially and compared to last year, highlighting our continued focus on higher-margin projects and assets and disciplined cost management. Net income attributable to common shareholders was $18.5 million, with both GAAP and non-GAAP EPS at $0.35. And as I mentioned, adjusted EBITDA grew 13% to $70.4 million resulting in an adjusted EBITDA margin of 13.4%. Turning to our balance sheet and cash flows. We closed the quarter with approximately $95 million in cash and $340 million in total corporate debt. Our debt-to-EBITDA leverage ratio under our senior secured facility was 3.2x and remains below the covenant level of 3.5x. We continue to fund our growth primarily through nonrecourse project debt and partner capital at the energy asset level, preserving capacity at the corporate level for working capital and strategic investments. During the quarter, the company secured approximately $180 million in new project financing commitments. Our cash generation remained solid this quarter with adjusted cash flows from operations of approximately $64 million, an improvement both sequentially and year-over-year. The performance reflects our disciplined approach to working capital management, ensuring that vendor payments are more closely aligned with project milestones and progress. While some of this increase is attributable to timing, it highlights our ongoing commitment to rigorous liquidity management in a dynamic operating environment. On a longer-term basis, our 8-quarter rolling average adjusted cash from operations was approximately $52 million, underscoring the consistency of our cash generation and the effectiveness of our financial controls. Now let me spend a minute on our 2025 guidance. Q3 once again highlighted Ameresco's ability to execute in a complex environment while expanding our strategic positioning. Our strong year-to-date performance, robust demand, expanding presence in data center and resiliency infrastructure and growing energy asset portfolio, provide us with solid momentum and clear visibility as we approach year-end. While a prolonged government shutdown could delay the conversion of some project awards, shifting the timing of some revenue, we do not expect this to materially affect our Q4 results. Accordingly, we are reaffirming our guidance ranges for 2025. Now I'd like to turn the call back over to George for closing comments. George Sakellaris: Thank you, Mark. As the Ameresco team continues to deliver excellent results, we are also building our strong foundation for future growth by expanding our backlogs and build in our energy asset business. Our strong visibility, along with what we expect to be very favorable industry dynamics for our energy infrastructure solutions supports our confidence in delivering our long-term growth targets of 10% and 20% revenue and adjusted EBITDA, respectively. In closing, I would like to once again thank our employees, customers and stockholders for their continued support. Operator, we would like to open the call to questions. Operator: [Operator Instructions] And your first question comes from the line of Noah Kaye with Oppenheimer & Company. Noah Kaye: Maybe if we can start with data center. Nicole, you talked a little bit in the prepared remarks about a strong pipeline kind of extending beyond federal government to other customers. And I wondered if you could maybe frame out for us the opportunity set a little bit. Should we think of the scope of these projects being similar to Lemoore where you're providing the energy -- [ uprise ] in the energy infrastructure, are there additional possibilities and scope? And how should we think about maybe kind of the timing on seeing some of those start to materialize in the orders? Nicole Bulgarino: Yes, you're correct. They're similar to what we're doing. Our focus is on the energy infrastructure for the data centers. So -- and on the commercial side, we're looking to do similar things, providing power solutions to the data center customers and speed to power for them. Noah Kaye: Okay. And I think you mentioned it as well, and Mark can also touch on this, but just -- it sounds like you're finalizing the details for the first project, but thinking about kind of combination of Ameresco and partner capital, again, can you sort of broadly help us think about the size of the commitment there and when you might expect to have some of those details finalized for the market. Joshua Baribeau: Noah, it's Josh. I might jump in here. So we -- in the supplemental slides, we have the updated assets and development at the footnote that it's in there at about 10% of its value, a little bit for conservatism a little bit because, as George and Mark mentioned that we're probably going to bring an equity partner for this 1 just because it is so large, so the increase was about 35 megawatts. So the total opportunity could be as large as 350 just for Lemoore and we're not quite ready to disclose CapEx figures, but it's in line with what we've talked about between battery and solar cost per megawatt. So it's a pretty large project. Noah Kaye: All right. Well, looking forward to the details and congratulations on the broader awards momentum. Operator: Next question comes from the line of Eric Stine with Craig-Hallum. Eric Stine: So maybe for Nicole and just sticking with the data center with that theme. Can you just talk about this first project? I mean it seems to me that given the timing of the announcement, this would have been underway for quite some time even though it does fit pretty much perfectly with the executive orders and what the government is looking to do on leased land, so maybe just talk about that and once you've announced this, what that's kind of meant in terms of pipeline as you see it? Nicole Bulgarino: Yes. I mean the announcement has been a great opportunity for us to provide a good anchor project of what we're trying to do and accomplish being able to provide behind meter energy solutions for data center customers. We have been working on it with the permitting and the other things that go into these large projects in the development side of it. So it's been good, and I think we expect to be able to kind of build and leverage future opportunities using a very similar model. Eric Stine: Yes. I mean it's almost as if you kind of patterned to this after exactly what the government was looking to do. So I guess anyways, we'll stay tuned on that, but a great development. Nicole Bulgarino: Yes. I mean using federal land. I mean like we've been providing energy solutions for federal customers for years. And so being able to apply this model and similar like we did in Hawaii for a large project that we did solar and battery using federal land to be able to have a third-party offtake kind of set the -- we initiated this model and there's opportunities with excess land that are that align nicely for data center customers. George Sakellaris: And as you know, we have several bases that we actually have done work in addition to that when they go out with the RFPs for what we call -- what they call the enhanced use list or they have a plant like whether it was Pearl Harbor or this particular one, the Lemoore, it's a wasted land they want to develop it in a great value. And we announced both of this particular size when we were far along. We -- on both of them, we've been working for at least a couple of years. And we have several other ones that we are working on when we are ready. We are far along, then we will announce more. But the important point of this data centers and what we wanted to point out, but the need for resilient power in some of the industrial customers like what we did for Nucor is we see great, great need out there because of the great demand for electricity, many of these people are concerned, they don't have the backup. And that's why we put the 50 megawatts on Nucor. That's where last year, we put 100 megawatts on United Power, the battery storage there is, and we are working with several other ones, the large industrial customers that they're are concerned about resiliency and you will see substantial amount of battery storage in the future. And nonetheless, like Nucor once they put in the battery storage, they realize they need more capacity, and now we -- we'll be building a 25-megawatt solar farm for them. So it's another business line that it wasn't there a year ago. Eric Stine: Yes. Yes. No, that's great color. Maybe last 1 for me. Just on the guide, can you just talk about -- a little bit about the puts and takes? I know that coming into this year, there were a lot of questions about the federal business. And I know that kind of ended up being much to do about nothing. But government shutdown and even though you think that, that has a minimal impact to fourth quarter, if I do the math, fourth quarter, it would imply a down sequential quarter in the last couple of years, you've been up sequentially from an EBITDA perspective. So maybe just kind of talk about that dynamic or the assumptions going into that? George Sakellaris: The thing that you have to remember that we have been able to diversify our business so much in the federal government right now, it only represents 20%, and even though it might be some contracts going from the award to be executed. It might be some slippage on the revenue, but it's not that much, that has a material impact. And that's why we were able to say that even the cadence for next year, the 10% on top line growth and 20% EBITDA growth, we feel pretty good about it. Mark Chiplock: Yes. I think -- and we've been talking a lot about this throughout the year with respect to 2025 and how we've been managing the guidance, right? I mean we really had to maintain some discipline throughout the year, and that's no different really for Q4, even though visibility remains pretty strong, it's still a heavy execution quarter for us, a lot of project milestones that we need to achieve. So right now, we feel like the guidance that we're maintaining is realistic. Operator: Next question comes from the line of Ben Kallo with Baird. Ben Kallo: Congrats on everything and the opportunities. Two quick ones. Just on -- as you do more of this work with data centers, could you explain that if there's any differences that we should think about just from an engineering construction point of view, of doing what you've done separately, but now tied to a data center like if there's more risk or there's more know-how and people that you need as you work on this new end market. And then my second question is because storage is coming up with such a big portion of your energy backlog, could you just talk about procuring batteries and how that's changed and how we should think about that as you look into next year and the following year, just as either tariffs or [ foreign entity ] of concerned language, anything like that? Nicole Bulgarino: On the first answer, I mean I'd say this is very similar to the work that we've been doing for the federal government with the requirements and the 24/7 reliability resiliency requirements that we have for mission-critical operations on military basis. So similar there. I mean, maybe the difference is just the scale. There are larger opportunities, a little bit quicker need for -- to go faster. So that can be a positive, but not anything necessarily different than what we would be doing in developing the projects than our other -- yes, than our other customers that we've been doing it for utilities and customers -- I mean utility and federal customers. And then on the second 1 on battery -- go ahead. Ben Kallo: Just to remind because my first was so long. Mark Chiplock: I mean I think maybe the answer on the second one with respect to batteries and what we're trying to do there from a supply standpoint is like everybody, I think we're trying to see how we can diversify the supply chain. I think we've done quite a bit, at least on the safe harboring side, to try our best to avoid some of the [ CIAC ] restrictions that are still a little unclear, but that are upcoming. So we've done some decent work to try and safe harbor some projects from a physical construction aspect as best we can. And I think as we move forward, I think we're hoping we'll be a natural hedge even with some of the impact of potential tariffs or the ITC impact that the cost of batteries are coming down. So that might create just a natural hedge for us as we move forward to these projects. Operator: Next question comes from the line of Dushyant Ailani with Jefferies. Julien Dumoulin-Smith: It's Julien here. Can you guys hear me okay? George Sakellaris: Yes. Julien Dumoulin-Smith: Excellent. Nicely done. Look, a couple of things. First, I just wanted to come back to guidance at a high level. Obviously, you guys were commenting about '25 here, but given the meaningful contribution from the data center and the kicking up in '27 here, how do you think about sort of getting back on track with kind of a high teens or 20% EBITDA, CAGR, right? I mean you guys have historically lived by that. Obviously, a very late, a little bit more muted, but clearly seems like there's a little bit more lumpy profile in the business, whether it's tied to this or, frankly, the battery opportunity, which seems to be tied to supply chain that wants to be used in the near -- relatively near term as well. Joshua Baribeau: Julien, it's Josh. So you're absolutely right. The data center opportunity will definitely help us maintain that 10% and 20% type of number. We have -- we've been a little bit light on that in the last year too, but we've never said that was going to be guaranteed annual guidance. That's sort of a guideline over the 3- to 5-year business cycle. So all of those tailwinds that I think all 4 of our speakers talked about so far today will certainly give us -- as well as the visibility we have just from work we've already contracted and awards we've already received, give us plenty of confidence we'll be able to hit those targets again in the long term. If there is ever a potential for upside or something else that we'll need to present to investors, we'll certainly do that when we update our formal guidance. which we're not prepared to do right now. But for sure, it helps us keep that target. Julien Dumoulin-Smith: Nicely done, Josh and team, I got to say. Can you guys talk a little bit more about the ability to replicate this model here? I know someone asked you kind of a similar question earlier. But as it pertains to taking the data center model, and running with it, obviously, time to power is front and center. I mean, what's the ability to take this? And what kind of pipeline or sense do you have from other potential customers who want to leverage this model approach here, if you will. How would you set expectations on another lumpy announcements like us? Nicole Bulgarino: Yes, this is Nicole. So I think the important thing is with the AI market and the growth that we're seeing, it's also just transitioning energy supply. And with the amount of capacity that keeps increasing, there's limited utility power. So this sets the opportunity for us to be able to do these bridge solutions and behind meter power solutions very much like the Lemoore project. So this is what's pushing and driving the pipeline even more because the hyperscalers are in need for this immediate power solution and that's going to be accomplished behind meter versus their utility theaters, the traditional way that they were getting power in the past. Julien Dumoulin-Smith: All right, guys. Any sense on margin on that 1 on the data center front? Joshua Baribeau: Julien, there's no reason to believe it's going to be any different than our regular corporate margins. So it's a little bit of a mix between asset and project as we talked about, but no reason to believe it's not within the corporate average. Nicole Bulgarino: Right. And with the long-term operation maintenance with these. Julien Dumoulin-Smith: Congrats again. Operator: Next question comes from the line of Ryan Pfingst with B. Riley. Ryan Pfingst: I'll just follow up on the last question on the CyrusOne deal and kind of the subsequent ones that are potentially coming. Just curious how well positioned Ameresco is right now operationally to support multiple projects like that, just given the size. George Sakellaris: Yes. And what we have done in -- we started this process actually last year when we established the unit utility-scale projects, Nicole, has taken it over and we have organized this particular unit that's additional staff that we've been adding and so on. And we're increasing the staff from the federal side as well as this particular side. Nicole can add some more color to it. But we realize that it's a great opportunity for us, and we have the expertise. And Nicole, of course, is one of the top candidates since you took over the particular task, and which have made great progress on it to go both on the human resource as well as on development, a good pipeline. Nicole Bulgarino: Yes. And I would just add that we -- like George said, I mean we've shifted resources that we're already working our federal team to be able to focus strictly on this as well as some of the resources that we acquired in the Bright Canyon acquisition a couple of years ago. So we were able to have immediate support in the power side of this and continue to grow that. And expand our construction team, procurement teams, engineers and other front-end partners like the nuclear experts that we brought on earlier this year as well as the power solutions continue to evolve. Ryan Pfingst: Got it. Appreciate that detail. And then my second question, you guys announced a second nuclear partner a few weeks ago with Terra Innovatum that they're really excited about. Is that starting to feel like more of a real opportunity on the nuclear side that could turn into orders or real work for Ameresco here and maybe '26 or '27 or still feels farther away? Nicole Bulgarino: It certainly seems more real. I wouldn't say '26 or '27 though, that's a little early even for a traditional power plant. But we're really excited about this other partnership because it's a different type of nuclear technology than the 1 that we did with Terrestrial and that is a microreactor instead of a small modular reactor. So different types of technology. And as we've always been neutral on technology, different -- agnostic on technology solutions, we want to have different partners to be able to address our -- especially on the federal side. So we're excited, and I think that opportunity is very real, especially with the Army announcement that just came out a couple of weeks ago, and more from the Department of Energy that we believe that it's certainly in the future, but probably a few more years than 2027. Operator: [Operator Instructions] Next question comes from the line of George Gianarikas with Canaccord Genuity. Joshua Baribeau: Yes, operator, let's reprompt. Folks, I see a lot of you coming in and out. Right now, the queue is not showing anybody. [Operator Instructions] Operator: [Operator Instructions] Seeing no further questions at this time. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, and welcome to the Third Quarter 2025 Paymentus Earnings Conference Call. This call is being recorded. [Operator Instructions] At this time, I will now turn the call over to David Hanover, Investor Relations. Please go ahead. David Hanover: Thank you, operator. Good afternoon. Welcome, and thank you for joining the webcast to review our third quarter 2025 results. Our earnings release documents are available on the Investor Relations section of the paymentus.com website. They include the earnings presentation that we'll make reference to during this webcast. This webcast is being recorded. I hope everyone's had a chance to review those documents. Our Founder and CEO, Dushyant Sharma, will make some opening comments before Sanjay Kalra, our CFO, discusses the details of the third quarter and our guidance. Following our prepared remarks, we'll take questions. Let me remind you that we may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and we refer to non-GAAP financial measures during the webcast. Forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties. Factors that may cause our actual results to differ materially from expectations are detailed in our earnings materials and our SEC filings that are available both on the SEC and our website. Information about non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in our earnings materials that are available on the website. With that, I'd like to turn the call over to Dushyant Sharma. Dushyant? Dushyant Sharma: Thanks, David. I'm excited to report that Paymentus delivered another strong quarter with the results exceeding our expectations in all key areas of our business and delivering exceptional year-over-year growth. This outperformance is especially satisfying given the backdrop of our strong performance in the third quarter of last year. In addition, we had a phenomenal quarter of onboarding activities, and we ended the quarter with substantial bookings and a strong backlog, giving us visibility and further confidence not only for the balance of 2025, but also for 2026. As I mentioned in the past, this high level of visibility enables our management team to focus on creating long-term shareholder value by combining innovation with our steadfast execution. We believe this quarter's results are a great illustration of how we are still able to manage and calibrate our business to meet or exceed our long-term CAGR model of 20% top line growth and 20% to 30% adjusted EBITDA dollar growth despite variability of secondary metrics from quarter-to-quarter. For example, during the third quarter, as our customer mix is shifting more towards enterprise and larger mid-market clients, our revenue and contribution profit per transaction grew significantly. This also helps demonstrate our vertical expansion strategy that led to higher incremental revenue and contribution profit per transaction. And when you combine this with the tremendous operating leverage we enjoy in the business, in Q3, we were able to achieve a strong top line growth and a record quarterly adjusted EBITDA margin along with an incremental adjusted EBITDA margin in excess of 60%. Related to this, it's also important to remember that we remain in market capture mode as we increase our market penetration and enter new verticals because we see a tremendous opportunity to gain share in what is an enormous TAM. We also find ourselves in a very fortunate situation where some of the trends in the industry that we were anticipating are actually coming together. For example, we recently onboarded a large B2B client, and this B2B use case is in a vertical that was new to us. On our platform, they're performing very well. Even though it is early in the full year cycle, we are already seeing significant outperformance beyond our internal modeling. Our go-to-market strategy of being vertical agnostic matched by our vertical-agnostic platform engineering is proving to be very sound. Likewise, our approach of supporting bidirectional payment rails is also proving to be a good decision and is delivering results. Our clients are choosing us for outbound payments in addition to implementing us as the central nervous system for revenue receipts. Therefore, this opens up further TAM for Paymentus with existing and prospective clients. And as I've also shared previously, even the AI and agent in commerce progress is moving the industry in our direction. The platform capabilities we have been building over the years are going to catalyze even further opportunities for TAM expansion in existing and prospective client base in coming years. Another exciting and high potential area of our business is the opportunity to monetize interchange in outer years. Interchange cost we incur today is big and is getting bigger as we scale. To us, that represents an incremental untapped total addressable market and a powerful lever to drive meaningful adjusted EBITDA and EPS expansion in outer years. In other words, as I look ahead at the next 5 years, we are feeling great about the foundation we have built and continue to build for an exciting future. With that, let's review our third quarter results. Revenue was $310.7 million, an increase of 34.2% year-over-year, largely driven by increased number of billers and higher transaction values. Contribution profit was $98.3 million, up 22.8% year-over-year. Adjusted EBITDA, which continues to be a primary financial metric for us, was $35.9 million, a 45.9% year-over-year increase and representing a record 36.5% adjusted EBITDA margin. Once again, the majority of our year-over-year growth in contribution profit fell to our bottom line. Also, we exceeded the Rule of 40 for the quarter, coming in at 59%. This reflects our team's solid execution and our focus on delivering high-quality earnings together with sustained revenue growth. Now I'll review our third quarter business highlights and accomplishments. Regarding bookings, we continue to be pleased with the pace of bookings we have achieved year-to-date. Similar to previous quarters, in Q3, we once again saw particular strength in the large enterprise and larger end of mid-market segment. It's spread across a broad vertical base. We also continue to show the diversity and wide appeal of our platform by signing clients in several industry verticals, including insurance, government agencies, utilities, telecom, property management, consumer finance, banking, credit unions and educational institutions, among others. Complementing our direct go-to-market strategy during the quarter, we continue to leverage our partnership ecosystem. This quarter, we added new channel partners to our portfolio, including government agencies, telecommunications and property management industries. At the same time, during the quarter, we onboarded several large enterprises. Onboarding our substantial backlog remains a key priority for us. And our onboarding enhancements, incremental investments as well as improving face-to-face client engagement are driving these successful efforts. In the third quarter, we onboarded clients throughout multiple verticals, including insurance, government agencies, utilities, banking, credit unions, telecommunications, financial services, property management, education and health care. Now let me turn it over to Sanjay to review our financial results in greater detail. Sanjay Kalra: Thanks, Dushyant, and thank you all for joining us today. Before I discuss our quarterly results and outlook, I'd like to remind everyone that the financial results I'll be referring to include non-GAAP financial measures. As David mentioned earlier, our Q3 press release and earnings presentation includes reconciliations of these non-GAAP financial measures to their corresponding GAAP measures. Both of these are available on our website. Turning to Slide 5. Building on our momentum in the first half of the year, our third quarter 2025 results once again exceeded the top end of our guidance range for all 3 of our key financial metrics. These results continue to highlight the overall strength of our business model and our team's proven ability to consistently meet and exceed our expectations. Our third quarter results included revenue of $310.7 million, up 34.2% year-over-year, contribution profit of $98.3 million, up 22.8% and adjusted EBITDA of $35.9 million, up 45.9%. We also continue to experience strong customer activity and demand, which fueled bookings and allowed us to exit the quarter with a considerable backlog. Based on our year-to-date results, our expectations for the remainder of 2025 and strong forward visibility, we are once again raising our full year 2025 revenue, contribution profit and adjusted EBITDA guidance, which I'll discuss in more detail shortly. Now let's review our third quarter financials in more detail. As mentioned, Q3 revenue was $310.7 million, a 34.2% increase. This growth was driven by 4 key factors: first, the successful launch of new billers as anticipated; second, increased same-store sales from existing billers; third, the early launch of several large enterprise customers during the third quarter of 2025, which we had originally expected to launch in early 2026. These early launches were a result of our continued focus and improvement in implementation pace due mainly to our team's hard work and strong client engagement. And fourth, higher activity on our Instant Payment Network, or IPM. Additionally, the number of transactions we processed increased to $182.3 million this quarter, up 17.4% year-over-year. Our average price per transaction increased to $1.70 during the third quarter, up from $1.49 in the same period last year. This 14.1% increase was mainly due to the biller mix and the launch of new billers in the quarter. Third quarter 2025 contribution profit increased to $98.3 million, up 22.8% year-over-year. This growth exceeded the transaction growth as the new billers launched in the quarter generated a higher contribution profit per transaction. Contribution profit per transaction for the quarter was $0.54, a 3.8% improvement from $0.52 in the prior year period. We believe this highlights our ability to capture market share with improving overall profitability. Contribution margin was 31.6% for the third quarter, a 2.9% reduction compared to 34.5% in the prior year period, reflecting the continued addition of large, high-volume enterprise customers. In spite of that, we generated record adjusted EBITDA margins of 36.5% as both our contribution profit per transaction and operating expense margin year-over-year improved by 3.8% and 3.6%, respectively. Furthermore, our improved contribution profit per transaction, together with our strong operating leverage, also generated a record incremental adjusted EBITDA margin of 61.7%. These results are consistent with our overall growth strategy focusing on profitability, which I will elaborate on shortly. As we continue to grow and diversify our client base and add more of these large clients to the mix, we expect pricing and contribution profit to vary quarter-to-quarter. It's important to note these larger clients are paying a similar or even increased average selling prices than they are accustomed to with other providers. We believe they value the quality of our services and the solutions we provide, which ultimately saves them money and enables them to provide better services to their customers. Given the growth areas Dushyant highlighted earlier, we believe longer term, the growth rates of both revenue and contribution profit will converge to a closer range. Also taking into account the inherent operating leverage we have in our business model. As we have discussed in the past, variables that are outside our control, such as an increase in the average payment amount or changes in the payment mix can substantially affect the contribution profit on a quarter-to-quarter basis. That is why we treat this as a secondary metric, while our gross revenue and adjusted EBITDA remain primary metrics and focus areas on how we drive our business strategies. Moving down to P&L. Third quarter adjusted gross profit was $81.1 million, up 22.5% year-over-year. Third quarter non-GAAP operating expenses were relatively flat on a sequential basis and increased 8.6% year-over-year to $48.1 million. The increase was primarily due to increased hiring and agency fees of business from our resellers and partners in order to convert our strong pipeline into bookings and an increase in the research and development expenses to enhance our technical strength. We expect to make similar investments throughout the remainder of the year as we continue to execute our go-to-market strategy. These assumptions are already incorporated into our guidance, which I'll review shortly. This year-over-year expense increase was consistent with our expectations. Third quarter non-GAAP net income was $22.6 million or $0.17 per share compared to non-GAAP net income of $14.7 million or $0.12 per share in the prior year period. Third quarter adjusted EBITDA was $35.9 million, up 45.9% compared to $24.6 million in the prior year period. Adjusted EBITDA also represented 36.5% of contribution profit for the quarter compared to 30.7% last year. This record adjusted EBITDA performance was driven by the same combination of positive factors I talked about earlier. We believe the stronger adjusted EBITDA margin demonstrates the inherent operating leverage we have in the business and our proven ability to adapt to changing market conditions as we continue to grow. As I mentioned previously, record incremental adjusted EBITDA margin was 61.7% in the quarter. Interest income from our bank deposits was $2.6 million during the third quarter compared to $2.3 million in the prior year period. This year-over-year improvement was a result of an increased average cash balance and effective cash management. Related to our performance, we once again exceeded the Rule of 40 for the quarter, coming in at 59% compared to 56% last quarter and 61% in the prior year period. This marks our 10th consecutive quarter exceeding the Rule of 40. Now I'll discuss our balance sheet and liquidity on Slide 6. We ended the third quarter 2025 with a total cash of $291.5 million compared to $270 million at the end of last quarter. The $21.5 million increase is primarily comprised of the $35.1 million of cash used cash generated from operations, offset by $10.1 million used in the investing activities primarily for capitalized software and $3.4 million spent in the net settlement of employee RSUs. Our day sales outstanding at the end of third quarter was 31 days consistent with last quarter. It is noteworthy that while revenues have increased 34.2% this year, our DSO has remained flat sequentially and declined by approximately 30% year-over-year which we believe implies that our working capital cycle, which is already operating efficiently has further improved. Working capital at the end of third quarter was approximately $321.4 million. an increase of approximately 8.1% from the end of the second quarter. We had 129.2 million diluted shares outstanding during the third quarter, essentially flat from 129 million diluted shares outstanding during the second quarter. Now I'll turn to our non-GAAP guidance for the fourth quarter and full year 2025 on Slide 7. Before discussing guidance, I want to mention that we are continuing to follow the same prudent approach to guidance that we have followed over the past 2-plus years. For the fourth quarter 2025, we expect revenues to be in the range of $307 million to $312 million. representing 20% year-over-year growth at the midpoint and 21% at the high end. Contribution profit to range from $99 million to $101 million, which represents 16% year-over-year growth at the midpoint and 17.2% at the high end. Adjusted EBITDA of $34 million to $36 million, representing growth of 28.2% year-over-year at the midpoint and 31.9% at the high end. This represents a 35% margin at the midpoint and 35.6% margin at the high end. As a reminder, our fourth quarter guidance is raised from the implied guidance we gave during our last earnings call by approximately $17 million on revenue and $3 million each on contribution profit and adjusted EBITDA. Along with our guidance, I also want to reiterate some items I have noted on past calls related to our outlook for contribution profit growth rates and adjusted EBITDA margin. As our business grows, we are receiving greater inbound interest from larger enterprise customers. Not surprisingly, these customers often request volume discounts, which we are open to where the deal economics support it. Additionally, our substantial operating leverage allows us to attract and book these larger customers. Said differently, volume discounts for large customers are typically more than offset by strong incremental adjusted EBITDA as we saw in the third quarter. This increases our efficiency as our onboarding time for biller is declining while our average customer size is simultaneously increasing. Furthermore, we have the ability to recalibrate OpEx spending relative to contribution profit in order to reach a desired adjusted EBITDA. For reference, our incremental adjusted EBITDA margin for the third quarter 2025 was 61.7% relative to adjusted EBITDA margin of 36.5%. Based on our results and progress we have already made year-to-date in 2025 and our expectations for the remainder of the year. For the full year 2025, we now expect revenues in the range of $1.173 billion to $1.178 billion, up 4.8% from the midpoint of our previous guidance. The updated guidance now represents a 34.9% annual growth at the midpoint. Contribution profit in the range of $378 million to $380 million, up 2.2% at midpoint versus prior guidance. This updated guidance now represents 21.5% annual growth at the midpoint. Adjusted EBITDA to range from $132 million to $134 million, representing a 6.4% increase at the midpoint versus our previous guidance. The updated guidance now represents a 41.2% annual growth at the midpoint. This represents a 35.1% marginal contribution profit at midpoint, an improvement from 30.2% in the prior year. On the Rule of 40 scale, this annual guidance implies a score in the range of 56% to 57%. In closing, we reported another quarter of excellent results despite a tough comparable. In the third quarter, 2025, we continue to build on our solid momentum from the first half of the year, resulting in strong revenue, record adjusted EBITDA, solid bookings and a sizable backlog. Due to all of this, we have considerable visibility and believe we are well positioned for the rest of 2025 as well as for 2026. Thank you, everyone, for your attention today. And now I'll turn it back to Dushyant for final remarks before we open up the call for questions. Dushyant Sharma: Thanks, Sanjay. In summary, our third quarter was another period where we achieved results that exceeded our expectations, including a strong durable revenue and adjusted EBITDA growth despite a tough year-over-year comp. We exited the quarter with strong bookings and backlog, which gives us great visibility and confidence in our outlook, not only for the rest of 2025 but we are also feeling good about our prospects for 2026 and beyond. As I shared earlier, when we factor in our current scale of installed base of 2,000-plus clients, including some of the household names, tens of millions of users, including businesses who pay their bills using our platform, our innovative DNA, along with our ever-growing platform footprint and ecosystem, we feel good about our long-term moat, especially as we champion the change of capitalizing conversion of legacy infrastructure, both in-house and outsourced to Paymentus. With that, I want to thank our entire team for all their efforts and dedication to our success. That concludes our prepared remarks. I'll now open the line up for questions. Operator: [Operator Instructions] The first question comes from John Davis with the company, Raymond James. John Davis: Dushyant, I wanted to start with the comments around onboarding a new B2B customer in a new vertical. Obviously, the B2B market is huge. Just some context about how this relationship and kind of ultimate signing developed? Do you have many more B2B opportunities in the pipe and just maybe some broader comments about that opportunity for Paymentus? Dushyant Sharma: Yes. Thank you, John. So B2B is a area of -- or functional area we had developed some time ago on our platform. And as we have shared in the past, we support lot of complex workflows for a lot of clients. And all of our clients, almost all of our clients who are on our business, they serve consumers as well as businesses. So by default, almost every business we have on our platform is -- we are receiving payments from both of those cohorts. With B2B specifically, we felt that if we can extend the capability and add some more workflows to our platform, this could be very attractive just for the B2B segment specifically. Those clients are only dealing with B2B. And this is one of many other opportunities we have on our platform. This one specifically was in a vertical we were not targeting, but the client showed interest in our platform. And the reason I wanted to highlight this was, this is exactly the reason why we are taking a very horizontal approach to our platform, the way we have engineered that we are able to get into different verticals by just having great storytellers who can explain the simplicity that can be gained by moving to our platform. So this is a sizable opportunity. And as we onboarded them on our platform, one of the trends we started to see was that the customers were using more of the services than even we were anticipating. And now it's even a larger client than we were thinking about. So we are excited about this opportunity, and we feel like that we can do better in that vertical as well and actually methodically target that as opposed to sporadically. So that's where the excitement is coming in as well. So in [ summary ] my point was that we are -- the way we have designed our platform and the strategy, but also the thoughts we had or the vision we had about our business and where the industry will go. Rather than very niche, if you will, it will become to be -- it will start to move towards the horizontal platforms, and is coming to fruition. John Davis: Okay. Great. And this is a follow-up. Sanjay, I appreciate your comments around volume discounts. But I think one of the most surprising things to me is you're clearly having success moving up market and moving into new verticals. And yes, that comes with higher card mix, higher kind of gross revenue per transaction but what's more interesting is even contribution profit per transaction is up I think, about 4% year-over-year despite moving upmarket. Just want to understand what's driving that? Or maybe move in some verticals that maybe have a little bit better pricing as you kind of mix away from utilities? Or are you adding kind of more bells and whistles, products and services that are driving a higher kind of contribution profit per transaction. Just would love to get some more commentary on that. Sanjay Kalra: Thanks, John. This is a very interesting question. We are very excited about the contribution profit per transaction, getting up higher year-over-year around 3.8%. The biggest reason if I have to point out, number one is, our platform and the value of our platform is resonating. The success which we have had, while marching upwards on a market share gain every year, that's resonating really well. And resonating well not only with the verticals where we really have a strong success like utilities, for example. And as you know, utilities is 50% of our revenue. But all the other verticals, we are now taking the step into a higher level or I would say, a different level or different segment of customers within those verticals. And that's giving us an edge of better pricing and we are fortunate enough to generate better contribution profit as well. And as you rightly pointed out, the revenue per transaction could be higher, but it also depends on the interchange costs or the mix of the card payments for the new customers we acquire, and that's one of the reasons for variability quarter-over-quarter. But at the same time, contribution profit per transaction growing up actually indicates that the new implementations, which went live in the third quarter were at a materially higher contribution profit per transaction. And that is a great encouragement for our team, for our sales team who are marching on the path to convert the large pipeline we have in front of us to convert the bookings. And as you know, once you get as Dushyant pointed out, we have some household names as well. You have one, then you have second and then when you have the second, you have third and fourth and so on. And we are seeing that kind of traction and success in almost every vertical where we are penetrating. So we are very proud of the accomplishment on contribution profit per transaction. And in the end answer is the value of our platform is just resonating with everyone we go and demonstrate our product. Operator: Our next question comes from Tien-Tsin Huang with the company, JPMorgan. Tien-Tsin Huang: Great results. I wanted to ask around visibility, if that's okay. Just your visibility stay looking ahead to next year. How would you compare it to the same time last year when you were looking ahead? If I recall, there were a lot of questions around enterprise and how those would board and flow through in payment mix. Do you feel like your visibility is better and how is it different? Sanjay Kalra: Tien-Tsin, thanks for the question. We find ourselves in the exact situation at this time of this year as we were last year same time. So visibility is very high. We've got a great backlog in front of us, which our implementation team is busy executing. We've got a great pipeline in front of us, which our sales team is busy converting to bookings. And what we have also seen is the past implementations in the last 4 quarters, which we have delivered the kind of the quality customers we are having now, they themselves are growing and that helping us achieve a better execution or better growth i.e., the good same-store sales we are seeing. So overall, in all directions, the trends have been very positive. Our visibility is very high. At the same time, if I just may digress into, we are not guiding at this time for 2026. But at the same time, I understand there might be a desire to understand how should we model the next year. I would say, to model the next year, it will be reasonable to use the similar growth rates at midpoint and high end what we gave during the initial guidance we gave for 2025, using '24 basis, you could use the same midpoint of '25 we gave and apply similar growth rates at midpoint and high end. I think that will be a similar approach and will be reasonable, which kind of indicates the visibility we have for our business and the growth prospects. Tien-Tsin Huang: Perfect. Very reasonable. Great. So let me ask on just my quick follow-up, just on the enterprise pipeline. Both of you expressed that as being very strong. Any change in the type of or who you might be replacing? And what systems the incumbents might be looking to be replaced by -- with Paymentus. I'm just curious if there's any shift in pattern there. So who are you replacing potentially with these deals? Dushyant Sharma: Thank you, Tien-Tsin. Actually, we -- what's driving a lot of excitement for us is that there was a time we thought that -- and all of us in the industry thought, including all the legacy providers that it is -- there is some segment of the market, which is totally out of reach just because they're too large. And the reason for that was, this cohort of clients, they are looking for, number one, they're looking for control, and they also are looking for very specific bespoke configurations and workflows which they believe that only they can develop. It's not easy to develop on a third-party platform. And I would say the third would be the scale. As Paymentus has started to reach a decent size of scale, if I may say it that way. And we are a $1 billion company at this point, and generating cash. We are a profitable company, strong balance sheet. All of those things are important to a large company, combined the fact that these clients are able to take a look at. Previously, we used to sit in someways, the opposite side of the table to their technology leadership team CIOs, CTOs, who now think of us as a partner in solving key business issues related to payment and customer experiences. So from that perspective, that cohort is very exciting to us because some of these in-house solutions are now finding a great home in Paymentus. Number one, they believe that they could -- this is a type of platform they cannot build themselves regardless of how many floors of programmers they have. On top of that, the type of business configurations and the business rules and the complexity they desire for our platform to be able to configure, we already do support. Third, the type of control they're looking for, we have built our platform with those capabilities as well. So as well, that cohort is actually very exciting, along with, I would say, the legacy service provider. There's no specific one who we are targeting. Our goal is how do we modernize whatever is out there. And we are getting into clients where they have a combination of many solutions, some of them in-house and some of them from third parties, in many cases, multiple. Tien-Tsin Huang: Well done. Operator: [Operator Instructions] Our next question comes from Craig Maurer with company FT Partners. Craig Maurer: You listed 4 key factors earlier in the call that drove the increase in revenue. Can you provide perhaps some sizing in terms of the impact each of these had? And do you expect these benefits to continue into fourth quarter and perhaps early parts of next year? Sanjay Kalra: Yes. We don't generally provide a quantitative breakup of the 4 factors. Historically, we haven't done. What we can do is we can help you prioritize and they were listed in the order of priority, I would say. The first one was a successful launch of new billers. That's the largest component of the growth. And the second component of growth comes from the same-store sales. And third component is the early launch of large enterprise customers during the third quarter. And fourth is our IPN network, which is doing really well. So in -- these 4 categories will be the ones and in the order of priority, I would say. And to your second part of the question, yes, we expect all these 4 to continue in Q4 as well as in the outer year also in 2026. And these 4 are actually our growth vectors since the past few quarters, and they have been performing really well, and all 4 of them have done well quarter-over-quarter as well as sequentially. So there could be times when seasonality plays a role and a second factor may become third or the third may become fourth. But overall, that has been our trend, and we are glad it's continuing in the same way, and we feel very good about it. Operator: Our next question comes from John Davis with the company, Raymond James. John Davis: Dushyant and Sanjay, just one quick follow-up. It looks like free cash flow conversion over a trailing 4 quarters is a little over 140%. Sanjay, maybe just the sustainability of that and what's driving that pretty incredible free cash flow conversion over the last year? Sanjay Kalra: Yes. Thanks, John. Cash flow has been really the strength of the business and it actually stems from the fact that our incremental adjusted EBITDA margin is very high. And that's just a reflection of that in our cash flow. And you're right, in the last 4 quarters, it has been more than 100% cumulatively. We are very glad that in Q3 itself, it came very similar to what we saw in Q2. So the one way to -- like how to forecast it going forward will be, if you exclude the working capital piece, which could be plus or minus a couple of million dollars a quarter, and which is always temporary, as you know, if it goes in, it comes out in a couple of quarters. So if you exclude the working capital, I can give you a model on how to forecast over cash flows. You can start with adjusted EBITDA dollars, adjust that for income taxes. We have provided 25% non-GAAP tax rate for taxes. And then adjust that for interest income. That's approximately $2.5 million a quarter or $3 million a quarter, depending on the interest rates. And adjust that for the cap software expense, which is approximately trending at $9 million a quarter as well. So using those trends, you can expect the free cash flow and maybe you make your model of free cash flow more accurate than using a percentage of the last 4 quarters. And overall, we expect free cash flow to be generated every quarter. And overall, for the whole last year, if we go back 12 months, we have generated $100 million plus cash in the last 4 quarters. So we feel very good. It's a cash-rich business, and it stems from the fact that operating leverage on the business is very high, and majority of the contribution profit dollars fall to the bottom line. And at the same time, I would have 1 key factor, which has held in the last few quarters. I would say at least last 2 quarters is our improvement of DSO, which has given us more cash. we are getting very high-quality billers or customers in our customer base. There are not a lot of follow-ups are needed, but the invoice and the cash comes in on time. So that's one more advantage we are seeing of our business running not only smoothly in terms of revenues and profitability, but also getting the quality of the customers, which helps improve our balance sheet and gives us the ability to have significant cash, which opens a lot of opportunities for us to make right investments for the investors. So we feel very good about the free cash flow generation. And I think that's one of the strengths of our company today. Operator: Our next question comes from Will Nance with the company Goldman Sachs. William Nance: Maybe just one here on the topic of agentic commerce. I know a lot of the value prop of Paymentus revolves around kind of meeting the consumer where they're at, when they're ready to make that payment and making it as easy as possible. Obviously agentic commerce has been getting a lot of attention from investors recently. I know you guys have always been close to the Braintree and PayPal that got this new partnership with OpenAI. So just wondering how you guys are thinking about just the technical hurdles of making it easier for consumers to pay their bills potentially in a more agentic way? And just where you think that -- where are you on the road map? And how long do you think that extends to sort of hit the market and the reality for consumers? Dushyant Sharma: Thank you for the question, Bill. I think we have been -- AI has been a big piece of our strategy for many years, and we have been actually working towards this day in some ways. And part of the commentary in my prepared remarks was around the very same point that we find ourselves in a very fortunate situation that we believe that this day will come, and we are preparing the company for it, making a lot of investments towards that model. And I think we will play a big role in AI, and agentic world, in not only in bill payments, but overall service commerce. And what I mean by service commerce is taking this opportunity to just explain that, if you think about retail commerce is, which is getting highly commoditized as you can see, everyone is focused on trying to get the check out and as quickly as possible so that the sale is made. The service world is very different. The work actually starts after a sale is made. Imagine a scenario where utility gets a customer, well -- or the insurance company gets a customer. The work starts after that. So getting the customer is the beginning of the relationship. But then the pursuit is to never lose that customer, continue to provide good quality service to the customer, being responsive to the customer. Being always improving or removing all the unwieldy processes in such a way that you can actually service those customers at a high quality without incurring a lot of cost. All of those things actually come together in a way that we believe the Paymentus will play and actually is uniquely positioned to play a big and central role in creating, in some ways, the paradigm shift in the world of service commerce using bill payment platform we have already created, which is actually designed to be a service commerce platform. In the long run in coming years, you will see increasing adoption of our platform in broader workflows, and agentic service commerce will be a key part of it. So that's all I could share right now, but we'll talk more about it in subsequent quarters. William Nance: Nice results. Operator: At this time, I'd like to pass the conference back over to Dushyant for closing remarks. Dushyant Sharma: Well, thank you so much, everyone. Really appreciate your time. Have a great day. Thank you. Sanjay Kalra: Thank you. Bye-bye. Operator: That will conclude today's conference call. Thank you for your participation, and enjoy the rest of your day.
Operator: Good day, everyone, and welcome to the Syndax Third Quarter 2025 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Sharon Klahre, Head of Investor Relations at Syndax Pharmaceuticals. Sharon Klahre: Thank you, operator. Welcome, and thank you all for joining us today for a review of Syndax's Third Quarter 2025 Financial and Operating Results. I'm Sharon Klahre. With me this afternoon to provide an update on the company's progress and discuss financial results are Michael Metzger, Chief Executive Officer; Steve Closter, Chief Commercial Officer; Dr. Nick Botwood, Head of R&D and Chief Medical Officer; and Keith Goldan, Chief Financial Officer. Also joining us on the call today for the question-and-answer session are Dr. Peter Ordentlich, Chief Scientific Officer; and Dr. Anjali Ganguli, Chief Strategy Officer. This call is accompanied by a slide deck that has been posted on the Investor page of the company's website. You can now turn to our forward-looking statements on Slide 2. Before we begin, I'd like to remind you that any statements made during this call that are not historical are considered to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these statements as a result of various important factors, including those discussed in the Risk Factors section in the company's most recent quarterly report on Form 10-Q as well as other reports filed with the SEC. Any forward-looking statements made represent our views as of today, November 3, 2025 only. A replay of this call will be available on the company's website, www.syndax.com, following its completion. With that, I am pleased to turn the call over to Michael Metzger, Chief Executive Officer of Syndax. Michael Metzger: Thank you, Sharon. Good afternoon, and thank you all for joining us. Starting with Slide 3. The third quarter was another outstanding period of commercial and portfolio execution for Syndax. Importantly, the progress we made advances us on the road to profitability and furthers our leadership position in menin inhibition, an exciting new category that Syndax is uniquely positioned to lead across the relapsed/refractory and frontline setting. Starting with our commercial results for the quarter. We reported $45.9 million in total revenue for the third quarter, representing strong 21% growth over the prior quarter. We are very encouraged by the launch metrics for both Revuforj and Niktimvo, 2 first and best-in-class medicines that are addressing major unmet patient needs. With both medicines, a robust base of new patients are starting each quarter and a growing number are continuing on therapy, building a foundation for sustained long-term growth. Net revenue for Revuforj was $32 million in the third quarter, up 12% from the prior quarter, even with approximately 1/3 of patients temporarily pausing treatment to receive a stem cell transplant. Importantly, all indicators of demand remain strong and with approximately 25% growth in total prescriptions and new patient starts in the third quarter compared to the prior quarter. Revuforj has become -- rapidly become the standard of care for relapsed/refractory KMT2A and is widely being used early in the treatment paradigm with approximately 50% of usage in the second line. A growing number of KMT2A patients are proceeding to a potentially curative stem cell transplant after receiving Revuforj, a fantastic outcome for patients and clinicians. The use of Revuforj in the post-transplant maintenance setting also continues to build as physicians put their patients back on therapy. This dynamic will become an important growth driver in the fourth quarter and beyond as the number of patients receiving extended maintenance treatment begins to meaningfully offset and then exceed the number who paused therapy each quarter to receive a transplant. In the third quarter and recent weeks, we have made major strides advancing another important Revuforj growth driver. On September 18, Revuforj was added to the NCCN Guidelines as a recommended treatment option for relapsed/refractory NPM1 mutated AML ahead of the subsequent FDA approval, which speaks to the strength of our clinical data and physicians' enthusiasm for Revuforj. On October 24, we received FDA approval for Revuforj in relapsed/refractory NPM1 mutated AML, tripling the size of our addressable patient population. This approval makes Revuforj the first and only menin inhibitor that is FDA approved for multiple acute leukemia subtypes in adult and children 1 year of age or older. The breadth of our indicated population highlights the compelling and consistent efficacy and tolerability of Revuforj across different patient populations. Nick will unpack the unique aspects of the Revuforj product profile when he reviews the key abstracts we will have this year at ASH. These data sets will add to the growing body of efficacy data that differentiate Revuforj from other menin inhibitors. Our expansion into NPM1 is in full swing, and we are pleased with our early progress driving awareness of the new indication and generating demand among physicians who treat NPM1 patients. Importantly, these are the same physicians who treat KMT2A patients and have already built familiarity and trust with Revuforj and Syndax. In the 1 week since approval, we have already engaged with hundreds of physicians and feedback has been very positive. They are enthusiastic to have Revuforj as the first highly efficacious targeted therapy indicated for relapsed/refractory NPM1. We are well positioned for success with best-in-class efficacy and at least a 1-year first-mover advantage over any other company. Physician decision-making is driven by efficacy in acute leukemia, and we have differentiated efficacy data in multiple acute leukemia subtypes. In relapsed/refractory NPM1 specifically, we have shown unmatched data, including an approximately 50% overall response rate, 5-month median duration of CR/CRh, 17% transplant rate and a 2-year median overall survival observed among responders. While CR/CRh is an important regulatory endpoint, ORR is of utmost importance from a clinical standpoint. A higher overall response rate gives clinicians the ability to bring more patients into remission and the best chance of bringing their eligible patients to a potentially curative stem cell transplant. Moving to Niktimvo. In the second quarter of launch, our partner, Incyte, reported $45.8 million in Niktimvo net revenue, a robust 27% increase over the prior quarter. Within just the first 8 months of launch, Niktimvo is annualizing at nearly $200 million and tracking in line with first year sales of Sanofi's REZUROCK, which reached over $500 million in annual U.S. net sales within the first 3 years of launch in the same indication. Importantly, Niktimvo is profitable to Syndax with our 50% share of the Niktimvo product contribution amounting to $13.9 million for the third quarter. As sales continue to ramp, we expect the proportion of net revenue retained by Syndax to materially grow over time. We remain on the road to profitability with growing contributions from Revuforj and Niktimvo, a solid balance sheet and an operating expense base that will remain stable over the next few years while fully funding our strategic priorities. Most notably, our strategic priorities include the expansion of Revuforj and Niktimvo into the frontline setting, which would unlock a combined market opportunity exceeding $10 billion. Enrollment is well underway in EVOLVE-2, the first pivotal frontline trial for a menin inhibitor to start enrolling patients. We have the right strategy and partnerships to flawlessly execute this trial and be the first to frontline with a menin inhibitor. With Niktimvo, 2 frontline trials are ongoing in combination with standard of care therapies that could transform the treatment of chronic GVHD. With that, I will turn the call over to Steve to discuss our commercial progress in more detail. Steve? Steven Closter: Thank you, Michael. Starting with Revuforj on Slide 4. We're on track for a strong first year of sales with continued growth in KMT2A and a solid foundation in place for a successful launch into NPM1 and our future expansion into the frontline setting. In the first 10 months of sales, we've generated nearly $90 million in Revuforj net revenue, exceeding by a wide margin the launch benchmark set by other AML therapies. These impressive results reflect the rapid adoption of Revuforj as the standard of care in relapsed/refractory KMT2A and physicians' positive experience with the drug. Sales of Revuforj were strong in the third quarter with $32 million in net revenue, up from $28.6 million in the prior quarter. Importantly, key demand indicators increased even more significantly with total prescription and new patient starts for the quarter both increasing approximately 25% over the prior quarter. This robust increase in demand speaks to Revuforj's compelling product profile and the strong and durable business that we are building. The delta between demand and net revenue growth this quarter was due to variability in gross to net and channel inventory as you often see period-to-period, especially in the first year of the launch. Since launch in late 2024 through the end of September of this year, approximately 2,200 prescriptions have been written for 750 patients, with an estimated 90% of usage in KMT2A. With this momentum, we remain on track to treat 1,000 KMT2A patients by year's end or more. This would represent 50% penetration of the annual 2,000-patient KMT2A incidents within the first year of launch, and that is a fantastic result. The use of Revuforj continues to migrate to earlier lines of therapy with claims data showing approximately 70% of usage concentrated in the second and third line with 50% coming from the second line or first relapse patients alone. Claims data is also showing significant combination use with 1/3 of patients receiving Revuforj in combination with another standard of care therapy, venetoclax being the most common. This trend highlights physicians' comfort with the Revuforj profile and the potential for average treatment durations to extend over time as treatment patterns mature. Consistent with last quarter, an estimated 1/3 of KMT2A patients treated with Revuforj have proceeded to a stem cell transplant, and we continue to see patients being put back on Revuforj by their physicians after a 3- to 4-month pause for engraftment. We estimate that 35% to 40% of transplant patients have restarted Revuforj with that percentage expected to build over time as more patients clear the engraftment period and physicians gain more experience using Revuforj post-transplant. As we've seen in our clinical trial and expanded access program experience, we expect patients could stay on therapy for 1 to 2 years post transplant, given the high risk of relapse and the favorable tolerability of Revuforj. As Revuforj is used earlier in the treatment paradigm and more patients restart after transplant, we expect this will translate into a significant increase in the overall average duration of therapy. Based on our experience to date, we anticipate the average duration of therapy for KMT2A patients will be 4 to 6 months this year and 6 to 12 months in 2026 as treatment patterns further mature. Let's turn to NPM1, the next important growth driver for Revuforj. As shown on Slide 5, the second indication approved for Revuforj expands our annual total addressable U.S. population from approximately 2,000 to 6,500 incident patients across both genetic subtypes in the relapsed/refractory setting, a $2 billion-plus market opportunity. Moving to Slide 6. Our promotional expansion into NPM1 began quickly once we received approval on Friday, October 24, with broad communication outreach to all relevant treatment centers and health care practitioners. The very next day, we had members of our field team trained and promoting the new indication at an oncology conference. and our engagement with HCPs has only expanded from there. We are pleased with the early progress we have made driving awareness of the expanded indication and generating demand in NPM1. Physicians are enthusiastic to have Revuforj as a new effective option for their NPM1 patients. Our success in NPM1 is going to be driven by 2 main factors: First, the breadth and strength of the Revuforj efficacy data and the overall product profile. With unmatched efficacy data across multiple patient subtypes, we are positioned to serve patients and secure dominant market share, given that physicians consider efficacy the most important factor driving their prescribing decisions. We are also the only company now and for the foreseeable future with a menin inhibitor that is FDA approved for multiple acute leukemia subtypes in patients 1 year and older. The ability to use one efficacious and generally well-tolerated drug across 40% to 45% of patients with AML is a huge benefit to practitioners and payers. Second, we have a solid commercial foundation that we're leveraging, including a large prescriber base that has already seen excellent clinical results with Revuforj and has experienced how easy we've made it for their patients to gain access to the drug. Physicians have already treated well over 1,000 patients with Revuforj across nearly 1 year of commercial use, clinical trials and our EAP. From launch through the end of September, 70% of Tier 1 and Tier 2 accounts in the U.S. have started using Revuforj on a regular basis. Physicians tell us it typically takes 2 or 3 patients to develop loyalty and habit with a new oncology medicine, and most of the major centers have already built up that comfort and muscle memory with Revuforj. Beyond the largest institutions, adoption is also increasing across all other sizes of accounts, including community practices. Our broad and growing prescriber base gives us a significant competitive advantage as we expand into NPM1. The positive experience accounts have had with Revuforj reflects the world-class commercial organization and infrastructure we have built to deliver to patients. We have an efficient limited distribution model with an average time from prescription to first fill of less than 4 days. Our highly experienced customer engagement team has long-standing relationships with key prescribers and accounts. Formulary coverage for KMT2A is already in place for 97% of covered lives and is expected to build rapidly for NPM1. While it builds, we expect the reimbursement rate to be high given the NCCN Guideline listing for NPM1 and the existing KMT2A coverage. We have everything we need for a successful expansion into NPM1 and look forward to providing further updates as this exciting launch progresses. Turning to Niktimvo on Slide 7. We saw robust Niktimvo growth in the third quarter with $45.8 million in net revenue, up 27% from the prior quarter. We continue to receive excellent feedback from HCPs on the rapid and durable improvements they are observing with Niktimvo across some of the most difficult-to-treat organs associated with chronic GVHD. We are steadily adding new patients and patients are staying on therapy. From the start of the launch through the end of the third quarter, 8,500 infusions have been administered to 1,100 patients. Usage has been mostly in the fourth line, but it is growing in the third line, with the recent decrease in REZUROCK sales corresponding with increased adoption of Niktimvo. Of the patients who started Niktimvo in Q1, approximately 80% remain on therapy today. The breadth and depth of prescribing continues to grow with 90% of bone marrow transplant centers in the U.S. prescribing Niktimvo, with all centers placing repeat orders year-to-date. While we've made excellent progress in the first 8 months, we still have significant room to continue growing given the scale of the unmet need with approximately 6,500 patients in the U.S. requiring 3 or more lines of therapy, representing a $2 billion market opportunity, as shown on Slide 8. I'll close by saying that, I'm thrilled by the progress we have made with Revuforj and Niktimvo. Both medicines are delivering for patients and on blockbuster trajectories. Achieving success as a commercial organization takes great products, great plans and great execution, and we have all 3, positioning Syndax for sustained growth for years to come. With that, I'll hand the call over to Nick to discuss our upcoming data presentations at ASH. Nick? Nicholas Botwood: It's a pleasure to be on the call today. Thank you, Steve, and to discuss the strong presence Syndax will have at ASH with 23 abstracts accepted for presentation, including 6 oral presentations, highlighting our scientific leadership in menin inhibition and CSF-1R inhibition. Starting with Revuforj or revumenib. Collectively, the abstracts highlight the remarkable activity and tolerability of revumenib in multiple genetic subtypes, both as a monotherapy and in combination with standard of care therapies across the acute leukemia treatment continuum. Slide 9 summarizes the first real-world evidence for menin inhibitor. Data from the first 18 patients treated commercially with Revuforj at Moffitt Cancer Center show favorable tolerability and excellent clinical activity across multiple genetic subtypes and settings. Patients with NPM1, KMT2A and NUP98 acute leukemias are included in the data set. 15 patients received Revuforj in the relapsed/refractory setting, 2 in frontline and 1 after stem cell transplant without prior Revuforj treatment. Notably, nearly 80% of the patients received Revuforj in combination with standard of care regimens, most commonly venetoclax plus HMA. At the time of the abstract data cutoff, median follow-up was relatively short at about 4 months. 16 patients were efficacy evaluable. Among 14 patients treated for morphological marrow disease relapse, 79% achieved an overall response. Rates of MRD negativity by flow cytometry were high at 86% and 67% for KMT2A and NPM1 responders, respectively. 4 patients or 29% of the population treated for morphological disease proceeded to a stem cell transplant. 3 patients received Revuforj as maintenance post-transplant, including 2 who resumed Revuforj post-transplant and who started post-transplant without prior Revuforj treatment. It's also noteworthy that there were 2 additional patients who were treated with Revuforj NPM1 MRD positivity with one of the patients achieving MRD negativity at the data cutoff. The potential use of revumenib as an MRD eraser in HOX/MEIS-driven tumors is an area of high clinical interest with multiple ongoing studies exploring this area. Importantly, Revuforj was well tolerated in this real-world cohort, consistent with what we have observed among more than 1,000 patients treated across our broader clinical trial compassionate use and commercial experience. There was a low rate of revumenib dose reductions and no AEs led to revumenib discontinuation. DS and QTC were well managed with no events of either above Grade 3. The first real-world data set provides important insight into the breadth of Revuforj usage we are observing at leading academic institutions like Moffitt. The use in KMT22A, NPM1 and NUP98 underscores the clinical value of the data we have presented, showing activity in multiple genetic subtypes, one of the several differentiating features of the revumenib profile. The high rate of combination therapy observed highlights physicians' comfort with revumenib's safety profile and their desire to combine therapies with the hope of achieving deeper and more durable responses. We look forward to the presentation of longer-term follow-up data from Moffitt at ASH. This presentation will be the first in a series of real-world data sets we will be collecting and presenting in partnership with leading physicians and centers. Turning to Slide 10 and the frontline setting. We are pleased to share data from the first 17 patients enrolled in the newly diagnosed cohort of the SAVE trial. This trial is evaluating revumenib in combination with venetoclax and decitabine/cedazuridine in the relapsed/refractory and frontline settings. These new data show the combination was well tolerated in newly diagnosed patients with high rates of complete remission or CR and MRD negativity. Among newly diagnosed patients with NPM1 or KMT2A, 88% of evaluable patients achieved a CR. 100% of patients with CR were MRD negative by flow cytometry. 5 patients or 29% proceeded to transplant. Two of these patients had resumed revumenib as post-transplant maintenance at the time of the data cutoff. At a median follow-up of 6 months, median OS and EFS were not reached. The combination was well tolerated. DS and QTC were well managed with no events of QTC above Grade 2 and no events of DS above Grade 3. This is an important data set that builds on the encouraging results observed in the BEAT-AML trial of revumenib with venetoclax and azacitidine in newly diagnosed patients with AML. The concordance of the results from 2 different studies and different centers bolsters our confidence in the potential for revumenib in combination with low-intensity therapy to transform the treatment paradigm for newly diagnosed NPM1 or KMT2A AML. To realize the full therapeutic potential of Revuforj, we are laser-focused on advancing our frontline trials, including the pivotal EVOLVE -2 trial of revumenib with ven/aza that was initiated in collaboration with HOVON in the first quarter of 2025, the first pivotal trial of a menin inhibitor to start enrolling in the frontline setting. Moving now to Slide 11 and preliminary Phase I data supporting revumenib in combination with intensive chemotherapy or 7+3 in newly diagnosed patients with NPM1 or KMT2A AML. Data from 2 ongoing trials will be presented at ASH, including one led by the National Cancer Institute, or NCI, and one led by Syndax. Collectively, the early data from these trials show the tolerability of revumenib in combination with 7+3, along with high rates of CR, MRD negativity transplant and rapid count recovery. Both trials evaluated 2 dose levels of revumenib in combination with 7+3 induction and cytarabine consolidation. Dose level 1 was revumenib at 110 or 220 milligrams every 12 hours with or without strong CYP3A4 inhibitor, respectively. Dose level 2 was at the FDA-approved monotherapy dose. No maximum tolerated dose has been identified and the adverse events reported were consistent with the known AE profile of intensive chemotherapy and revumenib. In the NCI trial, 1 investigator-assessed dose-limiting toxicity or DLT was reported at dose level 2. This was one Grade 5 event of typhlitis or severe inflammation of the intestine, a complication that is known to occur in patients receiving intensive chemotherapy. There were no reports of DS or QTC prolongation of any grade. The NCI investigators concluded that revumenib appears to be well tolerated both with 7+3 induction and consolidation. In the Syndax study, 1 DLT of Grade 3 QTc prolongation was reported at dose level 1. This patient discontinued revumenib during the first cycle. Notably, at the end of the first cycle, the patient had achieved an MRD-negative CR and went on to receive a stem cell transplant. Turning to the promising clinical activity observed among 9 efficacy evaluable NPM1 and KMT2A patients in the NCI trial at the dose level 1 or 2 at the time of the abstract data cutoff, 89% achieved a CR and 44% proceeded to transplant following treatment with revumenib. The median time to full count recovery, including both neutrophils and platelets was 25.5 days among patients with CR. Among 7 efficacy evaluable KMT2A patients in the Syndax trial at the time of the data cutoff, 100% achieved a CR and the MRD negativity rate was 100% among evaluable patients, 57% proceeded to transplant. At ASH, data from additional patients and follow-up will be presented from both trials. Seeing positive early data from these 2 trials is very encouraging as we near the initiation of the registration-directed REVEAL program, which will evaluate revumenib in combination with intensive chemotherapy in newly diagnosed fit patients with NPM1 or KMT22A. We remain on track to initiate REVEAL by the end of '25 and look forward to providing further updates in due course. Turning to Slide 12. This abstract provides insights into the growing usage of revumenib we are observing in the post-transplant setting. In a retrospective review of 10 pediatric patients with KMT2A or NUP98r acute leukemia who received revumenib maintenance post-transplant at MD Anderson, revumenib was well tolerated with promising early efficacy. Patients received a median of 2 cycles of revumenib prior to transplant and revumenib was initiated at a median of 111 days or roughly 3 to 4 months post transplant, consistent with what we have observed in other data sets. The study planned for continuation of revumenib post-transplant for up to 1 year. Patients had completed a median of 11 cycles post transplant at the time of the data cutoff. One patient continued for 2 years due to parental preference. This highlights the tolerability of Revuforj and reinforces prior feedback we have received from patients and families on the strong desire to stay on therapy that induced remission. At the last follow-up, all 10 patients were alive with no relapses, yielding an estimated 1-year event-free survival of 100%. This is very encouraging results in a population with a high risk of relapse within the first year. The use of revumenib in the post-transplant setting is an area of high clinical interest. In addition to the abstract just discussed, investigators from a different study will present a trial in progress poster describing a Phase I trial evaluating the safety and preliminary efficacy of revumenib as post-transplant maintenance in adult and pediatric patients with NPM1 or KMT2A. This trial, which is actively recruiting at City of Hope and Dana-Farber Cancer Institute is planning to continue revumenib for 2 years post transplant. Turning now to axatilimab on Slide 13. I will briefly highlight 3 axatilimab abstracts that underscore the potential for long-term benefit in recurrent refractory chronic GVHD and the feasibility of combining ruxolitinib in newly diagnosed chronic GVHD. The first abstract shows that 33 of the 239 patients in the pivotal AGAVE-201 trial of axatilimab were still on therapy as of March 2025, with a median of 2.8 years on axatilimab. Long-term data show a continued tolerable safety profile. The second abstract reports the safety and feasibility of axatilimab in patients who had a response at the FDA-approved dose of 0.3 milligrams per kilogram every 2 weeks and then transitioned to a double dose every 4 weeks. Among the 19 patients who switched, the 4-week dosing was well tolerated with a median of 1.7 years on therapy after the dosing change. The third abstract reports interim safety data from 44 patients enrolled in the ongoing Phase II trial of axatilimab with ruxolitinib in newly diagnosed chronic GVHD. The data showed the combination was well tolerated, paving the way for the further development of this potentially steroid-sparing regimen. Importantly, this is 1 of 2 ongoing trials that have the potential to expand axatilimab into the frontline setting in combination with standard of care therapies. In summary, this year's ASH will be another exciting meeting for Syndax. After watching the clinical community's enthusiasm for revumenib and axatilimab grow over the year, it's a pleasure to have the opportunity to share the next wave of data that will help drive forward the next phase of progress for patients. And with that, I will hand over the call to Keith to discuss our financials. Keith Goldan: Thanks, Nick. Earlier this afternoon, we reported detailed third quarter 2025 financial results. I will touch on a few key points on Slide 14. For the third quarter of 2025, we reported Revuforj net revenue of $32 million. Quarter-over-quarter sales growth was driven by demand as inventory levels remained at 2 to 3 weeks. While prescription demand increased 25% quarter-over-quarter, net sales grew 12% over the prior quarter. The primary reason for this delta was an increase in Revuforj's gross to net adjustments in the third quarter versus 2Q, while still within the 20% to 25% guidance range we previously provided. The increase was due to higher proportion of 340B business in the quarter as well as higher exposure to Medicare and Medicaid, all of which mandate statutory discounts. There was also a slight drawdown of inventory in the channel this quarter, while still within the 2- to 3-week range that we previously guided. Looking ahead, we expect sales growth to meaningfully accelerate over the coming quarters with the approval in NPM1 and an increasing average duration of therapy in KMT2A as more patients receive Revuforj as long-term maintenance therapy post transplant. Turning to Niktimvo. Syndax reported $13.9 million in collaboration revenue after deducting the cost of sales and commercial expenses. Importantly, Niktimvo continues to be positive cash flow contributor to Syndax. We continue to expect the Niktimvo margin contribution, defined as collaboration revenue recorded by Syndax as a percentage of Niktimvo net sales to be in the 25% to 30% range in the near term and increase longer term as sales grow and the partnership leverages a largely fixed expense base. We expect continued robust growth given GVHD is a chronic disease where there is a high response rate to Niktimvo and the average patient will likely remain on therapy for years. Turning to the balance sheet. We continue to maintain a strong financial position with $456 million in cash, equivalents and short- and long-term investments as of September 30. As I've said in the past and reiterate today, we expect Syndax will reach profitability with current funds on hand. In fact, my confidence is higher today given that both drugs are outperforming our original forecasts. We are confident we can execute commercially, and also deliver on our integrated clinical development plans for both drugs while keeping operating expenses at today's levels. Our cash, combined with increasing Revuforj and Niktimvo cash flow contributions alongside an expected fixed expense base will drive our path to profitability. Michael? Michael Metzger: Thank you, Keith. Turning to Slide 15. Syndax has never been in a stronger position than we are today. We have 2 first and best-in-class therapies on blockbuster trajectories with plenty of room for growth in the front line and beyond. We have an outstanding team that is consistently executing at the highest level, culminating in 3 FDA approvals and launches within roughly 1 year, a remarkable achievement. With 2 exceptional product launches underway, a strong balance sheet and stable expense outlook, we are on the road to profitability and fulfilling our mission as a company. I would like to close by thanking everyone who has made it possible for us to make a major impact for patients, especially our talented Syndax employees and long-term investors. With that, I would like to open the call for questions. Operator? Operator: [Operator Instructions] The first question is from Anupam Rama with JPMorgan. Priyanka Grover: This is Priyanka on for Anupam. Can you review how Revuforj's place in lines of therapy has evolved in the commercial setting during the launch? And how do you think this will translate for the NPM1 setting? Would physicians with experience with Revuforj be more willing to use it in earlier lines of therapy? Michael Metzger: Yes. Thanks, Priyanka, for the question. I'll take that. So, look, lines of therapy, I think the question is relating to how is it being used in clinical practice. For KMT2A, we have said that about 70% of our business is second or third line, so that's first relapse or second relapse. That's a stark change from what we've seen in our clinical trial where third and fourth line was the average patient. And so, what the meaning of that is, is that it enables patients to be treated earlier. They tend to do better, stay on treatment longer. We've seen an uptick in the amount of patients going to transplant as a result. We've seen in our clinical trial, we saw 25% of patients go to transplant. In our commercial experience, we've seen about 1/3 go to transplant. So, we've actually seen quite a shift and that we think will manifest in patients staying on drug longer over time in KMT2A. So that's been very meaningful. And we expect with NPM1, these patients are getting to transplant as well. We're also seeing high rates of response. About half of the patients get to response. We do expect them to be treated earlier and earlier in the treatment journey. And as we've talked about, patients are also being treated in combination. So that will drive patients to earlier utilization within their journey. So, this is, I think, a trend that will continue not just for KMT2A, but for NPM1 and ultimately should lead to better utilization, longer utilization for patients. Operator: Your next question will come from Corinne Johnson with Goldman Sachs. Corinne Jenkins: You spoke about a 6- to 12-month range for duration of therapy in 2026. Could you help us think about the key factors that you're looking to understand in order to narrow that range? And when could that start to be reflected in the revenue trajectory? Michael Metzger: Thanks, Corinne. Great question. Look, I think 2026, we said that in 2025, as we started with new patients staying on therapy in the range of 4 to 6 months, and that was really reflective of new patient starts and some patients coming back from -- on maintenance therapy post transplant. But the impact of that in terms of duration of therapy won't be felt really until 2026, where more patients will be returning from transplant and receiving maintenance. We expect, obviously, to have a launch now with NPM1. So additional patients will be receiving therapy. And then we'll have some of those patients go to transplant as well. But I think the mix of patients between KMT2A where you'll have slightly longer duration of treatment based on the fact that more patients in KMT2A will go to transplant than NPM1. That mix of patients will be -- will have a slightly longer duration of therapy. NPM1, larger patient population. So, we expect more patients to be on drug than perhaps what we'll see with KMT2A ultimately, but a slightly shorter duration based on the fact that fewer patients will go to transplant, although some will. So, it's the mix of those 2 patient populations that we believe will drive to 6 to 12 months in the second year. Operator: Your next question will come from Brad Canino with Guggenheim. Bradley Canino: Nice commercial momentum on the quarter. First question for you. Have you looked at all where the maintenance restart rate is for the patients who started revumenib during the first few months of launch? Because obviously, the 35% to 40% you're reporting is weighed down by the bolus of recent patients getting transplants, but not yet undergoing the ability to get maintenance. So, were you able to do a longitudinal analysis at all to understand where that restart rate number can grow to? Michael Metzger: Excellent question, Brad. I think we've seen some progress this quarter in the restart rate where we saw last quarter about 1/3 of patients restarting maintenance therapy. Now it's up to about 35%, 40%. We do believe that will grow over time. additional patients, steady flow. We've seen this quarter going to transplant, again, not fully offset by the patients coming back. We do think that, that will build in the next quarter and the quarters beyond. We don't have an upper limit of what percentage of patients will come back, although what we've heard from physicians is that they're very keen to put them back on therapy. And so, what we've heard is as many as 80%, 90%, they've given figures that they would say almost all their patients. hard to estimate what the upper limit is of what percentage of patients will come back. It is impacted by other factors that are beyond the control of physician, if a patient has extenuating circumstances. But I think the inclination is to bring them back and put them on therapy. So, we'll just have to wait and see how that manifests. But it's a good sign that even now we're starting to see more patients come back on. Operator: Your next question will come from Clara Dong with Jefferies. Yuxi Dong: So, as we think about the relationship between prescription growth and revenue growth, so could you provide some perspective in terms of how revenue per prescription might evolve as the patient mix shifts from predominantly KMT2A in the third quarter to include more NPM1 patients going forward? Michael Metzger: Yes. Keith, do you want to take that question? Keith Goldan: Yes, Clara, thanks for the question. We really don't expect much of a change in terms of average revenue per prescription as more and more NPM1 patients start to make their way into our prescribing base. Operator: Your next question will come from Peter Lawson with Barclays. Peter Lawson: Just on the delta between quarter-over-quarter growth results versus the Rx rate. And is there any way to break down that gap between gross to net versus inventory timing that we should be thinking about or any changes that we should be thinking about going forward? And then I've got a question just on if there's been any friction again NPM1 authorizations and payer access. Michael Metzger: Peter, thanks for the question regarding quarter-over-quarter growth and the breakdown between what we're seeing in those metrics. But Keith, why don't you take that question? Keith Goldan: Yes, Peter, thank you. I'd start off by saying that generally, when you see a disconnect in a quarterly result between net revenue and prescription growth as is often the case, especially in launches, there's generally 2 factors that play into that, and it's generally gross differences in gross to net and differences in inventory stocking. And as I said, both can fluctuate quarter-to-quarter. In this period, as I said in my prepared remarks, the delta was primarily driven by higher gross to net adjustments. I want to emphasize it's still within the range we provided. So a very tight range of 20% to 25%, but we did have slightly higher 340B chargebacks and slightly higher Medicaid to Medicare utilization. As I said, both remain within the guidance range as does inventory. The 2 to 3 weeks, which is very typical of specialty launches, rare disease launches using the type of distribution network that we do. But we did see a slight drawdown in inventory, which those 2 factors combined to explain the disconnect between prescription growth of 25% and revenue growth of 12%. Michael Metzger: Yes. And I would just add that, again, just to remind you, Peter, that we had about 1/3 of revenue go away, if you will, for patients who were going to transplant. And we had an offset of only about 35% to 40% of those patients coming back. So that will build over time, but that was, of course, is a factor in what could have been a different quarter from a top line perspective. Steven Closter: And I think the other part of Peter's question was just on the payer side. Michael Metzger: Yes. Steven Closter: So, as you know, payer access formulary coverage for Revuforj really since launch has been simply outstanding. By month 5, we hit 97% formulary coverage. So, in essence, unfettered access for commercial Part D and Medicaid patients. There has, of course, been some off-label prescriptions outside of KMT2A. We know that it's been about 10% since launch, and that will obviously -- the usage will grow with the indication. But we haven't had any pushback from payers for the most part, even in advance of the NPM1 indication. Once the publication came out in May in blood, obviously, the NCCN listing was in the third week of September. That's really what payers need to get products covered. Even when they're not yet indicated, obviously, the indication is going to accelerate that. So, the payer team has been talking to payers since we submitted the sNDA earlier this year, coverage will build quickly. But in the interim, Peter, as coverage builds, the claims will be adjudicated and paid for. So, patients will still enjoy open access to Revuforj moving forward until that coverage is permanent. Operator: Your next question will come from Ellen Horste with TD Cowen. Ellen Horste: Congrats on the quarter and all the exciting abstracts. Just wondering a couple of things about the NPM1 launch. One, if you noticed any modest uptick in the final days of Q3 where you did have that inclusion NCCN Guidelines? And then more broadly, wondering how we should think about the launch trajectory in the NPM1 population in terms of market penetration relative to the launch in the KMT2A market, given that, as you said, it's a larger population, but it's likely to face some competition. Any thoughts there would be helpful. Michael Metzger: Yes, Ellen, thanks for the question. I'll start off with some comments about the quarter, and then I'll turn it over to Steve to talk about the launch trajectory. So first, strong start to the quarter. I'd say HCPs are excited. As you'd imagine, awareness is quite high. Increase in prescriptions, we're seeing it, accounts are ordering and have expanded. The setup for the forward, I think, is quite positive. We had guidelines as you know, late September. So that didn't impact the quarter too much, but sets us up well for this quarter coming and approval in October. So, the combination really sets our launch at a very -- we think, in a very good way. So, we expect a solid Q4, and we expect this to add meaningfully to the book of business that we have in KMT2A. And we talked about the factors that will drive KMT2A business, which is new patient starts steady as well as maintenance and patients coming back from -- on to maintenance therapy, which will grow. So, we're expecting a good Q4. Maybe I'll turn it over to Steve to talk about launch trajectory in NPM1. Steven Closter: Yes. Just to add on to Michael's comments. I mean, awareness and excitement around the new indication is incredibly high. Our field force was trained within days, and we were talking to customers the day after approval, I think I mentioned in my prior comments. We're excited about the launch. I know physicians are as well. There's 3 main drivers as we think about this. We'll see if and when, there is competition, we prepare as though there is, which is why we operate at a very high level and execute as best as we can. First is product profile. We think we have an unsurpassed profile, really best-in-class, 2 indications covering nearly half of the population, adults and peds, AML, ALL. We've talked about this. efficacy is the most important attribute for any cancer oncology heme or indication. And we believe we have the best data, and that's what physicians tell us. The drug is well tolerated, range of doses. Physicians have proven that they can use it in KMT2A very widely as well as in NPM1, and they'll have more experience doing that. Second piece is really just around relationships and ability to execute. We've been in the market for selling for almost a year, but our field team was in place even 6 months in advance of that. We've got great relationships. The experience that physicians have had has been excellent around the drug. We've talked about 1,000 patients treated to date. We'll be over 1,000 patients treated commercially. That means a lot. We've got a growing account base and not just large accounts, it's been medium-sized accounts as well as community practices, really showing unmet need and also how easy it is to use the drug. And that experience accounts have it is meaningful. It's really 2 to 3 patients to gain some serious muscle memory in use. And the last piece, which we highlighted on this call is really the ongoing clinical development program of the data that we've been supporting and whether they're collaborative studies, ISTs and health economic work. That data set will build over time, giving physicians the kind of data sets and data points they need to continue to use this drug widely. So, we feel we're in a great position moving forward. Michael Metzger: Yes. And I would just add that, I think we have -- it's quite simple in terms of our view on competition, Revuforj has the broadest and strongest efficacy profile. This is a very much of an efficacy-driven market where you have physicians looking to get patients to remission. It's -- they're very sick and they need, I think, a very strong drug to drive home and get patients into remission. And Revuforj is that and it has the broadest profile to achieve that in all types of patients. So, I think we're in a very good position going into this launch. And we have a pretty simple view on how the competitive dynamic will play out. We should dominate this market. Operator: Your next question will come from Stephen Willey with Stifel. Stephen Willey: Just one, I guess, on the soon to initiate REVEAL trial in frontline patients with intensive chemo. I know we don't have protocol details yet, but I was just curious about how you're philosophically thinking about specifically evaluating the contribution of maintenance therapy within the protocol itself, just given what J&J now appears to be doing in the frontline setting and whether you think trial design differences may have some kind of competitive implications on the labeling front as it pertains to maintenance therapy explicitly? Michael Metzger: Steve, thanks. A great and important question about how do we think about evaluating or how are we evaluating maintenance therapy in our REVEAL trial. So maybe I'll turn it over to Nick to take that. Nicholas Botwood: Yes, it's an important question. It's something we've thought a lot about, and we're looking forward to, as we've indicated, starting our REVEAL program soon this quarter and very encouraged actually by the data that we've already presented and we'll follow up more in terms of combinations with intensive chemotherapy, which looks very encouraging. So, maintenance is an important question. And the way we're thinking about this is that we have a number of studies that will generate data that support maintenance, looking at different doses, different approaches that will support treatment practice. So, maintenance is obviously a consideration within the pivotal studies themselves. All of our studies allow for maintenance after transplant, and we'll be able to ascertain some data from that. But in terms of the overall profile, we'll be looking at a broad body of evidence to support use in the maintenance setting in the front line. Operator: Your next question will come from Yigal Nochomovitz with Citigroup. Yigal Nochomovitz: I was just curious, when you look at the trends between the community practices and academic, are you seeing any differences there in terms of the percent going to transplant? And then related to that, are you seeing any differences in those segments in the percent returning to maintenance post transplant? Michael Metzger: Yigal, thanks for the questions. I'm going to turn it over to Steve to kind of to address that. First question relates to, are we seeing differences in transplant between community practices and academic practices? Steven Closter: Yes. So, we know there's usage across academia as well as community. Majority is in academics, and these patients are very sick. That's not uncommon, whether it's for KMT2A, we expect that early for NPM1. So, the majority has been in academia. We're not able to peel apart the rates -- the treatment rates and maintenance. We do have some claims analysis, which trails. Some of that data that we've been shared today is from that claims analysis. Perhaps as the data set grows, we'll be able to pull apart that dynamic. But for now, it's -- the rates we've shared are really across the spectrum. Yigal Nochomovitz: Okay. And I know you mentioned, obviously, for NPM1, you'll have less transplants. But nonetheless, since the drug was just approved in the expanded label, -- is there a situation where some patients that did have transplants that were NPM1 could still get Revuforj as maintenance even if they didn't get it before or that wouldn't happen? Michael Metzger: Excellent question, Yigal. I'll turn it over to Nick. Nicholas Botwood: Actually, yes. Interestingly, we are seeing that. And in fact, there was a reported case in the real-world series that I mentioned from Moffitt, you'll see one patient actually start on Revuforj having I assume as a function of timing, not had treatment prior to the transplant. So, there is now -- and we've heard from some other centers as well that there is a desire if they haven't had Revuforj prior to the transplant that they would start on it as a maintenance therapy afterwards. Operator: Your next question will come from Justin Zelin with BTIG. Justin Zelin: Congrats on the quarter. Just wondering if you could give us an update on how the safety profile has been faring in the real world? Do you see patients discontinuing the drug at all for any adverse events? Michael Metzger: Justin, thanks. I'm going to turn it to Nick for a safety profile. Nicholas Botwood: Yes. I would say -- I mean, we -- I would say we probably spoke to 1,000 physicians since the launch and the reception has been very favorable. Again, we've talked about very consistent safety profile. They're very familiar with managing it, in particular, very low rates of serious cardiac complications across our clinical trial program of over 1,000 patients. So, it's very well managed. We actually see, as you can see from the data -- the extensive data we're going to be presented at ASH, you see very low rates of discontinuations from therapy. The adverse event profile is well managed, and that's consistent with what we see in the commercial use as well. They're very experienced in using the drug, and it's well managed. Operator: Your next question will come from Salim Syed with Mizuho. Salim Syed: Great. Congrats on the quarter, guys. Just one for me as well on the safety side. I know people are focused and you guys mentioned this on the approval call, the one case of Torsades, it's now listed in the black box there. I know one case, and you mentioned previously, you don't expect things to really change with it. And I get that. But as you kind of think about first line here where there are more patients and you are treating thousands of patients per year, is it not reasonable to think here that you're going to get more cases like that, and that's something that you're going to have to educate or manage around, especially if zifto does not end up with that on the label? Michael Metzger: Nick, do you want to? Nicholas Botwood: Well, I think actually, the answer is no because the rates in the frontline setting actually seem to be lower. This may have something to do with patients may be fitter newly diagnosed. They've had low -- they haven't had exposure to prior anthracyclines and things. So we're seeing low rates. The other benefit of our frontline studies, of course, is that they will be randomized. There'll be a control arm. It will be much easier to ascertain the true rates of drug-related side effects with the control. So, I think it will be much more informed. And based on what we've seen to date, we're really seeing very low rates of serious cardiac events or discontinuations. Michael Metzger: Yes. I'd just add on top of that, I mean, we -- as Nick mentioned, we've talked to hundreds of physicians since launch. And here's the takeaway. I mean, they're excited about the profile. Revuforj's efficacy sort of stands out for sure, very manageable safety profile. They're not changing the way they practice based on the label and what they've seen. There's no new monitoring. So, they've been doing the same thing they've been doing for a year as we've launched KMT2A, and they've also treated NPM1 patients successfully during this time. So, I think they see Rev as a game changer for their patients and efficacy really matters the most here, and that's what they're focused on. So that's really where we lead things. Operator: Your next question will come from David Dai with UBS. Xiaochuan Dai: Just a question on the 35% to 40% patients who resumed Revuforj post transplantation in third quarter. Could you maybe provide some additional detail around the timing of the maintenance use? How long is the drug holiday before we'll see them coming back to the maintenance therapy? Michael Metzger: Great, David. Thanks for the question. Very simple. So, what we're seeing in our clinical experience, our commercial experience is reminiscent of what we've seen in our clinical experience, which is patients get about 2 to 3 months of therapy. For the ones who go to transplant, they usually get their response in that time frame. They go to transplant, so they're off Revuforj for a period of time, and then they resume about 3 to 4 months later. So it's, call it, 6 -- in the range of 6 months from start to resumption of therapy in the maintenance setting. Operator: Your next question will come from Mayank Mamtani with B. Riley. Mayank Mamtani: Congrats on strong momentum. Actually, a lot of demand indicators aligned with our recent physician survey. So, on the KMT2A versus NPM1 revenue split being obviously 90 to 10 right now, are you able to comment on when you'd expect that to be a little bit more balanced or even NPM be a bit more dominant from a timing standpoint? I obviously recognize there are different dynamics here in play in terms of what you just commented on treatment duration and obviously, transplant dynamics and obviously, the larger starting patient population. And then I have a quick follow-up. Michael Metzger: Yes. Thanks for the question. I think you answered it yourself. It's 2 different populations of patients. KMT2A is smaller than NPM1. We're expanding the population 2 to 3x the size with NPM1. More patients do go to transplant that are KMT2A will have a slightly longer duration of treatment based on the fact that there's a group of patients -- a growing group of patients in KMT2A going to transplant and then coming back on for maintenance. NPM1 will have its own dynamics. But we do have the best profile, we believe, in both those segments. We're widely indicated for AML, ALL for KMT2A, adults and pediatrics, and we extend adults and pediatrics with NPM1. So, we do have the broadest profile. We do expect to capture the largest share in NPM1 and dominate for both segments. So, I think this is -- it's a little difficult to tease out what's the contribution of parts at this point, but we do think that we'll have a majority share in both segments. Mayank Mamtani: Okay. And on the impressive frontline AML data set from the save all-oral regimen, I believe that was and then the intensive chemo combination. We also saw a couple of peer frontline data sets that were released this morning. Any updated thoughts on how you're thinking of competitive positioning and even maybe regulatory strategy with different combination regimen trials in frontline based on some of this data? And the post-transplant 1-year relapse-free rate was 100%, if I heard 1-year EFS. Is that not something you could include in the label at some point? Or would you have to do that post maintenance frontline trial to get there? Michael Metzger: Yes. Great questions, I'm going to turn it over to Nick to maybe address each of those if you can. Nicholas Botwood: Yes, I would be happy to. And I think we're going to have a very dominant presence at ASH, given the data we're going to be presenting across 12 abstracts. And as you say, very compelling data in the frontline setting from both our SAVE oral data, but also now our emerging data from intensive chemotherapy, which we will be updating. You'll see more numbers and more follow-up from both of the studies that we'll be presenting. When we look across, I would say, the competitive landscape, there's going to be a lot of combination data presented at ASH. I think that overall, the profile for revumenib really is quite compelling, both in terms of the efficacy that we're showing consistently now, particularly when you look at the subsets of patients like KMT2A, where we're seeing a 100% response rate and 100% MRD negativity in what we've reported. It's really quite unparalleled. And again, it speaks to the depth and the breadth of the profile that we see with revumenib. So, I think we're very well positioned in the data we're going to be presenting. And when you think that, that's adding on to data that we've already presented like the BEAT-AML study previously in frontline in combination with ven/aza, it bodes very well for all of our frontline programs, both the REVEAL programs with intensive chemotherapy and also the EVOLVE-2 study that we're doing in collaboration with HOVON, which is well underway and has been enrolling since earlier this year. So yes, I think a strong profile and nothing that looks differentiating in any of the other combination data we've looked at to date at ASH. Operator: Our final question today is from the line of Jason Zemansky with Bank of America. Jason Zemansky: Congrats on the progress. I was hoping you could speak to the impact of the NPM1 approval on your gross to net and inventory trends as we head into the fourth quarter and early next year. Given the size of the population relative to the KMT2A, I have to imagine that some of the headwinds may pivot to tailwinds and at a much more substantive impact. And then I guess, secondarily, if a patient returns to Revuforj following a transplant, how challenging is that, at least from an administrative or payer perspective? How difficult is it sort of restarting a patient like that? Michael Metzger: Jason, thanks for the questions. First question, impact of on GTN for NPM1. Keith, I'll address that. Keith Goldan: Yes. The first one is a 2-part question. With respect to inventory, Jason, we don't expect any changes. The 2- to 3-week guidance that we've given is going to grow in absolute terms as volumes grow. So, it's based on a trailing period of demand. So, we expect inventory levels in our specialty distribution channel to stay at 2 to 3 weeks. With respect to your question on gross to net, the NPM1 indication may shift the mix in terms of payers. As you know, we offer no commercial rebates. There's the statutory rebates that I mentioned earlier in response to another question. But we have pretty good visibility, and we expect to remain in that 20% to 25% gross to net range. Michael Metzger: Steve, do you want to take the second question? Steven Closter: Yes. And maybe just a comment on the gross to net. I mean, NPM1 patients tend to be older, so Keith write the mix, it could go to more Medicare Part D from commercial. So, there might be some slight impact. In terms of, Jason, the question on impacting payers and this is patients coming back post a successful transplant as a restart or as we call maintenance treatment, we don't expect any pushback from payers. There's been so few pushback from payers at this point really throughout the launch. And a lot of this is payers understand the unmet need, the value the drug brings. They've accepted the price. So, a vast majority of prescriptions are being paid for regardless of if they're KMT2A, NPM1 maintenance or even for other off-label use. So, we don't expect any pushback from payers on patients returning to a maintenance therapy. Operator: This concludes our question-and-answer session. I will now turn the floor over to Mr. Michael Metzger for any closing remarks. Michael Metzger: Thank you all. We appreciate you all tuning in today to discuss our recent progress and the exciting milestones ahead. We look forward to seeing many of you at the upcoming UBS, Guggenheim, Stifel, Jefferies and Encore Conferences -- Evercore Conferences as well as our ASH investor event in December. And with that, have a great evening. Thank you.
Operator: Good day, ladies and gentlemen, and welcome to The Clorox Company First Quarter Fiscal Year 2026 Earnings Release Conference Call. [Operator Instructions]. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Ms. Lisah Burhan, Vice President of Investor Relations for The Clorox Company. Ms. Burhan, you may begin your conference. Lisah Burhan: Thank you, Jen. Good afternoon, and thank you for joining us. On the call with me today are Linda Rendle, our Chair and CEO; and Luc Bellet, our CFO. Please note that our earnings release and prepared remarks are available on our website at thecloroxcompany.com. In just a moment, Linda will share a few opening comments, and then we'll take your questions. During this call, we may make forward-looking statements, including about our fiscal year 2026 outlook. These statements are based on management's current expectations but may differ from actual results or outcomes. In addition, we may refer to certain non-GAAP financial measures. Please refer to the forward-looking statements section, which identifies various factors that could affect such forward-looking statements, which have been filed with the SEC. In addition, please refer to the non-GAAP financial information section in our earnings release and the supplemental financial schedule in the Investor Relations section of our website for a reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures. Now I'll turn it over to Linda. Linda Rendle: Thank you for joining us today. In Q1, we reached a major milestone in our transformation journey with the successful launch of our new ERP system in the U.S. This foundational step has strengthened our digital backbone and unlocks new value streams for our company. Launching the ERP was a significant undertaking. And while the transition presented some challenges, our team's resilience and adaptability allowed us to navigate them effectively, and we're already seeing the benefits ramp up across our operations. As we move forward, we've incorporated the realities of the implementation into our latest outlook and made the necessary adjustments to strengthen our plan for the remainder of the year. Importantly, as we move past these temporary challenges, we are fully focused on our demand creation plan to deliver superior value to our consumers and reinvigorate category growth. With that, Luc and I are happy to take your questions. Operator: [Operator Instructions]. And our first question today will come from Peter Grom with UBS. Peter Grom: So I just wanted to touch on the organic sales cadence, and I get there are a lot of moving pieces. But just was hoping to get some perspective on the second quarter as well as the balance of the year. So just first, can you just help us understand what you're including or embedding from a category growth perspective? And then second, you touched on returning to kind of sales growth or consumption growth in the back half as a result of the strong demand creation plan. So can you maybe just unpack that a bit more? And just what drives the confidence that trends will inflect versus what we're seeing today? Luc Bellet: Thanks, Peter. This is Luc. I can take that. So I think when we look at the phasing for the full year outlook, it might be easier to just exclude the impact of the ERP in both Q1 and Q4. And if you do so, organic sales growth in the front half would be in negative low single digits and organic sales growth in the back half would be positive low single digits. The assumptions around the category remain the same. We assume that our U.S. retail category remain muted, kind of on average, growing 0% to 1%, still below historical average. And so the improvement in the back half is really driven by improvement in consumption driven by improvement in market share. And there's 2 main levers here. The first one is that we are launching a few major innovations in some key businesses. In some cases, we are actually launching new platform in other expanding existing platform. I think we talked about it last quarter. We're excited about our innovation plans in the back half, and we have strong demand plans in place. And then the second thing is we are lapping some pretty negative trends that started in the back half of last fiscal year. And that's for U.S. retail and outside U.S. retail, we feel really good about the momentum of both the international and the professional business in the back half. Now Q2, low single -- you asked the question about Q2. So front half will be low single digits, and we expect Q2 to be in the low single digits, mostly largely expect a continuation of the U.S. retail consumption trends that we've seen in the first quarter. That as well as about a point of headwinds from the timing of early shipments in the first quarter. Peter Grom: Okay. That's super helpful. And just maybe more specifically on 2Q, just on that consumption point, the decline you're expecting. Can you maybe just be more specific on what you've seen through October and how you see kind of consumption trending from here? Is it more or less what we've seen through the majority of 1Q? Or do you see any -- are you embedding any sort of improvement from here? Linda Rendle: Yes, Peter, there are some dynamics in October that would be helpful to cover because there's definitely a difference if you're looking at the data between the first half of October and the second half. So first half is marked by a lap of what we saw last year with some storms, hurricanes as well as port issues. And although they weren't very material to the quarter last year, they do create a year-over-year comparison issue. So you could see we were down fairly significantly in consumption in the first 2 weeks, which we expected. Now you've seen in the third and fourth week of October, that's rebounded significantly back to what we expected, and you can see consumption down low single digits in MULO. So that would be the dynamic I would expect is that current rate that we've seen over the last 2 weeks to continue for the remainder of the quarter. But outside of that, we don't have any material things that you should focus on outside of what we provided in the outlook. Operator: And our next question will come from Andrea Teixeira with JPMorgan. Andrea Teixeira: I was hoping if you can touch a little bit on the environment for promotions. I mean I understand you mentioned in the prepared remarks that you continue to see consumers being cautious and value seeking, but hoping to see how the competitive environment unfolds and unfolded through the back half of October to Peter's question. And then if you can also comment on the price pack architecture that you're looking to do for this innovation that is coming in the back half of the year. Should we see you becoming more, I would say, meeting where the consumer is at in terms of like price points? Anything to add there? Or in general, what's embedded in your price -- in the price algorithm for the organic sales growth in the second half? Linda Rendle: Andrea, I'll start with your first one on the environment. So we're seeing the environment largely in line with what we had expected when we started the year and a continuation of what we saw in the back half of last year. As you noted, the consumer continues to be under stress, definitely reacting to the level of volatility and uncertainty that's out there, and we're seeing that in their shopping behaviors. So while in aggregate, the entire consumer wallet has been fairly stable, the changes within that wallet have been quite significant and varying week-to-week and quarter-to-quarter. What that's meant for our categories is we've seen a generally more competitive environment, although I would say it varies business-to-business, category-by-category and what we're seeing in the specific competitive responses. We have seen increased promotions, for example, in the trash business and Cat Litter business, not different than we would have expected given the dynamics of those 2 categories. We've seen some price changes, both things that looked like promotional price changes turning permanent as well as some minor price increases. And so again, it varies by category. But I would say, on average, the competitive environment seems pretty rational right now. If you look at the overall promotional spending, again, in some categories, it was up, but in aggregate across our categories, not that material. And so what we are just responding to and continuing to watch very closely is, will there be a change in the consumer environment that makes people become more competitive, put more money in the system, et cetera. We've seen retailers do some additional support on private label, although it hasn't yielded any private label share results as of last quarter. So those are the things we're watching carefully. But again, it still remains a fairly rational environment, but I think people getting very sharp on value depending on what matters to them and their portfolio and the category that we compete in. There are a couple of places maybe that I would just call out that I think are -- we're watching really carefully, and one of them is food. In average -- on average, the food category at large has been challenged. And specifically, when we look at the food category that we're in with salad dressing, that category has been declining low single digits and very variable. We've made adjustments to our plan. I think you saw in the prepared remarks that large and small sizes in that business are working really well. But that's a good example of a place, Andrea, we'll be using price pack architecture fully to ensure that we're capturing the consumer wherever they are and offering them a Hidden Valley offering that is right for if they want to get the very best value per ounce or if they can't afford to get that large size and they just need something in their pantry that's going to get them through the next few meals. I'd also note on the price pack architecture for the new innovation, similar to what you saw in the prepared remarks, that's how we've approached all of these programs. So we've talked about we have some innovation coming in litter. That will definitely have components of price pack architecture built into it, thinking about what are the right price points we need to be at, et cetera, as well all the innovations that we launched in the back half. Our teams have those tools now embedded in our innovation process, and they're using them to ensure that we capture the full spectrum at launch, and we can talk more about those when those innovations launch in the back half. Andrea Teixeira: That's helpful. And if I can squeeze in one for Luc on the gross margin side. I understand that, obviously, there was a lot of operational deleverage. But you also mentioned commodities coming in, I think, slightly better, if I'm not mistaken. Anything to add to that in terms of like your flexibility to perhaps get into a better range than guided. I understand some of these ranges will go into the low end, but I was curious to see what has changed from a cost perspective that would inform you to be at the low end. Luc Bellet: Sure, Andrea. Maybe let me just speak first about what we're seeing from an inflation in general, both commodity and supply chain and then talk about the different puts and takes as we look at the gross margin drivers for the full year outlook. So we -- if I look at overall inflation, we expect it to continue to remain moderate, I would say, for the year, but we did mention it's slightly more favorable than our prior estimate in July. If you remember, at the beginning of the year, we assumed that input cost and inflation would increase a little under $90 million for the full year with about half coming from commodities and half coming from supply chain, both manufacturing and logistics. Our latest projection assumed that input cost and inflation would increase about $70 million. So about $20 million more favorable. And again, about half of that is coming commodities and half of that is coming from the rest of the supply chain. Now we also have to contend with tariff. And right now, our estimates on tariff is remain the same. It's about a headwind of $40 million for the year. So looking at all of it together, this is about $110 million or about $20 million more favorable than what we thought at the beginning of the year. Now there's a few other puts and takes as we look at the gross margins for the full year. One, we did have to incur additional expenses during the first quarter to deal with the disruptions on the demand fulfillment related to the ERP ramp-up being a little slower than expected. So that's incremental expenses that offset some of the benefits. And then second, we're -- as the teams are finalizing and optimizing their demand creation plans for the innovation in the back half, we increased a little bit both trade spending and advertising. So the trade spending is also putting a little more pressure. So at this point, it's a little more towards the lower end of the range. But keep in mind, it's -- we expect to have like more movement going through the year. What's important is we generally feel good about our ability to meet our gross margin outlook. And if I may say, if I look at the back half of the year, you should see pretty robust gross margin expansion in both Q3 and Q4. Operator: And we will move next to Kaumil Gajrawala with Jefferies. Kaumil Gajrawala: I want digging in just a little bit on maybe your report card because there's so many moving parts with ERP and shipments and all of that. When you're making adjustments for it, how do you feel about your market shares? Are they trending in a direction that you prefer the opposite? So it's a little hard to read given everything that's going on. I'm curious where you are. And layer, I guess, on top of that, you sort of hinted at a few things on more demand-creating activities. Do you have the all clear from an infrastructure perspective to go and pursue them? And if so, maybe just some more details on what it is and how much you expect it to contribute? Luc Bellet: Yes. Maybe what I can do, Kaumil, is just unpack a little bit what was the underlying performance of the first quarter because there was so much noise. So let me start there. And then maybe Linda can provide a little more perspective on the performance in the market. So if we look at Q1 organic sales, excluding the impact of the LRP, the ERP, sorry, we declined about 3 points. And even within this 3 points, there was a few things happening. One, there was one favorable point of timing, which is really just the timing shift between Q2 and Q1 related to some early shipments for merchandising in the second quarter. But we also had the impact of the out of stock, which impacted both our market share and maybe to a certain extent, some categories in some businesses, and that was about 3 points of headwinds. So again, if you unpack the negative -- the decline of 3 points in the first quarter and exclude those 2 levers, like the underlying performance was about negative 1, right? So that gives you some context and also kind of just fairly consistent with what we signaled around the front half being in the negative low single digits. Linda Rendle: [indiscernible] go head. Kaumil Gajrawala: Yes, yes, go ahead.I was just going to ask you to. Linda Rendle: Perfect. So on share and just how that translates to the market, unfortunately, with the ramp-up that we had on our ERP, it did cause us to lose more market share than we had anticipated. And you saw that primarily impact August in a material way. We saw September a bit better and again, in October continues that trend. But we can't say we're satisfied with that. We intend to grow market share over the long term. And so we are laser-focused on that as we head into Q2 and the back half of the year. And that's why you're seeing us continue to refine and tune our plans, which we feel good about in the back half. We feel great about the innovation that we have, feel good about the spending levels we have. And I think what that also connects to is the other parts of the scorecard that will make up share and give us confidence in our ability to grow share again in the back half, and that's household penetration, which remains stable. In fact, if you look at our biggest mega brands, that's up in household penetration, the Clorox brand and up fairly significantly. Our consumer value metric remains higher, significantly higher than it was pre-COVID. And again, we have all of the right spending and tools and innovation in that plan to drive market share performance. So while I'm not satisfied right now, I feel like we have the right plans to get that turned around and the fundamentals of our business remain very strong. Operator: And we'll move next to Filippo Falorni with Citi. Filippo Falorni: So maybe following up on Kaumil's question. Just on the second half, Linda, you mentioned a lot of the improvement is based on the innovation plans that you have for the second half of the year. Can you give us a little bit more color on what categories the innovation is going, what's differentiated? -- kind of what gives you that confidence that innovation will work? And then maybe you can give us specifically drill down a little bit more on trash bag and Cat Litter. Those continue to remain 2 of the most challenged categories, and you mentioned increased promotional activity. So maybe just a review on the plans on those 2 particular categories as well. Linda Rendle: Sure, Filippo. -- innovation, maybe I'll talk about some of the ones that we just launched that are in market now and that we have the ability to speak a bit more about -- in glad, we're continuing to build on the very successful scent platform that we have. You've heard us talk about Bahama Bliss, which was the last big scent that we had released, and we're following that with a foul scent, which we think will do very well for Glad and continue to attract that consumer that's looking for that extra piece of treat at home given what they're going through. In Brita, we are actively modernizing our pitchers with new colors. We're also ensuring that we're doing price pack architecture there to ensure we're capturing consumers who can't afford to buy a larger pitcher at the moment. So we've launched some smaller sizes for both pitchers and filters, and that gives consumers a reason to not turn away from a Brita pitcher. On Birts, we've expanded a very successful platform. We launched a boosted bomb a while back, and we're increasing the footprint of that and launching that into body. And we just launched innovations, including lotion, a butter and moisturizing, they're quite delightful, and I think the consumers are really going to like them. So those just came out, and we're feeling good about those. We will have additional innovations. And the way I would think about it, Filippo, is that we will have innovations across all of our major brands this year. And so you'll see those coming in the back half. Some of these innovations are brand-new spaces for us in terms of what we are going after from a consumer perspective and what problems we're trying to solve for them. And then some of them build again on existing capabilities that we already have. And I know you can understand that I can't get into exactly where those are right now. But I think the key takeaway is innovation across all major brands. I feel really good about the innovation that we launched in Q1, very good about the back half. We have the right spending. And I think they are the right mix between continuing to improve the base and bringing new-to-world innovations that are superior value to consumers and that we think we can create years and years of value from. Filippo Falorni: Great. And maybe just on fresh bags and later, we've seen continued pressure from a market share standpoint. So maybe can you give us a sense of your assessment of those categories and how sustained this promotional environment can remain in those categories? Linda Rendle: Yes. On both of those categories, they're largely what we expected to see, which is very competitive, more promotional activity, continued innovation, and we're seeing about in line with what we expected to see in both of those. Of course, Q1 was impacted by our implementation of the ERP. So we saw a bit more share decline than we had expected. But obviously, once we're back in stock and we, for the most part, are now, we've begun to see those shares rebound. But both of those continue to be marked by higher-than-normal competitive activity, and we see that in pricing. We see that in additional promotional spending. And what we're trying to balance in both categories and particularly in trash would be the long-term value creation aspects of this. We do not want to get into a place where we're destroying value in the category because we just don't see people create a lot more trash when a trash bag is more discounted. And what we're trying to do is ensure that we preserve the right to grow this category through innovation and better consumer ideas and experiences. And so we're being very choiceful. There are places where we have increased our investment in Glad. We're being very surgical about that. And there are places where we're willing to lose a bit of share in the short term in service of that long-term objective. So that's what we think we're getting the balance right on now. We're going to watch it really carefully in Q2 and the back half. We want to execute our innovation with excellence. But I would say that category is very much what we expected to see. Litter, of course, in a place where the category is growing and we're not getting our fair share of that, that's highly disappointing to all of us. We feel good about the plans we have on Litter in the back half. We'll talk more about those in our next call. But we will go after all of the things that we think aren't working quite right for us in Litter right now. And we're hopeful that, that will show a marked turnaround in the back half once we get that implementation in market. Operator: And our next question will come from Chris Carey with Wells Fargo. Christopher Carey: My first question is just around the -- like spending plans for the back half. I'm mostly curious how these have evolved since you started the year? And what I'm specifically interested in is, are we talking about you have these great innovations, you'll be leaning in more and you're basically funding that with the incremental cost savings that you're getting from more favorable commodities? Or are you looking at the broader suite of activities and thinking that you can drive greater outcomes beyond even those innovations? And just is there a way you're thinking about it between promotional activity and advertising? And I have a follow-up. Linda Rendle: I'll start, Chris. So yes, on the spending plans for the back half, we started the year, we felt very good about them to begin with. We have pretty sophisticated tools that allow us to put money where we know we're going to get a good return. You've heard us a lot of talk about the personalization engine that we've built that allows us to target consumers in a way that gets some messaging that's driving very good ROIs, and we have one of the leading ROI in the industry from an advertising perspective. So we already felt strongly about our plans heading into the back half. What we took an opportunity to do is as consumers are adjusting their behaviors, we've adjusted our plans to sharpen that spending in the back half. I'll give you some examples. Some of it is innovation as we've gotten clearer on what distribution looks like and what retailers plan to do, we've made adjustments in spending on retail media. We've made adjustments in spending in advertising or how we might do a promotional kickoff in a retailer. Those are the things the teams have done. In addition, I'll give you an example in Kingsford, we saw that many consumers are doing exactly what they are in other categories from a value perspective. They're either trading up to larger sizes or they're looking for an opening price point. So for really the first time in July 4 and Labor Day, we had much more merchandising on smaller sizes and larger sizes. It actually grew household penetration as a result of that plan and that we adjusted that spending based on the learnings we had from Memorial Day, where we talked about the merchandising plan did not go as we had anticipated and we didn't execute to the degree we wanted to, we made those adjustments in July 4 and Labor Day and are taking those forward as we look at the back half of the year. So it's across a number of things, Chris. We're using the tools that we have, the consumer understanding that we're getting and making real-time adjustments with retailers to try to capture as much of the change as we possibly can. And because we feel very confident about our ability to deliver strong returns on that advertising, we feel confident about the choices that we've made. And frankly, we'll probably continue to make adjustments as we learn more. And our business units are fully empowered to do that, and they're watching the consumer carefully, and we'll make adjustments if they need to, to support innovations or the base. Christopher Carey: Okay. One follow-up. We've seen an increase in portfolio actions, I guess, if we can call them at a number of companies across consumer staples to respond or maybe adjust to different demand backdrops. I'm conscious you have a fairly diverse portfolio, a very clean balance sheet. You've called out certain categories that have been more volatile than what you wanted. Perhaps there are others where you want to play more in. So just in this environment with the balance sheet you have and the volatility we're seeing, can you give us maybe a sense of how you're thinking about the concept of portfolio and what you're really trying to accomplish with your own and how you think about maybe any future evolution? Linda Rendle: Sure, Chris. First, I think the most important principle we have is we always take a long-term focus when it comes to our portfolio. And so there's certainly a lot of things going on right now, some of which is just noise and temporary and some of which we'll see, does it turn more permanent? Is there a change in the consumer environment that we need to account for or any company needs to account for. But we're staying very disciplined in taking a long-term portfolio focus. And that plays itself out in 2 very important ways. The first and the most important is that we strengthen our core and that we take the brands that we have that are in the vast majority of U.S. households and in households all around the world, and we offer better value to consumers. We invest in those brands, and we get to the place where we're pretty consistently growing market share, growing household penetration, et cetera. And we've seen moments of that over the last several years, and it's certainly been choppy given the external environment and some of the challenges we've had on our own. But that's our #1 focus, and I feel better than I have in a long time around the innovation plans that we have and the ability for those to continue to grow our market share and household penetration over the long term. We have plenty of opportunities in our core business to get better and sharper and deliver profitable growth. Of course, the second component of that is actively with our Board all the time looking at our portfolio to ensure that we have the right portfolio moving forward. And you've seen us make a few moves, albeit on the smaller side, but very important. We divested our business in Argentina, which had driven the vast majority of the currency volatility we had experienced as well as divesting the business for vitamins, minerals and supplements, which unfortunately did not contribute what we had anticipated it would in a series of the 2 acquisitions that we made, and that is delivering real results every day in the portfolio. And we are always looking with our Board at all options for our portfolio, whether that be tuck-ins, continuing to expand on categories that we play in today or looking, of course, at more transformational things just as you would expect us to with our Board. But we will remain disciplined. The good news is we do have a strong balance sheet. So if there is something that we think is attractive from a shareholder perspective, we have the ability to act on it. But we want to make sure that we are taking a long-term view always and not chasing some short-term temporary disruption and setting ourselves up for good long-term shareholder returns. Operator: Our next question will come from Anna Lizzul with Bank of America. Anna Lizzul: Just wanted to ask, we're hearing from peers in the space that there's some destocking here from certain retailers. And I suppose with the ERP transition, you're not as exposed to that right now, but I was wondering if you can comment on this inventory trend. And as we see a retailer shift to club and online from consumers, I was wondering how you're looking to increase your exposure here. You mentioned in the past that Glad was a brand that had significant competition from the club channel. And any innovation you can mention with this in mind in terms of your offerings to have these retailers pick up new products and new pack sizes. Linda Rendle: Sure. And on destocking, you're right to assume that our ERP would, of course, have the opposite effect because we were rebuilding inventories with retailers as we got through that period. So largely, we're not seeing any material destocking behavior impacting results. And largely, what we continue to see from retailers is they're doing the good structural work you would want to reduce inventories across the value chain. And that's good for everybody over the long term, but we don't see anything in the short term. And again, that could change as retailers' plans change that are impacting our business. And we have largely recovered our inventories from the period during the ERP implementation disruption. But again, at this point, we're not seeing anything material that we would call out for this quarter or for the remainder of the year. On the club business, we have a very strong club business across many of our businesses, and we do focus on specific innovation for the club member and shopper, just like we do for the grocery channel and for the dollar channel and for e-commerce. We're looking to combine the moment of truth with what the product offering needs to be. And so we work very closely with our club customers and others to ensure that we're getting the right member value for them. And we've been doing that for many, many years, which means we have very strong positions in club now. You're right that we've called out Glad as being a place where we have less of a position in club. We continue to work on opportunities there to ensure that we're providing the right value and potentially unlock different distribution opportunities. But for now, what we're focused on is ensuring consumers who want a large count of trash bags can get them in other places. So obviously, we have very strong distribution across other channels that also sell large sizes, and so we're focused on that and focused on the club customers where we have good distribution. But I think I feel very good largely about where we are in club and our ability to specifically target innovation that provides great member value. Anna Lizzul: Okay. And just one follow-up on private label. While the overall share is more muted in terms of growth, we're still seeing some increases in categories like wipes. So I'm curious for your thoughts here relative to private label share and the increase that we're seeing versus on the branded side. Linda Rendle: Yes. So in aggregate, we have not seen private label make any material inroads in aggregate. But there are a couple of categories we call it. I actually wouldn't call it wipes as being one of the categories that we have concern about or are watching carefully. But actually Brita is one that we're watching carefully right now. We've seen some consumers trade down to private label filters and smaller sizes. And so we have reacted with ensuring that we have the right lineup of pitchers and filters and making sure that we're having the right value there. But that's one place we're watching very carefully. We've seen this behavior in the past when consumers are under stress. They may make a substitution here and there for a lower-priced private label filter, but that's a place that we've been watching pretty carefully. And then I would say in Bleach would be the other place that we're watching very carefully. Generally, our cleaning portfolio is doing very, very well, particularly against private label, and we're seeing consumers across the whole value spectrum, all the way from dilutables up to wipes. Looking for that premium experience. We continue to see good overall share performance in Home Care. Obviously, it was impacted by the out-of-stocks that we had in Q1, but we're seeing that bounce back. But Bleach is a place we're watching carefully. We've seen a bit of private label uptick. We feel like we have good Bleach plans in the back half, and that's a place where we have targeted strengthening the plan in the back half. But those are 2 categories that we're watching very carefully and watching particularly lower-income consumers to see what their behaviors are and adjusting our plans to make sure that we have an offering from Clorox that meets their needs. Operator: And our next question will come from Bonnie Herzog with Goldman Sachs. Bonnie Herzog: I wanted to circle back on your guidance, the organic sales growth guidance of the declines that are expected of negative 5% to 9% -- just hoping for a little bit more color on the puts and takes of that. You highlighted your current expectations are to be at the lower end of the range. But just curious if the high end of this range is achievable? And if so, what would the drivers of that be? And then just a quick clarification of the inventory unwind. Was there maybe a greater unwind than you expected in any areas of your business? Luc Bellet: Yes. Thanks, Bonnie. I can take that. First, on your last question, I think we generally feel good about our inventory positioning at the end of the first quarter. So that you probably noticed we refined the estimate of the incremental shipment associated with the IP transitions from a range of 7 to 8 points of negative sales headwind in fiscal year '26 to a point estimate of 7.5 -- and just the background there, I think we talked about it last quarter, but we had a pretty robust tracking process in place to track those incremental orders, but there's also an element of triangulation. As you probably know, some of our customers have algorithm-based ordering systems. And so we really needed to wait for the end of the first quarter to kind of finalize those estimates. So again, feel good about the current retailer inventory position at the end of the Q1, and we feel also good about the -- now having finalized the estimate of the ERP transition. Having said that, maybe when we look at -- looking at the outlook for the organic sales growth range, I think a few things that's worth mentioning. One, we're still early in the year. And second, it's a pretty wide range in that given the environment, -- and that was -- the breadth of the range was a deliberate choice because it allows us to really remain agile and realistic as we navigate the market dynamic and external environment during the year. So it is a wide range. So when you look at the higher end of the range, having said that, it's fair to say that we would need everything to hit on the -- all assumptions to hit on the high end for us to meet the higher end, and it would be a pretty robust sales in the back half. So that means category growth will be on the higher end of our estimates, either 1 point on average for U.S. retail or higher. Second, we would have a great execution on innovation and demand creation plan. And then third, of course, that assumes no supply or extraneous issues coming up as we continue through the year. So yes, that's what we need to be true. Operator: We'll move next to Olivia Tong with Raymond James. Olivia Tong Cheang: First, you mentioned in your prepared remarks that category growth rates have stabilized even if they're lower than historical. What are you seeing that underlies your confidence in that stabilization? Because many of your peers seem concerned that things could get worse through basically first half of calendar '26. And I think you mentioned flat to plus 1 category growth at the moment. Are you expecting that to get better as time progresses? Or is it more about your innovation and other actions that are driving that share -- driving some share opportunity to continue the stabilization? Linda Rendle: Olivia. On the category growth piece, we've been talking for a while about the stress that the consumer is under and have been calling muted category growth rates for quite a while. And basically, what we have seen, which we've estimated 0 to 1 -- it's been in that range for a number of quarters. Now it's been on the higher end of that range, and then it's been on the lower end. And if you look at this quarter, it was on the lower end if you exclude beauty, which we don't have a very big business in. We obviously compete in burs, but that's relatively small. Category growth was about flat. Now to be fair, we were out of stock in some places. And so how much of that is attributed getting to that lower end of the range to us. Regardless, it wasn't the situation that we would have hoped for. And we could have expected category to be a little bit better than that and maybe more in line with what we had seen in the previous 2 quarters. So our confidence that, that will continue as we're in essential categories. We fuel people's everyday lives. They need to clean their house. They need to take care of their pets. They need to take out the trash. And so that's why we feel there's been a floor on the categories that we compete in, keeping them in that range. And in addition to that, just as you call out, Olivia, we feel very good about our back half plans. And of course, our #1 focus is reinvigorating category growth. And then two, our focus is on growing share in those categories through better ideas and better execution. So that being said, we're watching the consumer carefully because there's a lot of things going on right now, many of which are still playing out and are uncertain. And that can mean the consumer would react differently. But again, given the dynamics that we know today, what we see is the most likely scenario and how consumers have been responding over the last number of quarters, we feel pretty good about that category estimate of 0 to 1. Olivia Tong Cheang: Got it. And then just on the ERP, could you just talk about how the organization is adjusting to all these changes? Do you expect any disruption to extend beyond Q2 other than obviously, the comp issues in Q4 that you've got to deal with. But just thinking about the organization and what's the next step after this and whether you're expecting any big pull forward, pushbacks, et cetera, for the remainder of the year? Linda Rendle: Perfect. Yes. On the ERP, we're through the hard part is the way that I would put it. We did the heavy lifting in Q1, and we had one additional implementation that happened later in the quarter that went without a note. We have another smaller implementation happening coming up here. And again, we would expect based on what we've seen that, that would be of no consequence either. And so now the entire company is focused on using that new ERP to drive value and then getting laser-focused on reinvigorating category growth and executing the plans that we have for Q2 and beyond. I think generally, we're all really excited. We've been waiting for this moment for a long time. This unlocks so many things for us to be able to do when it comes to creating superior value for consumers, faster insights, faster ability to react when consumers have changing behaviors, the ability to see end-to-end in our supply chain, which will just make us better at reacting to what's going on from retailers and consumers. And of course, on the savings side, there's a lot to be had here from an efficiency perspective. That ability to see end-to-end allows us to remain -- take costs out. It fuels our ability to do net revenue management and all the tools that we've talked about over the last couple of years. So generally, the organization is very optimistic and laser-focused on now that we've gotten through this period, it is time to put that to work and time to ensure that we are reinvigorating categories and giving consumers the very best value we can at the moment they need it more than ever. Operator: And our next question will come from Robert Moskow with TD Cowen. Robert Moskow: I just wanted to just confirm, given the issues related to ERP in first quarter, are your customer fill rates now back to normal? Or are you still like a little bit below normal in your second quarter? And then secondly, I had a question on price/mix. There's 3 straight quarters now with price/mix negative and a lot of commentary on the call about competitive pressures, value-seeking behavior across many categories at once. So is there a path for price/mix to inflect positively? Or is this going to be kind of like a negative environment, albeit modest while working through this value-seeking environment? Linda Rendle: Thanks, Robert. I'll take the first one, and then I'll pass it over to Luc for price/mix. So on Q2 order fulfillment, we are back with retailers able to fill the orders that they need, and we have largely rebuilt inventories nearly everywhere. On the margins, there are some small things that we're continuing to work out. Professional is a good example of that, where just given the distribution network, it's taking a little bit longer than the average to fully rebuild inventories. But yes, with -- from a customer perspective, they're experiencing more of a normal Clorox, and we're able to get back to the type of fill rates that they expect from us. Luc Bellet: And on price/mix, Robert, you're right. We -- last year, we actually saw about 2 points of price mix -- negative price mix. And this was really -- a lot of it was really driven by the value-seeking behaviors from consumers and channel shifting as well altogether, along with some incremental promotions as we both normalize promotion and saw increased competitive activity. This year outlook contemplates still a headwind, but lesser about a point. And really, essentially, it's the continuation of value-seeking behavior and channel shifting. Promotions are like fairly stable year-over-year. And then we're actually seeing some benefits from some of the net revenue management activities that were taking place, but not fully offsetting the headwinds of the value-seeking behavior and channel shifting. Now it'd be about a point for the year. It was about a point for the first quarter. It might move quarter-by-quarter, but I think we're seeing good momentum, and then we'll have to see where we're at after next year. Operator: And our next question will come from Kevin Grundy with BNP Paribas. Kevin Grundy: Question probably for Luc, but Linda, I'd like to get your thoughts as well. So it's kind of twofold. Number one, on run rate EPS, how we should still be thinking about that, but then sort of relative to adequacy of investment levels. So Luc, I think you said before, we should be thinking about adding back the entirety of the ERP transition and EPS now seems like it's going to be the low end of the range, like a $5.95 number, and then we just sort of gross that up for the ERP transition as we're thinking about sort of run rate going forward. And I want to kind of take your temperature on whether you both still feel comfortable with that thinking. And I ask in the context that your market share is not where you'd like it to be. Promo is ramping. It seems like the cost of business is moving higher. A lot of categories are slower. So do you still feel comfortable with that sort of thinking? And I guess the question really gets to, as you're thinking about the investment factors that may potentially hold back that kind of thinking for investors, and that is that the entirety of the $0.90 should be thought about in sort of base earnings? Or is there a potential here that investment levels need to move higher in the current environment? So love to get your thoughts there on that. Linda Rendle: Sure, Kevin. I'll start. The way that we look at this, the year outside of the fact that we had a blip in the implementation on order fulfillment is largely playing out as we expected. We're seeing the consumer largely in line with what we expected, categories largely in line, competitive activity, largely in line. Our execution, largely in line. We are seeing some nuances by category, which is typical in a portfolio like ours where we play in so many different categories. But I would say the environment, the competitiveness, the consumer generally what we thought it would be. And so nothing has changed in our confidence in our ability to navigate that environment to deliver the performance that we expect of ourselves. And then, of course, as we come out of this, to accelerate all of the things that we know will add value like innovation, continuing to invest sharply and deeply in our brands, which we are this year. And we feel like we have the right investment level given everything, all the factors that we spoke about -- so generally, we see the world very much like we saw the world the last time we talked about this. And the change is that we -- from a quarter perspective, we trued up our outlook to account for the fact that we had a blip in our implementation. But largely, all the other stuff remains true. What we're watching really carefully, Kevin, is when can we and others reinvigorate category growth. And that's what we aim to do in the back half. And can we get our categories growing back to the 2%, 2.5% range we're used to seeing. Even if they don't, and this is a prolonged period, we still see the opportunity for our brands to play a leading role in the categories and deliver good value creation and earnings for our shareholders, albeit even if it's at a lower top line growth number. But it's too early to call that yet. We're focused on '26 and making progress in Q2 and the back half. But I would say nothing has changed in our thinking or confidence in our ability to come out of this year and continue to deliver good earnings performance for our shareholders. Luc Bellet: And Kevin, on the earnings run rate, your understanding is correct. We would see the $0.90 being added to wherever we finish this year as a starting point to next year. And again, as a reminder, we essentially ended up shifting 2 weeks of sales out of fiscal year '26 into fiscal year '25. So the absolute sales dollars and EPS dollars in fiscal year '26 are understated. And as you lap that, you will see a step-up in fiscal year '25. Operator: And this concludes the question-and-answer session. Ms. Rendle, I would now like to turn the program back to you. Linda Rendle: Thanks, Jen. As we wrap up today's call, I want to emphasize that our team is actively navigating a rapidly changing consumer environment. We recognize that consumers are facing ongoing challenges with spending habits shifting quickly across all income levels. While we anticipated many of these changes, new patterns continue to emerge, and we're closely monitoring these developments. By leveraging more real-time insights, we are adapting our strategies with agility and focus to meet evolving consumer needs. Our portfolio of trusted brands with strong consumer value, loyalty and stable household penetration will help to reinvigorate category growth and enable us to recover market share. Looking ahead to the second half of the year, we have a robust pipeline of innovation supported by significant demand creation investments. We are laser-focused on continuing to deliver and enhance superior value experiences with our brands for consumers in a time they need it more than ever. Our strong holistic margin management program enables us to reinvest in our brands, balancing immediate actions with a long-term perspective to ensure their ongoing health and success. To support our focus on delivering superior value with speed, our new ERP system gives us real-time visibility, enhances demand planning and enables faster execution. With the majority of the implementation complete, our focus is on rebuilding growth momentum. The choices we're making today are shaping a stronger, more resilient Clorox, setting the stage for sustained growth and stakeholder value in the years ahead. Thank you for your time and questions. We look forward to sharing our continued progress in the quarters to come. Operator: And this concludes today's conference call. Thank you for attending.
Operator: Good afternoon. Welcome to Fabrinet's Financial Results Conference Call for the First Quarter of Fiscal Year 2026. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to your host, Garo Toomajanian, VP of Investor Relations. Garo Toomajanian: Thank you, operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss Fabrinet's financial and operating results for the first quarter of fiscal year 2026, which ended September 26, 2025. With me on the call today are Seamus Grady, Chairman and Chief Executive Officer; and Csaba Sverha, Chief Financial Officer. This call is being webcast, and a replay will be available on the Investors section of our website located at investor.fabrinet.com. During this call, we will present both GAAP and non-GAAP financial measures. Please refer to the Investors section of our website for important information, including our earnings press release and investor presentation, which include our GAAP to non-GAAP reconciliation as well as additional details of our revenue breakdown. In addition, today's discussion will contain forward-looking statements about the future financial performance of the company. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations. These statements reflect our opinions only as of the date of this presentation and we undertake no obligation to revise them in light of new information or future events, except as required by law. For a description of the risk factors that may affect our results, please refer to our recent SEC filings, in particular, the section captioned Risk Factors in our Form 10-K filed on August 19, 2025. We will begin the call with remarks from Seamus and Csaba followed by time for questions. I would now like to turn the call over to Fabrinet's Chairman and CEO, Seamus Grady. Seamus? Seamus Grady: Thank you, Garo. Good afternoon, everyone, and thanks for joining our call today. We had an exceptional start to fiscal 2026 with record revenue and earnings that exceeded our guidance ranges and demonstrated our continued business momentum. First quarter revenue was $978 million, an impressive increase of 22% from a year ago and an increase of 8% from Q4. Non-GAAP earnings were also outstanding at $2.92 per share, with our revenue upside flowing directly to the bottom line. In addition to these terrific first quarter results, we're very optimistic that this strong momentum will extend into the second quarter with numerous revenue drivers contributing to our growth. Now let's look at the quarter in more detail. Starting with optical communications, telecom revenue hit a new record, increasing 59% from a year ago and 15% from Q4, driven primarily by data center interconnect products. Within telecom, DCI revenue nearly doubled from a year ago to 14% of company revenue. Datacom revenue declined sequentially as predicted, but by a smaller amount than we anticipated. This was a result of a smaller sequential decline than expected at our biggest datacom customer as well as larger contributions from other datacom customers where we are gaining traction. While we believe certain component constraints will persist into the second quarter, we remain optimistic about overall demand trends in datacom. Within non-optical communications, we are excited to introduce a new revenue category for high-performance computing products. In Q1, we qualified and started to ramp our first HPC program, which contributed $15 million to revenue. We believe this program will scale considerably over the coming quarters and become a significant driver to our overall growth. Automotive revenue was down slightly from Q4 as anticipated and industrial laser revenue was flat. With numerous growth drivers supporting our confidence, construction of Building 10, which will total 2 million square feet, remains on track for completion by the end of calendar 2026. We have accelerated the construction of a portion of Building 10, which we expect to be completed in mid-2026, in order to help ensure that we will have ample capacity to support our rapid growth. As we look to the second quarter, we are very optimistic that we can deliver another outstanding quarter with continued growth in telecom, driven by DCI expansion, strong datacom demand and the rapid scaling of our HPC program. In summary, we are off to an excellent start in fiscal year 2026, with record first quarter results that exceeded our guidance ranges. With multiple growth drivers across our business, producing increased business momentum, we are well positioned to deliver an outstanding second quarter. Now I'd like to turn the call over to Csaba for more financial details on our first quarter results and our outlook for the second quarter. Csaba? Csaba Sverha: Thank you, Seamus, and good afternoon, everyone. Fiscal year 2026 is off to an excellent start with revenue and EPS that were above our guidance ranges. Revenue in the first quarter was a new record $978 million, representing impressive growth of 22% from a year ago and 8% from Q4. Non-GAAP EPS was also a record $2.92, including the impact of a $2 million or $0.06 per share FX revaluation loss. Looking at revenue performance by market for the first quarter. Optical Communications revenue was $747 million, up 19% from a year ago and 8% from Q4. Within optical communications, telecom revenue grew to a record $412 million, surging 59% from a year ago and 15% from Q4. This impressive growth was driven primarily by continued strong demand trends for data center interconnect products. In the first quarter, DCI revenue was $138 million, representing remarkable growth of 92% from a year ago and 29% from Q4. Datacom revenue declined by a smaller amount than expected, totaling $273 million, down 17% from a year ago and 1% from Q4. While we continue to experience longer lead times for one critical component in particular, overall demand trends within datacom remains strong. Non-optical communications revenue was $231 million, up 30% from a year ago and 5% from Q4. This increase was driven primarily by high performance computing revenue of $15 million. We expect this new revenue category to drive even greater growth in Q2. Automotive revenue of $122 million was up 19% from a year ago, but down 5% from Q4. Industrial laser revenue of $40 million was up 12% from a year ago and flat sequentially. As I discussed the details of our P&L, all expense and profitability metrics will be presented on a non-GAAP basis unless otherwise noted. First quarter gross margin of 12.3% was down 30 basis points from Q4, but was in line with expectations as we absorb FX headwinds in addition to the seasonal impact of annual merit increases. This small sequential decrease in gross margin was partially offset by our continued operating leverage. Operating expenses were $16 million or 1.7% of revenue, resulting in an operating margin of 10.6%, a 10 basis point decline from the fourth quarter. Interest income was $9 million in Q1 and was partially offset by a $2 million foreign exchange revaluation loss. Effective GAAP tax rate was 5.4%, consistent with expectations. Non-GAAP net income was $105 million or $2.92 per diluted share. Turning to our balance sheet. We ended the first quarter with cash and short-term investments of $969 million, up $35 million from the end of Q4. Operating cash flow in the quarter was $103 million, Capital expenditures of $45 million remained above maintenance CapEx levels as construction of building time progresses, including the acceleration of a portion of the facility. In the first quarter, our share repurchase program was not as active as in recent quarters. We repurchased 970 shares at an average price of $276 per share for a total cash outlay of $268,000. As of the end of the first quarter, $174 million remained available for repurchases. Now turning to our Q2 guidance. We expect our strong business momentum to extend in the second quarter with multiple growth drivers across our business. We expect revenue to be up sequentially in all of major markets we serve, except automotive, we expect to be flat to slightly down. Most notably, we anticipate particularly strong growth in HPC as that program continues to ramp quickly. As a result, we anticipate second quarter revenue to be in the range of $1.05 billion to $1.1 billion, representing remarkable growth of 29% from a year ago at the midpoint. From a profitability standpoint, we expect to maintain operating leverage with revenue growth outpacing operating expenses this quarter. However, some of the gains may be partially offset by foreign exchange headwinds. Therefore, we anticipate earnings per diluted share to be between $3.15 and $3.30. In summary, we are extremely excited about our robust start to fiscal year. We are optimistic that we can continue to build on this momentum in the second quarter as we benefit from multiple growth drivers across our business. Operator, we are now ready to open the call for questions. Operator: [Operator Instructions] Our first question will come from the line of Karl Ackerman with BNP Paribas. Karl Ackerman: Congrats on the quarter, gentlemen. For my first question, what is embedded in your December quarter outlook for datacom? And as you address that, what are your assumptions on having access to necessary 200-gig per lane EML laser capacity to support that growth? Seamus Grady: Thank you, Karl. So we're not really going to comment on individual components or individual customers at this stage. I think what we would say is we're in the -- we're in the very early stages really of a generational transition to photonics that we've seen going on for some time. Fabrinet is really ideally positioned to continue to capitalize on this transition. We manage a lot of complexity for our customers. And as we've seen, growth doesn't always happen in a straight line. But for any company, I think the best predictor of future performance is past performance. And if you look at our -- over any time horizon, you care to look at our 10-year history, the revenue, we had compounded annual revenue growth of 16%, we compounded the earnings 21% over that same 10-year horizon. Last year, revenue grew 19%. Last quarter, our revenue grew 22% and as Csaba said, at the midpoint of our guidance. For this quarter, we're projecting to grow 29%. So really, Karl, our objective is to make sure we have enough, if you like, earns in the fire and enough customer opportunities in front of us that we can continue to deliver that kind of outsized growth. We're quite excited about the this period that we find ourselves in the middle of. And we think we're readily positioned. And we're just going to continue to to continue to keep pushing ahead, winning those opportunities and executing on them. so we continue to grow in the future the way we have done so in the past. Karl Ackerman: Yes. Seamus, if I may address -- if I may ask 1 more. You you refer to your HPC program as your first HPC program in your prepared remarks. When you know this business will scale considerably, does that take into account any other customer engagements or discussions for other HPC programs with new or existing customers? Seamus Grady: Yes. I think HPC for us, we decided to break it out as a separate category for a couple of reasons, really. One is a practical one. It doesn't fit neatly into any of the other categories that we have. So it's not telecom. It's not datacom, it's data center, but it's not communication. So we decided to call it, not to break it out into its own category. And of course, the other reason we decided to was we're quite optimistic about this segment or category as an area for us to really expand and continue to grow. It's early days, but our initial foray into this category is going very well. It takes a little bit of time to get off the ground. These -- again, these are complex products. There's a qualification process that has to be gone through. We're working with our customer, making sure we have a very efficient, highly automated process in place. And that's going very well. The customer is very happy. The business is growing nicely. And we really just got the business kicked off last quarter. We got the qualification builds on and really just started to ship products towards the tail end of the quarter. And we'll continue to see that category grow for us nicely over the next while. There are certainly other opportunities that we're pursuing there in that area, but it's early days yet. But yes, we would be optimistic that at some point in the future, we would have more than 1 customer in that category, we would have multiple growth vectors like we have in all of the markets we serve. So yes, we think it's -- yes, it's the first customer, but we hope not the only one. There's others we're working on. Operator: Our next question will come from the line of Samik Chatterjee with JPMorgan. Samik Chatterjee: Seamus, if I can maybe start with a question on asking you to compare the ramps of the HPC customers vis-a-vis the new telecom customer that you were going to ramp on in this quarter. Our impression going into this quarter was that the HPC customer would ramp faster than the new telecom customer. But just looking at the results, it seems to have been like a lot more skewed towards the new telecom customer, but anything to share on that front, how those 2 ramps are going relative to your own expectations? And how much of a contribution are you getting getting from the new telecom customer that's ramping and how you're thinking about that ramp? And I have a follow-up. Seamus Grady: Yes. I think they're ramping differently. I would say they're very different products. If you look at the high-performance compute product, it's an existing product that's already up and running with very high demand. And we're one of a number of suppliers producing the product. So we're just getting going with that. The telecom, the new telecom program that you mentioned, that's a new product. So now they both end up growing at a certain trajectory, but the other one is a new product. So the product has to grow in the market and then obviously, we'll grow as that product grows, as that product grows in the market. The HPC product, I think it gets off to a fairly slow -- reasonably slow start because it's quite a complex product, and there's a lot to be bedded down in terms of automation, et cetera. But we're pretty confident that we should see some very strong growth in that in the short to medium term. So they're both strong growth drivers for us. None of these products grow in a straight line and part of what we provide for our customers is the ability to manage a slow, steady growth. If it's a new product, maybe slightly more steep when we're maybe transferring from another supplier or as we've seen in the past, when you have completely outsized growth, we can also cope with that. So we take the good with the bad. None of these programs, like I said, none of them grow in a straight line. So we're just focused on making sure we execute in a very strong way for our customers, excellent delivery, excellent quality and at a very competitive cost. So that's our focus. Samik Chatterjee: And If I may follow-up, you're guiding roughly to $100 million sort of give or take increase in revenue quarter-over-quarter, roughly ballpark. I want to sort of look at the -- your commentary, it seems like the vast majority comes from the HPC ramp. Is it possible to just rank order for us in terms of how should we think about the big drivers into that $100 million increase quarter-over-quarter? Seamus Grady: Yes, I would say it's possible, but not advisable for us to do that. Obviously, we have a plan at the start of the quarter. We have a plan right now. We're at, call it, coming up on the midpoint of the quarter. So we have a fair idea of how we take the quarter will shake out. We have some -- we still have some very strong growth drivers. We have the HPC program that we talked about. We have the new telecom product that we're ramping. We have DCI generally, which is very strong for us. Datacom was also quite strong, stronger than we had thought going into the quarter. We did a little bit better than we thought we would do. And then there's a lot of other growth factors that were growth drivers that we're working very hard to secure and to win. So lots of opportunities and it's really a case of -- there's certainly no shortage of demand right now. We're not in any way, demand constrained. It's a case of just executing and making sure we capture everything that's out there and deliver on it for our customers. So Yes. I think HPC will be a significant growth driver, but the others will as well. The DCI, the new programs in telecom and then other projects that we're working on in datacom as well. That will be the 3 main areas. Operator: Our next question comes from the line of Mike Genovese with Rosenblatt Securities, Inc. Michael Genovese: When you look at the telecom growth sequentially, about 15%, $60 million. Was it -- how many customers were really a significant driver of that sequential growth? Seamus Grady: Well, there's a number of customers, Mike, behind that. I mean if you look at what's in our telecom, it's traditional telecom and also DCI, if you had to kind of break it into 2 broad areas. Both of which are growing nicely for us. So there's a good mix of customers. It didn't come from any 1 customer or any 1 product. It's a mix of DCI, traditional telecom and also some of the new wins that we've been working on. So it's fairly broad-based and nicely spread between customers. Michael Genovese: Great. And then on datacom, you mentioned other customers besides the main transceiver one. Could you talk both about the kind of datacom customers and products that are contributing to revenue now and as well as any upcoming projects that you hope to win, if there's anything likely, where -- what kind of customers and products should we be looking at? Seamus Grady: So there's really a few that we've talked about in the past, I guess, our biggest driver of datacom revenue is our big customer there in the datacom space. We continue to do very, very well with them. They're launching new products, and we're supplying those for them. But we're also working on several other opportunities in that space. So one is hyperscale direct where we would be supplying to hyperscalers with the product directly. That's not our design. It will be the hyperscalers designed. So we're working on that. The other 1 would be some of the merchants transceiver manufacturers that we're also working on, where in some cases, you have to convince the customer to outsource and also to outsource the Fabrinet. So it's a double sell. But we're working on all of those. Nothing to announce yet at this stage. These things take time. I mean, typically, in our business, Mike, it can take from when you engage with a customer who has a real opportunity until you're shipping something, it's generally an 18-month kind of gestation period. So it does take time. It might look like these are quick wins and that everything is always up and to the right, but I can tell you there's an awful lot of work that goes on behind the scenes to win these opportunities. So several -- I would say, several irons in the fire on all of those fronts that I mentioned, but nothing specific to report at this stage. And we generally won't report until on particular customers until we get to the end of the fiscal year, and we talk about our 10% customers. Outside of that, we generally tend to steer clear of giving too much specifics on the individual customer opportunities we're pursuing. Michael Genovese: All right. But just quickly on the revenue that you have now outside of the biggest customer, is that mostly the merchant type of stuff? Or is it something else? Seamus Grady: It's mostly merchants outside of the biggest customer, yes, it will be mostly merchant let's say, non NVIDIA transceiver business and other datacom products that we're making. Operator: Our next question comes from the line of George Notter with Wolfe Research. George Notter: I was just curious on the share repurchase. I noticed you didn't buy many shares back for this quarter. I'm curious if there was something to that? Is it just capital going into the manufacturing expansion or some other thing that's driving your decisions there? And then separately, I would just love to drill down into the manufacturing Building 10 expansion a little bit more deeply. From memory, I think the expansion was several hundred thousand square feet. Can you just remind us kind of what the update there is? Is it as you envisioned 3 months ago? Or has there been any change to that? Csaba Sverha: I'll take the share purchase questions, George. So our buyback last quarter was driven by our 10b5 plan, which is, as you know, automated and depending on price tiers that we set up initially. And that plan is going in place for 1 year, so we haven't changed on that. With regards to overall capital allocation strategy. As you have pointed out, our main focus still remains in investing in our future growth. That obviously includes working capital as well as Building 10 capacity addition. So we did have an outsized capital spend in last quarter, but that has nothing to do with the share repurchase activities. So again, repurchase was done by the 10b5 plan and we remain committed to return the surplus cash we generate to shareholders through 10b5 in an open market. We were not active in the open market. Nevertheless, we still have a 10b5 in place which we continue to. George Notter: And then just as a follow-on there. I'm sorry, did I hear you say you intend to change that going forward? Is that right? Seamus Grady: I think we're having trouble hearing you. Csaba Sverha: Guys, can you hear me? Hello? Seamus Grady: We can hear you. Can you hear me? I think we're having trouble hearing you. Csaba Sverha: Yes. I can hear you. Seamus Grady: Could you repeat your answer, Csaba? Csaba Sverha: I'm sorry, my line must have dropped. So sorry about it. So our share repurchase was driven by a 10b5 plan last quarter. We didn't participate in the open market last quarter. So were -- the repurchases were triggered through the 10b5 plan. Our capital allocation remains around -- our priority remains to invest in our future growth, so including working capital and CapEx investment. So our CapEx throughout the quarter was higher than our maintenance CapEx level driven by our 10b -- Building 10 which we are pulling in a portion of that building, which will be a 2 million square feet facility and should add in approximately about $2.4 billion revenue, give or take, for the future. And we are -- as communicated earlier, we are pulling a portion of that building in into our June quarter to have that space available. George Notter: Got it. So I assume that, that incremental space that you're expecting is the same as you were looking to do 3 months ago. I guess that's my question. Csaba Sverha: That's correct. Operator: Our next question is going to come from the line of Ryan Koontz with Needham & Company. Ryan Koontz: I wanted to ask about DCI in particular. And obviously, that's getting boosted here, a shift from cloud to AI infrastructure, higher attach rates for ZR. And my question for you is, from your discussions with customers, there's this concept of the distributed cluster to the power requirements? And do you think that the distributed cluster due to power grids is already affecting your demand for ZR? Or do you think that's still? Seamus Grady: I'm not sure, Ryan. I think for us, we honestly don't spend too much time trying to figure out the reasons for the demand. When the demand is so strong. We generally focus most of our energy on just trying to fulfill it. But I think you may have a point as that need rolls out and continues to grow, I think it should drive the need for more DCI, more 400 ZR and 800 ZR. So -- but the exact reasons behind the strong growth, we don't spend too much time thinking about. We were too busy just trying to make sure we have everything in place and lined up to meet the demand. Ryan Koontz: Yes, fair. Great. Great execution. And on the non-DCI telecom, I know you might have touched on it briefly earlier, but as you think about that growth, it was up several $10 million sequentially. Is that mostly share? Or do you have any new wins in the mix there for the non-DCI telecom? Seamus Grady: It's a little bit of both. So we've been continuing to chip away at our competitors and continuing to win business. It's primarily, I think ramping, we're ramping existing programs that we've won that are kind of becoming existing programs at this point, but it's mostly newer programs that are ramping, newer programs that we've won in recent times that we're ramping. Operator: [Operator Instructions] Our next question comes from the line of Tim Savageaux with Northland Capital Markets. Timothy Savageaux: And congrats on the results. And I think it was a couple of quarters ago, Seamus, where you made a reference to -- you talked about the 19% growth in fiscal '25. And made a reference to the potential for accelerating growth in '26 and didn't have you quite there, but pretty close. You're guiding to 25% growth in the first half of the year, that certainly would represent acceleration. Is that, in your mind, it looks like a reasonable baseline for the year, but I wonder if you have any thoughts on maintaining or even accelerating that growth rate. Seamus Grady: Yes. I think as you rightly pointed out, yes, we had -- last year, we grew 19%, last quarter, 22% this quarter at the midpoint. As Travis mentioned, we're projected to grow 29%. We're just going to focus on executing, the demand is strong. I wouldn't want to put a number on what growth would be for the full year because we don't guide for a full year. We only guide 1 quarter at a time. But yes, certainly, we're quite optimistic about what's in front of us. We're -- it's an unusual time. Demand is very strong, and it looks to be robust, looks to be sustainable and it's across multiple product categories and customers. So our focus is on execution and hopefully delivering another quarter and hopefully, another year of outsized growth. It's an exciting time. We're very positive about the trends we're seeing because as fast as we can build the products, the customers need them. The demand is very strong across all the segments that we -- all the sectors that we service. So we hope it continues on for a long time. Timothy Savageaux: Great. And I want to take another crack at this kind of the composition of the sequential guide. I think you did in your prepared comments, you mentioned DCI, datacom and HPC. I don't know if there was any rhyme or reason to that ordering, but should that be in -- could that be interpreted as kind of the relative demand drivers maybe on an absolute dollar basis? Or is that [indiscernible]. Seamus Grady: Yes. Datacom DCI, HPC is just alphabetical, Tim. I'm joking. There's no particular order to that. I wouldn't read too much into that. It's just -- it's probably more likely that sequentially, as we take through the numbers, we kind of tend to focus on telecom first because that's where the -- if you like, the origin of the company, then datacom has become a much bigger part of our revenue and then HPC is more recent. So it's probably more to do with -- it's the sequence in which each of the categories has grown, frankly. But all 3 of those look to be very strong. DCI is just -- it's been a fantastic set of products for us and customers. Of course, datacom is great for everybody and then HPC. So I wouldn't read too much into the ordering of those 2. Timothy Savageaux: Fair enough. And last 1 for me. I know you commented on it, but I guess you mentioned some of the component shortages are still there. Can you say whether that's improving at all or looks to be? And is that part of your maybe fairly strong guidance for datacom in December? Seamus Grady: Yes. I mean I think these issues always have a way of resolving themselves or getting resolved. If there are times when you look out to the future and if you're kind of [ hosed ] in terms of component supply. But you have to make certain assumptions and certain actions. And generally, our customers and our own team working with the supply base generally do a very, very good job of making sure we get what we need. In the end, even if in the beginning, it doesn't look like we're going to get what we need. So I think it is improving. There are certain component categories that are just in extremely tight supply. But fortunately, we have some pretty blue chip type customers who tend to get their share and sometimes their unfair share of the available components. So it's not something we're overly concerned about and we do think it will right itself as the component supply -- component suppliers ramp up additional capacity. It does take time to add capacity, especially for these complex components. But -- so I think it will improve, Tim, but there's probably another quarter or 2 of tight supply. But in the end, I think we get what we need. Operator: Thank you. And I would now like to turn the conference back over to Seamus Grady for closing remarks. Seamus Grady: Thank you for joining our call today. We are excited by our first quarter performance with record results that exceeded our guidance ranges. We're also optimistic that we can deliver an even stronger second quarter with multiple growth drivers as our -- with multiple growth drivers as we continue to expand our market leadership. We look forward to speaking with you in the future and to see those of you who will be attending the JPMorgan Tech Conference in Asia and the Needham Conference in November as well as the Barclays and Northland conferences in December. Goodbye. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.
Operator: Thank you for standing by. My name is Liz, and I'll be your conference operator today. At this time, I would like to welcome everyone to the CompoSecure Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Steven Feder, CompoSecure's General Counsel. Please go ahead. Steven Feder: Good morning, and welcome to CompoSecure's conference call, where we will review CompoSecure's Third Quarter 2025 Financial Results and discuss the planned business combination with Husky Technologies. With me on the call is Dave Cote, Executive Chairman of CompoSecure; Tom Knott, Chief Investment Officer of CompoSecure; Jon Wilk, Chief Executive Officer; Tim Fitzsimmons, our retiring CFO; and Mary Holt, incoming Chief Financial Officer. We will begin with prepared remarks and then open the call for Q&A. During the call, we will make statements related to our business that may be considered forward-looking, including statements about our growth strategy, customer demand, our ability to maintain existing and acquire new customers, implementation of the CompoSecure operating systems and our guidance for '25 and '26 as well as other statements regarding plans and prospects. For a discussion of material risks and other important factors that could affect our actual results, please refer to the information in our annual report on Form 10-K and other reports filed with the SEC, which are available on the Investor Relations section of our website and on the SEC's website at sec.gov. Please note that effective as of February 28, 2025, the date of the spin-off of Resolute Holdings Management, Inc. and as a result of the management agreement between Resolute Holdings Management, Inc. and the company's wholly owned subsidiary, CompoSecure Holdings, the results of operations of CompoSecure Holdings and the operating companies which are its subsidiaries are not consolidated in the financial statements included in this report and instead are accounted for under the equity method of accounting. In the earnings release we issued earlier today and the discussion on today's call, we also present non-GAAP financial measures to help investors better understand our operating performance. The company believes these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends impacting the company's financial condition and results of operations. These non-GAAP financial measures should not be considered as an alternative to performance measures derived in accordance with U.S. GAAP and may be different from similarly titled non-GAAP measures used by other companies. A reconciliation of GAAP to non-GAAP measures is available in our press release and earnings presentation available on the IR section of our website. Thank you. And with that said, let me turn the call over to Executive Chairman, Dave Cote. David Cote: Well, what a wicked great day we have to celebrate today. We have good news busting out all over. So before I get into CompoSecure's third quarter, I want to begin with a few remarks about my excitement regarding the Husky transaction. When my family invested in CompoSecure over a year ago, a big part of the value-creation plan was to implement our operating system to catalyze organic growth, improve margins and build a rigorous discipline around capital allocation to pursue accretive inorganic growth. While still early, we're delivering strong organic growth and improved profitability at CompoSecure. The third quarter results are terrific. Over the past year, we have been actively looking for another great business that could benefit from our operating system and shares the same foundational characteristics we look for at Honeywell, Vertiv and CompoSecure. I am delighted to report that we have found all that and more in Husky. We view the combination of CompoSecure and Husky as the foundation for a best-in-class diversified compounder. CompoSecure is the global leader in manufacturing premium metal payment cards and authentication solutions. Husky is the global leader in highly engineered injection molding equipment and aftermarket services. Collectively, they form a platform positioned to become the home for market-leading businesses that operate in attractive industries, generate recurring revenues, deliver high growth and profitability, achieve attractive returns on incremental invested capital and offer significant opportunities for long-term value creation. Husky checks every box of our investment criteria. It has a great position in a good industry. It differentiates with technology, and it presents a substantial upside potential in both organic and inorganic growth, along with clear opportunities for margin expansion. Coupled with an ability to generate strong free cash flow and a healthy pro forma balance sheet that will delever quickly, we find this to be an incredibly compelling opportunity for CompoSecure investors as we expand the operating platform. Tom and I will provide further details on the transaction and the business after we cover CompoSecure's third quarter results. Turning to CompoSecure, a year after our investment, it is gratifying to see the progress we've made. We have accelerated organic growth, strengthened our operating discipline and begun to realize the benefits of cultivating a high-performance culture. Our strategic initiatives underpinned by the CompoSecure Operating System, or COS, are yielding results, and the business is consistently performing at a much higher level. The nice thing about all this is that it is just the beginning with tremendous opportunity ahead to further drive investor value creation. Significant opportunities remain for CompoSecure to unlock faster organic growth while continuing to drive meaningful operational efficiencies across the business. The combination with Husky diversifies CompoSecure's business and adds multiple levers of future value creation. Our focus will remain on disciplined execution, innovation and maintaining the momentum that's driving our success. And we will continue making strategic investments necessary to fully capitalize on the opportunities to deliver long-term value for all our investors. With that, I'll turn the call over to Jon. Jonathan Wilk: Thanks, Dave. Good morning, everyone, and thank you for joining us for our third quarter conference call. Before we go through the Q3 results, I want to take a moment to publicly recognize Tim Fitzsimmons and his work as our CFO over the past 13 years. As announced in June, Tim is retiring, and I want to extend my deepest thanks for all his contributions and wish him well in his retirement. He has set a strong financial foundation for the company that we will benefit from for years to come. After an extensive search, I am thrilled to welcome Mary Holt, our incoming CFO, who joins us on the call today. Mary brings a wealth of experience and knowledge from world-class organizations such as Honeywell and Pfizer, and we are confident her background, financial acumen, proven leadership and experience with lean management operating systems will be powerful additions to our business and will play a key role in helping us advance our strategic initiatives. Now moving to Slide 3. As we mentioned last quarter, our results are being reported using equity method accounting following the completed spin-off of Resolute Holdings Management earlier this year. On this call, we will refer to non-GAAP measures for net sales, gross profit and related operating measures. With that, let's review the quarter. Net sales increased 13% year-over-year to $120.9 million, driven by disciplined execution, operational focus and continued support from Dave and the Board for our strategic initiatives. Pro forma adjusted EBITDA increased 30% to $47.7 million, with an EBITDA margin of 39.5%. Implementation of the CompoSecure Operating System is clearly having a strong impact as we achieved gross margins of 59% for the quarter compared to 51.7% for the same quarter prior year. We also saw numerous customer program launches during the quarter, which I'll comment on momentarily. And Arculus delivered another strong net positive quarter, supported by expanding commercial activity. We continue to see traction with banks, fintechs and exchanges who are launching innovative card programs and seeking enhanced security features. With sales momentum building and operating efficiency improving, we are raising our 2025 outlook and introducing strong guidance for 2026. For fiscal year 2025, we are raising our full year guidance and now expect non-GAAP net sales of approximately $463 million and pro forma adjusted EBITDA of approximately $165 million to $170 million. We are also announcing financial guidance for 2026, where we expect non-GAAP net sales of approximately $510 million and non-GAAP pro forma adjusted EBITDA of approximately $190 million. Turning to Slide 4. We shared a version of this slide last quarter, but it's worth a quick refresher for those new to the company since our reporting structure is rather nuanced. When evaluating CompoSecure's performance, we suggest focusing on core operating results after deducting the management fee paid to RHLD. In turn, RHLD's results primarily reflect the same management fee income, net of its own operating expenses. Demand for our metal card products remains strong and is supported by ongoing trends we see in the market as outlined on Page 7. We also continue to make operational progress highlighted on the right side of the slide, and we are seeing sustained improvements in the business from the CompoSecure Operating System, including tangible benefits materializing on the top and bottom line as well as strong gross margin improvements. Turning to Slide 6. We continue to see strong activity from both existing customers and new entrants, with several new and expanded programs launching in the quarter, such as Citi Strata Elite, Chime, a Bank of America, America Airlines co-brand, Alaska Airlines co-brand, Bank of Montreal and Gemini XRP. These programs reinforce the strength of our partnerships and the value we bring to issuers seeking to enhance their brand loyalty and deliver improved returns through higher customer acquisition, spending and retention. With that, I'll pass it to Tim for a few remarks. Timothy Fitzsimmons: Thank you, Jon. I want to say what an honor it's been to work alongside such a talented team and to help CompoSecure through its evolution into a strong public company it is today. I'm deeply grateful to our employees, our leadership team, our Board of Directors and our investors for their trust and collaboration over the years. The company is well positioned, and I have no doubt CompoSecure is poised for continued growth and success under Dave and Jon's leadership. I also would like to wish Mary Holt the best in her new role. She brings tremendous experience, deep financial expertise and a proven record of leadership. I'm confident she'll make an impact and continue to strengthen the finance organization as the company advances into its next phase of growth. Now for some further financial details on the quarter. As Jon mentioned, following the February 28 spin-off of Resolute Holdings and the execution of the management agreement, Resolute Holdings now consolidates the financial results of CompoSecure operating under GAAP. The non-GAAP financials we are providing remain comparable to historical results with the only change being the deduction of the management fee paid to Resolute Holdings. For Resolute Holdings, the non-GAAP financials reflect the management fee revenue less salaries and operating expenses. Now I'll walk through our Q3 2025 financial performance. Unless stated otherwise, all comparisons and variance commentary are on a year-over-year basis. In Q3, non-GAAP net sales increased 13% to $120.9 million compared to $107.1 million. Non-GAAP gross margin for the quarter was 59% of net sales compared to 51.7%. Non-GAAP pro forma adjusted EBITDA for the quarter increased 30% to $47.7 million, up from $36.6 million. At September 30, on a non-GAAP basis, CompoSecure had $224.6 million of cash and cash equivalents, $40.7 million of investment in U.S. Treasury bills and $190 million of total debt. This compares to September 30, 2024, when the company had $52.7 million of cash and cash equivalents and $330 million of total debt. The strong increase in cash for the quarter is primarily driven by proceeds from warrant exercises as well as free cash flow generation from operating activities. On Slide 13, you can see that domestic net sales grew 31% to $105.1 million, an increase of $25.1 million. International net sales declined 42% to $15.8 million, down $11.3 million due to timing of certain customer orders. As noted before, our international business can grow -- can show greater variability quarter-to-quarter due to a smaller scale. Turning to Slide 14. Non-GAAP pro forma adjusted EBITDA was $47.7 million, up 30% year-over-year and non-GAAP pro forma adjusted EBITDA margin was 39.5%, up 529 basis points year-over-year. Now let me turn it back to Jon. Jonathan Wilk: Thanks, Tim. As mentioned earlier in the call, we raised our full year guidance. We now expect non-GAAP net sales to be approximately $463 million and pro forma adjusted EBITDA to be approximately $165 million to $170 million, up from our previous guidance of $455 million and $158 million, respectively. Based on the disciplined execution of our strategic initiatives and the momentum we are seeing in the market, we have issued financial guidance for fiscal year 2026. As mentioned, we expect non-GAAP net sales of approximately $510 million and non-GAAP pro forma adjusted EBITDA of approximately $190 million. As a reminder, our raised guidance for 2025 and our guidance for 2026 includes the payment of Resolute Holdings management fee and does not include any impact from Husky. I'd like to close with a few thoughts. The progress we have made over the past year is increasingly positive in our financial performance, in the way we operate and in the culture that is taking shape across the organization. The CompoSecure Operating System continues to deliver meaningful impact, helping us improve execution, enhance efficiency and drive record results. We are operating from a position of strength, supported by expanding customer relationships, continued innovation and strong market demand. The opportunity ahead is substantial, and we are focused on building upon this momentum to deliver sustained long-term value for our investors. With that, I'd like to turn it back to Dave to discuss the transaction with Husky Technologies. David Cote: Switching to Slide 3 of the business combination presentation. The combination with Husky creates a best-in-class diversified compounder. The combined platform brings together 2 global market leaders, each operating in fundamentally good industries with best-in-class financial profiles, approximately 70% recurring revenue and significant long-term growth potential. Importantly, this transaction is highly accretive to CompoSecure's investors, supports long-term value creation and preserves balance sheet flexibility for future M&A. Starting with the market, Husky operates in a fundamentally good industry that has been historically underappreciated. The industry has supported solid growth and attractive margins for years, and we believe the fundamentals are firmly in place for that to continue for a long time to come, especially with the growing awareness of PET's superior carbon footprint, the regulatory push for plastic circularity and the growing adoption of recycled plastics in packaging. Growth in PET beverage demand, primarily bottled water, is the underlying secular trend driving the market for Husky's equipment, and it's hard to imagine a future without a lot more packaged beverage bottles as the world continues to urbanize. Overall, Husky is well positioned to capitalize on favorable long-term demand drivers across its key end markets. Turning to the company. Husky is a globally recognized brand with a long-standing reputation for manufacturing best-in-class systems. Platinum and the management team have established a great foundation, and their efforts have yielded solid organic growth in the last 5 years with identifying opportunities to accelerate growth in 2026 and beyond. In many ways, Husky today is where both Honeywell and Vertiv were at the onset of my involvement. Husky is well positioned to benefit from the same operating system and process discipline that drove consistent outperformance at Honeywell, Vertiv and now CompoSecure. All of us see the logic and opportunity with Husky. Platinum is rolling about $1 billion of their equity. My family has $1 billion of equity, and the management team is also heavily invested in the deal. I would also add that we have raised and oversubscribed $2 billion private placement from some of the leading institutional investors in the world on the same deal terms we covered today. As you can probably tell, I'm pretty psyched about this opportunity, and I hope you are, too. With that, let me turn the call over to Tom Knott, our Chief Investment Officer, who will take you through the transaction and business in more detail. Thomas Knott: Thank you, Dave. Let me begin by reiterating how excited we are about the opportunity for CompoSecure to combine with Husky. The transaction establishes us as a highly differentiated and diversified compounder and the opportunities ahead are many. Stepping back, we began this journey in September 2024 with the acquisition of a majority interest in CompoSecure. Since that time, the company's performance has accelerated materially, and we are beginning to see early gains from the systematic deployment of our operating system throughout the company. We have a proven approach to business operations, and we are confident that Husky exhibits all the same foundational qualities that will enable durable long-term value creation for our investors as we begin working with Brad and his team. Turning to Slide 4. We are acquiring Husky for approximately $5 billion or 11.2x 2026 net adjusted EBITDA, applying an enterprise value of $7.4 billion or 11.6x 2026 net adjusted EBITDA on a combined basis. The transaction is expected to be accretive to diluted EPS in the first full year post combination and will be funded through a $2 billion private placement, approximately $1 billion in rolled equity from Platinum and approximately $2 billion of debt, resulting in 3.5x net LTM leverage. We expect the transaction to close in the first quarter of 2026, subject to customary regulatory approvals and closing conditions. Turning to Slide 5. Husky checks every box of our investment criteria just as CompoSecure did. It is the #1 player in both PET system sales as well as aftermarket. The company operates in a large, structurally growing industry characterized by acyclical customer demand. It has a long history of engineering-led innovation that drives strong technology differentiation. We are also excited about growth opportunities we see for the business, supported by 65% recurring revenue from aftermarket sales and a highly fragmented competitive landscape. Lastly, we have already started working with the Husky team on implementing our operating system to drive growth, further margin expansion and continued strong free cash flow. Turning to Slide 6. The transaction provides significant structural and financial benefits to CompoSecure. It diversifies our revenue base and end market exposure, reduces customer concentration, increases scale, will be highly accretive to earnings, improves capital allocation flexibility and offers substantial runway for further investor value creation. Turning to Slide 7. Husky is the global leader in integrated engineered equipment and aftermarket services. Its business model operates much like a razor-razor blade model with an installed base of approximately 13,500 systems that result in approximately 65% recurring revenues from aftermarket parts, tooling and services. Importantly, while Husky's equipment and services typically represent less than 5% of customers' annual operating costs, they are critical for the customers' operations with immense focus on productivity, uptime and reliability. This focus on high criticality, high-value products aligns closely with how we think about CompoSecure's market leadership in metal cards. Turning to Slides 8 and 9. These pages really summarize the pro forma platform. The combined businesses deliver immediate scale and are positioned to deliver mid- to high single-digit organic growth, approximately 70% recurring revenue, approximately 12.5% EBITDA growth annually, 100 basis points of margin expansion opportunity per year and approximately 7.5% free cash flow yield in year 1. Taken together, the company has a best-in-class financial profile, durable growth drivers, all being offered at a significant discount to peers. In summary, we are extremely excited about this transformative transaction and to partner with Husky. The transaction brings together 2 market leaders to create a best-in-class diversified compounder. While I'm excited about the momentum we've already seen at CompoSecure as we deliver above-market, top and bottom-line growth, I am even more excited about the opportunities I see ahead for the combined platform. With that, I'll turn it back to Dave for some closing remarks. David Cote: Well, as I said at the beginning, I'm incredibly psyched about this opportunity. Husky has a great position in a good industry, and we see a clear path to deliver solid long-term growth with more than 500 basis points of identified margin upside for the combined company. The long-form investor presentation we shared during the private placement process was also filed today, and it has a lot more detail that should go a long way to helping you see why we're so excited about this combination and about both businesses. On behalf of CompoSecure, we look forward to providing our investors with great returns for many years to come. We hope you'll join us. So with that, I'll open up the call for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Moshe Orenbuch with TD Cowen. Moshe Orenbuch: Great. Congrats on all the stuff that you have accomplished and disclosed today. Wondering because I was able to kind of scroll quickly through the presentation, only saw it a few moments ago, but I don't think it includes like share count. Like how do we think about -- as we think about shares, the effective number that will be included in that for those purposes? Timothy Fitzsimmons: Yes, Moshe, this is Tom. The share count you should think about on a pro forma basis will be 291 million shares. Moshe Orenbuch: Got it. Okay. Good. And then maybe with respect to, as you think about the margins, a very strong margin performance on CompoSecure and the improvement that you've seen. Is there a way to kind of discuss how much of that improvement that you are hoping to see from the implementation of the operating system is kind of in place and how much of that is still coming? And maybe just if you could just kind of discuss with us where you think the CompoSecure piece of the business is in that journey. Jonathan Wilk: So thanks, Moshe. When we think about where we are, there is still enormous potential ahead in the operating system work to continue to improve our efficiency. At the same time, and as we've said on prior calls, we will continue to invest in critical areas of growth, building out the sales team, building out the engineering and R&D capability of the company to help make sure we've got the things in place to deliver that sustained organic growth over time. So still tremendous opportunity ahead, some of which will flow through to margins, some of which will be reinvested to plant seeds for the future. Operator: The next question comes from the line of Jacob Stephan with Lake Street Capital Markets. Jacob Stephan: I'd love to say congratulations for today. Just wanted to start off with a question on the acquisition. Maybe you could kind of help us think through some of the synergies you have within your core kind of metal card business and what you see with Husky's kind of injection molding equipment. David Cote: Yes. At the end of the day, we're not pointing to nor counting on any kind of synergies between the 2 businesses. You can expect there are some, but we didn't want to count on anything. Where the synergies come from in what can be considered unrelated businesses, it's the same thing that we used to point to at Honeywell, where we get asked how do aerospace, controls, chemicals and turbochargers go together. And everybody is expecting some kind of made-up technology insight, which we didn't do. And we just said, at the end of the day, the same thing that matters there is what matters here. It's the consistent application of a management operating system that works quite well and being able to implement the operating system, it will be the Husky operating system, the CompoSecure Operating System, getting functional transformation implemented, making sure you have a very good people process in place, agreement on strategic priorities with the monthly growth days, which sounds like a simple meeting, but it's actually a lot more than that. It's the application and implementation of those management philosophies that make all the difference in the world. Getting that culture to the point where people want to perform at a high level because it's fun and they enjoy it matters greatly. It's a tough thing to measure. But when you get it, like we did at Honeywell, like we've got at Vertiv, like it's happening at CompoSecure, which is going to happen at Husky, that's where all the magic happens. Jacob Stephan: Got it. And maybe you could kind of help us think through some of the more recurring natures of that business. I know you guys kind of talked about 70% recurring revenue mix. But in addition to the actual injection molding equipment, what about the business is recurring? Thomas Knott: Yes. So like we said on the call a little earlier, it's very much sort of the razor-razor blade where you've got a large installed base of machines, and we're selling aftermarket parts and services to those customers to support the installed base. So you've got a big installed base and you're selling parts and services to those customers to support the machines that are already in place. Operator: Your next question comes from the line of Hal Goetsch with B. Riley Securities. Harold Goetsch: Thanks for all the detail on this transaction. I got 2 questions and one relates to Compo on margin expansion and then on the guidance and maybe margin expansion potential of the combined company. We were thinking Compo was going to have about 50% gross margins for the long haul. And in less than a year, they're in the high 50s. And like you just said, you've guided to maybe 100 basis points of margin expansion in the combined business. And I'm just thinking that seems modest at this time. But before we -- but on the first part, can you just tell us what kind of has happened operationally to get the kind of efficiency you've got in the last 3 quarters? Jonathan Wilk: So Hal, literally putting into practice exactly what Dave described, putting in place that operating system, the routines, the tenacity, the culture change that we have put in place, those are the things that are driving the improvements that we talk about. And it is, we believe, sustainable, and we believe there is still more opportunity ahead. The comment that was made earlier is that we believe there is that kind of opportunity on an annual basis to continue to improve margins across the combined businesses. You also heard my answer to Moshe's question earlier, which was this idea that we still believe there's meaningful opportunity with Compo, some of which will accrete to margins, some that we will reinvest in planting seeds to help make sure that we've got the sustained organic growth, the sustained innovation pipeline and the breakthrough R&D to help make sure that we can continue to deliver for our customers. And it is literally that -- those lessons from Honeywell, the lessons from Vertiv, now Compo that we believe we can implement at Husky as well. Harold Goetsch: Yes. So if I get one follow-up to kind of triangulate this. So if both companies at the spot where Honeywell was at and Vertiv was at when Mr. Cote got involved, where did margins go with those businesses over a 36-month period? David Cote: Well, I don't have those off the top of my head, but they're public record and they're good. Let's put it this way. I've learned that analysts can't handle anything above a commitment to improve basis points above 500. So I used to think at Vertiv that we could get 1,000 points. They couldn't handle it. So I said, "Okay, it's 500." And we're at 1,000, they say, "Oh, well, where can you go next?" And we can't say 1,000 points more because they can't handle it. So that's why we're telling you 500. Operator: Ladies and gentlemen, that's concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to Ichor's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Claire McAdams, Investor Relations for Ichor. Please go ahead. Claire McAdams: Thank you, operator. Good afternoon and thank you for joining today's third quarter 2025 conference call. As you read our earnings press release and as you listen to this conference call, please recognize that both contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control and which could cause actual results to differ materially from such statements. These risks and uncertainties include those spelled out in our earnings press release, those described in our annual report on Form 10-K for fiscal year 2024 and those described in subsequent filings with the SEC. You should consider all forward-looking statements in light of those and other risks and uncertainties. Additionally, we will be providing certain non-GAAP financial measures during this conference call. Our earnings press release and the financial supplement posted to our IR website each provide a reconciliation of these non-GAAP financial measures to their most comparable GAAP financial measures. On the call with me today, as usual, are Jeff Andreson and Greg Swyt. We also have our newly named CEO, Phil Barros, joining us for today's call. Jeff will begin with an update on our business, and then Greg will provide additional details about our results and guidance. Phil will then make his remarks before opening the line for questions. I'll now turn over the call to Jeff Andreson. Jeff? Jeffrey Andreson: Thank you, Claire, and welcome, everyone, to our Q3 earnings call. Thanks for joining us today. This afternoon, along with our third-quarter earnings release, we announced that Phil Barros, our long-time CTO, has been named Ichor's CEO effective today. We are very pleased to have Phil joining us for today's call. Phil has been with Ichor for over 20 years and held executive roles spanning engineering, product management, sales, account management and corporate development and strategy. He has been instrumental in the development of the company's product strategy, and I look forward to watching the company's success develop under Phil's leadership. Third quarter revenues of $239 million exceeded the midpoint of our expectations entering the quarter. Similar to the upside witnessed in Q2, we once again experienced customer accelerations of certain gas panel deliveries for dry etch and deposition applications into the quarter. There's no question that the demand environment for etch and deposition is strong and has strengthened year-to-date, particularly in support of leading-edge investments in gate-all-around and high-bandwidth memory. We believe the Q3 upside, however, reflected a pull-in of deliveries from the fourth quarter rather than an increase in overall second-half demand among our primary customers. At the same time, the demand profile for other served markets continue to weaken as we progress through the third quarter. While we've been discussing demand erosion affecting multiple applications for several quarters now, most significantly in the areas of EUV lithography and silicon carbide, what surprised us most during Q3 was the decline in our non-semi end markets. As we entered the third quarter, we began to see order rates coming down from within our IMG business. As a reminder, the primary non-semi markets served by IMG include commercial space and aerospace and defense. IMG's business also brings a strong contribution margin to our overall financial performance. So when we did not see IMG order rates recover to their planned levels inside of the quarter as we had expected in early August, this resulted in a 1 percentage point impact to our Q3 gross margin. As a result, our continued progress made during Q3 in ramping the capacity of our internally sourced components and meeting our hiring objectives was overshadowed by the gross margin impact of lower IMG revenue volumes. With our current visibility, we are expecting IMG to continue to run at a lower rate for the remainder of the year, which is reflected in both our revenue and gross margin guidance for the fourth quarter. Our Q4 forecast now reflects meaningful forecast revisions from our third and fourth largest customers, reflecting the continued slowing in system build rates for certain applications and end markets. Our operational focus continues to be on improving the cost of our internal component manufacturing capacity to align with our targeted product margins and increasing our output to fulfill our customer demand. In parallel, we are making steady technical and operational progress on our 2 additional proprietary component products, which are designed to expand our addressable markets for both flow control and valves. We are targeting our first beta unit for customer evaluation in early 2026. These next-generation offerings will allow us to serve a broader range of applications and customer needs, further increasing our value across the semiconductor supply chain. As we reflect on the customer demand environment, there's no question that our 18% year-over-year revenue growth recorded for the first 3 quarters of 2025 demonstrates strong performance relative to overall wafer fab equipment or WFE growth. Our strong growth this year reflects increased demand from our 2 largest customers and a strengthening environment for etch and deposition, partially offset by declines in our EUV lithography business, our silicon carbide business and the closure of some of our smaller underperforming business units during the year. With the currently strong demand environment for etch and deposition expected to continue, the beginning of a recovery in these underperforming served markets for Ichor could very well result in Q4 2025, proving to be the trough quarter for this next phase of Ichor's growth ahead with Phil Barros as CEO. With that, I'll turn it over to Greg to recap our Q3 results and provide further details around our financial outlook. Greg? Greg Swyt: Thanks, Jeff. To begin, I would like to emphasize that the P&L metrics discussed today are non-GAAP measures. These measures exclude the impact of share-based compensation, amortization of acquired intangible assets, nonrecurring charges and discrete tax items and adjustments. There is a useful financial supplement available in the Investors section of our website that summarizes our GAAP and non-GAAP financial results as well as a summary of the balance sheet and cash flow information for the last several quarters. Third quarter revenues were $239.3 million, above the midpoint of guidance, up 13% year-over-year and roughly flat to Q2. The gross margin for the quarter was 12.1%. As Jeff discussed, while we made good progress in ramping output of our internally sourced products, the slowdown in our non-semi business impacted Q3 gross margin by 100 basis points. With operating expenses aligned with the forecast at $23.8 million, our operating income for Q3 was $5.1 million. Our net interest expense and net income tax expenses were likewise aligned with our expectations at $1.7 million and $0.7 million, respectively. The resulting EPS for the quarter was $0.07 per share. Our Q3 GAAP results reflect $18.3 million in restructuring costs related to the strategic consolidation of our global operations and consisted of inventory impairment and fixed asset charges as well as personnel transition and facility shutdown costs. We anticipate there may be additional charges in the fourth quarter and fiscal 2026 as we continue to execute on the strategy. Turning to the balance sheet. Our cash and equivalents totaled $92.5 million at the end of the quarter, flat to Q2. We generated $9 million in cash from operations, and our capital investments for the quarter were $7.1 million. Working capital changes reflect a consistent level of days sales outstanding and an $18 million decrease in inventory. Our planned CapEx investments for 2025 are still expected to total approximately 4% of revenue as we finish the build-out of our new Malaysia factory, that aligns with our strategy to consolidate our global operations and capacity in close alignment with our customers. In Q3, we completed the refinancing of the company's credit facility in order to reduce our overall borrowing costs. This refinance impacted our GAAP provision for other expenses during the quarter. We reduced the fixed amount of the revolver facility from $400 million to $225 million in favor of an accordion feature. We also extended the term of the facility another 5 years. Our outstanding term loan balance remained unchanged and at the end of the quarter was $125 million, and our net debt coverage ratio was 1.5x, well below any potential threshold for covenants. Now I will discuss our guidance for the fourth quarter of 2025. With anticipated revenues in the range of $210 million to $230 million, we expect our Q4 gross margins to be between 10% and 12%. In comparison to our earlier expectations for gross margin, about half of the reduction is due to the lower level of IMG revenues and the other half is due to the lower revenue from our third and fourth largest semi customers. We expect Q4 operating expenses to remain relatively consistent with Q3 levels at approximately $23.7 million. Net interest expense for Q4 is expected to be approximately $1.7 million. We expect to record a tax expense in Q4 of approximately $900,000, reflecting a full year non-GAAP tax expense of $5.6 million, which is unchanged from our prior expectations. As you update your models for 2026, our assumed effective tax rate is currently expected to be in the range of 15% to 17%. Finally, our EPS guidance range for Q4 of a loss of $0.14 to a profit of $0.02 reflects a share count of 34.5 million shares. I will now turn over the call to Phil Barros. Phil? Phil Barros: Thank you, Greg. First, I want to thank the Board for their confidence and Jeff for his mentorship and most of all, our employees. You make everything we do possible. It's an honor to lead the company I've been part of for nearly 22 years into the next phase of growth. While I may be new to the CEO role, I am not new to Ichor, our business or our customers. So I want to outline the strategic priorities that will drive us in our next phase of growth. 2026 will be a year of transition for Ichor. We plan to realign our global footprint and cost structure to strengthen our long-term profitability while leveraging the benefits of our recent strategic investments. We are focused on improving our product margins across all of our product verticals. These initiatives are aimed at driving our earnings growth faster than our revenue. As one of the key architects of our proprietary product strategy, I fully believe it's the right strategy for Ichor. Our focus is now on smoother execution, completing customer qualifications, transitioning our products to volume and delivering new products to give Ichor and our customers a clear competitive edge. We believe in the long-term fundamentals of our markets, driven by AI, high-performance logic and advanced packaging. These inflections are reshaping the industry and will drive sustained growth in our core WFE markets. But our goal is not to simply grow with the market, it's to outpace it. At our core, we are an engineering company. We create value by engaging early with our customers to solve their most critical problems. These partnerships enable us to drive sustainable growth by developing products and solutions that Ichor is uniquely positioned to provide. Finally, our machining business drives the highest contribution margin across our product portfolio, and we will stay focused on expanding it across both our semiconductor and non-semiconductor markets. I see tremendous opportunities ahead and I have complete confidence in our team's ability to continue to outgrow the markets we serve. With that, I will now open the call for Q&A. Operator: [Operator Instructions] Our first question comes from Brian Chin with Stifel. Brian Chin: Thank you, Jeff, for your help over the years, and welcome, Phil. Look forward to speaking with you more. Maybe first question on the environment and some of the updates here on the call. Can you quantify the revenue shortfall from IMG in Q3? How much is IMG sales expected to decline in 4Q? What's driving the decline? And what's the prognosis for returning to Q2 revenue level sometime next year? Jeffrey Andreson: Yes. So it's Jeff, Brian. Yes, I would say entering the quarter, it was down a couple, $2.5 million or so from what we expected, and most of that was in their higher-margin businesses. And then going into Q4, it's going to drop again a similar level, stabilize, we believe, and then start to recover in the first quarter. I would say maybe by the second quarter, we'll be back to where we thought we would be about now. That's the IMG story. What was the second part that I can't remember? Brian Chin: And part of that was sort of what drove the decline? Jeffrey Andreson: Yes, yes, yes. It's interesting. I think some of this is just it's taken -- we have some business that runs at a run rate into the sub-tier that was a portion of it. But the biggest portion was really new programs where the funding just didn't drop down through the prime to us. It's not gone. It's just a matter of when it comes. A piece of it has already arrived. So it's already been kind of incorporated into it and another couple of pieces are going to start to layer in. But really, they won't be able to affect the fourth quarter. They'll start to help the first quarter growth. Brian Chin: Got it. Okay. So that can tie into sort of the budget lock that we have and the continuing resolution in terms of frozen budget levels and whatnot. Jeffrey Andreson: Yes. It could be, but I can't on that. I don't know what's taken so far, probably. Brian Chin: Got it. Maybe the second question. In terms of the -- your top 4, and there's been kind of more weakness on maybe your 2 smaller of the 4 customers that kind of is lingering here maybe into the end of this year. What sort of optimism do you have? There was something in the press release that sort of suggested some optimism that business levels improve first half next year. What -- can you maybe provide more -- a little more color on what kind of visibility you have months and quarters and kind of what gives you a sense that the business trajectory can come back in the first half next year? Jeffrey Andreson: Yes. Good question. I mean, again, I think largely the outlook as we entered the third quarter, what's really changed, I think you pointed out was it's the IMG softness and then it's our smaller -- our non- -- call them 10% customers' business levels. But what we have seen from the visibility is already we're starting to see a recovery into Q1. I think some of the latest news about the elimination of the 50% ownership threshold, I think we're going to see some impact from that. Having said that, we haven't seen anything, and it's probably pretty late in the quarter to react to that. But I think we can already see kind of the core depth and etch market starting to bounce up. I'm not ready to guide you quarter 1 revenue, but we're pretty confident that we're seeing Q4 as the trough. Brian Chin: Maybe last question. This might be for Phil. So adjusting for that lower IMG mix in Q3, it sounds like gross margins might have increased around 60 basis points or so Q-on-Q were it not for that kind of unfavorable mix. I guess, firstly, was that tied to some improved operational execution in terms of the internal component supply ramp in Minnesota? And then kind of more broadly, reflecting on sort of the transition year commentary you made, what -- I know it's maybe a little unfair to ask you this right about, Phil, but what can the company do -- what will the company do? So yes, answered however you can, but what can the company do? What will the company do in the next 6, next 12 months to sustainably improve the execution around that internal supply and product yield to lay a good foundation for the appreciable gross margin improvement once -- helped obviously, once revenue can kind of get back to that $250 million per quarter level as well? Philip Barros: Yes. I'll start off with the answer, and then I'll hand off to Greg to talk about the $250 million number. What I'll say is the new products, we are on track or on track to what we projected last quarter in terms of our improvements that we talked about last quarter. So well on track there. We have key initiatives to continue to increase our gross margin on those products, in particular, getting our valve product line to our product margins where we want it to be. We're very close to those and should see that early next year. So we'll continue to see those grow over the next couple of coming quarters. With that said, I'm going to hand over the $250 million question over to Greg. If you don't mind, Greg? Greg Swyt: Yes. Thanks, Phil. I think, Brian, the first question was on the Q3 miss. And we talked about IMG, but the recovery quarter-over-quarter within the machining business was there. It's just that the full miss was really predominantly driven by the IMG miss. When we look out into the outer quarters, and we are -- as Phil talked about the plans on the machining business, we still expect to get to the mid-teens when we get to that kind of second half. What we've always been saying recently for the past couple of calls is that $250 million run rate, still expect to be in those mid-teens as we execute on our machining strategy to get the volumes up and get those efficiencies to where we expect them to be. Operator: Our next question comes from Charles Shi with Needham. Yu Shi: Jeff, I really appreciate working together for the last couple of years and wish you well for your next chapter. Phil, welcome aboard. Looking forward to more conversation with you. So maybe the first question I want to ask a little bit more near term, some of the commentary would hope you clarify a little bit. You talked about the Q3 revenue benefited from some of the pull-ins and you talked about some of the Q4 revenue decline. There are some downward revisions from #3 and #4 customers. Are those 2 things correlated, meaning was the pull-in into Q3 done by the #3, #4 customer? Or are they not? Jeffrey Andreson: Charles, thanks. It's Jeff. No, I would say, generally, they're unrelated. I mean the pull-in actually was offsetting some of the softness in IMG, but I would say largely, that was at our largest customer. Yu Shi: Great. So Jeff, I want to get -- Jeff and Phil, I want to get your thoughts a little bit more specific on next year's expectations, maybe not exactly about Ichor, but the overall WFE trend. I think your customers have talked about maybe first half next year kind of at a similar level as the second half this year and second half next year could see some of the stronger inflection to the upside. Are you aligned with that? And specifically on maybe the outer quarter Q1, since your second half '25 run rate actually comes down a little bit given your Q4 -- what you guided for Q4. Is that still the same picture there? Jeffrey Andreson: Well, what I would say -- hey, it's Jeff. What I would tell you is we still kind of see a more back half weighted year next year with the growth in the year, probably you're going to have to assume it starts around midyear. I think some of this China reduction of the 50%, that might also help the front half a bit. But I still think our view is a stronger back half of the year. And then a stronger '27 is kind of what is our view of what's going to happen over the next couple of years. Operator: Our next question comes from Craig Ellis with B. Riley Securities. Craig Ellis: I'll echo the thanks to Jeff and the good wishes and the welcome to Phil. Look forward to being in conversation going forward. I was hoping I could pick up on some of the questions thus far. So it sounds like as we look into 2026, we can expect 100 basis points or more of gross margin expansion just as IMG normalizes. But from there to the 15% at $250 million in revenues, Greg, how would we build that layer cake? What are the specific contributors, whether it be something in weldments, something in gas panel, et cetera. Can you help us just understand how we go from 12-ish percent up to 15%? Greg Swyt: Sure. Thanks, Craig. So it's a couple of things, and it's still continued on the conversation around improving our proprietary products. And that's going to be, as Phil has mentioned, our key strategy to drive. And so as that moves through the year, that will be one of the biggest levers that we have. Phil also, in his comments, talked about our global operations footprint that we are rationalizing as we move through that. We'll see some improvement later in the year, but not incremental, that will be more of a '27. But we're working on driving efficiencies that will help move that through. And then not only on the branded product and the leverage of our factories, but driving incremental revenue from our machining business, which garners obviously a higher product margin than our integration business and getting that mix up as a higher percentage of the business. Craig Ellis: That's helpful. And then the follow-up question, and it may be that you've covered some of it. In Phil's prepared remarks, he characterized calendar 2026 as a year of transition. I was just hoping to get further color on what the elements of the transition were and what was targeted to achieve in 2026 versus elements of a transition that might start in '26 and then yield more benefit in '27 and beyond? Philip Barros: Yes. As Greg kind of mentioned earlier, I would say it's 3 major levers. First and foremost is getting all of our products into volume, getting them at the cost targets and quite frankly, expanding those products across more and more customers. I think we talked about on our last call, in particular, we slowed down one of the qualifications because we, quite frankly, weren't ready for the ramp. So we're going to be ramping that product and that customer through the first half of the year, which will increase our touch points with additional customers in terms of our proprietary products. Second, as Greg mentioned, in particular, our global operations and our global footprint, we are going to be doing work to making sure our products are made in the right location for the right margin. And also that will help us from a flexibility standpoint. If you think of it this way, we want to use our machining business within North America to drive our quick turn, and that quick turn is going to be our revenue growth for our long term, if that makes sense. Operator: Our next question comes from Krish Sankar with TD Cowen. Robert Mertens: This is Robert Mertens on for Krish. I think you had previously mentioned some friction in your hiring process for the machining business. Could you just provide an update on where you are in that business in terms of current capacity and that -- which would be needed to service demand in a more normalized demand environment? Philip Barros: Yes. We talked last quarter that we need to get the hiring up in our Minnesota factory in particular. We have met those hiring targets. As we see increased demand for those products, though, what we will be doing is increasing our capacity by bringing on both our Malaysia footprint as well as our Mexico footprint, building some of those same products. Robert Mertens: Great. That's helpful. And then last quarter, you mentioned qualifying a third customer in your internal valve system and we're engaged with the fourth customer. Do you have any update at this time? You can provide us on where you are in the qualification phase and sort of the rate of adoption you're expecting for these customers going internally sourced products? Philip Barros: Yes, that's what I was alluding to in my comment on the last question. In particular, we believe that fourth customer will come online in the first half of next year in terms of our valve supply. Operator: Our next question comes from Edward Yang with Oppenheimer. Edward Yang: So just to clarify, are we past all the hiring and retention challenges in the U.S. machining operations? And it's nice to hear you got the hiring up. How are you able to hit those targets? Philip Barros: Yes. I think we talked about in the past about different incentive programs we put in place in order to get the hiring programs in line. We are on track. We've met all of our hiring requirements for our Minnesota factory. What I will say is as we see these products expand, we will be duplicating resource requirements in lower-cost regions as well. Edward Yang: Okay. And just a follow-up question for you, Phil. As your -- how does your prior perspective that CTO would that be helpful for you in alleviating some of these execution issues that we've seen, which were more manufacturing related? And when you talk about 2026 being a year of changes, does that mean, again, that you're going to focus a little bit more on the R&D side versus manufacturing or operations? Or am I reading too much into it? Again, you coming from the CTO position to CEO? Philip Barros: Quick answer is yes. What I would say there is Jeff has talked about in the past, some of the growing pains we've gone through as we transition from more of a services business to a products business. So we've -- my perspective as being one of the architects of the products business is how we grow our operations with our products is going to be very, very important as we move forward. So that was one of the key milestones, the key things we need to get done in 2026 is making sure our product transitions are very, very smooth going forward. Jeffrey Andreson: Yes. I would -- just as a comment on Phil. Phil has obviously been in so many different roles within the company, but he has been deeply engaged in driving the alignment of cost targets with what we need to do. And so it's not new to him by any way, shape or form. This has been a real big team effort, and he's been a critical player in that. Operator: Our next question comes from Christian Schwab with Craig-Hallum Capital Group. Christian Schwab: With Q4 being the trough for the year as we're kind of thinking about 2026, would you expect year-over-year growth in '26 versus '25? Jeffrey Andreson: Yes, definitely. But that's our current view without guiding the whole year next year is I think we are anticipating growth. I mean we've just said that Q1 should be better than Q2. Q4 is the trough, and then it may be relatively flattish in the front half. We'll see how that works out. Generally, as you know, Christian, things start to pull forward. But we do see right now in alignment with what others are forecasting, customers are telling us back half of the year is going to be very strong. Christian Schwab: So with that in mind and getting to the target of $250 million then run rate in the back half, is the internal plan to be able to hit the mid-teens gross margin goal in the second half of '26, I mean? Greg Swyt: Yes, Christian, that is the plan. That's what the operations is putting together right now. Christian Schwab: Okay. Great. And then my last question then, we discussed an aspirational goal of vertical integration driving a gross margin of 20%. Is that still the aspirational goal that you guys have in mind? Philip Barros: Yes. Long range, that is still our aspirational goal. Flow control is going to be -- flow control is really going to be the enabler for us to get from that mid-teens to that 20% gross margin. Christian Schwab: And congrats, Phil, on your new job. And Jeff, best wishes. Jeffrey Andreson: Thank you, Christian. Philip Barros: Thank you. Operator: This now concludes our question-and-answer session. I would like to turn the floor back over to Jeff Andreson for closing comments. Jeffrey Andreson: I want to thank you for joining us on our call this quarter. I'd also like to thank our employees, suppliers, customers and investors for their ongoing dedication and support over my last 8 years at Ichor. Phil and Greg will look forward to our next quarterly update in early February for our fourth quarter earnings call. Operator, that concludes our call. Operator: This now concludes our conference for today. Thank you, everyone, for your participation. You may disconnect your lines, and have a wonderful day, ladies and gentlemen.
Operator: Greetings, and welcome to the Medifast Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Zenker, Vice President of Investor Relations. Thank you, sir. You may begin. Steven Zenker: Good afternoon, and welcome to Medifast's Third Quarter 2025 Earnings Conference Call. On the call with me today are Dan Chard, Chairman and Chief Executive Officer; and Jim Maloney, Chief Financial Officer. By now, everyone should have access to the earnings release for the third quarter ended September 30, 2025, that went out this afternoon at approximately 4:05 p.m. Eastern Time. If you have not received the release, it is available on the Investor Relations portion of Medifast website at www.medifastinc.com. This call is being webcast, and a replay will also be available on the company's website. Before we begin, we would like to remind everyone that today's prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. The words believe, expect, anticipate and other similar expressions generally identify forward-looking statements. These statements do not guarantee future performance and therefore, undue reliance should not be placed on them. Actual results could differ materially from those projected in any forward-looking statements. All of the forward-looking statements contained herein speak only as of the date of this call. Medifast assumes no obligation to update any forward-looking statements that may be made in today's release or call. Now I would like to turn the call over to Medifast's Chairman and Chief Executive Officer, Dan Chard. Daniel Chard: Thank you, Steve, and good afternoon, everyone. We appreciate you joining us today as we discuss our third quarter results and share an update on our progress. This is an important year for Medifast one where the work we've done to transform the business is beginning to align more clearly with the opportunity we see in front of us. The weight loss and wellness industry has undergone fundamental change in a very short time. The rapid growth in consumer understanding and usage of GLP-1 medications has reshaped much of the public conversation around obesity and health, introducing millions of people to a tool for appetite control that leads to weight loss. While these medications are truly groundbreaking, they are not a complete solution to long-term health unless they are paired with lifestyle modifications. Further, most weight challenges are rooted in poor metabolic health, also called metabolic dysfunction, which medication alone does not fully correct. A lifestyle approach that builds healthy habits and protects lean muscle mass during weight loss is essential to improving metabolic health. Since many people discontinue medication, the absence of these fundamental changes often leads to weight regain. For most people, the most durable path forward comes from addressing the underlying metabolic issues, not relying on medication alone. Data across multiple studies paint a consistent picture, up to 40% of the weight loss while on GLP-1 medications comes from lean mass, including muscle. 74% of those on the medications discontinue them within a year and the majority regain much of the weight they lost once they stop. For many, this leads to a cycle of temporary success followed by intense frustration. The opportunity for Medifast is to help break that cycle to empower people not just to lose weight, but to learn how to keep it off and most importantly, to improve their metabolic health in the process, leading to a body that uses energy more efficiently, preserves muscle and functions the way it was designed to. There is a significant opportunity in front of us to deliver a reset that helps the body work as it was meant to. More than 90% of U.S. adults are metabolically unhealthy. This represents not only a vast health challenge, but also a once-in-a-generation opportunity to redefine what wellness looks like. Our mission and our growth strategy are centered on meeting that need. Our clinically study plan is designed to address the underlying causes of metabolic dysfunction, reducing bad visceral fat, retaining lean mass and protecting healthy muscle and helping improve overall body composition. We don't believe success should be measured just by pounds lost, but by how much healthier a person's body becomes in the process. We recently announced clinical research findings led by our scientific and clinical affairs team using a science focused on metabolic synchronization, a breakthrough approach that reverses metabolic dysfunction with a targeted reset. Our most recent clinical analysis uncovered findings that revealed that our comprehensive plan delivers strong and targeted fat burn resulting in not only weight loss, but also improved body composition. At 16 weeks, clients on our plan retained 98% of their lean mass, reduced visceral fat by 14% and showed measurable improvement in body composition while losing weight and protecting muscle. This reduction in visceral fat, the bad fat driving metabolic dysfunction, along with strong muscle preservation are key indicators of improved metabolic health. Whether a client is using a GLP-1 medication, transitioning off 1 or not using one at all, our program provides a foundation for overall metabolic health and well-being. This is not just a short-term fix, but a comprehensive system that is specifically designed to help people live a healthier life. At the center of our approach is the human connection provided by our incredible coaches. These coaches play a vital role in translating the underlying science that powers our approach into real-world results that help people make a real difference in their approach to health. Coach's understanding of the benefits and shortcomings of GLP-1 medications continues to build all the time. Currently, 61% of our coaches have already worked with clients who are using GLP-1 medications and 22% of our client base reports either using or having tried a GLP-1 medication in the past year. That gives us invaluable insight into how these medications are being used and how our approach can complement them. Medications alone are simply not enough in our view. Clinical data shows that clients who work with a coach lose 10x more weight and 17x more fat than those who go it alone. That's certainly not a coincidence. Our coaches guide clients through the important behavioral and nutritional lifestyle changes needed to maintain their progress on their health journey. The coach has helped people stay accountable, navigate challenges and build the healthy lifestyle habits that lead to lasting results. Coaching is what makes the difference between temporary change and long-term transformation. We're evolving Medifast from being seen primarily as a weight loss company to one that is recognized as a leader in the broader field of metabolic health. It's a shift to a far larger and more durable market as we move from helping people not only lose weight, but also helping them live metabolically healthier lives. Looking ahead, the company plans to launch significant product innovations using the science of metabolic synchronization and incorporating next-generation ingredients for metabolic enhancement. Initial feedback from the field of coaches has shown encouraging results and we expect to bring this new product line to market next year. This new product line builds on the strength of our existing programs, and we believe it will further differentiate Medifast in the marketplace. Our aim is not just to respond to the rise of GLP-1s, but to define what the next generation of metabolic health solutions will look like combining clinical credibility, human connection and healthy results. To deliver further on our ambitions in the metabolic health space, we're moving forward on several fronts. Our coach leaders have already been trained on the new clinical data and they are now cascading that knowledge throughout their organizations. This training will continue into 2026 as coaches learn to reach new types of clients, people who are focused not just on weight loss but also on their overall metabolic health. We are seeing continued momentum in our work to support our coaches and clients. The new Premier+ pricing and auto ship program has simplified our value proposition, creating a more consistent experience for both coaches and clients. It offers immediate savings, predictable pricing and a straightforward path to loyalty, making it easier for coaches to attract and retain clients. While it's still early, we're encouraged by the initial response which has shown an uptick in baseline client retention beyond the first month. We've also continued to strengthen the leadership foundation of our field through our EDGE leadership development program. EDGE combines incentives, best practices and recognition tools to help coaches grow their businesses with purpose and structure. The program was built in partnership with field leaders ensuring it reflects real-world experience. It's designed to make early success achievable and sustainable, helping new coaches find their footing and build confidence and enabling our experienced coaches to scale their impact. In a world where technology increasingly replaces human interaction, our greatest strength remains the power of personal connection and we're continuing to focus on how we take full advantage of our highly personalized solutions. Both Premier+ and EDGE are important components of our commercial model and we expect these to play a central role in continuing to improve coach productivity and stability as we move into 2026. In the third quarter, productivity among active coaches continue to show signs of stability. We're also continuing to invest in our digital platforms to make the coaching and client experience even more seamless. Enhancements to our app and reporting tools are providing better visibility into client progress and coach performance, giving our field more actionable insights and allowing them to focus where they can make the biggest impact. Regarding our third quarter results. Revenue of $89 million for our third quarter was at the high end of our guidance range and EPS came in within our guidance range. Active earning coach productivity for the quarter of $4,585 was down just 2% year-over-year, continuing a trend of moderating declines. Sequentially, coach productivity was down 1%. As we look ahead, our strategy remains clear. We're building Medifast as a science-backed coach guided system for promoting long-term metabolic health. The trends shaping this industry from medical intervention to lifestyle integration point towards the need for exactly what we offer, a system that helps people improve their metabolic function by getting rid of the bad fat, preserving lean mass and protecting their muscle, ultimately, empowering them to healthier results over time. We've already taken important steps to position the business for this future. Our transformation is not theoretical. It's visible in the way our coaches are working and the science behind our products and in the foundation we're laying for the next phase of growth. We have more work to do, but we're confident in our direction. We have a strong balance sheet, no debt, and more than $170 million in cash and investments. We have a passionate coach community that continues to adapt and lead, and we have a comprehensive program, plan and product that are scientifically validated and aligned with where we believe consumer demand is headed. We're a company that has been built on ongoing innovation and that is always thinking about the next chapter. We expect that the foundation we're building today will redefine what health looks like for the years to come. By combining our science, our coaches and our community, we are positioning Medifast to become the trusted partner for millions of people seeking to improve metabolic health. We're building for long-term sustainable growth, and we're doing that with discipline and conviction. Now I'll turn it over to Jim to review the finances and our outlook for the next quarter. James Maloney: Thank you, Dan. Good afternoon, everyone. As Dan mentioned earlier, third quarter 2025 results for both revenue and EPS were at the high end of our guidance ranges. Revenue for the third quarter was $89.4 million, a decrease of 36.2% versus the year earlier period, primarily due to a decrease in the number of active earning OPTAVIA coaches. We ended the quarter with approximately 19,500 active earning OPTAVIA coaches, a decrease of 35% from the third quarter of 2024. Average revenue per active earning OPTAVIA coach for the third quarter was $4,585, a year-over-year decrease of 1.9%, primarily driven by continued pressure on client acquisition. We continue to see moderating year-over-year declines in this key metric. Gross profit decreased 41.2% year-over-year to $62.2 million driven by lower sales volumes, partially offset by lower cost of sales. Gross profit margin for the current quarter was 69.5% which decreased 590 basis points compared to the year earlier period, attributable to 450 basis points of loss of leverage on fixed costs and 180 basis points of a reserve for the reformulation of the Essential product line. As Dan mentioned, we expect to introduce a new product line next year which is intended to improve upon the effectiveness of our current essential product line in addressing overall metabolic health. These new products will replace the current Essential line of fuelings that are part of many of our current plans. SG&A expense was down 36% year-over-year to $66.2 million primarily due to a $19.7 million decrease in coach compensation on fewer active earning coaches and lower volumes. Additionally, SG&A expenses in the current quarter reflected decreases of $5.6 million related to company-led marketing compared to 2024 as well as $2.9 million for the company's convention costs and $2 million for the company's collaboration with LifeMD that did not recur in the current quarter. SG&A as a percentage of revenue increased 20 basis points, primarily due to approximately 520 basis points associated with the loss of leverage on fixed cost and other smaller increases, partially offset by a 360 basis point reduction related to company-led marketing and 210 basis points for the company's convention cost incurred in the prior year's comparable period that did not recur in the third quarter of 2025. Loss from operations was $4.1 million in the third quarter of 2025 compared to income from operations of $2.1 million in the prior year comparable period. As a percentage of revenue, loss from operations was 4.6% in the third quarter compared to income from operations of 1.5% in the prior year period. Other income increased $2 million year-over-year to $1.4 million, primarily due to a loss on the company's investment in LifeMD's common stock during the corresponding period in 2024. As you may recall, we sold the investment in the second quarter 2025. The effective tax rate was 14.9% for the third quarter of 2025 compared to 28.5% in the prior year period. The change in the effective tax rate for the 3 months ended September 30, 2025, was primarily driven by a decrease in the tax benefit of research and development tax credits which represented 115.3% of the change, partially offset by an increase of 85.6% from the impact of state taxes. These percentages were magnified by the near breakeven pretax position in the current year. Net loss in the third quarter of 2025 was $2.3 million or $0.21 loss per diluted share compared to net income of $1.1 million or $0.10 per share in the year-earlier period. Our financial position remains strong with $173.5 million in cash, cash equivalents and investments and no interest-bearing debt as of September 30, 2025. Now I'll turn to guidance. We are expecting fourth quarter revenue to range from $65 million to $80 million and a loss per share for the quarter ranging from $0.70 to $1.25. With that, let me turn the call back to the operator for questions. Operator: [Operator Instructions] Our first question comes from Jim Salera with Stephens. James Salera: I wanted to first start with the shifting focus towards metabolic dysfunction and how integrating that messaging with the coaches is going to work. Can you just maybe walk us through the process to make sure that you have consistent messaging among the coaches and that they're all kind of trained up on the new go-to-market or strategy around communicating the kind of holistic view that you guys are taking to weight loss moving forward? Daniel Chard: Sure, Jim. Let me also start out by adding that Nick Johnson, our Chief Field Operations Officer and President of OPTAVIA has joined us as well. So I'll make a couple of comments, and then I'll let him talk about what we're doing to make sure that the coaches across the entire country are trained and understand what this new story around metabolic health is. I'll start out by saying that most weight loss challenges and 9 out of 10 of the leading health challenges, for the country are rooted in for metabolic health or sometimes refer to as metabolic dysfunction. Our coaches are aware of this. So it starts out by partially an awareness. But what we've done, probably in the most significant way we ever have is conducted a study partially tied to previous research that we have done, but also taking a deeper dive into the clinical studies to show exactly what our program does with metabolic health and how it is able to reverse metabolic dysfunction. And here's how it links to weight loss. And the -- we talked a little bit about some of these claims or the results of our study in the last call, but I'll just cover them again. The first and significant one is our program targets the bad fat or often referred to as visceral fat and that's the fat around the belly and inside and around vital organs. And it reduces that fat at a clinically significant level. It maintains lean mass and 98% during weight loss. It protects muscle and improves body composition. And you've heard us talk about the other part of our research that shows that when a coach gets involved and helping somebody on the program, the clients are able to lose 10x more weight and 17x more fat. So those are new claims that we've shared with our coaches. The important part of what they're doing now is the targeting, which is -- it's fairly expansive. 90% of Americans have -- are metabolically unhealthy or experience metabolic dysfunction. And with our research, this clinical research and an understanding of how we can reverse that, they have an interesting and highly relevant new story. And it's becoming increasingly relevant even in the face of this world where GLP-1 drugs have had such an impact on people trying them, which is basically our program is differentiated in that we maintain 98% of lean body mass, whereas GLP-1 drugs often result in as much as 40% of the weight loss being from lean mass and high levels of discontinuation, 74% on of patients discontinued use within a year of GLP-1 drugs and 2/3 of the weight is regained. So those are the -- that's kind of the problem solution, if you will. Now I'll let Nick talk a little bit about how we are training leaders and how that leadership base now is in the process of training the field. So I'll turn some time over to Nick to do that. Nicholas Johnson: So recently, we met with all of our leaders at a better retreat, our annual leadership retreat that took place in Sundance, Utah. All of those lines of business across our business were actually represented. So with all those leaders of the different lines of business now informed trained and understand where we're going in the direction the metabolic synchronization of proprietary science that addresses neuro versus metabolic dysfunction. From now until the end of the year, those messages, those trainings will continue to be disseminated. And so by the end of the year, we expect to have all of the different coaches all the way down to our core rank of Executive Director trained and steeped in this direction. So we ensure that we are across the network singing from the same song sheet, so to speak. James Salera: Great. That's very helpful. Can you speak to just the EDGE program and maybe the incentive structure as again, you kind of expand the aperture and the focus of what coaches are going to be communicating to potential clients. And I would imagine that kind of broadens the range of potential clients they can talk to. Daniel Chard: Yes, it's another good one for Nick. So Nick, why don't you take that one as well? Nicholas Johnson: Sure thing. So as we've talked about in the past, the EDGE program is designed around really 3 activities, and they're all based on the same core rank Executive Director. It's for creation of new executive directors, duplication of those directors and then multiplication of those executive directors. So the EDGE program is designed to change the rank composition of the business. Now keep in mind that those executive directors have approximately $6,000 in revenue per Executive Director. They're highly, highly productive. So when we see the rank composition of the business start to shift in a more positive direction, revenue and therefore, productivity go up as the rain composition improves. So we'll continue to focus on the EDGE program, like we said in the past, focusing on becoming and duplicating and multiplying those executive directors. And what we discussed at the Sundance leadership retreat is how we will continue to execute the EDGE program, which will then yield that higher productive coach rank and then fill out the different generations within the pay structure for our top leaders. James Salera: Okay. That's helpful. Maybe shifting gears a little bit, Jim, just a couple of questions on the guidance and then some of the results in the quarter. Maybe for starters, it looks like you closed the gap between the decline in SG&A and the decline in the top line. Those are much more kind of aligned than in previous quarters. And I appreciate you gave some detail around just maybe some onetime expenses there. But could you just give us some color around -- is there a way we should think about if the top line is down X percent, SG&A should underperform that by 100 basis points, 200 basis points, just as we think about kind of modeling that on a go-forward basis? James Maloney: Yes. I mean, as you mentioned, one of the charges in Q3 was an approximate $1.5 million charge for the reformulation of our essential line. So we made the decision in Q3 of 2025. So we took that charge. We believe that's going to be a onetime item. We also mentioned regarding within gross margin that we had a loss of leverage of fixed costs. And what we're -- what we have done. And what we continue to do is make sure that our balance sheet remains strong for the foreseeable future. So we ended the quarter with $170 million in cash and investments. And we're rightsizing the business. We did some actions in October, so last month to rightsize the business to make sure that as we return to growth, the margins will improve. And when you look at our guidance, you mentioned guidance, and we are seeing pressure continue into Q4 with the guidance that we provided. So as I mentioned before on our call, with the way our business works and the way we get back to growth, looking at our metrics, our expectations are that it starts with client acquisition and client retention. And based on the history when we get growth in revenue per active earning coach and a sustained improvement in revenue per active earning coach the growth of it. Typically, we see about 6 to 9 months after that, we typically see coach growth. And obviously, once we get back to coach growth is when you get back to revenue growth, probably within a quarter or 2 from that coach growth. And we've been mentioning to investors, and I believe we mentioned it on our last call, that we're anticipating that to happen in 2025. So we are anticipating that to happen in Q4, but at a minimum, getting back to revenue per active earning coach growth, we believe, will happen at least in the next 6 months. So we're expecting it to happen in Q4 and that will be the first green shoot of stabilization for the company and a path forward to get back to growth. So we're anticipating that happened in Q4, but at a minimum in the next 6 months. James Salera: Okay. And maybe on the top line, can you just speak to any outside of, obviously, GLP-1 kind of well-covered trends just broader economic softness and softness we've seen in the consumer. Just any commentary you can offer on how that's been impacting likelihood of consumers to add an incremental monthly expense like OPTAVIA into their budget? Daniel Chard: One of the things we continue to see, Jim, and this is not something that's new, but consumers prioritize their health. And this is a health issue that's been with us for quite some time and is not relenting. So we have high satisfaction with those clients who choose to engage in our program as evidenced by their high repeat. And I think we always are looking at what you're asking about, which is does a challenged economy affect consumer spending. I think certainly, the answer is yes. But we continue to see consumers prioritizing the spend on health over other things. So I think we feel optimistic about where we are. I think we have change the value equation to be even more significant with these additional kind of insights into just how our program affects the end consumer. And we see our coaches getting better and better at operating in this current environment. As I said in the prepared remarks, we have now over 60% of our coaches who are supporting at least one client was either on or who has been on a GLP-1 drug and 22% of our client base, either using or having used GLP-1 drugs. So we see our program as valuable in the current environment and relevant for people who are using -- and using a GLP-1 drug and want a lifestyle program who want to do it without a GLP-1 drug because they don't want to or have a negative reaction to the medication or increasingly people who are transitioning off and want to make sure that they can maintain the health of the gain. And now there's one more reason for those who want to get really the root of some of these symptoms of metabolic dysfunction and really focus on the source of the challenge and achieve this lifelong transformation that our coach has been talking about for quite some time. James Salera: Got it. And then maybe just one housekeeping question. Jim, I think you had mentioned when you were kind of breaking down the SG&A expenses that you guys were cycling. There's a $2 million -- I think you said $2 million for collaboration with LifeMD. I just want to make sure, is that something that was a onetime expense last year that we're lapping or are you guys sunsetting the LifeMD partnership and that's like on a go-forward basis that's coming out of SG&A? James Maloney: No, the collaboration is ongoing. What that is, is that was the last in 2024, that $2 million was the last bit of amortization. If you remember, at the beginning of our collaboration, we invested $10 million into LifeMD as part of the collaboration. And that $2 million in Q3 of 2024 represented the last bit of the amortization. So we took the $8 million prior to that. So you won't see that any longer. Operator: We have 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 Dan Chard for closing comments. Daniel Chard: Thanks, everybody, for joining the call today. This continues to be a period of meaningful transformation, as you could hear for the company. And we're evolving with purpose to become a science-backed coach-led leader in metabolic health. Our approach built around the science of metabolic synchronization enables us to target better health rather than just weight loss, reducing visceral fat while preserving lean mass. We're very encouraged by the progress that we're making from the stabilization of coach productivity to advancing new product innovation and digital tools. We remain confident in our strategy, supported by strong balance sheet and a dedicated coach community focused on long-term client success. I look forward to sharing even more when we present at the Stephens Annual Investment Conference in November 19 in Nashville. Thanks again for joining us today and for your continued interest in Medifast. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, everyone. Thank you for standing by. Welcome to Adeia's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Chris Chaney, Vice President of Investor Relations for Adeia. Chris, please go ahead. Chris Chaney: Good afternoon, everyone. Thank you for joining us as we share with you details of our quarterly financial results. With me on the call today are Paul Davis, our President and CEO; and Keith Jones, our CFO. Paul will share with you some general observations regarding the quarter, and then Keith will give further details on our financial results and guidance. We will then conclude with a question-and-answer period. In addition to today's earnings release, there is an earnings presentation, which you can access along with the webcast in the IR portion of our website. Before turning the call over to Paul, I would like to provide a few reminders. First, today's discussion contains forward-looking statements that are predictions, projections, or other statements about future events, which are based on management's current expectations and beliefs, and therefore, subject to risks, uncertainties, and changes in circumstances. For more information on the risks and uncertainties that could cause our actual results to differ materially from what we discuss today, please refer to the Risk Factors section in our SEC filings, including our annual report on Form 10-K and our quarterly report on Form 10-Q. Please note that the company does not intend to update or alter these forward-looking statements to reflect events or circumstances arising after this call. To enhance investors' understanding of our ongoing economic performance, we will discuss non-GAAP information during this call. We use non-GAAP financial measures internally to evaluate and manage our operations. We have, therefore, chosen to provide this information to enable you to perform comparisons of our operating results as we do internally. We have provided reconciliations of these non-GAAP measures to the most directly comparable GAAP measures in the earnings release, the earnings presentation, and on the Investor Relations section of our website. A recording of this conference call will be made available on the Investor Relations website at adeia.com. Now I'd like to turn the call over to our CEO, Paul Davis. Paul Davis: Thank you, Chris, and thank you, everyone, for joining us today. Our third quarter revenue of $87.3 million was in line with our expectations, and we remain confident in the strength of our business. Importantly, our non-Pay TV recurring revenue was up 31% year-over-year for the third quarter. Let me first address the change to our revenue guidance we announced this morning. While we continue to have paths to achieve our original revenue guidance range for the year, we have taken a prudent approach and adjusted our 2025 full year revenue guidance primarily to reflect that we have now filed litigation against AMD and closing a license agreement in the fourth quarter, as previously expected, is now unlikely. We have continued to make good progress on other significant deals in our pipeline, and we remain focused on getting the best economics we can over the long term. Our revised revenue guidance range reflects multiple opportunities that we are actively pursuing. To the extent that they don't close in 2025, they become a strong catalyst to growth in 2026. Before I get into the details of the third quarter results, I want to cover today's announcement regarding our litigation against AMD for patent infringement. I will also provide a brief update on the progress we have made in our other pending litigation. This morning, we issued a press release announcing we filed multiple patent infringement lawsuits against AMD in the Western District of Texas. Our decision to file litigation was not taken lightly and followed significant efforts to reach a business resolution. The action we took today reflects our firm commitment to ensure we realize appropriate value for our substantial investments we have made in our foundational semiconductor technology. For years, AMD's products have incorporated and made extensive use of our patented semiconductor technologies, which have enabled them to be a market leader in the semiconductor industry, including those related to hybrid bonding and advanced process nodes. We sought to enter into a license agreement with AMD, and we have been referencing this opportunity since last year and have been pursuing a deal for even longer. Despite our efforts to reach a business resolution, AMD continues to use Adeia's patented semiconductor innovations without authorization. The lawsuits we filed today seek to stop this unauthorized use and include patents covering hybrid bonding and advanced process node technologies. Our hybrid bonding technology is used in AMD's most advanced semiconductor products, including those for AI workloads, data centers, and high-performance cloud computing. Our advanced process node technology is used in the vast majority of AMD's current semiconductor products. We believe in the strength of our patent portfolio, the value of our innovations, and we are committed to protecting our intellectual property. We are confident in our ability to achieve a positive outcome. Turning to the progress in our other pending litigation. It has been a year since we filed litigation against Disney, and the cases have been progressing well and collectively better than we expected. First, in Delaware, the court denied Disney's motion to dismiss certain of the patents in the case. As such, the litigation will continue to proceed on all 6 patents. In Brazil, our request for a preliminary injunction was granted and further upheld on appeal. We have initiated enforcement proceedings on the injunction. In Europe, the 3 cases are proceeding as planned and are all scheduled to go to trial in the first quarter of 2026. I am optimistic about this early progress in our Disney litigation, and our goal remains to ultimately reach an agreement with Disney that fairly values our intellectual property. Turning to Shaw. The court recently ruled in our favor and denied Shaw's motion to dismiss our breach of contract case, meaning the litigation will now move forward. In our patent litigation case against Videotron, we recently received a positive ruling from the court. While details of the decision are still confidential, we are pleased that the court found 2 of the 4 patents in the case are valid and infringed. Further, the court awarded damages with respect to both patents and an injunction with respect to one of them. Finally, in our patent litigation against Bell, we expect a ruling in the second or third quarter of 2026. Now for some additional commentary on our business results. During the third quarter, we closed 2 long-term license agreements: one was a renewal with Altice, one of the largest broadband and video service providers in the United States, for access to our media portfolio. The agreement supports their Optimum services, including broadband, cable television, and OTT streaming platforms, ensuring subscribers enjoy advanced content discovery and navigation experiences. The second agreement was with a new e-commerce customer also for access to our media portfolio. We have now signed 4 e-commerce customers since entering this exciting new market last year, and we anticipate many more in the coming quarters. We recently celebrated our third anniversary as a stand-alone company, and I am tremendously proud of all we have accomplished. The separation unleashed the opportunity for us to expand our pipeline and grow as an independent organization. We have continued to expand beyond pay TV, which has been our core business historically, and into new growth opportunities in semiconductors, OTT, social media, and e-commerce. License agreements we have signed in these verticals are now driving growth in our non-Pay TV recurring revenue stream. In the third quarter, our non-Pay TV recurring revenue was up 81% since separation, providing evidence of our early success in these new verticals. This growth includes new agreements with large semiconductor companies such as Sandisk, Kioxia, and STMicroelectronics, and OTT deals with Amazon, Paramount, and Starz, and social media and consumer electronics deals with X, Samsung, LG, and Canon. We have also renewed key Pay-TV deals with customers such as Altice, Verizon, and Cox, which we've had relationships for many years and have renewed time and time again. These deals provide a solid foundation from which we can grow as we add new customers. One of our key priorities at separation was to grow our IP portfolio. Growing our portfolio adds value to help secure new customers and renewals, which drive ongoing recurring revenue. At the time of separation, we had approximately 9,500 patent assets. With a commitment to expand and evolve our portfolio, we have seen our portfolio increase to over 13,000 patent assets, reflecting an impressive growth of over 35%. The vast majority of this growth has been from internal R&D, focused on new patent filings in OTT, AI, hybrid bonding, and thermal management. Additionally, we have built a positive, healthy culture and have been widely recognized as a leading innovator. We were named one of the Best Places to Work by U.S. News & World Report for 2 years in a row and one of the World's Most Trustworthy Companies by Newsweek. We were honored that Adeia's hybrid bonding technology received the Best of Show Award for the Most Innovative Technology at the Future of Memory and Storage Conference in August. This recognition is a strong validation of the dedication, innovation, and technical excellence our team brings to advancing the future of memory and storage solutions. But our accomplishments don't end there because all of this contributes to our financial success. Our highly cash-generative business model has provided the strength to execute on our balanced capital allocation approach as we have continued to pay our dividend, deleverage our balance sheet, repurchase stock, and make tuck-in acquisitions of strategic patent portfolios. It has truly been a remarkable period for Adeia, and I'm excited about the road that lies ahead. Our goal since separation has been to deliver sustainable long-term revenue growth, and we are making excellent progress as evidenced by our non-Pay TV recurring revenue growth. Our disciplined balanced capital allocation strategy continues. And during the third quarter, we made debt payments of $11.1 million, continuing our commitment to pay down our debt at an accelerated rate. We have paid down an impressive $312 million of our debt since separation. Our accomplishments have put us on a trajectory for long-term success, and I'm truly grateful for all the hard work and dedication from our team. With that, I'll turn the call over to Keith for a review of our financial performance. Keith? Keith Jones: Thank you, Paul. I'm pleased to be speaking with you today to share details of our third quarter 2025 financial results. During the third quarter, we delivered revenue of $87.3 million, driven by the execution of 2 long-term media license agreements. This includes signing a significant renewal with Altice, further extending our long-term relationship with them. I'm also proud to announce the addition of another e-commerce customer as we continue to gain momentum in this growing market. We have now signed license agreements with 4 new e-commerce customers within a relatively short period of time, and we have built and are actively engaged with a large pipeline of additional opportunities. Now I would like to discuss our operating expenses for which I'll be referring to non-GAAP numbers only. During the third quarter, operating expenses were $37.1 million, a decrease of $3.5 million, or 9%, from the prior quarter. Research and development expenses modestly increased $117,000, or 1% from the prior quarter. Selling, general and administrative expenses decreased $1.6 million, or 8%, from the prior quarter, primarily due to a decrease in corporate administrative expenses as well as lower personnel costs. These decreases align with the cost-saving initiatives that we previously highlighted. Litigation expense was $5.2 million, a decrease of $2 million, or 28%, compared to the prior quarter, primarily due to lower spending on Canadian matters, which was partially offset by increased spending on Disney and AMD litigation. Interest expense during the third quarter was $10.1 million, a decrease of $162,000, primarily attributable to our continued debt repayments. Our current effective interest rate, which includes amortization of debt issuance costs, was 7.8%, consistent with the prior quarter. Other income was $1.5 million and was primarily related to interest earned on our cash and investment portfolio and due to interest income recognized on revenue agreements with long-term billing structures under ASC 606. Our adjusted EBITDA for the third quarter was $50.7 million, reflecting an adjusted EBITDA margin of 58%. Depreciation expense for the quarter was $479,000. Our non-GAAP income tax rate remained at 23% for the quarter. Our income tax expense consists primarily of federal and state domestic taxes as well as [ Korean ] withholding taxes. Now for a few details on the balance sheet. We ended the third quarter with $115.1 million in cash, cash equivalents, and marketable securities and generated $17.8 million in cash from operations. We have made $11.1 million in principal payments on our debt in the third quarter and ended the quarter with a term loan balance of $447.8 million. Our highly cash-generative business model and our disciplined focus on deleveraging our balance sheet have produced outstanding results. Since separation, we have now paid down $311.6 million as we continue to focus on deleveraging our balance sheet. During the third quarter, we paid a cash dividend of $0.05 per share of common stock. Our Board also approved a payment of another $0.05 per share dividend to be paid on December 15 to shareholders of record as of November 24. Now I will go over our guidance for the full year 2025. As Paul noted in his remarks, today, we have filed litigation against AMD for patent infringement. In our prior calls, we had referenced our anticipation of signing a license agreement with a semiconductor company, which was, in fact, AMD. After a long negotiation period, we have reached an impasse which has resulted in litigation. This anticipated license agreement was included in our prior guidance as we have previously mentioned. As a result of the litigation we have filed, we are adjusting our 2025 revenue guidance to reflect the likelihood that we will not close AMD this year. We are committed to obtaining the appropriate economics on each and every deal, which is of paramount importance to us, and we'll continue to remain disciplined on this front to maximize the long-term potential of Adeia. Accordingly, our new 2025 revenue guidance range is $360 million to $380 million. I would like to emphasize that our pipeline remains strong and is growing. We continue to have many paths to success and the ultimate outcome of our short-term revenue outlook is largely due to the execution timing of that pipeline. I would like to mention that there still remains opportunities which could potentially result in revenue beyond the noted range for 2025. To the extent that these opportunities do not close this year, they will act as a catalyst for a strong 2026. With this momentum and supported by our pipeline, we foresee revenue growth in 2026. Turning to our operating expenses. As a result of our ongoing cost-saving initiatives, we have now lowered our overall operating expense guidance. Our operating expenses are now expected to be in the range of $160 million to $164 million. Our expense guidance includes the expected costs associated with our litigation with Disney and now AMD. Relative to our Q3 litigation expense, we would anticipate litigation expense to increase by approximately $3 million in Q4. We expect interest expense to be in the range of $40 million to $41 million. We expect other income to be in the range of $5.5 million to $6.5 million. We expect a resulting adjusted EBITDA margin of approximately 56%. We expect the non-GAAP tax rate to remain consistent at roughly 23% for the full year. We also expect capital expenditures to be approximately $2 million for the full year. As we reach our 3-year anniversary of being a stand-alone publicly traded company, I reflect and take pride in the progress we have made in our business. These achievements are driven by the dedicated efforts of our employees who work tirelessly to shape and execute our collective vision. Our long-term prospects remain strong, and the cumulative efforts we have made thus far will be a springboard for our future success. That brings an end to our prepared remarks. And with that, I'd like to turn the call over to the operator to begin our question-and-answer session. Operator? Operator: [Operator Instructions] And your first question comes from the line of Scott Searle with ROTH Capital. Scott Searle: A quick clarification and then 2 questions. Keith, I'm not sure if I heard any of onetime catch-up fees in the quarter. I'm wondering if you could clarify that. And I assume it would all be related to media. And then as we're looking out to the fourth quarter, a wide range of outcomes there depending on when deals get signed. I wonder if you could provide a little bit more color in terms of the size, the types of deals in the pipeline. I think you've talked a lot about e-commerce comprising that. But in particular, I'd like to know what you guys are thinking about recurring revenue, how that moves sequentially from the third quarter to fourth quarter, and maybe an early shot at '26 of how you see recurring media revenue grow in '26. And I had one follow-up. Keith Jones: Scott, great question. So the recurring revenue in Q3 was very modest. That amount was about $1 million. And as you note that we talked about we had one new license agreement, one renewal. So fundamentally that amount came from both of those agreements. And so nothing really to note there. And I think quite candidly that really speaks to the overall stability of our recurring revenue. And if you go through and do that math that gives us a recurring revenue number that's in the mid-80s. Now what I'd like to see, and when I take a look at our forecast, is that not only is that a strong foundation, but there's a number of agreements that we have, not only in media, but also in our semiconductor side that's going to have a little bit of an uplift for us in that regard. So just from that backlog that will see it crossing approximately $90 million in Q4. So I think that's a good springboard of thinking about just the overall stability of the business. As you know, in Q1, we have one particular agreement on our semiconductor business where there's -- just based on how we've structured the agreements in the past, there's a little bit of a short-term adjustment simply because of revenue recognition rules. But then that, quite frankly, levels out when you get into Q2 and beyond. And then -- so we're seeing really strength in that recurring revenue business going forward. In terms of the quality of the pipeline, I can turn it over to Paul, and he can give a little color on that. Paul Davis: Thanks, Scott, and appreciate the question. I think we're very pleased with our pipeline. As Keith and I both noted in our prepared remarks, both on the semiconductor side of the business and the media side of the business, it remains quite strong. And one thing I would just highlight is that when things do move to the right, the opportunities are not lost. We still see all of the opportunities that we saw last quarter or earlier in the year still in front of us and still achievable. But there is a timing element. And what we focus on is getting the right deal done for the long term for Adeia and its stakeholders. And so sometimes that does mean things do shift to the right, but the opportunities are not lost. And if they do move into 2026, it does mean for some significant growth that we could see in 2026 as compared to 2025. Scott Searle: Keith, if I could just quickly follow up, then. That means that the semiconductor revenue, I think it was $5.2 million in that ballpark, was up sequentially from a recurring standpoint, I guess, driven by the 3D NAND opportunity. And then just to dive in on AMD, I'm wondering, Paul, could you just lay out the time lines and the milestones that we could expect in terms of how this litigation would progress? And as part of that, then, how is that impacting or not impacting the dialog with other semi vendors out there, particularly as it relates to the logic opportunity with chip-led opportunities? Paul Davis: Yes. Thanks, Scott. I'll address your question first, and then I think on the question that you asked, Keith, I'll let him follow up. But I think it is up, you're correct, confirming that. So on your question in terms of AMD and timing, I'll note, we filed 2 cases today, both in the Western District of Texas. Those cases, we would anticipate going to trial, all things going according to schedule, sometime in 2027, although it's very early. We just filed it today. So I would caveat that. I would also note that there is a government shutdown going on right now, which does -- did impact some of the jurisdictions that may be available to us. And so there might be additional jurisdictions that would open up to us as the government opens up as well. So I would -- stay tuned on terms of the milestones, but we are -- we feel really good about the case that we filed. Ten patents is pretty substantial. Seven of them are hybrid bonding patents. I would also note that of the 10 patents, 8 of them do not expire until mid-2030 or beyond. So these are very significant patents in our portfolio. They go out for quite some time. And as we noted on the call, they really cover collectively virtually all of AMD's products, including really all of their most advanced GPUs as well. Keith Jones: And Scott, as you mentioned, you hit the nail on the head. That increase -- we did see an increase in semiconductor, and we're really excited about it. And once again, you're spot on. What you've been hearing about and seeing in the industry in terms of that growth and strength in the NAND market is showing up in our financial results. And we actually see that momentum carrying into Q4 for us as well. Operator: Your next question comes from the line of Hamed Khorsand with BWS Financial. Hamed Khorsand: So first question is, could you just reconcile some of the commentary you've made last quarter and this quarter? Last quarter on the call you had said there was so much opportunity that you wouldn't need AMD and you could still hit the upper end of the guidance. But then this quarter, you're coming out and reducing guidance because you don't have AMD. And then right now you're saying that you met the guidance -- your expectations for Q2 -- for Q3. Well, if that was the case, why didn't you provide guidance because the Street was at $100 million. So I'm just trying to understand everything that's going on. Paul Davis: So Hamed, a few things. As you know, we provide annual guidance only. We do not provide quarterly guidance. So it would be unusual for us to provide quarterly guidance. Second, in terms of the statements last quarter, those statements remain true. We have a robust pipeline that we feel like we've got a number of opportunities. As Keith and I both noted, we still have opportunities today to hit above the revised guidance range, including getting into the original guidance range. However, given the time of year, the number of paths have narrowed given the AMD litigation, so that is also true. And so, we are taking a prudent approach at this time, given that we are now in November of taking the guidance range down. But we still believe that the opportunities lay ahead for us and that we have -- whether they land in '25 or they land in 2026, we have significant opportunities in front of us in both our media and semiconductor businesses that we're very excited about. Hamed Khorsand: Okay. And then just so I understand, what's there in the pipeline that gives you confidence that you could see revenue lift by about $20 million in the quarter that hasn't happened at all throughout this year? Paul Davis: Sure. So, Hamed, as you know, we do very large deals. These are deals that often are -- they can be in the 9 figures even. And they can take time. They can be very complicated to negotiate. Often, at times, we're dealing with parties that have to go get approval from the highest levels of their own companies. And so sometimes that can be a challenge in terms of navigating the exact time line. That being said, we are having very good discussions with multiple parties in both our media and semiconductor parts of our business that give us confidence. And so we've got on the table. So when we think about it, obviously, we filed litigation against AMD. We've got outstanding litigation against Disney. We've got Canadian operators. We have large OTT opportunities that remain unlicensed today. There are additional semiconductor opportunities that we are pursuing as well. And so when we look at it holistically, there are a number of opportunities that we have been pursuing for quite some time. I'm not going to be able to get into the details of exactly what they are. But holistically, when we look at all of them, it gives us a lot of confidence on our ability to execute and bring those deals in. It's a matter of timing, whether they happen in '25 or '26, and that's where you're getting that difference between where they fall in the change in revenue guidance. Operator: Your next question comes from the line of Matthew Galinko with Maxim Group. Matthew Galinko: I'm curious if there are any implications for other possible deals or renewals in the semiconductor pipeline given the litigation announcement with AMD. Paul Davis: Yes. And a similar question that Scott asked that I didn't address. So thank you for bringing that up, Matt. We're very excited about the adoption cycle of hybrid bonding right now. You're hearing more and more adoption, especially in the logic space. And then as you look out further with HBM and also in NAND that we see more and more adoption coming down the pipeline in '27 and beyond, in particular, for the memory market and for next year for the logic market. And again, when you look at the cases we filed today, 7 of the 10 patents are hybrid bonding related. And so that is very exciting to us in terms of the breadth of our portfolio and the relevance to really these advanced semiconductors and the use of our technology that we have invented. And so we're very excited about what that pipeline can be. Now AMD was ahead of the curve in terms of adoption of hybrid bonding. So their first products came out in 2022. The rest of the logic market is a bit behind. But you've got a number of companies that have announced intentions of launching products in 2026 and beyond that we believe will utilize hybrid bonding and our technology as well. Matthew Galinko: And maybe if I could just ask a follow-up. I realize it's still early in the planning cycle for '26. But to the extent that you expect some of these opportunities to land and that you seem to have pretty high level of confidence that 2026 will be a growth year in terms of revenue. So to that end, do you expect for operating expenses to follow the revenue trend line? Or will you keep a pretty tight lid on spending for the foreseeable future? Keith Jones: Matt. I think that's a great question. So when we take a look at where that could be, we feel good about that product line and what that represents from a top line perspective. And frankly, what we see out there and some of the numbers that have been published, that's something that we think is achievable with the pipeline that we have for all intents and purposes. Now from a spending perspective, we'll continue to invest in the business but at a modest rate. So that increase that we foresee in revenue would not be consumed by incremental spending at a significantly higher level. We will still be very smart. We need to grow our portfolio. The strength of our portfolio pays off dividends in terms of the new deals, and I'll tell you quite frankly even in the litigation that we filed. So our investment in our portfolio quite frankly is a testimony to the strength of that underlying technology. And for those who might not be informed, filing 10 patents says a lot, says an absolute lot. And in general terms, what you find is typically people file 5 patents in terms of litigation. But the amount of investment that we've made really speaks to that strength because, quite frankly, there's a lot more that we have that are significant in strength. And that only comes from our investment in our R&D. With that being said, we'll continue to grow our portfolio. We would expect our EBITDA margins to be in that 60th percentile that we've grown close to or very close to it. And then once again, just having tremendous cash generation from our business. One thing to note that we're quite proud of, since separation, we have generated over $500 million in cash from operations. So when we say we have a cash generative business model, the proof is in the pudding of those financial results. Operator: Your next question comes from the line of Madison de Paola with Rosenblatt Securities. Madison de Paola: This is Madison calling on behalf of Kevin Cassidy. And I was just wondering what the time line for licensing RapidCool was. And also, I know that Microsoft has recently announced a cooling technique called microfluidics. How is that different from RapidCool? Paul Davis: Maddie, thanks for the question. Good to hear you on the call. Yes. So first of all, as we noted last call, RapidCool is something that we see as a revenue opportunity in the mid-to-long term. And so we are still working with customers and partners on the rollout of that, and we're very encouraged. Since our rollout to the public last quarter, we got a lot of positive feedback on it, and we've increased the number of engagements that we have. But it remains a project right now that we are still in the early phases of and one that we're very excited about. So still early days, but one that we see obviously a tremendous opportunity in. Our solution, again, it's one where we're directly bonding a cold plate to the chip. And the solution, as I understand it, and again, I'm not a world expert in this, but in Microsoft solution, from what I've seen that they were talking about, is etching in the chip, which we think has some technical challenges that our solution does not have. Happy to discuss that further offline, but I think we do see it as a pretty different solution than what we're offering. And ours is more -- we believe more plug and play and something that can be adopted by the industry relatively quickly, as quickly as at least the semiconductor industry adopts new technologies. Operator: And that concludes the question-and-answer session. I will now turn it back over to Chris for closing comments. Paul Davis: Actually, thank you, operator, and thanks to everyone for being with us today. I would like to thank our employees as we celebrate our third anniversary as a stand-alone company. Later this month, we'll be attending the Wells Fargo Annual TMT Summit. We look forward to seeing you at this and other upcoming events. Thank you. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.