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Operator: Hello, and thank you for standing by. Welcome to the Nektar Therapeutics Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Vivian Wu from Nektar Investor Relations to kick things off. Please go ahead. Vivian Wu: Thank you, Crystal, and good afternoon, everyone. Thank you for joining us today. Today, you will hear from Howard Robin, our President and Chief Executive Officer; Dr. Jonathan Zalevsky, our Chief Research and Development Officer; and Sandra Gardiner, our Chief Financial Officer. Dr. Mary Tagliaferri, our Chief Medical Officer, will also be available during the question-and-answer session. On today's call, we expect to make forward-looking statements regarding the business, including statements regarding the therapeutic potential of and future development plans for rezpegaldesleukin, the timing and plans for future clinical data presentations and other statements regarding the future of our business. Because forward-looking statements relate to the future, they are subject to uncertainties and risks that are difficult to predict and many of which are outside of our control. Our actual results may differ materially from these statements. Important risks and uncertainties are set forth in our latest Form 10-Q available at sec.gov. We undertake no obligation to update any of these forward-looking statements, whether as a result of new information, future developments or otherwise. A webcast of this call will be available on the IR page of Nektar's website at nektar.com. With that said, I would like to hand the call over to our President and CEO, Howard Robin. Howard? Howard W. Robin: Thank you, Vivian, and good afternoon, everyone. Before I start with remarks for the quarter, I'd like to take a minute to welcome Dr. Mary Tagliaferri back to the company, who has recently rejoined us as Chief Medical Officer after a need to step away for personal reasons earlier this year. Mary was instrumental in the design and execution of our successful Phase II program in atopic dermatitis, and we are so fortunate that she has now rejoined us as we prepare for the initiation of the Phase III program next year. I'd also like to thank Brian Kotzin for his help serving as the Interim CMO during the period. Brian has worked with us for nearly 10 years, and we are grateful that he will continue to serve as a medical consultant. This quarter and year-to-date, we've remained laser-focused on pursuing regulatory T cell science across our pipeline and preparing to advance our lead program, rezpegaldesleukin, also known as REZPEG, into Phase III development. Our pipeline programs are focused on stimulating Tregs in different ways to restore the proper balance between T effector cells and T regulatory cells and achieve homeostasis in the immune system. The data in atopic dermatitis reported in June and presented at EADV 2025 for REZPEG represented a powerful translation of the scientific discoveries that led to an understanding of the importance of Tregs into the first demonstration of their clear clinical efficacy in autoimmune disease. The Nobel Prize in Physiology or Medicine was recently awarded for these discoveries that established FOXP3-positive Tregs as key enforcers of immune tolerance. We're very humbled that the Nobel Committee included the publication of the Phase Ib data for REZPEG in atopic dermatitis and psoriasis as support in the background documents for this award. The recognition of REZPEG was truly an honor and speaks to the journey that our Nektar scientists and clinicians have traveled over the years to turn important scientific discoveries into real potential medicines for patients. Our approach with REZPEG and stimulation of Tregs is highly differentiated in the field. We believe this is why we've been able to uniquely generate meaningful and robust clinical data that clearly support continued development of this novel modality. REZPEG was designed to closely mimic the way Tregs in our own immune system work to resolve inflammation. Its construct gets closest to emulating natural human biology, achieving this through IL-2 agonism with native sequence IL-2 receptor interactions and a validated chemistry approach, PEGylation that has led to over 2 dozen approved biologics. At the 2025 EADV Congress in September, we presented compelling results from the 16-week induction period of the 400-patient RESOLVE-AD study of REZPEG in moderate to severe atopic dermatitis. These data showcased the clinical differentiation that could be achieved with this novel MOA, and JZ will touch on this later in the call. And this weekend, at the 2025 American College of Allergy, Asthma and Immunology Annual Scientific Meeting, we will present data from a preplanned analysis of atopic dermatitis patients from the RESOLVE-AD study who also had a history of asthma. These data provide further basis for differentiation of REZPEG. Recently approved and in development IL-13 selective pathway blockers and OX40 pathway blockers have shown limited potential to help the asthma symptoms in patients with both atopic dermatitis and asthma, which is a comorbidity in 25% of all atopic dermatitis patients. And so we're very excited about these new data. In Q1, we will present 52-week maintenance and escape arm data from the RESOLVE-AD study in atopic dermatitis. The maintenance arm data, in particular, will be an important look at continued treatment with REZPEG in patients who have established an EASI-50 response at the end of 16 weeks of induction treatment. There remains a need for novel mechanisms beyond those available currently in the treatment landscape for atopic dermatitis patients. In the U.S., there are over 15 million people with moderate to severe atopic dermatitis and fewer than 10% are receiving biologic treatments for this chronic skin disorder with many patients not responding well to the existing agents. We believe that this market will grow with the adoption of novel mechanisms as was seen with the induction of new mechanisms in the evolution of the psoriasis market. We expect to hold an end of Phase II meeting with the FDA before the end of this year to review our Phase III plans for REZPEG in moderate to severe atopic dermatitis. Importantly, in December, we plan to present the top line results from the Phase IIb RESOLVE-AA study in patients with alopecia areata. This study enrolled approximately 90 patients with severe to very severe alopecia areata with strong Phase II results in the dermatological setting of atopic dermatitis, we're optimistic about the second dermatological setting for REZPEG. Nearly 7 million people in the U.S. have or will develop alopecia areata and over 1 million of these patients have severe to very severe disease according to the 2023 population-based cohort study. Patients with severe to very severe alopecia have limited treatment options. The only FDA-approved systemic treatments for alopecia areata are JAK inhibitors, which carry multiple well-known black box warnings and are associated with high relapse rates upon discontinuation. In a 2024 survey of 131 U.S.-based board-certified dermatologists, a majority of physicians said they were uncomfortable prescribing a JAK inhibitor and more than half of these physicians reported they would try alternative therapies prior to prescribing a JAK inhibitor. With this backdrop, REZPEG could be introduced as the first biologic in the setting of alopecia areata, representing an additional $1 billion market opportunity. And so we look forward to these upcoming results from the 36-week treatment period of the RESOLVE-AA study expected in December of this year. In immunology, our partner, TrialNet, recently initiated the Phase II study of REZPEG in type 1 diabetes. This study, which is funded and sponsored by TrialNet, will evaluate REZPEG in new onset Stage III type 1 diabetes patients. JZ will update you on our other programs as well as our lead pipeline antibody, a TNFR2 agonist that has a unique tissue-specific Treg and Breg stimulator profile. Because of its monomeric activity, we're now building a bispecific program based upon this mechanism, which combines it with validated antibody targets in immunology. Our goal is to advance one of these antibody programs into the clinic next year. And with that, I'd like to turn the call over to JZ to review more details on REZPEG's ongoing Phase IIb studies and our early pipeline programs. JZ? Jonathan Zalevsky: Thanks, Howard, and thank you, everyone, on the call for joining us today. To begin, I'll remind you that earlier this year, the RESOLVE-AD Phase IIb results demonstrated the promise of Nektar's novel approach to the IL-2 pathway. The global study randomized 393 patients with moderate to severe atopic dermatitis to receive subcutaneous treatment with 3 doses of REZPEG, a high dose of 24 microgram per kilogram every 2 weeks, a middle dose of 18 microgram per kilogram every 2 weeks and a low dose of 24 microgram per kilogram every 4 weeks or placebo every 2 weeks for an induction period of 16 weeks. Following week 16, REZPEG-treated patients who achieved EASI reductions of 50% or greater were rerandomized to continue at the same dose level on a Q4-week or Q12-week regimen for an additional 36-week maintenance period. In our June data disclosure, we reported that the study achieved statistical significance on the primary endpoint at week 16 for a mean percent change in EASI score from baseline for all REZPEG arms versus placebo. And the study achieved statistical significance for key secondary endpoints at week 16 of disease reduction, including EASI-75, EASI-90, Itch NRS, the vIGA-AD and BSA. Additionally, we have yet to see a plateau in the efficacy response in the REZPEG treatment arms. This study is currently ongoing with 2 additional upcoming data readouts that Howard mentioned. The first will be the 36-week maintenance study results, which compare treatment with REZPEG at either 1 month or 3-month dosing intervals out to a full year, which would be the intended maintenance-based dosing regimens following the 16-week induction period. And the second readout will be the 1-year off-treatment data expected in the beginning of 2027, which will measure the potential remittive effect of REZPEG in atopic dermatitis. In the meantime, we continue to add to the compelling data set from the RESOLVE-AD study, including the data we shared from the escape arm of the trial at this year's EADV Congress. As a reminder, the study design allows for patients who originally received placebo in the 16-week induction period and achieved less than EASI-50 at week 16 to enter into an open-label treatment escape arm to receive the high-dose REZPEG regimen for a treatment period of up to 36 weeks. The data presented at EADV demonstrated a deepening of responses in these patients with continuous treatment with REZPEG and support a 24-week induction period for our Phase III program. As Howard stated earlier, we are presenting additional data in patients with asthma from RESOLVE-AD in a late-breaking oral presentation at the ACAAI meeting being held in Orlando, Florida this weekend. In addition to the asthma data that I'll discuss in a moment, that presentation will also give an update on the placebo crossover data, where now all but one patient have crossed 24 weeks of treatment with 24 microgram per kilogram REZPEG Q2 weeks. We will also cover additional endpoints such as EASI-90 and itch NRS. In addition, the presentation will show a forest plot demonstrating the consistency of REZPEG efficacy across multiple subgroups. This important finding prepares us for Phase III. Given that 1 in 4 patients with atopic dermatitis also have asthma, we designed the study in advance to evaluate its effect on symptoms of asthma using the validated 5-point asthma control questionnaire, also known as the ACQ-5. And these data include a prespecified exploratory endpoint for the subset of patients in RESOLVE-AD that also had asthma, including those with moderate and uncontrolled asthma at baseline. The ability to improve comorbid conditions is a substantial factor in clinical treatment decisions for atopic dermatitis and could expand the potential market opportunity for REZPEG in this setting. We know that beyond Dupixent, neither tralokinumab nor lebrikizumab has been able to show an improvement in asthma symptoms in patients with atopic dermatitis. And this extends to the OX40 programs in late-stage development as well. And now turning to alopecia areata. We are on track and look forward to reporting data from the Phase IIb study in December of this year. A positive outcome here would reinforce the potential of REZPEG to provide a completely new treatment paradigm for patients with chronic dermatological diseases. The RESOLVE-AA trial was initiated in March 2024. A total of 94 patients with severe to very severe alopecia areata who have not received a JAK inhibitor or other biologic were randomized to 2 different dose regimens of REZPEG, 24 microgram per kilogram every 2 weeks and 18 microgram per kilogram every 2 weeks or placebo. Patients were recruited across approximately 30 sites globally with 2/3 of patients enrolled in Europe and the rest from North America. As a reminder, patient eligibility for this study was determined using the SALT score, both screening and randomization. Patients who experienced an unstable course of alopecia areata over the last 6 months per investigator assessment were excluded from the study and patients with diffuse alopecia and other forms of alopecia were also excluded. The primary efficacy endpoint of this study will evaluate mean percent change in the severity of alopecia tool or SALT score at the end of the 36-week induction period. Secondary endpoints include proportion of patients achieving SALT 20, which is an absolute SALT score of less than or equal to 20, mean percent improvement in SALT score at other assessed time points and proportion of participants with greater than or equal to 50% reduction in SALT score at week 36 and other assessed time points. Importantly, SALT 20, the responder analysis is also the established regulatory endpoint for Phase III trials. As Howard mentioned, the only available systemic therapies that are FDA approved for the treatment of alopecia areata are JAK inhibitors, which contain a number of black box warnings and many patients experience hair loss after treatment cessation. With the limited treatment options available in alopecia areata, we believe there's opportunity for a novel mechanism like REZPEG, especially when the therapeutic is shown to be safe and well tolerated. When comparing the outcomes from RESOLVE-AA to the approved JAKs, we see low-dose Olumiant as the appropriate benchmark. In its 2 Phase III trials, the approved 2 mg dose of Olumiant showed that 15% to 16% of patients achieved SALT 20 on a placebo-adjusted basis at week 36, and the mean improvement in SALT scores from baseline was 24% to 26% on a placebo-adjusted basis. Note that the placebo response rate in these trials is relatively low at 3% to 5% for the SALT 20 endpoint and 4% to 9% on the mean reduction endpoint. Because of our differentiated mechanism of action compared to the JAK inhibitors and our safety profile, we see a very clear market opportunity for REZPEG in alopecia areata if REZPEG achieves these benchmarks. We look forward to sharing the top line data from the 36-week treatment period of the RESOLVE-AA study in December and defining the potential for REZPEG in this new indication. Similar to atopic dermatitis, with positive results from Phase IIb, we would move very quickly into Phase III preparations, taking advantage of our Fast Track designation in the alopecia areata indication. A quick few words on type 1 diabetes, another autoimmune disease where REZPEG has great potential as a T regulatory mechanism. We believe REZPEG can potentially slow the progressive loss of insulin-producing beta cells, which are the target of the patient's overactive immune cells in this disease. As Howard mentioned, TrialNet has initiated and is funding an investigator-sponsored Phase II clinical trial evaluating REZPEG in 66 patients with new onset type 1 diabetes. Lastly, on our pipeline progression, NKTR-0165, our TNFR2 agonist remains on track. This molecule has very high specificity for signaling through TNFR2 on Tregs to enhance and optimize their ability to regulate the immune system. NKTR-0165 has also shown that a strong signal can be generated through a single-arm monovalent antibody, making it a perfect candidate for inclusion in bispecific and trispecific constructs. Our goal is to advance one of these antibody programs into the clinic next year. We look forward to sharing more on these sophisticated antibody engineering programs in future earnings calls. And I'll now turn it over to Sandy for the financials. Sandy? Sandra Gardiner: Thank you, JZ, and good afternoon, everyone. On today's call, I'll briefly review our quarterly financials and share updates to our financial guidance for 2025. We ended the third quarter of 2025 with $270.2 million in cash and investments and with no debt on our balance sheet. As discussed in our Q2 earnings call, this end of third quarter cash balance includes the completion of the secondary public offering in July with net proceeds of approximately $107 million. It also includes additional net proceeds of $34.3 million we raised in September from our existing ATM facility. We now expect to end the year with approximately $240 million in cash and investments, up from our prior guidance of $100 million to $185 million. This increased year-end guidance also includes $38.3 million of net proceeds from additional sales of our ATM facility in October. Based upon our higher year-end cash balance, we are extending our cash runway guidance into the second quarter of 2027. Now turning to the income statement. Our noncash royalty revenue was $11.5 million for the third quarter of 2025. We still expect our noncash royalty revenue to total approximately $40 million for the full year. Our R&D expense was $27.3 million for the third quarter of 2025, and we still anticipate full year R&D expense to range between $125 million and $130 million, including approximately $5 million to $10 million of noncash depreciation and stock-based compensation expense. Our G&A expense was $16.1 million for the third quarter. We still expect G&A for the full year of 2025 to be between $70 million and $75 million including approximately $5 million to $10 million of noncash depreciation and stock-based compensation expense. Noncash interest expense for the third quarter was $6 million, and we still expect noncash interest expense for the full year to total approximately $20 million. Our noncash loss from equity method investment was $0.5 million in the third quarter of 2025, and we still expect noncash loss of approximately $10 million for the full year 2025. As an equity investor in Gannet BioChem, we have no commitment to contribute cash to Gannet. Our net loss for the third quarter was $35.5 million or $1.87 basic and diluted net loss per share. And as I stated earlier, we now expect to end the year with approximately $240 million in cash and investments with our cash runway extending into the second quarter of 2027. Finally, as we head into our December data reporting, we intend to enter into a quiet period for the month of December until we report the top line results for the REZPEG alopecia study. And with that, we'll now open the call for questions. Operator? Operator: [Operator Instructions] Our first question will come from Yasmeen Rahimi from Piper Sandler. Unknown Analyst: Congrats on a great quarter. This is [ Dominic ] on for Yasmeen Rahimi. We just had a quick question on the upcoming ACAAI data that will be presented. Could you help us understand what you hope to report presentation in patients with AD and asthma? And then moving forward, how would you expect this data to, I guess, impact development in asthma? Howard W. Robin: Well, let me -- I'll have JZ answer that, but I would tell you that at this point, we're not pursuing an asthma indication. I think -- however, I think it's important to recognize the -- that in atopic dermatitis, the fact that we have an important drug that potentially solves that comorbidity issue is very exciting. And as I said earlier, 25% of the patients who have atopic dermatitis also have asthma as a comorbidity. So it's -- I think it's a very important component of differentiating REZPEG, although we don't have a plan to run an asthma study. JZ, would you like to help with the rest of the question? Jonathan Zalevsky: Sure. Yes. Thanks for the question, Dominic. So at the ACAAI presentation, we are presenting the results of a preplanned exploratory analysis that was included in the study. There's a validated questionnaire instrument that it's like a patient-reported outcome around -- it's ACQ-5, which stands for the asthma control questionnaire. And with that, you can assess the comorbidity symptoms of asthma in patients that have both atopic dermatitis as well as asthma. And that allows you to look at the total sort of improvement in the ACQ-5 scores over time. But it also lets you isolate on patients that have more severe, for example, uncontrolled asthma at baseline, and that's a subset of people that have higher scores on ACQ-5 at baseline. For us, this is really interesting because like we discussed, roughly 25% of patients have that, so roughly 100 people in our study also had asthma in addition to atopic dermatitis. And this allows us to assess the effect of REZPEG on asthma control and even potentially the improvement of those asthma symptoms in patients that also had atopic dermatitis. So one of the things that's so important about that is that when you are faced with treatment decisions as a physician. And you know you have patients with atopy and atopy constantly includes other organs. That's why such a high proportion of atopic dermatitis patients also have asthma. That starts to influence some of the treatment decisions. Right now, Dupi is really the drug that's gone to for people with comorbidity as Dupi has demonstrated activity in both asthma and atopic dermatitis and in patients that express both symptoms as well as each indication separately. And that's really likely with the IL-4 component of its mechanism. But the other agents in the class approved, atopic dermatitis don't have nearly the level of effect that Dupi does. So this is a differentiating element of the Treg mechanism of REZPEG, and we do think differentiates REZPEG further from the other molecules in the class. And the other molecules in development as well as the approved agents like as IL-13 selective antagonist and the OX40 classes as well. And we think it's something that is potential to really further build upon with REZPEG and something that we'll be exploring and thinking a lot about in the future, both in the setting of the comorbidity and as Howard said, even beyond. Operator: Our next question will come from Julian Harrison from BTIG. Julian Harrison: Congrats on all the recent progress. It looks like you've had a few months now to socialize with the medical community, the initial RESOLVE-AD results and REZPEG's potential here. I'm wondering if you have a good sense now for the level of interest for a therapy that potentially has a truly remittive effect. To what extent do you think that could emerge as a differentiator for REZPEG in atopic derm? And then switching to alopecia areata. JZ, I heard your comments around the Olumiant low-dose magnitude of efficacy potentially setting the bar. Do you see maybe an opportunity for use if efficacy is even lower than that, just given how presumably safe REZPEG is potentially free of box warnings compared to JAK inhibitors? Howard W. Robin: Julian, I'll take the first part of the question. Look, clearly, this mechanism, Treg mechanism has received a lot of attention, especially in the Novo Prize in physiology or medicine. And I think given this very strong data we have in atopic dermatitis and the cross -- the rescue data or the escape arm data, I should say, where patients who failed to see any response on placebo did exceptionally well when they were crossed over to drug. I think that's incredibly compelling data and we're very proud of that. The combination of that data with what we now see in the comorbidity of asthma, I think, sets apart REZPEG from a number of different drugs in treating atopic dermatitis. So yes, to answer your question more directly, there's a lot of interest in it. There's a lot of inbound interest in it, and I think it's going to have very good prospects. I'll let JZ handle the rest of the question. Jonathan Zalevsky: Yes. Thanks, Howard, and Julian. And so I mean, in the context of the benchmarks, I think what's really important is that REZPEG has the potential to be a truly differentiated mechanism in alopecia areata by numerous factors. And one of those is especially given its safety profile. Right now, there are no approved biologics in the alopecia areata space. And there's really been no therapy that's demonstrated like a sustained treatment effect. And what I mean by that is like even the short-term interruption in a JAK course can cause hair thinning. It's really quick to wear off. And so you have the ability to address so many features that both affect the disease and then the convenience factor for the patient and substantially the comfort level for the physician in a drug that doesn't have a black box warning, which is one of the issues and limitations of the JAK inhibitors. There's no question that those are great drugs for reducing inflammation and reducing inflammation quickly. They're just very difficult drugs to take for a long period of time, and these are chronic conditions. So it's really the challenge with the drug like that. But with REZPEG, you can turn the whole problem on its side. And we have done a lot of the market research we've tested the profile and the profile of low-dose Olumiant, we find is very competitive given all of the other elements, features of the mechanism of action and the differentiated safety profile. And we know that there's space there, to your point, Julian. So -- but we're using that as a reasonable kind of proxy benchmark for now. It is an approved drug and an approved dose, but there is some space around that, to your point. Operator: Our next question will come from Jay Olson from [ OpCo ] Cheng Li: This is [ Cheng ] on the line for Jay. Congrats on the progress. Maybe speaking to the AA, I'm just wondering how fast you can maybe start the Phase III program? And are you planning to move the program by yourself or in a partnership if the December data is positive? And separately, I'm also wondering, in the Phase IIb AD study, are there any patients have alopecia areata comorbidities? And if so, any color you can share on those patients? Howard W. Robin: Well, I think I got -- I think the first part of your question, I didn't hear it all clearly. But I think the first part of your question -- I'll let JZ take the second part. The first part was when do we think we could start a study in alopecia areata. I think depending on the data that we received in December, we certainly would look forward to starting it next year. I think it's important because as we talked about, the only current therapy is a JAK inhibitor, and they come with lots of concerns and warnings. And as I did describe that at a physician surveys that we've conducted, physicians are somewhat reluctant to use a JAK inhibitor to treat alopecia areata given the safety concerns. So I think if we have a new modality to treat such a very serious disease and a condition that causes extreme depression in people, I think it could be very, very important. And consequently, we do plan to start that study next year. I'll let JZ comment on the rest. Jonathan Zalevsky: Yes. Thanks, [ Cheng ]. So we did look at multiple comorbidities in the atopic dermatitis Phase IIb study. Asthma was by far the largest patient population, as I mentioned, roughly 100 people had both atopic dermatitis and asthma in that study, and they'll be presented at ACAAI this weekend. In terms of alopecia, we also looked at vitiligo, for example, very, very few people. So really not a large enough patient population to isolate out as a subgroup, like a handful of few people in alopecia that had both of the diseases. Obviously, our Phase IIb results in alopecia, which read out next month, I mean, that is by far a more definitive data set, right? Much, much larger sample size, obviously, a patient population enrolled with that as their primary disease. And then, of course, we'll be looking at the treatment effect in that patient population reported next month. Operator: Our next question comes from Cha Cha Yang from Jefferies. Cha Cha Yang: This is Cha Cha on for Roger Song. I was wondering in addition to low-dose Olumiant, are there any therapeutics that are in development, biologics for alopecia that you think would be an appropriate benchmark? And then my second question is, are there any IL-2 specific studies that you think could provide read-through to REZPEG in alopecia? Howard W. Robin: JZ, do you want to cover that? Jonathan Zalevsky: Sure. So yes, there are a couple of biologics in development for alopecia. And we discussed them like an IL-7 receptor and other kinds of agents. So I think that those -- there are some earlier data sets. Our goal is we were doing a much, much larger study than those earlier programs. As we described, 94 people were enrolled and randomized in the Phase IIb alopecia study that we're doing. We also have multiple doses. So a much larger study that gives a chance to really assess the treatment effect, which I think is going to be more informative than a lot of the single arm or much, much smaller studies that have been done to date. But it's certainly an area that people are exploring. Tregs remain a very important mechanism that is invoked from all a lot of translational studies in patients with alopecia areata. We know that there are low levels and deficiencies in Treg function. We also know Tregs are necessary for hair growth and for hair moving through the hair growth cycle. And the actual antigen phase that actually is associated with the elongation of the hair once it attaches down at the root actually requires Treg signaling to the stem cell compartment. So we know that those are multiple key mechanisms. And those are one of the big reasons why we're so excited in conducting the study that we'll be reading out the top line data for next month. And then in terms of IL-2 specific studies, there have only been a few studies that have been published with IL-2. One was a case study and one was a small randomized study. The main situation is low-dose IL-2 is really not a good proxy for REZPEG. With REZPEG, we do such a higher amount of Tregs, much, much higher than low-dose IL-2 can ever achieve, a much greater duration of Treg elevation from a given dose and the ability to treat for a very long time. As you know, we've now treated patients for over a year. For example, for a 52-week period in the Phase IIb study in atopic dermatitis. So it's definitely a surrogate in the sense of a Treg elevating agent, but really REZPEG substantially exceeds anything that low-dose IL-2 has been able to present across multiple indications. Operator: Our next question will come from Mayank Mamtani from B. Riley Securities. Mayank Mamtani: Congrats on a productive quarter. On the alopecia top line data analysis, would you have any off-treatment responder rate you plan to report on given some patients may have been past that 36-week treatment period? And if you could remind us if there's an escape arm option here for the placebo non-responders to cross over. Obviously, wonder from your AtD experience, the peak efficacy from the EADV data, you didn't get until 24, 48 -- 44 weeks even. So I just wonder what's your plan to assess if efficacy increases beyond that 36-week period, what's the kind of plan there? And then I have a quick follow-up. Jonathan Zalevsky: Sure. Yes. So firstly, in the kind of information that we would present in December, we'll be presenting data from the 36-week induction period in the study. The primary endpoint is the mean percent reduction in SALT score from baseline. And then the key secondary endpoints that are really, really meaningful is the proportion of people that achieved the SALT 20 and also SALT 10. SALT 20 is the registrational endpoint in the U.S. and SALT 10 in Europe. And then I mentioned earlier in the presentation, also the additional secondary endpoints, some of the time-dependent endpoints and some of the proportional increases in the kind of hair regrowth, right, as metrics. And then the other thing that kind of round out the baseline demographics, the safety profile, all the other things. But importantly, Mayank, right, the study is still going to be ongoing. So as you know, the way we designed the study is people that reached week 36 that are experiencing benefits such as hair regrowth, for example, but that have not yet reached a SALT 20 metric, they have the opportunity to take an additional 16 weeks of treatment to 52 weeks for a full year. So there's a proportion of people that will be ongoing. And also the study design has a 24-week off-drug observation period. So whenever a patient completes treatment, whether that's at 9 months or 12 months, there is then followed for that additional 24-week period of time. And that's really designed to assess that if you grew hair, can you keep hair, right, which is a significant differentiating element from a JAK mechanism of action where the hair loss is really, really rapid when the drug dosing is stopped. So because the study is still ongoing, I mean, we can't say yet the totality. But definitely, the 36-week endpoint, which is the primary analysis with the entire population crossing the 36-week is going to be the main subject of that top line presentation. Mayank Mamtani: Escape arm, is there an escape arm here? Jonathan Zalevsky: No, there's no escape arm in the study. Mayank Mamtani: Okay. And on the auto-injector development, how far along are you? And is that going to be at the start of your Phase III study? And is that kind of part of the protocol as you get into the end of Phase II discussion? Jonathan Zalevsky: Sure. Yes. So the auto-injector development is ongoing. And our goal and plan is to have the auto-injector available at the time of launch of REZPEG. The Phase III studies will be conducted in the same way the Phase II studies were where the drug would be used in a vial. And for us, it's -- we maintain that really for speed because this allows us to start the Phase III studies as quickly as possible relative to when we presented the top line data in June of this year. And then in terms of your other question, just contextually at an end of Phase II meeting, you really discuss everything in the plan to your BLA. So that includes not just the Phase III clinical development program, the registrational and pivotal studies, it also includes the CMC. So yes, we have presented our plans for the final presentation of the product, the auto-injector and then all the work that we do during the Phase III studies into the BLA to have that available for launch. Operator: Our next question will come from Arthur He from H.C. Wainwright. Yu He: Sorry, I apologize if the question has been asked before. So given the readout coming readout for the alopecia, JZ, maybe could you tell us a little bit more like what the potential REZPEG can offer compared to the JAK inhibitor here for the alopecia patient? Jonathan Zalevsky: Yes, it's a great question. I mean I think that one of the situations with the JAK inhibitors, and we touched a little bit on this earlier, is that they definitely are effective at reducing inflammation. Like if you have common gamma chain uses in multiple cytokines, use any either homo or heterodimers of JAKs. And it's an important part of the signaling cascade in response to multiple cytokines, and they're well known as effective ways of lowering inflammation quite quickly. But the challenge with using a JAK inhibitor in any indication where it's approved is that long-term use carries with it some disadvantages, right? So the drugs have black box warnings. They have other significant limitations. They require monitoring. There's just a number of things that make them a little bit more delicate to use. And in the dermatological setting, some of those things are a little bit undesirable. So one of the things that REZPEG can offer is if the efficacy profile, as we discussed, reaches a benchmark such as a low-dose JAK in, say, the Olumiant setting, it already brings with it a completely different risk profile, right? It would not have a black box warning, it would have a completely different and much, much better safety profile and really has a safety profile that's much more aligned with being a very long-term chronic use drug. Also, the potential of being the first biologic in this space gives us a real tremendous advantage because that starts to really open access because we've learned from multiple studies that physicians are they're not so necessarily excited to try JAKs as a first option for patients with the disease. So having another alternative that's available could take a significant -- an opportunity advantage. And then the last one is really comes down to that potential of maintenance. So JAK inhibitors really lose their effect very quickly. And it can be very psychologically difficult for patients because if you spend weeks and months regrowing hair that you didn't have in a really long time and then any need to interrupt the JAK, whether it's a safety signal or other reason or liver enzyme elevation or something, then that can lead to loss of all the hair that you've grown, which can further drive the depression cycle. That's a component of this disease. With REZPEG, there's the potential of maintaining the hair that was grown, having interruptions in drug dosing not be a problem. And that would be completely transformational. So these are all things that we think contribute to a very substantial opportunity for REZPEG and alopecia areata. Yu He: So another question is given that you've passed in the data there, how should we think about the primary endpoint for the approval there in the future? Do you think the SALT 20 is still could do the job? Or we probably should look to the SALT 10 or even SALT 0 there for the future drug for the alopecia there? Jonathan Zalevsky: Yes. Well, I mean, the health authority set the registrational endpoints, right? And so right now, those are defined, right, as SALT 20 in the U.S. and SALT 10 in Europe. But obviously, every study measures multiple secondaries, right, including eyelash, including SALT 0 and so on. So I think that we leave that in the hands of the regulators. In terms of UPA's efficacy, I mean, it's -- I think everywhere that there are multiple JAK inhibitors approved, UPA or RINVOQ seems to always win, right? It just consistently produces the greatest amount of efficacy compared when it goes head-to-head against other agents. And I think we've seen that in multiple indications, Arthur, right, not just in dose 1. It does carry with it a little bit more of a safety profile, which is the [ take ] related, right? It's more on target and more on-target tox in addition to other things. But I do think as compared to the other JAK inhibitors, that UPA is going to be very important, probably take a significant position against the other JAK inhibitors. But we don't really see that as impacting the biologics, right? Again, there are numerous indications where biologics and small molecules, JAKs and non-JAKs coexist. Atopic dermatitis is a great example. In psoriasis, you have TYK2 mechanism coexisting and others. And there's really a large enough patient share and the need for multiple mechanisms that always makes plenty of room for multiple mechanisms in this indication. Operator: And we do have time for one last question. And our last question will come from Andy Hsieh from William Blair. Tsan-Yu Hsieh: Mary, it's great to have you back. So we have 2 questions. So for the RESOLVE-AD study, I believe you spent a lot of time and resources to ensure that the placebo rate is low. So have you gotten a chance to review that initiative so that you can be best positioned for the positive Phase III outcome? And then the second question, maybe for Howard, what's your current manufacturing footprint? I figured given the intense interest in REZPEG, it would be really nice if you can secure one of those national priority vouchers. Howard W. Robin: I'll take the second part first, and Mary can continue. Look, we are looking at a number of different options there. We sold our PEGylation manufacturing facility to Gannet BioChem, but we have a priority position there, and we certainly have a guaranteed source of those raw materials. And we have a number of different contract manufacturing companies, very well-known companies that we work with. So I'm not concerned about at this point, the ability to manufacture -- successfully manufacture REZPEG, and we are looking at the vouchers, et cetera. I will let Mary talk to you about the other part of your question. Mary Tagliaferri: Thanks, Howard. And really great to hear your voice, too, Andy, and I'm really happy to be back. I mean, as you said, the data from RESOLVE-AD are very exciting. And I've also had the opportunity to speak to multiple dermatologists since I've been back, who are also very excited about the totality of the data, the speed of onset and the excellent safety profile. So it's very exciting to move this forward. And certainly, in our Phase III program, we have every plan to implement the exact same procedures that we did to minimize the placebo effect. And some of those are, of course, ensuring that we have board-certified dermatologists participating in our clinical trials. We also make sure that the eligibility criteria is met both in the screening and right before patients are randomized. And so we took multiple actions. Also in our Phase IIb, we had a quite large size of our placebo group, and we will, of course, have the same when we proceed forward in a larger Phase III study. So we were very pleased that we were able to implement multiple different procedures and activities in order to ensure our placebo effect was very low, and we believe we will continue to be very successful in our Phase III as well. So we look forward to moving forward. We've been doing a lot of planning. We're going to have our end of Phase II meeting with the FDA by the end of this year, and so we'll have a clear path forward to a BLA. Operator: And this does conclude our question-and-answer session for today's conference. I'd like to turn the call back over to Howard Robin for any closing remarks. Howard W. Robin: Well, thank you, Crystal, and thank you, everyone, for joining us today, and we greatly appreciate your continued support. And I want to thank all of the patients and their caregivers that have trusted and continue to trust Nektar to treat their disease. None of this research would be possible without them. And I also want to thank our employees for their dedication and extremely hard work, and we look forward to delivering data from our REZPEG program data in alopecia areata in December and additional results from the program in atopic dermatitis in the first quarter of next year. So please stay tuned. Thanks for joining us. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.
Operator: Thank you for standing by, and welcome to EverCommerce's Third Quarter 2025 Earnings Call. My name is Jonathan, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded today, Thursday, November 6, 2025. And now I'd like to turn the conference over to Brad Korch, Senior Vice President and Head of Investor Relations at EverCommerce. Please go ahead, sir. Bradley Korch: Good afternoon, and thank you for joining. Today's call will be led by Eric Remer, EverCommerce's Chairman and Chief Executive Officer; Josh McCarter, EverPro's Chief Executive Officer; and Ryan Siurek, EverCommerce's Chief Financial Officer. Joining them for the Q&A portion of the call are EverCommerce's President, Matt Feierstein; and EverHealth's Chief Executive Officer, Evan Berlin. This call is being webcast with a slide presentation that reviews the key financial and operating results for the 3 months ended September 30, 2025. For a link to the live or replay webcast, please visit the Investor Relations section of the EverCommerce website, www.evercommerce.com. The slide presentation and earnings release are also directly available on the site. Please turn to Page 2 of our earnings call presentation while I review our safe harbor statement. Statements made on this call and contained in the earnings materials available on our website that are not historical in nature may constitute forward-looking statements. Such statements are based on the current expectations and beliefs of management. Actual results may differ materially from these forward-looking statements due to risks and uncertainties that are described in more detail in our filings with the SEC. We undertake no obligation to publicly update or revise these forward-looking statements, except as required by law. We will also refer to certain non-GAAP financial measures in our comments today. A reconciliation of non-GAAP to GAAP historical measures is provided in both our earnings press release and our earnings call presentation. As a quick reminder, following our announcement in March that we are seeking strategic alternatives for the Marketing Technology solutions, we had classified Marketing Technology as discontinued operations. Last week, we announced the sale of this business to Ignite Visibility. Our commentary today will center on the continuing operations of our business focused on our EverHealth, EverPro and EverWell verticals. All financial and operating metric results are presented relating to continuing operations only unless otherwise specified. I will now turn it over to our CEO, Eric Remer. Please continue. Eric Remer: Thank you, Brad. On today's call, I will highlight both third quarter results and our recent acquisition of an AI Agentic platform that we believe will accelerate our AI development before turning the call over to Ryan to discuss our financial performance in more detail. During the third quarter, EverCommerce generated revenue of $147.5 million within the previously provided guidance range. This represents a 5.3% year-over-year growth, both on a reported and pro forma basis as we fully lap the sale of the fitness solutions and the acquisition of ZyraTalk had an immaterial impact on the quarter. Adjusted EBITDA of $46.5 million beat the top of our guidance range, representing a margin of 31.5%. Adjusted EBITDA margin expanded 140 basis points year-over-year. Payments revenue grew 6% year-over-year as we continue to invest in product and go-to-market motions to grow our total payments volume. The most exciting development in the quarter was the strategic acquisition of ZyraTalk, a best-in-class AI Agentic platform company, highly focused on the field service management industry, which will serve as the center of our AI acceleration efforts. Finally, on October 31, we closed the sale of our marketing technology solutions to Ignite Visibility. As we continue to execute EverCommerce's transformation optimization program, we believe narrowing our focus to provide best-in-class AI-powered vertical software is the most effective path to maximize long-term growth, margin accretion and ultimately, shareholder value. The completion of this transaction allows us to focus our energy and resources on our core SaaS and payments business. EverCommerce provides SaaS solutions for the service SMB economy. We offer tremendous value to our customers by providing system of actions necessary to run their business with tailored unique workflows. We provide end-to-end solutions to more than 725,000 customers across our 3 major verticals, EverPro for home field services, EverHealth for physician practices and EverWell for wellness service providers, with the 2 former verticals representing approximately 95% of consolidated revenue. Our large base of customers represents an immense embedded opportunity to provide value-added features and services like payments and customer rebates for our purchasing programs. On a pro forma basis for the last 12 months, we generated $585.1 million of revenue, representing a 7.6% year-over-year growth. We also generated 31% of adjusted EBITDA margin on an LTM basis. Finally, our annualized total payments volume, or TPV, expanded to approximately $13 billion. As I've highlighted in the past, accelerating payments adoption and utilization continues to be one of our highest priorities. In 2025, we have continued to make specific investments in our product capabilities and go-to-market motions to prioritize payments enablement, activation and utilization. Our results for the third quarter show continued progress against this goal with strong growth in both payment enablement and utilization. At the end of the third quarter, 276,000 customers were enabled for more than one solution, reflecting a 33% year-over-year growth. At the end of the third quarter, approximately 116,000 customers were actively utilizing more than one solution, reflecting a 32% year-over-year growth. Enabling customers to more than one solution is a first step in the funnel that leads to increased revenue, retention and ultimately profitability to these customers. We continue to focus the majority of our efforts on the front book attach or the enablement of payments at the point of initial SaaS sale, but we also focus on our back book cross-sell motions. We are expanding our customer success capabilities to boost activation, retention and wallet share, and we've streamlined and improved our onboarding workflows. In the third quarter, our front book attach rates in our 2 flagship system of actions within EverPro and EverHealth verticals were both greater than 60%, which represents significant year-over-year improvements. Looking back over the trailing 12 months, our annualized net revenue retention, or NRR, was 97%. Customers that purchase and utilize more than one solution are naturally some of our most profitable and stickiest customers with an NRR of greater than 100%. Year-over-year, our payments revenue grew 6% and accounted for approximately 21% of overall revenue. As a reminder, we report our payments revenue on a net basis, and therefore, it incrementally contributes approximately 95% gross margin. As such, payments revenue growth is meaningful contributor to our overall adjusted EBITDA margin expansion. As I mentioned in my introductory comments, third quarter estimated annualized total payments volume, or TPV, was approximately $13 billion, representing nearly 5.2% year-over-year growth. Within this, we continue to see higher TPV growth in our Top solutions, offset by lower growth in legacy payment products and third-party partners. This can be a positive mix shift over time as our top solution often have higher take rates. In mid-September, we announced the acquisition of ZyraTalk, an AI-powered customer engagement solution that combines virtual assistant capabilities with an Agentic automation platform. The acquisition helps to establish EverCommerce's position as an AI-driven innovator, beginning with intended near-term application in our home and field service vertical, EverPro. We plan to extend into broader opportunities across the company. I will now turn the call over to Josh McCarter, CEO of EverPro, to discuss ZyraTalk in more detail. Josh? Josh McCarter: Thanks, Eric. ZyraTalk transforms how businesses operate by replacing outdated processes with intelligent end-to-end AI workflows. The platform is an AI-powered customer engagement solution that combines virtual assistant capabilities with Agentic automation, primarily serving the home services industry and capabilities for serving our other verticals. Its AI receptionist ensures that no call, lead or customer interaction is ever missed, while the Agentic AI capabilities integrate deeply with FSM platforms to automate the core of daily operations. To date, the platform has processed over 2 million chats and 2 million minutes of voice interactions through its integrations with major FSMs. The fully autonomous AI agents and a lightweight Agentic FSM system are designed for seamless integration across EverPro's platforms. The acquisition brings AI at scale to EverCommerce with many in-production features that are both being sold to third-party customers today and being fast tracked for multiple EverPro native integrations over the coming months. Some of the key features available today are the AI Receptionist, AI Scheduler and AI Dispatch. The AI receptionist answers inbound inquiries instantly, books jobs, answers questions and routes calls 24/7, just like a front desk that never goes offline. AI Scheduler allows customers to book, reschedule or cancel appointments any time by phone or online. The AI Dispatcher automatically assigns the right technician to the right job based on skill, location and availability, keeping field teams efficient without human oversight. These and the additional features shown on the slide automate the full workflow from first contact to final payment, improving response time, reducing labor and helping to drive revenue. Beyond this foundation, we are working to add more features and offerings to support our customers, beginning in our home and field services solutions. In addition to the full integration into many EverPro systems of action, we are actively developing new Agentic capabilities that should roll out over the next 12 months. These include an AI project manager that keeps every job on track from first call to final review, updating customers and tech automatically. We're working on an AI training and QA agent that listens to calls and gives real-time coaching to technicians like a built-in quality manager. We plan to utilize the underpinnings of our Service Nation platform to deliver an AI business coach. And of course, we are planning to use the Agentic capabilities to better onboard customers to our payments and rebates platforms. Together, these upgrades significantly improve the customer experience by bringing AI capabilities with full end-to-end automation, boosting efficiency and revenue without adding headcount. Eric Remer: Thanks, Josh. ZyraTalk is a strategic AI investment that will help drive our long-term growth while delivering greater value to our customers. The acquisition brings us a production-ready AI platform, a highly skilled technical team and a proven technology that's purpose-built for the service-based industries. Our customers, by definition, are subscale operators, plumbers with a truck or three, small physician practices and solo salon operators. To them, AI is a force multiplier, harnessing the power of AI provides them a 24-hour receptionist, a billing department and the not-so-distant future, a personal coach. We plan to leverage the AI and the capabilities acquired to increase the value proposition across all aspects of our solution set. Now I'll pass it over to Ryan, who will review our financial results in more detail as well as provide fourth quarter and updated full year 2025 guidance. Ryan Siurek: Thanks, Eric. Total reported revenue in the third quarter was $147.5 million, up 5.3% from the prior year period. Subscription and transaction revenue, our primary recurring revenue base was $142.2 million. For Q3 2025, year-over-year pro forma subscription and transaction revenue growth was 4.4%. Within subscription and transaction revenue, our core SaaS revenue grew over 8% in the quarter, partially offset by macro and tariff-related impacts in our more usage-based revenue streams such as rebates, which is our share of rebates through group purchasing programs within EverPro. Adjusted gross profit in the quarter was $114 million, representing an adjusted gross profit margin of 77.3% versus 78.1% in Q3 2024. Third quarter adjusted EBITDA was $46.5 million, which is a 10.3% growth year-over-year. Adjusted EBITDA margins of 31.5% compares to 30.1% in Q3 2024, representing margin expansion of 140 basis points. On a year-over-year basis, margins improved due to continued cost optimization initiatives, mix shift to higher-margin products and overall scale economies. Now turning to adjusted operating expenses, which are reconciled in the appendix to this presentation. Overall adjusted operating expenses improved as a percentage of revenue, both for the quarter from 48.1% to 45.8% on a year-over-year basis and on an LTM basis from 48.6% to 46.7%. While the timing of investments and expenses was a factor, the long-term trend of continued operating expense moderation is deliberate and attributable to both growth of the business and specific actions taken as part of our transformation and optimization programs. We maintain our focus on improvement in customer satisfaction and acquisition while also remaining highly focused on cost discipline and functional support areas. Next, I'll turn to some key liquidity measures, which include cash flow from continuing and discontinued operations. We continue to generate significant free cash flow as we invest to grow our business. Cash flow from operations for the quarter was $32.5 million, improving from the $27.5 million generated in Q3 2024. Leveraged free cash flow was $23.3 million in the quarter and for the trailing 12-month period, we generated more than $111 million in levered free cash flow. Adjusted unlevered free cash flow was $32.3 million in the quarter and $140.6 million for the last 12 months. As we continue to invest to accelerate growth, a portion of this investment is in our solutions. This is evident in our free cash flow metrics, which are largely flat year-over-year despite product investments, which increased our capitalized product development expenses. We ended the quarter with $107 million in cash and cash equivalents and $155 million of undrawn capacity on our revolver, which will step down to $125 million in July 2026. Cash declined on a sequential quarterly basis, primarily as a result of our strategic acquisition of ZyraTalk during the quarter. As of September 30, we had $528 million of debt outstanding. Our total net leverage as calculated for our credit facility was approximately 2.1x and continues to demonstrate our deleveraging with strong operational performance and free cash generation. We have $425 million of notional swaps at a weighted average rate of 3.91% that effectively hedge the floating rate component of our interest cost through October 2027. In the third quarter, we repurchased approximately 2.6 million shares for $29.1 million at an average price of $11.10 per share. Based on the shares repurchased through September 30, 2025, we have approximately $22.3 million remaining in our total repurchase authorization. In addition, our Board recently authorized an increase in our share repurchase program to $300 million, an increase of $50 million through the end of 2026. I would now like to finish by discussing our outlook for the fourth quarter and the full year of 2025. As a reminder, our guidance for revenue and adjusted EBITDA for 2025 is based on our continued operations, which excludes Marketing Technology Solutions. Our guidance also includes ZyraTalk, but the expected contribution in the fourth quarter is immaterial. For the fourth quarter of 2025, we expect total revenue of $148 million to $152 million and adjusted EBITDA of $39.5 million to $41.5 million. For the full year 2025, we are narrowing both our revenue and adjusted EBITDA guidance ranges with an increase to the top end of the adjusted EBITDA range. We expect total revenue of $584 million to $592 million and adjusted EBITDA of $174.5 million to $179.5 million. Operator, we are now ready to take the first question. Operator: And our first question comes from the line of Bhavin Shah from Deutsche Bank. Bhavin Shah: Eric, maybe just to start off with you. I just want to dig into the ZyraTalk acquisition, which kind of seems compelling to us. Can you just maybe talk a little bit more about the business model? Is it subscription consumption-based? And over time, what percentage of your customer base do you think this will be suitable for as you think about the key solutions that you might attach to? Eric Remer: I appreciate the question. At a high level, we're not kind of breaking out the basis of kind of subscription versus integrated to the rest of the system at this point. As we look at the actual acquisition, there's really 2 main things that we're really excited about. Number one, this particular product has been built fully -- like fully focused on the home service sector. So all of the data, all the minutes, all the calling that they have done over the last really 3 to 4 years has been fully focused basically to our customer base. So it's a turnkey product that will allow to integrate almost real time, and we'll talk about the integration in a second. Secondly, a lot of the development that they have done within the ecosystem for the Agentic AI within their core product is going to be utilized across our core system. So as we see the kind of the future of how those products come together, I think you'll start seeing in late '26 and '27, how that kind of integrates together versus a breakout of ZyraTalk's revenue separately. Want to add to that, Ryan? Ryan Siurek: I think with everything that Eric said, we plan to fully integrate. There is a book of business that comes with ZyraTalk. That wasn't our primary thesis though for the acquisition. The primary thesis was the integration that Eric just described in terms of the capabilities that it's going to bring to the SMB space, particularly in the home and field services. But I would say that over time, we plan to expand to the other verticals that we have as well. And you should expect to see this kind of as bolt-ons or upsell, cross-sell motions as we continue to build out that strategy. Bhavin Shah: Got it. That's helpful there. Ryan, just kind of a follow-up for you. Just can you just maybe elaborate what played out with the rebate program? Can you just, I guess, think about the overall size of that program and kind of what's factored into guidance from that program as you think about 4Q? Ryan Siurek: Yes. I would say that, that was probably the one space that we had any particular headwinds in the business in Q3. The core SaaS business, as we described, is very resilient and strong, particularly in the SMB market. Rebates as a percentage of our overall revenue base is quite small, actually. But from the quarter-over-quarter perspective, there was about $1.6 million of softness. And the rebates are really just group purchasing programs that we have as part of our Service Nation program overall. It's a good business for us, but it does actually have a little more susceptibility to the macroeconomic factors and tariffs in particular, were probably one of the areas where we saw some impact. If you saw the HVAC manufacturers that released earnings earlier, there was a number of citings with regard to kind of softness in that space, not only for Q3, but some projection into Q4 with expected recovery in 2026. That is kind of where we saw some of the softness in that space as well. But overall, I would say that -- and it's not a significant impact to the business. We did factor that into our overall guidance and don't expect a significant continuation. Operator: And our next question comes from the line of Kirk Materne from Evercore ISI. Unknown Analyst: This is Bill on for Kirk. I was wondering if maybe you could walk us through, I guess, some of the changes to the guidance for the remainder of the fiscal year and kind of any trends you're seeing in the macro environment that have caused you to change your guidance? Ryan Siurek: I just gave certain information on that, Kurt. Thanks for the question. I'm trying to make sure I understood and heard your question. From a guidance perspective, no macroeconomic impacts other than one we described on the group purchasing programs, which really is a small portion of our overall revenue base. From an SMB perspective, overall, we're continuing to see strength in the marketplace and our core SaaS continues to have strong growth opportunities. We've seen 8% growth really from a core SaaS perspective. And then I would say that we continue to have really strong efforts in the transformation optimization side of what we're doing, which is why we felt very comfortable to increase our adjusted EBITDA guidance for the full year. But we did tighten the range both on revenue and on adjusted EBITDA and taking into account some of those macroeconomic impacts that we talked about earlier. Operator: And our next question comes from the line of Matt Hedberg from RBC. Matthew Hedberg: Eric, I wanted to go back to the ZyraTalk acquisition. I just -- maybe it wasn't clear to me, but how is the pricing for that today? And do you see it evolving once it's fully integrated to the platform? Eric Remer: Yes. So just on a core basis, the product that they're in market with today sells both on a subscription and usage basis. So subscription by utilizing the product and usage every time, every minute that it's been utilized on an AI Receptionist. The reason the larger answer was really focused on that was a part of the thesis, but really kind of a smaller part of the overall thesis for the acquisition. So as Ryan talked about, that we definitely brought over customer base and a book of business. And the real focus of us is the customer base that is utilizing that product today is actually just making our systems smarter and smarter. So as we integrate ZyraTalk into the core EverCommerce solutions, which we've already done, and Josh can talk about that in a second, our ability to integrate that, the assist to start off and the other Agentic pieces of that software is going to make all of our software specifically the FSM area, just more effective on an ongoing basis. So do you want to add to that, Josh? Josh McCarter: Yes. I think from a pricing standpoint, we definitely view this as a SaaS model. So for the AI receptionist, we'll be selling that as a SaaS model. And then as Eric mentioned, we will be integrating various AI agents throughout our FSM systems, and that will just be reflected over time as increases in SaaS pricing. Matthew Hedberg: Got it. Okay. That's helpful. And maybe just even just like more philosophically speaking, one of the questions about software has been -- what is the future of seat-based models in the future? And I'm just sort of curious, you've got a blend today, and obviously, payments is a big part of that non-seat-based model. But do you see the future of EverCommerce pricing changing to look even more like consumption or usage and pivoting away from seats? Or do you always expect to have some sort of a blend there? Ryan Siurek: I think we would -- I mean we're going to continue with the existing pricing mechanisms that we have. We'll continue to evaluate the market space in general. I think our space from an SMB perspective is quite unique. If we see the opportunity to do more in the variable type pricing as we think about the 2026 budget and beyond, we will definitely consider that. But it's not a strategic shift or focus from a change perspective in terms of how we run and operate our business. Operator: [Operator Instructions] Our next question comes from the line of Alex Sklar from Raymond James. Jessica Wang: This is Jessica on for Alex. Just got one. So on your spending optimization efforts, how have things been progressing there? Margins continue to track nicely in the right direction. But on the reduction of third-party costs you've called out in the past, how much more leverage do you see over the medium term? Ryan Siurek: Yes. We continue to find good success in our transformation optimization program. I would say that we've been able to reduce operating costs pretty substantially, over $10 million in 2025. We continue to have a really solid tracking mechanism against those efforts. I think you're going to see us to continue the transformation optimization program that we have in place is not a one and done. It is something that we are kind of continuing to embed in the operating model that we have overall. We're at over 30% adjusted EBITDA margins at this point in time. That's grown since the days of our IPO in the low 20% adjusted EBITDA margin, so over 1,000%. And we continue to see opportunity for us to expand on the overall margin expansion through the programs that we have, both for transformation and for optimization. The management teams are stood up at this point in time, both for EverPro and EverHealth. And we feel like that is putting us in a solid position to continue to exit 2025 and grow in '26, but not just from a revenue perspective, and we'll continue to look for margin expansion as we move into the future. I would say that the only thing that I would moderate on that is that as we continue to look at investment opportunities, we'll continue to focus to make sure that the products that we're offering to our customers have the right features and functionality. So we're going to continue to grow and invest in those. And you can see that from a cash flow perspective in terms of the investment that we've made in capitalized software year-over-year. I think we invested on an LTM basis about $25 million compared to about $18 million in the prior year, which just continues to demonstrate our continued focus on developing products for our customers. Operator: And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Eric Remer, CEO, for any further remarks. Eric Remer: Thanks. Well, thank you again for joining the call today. We have incredible momentum in our core SaaS and payment solutions, combined with meaningful margin expansion as we continue to optimize our cost base. On top of this, there is tremendous excitement surrounding our AI road map that we believe will differentiate our solutions in the marketplace. I'd like to thank our investors for their continued support and all of our EverCommerce employees for their hard work. Operator, this concludes our call. Operator: Thank you. And thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good day, and welcome to the AdvanSix 3Q '25 Earnings Conference Call. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Adam Kressel, Vice President, Investor Relations and Treasurer. Please go ahead. Adam Kressel: Thank you, Rocco. Good morning, and welcome to AdvanSix's Third Quarter 2025 Earnings Conference Call. With me here today are President and CEO, Erin Kane; and Interim CFO, Chris Gramm. This call and webcast, including any non-GAAP reconciliations, are available on our website at investors.advansix.com. Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our business as we see it today. Those elements can change, and the actual results could differ materially from those projected, and we ask that you consider them in that light. We refer you to the forward-looking statements included in our press release and earnings presentation. In addition, we identify the principal risks and uncertainties that affect our performance in our SEC filings, including our annual report on Form 10-K, as further updated in subsequent filings with the SEC. This morning, we will review our financial results for the third quarter of 2025, and share our outlook for our key product lines and end markets. Finally, we'll leave time for your questions at the end. So with that, I'll turn the call over to AdvanSix's President and CEO, Erin Kane. Erin Kane: Thanks, Adam, and good morning, everyone. We appreciate you joining us here today for our quarterly call. As you saw in our press release, AdvanSix continued to navigate challenging industry dynamics in the third quarter with a focus on optimizing operational and commercial performance. Our team executed with agility and discipline as we seasonally entered a new fertilizer year in plant nutrients, with a strong fall fill program amid higher raw material input costs, while continuing to realize the ongoing benefits from our sustained growth program. Given the protracted downturn in nylon solutions and demand softness in chemical intermediates, we're making the strategic choice to moderate production rates to manage inventory levels, with a keen focus on free cash flow. Utilization across our integrated value chain was down roughly 4 percentage points sequentially from the second quarter to the third. Operationally, we experienced a site-wide electrical outage at our Chesterfield nylon plant in mid-September. While there was minimal impact to 3Q results, we did have an isolated fire upon restart that impacted polymerization line of the plant and was fully contained. There were no injuries or environmental impacts, and the majority of our plant operations continue as normal. So while we were already tactically opting to reduce production levels, this incident is expected to impact 4Q EBITDA by $7 million to $9 million, primarily related to the negative impact of unabsorbed fixed costs. On a positive note, our fourth quarter planned plant turnaround centered around our sulfuric acid and OEM plant at Hopewell, was completed successfully at the low end of our target range. While our domestic nylon solution margins over benzene once again expanded year-over-year, we are seemingly operating in a lower-for-longer macro environment. In times of uncertainty, we're focused on delivering on controllable levers. This includes continued optimization of production output and sales volume mix while driving productivity to support through-cycle profitability. Taking a disciplined approach to cash management is critical, reflected in our prioritization of base capital investment and anticipated tailwinds in 2026, from 45Q carbon tax or tax credits and recent tax legislation. 2025 CapEx is now expected to be $120 million to $125 million, reflecting $30 million full year cash conservation through refined risk-based prioritization and execution. Our select and targeted investments for growth are continuing to progress. The sustained growth program, which unlocks 200,000 tons of granular ammonium sulfate has been favorably tracking roughly 15% below its capital budget, with the final 2 projects remaining to be completed over the next year. In addition, our planned investment to upgrade our enterprise resource planning system went live in the third quarter, which will help streamline key processes across the organization while enhancing management tools and data analytics. Finally, we added 2 new members to our Board of Directors this past quarter, Dana O'Brien and Daryl Roberts. Their deep industry and professional backgrounds and proven expertise in global manufacturing will be invaluable to our Board's role in ensuring strong corporate governance practices and supporting advancement of our strategic growth priorities. With that, I'll turn it over to Chris, to discuss the financials. Christopher Gramm: Thanks, Erin. I'm now on Slide 4, to discuss our results for the quarter. Sales of $374 million in the quarter decreased approximately 6% versus the prior year. Sales volume was approximately half of that change, driven primarily by softer demand in both chemical intermediates and nylon end markets. Raw material pass-through pricing was down 5% following a cost decrease in benzene, which is a major input to cumene, our largest raw material and key feedstock to our products. Market-based pricing was favorable by approximately 2%, driven by continued strength in plant nutrients, reflecting favorable North American ammonium sulfate supply and demand conditions. Adjusted EBITDA was $25 million, down $28 million from last year, while adjusted EBITDA margin was 6.6%. The decline in earnings versus last year was primarily driven by a reduction in acetone price raw spreads as we anticipated, the impact of lower nylon and chemical intermediates sales and production volume and higher utility costs as a result of increasing natural gas prices. On a sequential basis compared to the second quarter, we saw a nearly $20 million earnings decline due to typical ammonium sulfate seasonality with the start of the new fertilizer year. In addition, our results reflect the impact of moderated production rates amid softer demand for nylon solutions and chemical intermediates. Now let's turn to Slide 5. Erin Kane: Here, we are illustrating our quarterly sales contributions by product line, as well as price and volume breakdown, both year-over-year and sequentially. We believe this double-click into the underlying dynamics of our financials provides insight into our commercial sales and performance. Plant Nutrients continues to positively stand out. While we navigated typical seasonal pricing considerations, our continued strong performance in Q3, including the higher year-over-year pricing of our fall fill program and favorable sales mix supported by our sustained growth program are further proof points to the resiliency of sulfur nutrition demand. Broader nylon markets continue to face pressure here in the U.S. and abroad. However, our domestic market-based pricing across nylon solutions is holding steady, while raw materials pass-through pricing saw declines on lower benzene input prices. And lastly, acetone pricing has moderated as expected from the multiyear highs witnessed in 2024. Let's turn to Slide 6. Our end market exposure remains a strategic advantage. It provides a source of diversification, which helps insulate the company from significant variability in any one industry, as demonstrated by our results in various environments. We've highlighted our exposure in descending water, with agriculture and fertilizer at the top. This is an area that continues to grow. We estimate sulfur nutrition demand growing 3% to 4% per year on average, and where we are leveraging our expertise as leaders in the space. There continues to be robust acceptance of the sulfur value proposition amid underlying increases in global nitrogen pricing, primarily driven by supply side impacts. Given current corn futures, this is a positive reinforcement that the value chain believes in software to improve economics for the same acreage. We believe stock-to-use ratios globally continue to support fertilizer demand over the long term. Moving to Building and Construction. Dynamics here remain largely unchanged. Across this end application, we have direct and indirect exposure across nylon and intermediates through flooring, oriented strand board, and paints and coatings to name just a few. Our view is latent demand will build and begin to recover through 2026, assuming moderating interest rates going forward. Plastics does remain challenged, reflecting broader macro softness. We had previously communicated that the auto sector was a watch out, including impacts of tariffs uncertainty and trade policy. We've continued to see a drawdown in auto inventories, as well as weakness across consumer durables and other industrial applications. Solvents likewise have been mixed. We've seen moderated growth into construction, pharmaceutical and electronics industries. In the semiconductor space, our Nadone sales demand was down year-over-year in the third quarter, but is anticipated to improve sequentially into 4Q and 2026. Lastly, we continue to monitor and track trends in food packaging, where beef is the largest category. Nylon 6 is preferred here due to its excellent barrier properties and its puncture resistance. Our inflationary pressure and tariffs are impacting demand in this space, notwithstanding the relative resilience we are seeing in packaging. Let's move to Slide 7. Christopher Gramm: Cash flow generation remains a critical focus area for us. We believe it's important to view our business performance on a trailing 12-month basis given the linearity considerations, primarily driven by the timing of the fertilizer season. Trailing 12-month free cash flow through Q3 2025, is approximately breakeven, and we continue to target positive free cash flow for the full year of 2025. There are a number of levers that we're focused on to bolster sustained and improved cash flow generation moving forward, including working capital initiatives, risk-based prioritization of capital investments, cost productivity, and tax optimization. Our balance sheet is positioned to provide optionality and the ability to weather the challenging macro environment. We expect strong free cash flow in the fourth quarter supported by working capital tailwinds, including the ammonium sulfate pre-buy cash advances. As Erin mentioned earlier, we're able to capture a roughly $30 million reduction to our full year 2025, capital plan. We expect CapEx for 2026, to be in the range of $125 million to $135 million. We're also actively managing our cash tax rate, which we anticipate being below 10% over the next few years, supported by the continued progress on the 45Q carbon capture tax credits and 100% bonus depreciation. Now let's turn to Slide 8, to wrap up before moving to Q&A. Erin Kane: Our strategic initiatives, unique combination of assets and business model are core to our durable competitive advantage and long-term positioning. Our global low-cost position in vertically integrated caprolactam production serves us well. In addition, ammonia and sulfuric acid platform integration, coupled with a leading granular crystallization technology position underpins our sustained ammonium sulfate growth and how we win in plant nutrients. These capabilities, combined with our asset utilization agility and product mix, position us to navigate cycles and capitalize on emerging opportunities. 2025 has been a dynamic year, but we remain well positioned as an American manufacturer of essential chemistries. We have been operating with structural tariffs in place globally across our value chains for quite some time. So we are adept at navigating an environment like this. We are largely insulated from first order impacts of reciprocal tariffs, with nearly 90% of our sales in the U.S. and our key product lines in a net import industry position. Our U.S. footprint has allowed us to optimize our tax position with a meaningful impact on cash flow going forward. Recently, we've seen a number of industry actions with announced European capacity rationalization in phenol and acetone, as well as caprolactam and ammonium sulfate. We believe we're reaching an inflection point in several markets. And as we've discussed today, we're positioning ourselves to win long term. With that, Adam, let's move to Q&A. Adam Kressel: Thanks, Erin. Rocco, can you please open the line for questions? Operator: [Operator Instructions] Our first question today comes from David Silver, Freedom Capital Markets. David Silver: I apologize. I always like to build up the suspense there. And I apologize. Let me just get a tiny bit organized here, sorry. Okay. So I did have a number of questions. I think, first, I was hoping maybe you could provide a little additional color on the chemical intermediates market and pricing environment. were the revenue declines and the margin pressures, was that primarily acetone? Or did the weakness extend to other key products or end markets? So maybe just a little more color on the falloff in Chemical Intermediates results this quarter. Erin Kane: Yes. Certainly. And we recognize that we provided some new formats here today, and we did go ahead and include the specific line of business industry spreads and KPI updates in the appendices for reference. But yes, on the acetone side, as you well know, David, represents roughly 50% of our sales in Chemical Intermediates. And we would characterize Q3 as really more in line with our expectations, right? As we headed into the year, we've been saying that we did expect phenol demand overall to remain subdued, right, that would keep acetone supply and demand balanced, but that we were expecting that we would come off the highs of 2024, and certainly probably moderate back to cycle averages. And that's where we continue to see the market play out. Our portfolio is well balanced between small, medium and large buy that allows us quite a bit of flexibility to go where the value is in the market. And while the moves were significant kind of year-over-year, right, they are sort of moderating as we think about the adjustments to those cycle averages sequentially. But when you look across the rest of the portfolio, as you say, we hear in a number of other end markets, whether it's electronics, paints and coatings, adhesives, you kind of think about ag chemicals, the full space. In general, we would say that there's continued views of softness. I think this is thematic what you're seeing across the entire chemical sector, not necessarily anything unique to us. We did call out the semiconductor space and Nadone demand. We're seeing signs that that's picking back up in Q4, with some sight of improvement into 2026. So I'd like to say that there's some opportunities in different places. We continue to stay focused in the right areas with favorable long-term trends, and that's what we're seeing there on intermediates. Hopefully, that helps. David Silver: Great. I'm sorry, I should have reviewed the appendix page details there. I would like to talk about the ammonium sulfate results this quarter. So the revenue number is quite striking. I believe that's your highest third quarter revenue total ever for that segment. And the summer quarter is typically, I guess, when you try to -- you typically sell a little bit more of the standard product and into international markets. But maybe just looking at the third quarter results, I mean, was there a disproportionate amount of products sold into the U.S. market? Or was there maybe some advanced purchasing? I mean, just maybe just a little more color on the strength in ammonium sulfate. Erin Kane: Yes. So as you point out, right, prior to the SUSTAIN program, that would have been the trend we would have expected sort of Q2 into Q3. For us now, right, the additional granular volume that we are producing is coupled with a good fall pickup, we did have less standard to sell across the board, right? So that mix differential is not as perhaps, I would say, geographical mix consideration is not as great as it used to be. So certainly, 3Q year-over-year granular volume was up 20%, right? And so again, that is really at the heart of the intent behind sustain and obviously, with the year-over-year prices for fill up led to that revenue generation you saw. David Silver: Great. Next question would be probably about raw material cost trends. So you have cited some of the data, again, in the appendix slides. But sulfur, as you noted, continues to track upwards and natural gas has recently kind of shot up a bit maybe on anticipated winter demand here. Should we just assume that you are a spot market purchaser for the fourth quarter? Or would there be the case where maybe you were able to do some hedging, or other prebuying ahead of the quarter? So maybe just a sense of how we should look at the spot market, or the recent changes in some of your raw materials and the flow-through to your fourth quarter results? Christopher Gramm: Yes. That's a great question. I would say, generally, we typically don't execute hedges on a regular basis. Sulfur is probably not as widely traded. And so the hedging process there would command a premium. But I think for natural gas, generally, we've elected to not enter a hedging strategy. What we've seen from gas, obviously, from a year-over-year perspective, the price has gone up from, let's say, an average of $2.30 a Decatherm to $3.40 here this year. So obviously, super sensitive to that, watching for that. Most of these 2 molecules do end up in ammonium sulfate. And while ammonium sulfate is generally based on value pricing, input cost does have a tendency to put pressure on the least marginal producers. So it does have some indirect effect. I would say as well, particularly on the natural gas side with our formula pricing that there is natural gas components there. And so even though we don't, let's say, execute a financial or a synthetic hedge, we do have some coverage in our formula-based pricing in the nylon business as well. So hopefully, that gives you sort of a bit of color there, David, and kind of how we think about and react to some of these changes. David Silver: Great. Maybe another one for Chris, but I was looking or hoping to get a bit of an update on the Section 45Q carbon capture credits that you've applied for, and you may apply for in the future. So maybe just your sense of the timing for capturing, I guess, the first $20 million of credits that you've filed for, I guess, in the first half of the year? And then maybe is there an early read on what you may be filing for next year? Christopher Gramm: Yes. No, that's a great question. Obviously, 45Q is a significant value driver for us. And just as a reminder, we perfected the 2018 claim last year, and 2019 and 2020 this year. Based on those perfected claims, we filed amended returns. Those amended returns, as you can imagine, trigger an audit process that we have to work through. We're confident based on all the upfront work that we've done both with the Department of Energy and with the IRS, that we'll be successful through that audit process. What I would say is due to the government shutdown, I think the timing of when we would expect to receive the credits that we have applied for, looks like that that's going to be shifting to 2026. I would point out that our early comment on positive free cash flow for the 2025 year does take that shift into account. So we still believe we're going to be positive free cash flow in 2025. We do expect a cumulative benefit once again of $100 million and $120 million across the life of the program. Just as an update, we filed the 2021 life cycle assessment, and that needs to be reviewed and approved by the Department of Energy and the IRS. Under normal circumstances, that would take probably 3 to 4 months. So we're hoping that in short order once things sort of get back to a bit normal that it wouldn't be too long until we get approval for that. So we're going to continue to obviously, provide you updates as we move forward and move along, but we continue to push the opportunity there and make progress as well. David Silver: I think this one is also for Chris, but I have seen how your carbon capture credits flow through your income statement. Can you just remind me regarding bonus depreciation? Is that something that will impact your GAAP, or GAAP and non-GAAP results? Or is that something that strictly shows up on your tax filings? Just the impact of bonus depreciation is on how I should think about my estimates for next year. Does that impact them? Or is the impact solely going to be reflected on your tax-based filings? Christopher Gramm: Yes. No, great question. Just as a reminder, the 100% bonus depreciation is really affects our cash tax rate. So if you think about our effective tax rate, it looks at and tries to book the expected, I'll call it, tax consequences of what our U.S. GAAP financial statements are. So I would expect the changes in the One Big Beautiful Bill Act won't have a significant impact on the effective tax rate, but it does have a very significant impact on our cash tax rate. So and to just give you a little color, the biggest benefit on bonus depreciation is on acquired and placed in service assets after January 19 of this year. So the dollar benefit of projects that qualify for both of those is $2 million for the calendar year '25. As we move forward to 2026, the benefit is going to grow as more of the projects qualify for those criteria. And we expect that number to be sort of mid- and the high single digits from a cash tax basis. And we would expect '27 to be even larger than that. So hopefully, that gives you a sense there of how it will get expressed in sort of the order of magnitude as we move forward. David Silver: I did get my CPA, but it was a long time ago. And thank you for walking me through that lapsed CPA. I know I admit it. All right. Yes. So this one has to do with Slide 7, and in particular, the next to the last bullet point where you talk about inventory management, and then you say cost reduction initiatives for 2026. And I think it was touched on briefly in the prepared remarks, but just wondering if you could maybe talk about some of the buckets that go into that category of cost reduction initiatives for 2026? Erin Kane: Sure. I mean, as you would expect, our normal course focus on productivity includes things like optimizing yield, certainly inflationary energy environment, energy utilization programs like this. Here specifically, David, we're programmatically setting up to really address non-manpower fixed costs. You may see this across other companies when they announce these types of programs. We believe that there is a meaningful opportunity for us to, I would say, target that programmatically. And that's what we're really pointing to here. So we would be in a position as we continue to set ourselves up for that. It's likely a 2-year type of a program. But in February, we'd be happy to come back and certainly clarify and quantify what we expect to be our 2026 targets, and sort of what our full run rate opportunity set would be for that program. David Silver: Let me just ask, but am I -- if I'm the only one here, I just have 1 or 2 kind of additional questions. Would that be okay? Or is there some -- if not, I can get back in the queue. Erin Kane: Sure, David. Go ahead. David Silver: Okay. Earlier this quarter, you did put out a press release regarding the, I guess, settlement over the -- your intellectual property for, I guess, EZ-BLOX. And I read the release with interest. I don't have it right in front of me, but I believe it was a settlement that your company considered satisfactory. And I was just wondering if qualitatively you might be able to discuss the nature of the settlement. In other words, are they going to be a new customer for you longer term? Or was there a monetary settlement? Just what was the nature of the settlement in that intellectual property dispute that you considered to your satisfaction? Erin Kane: Yes. And this is, I think, a win for us, obviously, when you spend the time, talent and treasure to put good IP in place, you want to protect it. And so we have been certainly defending that opportunity set for ourselves. And so we certainly were pleased that we were able to agree and sort of resolve the differences of opinion there with the various parties. And yes, with all agreements, there is some monetary settlement. You have an agreement relative to the patent use and upholding licensing from that regard. But I think importantly here, it allows us to set up the right customer and distribution base that is living by the rightful upholding of the IP and allowing us to make sure that sort of importers that are coming from other regions of the world that are violating [ SAIP ] can be held at base. So we do believe that ultimately, this sets us up for increased sales as a result. Operator: And that does conclude our question-and-answer session. I'd like to turn the conference back over to Erin Kane for closing remarks. Erin Kane: Thank you all again for your time and interest this morning. AdvanSix is a resilient company, and we are positioning ourselves to win long term. We're navigating a challenging market environment with discipline and agility while continuing to make risk-adjusted investment decisions to support through-cycle profitability and sustainable performance. We're not just reacting to market conditions. We're shaping our future with a clear focus on value creation. And we're doing it with an integrated business model, durable competitive advantage and a healthy balance sheet. With that, we look forward to speaking with you again next quarter. Stay safe and be well. Operator: Thank you. That does conclude our conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful weekend.
Operator: Greetings, and welcome to the Bridger Aerospace Third Quarter Fiscal 2025 Investor Conference Call. As a reminder, today's call is being recorded. It is now my pleasure to introduce your host, Eric Gerratt, Chief Financial Officer. Thank you. Mr. Gerratt, you may begin. Eric Gerratt: Good afternoon, and thanks for joining us today. Joining me on the call this afternoon is Chief Executive Officer, Sam Davis. Before we begin, please note that certain statements contained in this conference call that do not describe historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Since forward-looking statements are based on various assumptions, risks and uncertainties, actual results may differ materially from those expressed or implied by such statements. Factors that could cause results to differ materially from those expressed include, but are not limited to, those discussed in the company's filings with the U.S. Securities and Exchange Commission, including expectations regarding financial results for 2025. Management cannot control or predict many factors that impact future results. Listeners should not place undue reliance on forward-looking statements, which reflect management's views only as of today. We anticipate that subsequent events and developments will cause our assessments to change. However, we undertake no obligation to revise or update any forward-looking statements or make any other forward-looking statements. Throughout this afternoon's earnings release and call today, we refer to the non-GAAP financial measure adjusted EBITDA. The definition, calculation and a reconciliation to the financial statements of adjusted EBITDA can be found in Exhibit A of our earnings release, which is available on our website. We believe adjusted EBITDA is useful in evaluating our reported results as a supplement to and not a substitute for reported results under GAAP. With that, I'd like to turn the call over to Sam. Sam Davis: Thank you, Eric. This year has been an incredibly strong year for Bridger, both operationally and financially. Operationally, we saw record task orders that ran through October. Utilization measured in days on contract is up almost 10% year-over-year across the fleet. Our multi-mission aircraft have almost doubled their flight hours year-over-year and were extended beyond their guaranteed 150 days a piece to greater than 220 days a piece. Bridger Super Scoopers continue to gain recognition for their effectiveness as the ideal initial attack asset, and the Forest Service has been proactive in prepositioning our assets. Our scoopers have seen nearly a 9% increase in average flight hours year-to-date. The benefits of a proactive response to wildfire this year are clearly visible. Through October 10, according to the National Interagency Fire Center, or NIFC, wildfires have been above average in count with over 54,000 incidents this year up to date -- year-to-date, up 50% over last year and 15% above the 10-year average. Yet despite the increased number of fires, the NIFC reported only 4.7 million acres burned, which is down 40% over last year and down 29% from the 10-year average. This year's tremendous operational performance has lent itself to an incredible financial year as well. The more effective and tactical adoption of our assets has contributed to us surpassing our annual revenue guidance in the first 9 months of the year. Additionally, we remain on track to meet the high end of our adjusted EBITDA guidance. Bridger's 2025 financial performance saw the impact of our focus on developing long-term contracts with both the Forest Service and individual states. This concentration has led to another record-breaking quarter and another record-breaking year in spite of a statistically below average fire year. These third quarter results are a validation of the impact that these efforts are having on our business model. We see this as a strong indicator that as a nation, our assets are becoming increasingly important tools in the toolbox. And as a company, we are building resiliency in our revenue. As the threat of wildfire grows, Bridger remains ready to respond and focused on our mission to protect lives, property, critical infrastructure and the environment. These strong operational and financial results and our expectations for a second record year made it possible for us to complete a balance sheet transformation last week. We completed a $49 million sale leaseback of our campus facilities in Belgrade, Montana and entered into a new $331 million expanded debt facility with increased capacity for growth. Most importantly, we now have the financial flexibility to acquire the aircraft needed to support contract expansion opportunities and to serve all of our customers, whether federal, state, local or defense to further drive EBITDA growth and long-term shareholder value. Bridger's commitment to financial health and resilience is positioning us to better serve and protect this country. Let me now provide a quick update on FMS and Ignis. FMS contributed $2.4 million in revenue during the third quarter. In addition to partnering on the internal aircraft modifications to solidify our competitive edge, we continue to see a number of contracting opportunities, primarily with the DoD in active bids that Bridger and FMS are uniquely positioned to respond to. In addition to awarded work with our partner, Positive Aviation for the FF72 aircraft certification program, recent wins include a small award with the U.S. Air Force. While revenue in FMS business has seen delays due to federal budgeting uncertainties for the short term, we remain optimistic and FMS remains well positioned for a wide range of defense as well as commercial work. We're in the middle of repurposing our business development team to target this work. Much of the opportunities are fairly small and strategic with the potential to scale into larger volume of nonfire, nonseasonal complementary work to the services we already provide. We hope to add more year-round revenue growth to the business later this year and in 2026. A brief update on Ignis Technologies. Since launching its mobile platform to support firefighters in the field over a year ago, pilot programs utilizing the platform with counties, crews and incident management teams continue. We are now linking Bridger's real-time sensor imagery with the Ignis app, creating a seamless data flow from air to ground. During the third quarter, we live streamed video of the Dragon Bravo Fire in Arizona from our PC-12 to the Secretary of the Interiors office. This capability is unlocking new levels of situational awareness, supporting multi-mission aviation contracts and enhancing both operational effectiveness and safety. With the continued success of our sensor-enhanced aircraft in the field, the need for interactive live data streaming is stronger than ever, and we intend for this to be a critical part of our sensor-enhanced aviation contracts next year. Turning to the Spanish Scoopers, which are owned under a partnership agreement with MAB Funding LLC. The aircraft's return to service work by our Spanish subsidiary, Albacete Aero continues to progress. Having received the certificate of airworthiness, the first 2 aircraft have been flying this summer on contract with the government of Portugal. This has been supported by a lease arrangement between MAB as the owner and Avinci as the operator. With our recent financing completed, which provides funds for the aircraft acquisition, we now have the opportunity to potentially bring these 2 scoopers onto our balance sheet in the near future. The third and fourth scoopers continue to undergo the final stages of their respective return to service work and are scheduled to be ready in early 2026, at which time we will enter into discussions with MAB to potentially acquire these aircraft as well. Before I turn the call over to Eric, I want to reiterate the opportunity for Bridger given the recent federal initiatives to restructure our national Wildland firefighting system, which we view as the market shift for the entire industry. The establishment of the Wildland Fire Service Plan and passage of the Fire Ready Nation Act are focused on improving wildfire response and driving future growth. This comes on the heels of the executive order early in the year that called for the establishment of a national Wildland firefighting task force. We have already noticed faster response times, standards of cover and a more comprehensive mix of aviation assets being demanded. With Bridger's significant air attack fleet, including modern fire imaging and surveillance aircraft and the world's largest private super scooper fleet, we believe we are uniquely positioned as the nation refocuses efforts on preparedness and aggressive wildfire suppression to detect, prevent, contain and extinguish wildfires before they become the next catastrophic event. This commitment on top of the 2026 budget for the new U.S. Wildland Fire Service that calls for a threefold increase in funding to $3.7 billion will have a significant positive impact on the entire wildland fire community. We continue to actively look for opportunities with states to provide exclusive use of our firefighting assets, and we remain optimistic that our current budgeting and planning cycles will lead to future opportunities. It has been an incredible 2025 thus far, and I remain grateful I get to lead this exceptional team. Let me now turn it back to Eric, who will talk about our strong financial performance in the quarter. Eric Gerratt: Thank you, Sam. Looking at our results for the third quarter of 2025, revenue increased to a record $67.9 million, up 5% from $64.5 million in the third quarter of 2024. The third quarter of 2025 benefited from continued high levels of activity as multiple scoopers and surveillance aircraft were deployed throughout the quarter. Excluding revenue from the return to service work performed on the 4 Spanish Scoopers as part of our partnership agreement with MAB Funding, LLC, which was $2.1 million in the first quarter of 2025 and $2.1 million in the third quarter of 2024, revenue from ongoing operations, including FMS, grew 5% to approximately $65.7 million compared to $62.4 million in the third quarter of 2024. Cost of revenues was $21.1 million in the third quarter of 2025, and was comprised of flight operations expenses of $12.1 million and maintenance expenses of $9 million. This compares to $23 million in the third quarter of 2024, which included $15.1 million of flight operations expenses and $7.9 million of maintenance expenses. Cost of revenues associated with the return to service work on the Spanish Super Scoopers was consistent for the third quarter of 2025 when compared to the third quarter of 2024. Selling, general and administrative expenses were $7.7 million in the third quarter of 2025 compared to $8.6 million in the third quarter of 2024. The decline reflects lower noncash stock-based compensation expense and a decrease in earn-out consideration, which was partially offset by an increase in the fair value of our warrants. Interest expense for the third quarter was $5.8 million compared to $6 million in the third quarter last year. For the third quarter of 2025, we reported net income of $34.5 million compared to net income of $27.3 million in the third quarter of 2024. Earnings per diluted share was $0.37 for the third quarter this year compared to $0.31 per diluted share in the third quarter last year. Adjusted EBITDA was $49.1 million in the third quarter of 2025 compared to $47 million in the third quarter last year. A reconciliation of adjusted EBITDA to net income is included in Exhibit A of our earnings release distributed earlier today. Now looking at our results for the first 9 months of 2025. Revenue was $114.3 million compared to $83 million in the first 9 months of 2024, a 38% increase. Excluding return to service work, revenue was $101.1 million compared to $78 million in the first 9 months of 2024, up 30%. Cost of revenues was $57 million, which comprised flight operation expenses of $26.2 million and maintenance expenses of $30.8 million. Cost of revenues for the first 9 months of 2024 was $42.1 million and comprised $25.2 million of flight operation expenses and maintenance expenses of $16.8 million. Cost of revenues for the first 9 months of 2025 included an increase of approximately $9.6 million of expenses associated with the return to service work for the Spanish Super Scoopers compared to the first 9 months of 2024. SG&A expenses were $22.8 million compared to $28.2 million in the first 9 months of 2024, with the decrease again driven by lower noncash stock-based compensation expense and a decrease in our earn-out consideration, which was partially offset by an increase in the fair value of our warrants. Interest expense for the first 9 months of 2025 was $17.3 million compared to $17.8 million in the first 9 months of 2024. Bridger also reported other income of $1.8 million in the first 9 months of 2025, which was consistent with the $1.8 million reported in the first 9 months of 2024. Net income was $19.3 million in the first 9 months of 2025 compared to a net loss of $2.7 million in the first 9 months of 2024. Adjusted EBITDA was $54.8 million in the first 9 months this year compared to $40.2 million in the same period last year. Now turning to the balance sheet. We ended Q3 with total cash and cash equivalents of $55.1 million. After the end of the quarter, we completed our previously announced sale-leaseback transaction with SR Aviation Infrastructure for our Bozeman Yellowstone International Airport campus facilities. The sales price was approximately $49 million. In addition, last week, we also executed a new senior secured credit facility for up to $331.5 million. Together, these transactions were used to refinance Bridger's $160 million municipal bond with Gallatin County, consolidate the majority of our existing debt and most importantly, provide significant capacity and financial flexibility through a delayed draw facility designed to fund future fleet expansion to support the organic growth we are pursuing. Turning to our guidance. With the strong fleet utilization year-to-date, including record task orders for our Super Scoopers, we remain on track to end 2025 at the higher end of our guidance range of $42 million to $48 million of adjusted EBITDA. Revenue has already exceeded the top end of our previous guidance range of $105 million to $111 million and is now expected to be between $118 million and $123 million. The company also expects continued improvement in cash provided by operating activities in 2025. Now with that, I'd like to turn the call back to Sam for final comments. Sam Davis: Thank you, Eric. This year-to-date, we have flown in 21 states, provided support for 380 fires and dropped 7.3 million gallons of water. The increased focus on preparedness, early detection and suppression is making a difference from suppression on major fires to prevent the loss of structures to early detection, preventing small lightning strikes from becoming large incidents. Our team continues to execute. As we sit here today, 3 of Bridger scoopers and 4 air attack aircrafts are on standby for late call out, and we stand ready to finish the 2025 season strong and prepared for year-round work during these winter months. Three scoopers have entered winter maintenance to ensure we can provide flexibility within our fleet and be able to respond early in 2026, if necessary, and enable us to more fully utilize the excess capacity of our scoopers. And as Eric stated, with our record 9-month results, we have already exceeded our revenue guidance for the full year and remain confident we will hit the higher end of our annual adjusted EBITDA guidance after assuming the loss typically booked in the fourth quarter. With the monetization of our campus and the new $331 million debt facility, we have consolidated our debt and are now able to reinvest in the business. We have significant capacity and financial flexibility to fund future fleet expansion, drive our organic growth and build on our long-term vision to innovate and deploy the most advanced technology in our industry and deliver on our mission to protect lives, property, critical infrastructure and the environment. And with the support of our federal and government customers, legislation to prioritize early attack and suppression and additional budget dollars appropriated, we're incredibly well positioned to report another year of positive cash flows as we focus on generating solid returns for our stakeholders. I would be remiss to not express my appreciation and celebrate the success of the incredible Bridger team from our senior leadership to our pilots, from mechanics to drivers and all the folks behind the scenes, maximizing our safety and effective operations all around the country. Bridger's mission attracts and retains the best employees in the country, and they're all critical in delivering the results we've had quarter after quarter, and we're ready to answer the call to serve year-round. We're excited for and positioned to make 2026 yet another incredible year. And with that, I'd like to ask the operator to open the call for any questions. Operator: [Operator Instructions] Our first question comes from Austin Moeller with Canaccord. Austin Moeller: Nice quarter. So you have about $14 million free cash flow year-to-date. How much are you tracking towards by end of year? And what do you plan to use the cash for? Sam Davis: Austin, good to hear from you. I will turn that to Eric as CFO, to answer that question. Eric Gerratt: Yes, Austin, I think we'll end the year around that same amount or maybe a little north of that. As you know, fourth quarter, we go into the maintenance cycle. And typically, in the fourth quarter, we don't see as much revenue certainly as we saw in the third quarter or even the second quarter. So I expect it to remain at about that level. And what we'll be doing with that free cash flow is, again, we'll be looking at our fleet expansion opportunities in conjunction with the new credit facility and how best to deploy that capital. Austin Moeller: Okay. And now that the credit facility is in place and the sale leaseback is complete, do you expect the Spanish scoopers to be staying in Europe or coming to the U.S.A.? Sam Davis: That's a great question, Austin. We're exploring all avenues there. I can say that with that now being a reality, and us having those discussions right now to see how quickly we can move on that. We're going to go with kind of the best both strategic and economic benefit for us, and we'll run all those paths. It's hard for me to predict with a crystal ball what that's going to be. But I will say that the beauty of it is they're a very scarce asset and in high demand. So that gives us a lot of optionality to have those aircraft, especially with those two being airworthy and flying a partial season already, Bridger sees a lot of opportunity to put those to work. And we'll know a lot more through the winter months as we nail down the best opportunity. And the beauty of it is we have optionality of where we place them. Operator: [Operator Instructions] At this time, there are no further questions in the queue. I will now be turning the meeting back to Sam Davis. Sam Davis: Thank you. Thanks again for joining our conference call today. We look forward to updating you on our progress when we report our Q4 results in March. We're scheduled to participate in Sidoti's year-end Virtual Investor Conference on December 10 and 11, with our presentation scheduled for 4:00 p.m. Eastern Time on Wednesday, the 10. In addition to the presentation there will be 2 days of virtual one-on-ones. And hopefully, we can have -- connect with some of you then. Additionally, if anyone has any follow-up questions, as always, please feel free to reach out to our Investor Relations, and we can set up some further communication. Thank you, and we can close the call. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
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