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Deborah Belevan: Good evening, everyone. Welcome to Duolingo's Third Quarter 2025 Earnings Webcast. Today after market closed, we released our Q3 shareholder letter, which you can also find on our website at investors.duolingo.com. Today, we have Luis von Ahn, our Co-Founder and CEO; and Matt Skaruppa, our CFO. [Operator Instructions] Please note that this event is being recorded. [Operator Instructions] As a reminder, we'll make forward-looking statements regarding future events and financial performance, which are subject to material risks and uncertainties, some of which these risks are set forth in our filings with the SEC. These forward-looking statements are based on our assumptions that we believe to be reasonable as of today, and we have no obligation to update these statements as a result of new information or future events. Additionally, we'll present both GAAP and non-GAAP financial measures on today's call. These non-GAAP measures are not intended to be considered in isolation from, a substitute for or superior to our GAAP results and we encourage you to consider all measures when analyzing our performance. And now I will turn it over to Luis. Luis von Ahn Arellano: Hi, everyone, and thanks for joining us today. We had a strong Q3 with solid performance across all metrics, and we're on track for another exceptional year. More than 50 million people now use Duolingo every day. And we're guiding to nearly 1.2 billion in bookings this year with 33% growth and an adjusted EBITDA margin of 29%. Putting that all together means that we have rapidly scaled our impact while expanding profitability. And yet, we still feel early in our journey. We believe AI will fundamentally transform education, and we have line of sight to building a product that teaches better than ever before. That's what makes this such an exciting moment for Duolingo. And now we'll take your questions. Operator: [Operator Instructions] Our first question will be coming from Bryan Smilek with JPMorgan. Bryan Smilek: Luis, just to start, can you just help us better understand the underlying drivers of DAU growth in the 4Q and engagement overall? And how close do you think you are to getting back on track in terms of marketing in the U.S.? I know you mentioned growing impression volume. But is that starting to translate to user growth now? Or how should we think about that into the fourth quarter? Luis von Ahn Arellano: Yes. Great question, Bryan. Thank you. So we just posted 36% year-over-year growth for Q3, and we're happy with that. There's puts and takes of how we got there. I mean, on the positive side, we have things like the locking partnership that we just -- that we talked about in the shareholder letter, which helped us grow users in Asia quite a bit. We also had a number of product improvements that helped with retention. So that was great. On the other side, just like we said last time, we passed all the unhinged posts in our social media for a bit because we were listening to our community and trying to build brand love. And when we don't post unhinged things that basically our posts were much less likely to go viral, and because of that, that did have an impact on DAU growth. The good news is that over the last few weeks, we have started the unhinged posts again in our social media accounts. And while it hasn't gotten all the way to the peak where it was, we've seen a lot of recovery. So that's really starting to show up. And we do expect that to affect DAUs positively. In terms of Q4 for DAUs, we expect some amount of deceleration from Q3 but we're pretty happy with where it has stabilized. What I'll say -- we're not guiding to Q4 DAUs, but what I'll say is that September and October were both at around 30% year-over-year growth for DAUs. And that's comping a pretty strong quarter last quarter -- last year. Bryan Smilek: Great. That's super helpful. And I guess, Luis, you also mentioned 3 core areas: monetization, user growth and just teaching efficacy overall. Can you just elaborate on really what's driving the decision to shift investments towards long view? Is it the AI opportunity or how should we just think about this impacting bookings growth? I know you've obviously talked to 25% plus as your North Star years ago. So just curious how do we get back there over time? Luis von Ahn Arellano: Yes. I mean, look, we're -- like you said, and like I said in the shareholder letter, there's a huge opportunity right now. We see a huge opportunity -- over the next few years, education and the way people learn, they're going to change fundamentally and it's because of AI. And also because of AI, we see -- we have line of sight now to create an app that can teach really, really well, much better than anything that humanity has seen before. As good as a human tutor, but that is also more engaging. And if we're able to do that, right now, we have, I don't know, we just posted 135 million monthly active users. If we're able to do an app that teaches just that well, way much better than we have now, we will be talking about billions of users that we have and that's what we want to shoot for here. So this is why we are investing in the long term. And what that looks like is that we are putting relative -- more relative investment in things like teaching better, which -- teaching better -- if we teach better, what that does is that, that helps user growth, but there's a lag. Just whenever you improve your courses, users do grow, but it takes a while for that to happen. And then user growth, there's a lag to get to monetization because people take some time to subscribe. So this is kind of a long-term thing, but we're very bullish on this, and this is why we're doing that. And the goal here is because the opportunity is so large, the goal here is to be growing DAUs fast for a very long time. Operator: Our next question will come from Nathan Feather with Morgan Stanley. Nathaniel Feather: Given the scale of the opportunity ahead that you're talking to, is the focus on greater long-term prioritization, a durable shift in strategy that we should expect to continue? Or would you plan to return to the current prioritization mix at some point? And then in connection with that focus, should we expect the pressure on bookings that you're seeing in 4Q to continue into next year with the durability of that shift? Luis von Ahn Arellano: Well, okay. So the -- for -- it's going to be years until we get to a point where we have an app that I think is just the best possible way to learn any major subjects. So we will be investing for a while. And that's important to know. I should say, though, we're not really guiding for example, to next year, but we're very excited about a lot of the initiatives that we're going to put out in the product for next year. We're going to have much better video calls that are for beginners. It's something we're calling guided video calls. The app is going to be a lot more social. We're going to have all the -- right now, the math course only has a little bit of content. In the next few months, we're going to have all of the common core K-12 content in the math. Our chess course is going to have player versus player and it's doing super well and growing really fast. We're going to have a full revamp of our music course. And for the top 9 languages that we teach, we're going to be able to teach from 0 to Duolingo score 130, which is where you can get a job in that language. So there's just a lot of things that we're very excited about. And I don't know, Matt, if you have something to add to that. Matthew Skaruppa: Yes. I think, Nathan, I want to put it back in the context of kind of what we've said before. So we've talked to you all and our investors for a long time about wanting to maximize platform LTV. And what Luis is describing is a change of small proportion right now that is going to help us grow users for a long time, get users to do more lessons, learn or spend more time on the app and, in general, be more engaged Duolingo users. And we think that if we do that and we do that effectively, we'll both grow users for a long time and will increase platform LTV for a long time. So I think that will -- we're down to bookings and the financials ultimately as well. I think there's a -- we guided to a really strong 2025. There was a -- so we think that this can exist like it has strong financial performance. And this is just a balancing act that we've always done, and we're telling you all that we want to make sure that at the present moment, we're balancing it so that we can grow really rapidly for a long time in the future. Operator: Our next question will come from Wyatt Swanson with D.A. Davidson & Company. Wyatt Swanson: I'd love to hear a bit more about how the new chess course is progressing. I think at Duocon, you mentioned millions of daily active users. On that front, do you see any differences in engagement or retention for users in the chess course versus your core language forces? And as it relates to that, kind of curious about your new PVP offering? Can you talk about like when you expect that to be fully rolled out? Luis von Ahn Arellano: Yes. So needless to say, we're very excited about chess. It is the fastest-growing course that we had. It's growing much faster than math and music and faster than the way originally languages grew. It's true we have millions of users. We're not saying exactly how many, but it is -- it's already surpassed math and music. The retention of chess users, it hasn't been around for all that long. Our chess course has been around for 3, 4 months. But so far, from what we can measure over the last 3 to 4 months is slightly higher than language learning and so we're very happy with that. We also -- as we mentioned, we started rolling out PVP. That means player versus player, so people being able to play with other people. At the moment, 50% of users on iPhones, on iOS can see it. It's not yet on Android, but it's going to come out on Android pretty soon. So we expect that within the next few weeks and small -- few weeks/small number of months, every person that has the Duolingo app will be able to do PVP chess. And over the next year, we just -- we expect quite a bit of growth from chess, and I'm very happy with it. Wyatt Swanson: Great. And then just one quick follow-up. What does prioritization of user growth instead of monetization look like? And how should I think about the actual changes in the app? Luis von Ahn Arellano: Yes. I'll give you an example. That's just -- okay. We've always had to make trade-offs between -- whenever we run an experiment, some experiments improve all metrics. Great. That's an easy call, just launch it because it improves all metrics and that happens. But there are times when experiments improve one metric but hurt another. I'll give you a fictitious example. If right now, a free user -- free users get 25 energy units at the beginning of the day and every exercise that they do spends 1 unit. If we were to do an experiment that decreases that from 25 to, say, 24. That's 1 fewer unit of energy per day. We know that would make us more money. It just does because more people run out of energy, so more people end up wanting to pay to subscribe. However, we also know that would decrease daily active users because it would frustrate some of the users. We've always had to make decisions about different judgment calls about this. What we mean is that what we -- the change that we are doing is that we are going to be prioritizing user growth over monetization in this type of judgment call. So in the fictitious experiment that I just gave you, we would not launch that experiment going from 25 to 24 energy units even if it meant quite a bit of bookings gains, if it has a real hit on daily active users. That's the type of stuff that we're doing now. And again, just to remind you, the reason we're doing this is because the opportunity ahead is so big that it's just good for us to grow fast for a long period of time. Operator: Your next question will come from Ralph Schackart with William Blair. Ralph Schackart: Luis and Matt, kind of going back to the line of questioning here. I guess maybe the question is like why now, what signals are you seeing on the shift or maybe the semi shift focus more on growth over near-term profitability as AI advancements, kind of what's prompting this? And then can you give us a sense of the duration of this pivot or shift? Is this something it's going to take -- I don't know all through 2026? Is it more short term in nature? Anything you can add there would be great. Luis von Ahn Arellano: Great. As to why now is -- I mean, it's a great question. The reality is that over the last couple of years, it has just become progressively clear and clear that we are in a unique point in time, particularly with education in terms of how education is going to happen in the world and also how well we can teach at Duolingo. We just see it in our own metrics in how fast we can put out content with things like video call. We just see how much it is improving every month. And so that just kind of has been coming for a while. And what has happened is that over the last month or 2, I've really rallied the company towards this shift. And really, it's like, okay, it's not like it was one day where I woke up and decided let's do that. It's just -- we really rallied the company to say look, opportunity is huge for us, let's prioritize, making sure that we can grow for a long period of time and also making an app that can teach really better than anything that we've seen before. As to how long this is going to take. This is -- it's an interesting question. I mean, I think you're asking something to the effect of like, well, is this going to hurt bookings and is this going to hurt bookings forever? I don't think that's the case. It's just -- it's going to take some time for us to see results -- financial results over these long-term investments that we're doing. But we're going to be acting for a while like there is a humongous opportunity because there is one until we get it. But I think we're going to be seeing good results from this even much sooner than that. So it's not like our -- we're saying, oh, throw away all the bookings or anything like that. Matthew Skaruppa: Yes. I think the only thing I'd add to that, Ralph, is that, I mean, you've seen us navigate this trade-off over the past 3 years as well, users have grown 55% per year on average over the past 3 years, and bookings has grown about 45%, and all of that while we were making similar trade-offs. And now we're just slightly focusing a little bit different as we navigate those. So it's not that we haven't been making any of them. And you've seen that like in the rest of the year guide and the Q4 guide, there was a small impact to this. It's not that big. And so would we expect some of that to persist into 2026? Sure. But again, I think as a general framing of this, it's a relatively small financial impact from this kind of reprioritization. And we think that, that's worth it because, as Luis said, it's a huge opportunity. So the risk reward seems right. Operator: Your next question will come from Alex Sklar with Raymond James. Alexander Sklar: Just following up on Wyatt's question and maybe, Ralph's, your remarks to Ralph at the end there. Just in terms of framing how meaningful some of these changes might be, is it as simple as maybe focusing a little bit less on paid conversion just to improve the premium experience today? Or are there kind of broader thoughts about maybe moving video call down into some of the lower packages? And then I've got a follow-up. Luis von Ahn Arellano: Okay. So a way to see this is what you said first. It is as simple as in some of the experiments which, by the way, not every experiment, many experiments we run, just improved our metrics. This is good. In some of the experiments where judgment calls are needed, we're going to shift the balance a little bit more towards user growth. It's not a humongous change, but it is a change. In terms of are we going to move video call to other tiers, et cetera, that is likely to happen, at least we're likely to attempt to do that, but that is unrelated to this. We were anyways -- we're always thinking about moving different features in the different plans and we'll test that. It may be the case that, I don't know, video call, but it may be the case that some of the Max features are better in super or even in the free tier, and we'll test all of that. And while we test that, we are trying to optimize lifetime value of our like platform LTV. We're trying to optimize for that. So you may see us test stuff like that. Matthew Skaruppa: Okay. Alex, I'm glad you said the free-to-pay conversion because that's exactly how like it really manifests in the business. And I just want to make sure we're clear on this. So for example, when Luis said over the past couple of months, he mobilized the company. In September, we saw some of this and what it looked like was slightly lower free-to-pay conversion, but that free-to-pay conversion was still growing year-over-year. So it's still good free-to-pay conversion. It was just on the margin. It was slightly lower. So I think that's an example as you think about the financial impact. You're right to point out that that's how it would flow through. Alexander Sklar: All right. That's great color there. And maybe for a follow-up, Luis. Just on the last call, you brought up this idea on video call about average number of words spoken per session. And that was kind of a new metric you were going to start testing towards. What have you learned so far now that you've kind of been optimizing for that metric? And then what's kind of the time line to get some of the changes into the product as a result? Luis von Ahn Arellano: Thank you for asking that question. So yes, this is actually a great metric and we've managed to move it. This is important to know about our company. Whenever we fixate on a metric, we are very good at moving it. And this particular metric, we have been moving at -- it's more than doubled this year in terms of average number of words spoken per Max subscriber and so we're very happy with that. In terms of changes to video call that you'll see coming soon, one that I'm very excited about is video call at the moment is a monolingual experience in the language that you're learning. So if you're learning Spanish, it's all in Spanish. That's great for practicing Spanish. But for beginner users, it's too hard. If you only know 20 words, it's very hard for you to have a full conversation just in Spanish. So the thing that we're testing now is these things we're calling guided video calls, which are basically bilingual. So it's -- if you're an English speaker learning Spanish, this would be part in English, part in Spanish, and it's a lot easier for beginner users. We're seeing that when we give that to beginner users, they actually speak more words per call because they're actually able to do something. And so we think that this is going to really help with Max conversion, by the way, I should say 2 things. Most of our users and certainly most of our Max subscribers are beginner users. And so we really think this will help with mass conversion. The other thing that I'll say is that these guided vehicles, we are not advertising them yet or we're not using them converting users into Max subscription yet. So we've put them out and the next step is kind of to tell nonsubscribers that these exist so that we can get them to subscribe. So we're pretty excited about what that can do to Max. Operator: Your next question will come from Ygal Arounian with Citi. Ygal Arounian: Just on AI and making education sort of better than ever, the way you're talking about things. Can you just -- does that accelerate your road map in terms of adding new language learning modules. I know within the ones that you currently have, but moving into new subjects and -- what is it about what's changing right now around AI that's letting you do that today? Luis von Ahn Arellano: Yes, the types of things you will see. It definitely accelerates our road map in more coverage of languages. That doesn't mean new languages. The reality is languages, it's very love sided what languages people want to learn. We now teach 40 languages. The rest that we don't teach is very little demand for them. But the top 9 languages that we teach, these are kind of like the Spanish and English and French and German and Italian like the big languages that people want to learn. The top 9 account for the vast majority of our users. And what you'll see us do is you'll see us go faster in terms of adding content to these top 9 languages. And right now, for most of them, we don't get you to the place where we want to get you, which is the Duolingo score of 130 in which is equivalent to CFR level of B2, which is where you can get a knowledge job in that language. You will see that over the next few months, we're going to be adding content that can do that for all the top 9 languages. The other thing that you'll see is you'll see us just at a lot more different modules in the way we teach languages that are just a lot smarter at teaching you. I mean they're going to adapt a lot better to you. And you're also going to see us just use a lot more things that use AI in the background to allow for many more free responses, so that it adapts a lot more to you. In terms of -- we're going to also be using AI for other subjects. We're using it pretty heavily for math for getting a lot more content out there. So we're going to do that. In terms of adding other subjects, at the moment, we're not working on any other subjects. I'm not going to say that we're not going to add other subjects next year. That may be the case. Like you saw with chess, it took us 9 months from idea to actually launching. So it is possible that we'll add other subjects next year, although a little unlikely, but it is possible. But at the moment, we're not working on any other subjects. Ygal Arounian: Okay. And then maybe sort of another broad one on AI. Can you just talk about what you're seeing around compute costs, gross margins coming in a little better than expected. And is that coming in faster than you think? And how is that impacting? One of the big questions we get is just generally on the competitive landscape and how AI is evolving that? What are you seeing there? Luis von Ahn Arellano: Okay. In terms of cost, look, costs are coming down. They've come down just without us doing anything, costs are coming down. For us, this has not been the top priority of optimizing costs. At the moment, the top priority is just making the best possible experience for our users that teach us the best and that is the most engaging. Every now and then, if we see low-hanging fruit we will -- in terms of optimizing costs, we will do it. But it's not like we have all of our people trying to optimize cost. And the reason we can do that is because most of our AI features, at least the ones that cost the most money are behind Duolingo Max and because the price of that is high enough that we're -- for us, the usage of AI is anyways profitable. So that's why we're not going -- not trying to optimize the cost on that. In terms of the competitive landscape, I think people say things like -- the 2 things that people say about the competitive landscape with AI are: number one, why would anybody want to learn a language with Duolingo when you can just learn it with ChatGPT. Okay. We're not particularly worried about that. We've said it before. The main thing that we do really well not only do we teach well, but the main thing that we do really well is keep people engaged. And in order to learn a language, you need to be engaged for years. It really takes years to learn a language coming every day and we need to keep you engaged actually doing it. And not only that, we also need to have curriculum for years for you to do that. So with ChatGPT, you can go there and you can ask it to teach you a few words here and there, but it's not like you can have really curriculum for years that teach that. So we're not particularly worried about that aspect. And then the other thing that people have said that they're worried about is, oh, well, nobody is going to want to learn a language because we're going to have simultaneous language translation and okay. Also not worried about that. I believe in 100% of the Google I/O conferences over the last 10 years, they have showcased simultaneous language translation. They do it every single year, and it's good. It works. But this has been happening for the last 10 years, and we have not seen the desire to learn a language go down at all. In fact, it has come up. And I think the biggest reason for that is because if you look at our users, they fall into 2 big categories. One big bucket is people who are learning a language as a hobby. It kind of doesn't matter whether our computer can do that because -- they're the same with chess, by the way. Computers are way better than humans at chess, but still we have millions of people wanting to learn chess. So it doesn't matter if it's a hobby. The other big group of people that are learning a language with us are people who are learning English and they actually want to learn English. Like that is -- for them, being able to have like a phone that they have to hold out, it's just kind of -- that's not what they want to do. So we just -- we're not particularly worried about that. It just so happens that people like to tweet about that. We're not worried about it. Matthew Skaruppa: Just a couple of points on that. Since we -- the AI costs and Max, just to make sure everyone's aware, Max is now 9% of our subscribers. It doubled in Q3 year-over-year in terms of bookings. So it's clearly doing well in that regard. It's underperforming our lofty expectations for it, though. We expected a bit more than that. And so that's why Luis is talking about guided calls and all the other things we're going to do to help it achieve what we think it can achieve. And then finally, because AI costs have come down, though, I don't want folks to take away that we're not willing to invest as Luis is talking about the seminal moment we're in to go attack a very large opportunity. We're -- we've shown that we can grow to this scale incredibly profitably. We're guiding to a 29% adjusted EBITDA margin for the year, which is very, very close to our long-term adjusted EBITDA margin range. And so as we do that, we are not going to be afraid to invest in innovation. And so we're going to make those investments over time. Operator: Your next question will come from Mark Mahaney with Evercore ISI. Mark Stephen Mahaney: Okay. A couple of things I wanted to go through. One, I know you had some price actions or price increases earlier in the year. Have you -- what kind of reactions have you seen to those? Secondly, I think you were going to hold off on doing any other -- I think it was just on like new people coming in on the standard plan, but your thoughts on rolling out other price increases. I don't think you're going to do that now given your prioritization of user growth in the fourth quarter and beyond, but just talk about that. And then third, just so we're clear on the deceleration in bookings and revenue growth in Q4 is largely due to the fact that you're going to sort of slow down the conversion rate from free to paid and really just focus on user growth. I just want to make sure that that's the main driver, and it's not like you're seeing a reduction in retention amongst paid subs, higher churn amongst paid subs possibly because of the price increase. Luis von Ahn Arellano: I mean I can take some of those. I'll take the last one. Yes, the change in Q4 is pretty much because of the shift to go to longer-term initiatives. And that means user growth and also spending some of our -- not only are we prioritizing user growth, we're also spending relatively more effort, shifting some effort to teaching better which we're taking some of that from our monetization efforts. So that's basically what you're seeing. And it's not like a humungous thing, but it is a shift. In terms of price increases, you'll see us -- we'll be testing prices. We'll be testing all kinds of things. And we will see us launch the things that we think are good for the whole platform. I don't know exactly what's going to win, but you'll see us test prices. And by that, I mean up and down. We'll probably test some prices much lower or a package -- and this I'm speaking about things that we may do, but I don't know if we'll end up doing them if we don't like the results. But we'll probably do a package that is like half price, that is like super light. That's the type of stuff that you may see us do. Matthew Skaruppa: Yes. And Mark, just to round it out, I think 2 points. One is, we've talked a lot about taking price up as a price point every now and again, we do that. Luis just said, we're going to continue to experiment with that, and that will continue to happen. ARPU has gone up this year, every quarter, kind of mid-single digits. That's also reflected in the guide and that's mainly come more from Max than it has from price point changes. I will say that we did take pricing at various times over the past a little bit and that does influence our ability to discount during our one and only discount of the year. So again, if you have a higher price, you can run different experiments with the level of discounting and one of the things that happens every Q4, when we talk about it, as we talk about the ability in our Q4 bookings guide because Q4 is our most variable quarter because we run this New Year's promotion. This year, we did energy, which is a core pricing mechanic, and we have never run a New Year's promo with energy. And so we're going to be experimenting with all sorts of things as we get towards the end of the year with the promo on how we run it, how we show it and display it, when we run it, all of these type of things. So that is also baked in here in the guide. Operator: Your next question will come from Ryan MacDonald with Needham & Company. Ryan MacDonald: Luis, maybe stick with me a little bit on this question. I apologize in advance. But how learners -- people learn differs by generation and by demographic. I think we've already seen that with sort of advanced English learners require -- meeting different requirements from Duolingo than maybe the traditional core base. So can you talk about how -- or if you are going to be targeting certain demographics, Gen Z learns or generations, Gen Z seemingly learning different than millennials with some of these product updates? And then how should we think about the metrics that you will be looking towards to prove out this works? Because obviously, user growth can be beneficial -- can be benefited by some changes, but that might not always mean that, that sticky user growth where MAUs might not always convert to DAUs. So again, long-winded question, I apologize. But how are you targeting or what are you targeting in terms of these changes? And then how are you measuring success? Luis von Ahn Arellano: Yes. I mean you asked about -- it's true. Some people learn different than others. That is true. But you would be surprised that there are a lot more similarities than differences. The reality is, I mean, this is not just generations, also geographically. I mean we always hear these things about like, "Oh, well, people in that country do that or people in that country do that." What we have found time and again is that not only a lot of people learn pretty similarly, also the things that get people to use the product more are pretty similar across the geographies. I mean like a streak, it works in every country or it's just -- so there's a lot of similarities. So at the moment, you're going to see us just make a better course for the masses that's what we're going to be spending most of our effort on. Of course, the courses do adapt to each individual and probably one of the places where there is most adaptation that is needed is the pace of learning really is different. And it just happens that as you get older, you get slower. That is just -- that's not controversial as somebody who's getting older and slower, I can tell you that. So the pace -- but that's very easy to adapt. We're just -- we really do just adapt to the pace pretty easily, and we've been doing that for a while. Now in terms of the metrics that we're going to be looking for, certainly, user growth is an important metric that we're going to be -- that we're really keyed in on right now, probably the most important metric in the company. So we're going to be looking at that a lot. Now the thing about improvements in teaching, and this is what I was saying before, they don't translate to user growth immediately because if you improve a course and it's much better, over time, maybe people are starting feeling that they're learning a little better, so there's more retention or maybe there's more word of mouth because the people are saying like, it really works for me. Let me tell you about it. So it does translate. We know that improvements in teaching do translate to user growth, but it's not immediate. And this is kind of what we mean by long term. What we're going to be looking at that, there are things like just improvements in learning outcomes, we can measure how well people are learning. And the good news is that really almost every year -- since we started measuring that every year Duolingo is actually teaching better than the year before. We're probably going to see improvements in how well we teach, move faster than in the past because we are taking it -- we're spending more effort on it. So we're probably going to be seeing that and our hypothesis, but it is a hypothesis that I very much believe in, is that, that will translate to user growth. It's just not going to be linear or quick. Ryan MacDonald: Makes sense. Okay. And I'm also older and slower, Luis. So no problems there. Luis von Ahn Arellano: Aren't we all? Aren't we all? But wiser, but wiser. Ryan MacDonald: We hope. We hope. Matt, I know you probably don't want to obviously get into a conversation about 2026 guidance or anything like that. But obviously, a lot of course investments, a lot of content investments. Can you just give us a sense of like the magnitude we should expect here? And like is there an expectation still that you can continue to expand EBITDA margins even through this process as we think over the next couple of years? Matthew Skaruppa: Yes. No, I appreciate Ryan. And even though you asked a very [indiscernible], I'm not going to guide to 2026 on this call, we'll do that in February. But I will -- and I mentioned this on an earlier question, we have made incredible progress towards our long-term margin while we've been growing the platform to a scale that has 135 million monthly actives, and we guided to nearly $1.2 billion of bookings this year. So we've [indiscernible] everyone that we can scale the business, operate with discipline and expand margins. And that's great. And we want to continue to do that. And we're going to continue to operate with discipline and grow the business along the lines of what Luis is talking about, hopefully to a whole other order of magnitude. While we do that, though, we're not afraid to invest. We think we can invest and still operate very profitably. But we are not going to prioritize linear margin expansion from here when we should be -- we view the opportunity is so big, so we can prioritize investing. That's how we think about it. Operator: Your next question will come from Andrew Boone with Citizens. Andrew Boone: I'd love to talk about kind of a topic that we've revisited maybe 2 or 3 years ago, right, in terms of advanced English learners and basically the improvement of efficacy driving those learners to the platform and kind of like whether AI has accelerated that and whether some of that thesis came to fruition and whether any of the slowdown in growth is impacting those types of learners. Or is there anything else you can kind of speak to in terms of that cohort? Luis von Ahn Arellano: Yes. As we mentioned -- I don't know whenever it was, a couple of years ago, we started talking about this. English learning is a major opportunity. I mean this -- 80% of the people who are learning a language in the world are learning English. And so we started investing in teaching better for English learners. We have done that -- we've done a major launch here throughout this year. Now all of our English courses now cover up until Duolingo score 130, which is the place where you can get a job -- a knowledge job in that language. So we have that, and we've been improving how well people learn English and we are seeing that in the metrics, our number of English learners and certainly a number of advanced English learners has been growing steadily. The other thing that I'll say is that the regions at the moment that are growing fastest are English learning regions. And so we're seeing that Asia is a really good example of that. There's -- we are certainly still posting or have never stopped posting unhinged content in Asia kind of from the social media side, but also we're just getting a lot more users there. So that's the parts that are growing the fastest. So I'm pretty happy with the progress there. We did mention that it was going to take a while, and it is taking a while for really the word to get out that Duolingo is very, very good at Advanced English and so while I believe that we've made good progress in that, we're still not there yet as this is a thing that even throughout next year, we're going to be seeing an increase in the number of advanced English learners that we're going to have. Andrew Boone: And then can we just get an update in terms of family plan? I know there were a bunch of features that you guys were adding and then just broader adoption, where are we today? And where can that go? Matthew Skaruppa: Yes. Yes. In terms of broad adoption, the Family Plan continues to do well. I think it was about 29% of subscriber [indiscernible] in the most recent quarter. So it's grown nicely. And I think there's a bunch of reason to believe that it's going to continue to grow nicely. For example, last year -- in Q4 of last year, really everything basically went right. which is why we grew so fast last year, I think, 42% year-over-year last year. Part of that was that the family plan during New Year's promo did really well. So there's reasons to believe that we still have room to run on Family Plan, Andrew. Operator: Your next question will come from Justin Patterson with KeyBanc. Justin Patterson: I'd love to hear a little bit more about just learnings from energy. There was a lot of optimism on this product, roughly 90 days or so ago. So I would love to hear how just that has evolved and might be playing into some of the trends we're talking about on this quarter. And then when we think about just the arc of reacceleration here, how much of this is really dependent on getting the product right versus really tapping into that cultural relevance that Duolingo had earlier this year and then and encounter that speed bump around the social backlash? Luis von Ahn Arellano: Okay. So energy, we're very happy with energy. It did exactly what we wanted it to do. It increased bookings and also increased DAUs. So that was good. The kind of the way it went is we launched all of energy for our iOS users first, then for Android. We rolled it out over a span of a couple of months for each one of these platforms. By now, it is done. We have, I don't know if it was a couple of weeks ago, we have every single person who has updated the app in the last, I don't know, 6 to 9 months has energy in there. And we're very happy because it did exactly what we expected it to do, and it's been launched. Now in terms of -- you asked a question about product versus kind of marketing, look, both are important for us to grow, product and marketing. The longer-term thing is if we have a product that is extremely retentive that also teaches really well, that's the best thing you can do, and that's where we spend most of our efforts, and we're going to continue spending most of our efforts on that. Yes, the cultural relevance matters. But to me, that's just an accelerant to something that is where the main dish is the product. In terms of kind of being culturally relevant, et cetera. We really are seeing a complete pickup on that. I don't know if you've watched, for example, the things that happened in Halloween. I mean there were throughout the world, certainly, there were thousands of Halloween costumes that were just Duolingo costumes. So we see that -- we're seeing that quite a bit. And so we're not particularly worried about that. Matthew Skaruppa: Yes. And the only thing I'd add to that, Justin, is there is -- we talked about it on the last call, which is we've had some success, particularly in the U.S., spending a little bit more on actual marketing, seeing a nice return in the U.S. in particular. And so that happened in Q3, and we're going to -- it's relatively small dollars, but we're going to continue that into Q4 because the U.S. growth, as we've talked about before, is slower than the rest of the world, in part because of the rest of the world. is growing really rapidly. But that continues. And so that's just the other element we'd add to the marketing mix. Operator: Our next question will come from Shweta Khajuria with Wolfe. Shweta Khajuria: I actually have 2. First one is on China. If you could please talk about how engagement has trended in China through the quarters, through the year and what your expectations are, what you're seeing there? And even if you could comment on likelihood of Max there this year or next. And then second is on renewal rates at Max in particular. Could you please talk about how that trended in Q3 so far and what your expectations are? Luis von Ahn Arellano: Okay. Let me take the China one, and then I'll let Matt take the renewal rates one. Okay. China. We are, of course, doing very well in China. I believe it's our fastest-growing country. It is our second largest country in terms of DAUs and growing fast. It's still not that large of a fraction of our business, it's about 5%, 6% of our business at the moment, but it is growing, and it is growing very fast and the engagement is very high, retention is high. Max in China is being tested at the moment. And so we have the permission to test it in China because of this is an LLM you need to get permission to test this. So it is being tested. And so this is going to launch in some number of weeks or months, it's hard for me to tell you exactly because it does depend on approvals, but it's moved along pretty well. So what I'll say at the very high level about China is that it's a pretty major opportunity for us. But of course, China comes with a risk. There's geopolitics, et cetera. So the way we're treating it is we're not spending a crazy amount, for example, in marketing in China. We're spending a very modest amount there, but we just happen to be growing quite a bit. So it's nice and it's a really nice opportunity. But if at any point in time something happens, we just didn't end up investing all that much there. That's kind of how we're treating it. And then I'll let Matt talk about Max renewals. Matthew Skaruppa: Yes. So just to put it in context, Max renewals are important, but the broader -- I think there was a question earlier on broader platform retention. That remains strong, no real changes in that. And then on Max, in particular, we mentioned in the last call that we were going to start to see in Q3 and then in Q4 larger cohorts come through the Max renewal cycle. And what we saw is that Max right now, again, there's still small as they've been ramping up, but was renewing slightly better than Super. But it's early, and Q4 is relatively a relatively sizable cohort. So we'll talk about this again on the next call. Operator: Your next question will come from Hanyi Cai with CITICS. Hanyi Cai: It's so good to have you connected. And it's really excited to hear the last question from like Max is finally rolling out in China. And I'm going to expand that question a little bit further because geographically, you see -- you saw that China was the fast-growing country in the past quarter. And for this -- in this quarter, you talked about like growing more users. So what geographically would you think -- like which country do you think like -- or which region do you think will be most potential to grow in the next quarter? And my another question is related to your Duolingo score you published in this year's score count because like that was related to the efficacy. And so I'm wondering like how do you think that this kind of efficacy measurement relate to the core user performance metrics? And how -- will that be like the key motivation for you to grow the users in the next quarter? Luis von Ahn Arellano: Yes. Thank you for the question. So region-wise, the fastest-growing region as a region is Asia for us and we expect that to be true for a bit. I would expect that's going to be true. I don't know the future, but I would expect that to be true for a bit. And certainly, China is leading that, but it's not just China. It's basically all of Asia that is growing pretty fast. In terms of the score, we're very excited about the score. Our announcement was that first of all, all of our major language courses now have the Duolingo score. And also you can share the Duolingo score on LinkedIn. We're seeing quite a good number of people sharing their score on LinkedIn. And so that really means they're using it kind of for job purposes and we have that -- the score there. The score also is in the same range as our Duolingo English test, at least for English learners. And English learners are the one that would care more about a score like that, particularly English learners in Asia are the ones that would care more about a score. So we're very excited about that. And it is something -- the ultimate goal for it is to become the proficiency standard for at least the major languages and certainly for English, where rather than when people ask you how much French do you know or how much English do you know at the moment where people say it's like, "Oh, I'm intermediate." We want people to say, "I am a Duolingo 60 in French or I'm a Duolingo 80 in English." That is what we want. And we think we're making pretty major progress. In the case of the score, particularly for English, the Duolingo English test is now accepted by over 6,000 educational institutions in the world, including all, Ivy League universities and also the 99 of the top 100 universities in the United States, accept the Duolingo English test. So we think the combination of that prestige plus the large scale that we have in the app plus doing things like sharing with -- on LinkedIn will hopefully get us to be the standard for proficiency. Hanyi Cai: Okay. And one thing is that we are not using LinkedIn that most like in China. So we are really hoping to like connect it to another social media platform [indiscernible]. Luis von Ahn Arellano: We are working on that. I can't really give you details on that, but we are working on -- it's not just going to be LinkedIn that we have the score on. We're working on that. Operator: I'm showing no further questions, and this concludes the Q&A section of the call. I would now like to turn the call back to the host for closing remarks. Luis von Ahn Arellano: Thanks, operator. I'd just like to thank everyone for joining us, and we look forward to seeing you on the next call.
Operator: Good day, everyone, and thank you for standing by. My name is Arjarie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cytek Biosciences Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Paul Goodson, Head of Investor Relations. Please go ahead. Paul Goodson: Thank you, operator. Earlier today, Cytek Biosciences released financial results for the third quarter ended September 30, 2025. If you haven't received this news release or if you'd like to be added to the company's distribution list, please send an e-mail to investors@cytekbio.com. A copy of this news release is also available on the Investor Relations section of Cytek's website at investors.cytekbio.com. Joining me today from Cytek are Wenbin Jiang, CEO; and Bill McCombe, CFO. Please note that we will be referencing a slide presentation during the call today that has been posted to the Investors section of our corporate website. As a reminder, we will make statements during this call that are forward-looking statements within the meaning of the federal securities laws, including statements regarding Cytek's business plans, strategies, opportunities and financial projections. These statements are based on the company's current expectations and inherently involve significant risks and uncertainties that could cause actual results or events to materially differ from those anticipated in these statements. Additional information regarding these risks and uncertainties appears in our slide presentation in the section entitled Forward-Looking Statements in the press release Cytek issued today and in Cytek's filings with the SEC. This call will also include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles. Additional information regarding our use of non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures may be found in our slide presentation and in today's press release. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Except as required by law, Cytek disclaims any duty to update any forward-looking statements, whether because of new information, future events or changes in its expectations. This conference call contains time-sensitive information and is accurate only as of the live broadcast, November 5, 2025. I want to thank those of you who attended our User Group Meeting on October 22 in New York City. Our next and last User Group Meeting for 2025 will be just 2 days from now on November 7 in Montreal. Cytek also participates in a variety of industry conferences worldwide, often hosting a booth where attendees can see our products and learn about them from our knowledgeable team members. As always, these events are primarily geared to the scientific community, but they may offer an opportunity to investors and analysts to interact with our users of technologies and to learn why Cytek's instruments are so highly valued by our customers. We have a limited number of spaces to accommodate members of the financial community, so if you are interested in attending any of these events, please contact me in January when we will have a list of 2026 events. With that, I will turn the call over to Wenbin. Wenbin Jiang: Thanks, Paul. Welcome, everyone, and thank you for your interest in Cytek. On today's call, I would like to start with a discussion of our performance in the third quarter. Next, I will give you some highlights of our progress during the third quarter on our strategic priorities before turning the call over to Bill for a more detailed look at our financials and our outlook. Turning to Slide 3. In the third quarter of 2025, total revenue reached $52.3 million, representing a year-over-year increase of 2% compared to the same period in 2024. This growth was primarily driven by strong double-digit gains in the Asia Pacific region and the continued momentum in our recurring revenue businesses, specifically service and reagents. Turning to Slide 4. Geographically, APAC, including China, led our performance with robust revenue growth across all categories, including instruments, reagents and service. In the U.S., we saw double-digit positive year-over-year overall revenue growth driven by continued momentum in service revenue. In contrast, EMEA experienced a double-digit year-over-year revenue decline, largely due to significantly reduced instrument sales to academic and government customers and a modest decline in instrument sales to pharma, biotech and CRO customers. In our Rest of World region, which includes Canada and Latin America, we achieved double-digit overall revenue growth compared to the third quarter of last year. Turning to Slide 5. Notably, I wanted to call out that excluding the performance in EMEA, Cytek posted double-digit revenue growth in all worldwide regions in the third quarter, as you can see from this slide. Focusing now on instruments. Our instrument revenue to pharma and biotech customers grew 12% worldwide, including 10% in the U.S., driven in part by the launch of our Aurora Evo instruments. Instrument revenue in APAC, including China, grew 20% year-over-year and grew 32% year-over-year in rest of the world. This strong momentum is being driven by a positive funding environment for academic institutions in these regions. In the U.S., overall instrument revenue was flat compared to a year ago. U.S. instrument revenue was driven by improving demand from pharma, biotech and CRO customers, which we believe stems from greater clarity around the macroeconomic and industry factors. However, these instrument revenue gains were offset by continued softness in the academic and government sectors, where funding uncertainty persisted due to the evolving U.S. policy landscape. In the quarter, we did begin to see some stabilization in this end market. However, academic and government demand remained under pressure, resulting in no net overall instrument revenue growth in the U.S. in the third quarter. In EMEA, instrument revenue declined, particularly in the academic and government sector, which we believe reflects a broader shift in public spending priorities. Looking at our recurring revenue sources, service revenue continued to grow strongly, contributing meaningfully to our overall base of recurring revenue. APAC was particularly strong broadly, including in service and reagents. Service revenue growth was driven by our expanding installed instrument base and strong utilization of our products. Reagent revenue grew 21% globally year-over-year, supported by operational improvements, including faster delivery times and enhanced customer service. I would now like to update you on the progress our team has made across our core strategic pillars; instruments, applications, bioinformatics and clinical to further solidify Cytek's position as a market leader in next-gen cell analysis solutions. Starting with our core instruments on Slide 6. In the third quarter, we expanded our global footprint by 161 instruments, bringing Cytek's total installed base to 3,456 units. Within our instrument portfolio, our Aurora cell sorter was the strongest contributor in Q3, growing 35% year-over-year. We believe this strong growth is notable during a time when competing instruments have been recently introduced to the market. Late in the second quarter, we introduced the Aurora Evo Analyzer, and I'm pleased to report that it has had a strong reception. The Aurora Evo system is a demonstration of Cytek's commitment to maintain its position at the forefront of technology development in the flow cytometry industry. It offers a unique combination of high throughput, industry-leading data quality, small particle detection, ease of use and automation and harmonization features. We expect it will be the standard against which other systems are measured. We included these new features after listening to what our customers wanted. And by the strong reception during Q3, it's clear that they are deriving value from the new features we added to create the Aurora Evo. Finally, regarding instruments, I want to mention that our Muse Micro Analyzer has gotten a very strong reception since it was first introduced this past March. The Muse Micro offers advanced microcapillary fluids, enhanced optics, better software and broader assay compatibility, all while maintaining affordability and a compact design. It's an ideal choice for researchers and the labs seeking cost-effective flow cytometry systems. Turning to our next growth pillar applications, which includes reagents. We remain focused on driving our reagent product engine growth. And as part of this commitment, we recently announced the expansion of our European headquarters at our facility in Amsterdam's Life Science District. This site increases our footprint in EMEA by more than 40%, including a dedicated customer service and training center. To further advance our reagent business, we additionally transitioned reagent warehouse operations to this site to improve operational agility and efficiency, reduce turnaround time and provide reliable and consistent experiences for our customers. Over time, we expect our recurring revenue base to continue growing. Moving to bioinformatics. As we have mentioned before, our Cytek Cloud continues to provide important benefits to our users. Our software tools empower customers to streamline their experiment workflow, which drive adoption and utilization of our cell analysis solutions and growth in our reagent and service businesses. As of September 30, 2025, we had more than 22,600 Cytek Cloud users, representing remarkable growth of over 40% since the beginning of 2025. This represents an average of almost 8 users per installed Cytek FSP instrument. We believe this growth reflects the loyalty our users have to our product portfolio and the halo effect of the Cytek Cloud driving the utilization of our technology platform, including our recurring revenue offerings in reagents and service. As a reminder, our Cytek Cloud is transforming how researchers design and conduct complex flow cytometry experiments. At its core is our proprietary AI-powered Panel Builder, which saves weeks or months of time by automating critical steps like fluorochrome selection and marker matching. Scientists can then conduct virtual experiments before committing to real wet lab studies, reducing trial and error and improving data quality from the start. Moving to clinical. We continue to believe the clinical market represents an attractive business opportunity for Cytek. In the third quarter, Cytek took center stage to showcase our complete cell analysis solutions at several industry conferences. One notable event was the ESCCA meeting in Montpellier, France in September. The event featured presentations by independent researchers discussing the importance of special flow cytometry in performing in vitro diagnostic procedures and acknowledging that Cytek's Northern Lights-CLC system is the only special analyzer approved for clinical use in the EU. With that, I will now turn the call over to Bill for more details about our financials. William McCombe: Thanks, Wenbin. Turning to Slide 7 and our third quarter financial results. Total revenue for Q3 was $52.3 million, a 2% increase versus Q3 of 2024. This reflects strong growth in service and reagents worldwide, in instruments in Asia Pacific and stabilization in U.S. instrument revenues. These were offset by continued weakness in EMEA instrument revenues. We saw a 14% growth in total revenues from biopharma customers globally versus the year ago quarter, offset by a similar decline in revenues from government and academic customers. Product revenue, which is comprised of instruments and reagents, decreased 4% versus Q3 of 2024, driven by a 26% decline in EMEA, offset by 19% growth in APAC. U.S. product revenue was up 20% versus Q2, but flat versus Q3 of 2024, which was the strongest quarter of product revenue in 2024. Our performance in the U.S. was attributable to a 10% increase in instrument revenue from pharma and biotech customers, driven by the launch of our new Aurora Evo instrument and an improved industry environment. This was offset by a 13% decline in instrument sales to academic and government customers as funding pressures continued. In EMEA, the decline in product revenue was primarily driven by a significant percentage decline in revenue from academic and government customers, which we believe is a result of a shift in government spending priorities and a single digit decline from pharma, biotech and CRO accounts. While our reagent revenue is still a single-digit percentage of our total revenue, it achieved its highest ever quarterly revenue in Q3, representing 21% growth over the prior year quarter. As Wenbin mentioned, this was largely due to a concerted effort by our reagents team to shorten delivery times and to improve customer service. Service continued to deliver strong revenue growth with 19% growth in Q3 versus the prior year quarter. This was driven by growth in the installed base and active usage of our systems. Turning to geographic market performance. U.S. revenue grew 12% in Q3 versus prior year, driven by service revenue growth. EMEA declined 28% due to lower instrument revenue. APAC, including China, increased 25% in Q3, driven by growth in instruments, service and reagents. GAAP gross profit was $27.6 million, a 5% decrease versus Q3 of 2024. GAAP gross profit margin was 53% versus 56% in the prior year quarter. This was due to both a lower service gross margin resulting from an increase in headcount and travel costs and a lower product gross margin as a result of lower product revenues, higher materials and tariff costs and higher overhead. GAAP gross margin improved sequentially from 52% in Q2 due to higher product gross margins on higher product revenues and improved overhead absorption. Adjusted gross profit margin, which excludes stock-based compensation and amortization of acquisition-related intangibles was 55% in Q3, down from 60% in the prior year quarter and down from 56% in Q2. Operating expenses were $36.7 million in Q3, up $3.5 million or 10% versus Q3 2024. This was driven by higher general and administrative expenses, partially offset by lower R&D and sales and marketing expenses. Research and development expenses were $9 million, down 9% versus the year ago quarter, primarily due to lower headcount and compensation expenses, partially offset by higher engineering expenses. Sales and marketing expenses were $11.7 million, down 6% versus the year ago quarter due to lower headcount and compensation expenses and lower outside services expenses. General and administrative expenses were $16.1 million, up $5.2 million or 47% from the year ago quarter. The increase was primarily attributable to legal expenses related to a patent litigation case, and to a lesser extent, a $0.7 million non-recurring non-cash write-off of deferred offering costs for an at-the-market equity financing facility entered into in 2022, which expired in the current quarter. Loss from operations was $9.2 million for Q3 versus $4.2 million in the year ago quarter, driven by $1.5 million lower GAAP gross profit and $3.5 million higher operating expenses. Net loss was $5.5 million in Q3 versus net income of $0.9 million in the prior year quarter. This was driven by 3 factors. First, higher loss from operations of $5 million, as mentioned above. Secondly, net other income decreased by $3 million to $1.4 million from $4.4 million in the prior year quarter. This was primarily driven by $0.9 million of FX losses in the current quarter versus $1.1 million of FX gains in the prior year quarter and lower interest income of $0.9 million. The higher loss from operations and lower net other income totaling $8 million were offset by an increased tax benefit of $2.3 million in the current quarter as a result of a higher effective tax rate versus a tax benefit of $0.8 million in the prior year quarter. Adjusted EBITDA, which excludes stock-based compensation, foreign exchange impacts and the nonrecurring charge of $0.7 million for the write-off of deferred offering costs declined to $2.5 million from $7.6 million in the year ago quarter. This was due to lower gross profits of $1.5 million and higher operating expenses of $3.5 million due to the factors I described above. Free cash flow was slightly negative at minus $0.3 million in the quarter, modestly decreasing our total cash and marketable securities to $261.7 million. Lastly, turning to our full year guidance on Slide 8. We are reaffirming our full year 2025 revenue outlook for a range of $196 million to $205 million, assuming no change in currency exchange rates. This is based on our year-to-date results, our pipeline of instrument sale opportunities for Q4 and the good momentum we see in our service and reagent businesses. Our performance this quarter showed continued strong growth in instruments in APAC, stabilization in U.S. instruments and solid growth in our recurring revenue businesses. We expect these trends to continue, and our outlook remains consistent with our views in previous quarters that we would see slowly improving trends as the year progressed. We have noted this in the U.S. market, whereas EMEA remains challenged. Importantly, we continue to believe our performance in Q3 and in 2025 year-to-date reflects a strong market leadership position in what has been a difficult environment. Our core business is showing positive growth in all regions except EMEA, and our recurring revenue continues to grow. Notwithstanding some temporarily elevated operating expenses, we delivered positive adjusted EBITDA, which we anticipate will continue in Q4. We believe we will perform well relative to the overall flow cytometry market, which is also beginning to show signs of stabilization. Finally, our strong balance sheet also gives us the ability to continue investing for growth. With that, I will turn it back over to Wenbin. Wenbin Jiang: Thanks, Bill. Turning to Slide 9. I want to close by first thanking our Cytek team for their continued commitment to advance our mission amid a challenging and evolving market environment. We believe our third quarter results are encouraging and demonstrate our established brands and strong technology and underscore our market leadership position. Our team continues to execute with discipline, expanding our global installed base, growing our recurring revenue streams and sharpening our focus on profitability and cash generation. At the same time, we are committed to making targeted investments that will reinforce our competitive position and accelerate our growth. While we remain mindful of broader market conditions, we believe Cytek is well positioned to deliver long-term value through our differentiated technology portfolio, durable growth drivers, strong balance sheet and global reach. I want to thank everyone for joining today's call, and we will now open it up for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of David Westenberg of Piper Sandler. David Westenberg: I wanted to actually maybe just start with the product launch, the Aurora Evo. Can you talk about the differences in this product versus the other products in the market and how we should think about growth contribution from new products in the next couple of years? Wenbin Jiang: I think this new product, basically, what we have done here is we listened to our customers, specifically from pharma biotech customers. And in terms of the features, we have included like higher throughput and small particle detection, automation and harmonization, all of those really suited for those pharma customers. David Westenberg: Got it. Just maybe speaking of pharma customers, and actually, I was going to say, is there anything to take away from the double-digit growth in CROs? Meaning, are there -- are they potentially leading indicators that biopharma might want to own their own instruments? William McCombe: When we talk about biopharma and CROs, we're talking about one category. So, when Wenbin talks about biopharma customers, we're grouping all of those together. And as we noted in the remarks, our instrument revenue to that group grew 12% worldwide and 10% in the U.S. So, we've received a very favorable response. David Westenberg: Maybe I'll ask another way. In the press release, it mentioned CROs. I think it said it grew at 14%. Now normally, when I think about CROs and their usage... William McCombe: Yes. No, that -- what we referred to was the aggregate group of customers, which are comprised of pharmaceutical companies, biotech companies, CROs and distributors. That's one group of companies. And so -- yes, what the press release said was that total revenues to those -- that aggregate group rose 14% in the quarter. And what I just mentioned is to that same group, instrument revenue rose 12%. And the big pharma companies are probably the largest component -- subcomponent of that group. So that's the way to think of it. David Westenberg: Just maybe on the double-digit revenue growth in the U.S. Can you remind us of how much of that might be -- sorry to say, but easier comps versus just good execution? And I mean, are we now, in your opinion, at kind of the late innings of a -- maybe I'd say, early innings of a recovery instead of late innings of stagnation. And I'll take it offline from here. William McCombe: I think -- no, it's not -- the third quarter of last year was pretty strong. So, it's -- the performance in the U.S. is a function of strong service and reagent growth and the fact that our instrument in the U.S. were flat. But as I mentioned in my remarks that the U.S. instruments that Q3 of last year was the highest quarter of 2024 for U.S. instruments. So, the benchmark was actually pretty high. And so, to be flat against that is quite a good achievement. On the -- I'm talking about -- it's quite a good achievement on the instrument side. And then in addition to that, we had strong growth in services and reagents. Does that answer your question? Operator: Your next question comes from the line of Brendan Smith of TD Cowen. Brendan Smith: I appreciate all the color. Wanted to ask just a little bit more actually about the quality of conversations you're having with customers in recent weeks. And if there's any additional color you can maybe provide about their appetite to spend more on some of these instruments next year as they're really starting to put together their 2026 budgets. And I guess, if so, do you have any sense which of your offerings you think they'd maybe reach for first once some of those dollars start to become maybe more readily available into next year? And then I guess just if you have -- if you're noticing maybe any geographic differences in your answer to that question. William McCombe: Yes. I think what -- the trends that we currently see in the business are that Asia Pac is strong, is growing strongly in -- the Asia Pac instrument business is growing strongly. Service momentum continues to be strong as does reagent. As we noted, EMEA continues to be challenged. And the U.S. is following a path that we expected from -- that we talked about in earlier quarters of gradual improvement as the year progressed. And we've seen that. And so, we've seen a stabilization in the U.S. instrument business, where it's been basically flat versus last year for 2 quarters in a row now. And look, we don't have a crystal ball about next year. But based on -- assuming there are no exogenous shocks, we expect those trends to continue. Within the U.S., the biopharma sector, as we noted, has been -- within U.S. instruments, the biopharma sector has been strong. Academic and government has been weak, but the 2 have offset each other. So, it's a bit early for us to be talking about 2026. The only comment we would make is, we generally expect the areas of the business that are growing to continue to grow, absent exogenous factors. And I think at some point that Europe has to hit bottom. It was down quite significantly this year. And you'll see it's down almost 30% this year on an aggregate revenue basis. And one would think that, that rate of decline has to slow. Operator: Your next question comes from the line of Mason Carrico of Stephens. Harrison Parsons: This is Harrison on for Mason. Can you walk us through your key assumptions behind the 2025 outlook? Are you assuming the typical 4Q step-up in instrument placements or something more muted, given the macro environment? William McCombe: We would -- we think that we don't have any reason -- let me back up. We typically see a budget flush of -- from the biopharma customers in Q4. We don't have any reason to doubt that that will -- or to expect that that will not happen this year. So, we would expect some typical seasonal improvement in Q4. And again, I'd go back to what I just said about the outlook that service and reagent momentum is strong. Asia Pac is strong. U.S. is stable, and we think EMEA will continue to be under pressure versus last year. Harrison Parsons: Understood. And then just wanted to ask on -- ask a little bit more about the U.S. How has the U.S. academic and government demand trended since last August? And are you seeing any signs of stabilization as we head into next year? William McCombe: It continues to be down versus last year. And obviously, the funding pressures or the funding reductions are -- there hasn't been much change to that picture. But on -- look, on the flip side, the momentum in biopharma has been quite good, quite strong, as we noted. So, we don't see the academic -- U.S. academic and government, we don't have a reason to expect it'll get particularly better or worse. We just think it will remain under pressure versus last year's levels. Harrison Parsons: Okay. And then, I know reagents are growing, and you've cited over $150 million annual opportunity with less than 10% captured today. What specific initiatives are you implementing to increase that capture rate? And have you begun to see those initiatives bear fruit? Wenbin Jiang: As you can see, we have really improved our operational efficiency and our logistics functions, and we significantly shortened the delivery time. As you know, reagent is a recurring business, and so you have to address all of those logistics side of the issues, which is what we have been focusing on doing during the last few quarters. And clearly, it has benefited -- we have benefited from those kinds of improvements we have made. And recently, we also expanded our European facilities in Amsterdam and moved the warehouse -- reagent warehouse in-house and clearly -- and we'll continue to see the kind of benefits we have done so far. William McCombe: We also are focused on what we've mentioned in the past around what we call our design-in activities where we design a panel for a customer and use that as a way to sell more of our reagents. So that's another initiative. Wenbin Jiang: Cytek Cloud is another area we have leveraged to help drive our reagent business. William McCombe: Yes. And then finally, we continue to invest in R&D in bringing -- in expanding our portfolio of reagents. We do custom reagents for certain customers, and we may then move those into the catalog. So, that's another way of expanding our reagent business, another initiative. So, there are multiple things we're doing on lots of different fronts. Operator: [Operator Instructions] Your next question comes from the line of Andrew Cooper of Raymond James. Noah Lewis: This is Noah on for Andrew. First question, going off of the other one around the 4Q guide and outlook for the year, we expected a bit of a step-up just seasonally, but you mentioned some budget flush. How reliant is the 4Q guide and the rest of the year on a step-up or really a budget flush versus pure seasonality? So just trying to get a feel for the mix between [ them ] in terms of the step-up. William McCombe: When we use those terms, we're basically referring to the same thing. Our seasonality that we see is caused by customers spending the remaining available budget or flushing it, if you will. So that really -- those 2 terms refer to the same phenomenon. And as we mentioned, we don't see that pretty typically every year. We saw that last year. And we've seen that regularly in previous years. And as we say, we don't have any information to suggest that that would not occur to some extent this year. So, the outlook is based on, as we mentioned, obviously, our year-to-date results, the momentum in our recurring revenue businesses. So, the growth drivers there are the reagent business we talked about, the installed base for services. And then we look at our pipeline of opportunities in the instrument business, and we factor all those in. And based on that, we are reiterating our range. Noah Lewis: Okay. Got it. Yes, I just wanted to clarify whether when you meant budget flush that there was a significant like improvement in the market, but I understand the seasonality… William McCombe: Yeah. No, [indiscernible] particularly biopharma companies budget on a calendar year basis. So, as they get into Q4, they have some incentive to spend what the remaining amount that hasn't been spent in order to make sure they spend the whole budget. Noah Lewis: Got it. And maybe lastly. Okay, yes, sorry. Yes, I was going to say my last one was just on capital deployment. You talked about a pretty strong balance sheet, and you expect to be cash flow -- free cash flow positive. So, any appetite for more share buybacks, maybe what you're seeing in the acquisition pipeline, if there's any interest there? William McCombe: Yes. So, short answer is we aim to -- our objective is to do both share repurchase and M&A to size our share repurchase. What we have done in the past is size our share repurchase to be approximately equal to free cash flow. Year-to-date, we've actually spent more than our free cash flow on share repurchase. So, as a result of that, we -- because we were in excess of free cash flow, we didn't buy any shares in the third quarter. But generally, our objective is to buy -- our approach to share repurchase is to be opportunistic and to buy when we think it's particularly favorable, but to size those purchases at -- somewhere broadly in the range of our free cash flow. So, we are not making any changes to that general approach, and we'll execute as we see opportunities going forward. And then with respect to M&A, we continue to review a number of different opportunities. But as you know, M&A opportunities are episodic, and they come and go in sort of an irregular pattern. But we are seeing things. We are reviewing things, and it's our objective to grow through both organic and inorganic means. Operator: So, that ends our Q&A session, and we appreciate your participation. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, and welcome to the PacBio Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Carrie Mendivil with Investor Relations. Please go ahead. Carrie Mendivil: Good afternoon, and welcome to PacBio's Third Quarter 2025 Earnings Conference Call. Earlier today, we issued a press release outlining the financial results we'll be discussing on today's call, a copy of which is available on the Investors section of our website at www.pacb.com or as furnished on Form 8-K available on the Securities and Exchange Commission website at www.sec.gov. A copy of our earnings presentation is also available on the Investors section of our website. With me today are Christian Henry, President and Chief Executive Officer; and Jim Gibson, Chief Financial Officer. On today's call, we will make forward-looking statements, including, among others, statements regarding predictions, estimates, expectations and guidance. You should not place undue reliance on forward-looking statements because they are subject to assumptions, risks and uncertainties that could cause our actual results to differ materially from those projected or discussed. Please review our SEC filings, including our most recent Forms 10-Q and 10-K and our press releases to better understand the risks and uncertainties that could cause results to differ. We disclaim any obligation to update or revise these forward-looking statements, except as required by law. We also present certain financial information on a non-GAAP basis, which is not prepared under a comprehensive set of accounting rules and should only be used to supplement an understanding of the company's operating results as reported under U.S. GAAP. Reconciliations between historical U.S. GAAP and non-GAAP results are presented in our earnings release, which is available on the Investors section of our website. For future periods, we are unable to reconcile non-GAAP gross margin and non-GAAP operating expenses without unreasonable effort due to the uncertainty regarding, among other matters, certain acquisition-related items that may arise during the year. A recording of today's call will be available shortly after the live call in the Investors section of our website. Those electing to use a replay are cautioned that forward-looking statements may differ or change materially after the completion of the live call. I'll now turn the call over to Christian. Christian Henry: Thank you, and good afternoon, everyone. Starting with our top line performance in the third quarter, revenue came in at slightly below our expectations at $38.4 million, primarily due to fewer than expected Vega shipments in Europe and lower than expected revenue on ASPs. However, our consumable revenue was well above our forecast and once again at an all-time high reaching $21.3 million, demonstrating strong progress towards our goal of increasing adoption of our long-read sequencing technology. As a result of this strength in consumables, non-GAAP gross margins were 42%, our highest level since 2022. Looking at our regional performance. At the beginning of the year, I said we expected EMEA to be our fastest-growing region in 2025. This continues to be the case and in Q3, EMEA saw growth of 18% on a year-over-year basis. The growth in EMEA was driven by approximately 50% year-over-year increase in consumable revenue that was partially offset by the miss in Vega placements. Our strong growth in consumables was driven primarily by our commercial and clinically-focused customers. In the Americas, the funding environment continues to be challenging, especially for academic and government research customers who are dependent on NIH and other public budgets. As a result, procurement cycles continue to be elongated. In the third quarter, we did not see a significant end of government year budget spend in this region. We are anticipating a similar funding environment in 2026. Finally, in Asia Pacific, the funding environment continues to be challenged. However, we achieved our revenue forecast for the quarter, albeit at lower than expected ASPs. This was partially offset by exceeding our forecast for consumables in the region, and our largest customers continue to have very high utilization rates and pull-through. Looking specifically at China, we exceeded our expectations and continue to see strength in the region. From a product perspective, we shipped 13 Revio systems and 32 Vega systems in the third quarter, bringing our cumulative shipments to 310 and 105 systems, respectively. Approximately 75% of the Revio shipments were to new customers. We placed several Revio instruments with key institutions at lower prices, which resulted in lower ASPs for the third quarter. However, we believe these strategic accounts will ultimately drive higher utilization and above average consumable pull-through. For Vega, shipments came in below our forecast, particularly in Europe, as several instruments were stuck in procurement processes that extended beyond the end of the quarter. Encouragingly, we have already received purchase orders for some of those units that were originally forecast in Q3. Vega ASPs continue to be strong and were flat sequentially. We're confident in the long-term opportunity of the Vega platform given its attractive price point and ability to bring new customers into the PacBio ecosystem. Importantly, approximately 60% of the Vega placements went to new-to-PacBio customers, and we continue to believe Vega will serve as both an entry point and an upsell opportunity for Revio over time. Turning to consumables. Revenue grew 15% year-over-year to $21.3 million in Q3, another record. This performance was supported by broad adoption of our SPRQ Chemistry and steady utilization across our growing installed base. This also led to a roughly 65% increase in total gigabases of sequencing output. Revio annualized pull-through was approximately $236,000 per system, near the high end of our guided range, a sign of durable demand from our customers. Over the course of the third quarter, our sales funnel improved, particularly for Revio. Looking forward, we expect to ship more Revio and more Vega instruments in Q4 than we did in any other quarter this year. As a result, we expect total fourth quarter to grow both year-over-year and quarter-over-quarter with approximately 10% sequential growth. Given our Q3 performance, we are narrowing our revenue guidance for the full year of 2025 to the low end of our range and now expect revenue to be between $155 million to $160 million. Jim will provide more details on our expectations for the remainder of the year shortly. Reducing our cash burn has also been a key focus this year. And in Q3, we achieved another quarter of sequential improvement, with cash burn totaling $16 million. We continue to expect total cash burn of approximately $115 million for 2025, an improvement of more than $70 million compared to 2024. As we continue to recognize benefits from our restructuring, our improvements to gross margin and continued expense discipline, I believe we are well on our way to achieving our goal of reaching cash flow breakeven as we exit 2027. Our team at PacBio continues to advance our core initiatives that will define the next phase of our growth. Let's start with our clinical opportunity. We are making significant advancements to deliver on our vision to lower barriers to adoption and enable clinicians worldwide to deliver more precise answers to patients and their families. Yesterday, we announced that the Sequel II CNDx system has received Class III Medical Device Registration approval from the National Medical Products Administration in China through our long-standing partnership with Berry Genomics. This marks the first known regulatory approval of a clinical-grade long-read sequencer anywhere in the world, signaling a new era for precision medicine and high-accuracy genomic testing in China. Berry plans to start by launching the Sequel II CNDx system, which will run their recently approved thalassemia test in hospitals throughout China. Berry also intends to expand the use of HiFi technology to more clinical assays like congenital adrenal hyperplasia, fragile X syndrome, spinal muscular atrophy, Duchenne muscular dystrophy and other complex single-gene disorders and panels, and has indicated that these assays also work very well on the Vega system in clinical research applications. High-incidence genetic disorders such as thalassemia, spinal muscular atrophy and fragile X syndrome often involve complex variant types that are difficult or impossible to detect using short-read sequencing. With the Sequel II CNDx system, Chinese clinicians will be able to access all aspects of the genome, capturing single nucleotide variants, insertions and deletions, copy number variants, structural variants, repeat expansions and, of course, methylation with exceptional accuracy. We estimate that the potential testing market for thalassemia alone can be in the hundreds of thousands of samples per year in China. As demand for comprehensive genomic testing continues to grow, we are focused on expanding the potential clinical utility of HiFi sequencing. Earlier today, we were excited to share that the first major study demonstrating the clinical research power of HiFi genomes was published by the HiFi Solves EMEA Consortium. This study shows that PacBio HiFi sequencing, combined with Paraphase, a dedicated haplotype-based variant caller, uncovered all known clinically relevant variants present in the study population, even in the hardest to sequence regions of the genome, demonstrating its readiness to power the future of clinical discovery. As a result, we believe researchers and clinicians will be able to save time and significant cost by turning to HiFi first. HiFi genomes revealed a complete picture of genetic variation that can truly change how rare diseases are understood and studied. We believe that these findings position HiFi as the clear path forward toward clinical-grade genomics. Beyond expanding access and demonstrating clinical utility, we've also had several recent wins expanding the use of HiFi in the clinical research setting. First, Children's Mercy hospital launched a single test HiFi-based assay for genetic disease diagnosis. This replaces multiple legacy workflows with one comprehensive test, providing faster time to answer and more accurate results for patients and their families. Additionally, Children's Mercy is expanding the use of HiFi into pediatric oncology. Additionally, in September, we launched the enhanced PureTarget portfolio, a family of products designed to target some of the most challenging regions of the genome. The family includes a carrier screening panel for inherited reproductive conditions, a repeat expansion disorder panel for neurological diseases and a control panel to support custom assay design and validation. These panels are available in 24 and 96 sample kit formats to meet the needs of a variety of clinical researchers. These kits enable labs to replace several specialized tests with one flexible workflow that works for both clinical and large-scale screening programs. Several of our customers are leveraging the PureTarget portfolio to develop specific assays for carrier screening. Carrier screening is one of the most widely ordered genetic tests worldwide with millions of couples screened each year. It is a large, durable and highly relevant market because identifying carriers before or during pregnancy can have a profound impact on family planning and medical decision-making. Importantly, many of the most medically relevant genes in carrier screening are some of the most challenging to assay with short-read sequencing due to pseudogenes, repeats or structural complexity. HiFi sequencing works to resolve these challenges, providing complete, safe and highly accurate results where legacy approaches often fall short. With our new HiFi-based PureTarget portfolio, we believe PacBio is uniquely positioned to deliver a more reliable and comprehensive standard for this essential area of genetic testing and to support our customers in making carrier screening more accessible at scale. Beyond the clinical research setting, our technology is uniquely positioned for large population scale studies. Our HiFi technology and integrated solutions have recently been selected for several of these types of large-scale studies. A great example of this is the recently announced long-life family study, a major project led by the National Institute on Aging. This project will employ Revio systems with SPRQ-Nx chemistry to generate comprehensive genomes and epigenomes from up to 7,800 participants. The goal is to help identify genetic and epigenetic clues underlying healthy aging and exceptional longevity, making this one of the world's largest long-read studies of aging to date. Another example is the Korean Pangenome Reference Project, which recently selected our HiFi sequencing technology as its primary platform. This study is a landmark national initiative led by the Korea Disease Control and Prevention Agency, a part of the National Institute of Health. It will generate the first large-scale telomere-to-telomere quality reference genomes representing the Korean population and integrate the data into the global Human Pangenome Reference Consortium. Specifically, the study of more than 1,000 participants will utilize PacBio's integrated sequencing solution across the workflow, including HiFi whole genome sequencing, Kinnex full-length RNA analysis, enabling the precise transcriptome profiling and CiFi technology for chromosome-scale analysis, detecting structural variants and complex genomic features. By building a more inclusive and comprehensive reference, the initiative is expected to accelerate discovery of population-specific variants, help improve insights into unexplained diseases and support the development of precision diagnostics and therapies. HiFi is an essential component of helping researchers explore the full spectrum of human genomic diversity in these types of large-scale studies. Another key example of how -- is a new study published by the All of Us Research Program, which is funded by the NIH to amass longitudinal health data and genome sequences of 1 million U.S. participants with the goal of advancing precision medicine research and fueling new insights into human health. Powered by PacBio technology, the study found that standard short-read sequencing only detected half of the disease-associated structural variants in their cohort. This revelation shows just how much of the human genome has remained out of view until now and fundamentally redefines what it means to truly see everything in the human genome. Over the past several years, we've been very focused on productizing our technology and developing the sample-to-answer workflows that researchers and clinical laboratories demand. To do this, we have dramatically lowered DNA input requirements and enabled several different sample types, including saliva, buccal and even FFPE to our workflows. We've built the PacBio Compatible program to ensure robust automation solutions are available to our customers as we scale. And we've launched 2 new long-read sequencing platforms and developed a bioinformatics suite that helps our customers take advantage of HiFi technology. With a robust end-to-end solution in place, we've turned our attention to dramatically lowering the cost of sequencing on our Revio platform through a groundbreaking new chemistry, SPRQ-Nx. Earlier this month at The American Society of Human Genetics Conference held in Boston, we unveiled our new SPRQ-Nx chemistry, marking a defining moment for PacBio. We believe that SPRQ-Nx will help dramatically lower the cost of a human genome sequencing to less than $300 per genome at scale, making our technology economically competitive with many short-read sequencing platforms. Additionally, SPRQ-Nx is designed to improve our methylation-calling performance and adds the ability to automatically call methyl-hydroxy C, another important epigenetic marker. But we believe the most revolutionary aspect of SPRQ-Nx is the ability to use the SMRT Cell multiple times. The SMRT Cell is by far the most expensive component of our consumable. By reusing the SMRT Cell, we can reduce the cost of sequencing for our customers and improve our gross margins simultaneously, a rare win-win. Multi-use SMRT Cells will be launched for Revio in a fully automated way, allowing for a seamless customer experience. Initially, customers will be able to reuse the SMRT Cell one additional time. And over the near term, we expect to increase the number of uses. More than 100 customers have already demonstrated interest in beta testing SPRQ-Nx on Revio. We expect to initiate the beta testing program later this month and then move to an early access phase in 2026. This is not like a typical beta test as the beta test group is paying for the consumables, a strong signal as to the underlying demand for this new chemistry. Once the early access program is complete, we plan to roll out SPRQ-Nx to all Revio customers in 2026. We are also continuing to broaden the application of HiFi sequencing. Most notably, we announced a new partnership with EpiCypher to integrate their Fiber-seq workflow into the PacBio Compatible program. Fiber-seq enables single molecule mapping of chromatin accessibility, methylation and sequence variation in one assay, adding another dimension of epigenetic insight to HiFi and complementing our existing strengths in the genome, transcriptome and methylome sequencing. In October, we also announced an expanded partnership with seqWell. Under this agreement, PacBio will distribute seqWell's LongPlex Kit, a scalable, easy-to-use sample preparation solution designed for HiFi sequencing. LongPlex streamlines DNA sharing and multiplexing, enabling hundreds of samples to be prepared in a single run. By reducing prep bottlenecks, this kit is designed to make long-read sequencing more accessible for low-pass whole genome sequencing, plasmid sequencing and microbial genomics. Together with our existing workflows, LongPlex gives researchers more choice across high-throughput applications and may help accelerate the adoption of HiFi for large-scale studies. Overall, I'm excited about the progress we are making to broaden our footprint and advance our technology to create more value for customers doing high-throughput research and clinical sequencing. I'll now hand the call over to Jim to discuss our financials before I finish with a few closing remarks. Jim? James Gibson: Thank you, Christian. I will discuss non-GAAP results, which include non-cash stock-based compensation expense. I encourage you to review the reconciliation of GAAP to non-GAAP financial measures in our earnings press release. We reported total revenue of $38.4 million in the third quarter of 2025 compared to $40 million in the third quarter of 2024. Instrument revenue in the third quarter was $11.3 million, a 33% decrease from the third quarter of 2024 and a 20% decrease from the second quarter of 2025. The year-over-year decrease was driven by lower Revio unit shipments, partially offset by 32 Vega systems as we began shipping this platform late last year. Turning to consumables. Revenue increased to a new record of $21.3 million in the third quarter, an increase of 15% compared to the third quarter of 2024. This represented a 12% sequential increase. Annualized Revio pull-through per system was approximately $236,000, an increase compared to approximately $219,000 in the second quarter of 2025 due to increased utilization in our top accounts. Vega consumables grew sequentially with the expansion of the installed base. As we do with the Revio, we anticipate providing an expected pull-through range for Vega as we get further into the commercial launch and have a more established installed base. Finally, service and other revenue grew approximately 25% to $5.8 million in the third quarter compared to $4.7 million in the third quarter of 2024, driven by an increase in Revio service contract revenue. From a regional perspective, Americas revenue of $18.1 million decreased 10% year-over-year and increased 2% sequentially. The year-over-year decline was primarily driven by continued caution in academic capital spending, which weighed on Revio demand. We were encouraged by Vega's momentum as Q3 marked our highest U.S. placements to date, with 69% going to new PacBio customers. For Asia Pacific, revenue of $9.6 million decreased 11% compared to the third quarter of 2024 and decreased 24% sequentially. The year-over-year decline reflected fewer Revio placements compared to the prior year. EMEA revenue of $10.7 million increased 18% compared to the third quarter of 2024 and increased 14% sequentially. The year-over-year increase was led by approximately 50% growth in consumables, supported by higher utilization and an expanding Revio installed base. Moving down the P&L. Third quarter 2025 non-GAAP gross profit of $16.2 million represented a non-GAAP gross margin of 42%, compared to a non-GAAP gross profit of $13 million or 33% in the third quarter of 2024. Non-GAAP gross margin increased year-over-year due to improved product mix as consumables have higher gross margins and represented approximately 55% of total revenue in the third quarter of 2025 compared to approximately 46% in the third quarter of 2024. We transitioned our Vega system to full-scale production and realized lower per unit manufacturing costs. Additionally, Revio SMRT Cell manufacturing yields improved and trended above historical levels in the quarter. Non-GAAP operating expenses were $53.9 million in the third quarter of 2025, representing a 14% decrease from non-GAAP operating expenses of $62.4 million in the third quarter of 2024. Operating expenses in the third quarter of 2025 included non-cash share-based compensation of $10.1 million compared to $17 million in the third quarter of 2024. The decrease in both non-GAAP operating expenses and non-cash stock-based compensation was primarily due to the recent restructuring initiatives. Regarding headcount, we ended the quarter with 490 employees compared to 575 at the end of 2024. Non-GAAP net loss was $36.8 million, representing $0.12 per share in the third quarter of 2025 compared to a non-GAAP net loss of $46 million, representing $0.17 per share in the third quarter of 2024. We ended the third quarter of 2025 with $298.7 million in unrestricted cash and investments compared with $389.9 million at December 31, 2024, and $314.7 million at June 30, 2025. Turning to guidance. As Christian shared, we expect a stronger Q4 with revenue growing approximately 10% sequentially. The strength in revenue growth is expected to be driven by more Revio placements and a continuation of the strength in consumables we have seen over the course of this year. We are particularly encouraged by the durability of our consumables business and the growing momentum we are seeing in clinical applications. As a result of our Q3 performance, we are narrowing our revenue guidance for the full-year 2025 to the low end of our range and now expect revenue to be between $155 million to $160 million. Moving down the P&L. We continue to expect to exit the year with non-GAAP gross margin above 40%. We expect our ending balance of cash and investments to be greater than $270 million at the end of 2025. When excluding the $5 million licensing payment in Q1, this implies approximately $115 million cash burn in 2025 or an improvement of more than $70 million compared to 2024. We believe, based on our current assumptions, our $299 million in cash and investments as of September 30 is sufficient to reach cash positive cash flow by the end of '27. I'll now hand it back to Christian. Christian Henry: Thanks, Jim. Our focus centers on one goal, increasing adoption of HiFi long-read sequencing across the sequencing market, especially in clinical applications and large-scale whole genome projects. As we close out 2025, I believe PacBio is well positioned to deliver long-term value to our stakeholders. Our HiFi technology is fundamentally different than anything else in the market, supporting our mission to enable the promise of genomics to better human health. With the upcoming launch of our new SPRQ-Nx chemistry with multi-use SMRT Cells, we believe we can dramatically improve the economics for long-read sequencing, which will help us penetrate the clinical market and expand our opportunity into large population scale programs. And finally, we are investing efficiently by focusing on our strategic priorities. This has resulted in meaningful reduction in our cash burn, and we are tracking toward a goal of achieving positive cash flows exiting 2027. We believe our strategy positions PacBio for long-term growth, and we are confident in our ability to lead the next era of genomics. With that, we will now open it up for questions. Operator? Operator: [Operator Instructions] Our first question comes from Kyle Mikson with Canaccord. Kyle Mikson: So on instruments, a little soft in the quarter, I guess. I heard all the dynamics going on. But I just wanted to break that down into the 2 products. So with Revio, ASPs looks like a little bit weaker this quarter, less than $500,000 per share versus the list price of $599,000. Maybe just talk about what that could be going forward. If you could quantify that, that would be great. And then with Vega, interesting to see that kind of sequentially decline this early in the launch. How many placements were pushed out to future quarters due to the EMEA challenges? Christian Henry: Yes. Thanks, Kyle, for the questions. I'll start with Revio. Revio ASPs were lower this quarter. And my expectation is fourth quarter ASPs will actually recover. And when we look at where we placed the systems, we placed them into some very strategic accounts. So, they ended up with lower ASPs, but we believe that they will have high throughput. And so as a result, you'll see better consumable usage, which will drive revenue there. So, that's generally a smart decision. And then with respect to Vega, we did have a shortfall in Vega. And there was roughly half a dozen or so instruments that were in Europe that were stuck in various stages of procurement. None of those are lost as opportunities. As I said in the written remarks, some of them have already gotten through and are now POs. And I don't know if they've been shipped yet or not, but they'll be shipped in Q4. And so I think that was a temporary issue with procurement processes. I do think that the big opportunity continues to be really strong and the funnels are strong. So it's really a question of the timing from quarter-to-quarter. The one other comment I will make, we did have one Revio system that unfortunately failed installation testing, and so it didn't get recognized. It will be recognized in Q4, and that one had a much, much higher ASP. So, that would have pulled the numbers up a little bit. We'll see that in Q4, and that's really just a timing thing. Yes, I think we're ready for the next question. Operator: Our next question comes from Doug Schenkel with Wolfe Research. Madeline Mollman: This is Madeline Mollman on for Doug. I just wanted to touch on the gross margin. It was a little bit stronger in the quarter than I think we were expecting, and it was above your full-year guide. Can you just sort of bucket out how much of that was mix versus some of the other things you called out? It looks like maybe services gross margin was a little stronger this quarter as well. And then thinking -- how should we be thinking about gross margin as we head into 2026? Christian Henry: Yes. Thank you for the question, Madeline. Gross margin was really strong in the quarter, and it was above our internal forecast. Part of that is really related to the shortfall in instruments, of course, because the product mix is really the biggest contributor to pushing gross margins forward. We did see nice -- we -- our yields in SMRT Cell manufacturing are basically at all-time highs right now. We saw cost reductions -- we're seeing cost reductions on the Vega system on the Revio system as well. So the production side, we're really focused on driving costs down, and that's helping. But the biggest contributor to the outperformance in the quarter was the strength in consumables. We had an all-time record for consumables and coupled with the production costs being better, that bodes really well for us. When we look forward into '26, we're not going to give any guidance on gross margin, but we certainly think that as consumables becomes a bigger part of the story, gross margins have a very strong chance of growing even from here. And I think that, that's really the beginning of the story. We've made a tremendous amount of progress on the gross margin line in the last 4 or 5 quarters. And I do think we're going to continue improving as consumables continue growing and as instruments get to more normalized revenue levels, the lower production cost. One thing I will also say is in third quarter, we didn't see a major impact on tariffs in the quarter really. However, the Vega system is experiencing some tariff that it's not material enough to pass on to customers at this point, but we're watching that. Operator: Our next question comes from Subbu Nambi with Guggenheim. Thomas VonDerVellen: This is Thomas. You made some initial remarks on funding for '26, but just can you talk through what your assumptions are at this point for the instrument environment for next year? Just some more color on funding funnel strength and any updated feedback you've heard from customer channels would be helpful. Christian Henry: Well, I think I said back in September that it does seem like the environment is kind of stabilizing and settling, and we're kind of -- I think what I said was we're bouncing along the bottom a little bit here. I don't think that's really changed since we made those comments in September. And when I talk to customers, I think the funding environment is going to be challenged next year. I think that we're going to continue to see uncertainty in the academic funding environment. Although the longer we're stable, the more purchasing agents will be comfortable releasing purchasing and funding in -- particularly in the United States. One of the things that we're doing is we're really pivoting into clinical and these other areas of our business, and we're seeing great traction there. You saw a lot of my written remarks today about that. The funding is a lot more robust there. We have a very strong product offering there now. And so I think for us, our expectation for '26 is that it will certainly in the first half continue to be challenging and perhaps all year, but we'll give more guidance and color when we get there. And to keep us growing and moving in the right direction, we're really moving a lot of our effort and focus into these clinical applications, these clinical customers and we're seeing great traction in the United States and in Europe. So, I'm excited about that progress we're making. Next question? Operator: Our next question comes from Luke Sergott with Barclays. Luke Sergott: I appreciate the update there on Revio. But as you look at the consumables, and I know this is not a normal environment for you guys, but any kind of early look that you have from a Vega pull-through as we kind of think about the pace here and as you guys place a couple -- a few more instruments in 4Q, what that could look like and then -- or what you guys are looking for internally? And then I guess on the SPRQ-Nx, bringing the cost of sequencing down there, can you talk about some of the data fidelity when you're running multiple runs on the same SMRT chip? And then from the beta testers on the SPRQ-Nx, like the -- I know that's starting in November. So, how many beta testers are you guys looking for? And any early feedback or demand that you can call out? Christian Henry: Yes. Great questions. You gave me a mouthful. So, let's start here at the top. When we look at Vega -- we'll start with Vega. We aren't commenting on Vega pull-through yet. I think we want to get a full year under our belt before we start seeing -- start really trying to set what the target will really be. But your expectation for a product like this based on others and my experience in the industry is somewhere between, say, $25,000 and $45,000 a year of pull-through per system. We'll see where we shake out. We haven't commented on it yet, and we're just going to wait and we'll do that next quarter, perhaps to kind of wrap up the year or sometime in 2026. Revio, we had -- we were at the higher end of our pull-through targets that we established this year. We're seeing good utilization, steady utilization across the installed base and the high runner customers are really running their machines. And so I think that's actually very encouraging. What that means is that I would expect as we place more Revio systems that, that will be additive to our consumable revenue because we haven't seen a major drop-off in the end customer being a lower throughput customer for Revio. And so I'm actually quite encouraged by that in the $236,000 that we have this quarter. It's going to bounce around every quarter as it has this year. But I do think customers are utilizing their systems, and I think that bodes well for consumable growth in 2026. When you look at SPRQ-Nx and data fidelity, one of the most exciting parts about this is that we're seeing very consistent levels of throughput from use to use to use and the same high-quality, very comprehensive data. So whether it's the first use or the second use, you get all the methylation, the structural variation, all of the hallmarks of what HiFi brings to the table. With each use, you get very little carryover. So, there's not a lot of carryover from run to run. That's one thing customers have asked me a little bit about and quite frankly, investors, too. And I have to remind people that when we wash -- this is a fully automated protocol on the Revio system. And when we wash the SMRT cell for the -- get prepared for the second run, we're actually -- all we have to do is clean 25 million single molecules, whereas in other environments or other technologies that are amplification-based perhaps, for example, short-read sequencers, you're looking at billions upon billions of molecules. And so it's a very different paradigm. Also, our customers are running indexed samples almost exclusively. So, we feel very confident and comfortable about reuse, both from a throughput perspective, quality of the data and the fidelity. And so we're really excited about that. From a beta testing perspective, in my written remarks, I indicated that there's over 100 customers that have expressed interest. We've signed the first group of customers up already, and they're going to be receiving their materials here very shortly. I don't think I want to describe how many customers because I know there's a lot of customers that really just want to get going. We're going to start with a pretty small group of customers here through year-end and then expand it as we get into early '26 and manage an early access phase. And then throughout '26, we'll expand it so that all customers can get access to this important technology. Next question? Operator: Our next question comes from Tycho Peterson with Jefferies. Unknown Analyst: This is [ Lauren ] on for Tycho. Just a little bit of more clarity around the SPRQ chemistry rollout. Are you guys expecting to drive kind of incremental revenue there or primarily to improve margins? And kind of what's the near-term target for pull-through for Revio as the SPRQ chemistry rolls out? And then second, around the PureTarget HiFi assays, which can now cover difficult-to-sequence genomes. What are some of the additional clinical or research applications there in addition to carrier screening that you're targeting for expansion? Christian Henry: So with respect to how pull-through will be impacted by the SPRQ-Nx chemistry, we're going to wait and see what that looks like. I'm going to -- I'll probably provide more commentary when we get into January, February after the beta program is completed. So, I'm going to pause on that one. But the point of SPRQ-Nx chemistry is to drive increased adoption of our technology, more samples coming to our platform and driving revenue growth. That is the principal driver of this is revenue growth. We will see a substantial benefit in gross margin as well because the cost of the SMRT Cell is such a large component of the total consumable cost, every time you can use that SMRT Cell over, you amortize a pretty significant cost into the next run. So it really is truly a win-win situation. Customers are going to get better pricing. We're going to get better consumable gross margin, with the entire point being increasing our market penetration by being very competitive with short-read technologies. Because most customers, when you talk to them, they would love to be using long-read sequencers in applications where they're using short reads today, but they've always been hesitant because of cost. This takes that completely off the table, gives them the ability to have a more comprehensive view of the genome, drive deeper insight at much better economics. And so I think that's going to be a really powerful growth driver for the company. But we'll comment on the specifics of what pull-through might look like. We'll do that later next year. With respect to PureTarget, our customers are using the PureTarget in lots of different ways. They're looking at not only -- they're looking at not only carrier screening, but they're also using it for single-gene type tests where you're looking at, say, ataxias, for example, or other neurodegenerative disorders. Anywhere where you have a single-gene disorder or a multi-gene disorder where there's challenges with respect to looking at them with short reads, that's an opportunity for PureTarget. And it's a portfolio of products. It's not just one kit. It's several different kits, targeted kits that enable customers to look specifically at carrier screening or other difficult-to-sequence tandem repeat, et cetera. And so it's a pretty broad portfolio, and it really is helping drive Revio placements into clinical accounts. And it will be an important growth driver for carrier screening, for example, in 2026 revenue and beyond. Next question? Operator: Our next question comes from Mason Carrico with Stephens. Benjamin Mee: This is Ben on for Mason. Could you talk about how the funnel for your population scale programs has evolved? Just wondering if the multi-use announcement has potentially accelerated any existing conversations you're having or resulted in any new opportunities there? And then just as a quick follow-up on your comment of Revio ASPs reverting higher in Q4. Should we assume that ASP remains stable in 2026? Christian Henry: Yes. Thank you, Jason, for the -- sorry, Ben. Thank you for the questions. Yes, we have -- the excitement around reuse or multi-use and the lower pricing certainly has driven some new conversations just since ASHG on major population scale programs. And so we'll see how that goes. The funnel of programs that we've been working on continues to progress. These take a long time to get done. But I would say the funnel is expanding. And I do feel comfortable to say that some of these are actually going to get across the line here in the near term and really give us an opportunity to grow with these programs because these would be very large sequencing programs that would be completely additive to our growth and generally outside of our guidance because the timing of those are always -- they're highly variable. So it's very difficult to provide them into our guidance. So, we'll keep you posted as we keep moving along. But they are broad in nature. They're global, and there are new opportunities that have come up even since ASHG when we made the announcement. Revio ASPs were down in the third quarter. I do think they will recover in the fourth quarter. And I do think ASPs in the first half of next year would be generally in a stable sort of range. The good news is that we've taken production costs out of the Revio system. So the impact to gross margin perhaps isn't as bad as people might think. But yes, I do think that we're going to see stability in the Revio gross margins -- I mean, in the Revio ASPs for the foreseeable future, and we'll go from there. And the last part of your question, I actually -- I didn't get it written down. It was something else with respect to Revio, if I missed it. Benjamin Mee: No, I think you got it. It was on the ASPs heading into 2026. Christian Henry: Cool. Yes, I just want to make sure I answered all your questions. Operator: Our next question comes from Dan Brennan with TD Cowen. Thomas Stevens: This is Tom on for Dan here. Maybe just one on your approach to AI. I think historically, when you've launched something, it's taken a while to get integrated into use just as yield things are ironed out, et cetera, et cetera. Are you taking any precautions or kind of what time line should we be thinking for when this is kind of ready for prime time given this is going to be a much more kind of high-throughput flow cell? And then I've got one more follow-up from there. Christian Henry: Yes. So, I just want to confirm the question was you really trying to understand the thinking around the SPRQ-Nx rollout and when it will truly be ready for prime time. Is that what the question was? Because you kind of cut out for part of it. Thomas Stevens: Yes. That's right. That's right. Christian Henry: Okay. Great. Well, yes, so I think we are taking a very measured approach to this for lots of reasons. First, we want to make sure our customers have a fantastic experience with this rollout, and we want to give them time to plan their projects so that they can take full advantage of the lower pricing and more samples can come into the market. We also want to see how the customers actually use the technology. And so that will be happening in the beta program and maybe the first part of the early access program. The technology and the -- what we have to do with respect to the instrument? All we have to do is upgrade the software, so the firmware and the system will be upgraded. So, that part is actually really straightforward. And so we will see how the market adopts the technology and roll it into early access. And depending on how fast new samples come into the market, we will eliminate the early access part of this. It's important to note that we will continue to sell the single-use SMRT cells alongside the multi-use SMRT Cells because in some situations, customers may want to use the single-use SMRT Cells as opposed to the multi-use SMRT Cells for certain applications where perhaps they don't have as much throughput. So the customer will have flexibility in that sort of way. We will be monitoring how samples come into the technology with the whole intent of growing our consumable revenue next year. Operator: Our next question comes from Nathan Bolanos with UBS. Nathan Bolanos: We're over a month into the U.S. government shutdown, a lot of agencies have furloughed employees. I'm just curious if this has had any impact on order volumes, how you're sort of framing it for Q4 and beyond? And is there any potential uplift if we get things back up and running? Christian Henry: Thanks, Nathan. That's a good question. When we were thinking about -- so far, we haven't seen a material impact from the shutdown. I do think if the shutdown persists, we could see some impact. But the reality is our U.S. academic NIH-funded business has been challenged all year. So, we've been driving our revenue from lots of other sources. And so, therefore, the impact would be more muted anyways. I would expect, though, the longer it goes, maybe it doesn't have that much of an impact in Q4, but perhaps it has a bigger impact in Q1 or Q2 as just the timing of when things get started again. That said, if the government got back to work and people wanted to catch up, so to speak, you're right, that could have a positive impact. The guidance we gave for Q4 does not contemplate that positive impact, but also doesn't assume the government stays shut down for the rest of the year. But I would say that our revenue isn't as dependent on U.S. government-funded sources today as it has been in the past. So the impact is actually not as big anyway if that makes any sense. Next question? Operator: Our next question comes from David Westenberg with Piper Sandler. Unknown Analyst: This is Skye on for Dave. First, on revenue growth. Should we start with flat revenue growth for 2026? I know you mentioned Revio ASP kind of recovering in Q4, maybe stable in the first half of 2026. But anything there on revenue growth? And then could you provide some more color on the geographic distribution of Revio placements and consumable sales, maybe where you anticipate placing more Revio and then the primary research applications that are driving the current demand? Christian Henry: So we'll start with -- we aren't going to give any real color on 2026 today. So, we'll stay tuned on that. I do think we're going to see a strong Q4. We're expecting 10% sequential growth. And I think that, that would be a nice strong year end of the year and give us some momentum going into 2026. I do think the fundamental aspects of our business, we've been increasing our instrument placements, which is likely to drive consumable growth next year. We continue to place instruments at a pretty consistent clip. And so if you just take that onto itself, you would expect that we would be growing in 2026 and not flat. But we'll give formal guidance in 2026 when we get to that point. With respect to the geographic distribution of Revios, they're pretty broad. They're pretty balanced across the world right now. And as we kind of look out into Q4 and beyond, I think that most of the Revios are being placed into commercial and clinical type accounts, not so much NIH funded. I believe in Q3, we only had one system placed in a kind of an NIH-type funded environment. So hence, my comments -- my previous comments about government shutdowns and the impact on us. I do think that, that will continue with the -- we will -- I do think we're going to see expanded fleets in '26 as some of our clinical customers continue to scale up, launch their LDTs and start to drive volume. I think that's a real source of opportunity for us. Our funnels have been improving in Europe as well. As I said in my written remarks, Europe has been our bright spot of the year in terms of regional growth, and we had a very strong growth quarter in Q3 despite the missing a few Vega instruments. And so I think that Europe will continue to grow into next year. And as the U.S. funding environment improves, that will certainly help us get back to a more normalized level. So, that's how I see it right now. Operator: Our next question and last question of the call comes from Kyle Mikson with Canaccord. Kyle Mikson: I want to follow up on the -- that question, just the last question there about the kind of the growth for '26. So, I think what the Street had like mid-teens. I know you're not talking about the actual quantification of it all. But when you think about it like qualitatively, there's a few factors I would just love for your input on. You got the flat -- NIH budget could be flat, could be recession-type actions. You got the impact of POPSEQ project, which you have a bunch of at this point. You have possible market freezing or longer sales cycles due to some competing products coming up soon, then you have -- China has removed the ban for Illumina. So wondering if that gives you any more optimism over there. If you could just comment on these things and how you're looking at it kind of exiting this year, entering next year, it would be good to hear. Christian Henry: Yes, Kyle. It's a nice way you framed it up. I mean the reality is that if you look at 2025, the contribution of our revenue from kind of NIH-funded sources has been really small relative to kind of historical expectation. And so any improvement in NIH is going to help drive growth at all. Even quite frankly, just certainty about keeping things flat is going to help drive growth for us. The POPSEQ programs, I do believe some of them are going to go live in 2026, and that will certainly drive our growth as well. As the funding environment improves a little, I do think the sales cycles will shorten somewhat, not elongate further. And I also think that other sequencers that are coming on to the market are actually not going to have a significant impact on us in '26, principally from the clinical side of the world because we are already expanding rapidly with the power of long-read sequencing, replacing all of these legacy technologies in the workflow. There's no other -- there's really no other technology out there today that can do as good a job as we can of replacing all the legacy technologies in a clinical lab workflow. And what that means is that we're going to be more efficient for the lab. We have great economics already, but the economics of the lab are going to get better, not just from introducing a product, but by eliminating steps in all the other workflows. And I think that's a really big deal. When you look at China, China, we had a very -- we continue to do well in China. I think the launch of the Berry CNDx -- Sequel II CNDx is very indicative of, that's a market that has a great opportunity for us in long-read sequencing on the clinical side, starting with the single-gene tests that Berry is launching, but we also have a very strong HLA testing business with Haorui. We have a very strong -- our service providers in China continue to run very high rates of utilization, which lends itself to expanding their Revio fleets some in 2026. So the outlook for China for us is strong regardless of what happened with Illumina today. I would imagine that probably only helps us in terms of maybe easing the relationship or at least creating a little more certainty around the risk profile associated with doing business in China. So, I think there's a lot of -- we have made a lot of progress this year, and I think it sets us up really well for growth in '26, but we'll certainly provide a lot more detail and color as we get early into '26. Right now, our focus is finishing 2025 really strong, driving significant sequential growth of 10% or so and really preparing to make multi-use and SPRQ-Nx a really impactful launch. And I know the team is ready to do it. So, that's where I'll leave it. Operator: This concludes today's conference. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings. Welcome to Array Technologies Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sarah Sheppard, Investor Relations at Array. Please go ahead. Sarah Sheppard: Thank you. I would like to welcome everyone to Array Technologies Third Quarter 2025 Earnings Conference Call. I'm joined on this call by Kevin Hostetler, our CEO; Keith Jennings, our CFO; and Neil Manning, our President and COO. Today's call is being webcast via our Investor Relations site at ir.arraytechinc.com, where the related presentation and press release are also available. In addition, the press release and the presentation detailing our quarterly results have been posted on the website. Today's discussion of financial results includes non-GAAP measures. A reconciliation of GAAP to non-GAAP financial measures can be found in the related presentation on our website. We encourage you to visit our website at arraytechinc.com for the most current information on our company. As a reminder, the matters we are discussing today include forward-looking statements regarding market demand and supply, our expected results and other matters. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made on this call. We refer you to the documents we file with the SEC, including our most recent Form 10-K for a discussion of risks that may affect our future results. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements to conform these statements to actual results, except as required by law. I'll now turn the call over to Kevin. Kevin Hostetler: Thank you, Sarah. Good afternoon, everyone, and thank you for joining us. I'll begin with some highlights on the quarter and updates on our APA acquisition and our commercial momentum. Then Neil Manning, our President and Chief Operating Officer, will provide some supply chain and operational updates for the quarter. Keith Jennings, our Chief Financial Officer, will then provide detailed commentary on our third quarter 2025 financial performance and updates on our full year 2025 financial guidance. Then we'll open the line up for your questions. I'll begin on Slide 5. We are thrilled to announce another exceptional quarter of commercial, operational and financial performance. Our revenue reached $393 million, marking an impressive 70% year-over-year revenue growth, driven by a 56% increase in volume in the quarter. The completion of the APA acquisition midway through the quarter contributed approximately $17 million in revenues to our results. When we assess our performance from a year-to-date standpoint, we have already generated over $1 billion of revenue, surpassing our total annual revenue from 2024, and we have grown volume an impressive 74% year-over-year. This outcome highlights our team's steadfast dedication and resilience, effectively navigating the uncertain regulatory environment and fluctuating market conditions. We saw sequential adjusted gross margin improvement quarter-over-quarter, driven by outperformance in our ATI business. Our bottom line performance remains outstanding with significant net income improvement year-over-year and an adjusted EBITDA result of $72 million. This achievement driven by strong execution and substantial volume growth marks our second highest quarter of adjusted EBITDA on record. Finally, our commercial momentum continued this quarter as we posted sequential order book growth and a book-to-bill ratio of greater than 1. Our diverse portfolio of products, services and software offerings continues to win, and our robust bookings are a testament to the time and effort invested in our relationships with critical Tier 1 customers. We are particularly pleased with the market's adoption of our latest new product offerings, OmniTrack, Skylink and Hail XP. And we note that these 3 recently launched products already account for nearly 40% of our order book. It's important to note that this quarter's order book result of $1.9 billion does not yet include APA's backlog. As we continue to align and harmonize our commercial policies, we expect to add their customer orders to our metric by year-end. Further, we should note that as we've taken a more conservative approach to the addition of international orders to our order book, our quarter ending order book represents over 95% domestic business. Turning to Slide 6. I want to briefly touch on our integration of APA and provide some exciting product and commercial updates. Although we are in the early stages of our APA integration, we are very pleased with their recent commercial progress and pipeline growth. Although only a couple of months in, we remain on schedule with our internal objectives and are seeing strong collaboration across our teams. Our priority is to maintain seamless business operations as we align processes and systematically realize synergies. As you would expect, we have taken meaningful steps to achieve our targeted procurement efficiencies by utilizing Array's scale and established supplier partnerships to drive these future benefits. We also recently introduced a unified sales strategy for customer engagement and quoting, empowering both the Array and APA teams to seamlessly offer the full Array and APA product portfolios. This collaboration will deliver greater optionality and value to our customers and unlock significant growth in our share of wallet and total addressable market. APA is already benefiting from Array support with notable momentum in larger utility-scale project opportunities across both engineered foundations and fixed tilt systems. Array's strong market credibility and bankability are unlocking new growth channels for APA, and we are actively pursuing those prospects. We are also laser-focused on enhancing our competitive advantage and accelerating our strategic product road map. Our co-development of a suite of integrated tracker and foundation solutions is well underway, and we expect these innovative solutions for customers to be available in the second half of 2026. Finally, APA's innovation pipeline in engineered foundations and fixed tilt mounting systems remains robust and continues to position APA for sustained growth across its product categories. We look forward to sharing more color about APA's exciting strategic initiatives when we provide our 2026 guidance. Turning to Slide 7. I'll focus a bit more on our recent commercial momentum and how that is translating to our expected future growth. Although some regulatory uncertainty persists this year, we continue to observe strong fundamental demand as we stay in close contact with our customers and assess their project pipelines. One indication of that underlying demand, our early-stage project pipeline has impressively achieved double-digit expansion year-to-date. We remain committed to providing flexibility, helping our customers adapt to changing market conditions by offering a wide range of sourcing options and a broad product portfolio catered to customer feedback. We view this expansion of our funnel as a good indication of our momentum as we close out the year and head into 2026. Our ongoing commitment to customer engagement continues to enhance both the quality and mix of our order book. This year, we have connected with over 300 customers and industry partners through Array days and insurance forms, and we continue to receive outstanding feedback on our enhanced customer engagement. As we strengthen our partnerships with major Tier 1 customers, we're increasingly engaging in conversations around larger volume commitment agreements, fueling our optimism for 2026 and beyond. A recent proof point is our Q4 award of a multiyear multi-gigawatt portfolio with an independent power producer, underscoring the momentum behind our growth strategy. By clearly communicating the value proposition of our product portfolio, we have deepened customer understanding of the advantages that our unique and patented technology delivers, particularly in reducing LCOE and mitigating severe weather risks. The strong demand for our latest products is evident with these offerings now representing 40% of our total order book this quarter, as previously noted. Alongside this rapid new product adoption, our SmarTrack software deployments have accelerated significantly. In fact, the number of active installations for hail alert response and backtracking and diffuse underway now exceeds our entire historical installed base, and we expect this traction to continue. Looking ahead to 2026 and beyond, we remain highly optimistic about the demand environment. For next year, we anticipate delivering both organic growth within our core Array business and inorganic growth with the integration of APA. This outlook is underpinned by a robust order book and our improving book-to-bill momentum. While it is still early in the fourth quarter, we expect to finish the year with strong bookings and further order book expansion. Notably, our current order book is predominantly comprised of domestic projects, reflecting verbal awards and contracts with high-quality customers. Internationally, we are making steady commercial progress in our selected targeted regions. Importantly, as noted earlier, we have taken a cautious approach regarding the inclusion of international verbal awards in our order book to mitigate any potential risk of de-bookings. We look forward to providing updates on these pivotal projects when we give a more fulsome update on our 2026 guidance. Overall, the progress achieved this year reinforces our confidence as our commercial engine is operating at full strength, our new products, which originated from direct customer engagement are delivering, and our supply chain organization is providing the ultimate flexibility for our customers in a time of uncertainty. These factors are producing strong year-over-year growth in revenues and volumes. I'll now turn it over to Neil to discuss some important supply chain updates. Neil Manning: Thank you, Kevin. Let's turn to Slide 8. I'd like to provide an update on our supply chain performance and how we're navigating the evolving tariff landscape to deliver strong results for our customers and shareholders. Our team has proactively executed a flexible supply chain strategy that's focused on optimizing costs and maintaining high service levels for our customers. As you know, the global tariff environment remains highly uncertain and dynamic with new regulations and rate changes emerging across multiple regions on almost a weekly basis. Our approach centers on resiliency and adaptability. We source from over 50 domestic and 100 international suppliers, giving us the agility to optimize our bill of materials between domestic and imported components to meet the specific needs of our customers. This flexibility allows us to offer our 100% domestic content tracker for treasury guidance, leveraging over 40 gigawatts of U.S. supplier capacity. This also allows us to optimize incentives and routings to drive the lowest landed cost and best outcome for our customers. For example, when customers don't require domestic content, in some cases, it remains optimal to import a particular component and pay the tariff to attain the lowest landed cost for a project. With the opening of our new and expanded Albuquerque facility and the addition of APA's Ohio manufacturing, which we also intend to expand, our domestic capabilities continue to strengthen. We're exploring optionality for enhanced manufacturing geographies to offer greater flexibility to our customers between our domestic locations. A key factor shaping our supply chain strategy this year has been the Section 232 tariffs on steel and aluminum. These tariffs have significantly increased costs for imported steel and aluminum products, sometimes doubling the tariff rate on certain goods. Further, the imported steel and aluminum tariffs created headroom for domestic steel and aluminum suppliers to raise their pricing numerous times throughout 2025. For example, steel peaked at more than 35% higher since January 20, inauguration day and now sits roughly 17% higher. Our team has responded by negotiating tariff relief with the suppliers, leveraging domestic sourcing and utilizing USMCA derivative rules to minimize exposure. As part of our long-standing U.S.-centric supply chain strategy, we've historically supplied the majority of our torque tubes domestically with some exceptions for West Coast projects. However now, just about all of our torque tubes and stampings have transitioned to U.S. suppliers, and we're on track to onshore dampers by the end of the year. These actions have resulted in cost avoidance, risk mitigation and further limited our exposure to tariff impacts. Additionally, many onshore components qualify for 45X IRA credits that further enables our domestic manufacturing and supply chain. When it comes to tariffs overall, our strategy is both active and forward-looking. We maximize our scale to drive cost and lead time optimization, and we negotiated tariff pass-through agreements with certain suppliers to streamline recovery processes. Tariffs are now incorporated into our upfront quotes, ensuring transparency and predictability for our customers. Through these efforts, we've continuously reduced our tariff exposure, now expecting by the end of the year, less than 14% of the typical bill of materials exposed to tariff impacts. For example, our onshoring initiatives are expected to reduce our exposure to India by roughly 50% by year-end. Additionally, we have achieved significant cost avoidance through supplier negotiations in Mexico and Thailand, allowing us to continue to flex between U.S. and international sources to ensure the lowest landed cost for our customers. Our supply chain team has demonstrated exceptional agility responding to tariff changes, negotiating relief and capturing value for Array. Proactive supply chain strategies and robust tariff management have enabled us to navigate a complex market environment, limit the impact of tariffs and deliver on our commitments to customers. With that, I'll now turn it over to Keith to provide more details on our third quarter results. Keith? Keith Jennings: Thank you, Neil. Good afternoon. I will begin on Slide 10. We had an exceptional third quarter. Revenue was $393 million, representing growth of 70% above the prior year quarter and 9% sequentially. Our recently closed acquisition of APA contributed $17 million, and we had approximately $30 million of pull-ins from the fourth quarter into this quarter. As Kevin noted, our 2025 year-to-date revenue of over $1 billion has surpassed the full year 2024 revenues of $916 million, staying on track to post an outstanding year. Our continued sustainable growth will be supported by the ability to drive volume, optimize geographic focus and our business mix along with the contributions from the acquisition of APA. Sequentially, ASPs were higher in both our ATI and STI segments, aligned with the forecasted effect of rising commodity prices experienced earlier in the year. Delivered volume measured in megawatts of generation capacity for the quarter increased by 56% over the prior year quarter, continuing our strong momentum with year-to-date volume up an impressive 74% over the prior year. In the third quarter, adjusted gross profit increased 35% year-over-year to $111 million, representing an adjusted gross margin of 28.1%. The net effect of the revenue pull-in from the fourth quarter was about $9 million of adjusted gross profit and $0.04 EPS pulled forward. When compared to the prior year, gross margins declined primarily due to the falloff of the prior year 45x amortization benefit, commodities inflation relative to ASP increases and approximately 110 basis points of tariff drag in the quarter. Sequentially, adjusted gross margin improved by 30 basis points, primarily due to a higher mix of domestic projects and ASP improvements to product mix with an offset from lower international shipments primarily in Brazil. APA also had a slight dilutive impact on overall adjusted gross margin in the quarter of about 20 basis points. Anticipated 45X benefits and the outcomes of our supply chain synergy initiatives are expected to provide ample opportunity to transition this to an accretive impact in the near future. Adjusted SG&A was $39 million, just under 10% of revenues. This rate compares favorably to the adjusted SG&A of $36 million in the third quarter of 2024, which was 15.5% of revenue. We continue to achieve operating leverage from top line growth through our relentless focus on operational efficiency and process improvement while making meaningful investments in the customer-facing touch points. Adjusted EBITDA was $72 million with an adjusted EBITDA margin of 18.3%. This represents 55% earnings growth when compared to adjusted EBITDA of $47 million and adjusted EBITDA margin of 20% in the third quarter of 2024. Sequentially, adjusted EBITDA earnings grew 14%, with adjusted EBITDA margin improving 80 basis points driven by the mix shift towards higher ASP domestic sales. GAAP net income attributable to common stockholders in the third quarter was $18 million compared to a net loss of $155 million in the prior year. Sequentially, net income declined $10 million from the second quarter of 2025, which included the additional gain from repurchasing a portion of our 2028 convertible notes at a discount last quarter. Diluted income per share was $0.12 compared to the diluted loss per share of $1.02 in the prior year, which was primarily driven by the goodwill impairment taken in the quarter. Adjusted net income was $46 million, 73% growth above the $26 million in the third quarter of 2024. Adjusted diluted net income per share was $0.30 compared to $0.17 in the prior year and $0.25 in the second quarter. During the quarter, net cash generated by operating activities was $27 million. Net cash used for investing activities in the quarter was $170 million, primarily driven by the acquisition of APA and the ongoing investment in our new Albuquerque manufacturing facility. Free cash flow for the period was $22 million, bringing the year-to-date total to $44 million and generally in line with our seasonal expectations. Slide 12 provides an update on our leverage and liquidity position. Following the completion of the APA Solar acquisition in the quarter. We ended the quarter with $222 million in total cash on hand and total liquidity of over $365 million, including availability under our undrawn revolver. We ended the quarter with a net debt leverage ratio of 2.1x trailing 12 months adjusted EBITDA. Our exceptional agility and strong balance sheet position us well to capitalize on emerging opportunities and drive sustained growth, giving us greater confidence in our future performance. Finally, on Slide 13, we have updated our full year 2025 guidance. Given our strong performance and the inclusion of APA, we are raising our full year revenue guidance and updating midpoints on several key indicators. We expect full year 2025 revenue within the range of $1.25 billion to $1.28 billion, increasing the midpoint of our range by over $60 million, inclusive of approximately $50 million of revenue from APA. We expect adjusted gross margin within the range of 27% to 28%. This includes the negative impact of accounting for tariff pass-through, the gross margin dilution from APA, delayed international project commissioning pushing our high-margin software revenues and inflationary pressures impacting both inventory and logistics costs. Adjusted G&A is expected to range between $160 million to $165 million, primarily due to the inclusion of the APA business and our incremental investments ahead of the anticipated growth in 2026. Adjusted EBITDA is expected to range between $185 million and $195 million, with adjusted diluted earnings per share forecasted to be in the range of $0.64 to $0.70. Free cash flow is expected to come in at approximately $100 million for 2025, slightly lower than previously expected, primarily due to acquisition-related expenses and timing of some 45X collections and customer deposits shifting into 2026. Capital expenditures are now expected to be approximately $20 million and primarily driven by project timing at our new Albuquerque facility. Looking ahead, we are exceptionally well positioned with approximately $1.9 billion of backlog, added capabilities to seize new opportunities, deliver industry-leading growth and create lasting value for our shareholders. Thank you for your time today. Now back to Kevin for closing remarks. Kevin Hostetler: Thank you, Keith. To sum up, this quarter's results reflect our team's disciplined execution and our ability to adapt and lead in a dynamic market. With our strong financial position, robust and increasing order book and ongoing innovation, we remain confident in our strategy and our capacity to deliver sustained value going forward. Thank you for your continued support. And with that, I'll now open the call for your questions. Operator? Operator: [Operator Instructions] The first question that we have today comes from Mark Strouse of JPMorgan Chase and Co. Mark W. Strouse: The first one, Kevin, just with -- I appreciate your comments about continued growth in 2026. But just with another couple of months under your belt since RE+, just curious if you can kind of paint a picture for us how you're thinking about the next several years now with Safe Harbor out of the way. Kevin Hostetler: Yes. I think, Mark, we're returning to a period of more normalized flow of business at this point. As I made many comments RE+ about me not expecting this big windfall of safe harbor. We really didn't expect that. As our order book has changed over the last couple of years to have many, many more Tier 1 customers, we made the comment last quarter that over 50% of the order book is what we would call Tier 1. And at that point, these Tier 1 customers have already safe harbored through '29 and '30. So we didn't expect this influx of safe harbor. So the orders we're receiving now are much more normalized demand for the next couple of years. And we feel that's a much better position to be in. We feel that's back to kind of a historical norm rather than have any artificial pull in or pull forward driven by regulatory issues. So we feel really good about what we're seeing. We feel really good about our win rate. The commentary I made about the multi-gigawatt multiyear piece and there's a great example that -- to be clear, that's not in the backlog or order book at this point. For the numbers we reflected that $1.9 billion was as of the end of Q3. And while we endeavor to have that land in Q3, we certainly didn't want to push the customer too hard. We're able to get that landed here in Q4. So we feel really good about that type of momentum and the fact that we're winning larger orders and more bundles of orders at this point. Mark W. Strouse: Okay. I might follow up on that one offline. Keith, the implied 4Q guide for EBITDA margins is a bit lower than history. You talked about some of the factors that are influencing that. I'm just I'm curious, I know you're not going to give formal 2026 guidance yet, but kind of looking a bit further beyond 4Q of 2025, how should we think about the cadence of EBITDA margin? Keith Jennings: Mark, thank you for the questions. 4Q is, I would call it, a trough quarter. It is affected primarily by lower revenue volumes than anything else. And so with that, we are losing a bit of P&L leverage in the quarter. I would, at this point, say that we are very happy with how the year is shaping up and how the full year guidance is holding from where we've guided it in Q3 and earlier and then added APA. In terms of how we are looking forward, I would say that aligned with Kevin's comments about our confidence in the order book, when I look at it, I looked at it this morning, I was surprised -- not surprised, but it was a confirmatory view that greater than 50% of the order book is now not EPCs, so which means that our expansion into different customer base, IPPs, utilities and developers are taking hold. And so I think that when I think about the margin profile going into 2026, I think where we will close this year will be something that we will try to find good opportunities to hold. So we have guided towards 27% to 28% on the full year. I can't think of any reason other than massive inflation and tariffs that could pull us off that trajectory right now. Kevin Hostetler: I think, Mark, one of the things I'll add to that, just to explain the cyclicality. If you go back historically, Array, when you have a disproportionate focus on North America, you have your build season is Q2 and Q3 when we're shipping. Those are typically the highest quarters and then you slow down going into winter. What is different in the last couple of years is we had STI Brazil, which was our second largest operating segment. And when you think about that, their construction is countercyclical to North America, right? So that always added to our Q4 and Q1. As Brazil is not operating on full cylinders due to all the issues we've talked about on previous calls, you don't have that additional layer to [ burry up ] Q4 and Q1. So then you're really focusing on disproportionate North American business in Q4 and Q1, which has that cyclicality before the build -- the big build in Q2 and Q3, which again, you've known our business for several years, that's much more akin to the historical flow of the business and to the North American construction season. Operator: The next question we have comes from Joseph Osha of Guggenheim Securities. Joseph Osha: Congratulations on the solid quarter. Two questions. First, am I doing my math right in understanding that essentially adjusting for APA, you've added about $10 million in non-APA revenue to your guide for the year. Am I getting that right? Keith Jennings: Joe, this is Keith. Yes, you're getting that right. Joseph Osha: Okay. And did I also hear that you had about $30 million in tracker revenue come from what you'd expected from Q4 into Q3? Keith Jennings: Yes. So that kind of puts more pressure on Q4 in terms of margin. Joseph Osha: Just get my puts and takes right. Other question, I don't imagine you want to give a number, but doing some math and thinking about this multi-gigawatt award that you just talked about, can we fairly say that we can perhaps expect this $1.9 billion visibility number to be up again as we enter 2026? Keith Jennings: That is our expectations internally thus far. Yes. Joseph Osha: Well, now it's external, too. Kevin Hostetler: And Joe, you should also adjust for the fact that we don't have APA in the $1.9 billion at this time. So as we conform policies, that should also add to the backlog by the end of the year. Let me just make -- let me just -- while we have the questions on order book, I just want to make a couple of points perfectly clear. So as Keith talked about, the quality of our order book has really improved so that, that 1.9 is not the same as a 1.9 a year ago for a few factors. The first is the higher percentage of Tier 1 customers, as Keith alluded to. We won't give the exact percentage, but it's continuing at greater than 50% now. And those customers already have strong safe harbor strategies. So the likelihood of pushouts and delays or interconnect issues goes down the more we're going direct to utilities, direct to IPPs, et cetera. The second thing is we've noted it, and I want to make sure we recognize it, is the higher concentration of domestic content. We experienced in Q1 and Q2 this year, some of those -- we had to introduce a term of net bookings because of de-bookings as projects got delayed and we held to our rules of what would go into the order book, in particular, in Brazil. So we took the approach of keeping those orders on the sideline and treating them much more like book and turn business. What I mean by that is as we really see that, that is about to ship and go, we'll treat it as book and turn. And as such, it's a higher quality order book because the likelihood of de-bookings is very much diminished at that point. We just talked about the fact that APA is not yet included but will be in Q4. And again, Joe, we've given you that strong signal that we do expect additional backlog to build in Q4. So all in all, we feel very pleased with our order book results here in the quarter and what we expect between now and year-end. Operator: The next question we have comes from Julien Dumoulin-Smith of Jefferies. Julien Dumoulin-Smith: Excellent. Look, I just wanted to follow up a little bit. Let's start with a little bit macro and then we'll do micro. Look, your peer is talking about doing some diversification. Your peer in EBOS is talking about expanding the scope of their business. How do you think about your venture or journey into expanding the scope of your business? Obviously, you guys did this APA. You're talking about foundation here. But any venture to kind of expand the scope here? Or for the time being, let's get this core product right and sell it even more appropriately? Keith Jennings: Yes. I think when we -- let me address that let's get this core product right. I think we've done that over the last couple of years with our new product. And look, to give you the signal and show you the chart of how much our new products are hitting the sweet spot of the market is pretty significant. If you would have told me when we launched them 2 years ago that within 2 years, we'd be at over 40% of our backlog be those new products. that would be deemed an incredible success. So we're really pleased with that. We will continue to look at how we increase the share of our customers' wallet, in particular, focusing under the panel. And what I mean by that is not the panel. But there's a larger ecosystem there that we can do -- that we can work with, both in terms of partnering, venturing together as well as either acquiring or internally developing other components that would be utilized under the panel to increase the share of wallet. That's been a consistent strategy here for 2 years. We're going to continue to execute on that. Julien Dumoulin-Smith: Excellent. And can I really go back to the question about this integrated foundation solution? I mean, can you talk a little bit about early client interest and potential bookings? But more importantly, can you talk about what it costs to get there and the margins potential on this product, right? If you can elaborate again, I know it might be a little sensitive, but to the extent possible, the CapEx or dollars required to get there as well as kind of the margin profile as best you could [ delineate it? ] Kevin Hostetler: So minimal in terms of additional investment to get there. And to be clear, how we got to the APA from an acquisition standpoint was that we were engaged in co-development of this product prior to completing the acquisition. So this is something we started well over a year ago. I think it's fair to say the designs are done. We're in tooling at this point to be able to put soft launch in the first half of next year and hard launch in the second half. So we're fairly far along. And to be clear on what we're doing is when you have the A frame right now, you have a very large heavy chunk of steel, which is an interface required to interface with ours, every one of our competitors' tracker systems requires an interface as well. And what we're doing is adapting the A frame so that the top of that A frame instead of requiring a very large heavy expensive steel interface just becomes the base for our tracker [indiscernible]. I think it's -- it's a very strong play. It creates an incredible set of economics for our customers, and then it begins to bring the engineered foundations from a cost point down to be incredibly competitive with standard piles at that point. So you're able to then be able to achieve an engineered foundation solution for non-engineered foundation pricing, if you will. It will have a degree of interoperability that I think is superior, take weight out of the product, take steel costs, all of the above. So we're really excited about it. I think it's fair to say we're fairly far along in that journey, and we expect to be able to put some of that into the ground in the first half of the year. We have some test sites identified, and then we'll go forward from there and open it up for sale in the second half. And then just a couple of comments on the traction. Look, one of the biggest things we need to add in SG&A in Q4 is additional -- good news is additional sales resources within the APA business. We currently have 7 open recs for sales, design, engineers just to handle the influx of inbound orders we're receiving now, inbound quotation requests for the combined solution between APA and Array. So it's getting quite exciting for us. Operator: The next question we have comes from Jon Windham of UBS. Jonathan Windham: Congratulations on the quarter. I was wondering if we could just get some more thoughts and commentary around the international business and if there's any opportunity to manufacture domestically in the U.S. for export. Appreciate it. Neil Manning: Yes. I'll take international. So we're pleased with our year-to-date progress. If you look at Brazil, despite the challenges that Kevin referenced there. Operator: [Operator Instructions] [Audio Gap] We have a question from Jon Windham of UBS. Jonathan Windham: All right. I was just asking for some color about the outlook for the international business and whether there's an opportunity, at least within North America to manufacture in the United States, capture tax credit to the export market. Neil Manning: Jon, it's Neil. Let me take the international question. I'm not sure where we cut out previously. So we're really pleased with how we performed year-to-date from an international perspective despite the Brazil challenges. So if you look at our STI segment on a year-over-year basis, we're up over 10% despite what's going on in Brazil. And then on top of that, we look at Australia as a separate entity, and we're up nicely year-over-year there as well. So we're pleased year-to-date how the international business has progressed. That's really a testament to our diversification strategy that we've been deploying. So both Europe and Latin America, it's been primarily an H250 platform that we've been selling under the old STI business. And we've introduced DuraTrack and OmniTrack in both of those regions, and we're really seeing a nice progression in the pipeline and interest [ and traction ] for that product line in those markets that appreciate what DuraTrack brings from an applicability in higher wind and difficult soil conditions. It's really a differentiating product for us in those additional markets and brings with it enhanced margin opportunity for that differentiating feature as well. So we feel good about the progress on that front. Separate to that, when it comes to export from the U.S., one of the things we look at is what is the most appropriate supply chain for a particular project based on its locality. In the U.S., primarily, it's a domestic production for domestic consumption. On the international business, we look at an international supply chain that's targeted at the most beneficial and lowest landed cost for a particular project. And so for Europe and South America and elsewhere, we'll do an analysis on a per project basis, what components come from what supplier at the right mix with the right logistics cost to get you to that lowest landed cost. And obviously, where it makes sense to import from different countries, including the U.S., we obviously take a look at that and analyze that and do that on a project-specific basis. Operator: The next question we have comes from Brian Lee of Goldman Sachs. Unknown Analyst: [indiscernible] on here for Brian Lee. Just trying to think across, again, there seems to be a decent bit of moving parts here heading into next year and not looking for guidance or anything, but increase in steel prices, Omnitrack, Skylink, Hail XP becoming a larger portion of the backlog, accretion from APA, potential 45X from APA and reduction of tariff exposed bill of material. Could you just help us frame us or frame for us what could be accretive to gross margins, accretive to gross margin dollars and just some of the puts and takes heading into next year? Keith Jennings: Nick, this is Keith. 2026 for us right now is still on the drawing board. I know we've given some earlier comments both that we expect growth in terms of revenues, given the strength of the order book, the addition of APA and the outlook for the innovative products that we have been adding. We also are committing that we're going to strive to maintain our gross margins in the range that we're currently operating. But beyond that, I think it will be too soon to say much more about '26. Unknown Analyst: Okay. No worries. And just, I guess, one more. That $9 million of acquisition-related expenses realized this Q, are there any more cleanups expected or I guess, any more expenses that could be a headwind to EBITDA over the coming quarters? Or is it just onetime? Keith Jennings: Most of the acquisition-related expenses were adjusted out. So. Other than being an impact on the GAAP P&L, I think we shouldn't expect any impact from the M&A other than just accretive EBITDA margins. Operator: The next question we have comes from Ben Kallo of Baird. Ben Kallo: My first question was just on if you're seeing any kind of flight to quality just between you and Nextracker from other trackers or racking companies in the U.S. So maybe the easy way is of market share gains, if you could talk about that. And then on the independent power producer in the multi-gigawatt deal, could you just talk maybe about what their solution was, if this is diversification, if they're moving away from someone else or a completely new business? If any color you can give on that would be helpful. Kevin Hostetler: Yes. I think the answer is actually common for both questions. So look, we do think there's a flight to quality, but a lot of that is really being driven by our strength in the front end of the business. A few things that we've done year-to-date, not only have we revamped our sales team and our sales team leadership, but we've also added an entire group of individuals that we call our technical sales team -- these are engineers selling to engineers and ensuring that we revamp our value propositions and get very clear on our value propositions to each individual channel we sell to. And the reality is our ability to generate more energy with our passive stow system to have an improved ground coverage ratio relative to some of the peer companies. It's really helpful when we're doing a very highly technical sale to the engineers who then instruct purchasing that this is because of the improved LCOE, this is the tracker of choice. That's what's really happening for us out there and that to be absolutely clear, we were not the lowest priced tracker presented in this multi-gigawatt. We were the best value selected by the customer. Not at all the lowest price, but we were able to generate value for that price for the customer, utilizing some of the very technical subsets of issues we just talked about, the passive stow, hail mitigation, severe weather and ground coverage ratio were all critical elements that this customer valued and put into their return matrix that all yielded that order in our direction despite being higher priced. Ben Kallo: If I could just quickly follow on with electricity prices increasing in the LCOE proposition, are you getting better pricing as electricity prices increase? Or does it not work like that? Kevin Hostetler: It doesn't work that way. Our pricing typically flows more relative to commodities. And then your win rate goes up with your improved LCOE. But it doesn't -- look, there's narrow ranges of the above. But what you saw and it should not go unnoticed, but our ASPs increased for the first time in 6 quarters as we predicted earlier in the year that as the steel prices rose, over time, that would be reflected in ASPs, and we did see that this quarter. So you had an increase in ASPs this quarter, but ASPs for us is more a function of the commodity inputs and then win rate is more of a function of our ability to communicate our strong value proposition to the market. Operator: The next question we have comes from Philip Shen of ROTH Capital Partners. Philip Shen: Congrats on the strong bookings in the quarter. I wanted to check in with you on the international side of the business. Would love to understand if there's any potential upside from Brazil or LatAm in the Q4 guide. And given the removal from the backlog, perhaps there can be some business there near term that might be an upside surprise. Neil Manning: So Phil, it's Neil. So let me explain it this way. So certainly, the Brazil business and macroeconomic climate has been a challenge over the last quarters that we've talked about quite often, and we've been diversifying in that market. And one of the interesting things that we've seen, and Kevin articulated earlier about our order book rules around having a defined project with a start date with a PPA in place. And those rules apply really well for the domestic market here in the U.S. that what we've seen elsewhere in other markets, those sometimes get a little bit out of sequence. So we may see an awarded order that then our customer takes the contract with us that then they take into their PPA finalization. So what that really means is that we have awarded business that is not shown in the order book that will convert in future periods. And we're seeing that more and more, particularly in South America. So I guess to get to your point that in that $1.9 billion order book, there is business that we do expect to see on top of that, that will turn over the next couple of quarters. Philip Shen: Got it. Okay. And then shifting to APA again. Is it fair to conclude that the APA revenue in '25 will be roughly flat year-over-year? And then what kind of growth should we expect from APA in '26? I know you haven't given guidance yet, but -- and so far as you can give a little bit of color, that would be fantastic. And then if you can, and I know a lot of people are asking about this at RE+ when you announced the acquisition, but what is the APA revenue mix by tracker, if you can give a rough sense, assuming a baseline of about $130 million of revenue? Like how much of it historically or is now with your tracker versus one of your peers like a GameChange or Nextracker. And so just trying to get a feel for what kind of exposure you might have, to other trackers? And then how quickly you might need to make up for some of that lost revenue if one of those trackers steps away from wanting to use APA? Keith Jennings: Phil, this is Keith Jennings. Let me start with just the math. So yes, APA 2025, based on our guide, we will have slight growth, I think, just over 1% given what we had to disclose in terms of pro formas in our 10-Q. I think that was an understandable performance given the distraction in the market with 1BB and particularly even the outcome of 1BB, which I think hit mostly the residential and community solar market more than the utility scale markets. And so as they've come in-house, we feel fairly strongly about the outlook for APA with Array as a partnership, particularly as we introduce them to more utility scale customers and clients that find them more attractive now that they have a bankable partner. And so our outlook for them is really strong, and we're still very excited about the acquisition that we just executed. In terms of the breakout between the various partners that they have been supporting, we're not prepared to disclose that. And I think that we remain committed to the customers of APA, regardless of which tracker company they choose to go with. We believe that APA and its engineered foundation is the best technical solution in the market. All customers should be able to benefit from that. With that, Kevin, anything to add? Kevin Hostetler: Yes. Look, so to be clear, Phil, there's not been any of APA's customers that have said, "Hey, we're going to pull business away." There's only one meaningful competitor that has any backlog with APA. The they have backlog with APA because their existing solution doesn't solve what APA solves, right? They have their own foundation solution. And if they could solve it with their own, I promise you they would. That's the case. So what we focus on is allowing APA to continue to serve their customers, continue to work on new product development with peer tracker companies. We're going to continue to allow that level of support. I have personally engaged in senior management discussions with each of those competing tracker companies and given them my personal assurance that we will continue to behave accordingly. We have created separate firewalls in the company to allow them to conduct that business with our competitors such that Array cannot see their engineering, their pricing, any of the above. So we've taken a very high road approach to ensure that we allow them to maintain those relationships and, in fact, continue to do aggressive new product development with those customers that on a tracker may be a competitor of ours. So I think we're taking a very good approach there. We feel really good about that as we move forward. I would say the influx of opportunities on the utility scale segment, when you think about moving from C&I to utility scale, it only takes a handful of utility scale projects in a given year for APA to win to totally and very dramatically change the scale of that business. I am very pleased with the amount of traction we're getting in that at this point and the amount of quote opportunities we are now getting in the business on utility scale foundation solutions. So we're quite excited about the trajectory of that business. Operator: The next question we have comes from Tom Curran of Seaport Research Partners. Thomas Patrick Curran: Kevin or Keith, does Array currently have any contracts with BP in the order book via Lightsource or any other BP affiliates? And if so, could you give us an indication of what that total BP exposure represents as a portion of the backlog? Kevin Hostetler: We don't give specific backlog or business numbers with any customer, but BP has historically been a good customer of Array, but we don't put that out publicly, sorry. Thomas Patrick Curran: Understood. Maybe I'll just try a different angle. Have you been given any reasons to believe or seeing any signals that there could be any issues with upcoming expected deliveries to BP affiliated projects? Kevin Hostetler: We've not been made aware of any that I can think of. Operator: The next question we have comes from Dimple Gosai of Bank of America. Dimple Gosai: With domestic steel pricing moving around and tariffs tightening, can you maybe help us quantify the degree of cost pass-through you're achieving today? How much price discipline is holding in bids as the market normalizes around domestic content? Keith Jennings: So I think -- Dimple, this is Keith. A few things. we tend to be able to price our products in line with expected delivery dates and steel prices at the time of contracting. And so -- and that achieves some level of locking on most of our materials. We do have some materials that may float. But for the most part, we're able to hold our margins. If you think about where spot market for steel is today at around USD 847 a metric ton, that was roughly 13% lower in 2024. And when we spoke earlier in the year and we saw these forward prices then, we talked about expecting ASPs to go up, and you've seen that now. Sitting here today, when I look forward to 2025 and look at the forward curve, I see an average for 2025 at 849 (sic) [ USD 849 per metric ton ], which is in line with where we are. I see 2026 at 874 [ USD 874 per metric ton], which is marginally up. So we are -- I'm sure our customers are seeing all these things. So when we have conversations, we are all having all having informed conversations about where pricing should be so that we can all have healthy margins and continue to do business. Neil Manning: Let me just add on to that as far as passing through both from a steel pricing from a tariff standpoint. With steel up 22% year-to-date, we also saw, as Kevin mentioned earlier, a sequential increase in ASPs. It's demonstrating that steel pricing is flowing through into ASPs, which as we've talked about previously, flows through from a gross profit dollar perspective, which is helpful from obviously a P&L standpoint. Something to add on tariffs, as we've also communicated previously, 70%, 75% of our contracts allow us to pass through those tariffs directly to customers. There are times where we'll negotiate with customers on a commercial basis for the best overall outcome of their project for us to go forward. So we may negotiate on a project basis that pass-through. But ultimately, as tariffs normalize, we then bake it into ASPs. So overall, we feel quite good that steel pricing is certainly flowing through. And obviously, the vast majority of tariffs are as well. Keith Jennings: Don't forget that the tariffs create a drag on the margin rate because we don't get a lot of markup on tariffs even when they flow through prices. I would say just more -- sorry, operator. Just one more clarifying point on the other side of that equation would be pricing, and we continue to see rational pricing behaviors in the market. I want to make sure that's clear. Operator: The final question we have comes from Colin Rusch of Oppenheimer. Colin Rusch: Given the concern around time line for a lot of these projects, can you talk a little bit about your opportunity for driving incremental labor efficiency within the existing designs? And if you're working on any updated designs that could drive incremental or shorter time frames out in the field? Neil Manning: Yes. This is Neil. I'll take that one, Colin. So yes, so when you look at our innovations we brought to market over the last couple of years, we've talked that has really manifested itself really well into the pipeline at this point with OmniTrack and SkyLink and others. One of the key factors there is around ease of installation and making things easier for our customers. So you look at SkyLink, for example, with wireless connectivity, minimizing the need to trench on a site, that certainly brings with it installation efficiencies that our customers certainly appreciate on certain parcels where they're deploying where they have difficult soil conditions where trenching is problematic. Separate to that, when you look at DuraTrack and OmniTrack, from a sheer number of parts perspective, we're several fold smaller or fewer quantity in components than competitors, which also bring with it an installation efficiency that our EPC customers, in particular, appreciate. So they're oftentimes put in a factor that gives us a credit for the overall cost of our solution because of the ease of installation. And we continue to hear that time and time again from EPCs as recently as I had when I was down in Australia last week in a number of meetings. So when you think about what our innovations going forward look like, they're on a couple of fronts, right? It's to continue to drive effectiveness and ease of installation for our customers, along with protecting their assets. When you look at extreme weather with Hail Alert Response, Hail XP and other factors, those are the things that we're driving towards ease of customer, more value for installation and more value for the long-term asset over the lifetime of the installation. Operator: Thank you. Ladies and gentlemen, we have reached the end of our question-and-answer session and the end of our conference. Thank you for joining us. You may now disconnect your lines.
Operator: Good afternoon, everyone, and welcome to the Caris Life Sciences Third Quarter 2025 Earnings Call. My name is Shannon, and I will be your coordinator today. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Russ Denton at Caris. Please go ahead. J. Denton: Thank you. Earlier today, Caris Life Sciences released financial results for the quarter ended September 30, 2025. Joining from Caris today, David Dean Halbert, our Founder, Chairman and CEO; David Spetzler, our President; Brian Brille, our Vice Chairman and EVP; and Luke Power, our CFO. Before we begin, I'd like to remind you that during this call, management will make forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. These risks are discussed in our SEC filings, including our prospective filed with the SEC in connection with our IPO and our quarterly report on Form 10-Q to be filed with the SEC. Except as required by law, Caris disclaims any intention or obligation to update or revise financial projections and forward-looking statements, whether because of new information, future events or otherwise. The information in this conference call is accurate only as of the live broadcast. This call also includes a discussion of non-GAAP financial measures, which are adjusted to exclude certain specified items. The reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures are available in the press release Caris issued today. A copy of today's presentation materials can be found on our Investor Relations website. I will now turn the call over to David Dean Halbert. David Halbert: Thanks, Russ. Good afternoon, everyone. Before the team walks through our exceptional financial results for the third quarter, I want to take a moment to speak about something even more important. The foundation that makes these results possible and the vision that continues to drive Caris forward. When I founded Caris, my goal was simple: to make a precision medicine a reality. Our only purpose is to help patients live longer and have a better quality of life by applying personalized medicine to disease. In 2018, I made the decision to move Caris to Whole Exome and Whole Transcriptome sequencing. It was a bold move at the time, but I believed it was the only path forward. That decision put us at the forefront of precision medicine, where we've remained ever since. 17 years in, I can say with confidence that the mission has only grown stronger. The power of our Whole Exome and Whole Transcriptome platforms across both tissue and blood has exceeded my expectations. The data that we have generated from these platforms, utilizing the cloud and AI lays the groundwork for what comes next. The next step is what excites me most. I believe that in the not-so-distant future, the work we're doing today will move medicine beyond diagnostics and treatment into true prediction and prevention. We'll be entering a world where we can anticipate disease before it begins and intervene before it ever has a chance to form. I've referred to this concept as the cleanse or personalized disease prevention, where we can one day identify and eliminate pathogenic mutations before they ever become disease. In pursuit of this vision and to expand our current platform, I made the decision to incorporate whole genome sequencing into our early detection test. It's another step forward as you consider Whole Exome to be the highlight reel, whole genome as the full movie. And now as we stand at the intersection of biology and technology, the possibilities are accelerating faster than I imagined. The rapid advancements in artificial intelligence, the explosion of data and sequencing and the evolution of how data is analyzed and consumed are transforming what's possible. What began as a vision to make precision medicine a reality is happening, including a platform that we believe will redefine how we understand, predict and ultimately prevent disease. This is the future we've built toward from the very beginning, and I'm excited to continue on this incredible mission. Brian Brille: Thanks, David, and thank you all for joining our third quarter 2025 earnings call. This is our second call as a public company following our June IPO. As David mentioned, we're pleased to report another record-breaking quarter, one that marks the significant milestone in Caris' history in terms of continued growth and underlying profitability. We've had an outstanding third quarter with total revenues increasing 113% year-over-year to $216.8 million. As shown on Slide 3, this result was driven primarily by strong performance from clinical profile. Molecular profiling services revenues increased to $207.6 million, representing an increase of over 121% year-over-year. And pharma R&D services revenues increased to $9.2 million, an increase of 18.3% year-over-year. On Slide 4, with respect to molecular profiling revenue, you can see the remarkable increase of 121% which was driven by consistent growth in clinical case volumes as well as very strong growth in clinical ASP. Clinical case volumes were slightly less than 51,000 individual profiles representing growth of 18.2% year-over-year, in line with our expectations. Caris Assure for therapy selection continues to gain market share and produced 66% year-over-year case volume growth in the third quarter, which is an increase from the 56% year-over-year growth in the second quarter of this year. In addition, ASP increased to $4,089 per profile for growth of 87% year-over-year. This represents important sequential improvement from the $3,256 per profile in the second quarter. As you may recall, this is primarily due to the new CMS rate of $8,455, which took effect retroactively through November 5 last year, the date of MI Cancer Seeks FDA approval. This mix shift to MI Cancer Seek has driven the increase and we've also made further progress with private payers. It also includes some overcollections and true-ups relating to prior period cases, which Luke will discuss in more detail later. In summary, across the board, we've had a very productive third quarter, illustrated by the highlights on Slide 5. The strong revenue performance, combined with the operating leverage inherent in our business model has produced significant margin improvement. And specifically, gross margins improved significantly to 68%, up from 43.7% in the third quarter of last year. It also represents a significant sequential move up from the 62.7% in the second quarter. This was driven by several factors, including strong overall revenue growth as well as lab and other operational efficiencies. In fact, with this gross margin improvement, we have successfully achieved another major milestone in our path to profitability. And this quarter, we generated positive adjusted EBITDA of $51.2 million and net income of $24.3 million as well as positive free cash flow of $55.3 million. Together, the strong profitability profile provides valuable flexibility for ongoing investment in our technology platform for new products as well as the ability to develop new channels such as Multi-Cancer Early Detection. Luke will expand further on these important developments and our philosophy for strategic investment. In addition, our balance sheet continues to strengthen and due to our cash flow performance, our cash on hand grew to a little under $760 million, an increase of 4.7% sequentially. This continues to provide us with important strategic flexibility for ongoing investment to develop Caris' extraordinary opportunities in MRD, monitoring, early detection and other markets as well. Slide 6 illustrates the consistent and systematic growth that our team has generated in clinical profile over many years. We've grown clinical case volumes at a CAGR of 28% over the past 5 years and this growth rate has continued in the first 9 months of 2025 at 23.4% growth year after year. The sustained case volume growth reflects several factors. First, the unparalleled breadth and depth of our Whole Exome, Whole Transcriptome assay technology, 23,000 genes DNA and RNA continues to resonate with oncologists, KOLs and cancer center leadership. In addition, our differentiated coverage strategy as well as research orientation and the Caris Precision Oncology Alliance provides us a competitive edge in the market. Finally, we believe that the therapy selection TAM continues to expand with new indications as well as ASP growth. And most importantly, we believe that the penetration rate for comprehensive genomic profiling remains relatively low at about 30% or so, providing us with growth opportunities to serve more physicians and patients with superior technology over many years. We also benefit from strong operating leverage associated with our established distribution channel, seasoned sales force and strategic relationships at both the institutional and the individual oncologist level. We are now consistently reaching approximately 6,000 oncologists across the country. In addition, there are other technological efficiencies such as EHR integration, which will further enhance the pipe connectivity with our clinical client base and have facilitated case volumes. For instance, we are now EHR-integrated with approximately 2,800 clinical sites and over 65% of our orders come in electronically. As you can see on Slide 7, the Caris data set has continued to grow with our clinical profiling activity and now exceeds 959,000 genomic profiles and 660,000 matched profiles. Since every profile has been generated with our Whole Exome, Whole Transcriptome technology for many years, our data set features 577,000 exomes and 628,000 transcriptomes. This gives our data set tremendous power for our own internal product development and continues to enhance our attractiveness as a preferred research partner for academic medical centers as well as biopharma. We continue to work with potential new partners for the Precision Oncology Alliance. And given the size and breadth that we currently cover, we're being very strategic about adding additional sites. We have important opportunities across the existing 97 sites for deepening relationship penetration and adding new modalities across the continuum of care. As communicated previously, the POA members benefit from access to our CODEai genomic data set as well as the opportunity to publish with us and the POA collaboration has produced a cumulative total of over 1,150 peer-reviewed publications reflected on Slide 8. In conclusion, we are very pleased with this latest quarter's performance and the demonstration of sustainable growth, profitable business model and a very exciting future. I'll now turn the presentation over to Dr. Spetzler to discuss our progress on our product pipeline. Spetz? David Spetzler: Thanks, Brian. I will begin by giving a quick update on our MRD CRC solution on Slide 9. We are working to obtain reimbursement on Caris Assure MRD Colorectal. The data we submitted includes over 100 patient samples evaluated on the Whole Exome and Whole Transcriptome Caris Assure platform, incorporating our [ PTEN ] gene expression in AI-based signature. As part of our submission, we also compared our performance to that of a commonly used third-party MRD assay in colorectal cancer. Samples tested within 60 days of one another. Among these cases, we demonstrated 96.3% positive percent agreement and 100% negative percent agreement. The disease-free survival curve on the right shows that patients identified as likely to recur experienced shorter disease-free survival, while those predicted as no event remained disease-free for extended periods. The separation between these groups with a p-value less than 0.005, supports the test's ability to accurately distinguish recurrence risk. Using the ABCDai, [indiscernible] scores, we demonstrated consistent signal detection and strong correlation with known molecular and clinical features. This data supports our belief that MRD detection grounded in Whole Exome and Transcriptome data can capture a broader molecular landscape and offer deeper insights into tumor biology. In addition to our MRD Colorectal, we continue to make progress on other solutions in our pipeline and expect to finalize these additional solutions for submission shortly. These are reflected on Slide 10. The first is Caris ChromoSeq which is our therapy selection offering within the hematological malignancies' cancer space, including AML, MDS and MPN as well as suspected myeloid malignancies where other causes have been ruled out. As communicated previously, this approach utilizes both whole genome and whole transcriptome sequencing, and the solution provides more than 200x depth of coverage of the genome and approximately 1.6 billion reads per patient, enabling detection of mutations, fusion, copy number changes, expression and ploidy across the genome. The second submission expected is for MI Clarity, which focuses on patients with breast cancer who are ER positive and HER2 negative, typically lymph node-negative or with limited nodal involvement primarily in Stage I or Stage II disease. MI Clarity combines our tissue platform and digital AI analytics to produce both early and late return recurrence scores designed to inform individualized treatment and monitoring strategies, and we believe this will offer superior performance to existing third-party offerings. MI Clarity was developed and validated on samples from 2 large randomized controlled trials and results will be shared at a large upcoming international conference. We are very excited for these solutions and believe that they can continue to expand our unique approach to building out our suite of solutions in an efficient manner. Like our MRD Colorectal submission and as stated on previous calls, we will hold off on providing potential launch dates until we have made it through the expected rounds of feedback. And then finally, I will give a brief update on our current studies progress. As reflected on Slide 11 on the early detection slide, our ACHIEVE-1 study is complete with enrollment of 3,000 subjects. ACHIEVE-2, which is targeting 25,000 subjects, is well underway with over 15,600 patients already enrolled. That brings our combined total to more than 18,600 subjects across more than 40 different cancer types and normal controls. The ACHIEVE program remains the cornerstone of our early detection platform with particularly strong representation across normal and premalignant populations, over 14,000 normal subjects and more than 2,500 with advanced adenomas. This gives us a powerful data set to refine our assay performance and validate early signals across multiple tumor types. David already touched on this, but we are incorporating whole genome into early detection, and we will be utilizing the data set to provide the readouts and ACHIEVE-1 in the first half of 2026, utilizing the whole genome. On the right side of the slide, you can see our MRD and monitoring portfolio, which now includes more than 3,300 subjects across a range of indications, which are currently undergoing contracting and enrollment. Enrollment is balanced across key solid tumors with the largest cohorts in non-small cell lung cancer, rectal and esophageal gastric cancers. The data generated from these efforts will feed directly into our development pipeline and commercial readiness planning. As Brian mentioned earlier, we continue to believe that we are in the early innings of the potential for precision medicine and remain very excited for the impact that this will have not just on patients of today, but also those in the future. I will stop there and now pass it over to Luke for the financial updates. Luke? Luke Power: Thanks, David. Brian mentioned some of these already within the highlights. And as you can see within our earnings release, we'll continue to provide a summary metric table. So I'll go through the next few slides relatively quickly. Turning to Slide 12. You can see we delivered another outstanding quarter with total revenue increasing 113% year-over-year, reflecting exceptional organic performance across the business. The main driver, as expected, was our molecular profiling business, which grew 121% compared to Q3 of last year. Our molecular profiling business continues to perform at a high level, and therapy selection volumes were up 18% for the quarter and 23% year-to-date, right in line with our expectations for mid- to high teens growth in the second half of the year. And this is separate from any potential new solutions that David mentioned earlier around MRD, Caris ChromoSeq, MI Clarity and early detection. More importantly, this growth is showing up in the bottom line. We are seeing continued improved commercial reimbursement following our FDA approval for tissue and stronger-than-expected contracting for blood. These tailwinds drove gains in cash flow and adjusted EBITDA and have also delivered better-than-expected ASP across both tissue and blood solutions. As Brian mentioned earlier, we also saw stronger-than-expected collections both on current and prior cases, and this resulted in a $37.9 million revenue true-up for the quarter. That true-up reflects increased payment activity from commercial payers and highlights the continued positive trend we have seen in reimbursement. And as we said before, as payer history continues to build, we expect these true-ups to become smaller over time, particularly post 9 to 12 months of launch. So even excluding that benefit, our underlying base ASP improved ahead of our expectations. For tissue, we're now 10 months into launch of our FDA-approved solution and are beginning to see steady predictable patterns and this is reflected in the 3,500 base ASP for the third quarter and a little under $4,300 with the true-ups. We also still expect Q4 base ASP for tissue to be around $3,600 and with the third quarter performance, including the true-up, expected full year tissue ASP to be trending slightly above $3,400 for the year. Within tissue, MI Cancer Seek continues to remain 78% of the total tissue volume. And we surpassed a major milestone of 200 million covered lives for MI Cancer Seek, which includes governmental and commercial payers, and that's a direct result of the excellent execution by our market access team. Switching to blood. Blood space, ASP reached $2,377 per case and with true-ups that exceeded $3,000 per day. Improved tissue contracting continues to have a positive impact on our blood ASP so we're raising Q4 guidance to be in the $2,300 to $2,400 per case range, which, along with the Q3 performance will put us close to $2,500 per blood ASP for the full year. Within blood, another great market trend continues to play out. And we saw that for Q3, where 40% of our blood cases also had a tissue case performed, which was up from the mid-30% range last quarter. Turning briefly to pharma revenue. As expected, revenue declined sequentially this quarter, several projects and associated customer spend shifted into Q4, which is a similar pattern we experienced last year. That said, pharma revenue was still up 18% year-over-year, reaching $9.2 million. Pharma continues to remain a smaller part of our overall mix, but it's strategically important, and our focus remains on building longer-term partnerships on multiyear agreements rather than one-off projects. Similar to prior year, we do expect sequential improvement as we move into the fourth quarter versus Q3 performance. These revenue numbers obviously had a very positive impact on our gross margin for the quarter, which was 68% and up from the 43.7% in the third quarter of 2024. And was the result of the continued excellent work by our labs teams in maintaining operating efficiencies with the increased volume, along with that ASP improvement. In fact, one of the key milestones we achieved in Q3 was being able to get our turnaround time for tissue down to 8 days and blood at 7 days. Considering the sequencing requirements for our Whole Exome, Whole Transcriptome solutions, this demonstrates the significant progress we are making on lab efficiencies and the excellent work by our teams. We will also see this great trends on Slide 14, and we believe with the continued improvement in ASP and our updated revenue guidance, which I'll discuss in a little bit, that we should be getting to a 62% gross margin for the full year 2025, which would be an increase from the 43.4% that we had in 2024. Moving down from an operating expense standpoint, we continue to demonstrate excellent operating leverage, and the 9% ramp year-over-year was primarily driven by an increase in stock-based compensation. We continue to look for efficiencies, not just with the emergence of AI and the potential impact that has on business processes. But also on our R&D efforts in which our efficiency efforts are supported by having one platform across the care continuum. In fact, due to the improved performance, we actually hit the milestone of not just having positive adjusted EBITDA, but also net income, which is our first in our 17-year history. The last item I will comment on from this slide before jumping to the guidance slide is free cash flow. Q3 was obviously great in this regard as we achieved positive free cash flow for the quarter in the amount of $55.3 million. This performance continues to strengthen our balance sheet and allows us to build up some dry powder ahead of the new solutions David discussed earlier. With regards to our investment approach, and as I've stated before, this continues to be opportunistic, and we're currently assessing opportunities for expansion in marketing and sales, along with assessing any external opportunities that may arise. The main goal for us financially continues to be not to hoard profits, but to focus on our mission, as David Halbert discussed at the start of the call. And finally, jumping to Slide 15, I'll give a brief update on guidance. As previously communicated, we'll continue to provide guidance on the total revenue and expected clinical therapy selection volume basis. And with regards to these, given the excellent performance of Q3, we're upping our total revenue to be within the range of $720 million to $730 million for FY '25, which would be a 75% to 77% increase over 2024 and increasing our expectations for clinical therapy selection volume to be even a 21% to 22% for the year. I will wrap up there. I will now turn it back over to the operator. Operator? Operator: [Operator Instructions]. Our first question comes from the line of Vijay Kumar with Evercore ISI. Vijay Kumar: Congrats on a nice [ sprint ] here. Maybe my first question on the performance here in the quarter. ASPs clearly came in about. What is your implied Q4 assuming, Luke, I think revenues are down, I think, sequentially. So does it include any true-ups? And what was underlying gross margins in 3Q, excluding the true-ups? Luke Power: Yes, Vijay. So yes, as I stated in Q2, we'll never forecast any potential true-ups because, again, we don't know those until the end of each quarter. So it's not assuming anything there. So for total revenue for Q4, our assumption in the guidance we put out is the $200 million to $210 million range for total revenue. So to answer your other question then, what was our underlying gross margin without the true-ups in Q3, that was about 61%, excluding that true-up that we had in Q3. Vijay Kumar: Understood. And then maybe one on the clinical side here, this colorectal MRD data that you're showing. Is this enough for you guys to submit to CMS or what kind of data is needed if there's any additional data that's required, could you update us on when we could expect the data? Unknown Executive: Yes. I'll take that one. It is enough data for us to submit. We don't know how they'll necessarily respond and what additional data that they will want. But we do have additional data ready and some of the studies that we listed are will be reported out soon. Vijay Kumar: And sorry, when you say this is enough to submit, have you submitted or are you planning to submit to the CMS? Unknown Executive: We'd like to only talk about that after it's been approved because the process is complex and long. Operator: Our next question comes from the line of Dan Brennan with TD Cowen. Daniel Brennan: Congrats on the quarter. Maybe just one more on price. If you don't mind. Just could you walk through a little bit of kind of the success on the underlying pricing ex the true-ups, how you saw the progression in terms of payment rates against the $8,455 rate for on the tissue side? Like how are you doing versus expectation? Maybe just give a little color on the commercial success there in Q3 versus Q2 and same thing on Medicare. And then kind of how are you thinking about, I think you said kind of price in that same ZIP code, the underlying price for 4Q. So just kind of what's assumed in 4Q as we think about the underlying price and across Medicare and commercial? Luke Power: Yes, Dan. So effectively, what we're assuming for our base and is what I said in the presentation is about a base for tissue of 3,600 for Q4. Now we obviously think there's a possibility it might come in a little bit higher than that, but I'm being cautious in the guidance I'm putting out there until I get a little bit more history on the payments. By the time we get to the end of the year, we'll have about 9 months of payment histories from payers. And based on our historical experience, you're probably in that 9 to 12 months where you have like a very established trend. So what we saw in Q3 happened and what we've seen throughout the year is actually the response we're seeing from commercial payers has been very, very, very good. So that's what's kind of driving it. And when we discussed I think it was in Q2 as well, like we have an underlying goal for ourselves, too, that we should be getting to an overall percentage of what the Medicare rate is for our overall ASP. And I think we're probably about a quarter ahead of where we thought we were going to be at the start of the year. And again, that's due to the great work of the market access team and the billing team. So I think what we'll see going forward is trying to get above my next goal for the company and the next goal for, obviously, the market access team in the first half of next year is to try and get above a $4,000 ASP for tissue, and I think we can deliver on that. Daniel Brennan: Great. And then maybe just on the pipeline, just on early detection, you gave a lot of cover, David in terms of the ACHIEVE study. There's a lot of excitement in that space right now. Can you just kind of walk us through a little bit more of time lines? I think you said, what, ACHIEVE-2 16,000 enrolled, ACHIEVE-1 like just kind of walk us through kind of how we think about the cadence of publications go to market? Like would you guys consider launching an LDT? Just how does that work and kind of the spending associated with that? David Spetzler: Yes. We'll read out ACHIEVE-1 in the first half of next year. The accrual rate on ACHIEVE-2 is pretty strong. So it's probably late next year or early in '27 when we'll read that one out. And we would consider an LDT launch for sure. Daniel Brennan: And that would be after ACHIEVE-2, you consider the LDT launch? David Spetzler: No. Before, I think ACHIEVE-1 gets us where we need to be on that. Operator: Our next question comes from the line of Michael Ryskin with Bank of America. Michael Ryskin: I want to dig into your volume guidance for the year. You bumped that up a little bit. You're looking at, I think, 21% to 22% for the year, a pretty good cadence start of the year. It is a little bit of a conservative assumption for 4Q. But if I just look at the total volumes on a patient basis, you're kind of trending in that 50,000 to 51,000, 2Q, 3Q, 4Q. So as we think forward to next year and just sort of beyond, what gives you confidence you can kind of reaccelerate that and take a step function? Maybe just talk about the sequential versus the year-over-year growth? And how do we think about volumes progressing beyond the next couple of quarters? And I got a follow-up. Luke Power: Yes. Thanks, Mike. So yes, so for Q3, obviously, the 18% came in kind of in line with what we were expecting. And kind of the reason for that guide and kind of the actual results, we were actually pretty cognizant about this coming into the year is that Q3 last year was actually probably one of our highest quarters at 35%. So it was a very tough comp coming into the year, and we wanted to be careful setting expectations against that. Now as you mentioned, what we did with the updated guidance is we're increasing the higher range on that volume based on what we've seen play out later in the quarter. So we feel very good about being in that total 197,500 cases to 198,500 cases for the year as we sit here today. So then that would obviously get you in that kind of 22%. Now you asked about what we think for next year, we're not going to release the guide right now because of what Brian mentioned on the call, and I'll leave Brian jump in, in a minute about the commercial pipe. We've seen kind of an uptick after the summer months, especially among ordering physicians and obviously, especially with our blood volume. So one of the key things that we're working towards now for blood for Q4 is we got the 7,500 cases, probably a quarter than we were anticipating earlier. So our expectation now is, okay, can we get above 8,000 cases for the quarter in Q4. And then once we have that, one of the other key catalysts for blood that we've obviously mentioned on the previous call, to is getting the New York State approval since we're not selling in New York right now. And I think that will obviously give another additional kick to the volume from blood. So I think what we'll do at the end of the year, especially when we report that preliminary numbers and probably for JPMorgan, we'll put out a guide around what we expect our therapy selection volume to be. Michael Ryskin: Okay. All right. And then if I can get a follow-up on the strong EBITDA number in the quarter, the free cash flow, I mean, even if a good chunk of this was attributed to the true-up, clearly, you're moving to profitability and cash flow positive earlier than you expected. Can you talk about incremental spend priorities? And just, again, how do you balance the profitability versus the opportunity to reinvest back in the business? Just want to get a sense of if things come through again on the top end, on the higher end, where that extra money will go. Luke Power: Yes. Yes. And it's a great question because obviously, we're in a fantastic position financially right now. And obviously, that's why David Halbert said what he said at the start of the call, like we're going on to our next phase. And one of those phases is obviously doing whole genome for early detection. So there is going to be an increase in spend there. Now for Q3, we did have kind of on the lower end of the previous range I put out for OpEx. It was like $114 million. Now I do expect for Q4 based on obviously starting to ACHIEVE-1 study and running whole genome for that to be kind of in the higher $120 million for OpEx for Q4. So that's going to be some of the investment, too, of those kind of additional free cash flow that we have for Q3. Then the other thing that I mentioned on the call, we're also assessing opportunities for the sales and marketing teams with additional spend there. We spend kind of a lot of time in Q3 just thinking about, okay, how do we want to be structured as we go forward with the new solutions that we have in our pipeline, along with our therapy selection. So there's going to be an increase in spend there as well. And then there's also external opportunities that we'll continue to assess. Brian Brille: Mike, it's Brian. The business model that we've built over a number of years, though gives us a tremendous amount of flexibility. So the numbers have kind of definitely come into their own with respect to profitability. And that's being driven by growth overall, but also by the operating leverage inherent in our business in both the tech platform, which is set up in sort of this one assay format that's very, very powerful as well as the channel that we've built over many years. So as you've mentioned before, our growth has sort of doubled over the past few years, while head count has been basically flat in the channel. So we benefit from very strong relationships, senior relationships at the top of the house with respect to cancer center leadership as well as individual physicians, we're up to 6,000 or so now ordering physicians. So it's a very efficient business model that we think is well suited for ongoing profitable growth. So I think it gives us David Halbert directly us well as Luke from a financial perspective to invest in the business, whether it's tweaking the sales force, as Luke was talking about, but also really leaning into what we think is a tremendous opportunity in early detection. So it's not like we're going to have to make really tough decisions either way. I think this business model is going to support our strategic moves against what is, we think, just historic market opportunities across the whole molecular information landscape. Operator: Our next question comes from Doug Schenkel with Wolfe Research. Douglas Schenkel: Starting on MRD. Once you have MolDX coverage, what's the commercialization strategy to scale that business? And specifically, what I'm getting at is, can you go after it, get after it with your existing oncology sales force without material headcount expansion. And then relatedly, how should we think about initial pricing? Will that align with currently reimbursed tumor-naive levels? Or do you think MolDX will actually allow for premium pricing, given the breadth and depth of your assay? Brian Brille: Well, listen, I'll take the first part, which is very straightforward. I mean our channel, our relationships with the physicians, the cancer centers, they love our technology, and they want additional modalities from us. So MRD and monitoring falls very neatly into that. So there's really a pull from the marketplace to have the complete solution set from us. So Doug, that's -- we're not going to need additional head count. It's the same sales force, the same MSLs taking care of the physicians. It's the same channel for us dealing with the same physicians and same institutions. So it's a very efficient, very natural launch for us from that perspective. Spetz, do you want to take or Luke, do you want to take the pricing part. Luke Power: Yes, I can take that. Yes. So Doug, so obviously, we're going to be talking with MolDX, so we don't know. Obviously, we think there should be a premium to it based on what we're doing because it's obviously the exact same assay that we got covered for therapy selection. But obviously, it's a different indication now for MRD. We'll have those discussions. But given the position we're in, we're obviously not price sensitive. I think once we actually get to the stage of getting that approval, we'll be ready to launch it even if it's not at -- like a very high price, even if it's that something similar today. Douglas Schenkel: Okay. Super helpful. And Luke, I think it's another one for you, but just on a different topic. You got to really robust 68% gross margin, and I think it was 24% adjusted EBITDA margin this quarter. As we think about new products and the mix shift towards liquid biopsy over time, I'm not sure it's going to be a straight line, but I can easily see an excel how the gross margins move into the low 70s. The EBITDA margin gets into the high 20s, anything you think we should be thinking about as we're updating our models for the next couple of years, given in Excel, it looks like things can move up pretty quickly, but there are definitely a lot of opportunities for you to invest in pipeline products. Luke Power: Yes, yes. So there is a lot. And I know we've kind of discussed this as a company before. Like we don't want to be in a very high kind of positive EBITDA margin level. We want to reinvest this and obviously, Brian mentioned like the early detection, and that's David's vision and that's kind of going to be one of the key things we're going to focus on going into next year, along with MRD. I think for us, Doug, like being in the position we're in, being in that 68% gross margin and then without the true-ups being in that kind of low 60s is a great spot for us because even without the true-up, and this was pointed out earlier, we're still in that kind of -- we got the neutral EBITDA, like a positive adjusted EBITDA even without the true-ups. So we're being very efficient there. So I think for us, going forward, MRD, you probably noticed, Doug, like so MRD, obviously, there's a Medicare reimbursement, commercial is starting to pick up, but like it will take a little longer for us when we switch that on. So MRD is probably not going to be like a high gross margin product right off the bat. We're going to have to work on that similar to what we've done with therapy selection over the years. So I think that's going to kind of compress it a little bit. But for early detection, and we discussed this, we're going to launch data self-pay. So that's going to be a positive gross margin for us. So we're going to be in a great position either way with the addition of the pipeline. But from a forecasting modeling standpoint, like I do want to cap that we're not going above 30% adjusted EBITDA numbers, like we want to reinvest, and that's the whole point of the company is to think about the future. Operator: Our next question comes from the line of Casey Woodring with JPMorgan. Casey Woodring: Congrats on the quarter. So you guys called out strong Caris Assure volumes this quarter. Another liquid biopsy competitors also called out an acceleration in blood-based therapy selection volumes. Just kind of curious how you guys are seeing the market movement towards blood? And has it accelerated in the past few quarters and expectations for that in the future year? Luke Power: Do you want me to take that Brian? Or do you want to take that. Brian Brille: Yes. [Technical Difficulty] take that. Luke Power: Yes, Casey, so like it was great for Q3, obviously, seeing that acceleration in the growth rate from Q2, especially knowing that we've only probably been like a little over a year since we launched Caris Assure now. I think what we're seeing in the market and kind of what I called out in the presentation, what we're seeing is more concurrent testing, which is definitely benefiting us. So last quarter, like about 35% of our blood cases also had a tissue case performed, and that went up to 40% for Q3. So I think that's playing out. I think there's more indications. And I think physicians are obviously getting more and more comfortable what we're offering with the Whole Exome, Whole Transcriptome along with our tissue and seeing kind of the benefits of that. And obviously, the chips of traction, which is unique to us in the sequencing that we do on that. I think they're starting to see that play out a little bit more. Casey Woodring: Got it. That's helpful. And then maybe just a quick follow-up. By our estimation, it looks like the guide implies a pretty sizable sequential step-up in pharma R&D services in 4Q. Can you just provide any color on visibility into that, how you're thinking about the 4Q ramp in pharma R&D? And then what percentage of that growth is going to be driven by the data licensing piece. Luke Power: Yes. So for Q4, effectively, like the $200 million to $210 million of total revenue, that's in the guide. Effectively, our molecular profiling, the guide is showing $180 million and then we're showing $20 million to $30 million in pharma because you asked the question how much is known. We have a lot of contracts working through the pipeline right now. And similar to what we saw in Q4 of last year, where we did have a pretty big step-up. We do think there's going to be a step-up from Q3. But again, what we would put in the guide for pharma for Q4 would be that $20 million to $30 million range because, again, it's going to depend on timing. And obviously, what we're trying to do as a company is not do a onetime deal and get into longer-term partnerships. Now you asked about the data component there will be an element of that, but we're not going to start breaking out kind of the 3 pillars in pharma until we actually start getting kind of that pharma revenue greater than 10%, 20% of our mix. We've always been clinically focused. We're always going to be clinically focused, but we do think there's strategic importance within pharma. And we will build it up. But for now, for Q4, it's in that $20 million to $30 million for pharma range. Operator: Our next question comes from the line of Patrick Donnelly with Citi. Unknown Analyst: This is Alberto on for Patrick here. So going off Doug's earlier question, obviously, the EBITDA this quarter was very impressive. And you also mentioned that the cap is around 30%. So just making sure our expectations are in line here. Would you say that Q4 is going to see around similar EBITDA margins as this quarter? And then perhaps into the next couple of quarters, it ramps up a bit before getting capped at around slightly below 30%. Is that the right way to think about it? Or would you say... Luke Power: Yes. I would actually think of what we're putting in the guide because again, we're not assuming any true-ups. We had the kind of true-ups reflected for Q3. So that $200 million to $210 million. And obviously, with the 60 kind of mid-60s gross margin and then your OpEx in the $120 million, you kind of get into that kind of somewhat similar to Q3, a little less than Q3, though, is what I would guide to. Unknown Analyst: Perfect. And then as a follow-up, on another similar question earlier, on early protection, what would you guys say is your consideration for pricing strategy there? Obviously, there are only a couple of tests in the market today. But curious what you guys are thinking in terms of where to go in terms of pricing strategy and what are in the considerations that for early prediction mix? Brian Brille: Yes, I don't think we -- sorry, go ahead, Luke. Luke Power: No, you go, Brian. Brian Brille: No, I was just saying that's not -- look, we think our capability is very special. And we'll present advantages both with respect to the technology as well as the data sensitivity and specificity. So like the rest of our platform, our philosophy is going to be premium capability and premium pricing, but we're not disclosing that right now. Operator: Our next question comes from the line of Subbu Nambi with Guggenheim. Subhalaxmi Nambi: You mentioned 43% of your blood test has tissue attached. Do you expect any momentum here in the coming 12 months? And where could this go long term? Luke Power: Yes. So it's a great question. Like I can't predict where it will go long term. Now we have seen that percentage obviously increase throughout the year. So I definitely think that's a positive. Now obviously, lung is kind of a key indication, especially for blood. So that's a big portion of it. And as more and more indications or more and more approvals for drugs comes out related to that? I think you might see that. But for Q4, what I would estimate would be in that 40% right now based on what I'm seeing. Obviously, we do expect it to increase a little bit. But I don't know whether that will -- you're probably asking the question, will that get to like 50%, 60% over the next year. It's a possibility. But until we actually see it play out with our kind of ordering physicians, I don't want to guide to anything there. Subhalaxmi Nambi: [ Luke ], always being prudent, which is great. You opened the call with the announcement that your early detection test will have a whole genome backbone, what is your addition of whole genome to early detection mean for MRD? Would you adopt a similar strategy for MRD? Unknown Executive: So we're pretty happy with the current sensitivity of MRD on the exome, transcriptome platform. So I don't know that that's necessary. There are aspects of whole genome that are particularly well suited to early detection that are not necessarily directly translatable to MRD. Operator: Our next question comes from the line of Mark Massaro with BTIG. Mark Massaro: Congrats on the strong quarter. So I wanted to ask a question about data and pharma. So other companies have talked about sort of a challenging pharma environment, yet you guys leverage a massive data set with over 950,000 genomic profiles both whole exome, whole transcriptome. I would just be curious if you could give us a sense for the types of conversations you're having with pharma, to what extent is a companion diagnostic pathway part of your strategic road map. And just can you give us a sense for any multimodal model conversations you might be having with some pharma companies. David Spetzler: I think that's a -- yes. So we can definitely see a shift in attitude towards utilization of the data and development of foundational models and application of AI. So there's definitely a trend in that incorporation of both image data and molecular data is emerging is something that becomes very, very important. With the end goal, of course, those companion diagnostic components. So the value of the data at the end of the day is bringing new drugs to market and a CDx strategy is very important to that. Mark Massaro: Great. And then I'll ask one other. I know you were asked about just what percentage of your tissue test can be accompanied by a blood test already. I wanted to just ask, you're seeing a nice sequential increase in your Caris Assure volume. And I think it's probably too early to ask a question like this, but one of the larger competitors just reported a really huge liquid number in their Q3. I just wanted to get a sense if you're seeing -- any change in competitive environment? Or do you think it's just too early and it's just a matter of attaching blood to your tissue? Brian Brille: Mark, I don't -- it's Brian. I don't think there's any real change in the competitive environment. And this -- remember, this market is still very -- the therapy selection alone is still relatively unpenetrated in the 30%, 35% range. So we have a long way to go to educate, support physicians, help the institutions develop and support precision oncology programs, facilitate the use of both solid as well as liquid. So I don't -- look, everybody is scaling, I guess, against an enormous opportunity and a TAM that continues to expand with earlier indications with CDx new modalities, molecular signatures, et cetera. So I don't think there's any -- I think if anything, it's positive as there's more utilization, more understanding of the underlying technologies, and we think that given the differentiation that Caris offers, that -- all of that is very, very beneficial for us. Operator: Our next question comes from the line of Jack Meehan with Nephron Research. Jack Meehan: I wanted to start by asking about Caris Assure. If I look at the underlying ASP and strip out the true-ups in the quarter, it looks like it stepped up still almost $500 relative to 2Q. I was just curious what is pulling that up. You talked about contracting with commercial payers on the tissue side. I'm wondering if that traction might be pulling blood along with it. Luke Power: Yes. Yes. So Jack, exactly right. So obviously, having the FDA approval for a tissue when we're actually going to payers, we are asking them to include Assure in it. The other key component of Assure this year that's helping us drive up the ASP is, if you recall, we got a PLA code for Caris Assure in Q4 of last year. So we've been going through gap fill this year. And obviously, it's the PLA code on the clinical lab fee schedule, but it's not priced right now. So we've been getting priced at the local rate of $3,649. Now what we do know next year, it will be added to the clinical lab fee schedule at $3,649. So that's helping to is having that PLA code. So right now, both of our solutions for therapy selection have individual PLA codes that are effectively priced on the clinical lab fee schedule, and that's helping because a lot of the commercial medical policies pull from that kind of -- that fee schedule. Jack Meehan: Okay. That makes sense. And then I just had a kind of bigger picture question around whole genome for early cancer detection. I was curious, like, what do you think you get beyond what you get with whole exome, transcriptome today? And from a workflow perspective, just how do you incorporate this and not add additional complexity relative to what you're doing for Assure today? I guess it just kind of boils down to, do you think the juice is worth the squeeze? Luke Power: Yes. So in many ways, whole genome is a simpler assay than whole exome and whole transcriptome because you don't have hybridization, and you don't have dates. So operationally, there are advantages to whole genome. And then for the first part of the question, aneuploidy changes are one of the first things that happens in cancer. And you can see that early on, especially in precancerous lesions. And whole genome gives us more resolution there. Operator: Thank you. And I'm currently showing no further questions at this time. I'd like to hand the call back over to management for any closing remarks. David Halbert: I don't think so. Listen, we're very happy with this quarter. We're super excited about this marketplace, and we're -- I think our prospects are very, very strong. So we look forward to speaking with all of you again soon. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Operator: Good day, everyone, and welcome to the Corpay Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note, this call is being recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Jim Eglseder, Investor Relations. Please go ahead. James Eglseder: Good afternoon, and thank you for joining us today for our earnings call to discuss third quarter 2025 results. With me today are Ron Clarke, our Chairman and CEO; and Peter Walker, our CFO. Our earnings release and supplemental materials for the quarter are available on the Investor Relations section of corpay.com. Please refer to these materials for an explanation of the non-GAAP financial measures discussed on this call, along with a reconciliation of those measures to the nearest applicable GAAP measures. Our remarks today will include forward-looking statements about expected operating and financial results, strategic initiatives, acquisitions and synergies and potential divestitures, among other matters. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. Some of those risks are mentioned in today's press release on Form 8-K and can also be found in our annual report on Form 10-K. These documents are available on our website and at sec.gov. Now I'll turn the call over to Ron Clarke, our Chairman and CEO. Ron? Ronald F. Clarke: Okay, Jim, thanks. Good afternoon, everyone, and thanks for joining our Q3 2025 earnings call. Upfront here, I'll plan to cover 3 subjects. So first, provide my view on Q3 results, our Q4 outlook and an early 2026 preview. Second, I want to spotlight our Corporate Payments business and emphasize really the sheer size of that opportunity. And then lastly, I'll provide a progress report on our recent M&A and stablecoin activities. Okay. Let me begin with our Q3 results, which were really quite good across the board. We reported both revenue and cash EPS growth of 14% in the quarter. Our overall organic revenue growth finished up 11%. Particularly pleased there that higher volume and higher spend is driving the organic growth, so durable. Inside of the overall organic revenue growth, our Vehicle Payments segment grew 10%. And inside of that, our U.S. Vehicle Payment segment accelerated to 5%. So delighted, obviously, to see our Vehicle segment back to 10% organic growth. Our Corporate Payments segment grew 17% in the quarter, and that's inclusive of a point of flow compression. Q3 trends continuing quite strong. Retention improved slightly to 92.4%. Our sales or new bookings grew 24% in the quarter, happy with that. And our same-store sales remained essentially flat. Our lodging business remained weak in Q3. It was mostly impacted by lower emergency or onetime revenues. Fortunately, the attrition in the business improved, so from minus 8% last year to minus 5% this quarter, and the client base softness improved from minus 2% to plus 2% this quarter. So for sure, the business is stabilizing. Now we just need to sell more. So look, in summary, very pleased with the quarter. It's clean. All of the businesses finished in line or better than our expectation. And our 2 biggest businesses, Vehicle and Corporate Payments, representing 80% of the company, both growing double digits organically. Okay. Let me make the turn to our Q4 outlook, which we're revising up with today's Q4 guidance. So we're now outlooking Q4 revenue of $1.235 billion and cash EPS of $5.90 at the midpoint. Both of those numbers helped by the Alpha acquisition that closed October 31, along with our strong Q3. We are expecting Q4 organic revenue growth of approximately 10%. We are maintaining our Vehicle segment organic growth at 10% in Q4 and expecting our Corporate Payments segment to finish approximately mid-teens. That's inclusive of a 3% float revenue headwind. We have had an early peak at October's revenue, and that's incorporated here in our Q4 guide. So assuming we achieve this Q4 outlook, our full year 2025 will finish above $4.5 billion in revenue. That will be up 14% and above $21 in cash EPS, which is higher than our initial profit guide back in February. It will also mean that 4 of the last 5 years, our organic revenue growth will be 10% or higher, so pretty durable. Okay. Now on to our 2026 fiscal year setup. Headline here is we really like what we see. Macro -- the current macro setting up quite favorably for next year, better FX rates and lower interest rates, still outlooking organic revenue growth in the 9% to 11% range expecting incremental accretion of at least $0.75 from the combined Alpha and Avid deals. We're also expecting incremental margin expansion as a result of some AI productivity and vendor rationalization initiatives. So look, all of this is to say that we're expecting strong earnings growth next year. All right. Let me make the turn to our Corporate Payments business and speak to why we're so excited about the future. So we do have 4 solutions that make up our Corporate Payments segment. We're out looking over $2 billion in revenue next year, and that representing about 40% of the company. What we're hoping to do here is just reinforce really the sheer size of this corporate payments opportunity, along with the advantaged positions that we bring to the space. So our first solution is called Corpay One Spend Management, about a $250 million business where we provide kind of modern-day commercial cards that compete with the likes of Amex, Ramp, Brex, Divvy, et cetera. So our advantage here lies in the ability to monetize or digitize more client spend than others, really related to the pretty developed B2B virtual card and fuel networks that we attach to the offering. Second, we've got about a $400 million mid-market AP automation and payment business where we help clients pay some or all of their invoices. We're a leader in this middle market space, have a number of exclusive ERP relationships, along with the option to acquire Avid, another $500 million mid-market business over the coming years. Third solution is our cross-border business that provides risk management and mass payment solutions. We originate clients there here in the U.S., U.K., Continental Europe and even Asia, out looking about $1.2 billion in revenue next year, largest nonbank in the world in this cross-border space, and we do boast the most experienced set of sales and service specialists. Last up, our newest solution in Corporate Payments is our global bank account solution and our multicurrency account solution out looking about a $200 million business next year, where these global bank accounts help institutional asset managers, think PE firms and corporates set up new foreign bank accounts in record time, currently holding about $3 billion in deposits there. So look, the point here is that we've got pretty strong positions in each of these 4 corporate payment solutions areas, spend management, AP automation, cross-border risk management and global bank accounts. Each of which have just an incredible global opportunity and upside. So we've set our sights on making this a really big business, think $10 billion, think 5x from where we are. So quite excited about it. Okay. Let me make the transition to progress on the M&A front. We have closed the Avid mid-market AP automation investment. We did that on October 15. We're busy working with TPG and Avid management to craft a more profitable plan. We've laid out a series of actions, we think, to materially improve Avid's profitability and their sales productivity. We have closed Alpha, which is the European cross-border business. on October 31. Super excited about this transaction. And as I mentioned, the global bank account product, fast growing, really a new opportunity for us. So we are in the final stages of developing the '26 plan, the synergies, but fully expect that business to be quite accretive to us in 2026. We expect to close the Mastercard investment into our cross-border business on or around December 1. The reminder there is that we would bring our cross-border solutions to Mastercard's bank clients or FI clients. We do have a pipeline building and hope to convert some new accounts there in Q1. We are in the market with 2 divestitures, hoping to fetch up to $1.5 billion. We expect to have a pretty good idea if these divestitures will transact when we speak again in 90 days. And not surprisingly, we are continuing to look at some additional, some new corporate payment acquisitions that we're engaged with. So lots going on, on the M&A front. Okay. Lastly, my last subject, stable coins and our progress there since last time. So we have contracted with some partners, including Circle to provision the coin, the rails and the digital wallet to enable us basically to add this new stablecoin peer-to-peer payment system to our business. So we're really chasing the stablecoin opportunity on 3 fronts. So first is to enable our largest domestic and cross-border merchants or beneficiaries to receive payouts in their stablecoin wallets so that they can receive a payment 24/7. We've got a super large set, hundreds of billions of payment flows already moving to these beneficiaries. So we like the idea of giving them another place to put funds. Second is our idea to add digital wallets to our existing Alpha bank account clients and Corpay multicurrency account clients so that they can hold both stablecoins and fiat dollars to transfer basically back and forth between their fiat accounts and stablecoin. The third opportunity is to really directly serve large new crypto clients. We have one bank Frick that hold very large crypto balances today, but have the need to return liquidity to a U.S. bank account of an investor. So we'll leverage the fiat rails and compliance infrastructure that we have to serve these kind of clients. So look, the existing assets that we have, we think, create a lot of leverage for us to participate in this stablecoin system. So look, in conclusion today, we printed a clean Q3 beat. We've revised up our Q4 and full year 2025 guidance. We do see an attractive 2026 setup. We're super excited about the long-term prospects for our corporate payments business and solutions, the opportunity to make that really big. We have completed a meaningful acquisition and investment this year that we think position the company well over the midterm and progressing our stablecoin entry to capitalize really on this new rail. So with that, let me turn the call back over to Peter to share some more details on the quarter. Peter? Peter Walker: Thanks, Ron, and good afternoon, everyone. Let's start with highlights of the quarter. Q3 revenue was $1.172 billion, overperforming the midpoint of our guidance range. Print revenue grew 14% year-over-year, driven by 11% organic revenue growth. Q3 adjusted EPS of $5.70 per share overperformed the midpoint of our range and grew 14% year-over-year due to strong top line performance and solid expense management. Adjusted EPS grew 17% year-over-year on a constant macro basis. The headline for the quarter is mid-teens top and bottom line growth, excellent organic growth with 10% vehicle payments organic growth driven by our U.S. vehicle payments business returning to mid-single-digit organic growth, continued strong retention, all while maintaining strong margins. We've also produced significant sales growth this year that will fuel our business over the balance of 2025 and into 2026. Now turning to our segment performance and the underlying drivers of our organic revenue growth. Corporate Payments delivered 17% organic growth for the quarter despite 100 basis points drag from float revenue compression due to lower interest rates. Overall, the performance was driven by growth in spend volumes, which increased 57% on a reported basis and up 38% organically. Spend volume was just over $68 billion in Q3, which puts us on pace to be north of $250 billion annually on a run rate basis. Corporate Payments revenue per spend volume decreased year-over-year due to new payables and cross-border enterprise clients. The payables business continues to perform, driven by strong execution on Paymerang synergies and solid progress implementing and ramping new full AP customers. We continue to be optimistic about the future of the business and are laser-focused on customer acquisition. Cross-border continued to deliver strong sales in Q3. Both new client acquisition and recurring client transaction activity was robust as our scale, technology and talent advantages continue to power share gains from legacy financial players. Vehicle Payments organic revenue increased to 10% this quarter. You can see in the financial supplement, there is a good trend line of improving organic revenue growth in this segment, now returning to our target run rate of 10% organic revenue growth. Also, it's important to point out that our Vehicle Payments segment is made up of 3 approximately equal sized revenue businesses in different geographies. These geographies are the U.S., Brazil and Europe. U.S. Vehicle Payments organic revenue growth improved 500 basis points sequentially to 5%, reflecting the return to sustainable mid-single-digit organic growth we've been expecting. This was driven by improved sales production, higher approval rates and strong retention. Brazil and Europe vehicle payments continue to perform well. In Brazil, the combination of 6% tag growth, growth in our extended network, including our new card debt offering is driving the strong results. International Vehicle Payments continued to deliver consistent results, driven by strong sales and performance across the U.K., Europe and ANZ. As expected, lodging organic revenue was down 5% for the quarter, inclusive of a 400 basis point drag from lower emergency revenue year-over-year in our FEMA business. We feel good about the progress we've made to position this business for the future, but the recovery has not yet shown through in a meaningful way. The business has now stabilized, and we are hyper-focused on improving sales in the lodging business. The other segment was up 23% as the gift business generated significant year-over-year growth from pent-up demand due to new regulations to upgrade gift card packaging to reduce fraud. In summary, we delivered 11% organic growth in Q3 at the high end of our target range, driven by continued strong corporate payments organic growth and double-digit vehicle payments organic growth. These 2 segments make up over 80% of our revenues. Now looking further down the income statement. Operating expenses of $649 million represent a 16% increase versus Q3 of last year, driven primarily by acquisitions and divestitures and related add-backs, FX and a true-up of a 2024 disposition. Excluding these impacts, operating expenses increased 8%. Bad debt expense declined 1% from last year to $28 million or 4 basis points of spend, so credit remains well controlled. Our adjusted EBITDA margin was 57.7%, essentially flat with the prior year. Our adjusted effective tax rate for the quarter was 26.6%. The increase in the rate was driven by Pillar 2 and a change in the mix of earnings. On to the balance sheet. We ended the quarter in excellent shape with liquidity of $3.5 billion and a leverage ratio of 2.4x. Today, we closed upsized debt facilities that enhance our capital structure, increasing our revolving credit facility by $1 billion, resulting in a total facility of $2.775 billion and a new $900 million 7-year Term Loan B. Our Term Loan B and revolving credit facility continue to price at some of the tightest credit spreads amongst BB+ corporates, which reflects our strong balance sheet and significant cash flow generation. We used proceeds from these facilities to close our Alpha acquisition and our investment in AvidXchange. We have a plan to delever and expect to end 2025 at approximately 2.8x leverage. We purchased approximately 600,000 shares in the quarter for $192 million, leaving us with approximately $1 billion authorized for share repurchases. We will continue to pursue near-term M&A opportunities and we'll also buy back shares when it makes sense while maintaining leverage within our target range. So now some updates and details on our Q4 and full year outlooks. We're increasing our full year 2025 revenue guidance to $4.515 billion at the midpoint, representing print growth of 14%, driven by our third quarter beat, the continued benefit of improved foreign currency exchange rates and the inclusion of our recently closed acquisition. We are also increasing our adjusted EPS guidance to $21.24 per share at the midpoint, representing growth of 12% as a result of our Q3 beat, continued expense discipline and recently closed acquisition and investment. For the fourth quarter, we expect print revenue of $1.235 billion at the midpoint, representing growth of 19% and adjusted EPS of $5.90 per share at the midpoint, representing growth of 10%. We provided additional details regarding our rest of year and Q4 outlook in our press release and earnings supplement. This concludes our prepared remarks, operator. Please open the line for questions. Operator: [Operator Instructions]. We'll take our first question from John Davis with Raymond James. John Davis: Peter, maybe just first on Corporate Payments organic growth. I think you guys said mid-teens despite an incremental float headwind. Obviously, you have a very tough comp from the year ago quarter. So maybe just talk about the drivers that give you confidence in that organic growth outlook for the fourth quarter, specifically in Corporate Payments. Peter Walker: John, I appreciate the question. So maybe we'll just break it down into the components because what Ron shared in his script was obviously with the Alpha acquisition. So if we look at the core Corporate Payments business, we're expecting that to be, call it, 16-ish percent with a drag of 100 basis points from float. So about a 17% growth rate there in the core business. That does compare to last year, which was 26%, which was obviously kind of had a double impact. We had a one-timer in there of about 400 basis points, and we are growing off of a really weak Q4 '23. So hopefully, that gives some context in terms of kind of the core business. When we think about Alpha, Alpha's organic growth is coming in at 13%, but ex float, that would be 31%. So obviously, the business is very dependent on float from the bank account business. And then on a consolidated basis, that gets us to the mid-teens that Ron spoke about with a 3% float headwind. So call that without the headwind, 18%-ish. Ronald F. Clarke: John, it's Ron. Remember, we've also seen October. John Davis: Fair enough. Fair enough. All right. So I'll continue on the guidance here. Ron, as you think about next year, you guys have consistently said 10% organic. You're guiding to that next year. There's a little bit of a choppy macro backdrop. You saw some nice acceleration in North America fleet in the quarter. Obviously, Corporate Payments is strong. Maybe just talk about what gives you confidence? And what, if any, of that organic growth outlook next year comes from synergies from Paymerang and some other of the prior corporate payments deal that now will flow through to organic growth. Ronald F. Clarke: Yes. I think, John, it's just run rate, right? We've got the trends. We see what we're adding new business. We see what the losses are running. And so I think our confidence of having the vehicle business high single digits to 10% in the Corporate Payments business call it, mid-teens, inclusive of the flow headwinds that we're super comfortable. And even the other category, which historically was a bit problematic, we're outlooking that thing to be kind of 10% plus. So the wildcard, I guess, is lodging, which we think will edge over into positive territory. So I think we -- what we're seeing, I mean, look at the quarter, right, that we just printed and look what we're giving for Q4. So I think we're just -- we're seeing it and really not calling for anything super different than what we're kind of running at. So pretty confident. Operator: We will move next with Sanjay Sakhrani with KBW. Sanjay Sakhrani: Maybe just to follow on some of the questions asked before. Obviously, next year is setting up pretty strong. You've got this Mastercard investment and then some of the pipeline that's building associated with that partnership, the synergies from Alpha. Could you just talk, Ron, a little bit of how you're figuring for that in that preliminary outlook? Ronald F. Clarke: What do you mean, Sanjay? How we're figuring it. Sanjay Sakhrani: Like how much of that is driving sort of the preliminary view on revenue growth for next year? Ronald F. Clarke: Yes. I'd say not a lot. I think I said before that we were hoping that Mastercard thing could add 1 point or 2 that FI channel to our cross-border business, which is already kind of a mid-high teens number. The synergies, again, the Alpha business is, call it, circa $300 million-ish in U.S. and it's got a bit of a flow headwind. So I'd say, again, 0.5 point maybe from that. So the majority really of the outlook is around just the core set of businesses. I do think we're going to get profit leverage, though, separate from revenue from Alpha from the macro, right, that we're seeing and from some of this cost efficiency, some of the AI work that we've done. So I do see us getting some incremental profit leverage next year kind of above normal levels. Sanjay Sakhrani: Got it. Okay. And then, Peter, could you just drill down just a little bit more on that breakdown that you had. So if I think about the fourth quarter revenue outlook, how much does Alpha specifically add to that? And then on that $0.75 of upside for next year, like how much of it is Alpha versus Avid? Peter Walker: Yes. So on the revenue outlook for Q4 '25, Alpha is adding about $55 million of revenue in the fourth quarter. And in terms of the $0.75, we've not given that breakout, but we obviously previously shared that Alpha would be $0.50. So you can kind of take those 2 and give that some thought in terms of your split there. Operator: Our next question comes from Tien-Tsin Huang with JPMorgan. Tien-Tsin Huang: Just wanted to ask on '26 again. Just thinking about the segments and the growth and how growth might be different than what we saw in '25 at a high level, any interesting call-outs there? You've got the new sales performance up 20-plus percent. Retention is a little bit better. I know the deals are getting layered in. But just at a high level, how is '26 going to be different than '25? Ronald F. Clarke: Tien-Tsin, it's Ron. It's good to hear your voice. I'd say it's really more of the same, right, than different. I think what's different is a little bit happier on the vehicle, right, that thing accelerated second half or will we think to 10% from whatever it was 8%, 9% in the first half. So we think that's going to kind of carry through. So we think that will do a little bit better. Lodging, again, a wildcard call that thing a push. The other category, maybe a tad lighter but still positive kind of double digits. So really, the question is where in the teens will the corporate payment business inclusive of the float land. So that would be, I'd say, what could cause the thing to be a little bit better. But more of the same really, Tien-Tsin, to the '25 numbers, I'd say, next year. Tien-Tsin Huang: And my quick follow-up, just thinking about -- I mean you have a lot on your plate thinking about, again, the acquisitions, divestitures. I'm sure there are other deals in the pipe as well. Just think about Ron, does it feel tougher to sort of regenerate some of the sales performance that you've seen? Just curious where you see opportunity versus risk going into the end of the year here and going into next year. Ronald F. Clarke: Yes. I mean I think the sales performance, Tien-Tsin, is quite good. The preliminary plan that we're building is way increasing. We hired someone new to start to build up some new channels like the Zoom channel has been super small. We're building that channel for kind of midsize is working. So I see us pouring a bunch more money some of it from the expense savings that we're getting and sales will be up well over 20% this year in 2025. We got a bunch of elephants, right, that help this year. So I think bullish on it. I think the way upside for us is really in capital allocation. If people keep trading our stock at this level, and we sell these companies, we are going to be buying stock back, which obviously at this kind of a price would be pretty incremental. We have this Mastercard money coming in. So we have some sources of incremental capital, again, above kind of normal levels that could help us next year. So I'm pretty bullish on the profit side really for next year. Operator: Our next question comes from Andrew Jeffrey with William Blair. Andrew Jeffrey: Appreciate taking the question. Pretty exciting times in corporate payments, obviously. Ron, I'm intrigued by the stablecoin commentary because I know there's been a lot of discussion in the market, both sort of pro and con. I wonder if you could just sort of frame up for me what you think the long-term opportunity is in that business? It sounds like initially, it's going to be infrastructure, so on-ramp, off-ramp. Over time, does the Circle agreement sort of create the opportunity for cross-border stablecoin movement? It sounds like maybe you're doing that a little bit today in the FX business, but I'm thinking like cross-border B2B payments. And what do you think the time frame on something like that is, assuming that's a business in which you have your eye at this point? Ronald F. Clarke: Yes. We tried to lay out, Andrew, in the supplement, I think Jim was Page 18 or something. But to me, Andrew, the stablecoin thing is kind of -- it's a 2-part thing. So one is kind of the new players, right, that have big crypto balances like Circle, Ripple, this bank, I mentioned the bank brick, where we can be helpful to them. Effectively, they're both providers of capabilities to us, but potentially clients of ours, right, again, that need to route dollars back, right, in USD to investors. So that's opportunity, one, is just to be a provider back to some of these guys that have big balances. But to me, the fascinating one will be we've got a big business, right? We pay hundreds of billions to the U.S. merchants, both on our domestic business and our cross-border business, they're huge beneficiaries of payouts of ours. And so to me, the fascinating question is, what will the take rate be? So if we go to those biggest concentrated beneficiaries and say to them, "Hey, we'll enable you with a stablecoin wallet. Do you want us to basically have funds come in there if they're off cycle or not." And then you can toggle it back and forth between your traditional bank accounts or we have a big bank account business. I think we said 7,000 bank accounts with $3 billion in deposits, same thing. When we tell those institutional clients, we're attaching a stablecoin wallet, will they use it? And so I think we'll learn a lot there because we have flows and we have deposits unlike people who are trying to get into this business. And so I think we're going to get a super early read of the interest on both sides, right, the deposit side and this payout side. So we're just readying those things and then seeing if the beneficiaries and the clients we have used them. Andrew Jeffrey: Okay. So it sounds like you'll sort of build the infrastructure and wait to see how the market evolves. Would that be the right way to think about it? Ronald F. Clarke: Yes, Yes. I mean if you think of what's happening, like it's kind of third-tier world driving a lot of the things, right? There's not a ton of activity kind of in the G20 space where our -- all of our bulk is. So I think we're going to be there. We're adding this set of capabilities, particularly the wallets. We have these flows, and we're going to make our clients aware of them and see what the take rate is to see whether there's utilization or not. But we're excited that there probably will be. I personally think this off-cycle piece, Andrew, is the magic being able to basically take funds when the banking system is closed, I think, might be the most interesting piece, but I guess we'll see. The thing I want to say is we're not afraid. I mean I don't -- I think some people think like we're afraid. We're not afraid. We think it's a fascinating incremental rail. We're going to offer it, and we think -- we hope that our clients are going to take some advantage of it. Andrew Jeffrey: Yes, I suspect they will. I suspect you're right. And if I could ask one more, maybe, Peter, the yield on these big enterprise clients, I guess, I mean, if investors ask, can you kind of frame up how you're thinking about that business? I imagine it's high incremental margin and you like the volume. Is there anything you'd add to that when we think about sort of the yield on those big customers versus the core business? Ronald F. Clarke: Andrew, it's Ron. I'll take that one. I think it's quite wide, right? As we said in our cross-border business, historically, we'd be in the, call it, average of 50 to 60 basis points kind of keep on conversion work. We have some of these gigantic super large transactions that could be single-digit basis points, so 16, 17 of the line average and stuff. And we often do it in concert with the normal business with those big accounts. So we might have a big account where we're doing some set of ongoing kind of mass payments at a decent kind of rate and then, hey, they call us for some kind of significant one-off kind of transaction. So it's oftentimes done that way where the account calls us for some other kind of use. And your point, although it's a way different rate, it's a gigantic trade, and we're happy to kind of take it to your point, from a profit perspective, it's quite high, the absolute dollars of the profit because it's one big transaction, there's not a lot of work. We're really calling out mostly so people don't think that the core or normalized rate in that business is moving at all. It's really going nowhere if you look at it without this handful of accounts. Operator: Our next question comes from Darrin Peller with Wolfe Research. Darrin Peller: Ron, can you just give us a quick update on the progress and any details you can provide about the interest level and some of the divestitures you were looking for -- looking to make over the next several quarters or so? Ronald F. Clarke: Yes. Darrin, I'd say mostly it's early days. Kind of the books are out, the fireside chats have started. We've obviously had some call-ins on the businesses. So I'd say it'd be premature to say we know a lot. The one thing I would say is these are decent businesses. These are a couple of businesses that are in our International vehicle segment that are growing, both of them grow kind of 10%-ish. So they're decent businesses and they're profitable. So they will sell. The question is, are we going to like the price. So unlike the gift thing that I know you weathered through with us, however many times we try that. These will transact. The question is whether we're going to like the price enough. But we will know. We've got a process set up where first bids are due in the next few weeks here. So by the time we talk again, we'll have a clear answer for you. Darrin Peller: All right. That's good to hear and helpful. I guess my quick follow-up would be on U.S. fleet growth. I think we saw 5% you mentioned. And just touch a little bit more on the sustainability of that just because it obviously is good to see. I'm curious what's driving it and then your conviction around it going forward. Ronald F. Clarke: Yes. That's a super good question. I think the main thing is the structure of that business has changed a lot kind of since the pivot. So call our Vehicle segment there a $2 billion business annually, kind of 1/3 in the U.S., 1/3 in Europe and 1/3 in Brazil, ballpark. So let's just use $700 million as a ballpark number. The retention in that business now has gotten to the company's line average. So historically, when it was a micro business, losses were super high. So think now if you were modeling this with me, hey, I got a $700 million business printing in 2025 and our line average is, call it, 92%, 93%, so the loss rate is 7. So you lose 7 on $700 million, you lose $50 million. We actually are planning the same-store sales that are improving. They're going to go positive in that business next year. So you're into a way lower risk profile now. We don't need to sell very much or add too many initiatives to get the thing to work. Whereas before, we had the bottom of the bucket, the loss rates were almost double that at some point and the same-store sales were 2 and 3 points negative. So that's the main headline for everybody is the assignment to grow it now is just infinitely easier than it was a couple of years ago. Darrin Peller: Way easier to get a number. Operator: Our next question comes from Nate Svensson with Deutsche Bank. Christopher Svensson: Nice results. I did want to ask on Avid now that that's closed and nice to hear that it's contributing at least some portion of the $0.75 accretion next year. I guess, first, just any update on the work being done at Avid to help improve their margin profile and growth and kind of the role that Corpay is playing there? And then I guess more specifically, since the deal closed, any way to quantify the impact from Avid volumes maybe coming on? I think a competitor may have called out a loss, but wondering if you can size the impact there maybe in terms of volumes. Ronald F. Clarke: Well, the first thing I'm going to say, Nate, is thank you. That was a good opener, nice results. We kind of appreciate that. On your first question of what are we doing? I feel like the relationship is super good. We've obviously -- I've known Mike who runs the place for quite a while and a bunch of his management team, and we like, which is why we did the deal, the TPG guys. So the first thing I'd say is the 3 groups, us, the Avid guys and TPG guys have been kind of on this together, point one. Point two is it's super clear, like the handful of things to do to dramatically improve profit performance there is clear. And Mike has already pulled the trigger really by the time we're on this call, getting rid of a bunch of costs already. So I'd say that we're aligned on it. We will get the profits way up, which is why we're comfortable with some accretion next year. The million-dollar question is really the growth rate. Can we -- can Mike get that business close to the kind of parity with what we do, kind of a mid-teens or mid-teens plus kind of grower. So I'd say, Nate, that that's mostly what we're focused on now is what can they do on the buyer sales side and on the monetization side to get the revenue acceleration. And as I said, if we get that, if that company gets that, we will buy the balance of the business and consolidate it. Christopher Svensson: Yes, makes sense. I appreciate the detail. I do want to ask on the gift card business and other. I know there's some lumpiness and there were some regulatory changes that may have shifted demand from certain parts of the year to others. So I think it would be helpful just to kind of like walk through the changes in that business, where the pull -- how much the pull forward was. And then I think you said kind of returning to double-digit growth. So just making sure your confidence in your visibility and getting back to double-digit growth in a business that can be lumpy historically, that would be helpful. Ronald F. Clarke: Yes, that's a super good question. So one of the world's worst businesses, right, some number of years ago, 3, 4 years ago and now a good business, a growing business, both this year and next. So kind of what's going on. It's really 3 things, Nate. So one is this fraud packaging thing. So a couple of states have said, hey, we're sick of people going in and stealing these gift cards and coming back in and grouping up consumers to buy it and find out there's no money. They paid for the card and there's no money on the card. So look, new suppliers are going to stop that. You're going to create packaging that doesn't allow people to do that. So that packaging has been created, and we've recycled some of that new packaging among some of our clients. So it created a bit of a lift, maybe, I don't know, 5 points -- 3 to 5 points this year above normal kind of card fulfillment as people kind of reinventory with this fraud protection stuff. But the 2 other things are we're just selling, like I don't know if other folks that do this business have gotten sleepy or whatever, but we are way winning more new accounts and onboarding those. I'm telling you like 5, 6 new accounts this year, another at least 4 or 5 that we're close to closing now that will come online next year. So way more new business the last couple of years. And then lastly, these new add-ons that I think I've spoken of like, hey, we'll help a gift card client sell cards. So we went into the business of helping manage their website and do the fulfillment. So we get paid not only for administering their gift cards, but actually helping them sell the cards. We also figured out a way to stick the cards, these proprietary cards into the wallet. So they sort of like a marketing thing for people where you stick your Dick's Sporting Goods card in your wallet, you see it every time you go to your wallet. So we're getting paid more money from our clients for like doing additional things. So when you put those 2, 3 things together, it's like it's just turned into like it's a good business and our confidence that it will be double digit again in '26, I'd say, is pretty high. Christopher Svensson: I guess just to clarify, that 3- to 5-point uplift you mentioned above normal card fulfillment, is that a pull forward from '26? Or is there a change in inventories? Or am I thinking about that the wrong way? Ronald F. Clarke: No, I would say it's the incremental 2025 growth. Like if they hadn't had this thing, I'd say the full year '25 gift card might be 2, 3 points lower than what we'll print. I don't think it will have much different impact. We know everything about the legislation and stuff. So we built that into the guide already for '26. It's mostly these 2 new things that are creating the lift to get the thing in the double digits. Operator: We will move next with Mihir Bhatia with Bank of America. Mihir Bhatia: Let me also add nice results here. Maybe to just -- I want to go back to the monetization rate discussion a little bit in the Corporate Payments segment. I guess just trying to understand, was there anything unusual in 3Q in terms of the number of large transactions or onboarding some of these enterprise accounts? What I'm really trying to understand is, should we expect the monetization to increase back like the monetization rate to bounce back up in 4Q? Or have you unlocked something where you're just going to be doing more of these volumes and you've signed some of these big enterprise accounts. So it's more of a volume story than a monetization story? Ronald F. Clarke: Yes. I would say don't read that as abnormal. We probably will do a bit more of this. The reason we want to break it out is to make sure people are clear that when you take away these super large accounts and these super large transactions that the "normal book of business is still pricing basically in the same kind of range." And I'd say the same thing on the domestic payables business. If anything, that thing may inch up again next year as we offer some incremental ways. We've increased kind of pay for ACH via an acquisition, we're introducing a debit card as a way to get paid versus just a virtual card. So I would say that, if anything, the monetization rates and these big onetime things will probably inch up a bit in '26. Mihir Bhatia: Got it. That is helpful. And then maybe just thinking about '26 broadly, you've laid out some pretty interesting upside or optionality in corporate payments, whether it's from the Mastercard of just selling more. And then similarly on U.S. vehicle payments, you were talking about the turnaround being there and being the sales increasing. Lodging, it sounds like it's stabilized and likely heading better. So I guess I'm asking, where is the risk? And could that 9% to 11% growth actually look closer to 11% to 13% or something like that? Ronald F. Clarke: I think that's a super great follow-up. I guess the headline, the first comment is we just have a better business today. Like I just don't want people on the call to miss that sitting here in whatever November, like the business is just better. The 2 biggest businesses are growing and working and stuff. And so that would be the #1 thing. Across the areas, I'd say, again, the thing that probably has a chance to be better that would cause our number to get better if we got there would be in the corporate payment space. A bunch of these things that you called out like the Mastercard thing are new. We haven't actually booked a single sale yet, although we have a good pipeline. So I'd say the goal of this call, since we're still early days is to not get over our skis to kind of give you guys a number of what we're seeing, what the business is running at and provide some assurance we think we can get that number and then come back in 90 days when we finished our work and be a bit more precise. But I think the main thing is we've gotten to the second half acceleration that we said we would despite the skeptics, and we like that. And we just don't want people to miss that the step off, when we give you 570 and 590, you're good at math, that's higher than 21. So I say it all the time in recurring businesses, if your exit rate is a lot better than your entry rate, you already have part of the next year baked. It's really in your exit rate. So yes, I'd say our confidence of the business performance is pretty good. Operator: Our next question comes from Rayna Kumar with Oppenheimer. Abigail Rudder: This is Abigail on for Rayna. So just a quick question about corporate payments kind of going off of the team for tonight. So the accounts payables represents a major TAM for corporate payments, particularly with the investment in Avid. Could you talk a little bit more about the progress you're making in convincing companies to switch from older accounts payable methods like such as paper checks, et cetera? And then what are some of like your biggest roadblocks that the sales force is facing to unlock more of this TAM? And then how do you guys like convince the companies to make that switch? Ronald F. Clarke: Abigail, it's Ron. That's a pretty good question. I guess this offering of going to a midsized company that's got a lot of ADP, it's literally a proposal that's too good to be true. You show up, knock, knock, meet the CFO, the head of ADP and you tell them, hey, look, I can digitize and derisk paying your ADP and give you money back. So when you finish saying that, I think people look at you and like, what do you mean? Well, like, what do you mean? What do we mean? We can take over all the invoicing you have. We've got way more scale to do it. We've got ways to derisk the electronic transfer of things and because we can monetize some of them, we can actually give you money back. So the pitch is super compelling. It's the inertia, I'd say, of getting in. So the close rate, the win rate is super high. If you can meet the CFO and the Head of ADP and tell them that we've got thousands of clients that we do this for, and it's pretty easy and you get money back and you transfer risk to us, it's a really super compelling pitch. The question is, can you get the meetings? Can you get people to make time to listen to it? That would be the question mark. And I think the more common, I worked at ADP before starting this company and everybody knows about payroll outsourcing, and I think less people know about ADP automation and workflow and payment ADP outsourcing. So I think as the category and the referenceability keeps getting wider that it will get easier. The world will be clear that this is a logical thing to do with non-payroll expense, right, which is almost half of a business' expense, right, payroll half and then this. So that's the bet that we have that as the clock keeps turning, more and more companies will become aware of the service. Operator: We will move next with James Faucette with Morgan Stanley. James Faucette: Ron, I want to follow up on questions around the -- around the stablecoins. I really appreciate all the work you guys are doing to build an infrastructure there. You made interesting comments about where you may see some utility. Just wondering if you can give more specific example. I think you mentioned you thought maybe there'd be some interest in things like after hours or weekend type transfers, et cetera. But have you seen any specific cases where, hey, that makes a lot of sense or at least you could imagine the kinds of transactions that you may be looking at? Ronald F. Clarke: Yes, James, it's a good question. I'd say it's pretty quiet. I'd say that most of the activity is with the crypto digital assets guys themselves, right, that people like us going to Circle and Ripple to get some capabilities and then them suggesting that they could be clients of ours. I'd say that's what's real today. We're actually getting paid doing work here in November. So on the other ones, I'd say, in terms of our flows and our deposits, I think there's not a lot of people standing up and shouting. I think as we make them more aware of what this after-hours utility case is, then we'll see would be my comment back. But I wouldn't say, again, among the major countries and major markets, which is where our flows are that we are hearing tons of people jumping up and down on it yet. But we're not waiting. We're just going to put the stuff in place and tell people about it and see if they find utility there. James Faucette: Got it. And maybe I just -- once again, just following up on that one point is that you mentioned the G20 and not seeing a lot of activity there. Can you just talk about like why that might be or what would change that? Because I have heard that from others saying, hey, this is going to be more of an artifact for emerging market currencies, et cetera. But I guess I'd love to hear from your perspective, like if that's a permanent thing or just requires time and development. Ronald F. Clarke: Yes. I mean I do think if you look at the current business, I think that, that is what's driving it, that the ability in these third world emerging countries, I think, is where the volume is. And I think the rest of the volume is really just crypto, like Bitcoin and stuff like that and us helping those guys return money in USD to investors. So I think the stablecoin among big businesses in these major markets is still just early days where they're trying to figure out what is the use case that's beneficial. It's not like the current system is broken, right, and it doesn't work like we move hundreds of billions of dollars. So I think it's more just time for -- I think when I talk to people, they don't even understand what this is, James, literally. Like when I go through, hey, this is what. So that's what I'd say is there's more people writing and talking about it, I think, than using it. And so I'd say, just give it some time, and we're going to tell clients about it and deposit holders about it, and we'll report back of what their interest is. But the main message I'm trying to give is we're getting ready. And we're going to try to get our clients, beneficiaries and deposit holders ready, and then we'll report back of whether they're going to transact or not. Operator: Our next question comes from Trevor Williams with Jefferies. Trevor Williams: I wanted to ask another on '26. So within the 9% to 11% organic growth, Ron, it sounded like not much different than what we're seeing this year or at least in the second half. For Corporate Payments, can you be more specific on what you're assuming for the fully loaded growth rate there? And within that, how you're thinking about the puts and takes between float and then the revenue synergies from Alpha, if we can think about those 2 potentially netting each other out in fiscal '26? Ronald F. Clarke: Yes, Trevor, I think it's just too early days, which is why we're kind of giving a bit of a wide range like we're maybe halfway through the Alpha 2026 plan. I'm actually going there with our group next week to continue to work the thing and how hard we're going to press the synergies. We did mention the Mastercard thing, right? Again, we'll know more in 90 days as those appointments, the pipeline converts. We'll have a better view of whether that starts starting to convert. So I'd say that we're kind of staying a bit broad with it. Obviously, we want to see what the interest rate curves are, what happens there, right, in the next 90 days with the employment vows -- cause that thing to keep coming down. So look, we're confident that, that segment is going to grow, and I think it's a function of what we're going to invest. If we get more money out of some of this AI stuff, we may put more sales and marketing spend into the business. So I just ask you to be patient, and we'll kind of give you the details of those 3 or 4 pieces when we talk next time. Trevor Williams: Okay. Fair enough. And then to piggyback on Alpha and the accretion, at least within the initial $0.50 when you had announced the deal, it seemed like there was a fair amount of conservatism embedded in that number. So maybe just within the accretion that you're baking in within the $0.75 in total with Avid, can you give us some more specifics on what the obvious easy early synergies are from Alpha and then maybe beyond that, what you -- at least today, what you feel confident in being able to realize eventually, but maybe you don't have it in the numbers, at least initially, that would be helpful. Ronald F. Clarke: Yes. I would say we've given the number in early days, we're highly -- I would say we're highly confident that we can get at least that number. And so I'd say a couple of things. One, that in this case, in the Alpha case, we have both kinds of synergies. We have both revenue synergies and expense synergies. In some of the other businesses, we've had more on the cost side. And then second, I'd say that half or more of the synergies are just -- they're free to us. They're just super easy to get like we have contracts where we get better rates on holding deposits than they do or they have accounts that use their product in geographies that they're not licensed in, but we are. Obviously, they have a public company cost structure that will be gone and stuff. So I'd say that half or more, Trevor, of the first cut of the synergies are just sitting on the tee for us, which enable us to pay the price. And the purpose of the next 90 days is really to work the other half to really see where can we take that number. And by the time we talk again, we'll have an answer for you. But it will be quite accretive. Operator: Our next question comes from Dave Koning with Baird. David Koning: Good job. Capital return question, really getting back kind of to the last question. Is the $0.75, is that fully self-funding, meaning the profits are fully covering the interest expense of what you're borrowing and you can use all your cash flow to do capital return over the next year. Just want to make sure I understand that how the accretion was looked at. Ronald F. Clarke: Yes. Dave, the answer, yes. David Koning: Good. And then just a quick follow-up -- go ahead. Ronald F. Clarke: I want to make sure you're clear, yes, just the way you said it, the answer is yes. David Koning: Okay. I'm glad we're on the same page. A quick follow-up. Interest expense, Q4, $115 million, $120 million, something in that range, up just a tick next year per quarter just because we'll have a full quarter of the borrowing from -- since you're into the quarter already when you bought Alpha. But just -- is that the way to think about it using a little higher than $115 million to $120 million per quarter? Ronald F. Clarke: Peter, you got that one? Peter Walker: Yes. I think it's a fair way to think about it. Operator: And we will move next with Ken Suchoski with Autonomous Research. Kenneth Suchoski: Maybe just on U.S. Vehicle, the acceleration there. I think you called out higher approval rates as one of the drivers. Can you just comment on what you're seeing in terms of new acquisition and where that's coming from? It sounds like you're comfortable with the credit trends that you're seeing if you're approving more customers there. Ronald F. Clarke: Yes. Ken, it's Ron. That's right. The growth of that business, as I said, starts really with a complete change in the retention and same-store sales setup, which again makes it much easier to grow. But look, on the sales side, we have a bunch of elephants that we booked that created the second half acceleration. We've obviously got some more in the pipeline. I think the focus, the pivot that we made from the micro digital world is just better credit quality. And so as we've kind of retweaked our models and we look at our losses and what our receivables look like, we're approving just higher amounts. So what we're selling, we're basically getting more into the revenue line. We also have some other kind of rate initiatives around the merchant side. We have these big proprietary networks, including cardlock. So our tech now is -- enables us to move some of the volume that was on kind of lower interchange rails to higher. So we'll basically get some merchant rate enhancement by having some of our volume flow to different areas. So we've got a lot of things working. The base is just more solid. We've made some big sales. The approval rate credit quality is better on new accounts. We're moving volume to higher interchange, things like there's 3 or 4 things that are making the thing work, and we think it's durable into next year. Kenneth Suchoski: And then maybe just -- sorry, go ahead. Ronald F. Clarke: You're breaking up a little. Kenneth Suchoski: Sorry about that. Just on the margins for next year, I mean, lots of moving parts with acquisitions and efficiencies. Just how are you thinking about margins? I think I saw the comment on expecting incremental margin expansion from some initiatives. Peter Walker: Yes. As we mentioned, we've got some AI initiatives that are paying off well, some vendor rationalization initiatives, et cetera. So we do think there'll be incremental margin improvement next year, and we'll give more details on that when we get together in 90 days. Ronald F. Clarke: Ken, it's Ron. I also think it's a function of what we decide to -- in that, I think I tell you guys, a big part of our growth planning is what we agreed to spend in sales and marketing. So to Peter's point, that's going to be one of the calls we make is how much do we deliver in profitability in '26? And can we productively spend a bit more in some of the businesses to get it up and go in the forward year. So that's another call that we'll make. So I don't want to get again out over the skis. We may decide to spend some of that if we think we can get a good return on it. Operator: This does conclude our Q&A session as well as the Corpay Third Quarter 2025 Earnings Conference Call. Thank you for your participation, and you may disconnect at any time.
Operator: Hello, and welcome to Vir Biotechnology's Third Quarter 2025 Financial Results and Corporate Update Call. As a reminder, this conference call is being recorded. [Operator Instructions] I will now turn the call over to Jason O'Byrne, Chief Financial Officer. Please go ahead. Jason O’Byrne: Thank you, and good afternoon. With me today are Dr. Marianne De Backer, our Chief Executive Officer; and Dr. Mark Eisner, our Chief Medical Officer. Before we begin, I would like to remind everyone that some of the statements we are making today are forward-looking statements under the securities laws. These forward-looking statements involve substantial risks and uncertainties that could cause our clinical development programs, future results, performance or achievements to differ significantly from those expressed or implied by such forward-looking statements. These risks and uncertainties and risks associated with our business are described in the company's reports filed with the Securities and Exchange Commission, including Forms 10-K, 10-Q and 8-K. I will now turn the call over to our CEO, Marianne De Backer. Please go ahead. Marianne De Backer: Good afternoon, everyone, and thank you for joining us for Vir Biotechnology's third quarter 2025 earnings call. Today's call will highlight the significant progress we've made and our clear path forward as an organization. We'll provide guidance on our VIR-5500 program time line, discuss the upcoming SOLSTICE data presentation and highlight how our clinical execution this quarter positions us for the significant value-creating opportunities ahead. The third quarter has been marked by important achievements across both our hepatitis delta and T-cell engager programs that demonstrate our ability to execute on critical milestones. Our team remains committed to powering the immune system to transform patients' lives. And today, we'll outline how our recent accomplishments set the stage for what we believe will be a pivotal period for Vir Bio. I will now highlight the key accomplishments from this quarter that demonstrate this accelerating momentum. First, we completed enrollment in ECLIPSE 1, our first registrational Phase III study for hepatitis delta. Second, we're excited to provide guidance that we plan to share a comprehensive data update for VIR-5500, our PRO-XTEN masked PSMA-targeted T-cell engager in the first quarter of 2026. And third, we dosed the first patient in our first-line metastatic castration-resistant prostate cancer combination study with androgen receptor pathway inhibitors. Collectively, these achievements represent an acceleration in our development trajectory and provide clear line of sight to multiple value-creating catalysts ahead. We're executing with precision while advancing towards multiple important data readouts and regulatory milestones. I will now provide more detail on our hepatitis delta program, where we've made exceptional progress this quarter. The completion of ECLIPSE 1 enrollment represents a pivotal step towards bringing our differentiated combination regimen to patients with hepatitis delta in United States and beyond. This achievement accomplished ahead of our internal projections reflects both strong investigator confidence and the substantial unmet medical need in this devastating disease. With ECLIPSE 1 enrollment complete, we now expect primary completion in the fourth quarter of 2026, with top line data for all 3 ECLIPSE studies expected by the first quarter of 2027. This accelerated time line positions us well for regulatory submissions and demonstrates our operational excellence in executing registrational studies. ECLIPSE 2 continues to enroll well across European sites and remains on track. Together, ECLIPSE 1 and ECLIPSE 2 are designed to form the backbone of our regulatory filing package. ECLIPSE 3, our Phase IIb head-to-head comparison against bulevirtide is progressing ahead of schedule with strong enrollment momentum and will provide valuable comparative data to support access and reimbursement discussions, particularly in European markets. The hepatitis delta market represents a compelling commercial opportunity with approximately 61,000 RNA-positive patients in the United States and 113,000 in EU markets. The patient population's geographic concentration, particularly in major U.S. urban centers, supports an efficient commercial approach with a target specialty sales organization focused on hepatologists and infectious disease specialists. Looking ahead to this month, we are preparing to present the complete 48-week SOLSTICE data set at AASLD on November 9. This presentation will provide important insights into the safety and efficacy profile of our combination regimen and is expected to provide supportive data that reinforces confidence in our registrational program. Turning to our oncology portfolio. We are excited to provide guidance that we plan to share a data update for VIR-5500, our PSMA-targeted T-cell engager in the first quarter of 2026. We've made substantial progress in our dose escalation across both weekly and every 3-week schedules, and this data set is expected to provide important insights into the program's potential. We are enthusiastic about this program and the differentiated PRO-XTEN dual-masking approach. As I mentioned, we recently dosed the first patient in our first-line metastatic castration-resistant prostate cancer combination study with ARPIs, a first step towards addressing a significant unmet need for patients in earlier treatment lines. For VIR-5818, our PRO-XTEN masked HER2-targeted T-cell engager, we are continuing dose escalation in combination with pembrolizumab, which is actively enrolling. For VIR-5525, our PRO-XTEN masked EGFR-targeted T-cell engager, our program continues to advance with enrollment in our Phase I study progressing as expected. We are leveraging the extensive learnings from both VIR-5818 and VIR-5500 to enable efficient development and accelerate decision-making. The clinical experience we are gaining across 3 distinct targets, PSMA, HER2 and EGFR is building evidence for the versatility of the PRO-XTEN universal masking platform. This emerging clinical validation gives us confidence as we advance our preclinical pipeline of additional T-cell engager candidates targeting various tumor-associated antigens, whether through internal development or strategic partnerships that leverage our platform technology. Finally, we ended the third quarter with approximately $810.7 million in cash, cash equivalents and investments. Based on our current operating plan, we continue to project our cash runway extending into mid-2027. This strong financial foundation enables us to advance our registrational hepatitis delta program and our oncology pipeline with confidence. With that, I'll now turn the call over to Mark to provide a more detailed update on our clinical development programs. Mark Eisner: Thank you, Marianne. I'm pleased to provide detailed updates on our clinical development programs. Starting with our hepatitis delta program, ECLIPSE 1 enrollment was successfully completed with approximately 120 participants randomized 2:1 to our combination therapy versus deferred treatment. This achievement was accomplished approximately 2 months ahead of our aggressive internal enrollment assumptions, demonstrating exceptional execution by our study teams and reflecting the significant unmet medical need in this patient population. The strength of our enrollment reflects multiple factors. First, the robust SOLSTICE Phase II study results, second, strong engagement with our clinical investigator community, third, the absence of FDA-approved treatments for hepatitis delta in the United States and limited options globally, and fourth, the urgent need for more effective and convenient therapies for this devastating disease. Study team engagement throughout startup led to accelerated country and site activation, allowing us to complete study enrollment faster than originally projected. This was further reinforced by consistent enrollment momentum across regions with investigators actively identifying and referring patients. ECLIPSE 2 continues with enrollment progressing well across multiple European sites, demonstrating similar investigator enthusiasm and patient need. The study will enroll approximately 150 patients randomized 2:1, evaluating the switch to our combination therapy in patients who have not adequately responded to bulevirtide with a 24-week primary endpoint of HDV RNA target not detected. The strong enrollment momentum we're seeing reflects an important unmet need for inadequate bulevirtide responders, and we expect primary completion by year-end 2026 with top line data expected in the first quarter of 2027. ECLIPSE 3, our Phase IIb head-to-head comparison is progressing ahead of schedule with strong enrollment momentum. This study will enroll approximately 100 patients comparing our combination therapy to bulevirtide in treatment-naive patients and based on the strength of enrollment we're seeing is tracking toward a similar completion time line as ECLIPSE 1 and 2. ECLIPSE 3 enrollment has progressed ahead of our projections, and this study will provide critical comparative data for access and reimbursement discussions with top line data expected in the first quarter of 2027 alongside the other ECLIPSE studies. Regarding our upcoming AASLD presentation, the complete SOLSTICE 48-week data set for the combination regimen of tobevibart and elebsiran represents an important clinical milestone. This additional follow-up provides important safety and efficacy insights and builds on our previously reported compelling Phase II results that demonstrated 64% of patients achieving HDV RNA target not detected at week 36 with our monthly combination regimen. Turning to our oncology programs. We continue to advance our PRO-XTEN masked T-cell engager portfolio across multiple targets. For VIR-5500, our masked PSMA-targeted T-cell engager, dose escalation is advancing in both weekly and every 3-week schedules. We have not reached a maximum tolerated dose and escalation continues as planned. The half-life of 8 to 10 days potentially supports our every 3-week dosing evaluation with the potential for even longer dosing intervals. As Marianne mentioned, we achieved an important milestone this quarter with the first patient dosed in our first-line metastatic castration-resistant prostate cancer combination study with androgen receptor pathway inhibitors. This earlier line expansion offers the potential to address significant unmet need for patients earlier in their treatment journey. We're planning for a comprehensive data update in the first quarter of 2026 with a meaningful data set across dose levels in late-line patients. We expect this will include safety assessments and efficacy measures, including PSA responses and kinetics, imaging and RECIST evaluations. The program is designed to leverage the potential advantages of the PRO-XTEN platform, including a favorable safety profile and extended half-life. Our approach seeks to maximize the therapeutic index of solid tumor T-cell engagers through selective tumor activation while minimizing systemic activity. For VIR-5818, our HER2-targeted T-cell engager, combination dose escalation with pembrolizumab is actively enrolling and progressing according to plan. For VIR-5525, our EGFR-targeted T-cell engager, Phase I study enrollment is also progressing as expected. The study design incorporates learnings from VIR-5818 and VIR-5500 to enable efficient dose escalation. We are evaluating both monotherapy and combination with pembrolizumab across multiple EGFR-expressing tumor types. As we've discussed on our second quarter call, we believe this program has the potential to address significant unmet need for patients across multiple solid tumor types where current EGFR-targeted approaches have important limitations. We also continue to advance multiple preclinical T-cell engager candidates targeting various tumor-associated antigens. The clinical experience from our current programs is informing the development of these preclinical candidates, and we're taking a strategic approach that combines internal advancement with potential partnership opportunities to accelerate development and advance a broader pipeline that addresses unmet need across multiple cancer types. We've made exceptional progress across our entire clinical portfolio during the third quarter. ECLIPSE 1 enrollment completion provides a clear path to pivotal data in early 2027 for all 3 ECLIPSE studies. Our upcoming VIR-5500 data update will provide important insights into our oncology pipeline's potential and our platform leaves us well positioned to efficiently advance multiple future candidates. With that, I'll now hand the call over to Jason for a financial update. Jason O’Byrne: Thank you, Mark. I am pleased to share our third quarter financial performance and overall financial position. R&D expense for the third quarter of 2025 was $151.5 million, which included $5.5 million of noncash stock-based compensation and a $75 million milestone payment triggered by first-in-human dosing of VIR-5525. This compares to $195.2 million for the same period in 2024, which included $8.9 million of stock-based compensation and a $102.8 million upfront payment made to Sanofi at the closing of our exclusive worldwide license agreement. The year-over-year decrease was primarily driven by lower license expense and cost savings from previously announced restructuring initiatives, partially offset by increased clinical development expenses associated with our hepatitis delta and oncology programs. SG&A expense for the third quarter of 2025 was $22.2 million, which included $5.8 million of stock-based compensation expense compared to $25.7 million for the same period in 2024, which included $7.8 million of stock-based compensation expense. The decrease was largely due to efficiencies and cost savings from previously announced restructuring initiatives. Our third quarter 2025 operating expenses totaled $173.7 million, representing a $46.2 million decrease from the same period in 2024. Net loss for the third quarter of 2025 was $163.1 million compared to a net loss of $213.7 million for the same period last year. Turning to cash. Our net change in cash and investments in the third quarter was approximately $81.4 million. During the third quarter, we also made certain cash payments from restricted cash, including a $75 million payment to former Amunix shareholders. As described earlier, this payment was triggered by dosing the first patient in our VIR-5525 study and was fully anticipated, having been held in escrow as restricted cash since we signed the Sanofi agreement last year. As a reminder, restricted cash is excluded from our reported balances of cash, cash equivalents and investments. As such, disbursements from restricted cash accounts do not affect our projected cash runway. We ended the third quarter with approximately $810.7 million in cash, cash equivalents and investments. Based on our current operating plan, we continue to project our cash runway extending into mid-2027. Our capital deployment strategy remains focused on our most promising programs. We are advancing our hepatitis delta ECLIPSE registrational program while also advancing our T-cell engager programs, including VIR-5500, VIR-5818 and VIR-5525. We continue to deploy capital strategically, prioritizing investments in programs with the greatest potential for both meaningful patient impact and value creation while also advancing business development opportunities that can further optimize our resource allocation. This concludes our prepared remarks. We will now initiate the Q&A session. Please limit questions to 2 per person so that we can get to all of our covering analysts. I'll turn it over to you, operator. Operator: [Operator Instructions] Our first question will come from the line of Gena Wang with Barclays. Kun Wang: This is Kun Wang on behalf of Gena Wang from Barclays. We have 2 questions. First one for the PSMA, the [ GenX ] actually setting a higher bar for the PSA 50. However, the durability doesn't seem good. So how do you think the PSMA could show actual differentiation of your asset? And then we know the KOLs we spoke to actually focus on durability of the PSA control and more importantly, durability, the durable tumor response. The second question actually for the HDV. For the Phase III readout, what's your clinical bar as the key differentiation? Marianne De Backer: Yes. Thank you for those questions. So maybe on PSMA, I will just start by saying that we're really excited to provide the guidance and share a comprehensive data update for our lead asset, VIR-5500 in the first quarter of 2026. And of course, at that point, we will have a really meaningful data set across multiple dose levels, obviously, in the late-line patient setting. We will have data on both weekly and every 3-week dosing. And there will be certainly sufficient patient numbers to provide robust insights. Maybe I'll ask Mark to add anything. Mark Eisner: Sure. Thanks, Marianne. Well, we do think we have a differentiated approach with the PRO-XTEN platform and in particular for VIR-5500 PSMA. I'll comment on the fact that we use a steric hindrance mechanism for masking both the CD3 and the PSMA side of the molecule. We have a dual-masking approach, which is unique in the masked PSMA space. It's a clinically validated approach. There's a product on the market called ALTUVIIIO that uses the PRO-XTEN masks. So we know it's safe in that setting. And we think we can get to a really exceptional therapeutic index, which would include both depth and durability of PSA response. But stay tuned for our Q1 update. Your other question is about HDV and the ECLIPSE program and what we think the bar is, particularly for ECLIPSE 1. Just to remind people, we showed in the SOLSTICE trial, 64% viral suppression target not detected at week 36, that was at week 36 that we presented back -- before, and we are going to be presenting the complete 48-week SOLSTICE Phase II data at AASLD very shortly. In terms of the bar, we think the combination of our tobevibart and elebsiran have exceptional ability to suppress HDV viral RNA and achieve target not detected. We can hit HB surface antigen down by 3 logs. So I'm not going to give you a specific number today, but we are expecting to have a very exceptional efficacy in terms of the virologic outcomes that I mentioned. Operator: Our next question will come from the line of Mike Ulz with Morgan Stanley. Rohit Bhasin: This is Rohit on for Mike. In terms of the VIR-5500 data, will that be presented at a conference in early January? Or do you think later in the quarter? And then secondly, is there anything you can point to that we should focus on, on the upcoming presentations at AASLD? Mark Eisner: So -- sure. So the first question is about the update and exactly the timing in quarter 1 and the setting for quarter 1. We haven't provided that guidance exactly what month for what it will be in the setting. It could be a company event. It could be an academic conference. That's to be announced at a subsequent time. In terms of the focus for AASLD and the SOLSTICE, we will be showing the complete 48-week data for tobevibart and elebsiran and tobevibart monotherapy arms. So this will provide a complete update for target not detected for HB surface antigen, safety. So you'll get a complete picture there, which I think will be a meaningful update from what we've shown before. Operator: Our next question will come from the line of Paul Choi with Goldman Sachs. Kyuwon Choi: My first is on VIR-5500 as well. Can you please clarify if your planned update in the first quarter of next year will be just the monotherapy patients? Or will you have any data with regard to the combination group that are being tested with ARPIs? And my second question is on hep D. Gilead announced that they're filing bulevirtide but at a 10-milligram dose versus the 2-milligram dose that is currently approved in Europe. Can you comment on how you think that might change the landscape here in the U.S. as you progress with your program? And also any potential regulatory implications, if any, if you think there are any there? Marianne De Backer: Thank you. Yes. Thank you, Paul. Maybe just on your first question. As you know, we only recently started the first-line mCRPC combination study with ARPIs. So that data will not be part of the first quarter 2026 update. And then on bulevirtide, Mark, do you want to take that? Mark Eisner: Yes. So your question, Paul, is about the Gilead announcement that they expect approval in H2 2026 and your question specifically about the 10-milligram dose. I mean we actually think it's a very net positive for Vir Bio that Gilead will launch bulevirtide ahead of us. We think that they will help to drive disease awareness. We think that they will help to focus on testing, HDV testing, which would make -- prepare the landscape for our launch. We don't see the 10-milligram or 2-milligram. We see those similarly. I mean we still think our regimen of tobevibart and elebsiran can achieve really, really strong virologic suppression compared to bulevirtide with either dose. In terms of regulatory implications, we feel very confident that our program is designed to secure regulatory approval with ECLIPSE 1 and ECLIPSE 2 as being the core of the regulatory package and ECLIPSE 3 is providing really strong head-to-head information, which will bolster the value proposition for patients and in particular, for payers in the EU. Operator: Our next question will come from the line of Cory Kasimov with Evercore ISI. Mario Joshua Chazaro Cortes: This is Josh Chazaro on for Cory Kasimov. Based off your PK and PD modeling data, are you surprised that you have not reached the maximum tolerated dose for VIR-5500? And can you share on whether you have seen any Grade 3 CRS events? Mark Eisner: So are we surprised that we have not reached the maximum tolerated dose? Well, we've been going through dose escalation systematically, and that's been going very well. And I'm not really prepared to share any further details about dose escalation or results today. So stay tuned for our event in quarter 1 next year. And regarding more updated information on safety, again, we will be discussing that in quarter 1 next year at our data release. Operator: Our next question will come from the line of Alec Stranahan with Bank of America. Unknown Analyst: This is [ Matthew ] on for Alec. In terms of the 48-week HDV data, can you maybe speak to how meaningful this data is for physician education ahead of a potential launch? And any reason to think that there would be a significant change from week 36 to 48? Mark Eisner: So a great question. I do think that the data will be meaningful for educating physicians, clinicians and others who are interested in HDV about what our regimen can deliver at week 48. In terms of what we expect to show you, I mean, I would just say it's not going to be a long time. So stay tuned for our presentation, but we've been seeing deepening of responses over time to date. So we're excited to have the presentation and look forward to sharing it with you. Operator: Our next question will come from the line of Ellen Horste with TD Cowen. Ellen Horste: Just to drill down a little bit more on the TCE update. Can you talk a little bit more about how you're prioritizing the 3 TCE programs? Is there a world where you take all 3 of them forward? Or are you imagining that this will be a no-go/go decision for all 3 such that you only move forward with the best data? And maybe talk about the endpoints that you think are most important for that no-go/go decision, whether it's response rate or durability, safety, et cetera? Marianne De Backer: Thank you, Ellen. I'll start by saying our capital allocation priorities, as we have said, are really based on progressing our registrational study for hepatitis delta and then certainly accelerating as much as we can, our VIR-5500 prostate cancer program. Our other T-cell engager programs, I mean, obviously, are gated based on data as is typical. And as we have also shared before, we have a number of preclinical programs that have garnered a lot of external interest. So we're also looking at potential business development opportunities across our pipeline. Operator: Our next question will come from the line of Sean McCutcheon with Raymond James. Sean McCutcheon: So how are you thinking about the optimal setting for the TCE program in prostate cancer? We got the results from PSM addition, albeit a tepid reaction [ at U.S. ], but a lot more patients going to be PSMA radioligand exposed in the coming years. I know you've started the pre-taxane cohort that's up and running. But should we expect some proof-of-concept results post PSMA radioligand from your next update with more U.S. patients enrolled? Mark Eisner: Sure. So in terms of what to exactly expect in terms of the patient population for our update, just as a reminder, we are currently doing dose escalation in both mono -- in both [ q week ] and [ q3 week ] in the third-line plus mCRPC setting. That would include post-RLT patients as a population. We also started, as Marianne said, the frontline taxane-naive, although we won't have that data for the update. In terms of where we're ultimately going to position this asset in terms of the patient population, I mean, we are interrogating the full gamut and intend to the patient populations from late-line to earlier line to hormone sensitive. So we will -- this will ultimately be a data-driven decision by how we ultimately position the molecule. But just to get back to the update in Q1, that will be the later-line patients that were the Part 1 or are Part 1 of the Phase I program. Operator: Our next question will come from the line of Joseph Stringer with Needham & Company. Joseph Stringer: You've shown that your HDV combo therapy can reduce the hep B surface antigen level over time. I guess how well does this data resonate with KOLs and physicians? Is this something that you believe could be beneficial and potentially differentiator given the long-term chronic treatment paradigm for HDV? Or is it not nearly as important as, say, ALT and virological response? Mark Eisner: Thanks for the question. I mean, firstly, I would state that the most important objective of our program with tobevibart and elebsiran is to suppress the virus to target not detected in a large proportion of patients because we know that suppressing delta virus to TND will translate into better outcomes for patients in terms of progression of the underlying liver disease. But I do think that the fact that we can reduce hepatitis B surface antigen levels by about 3 logs is important and does resonate with KOLs because as you recall, the surface antigen is critically important for the viral life cycle of delta. It needs the surface antigen to form its own viral code. So the fact that we are starving the delta virus of the surface antigen is another mechanism by which we suppress the virus with our combination regimen. So we do think that is important and differentiating. Operator: Our next question will come from the line of Patrick Trucchio with H.C. Wainwright. Patrick Trucchio: Just a follow-up question on HDV. First, just in terms of the addressable patients in the U.S. that you believe the combination of tobevibart and elebsiran could be relevant for at the time of launch. I'm wondering if that would include the 61,000 patients estimated in the U.S. who are viremic with HDV? Or is there a subgroup of patients who would be best for treatment at the time of launch? And separately, just sort of what efforts are ongoing to identify these patients? I mean, I appreciate that ECLIPSE 1 enrolled 2 months ahead of schedule. So just curious if -- particularly as bulevirtide maybe gets approved, if there's just going to be more awareness and how you'll actually go about discovering those patients? And ultimately, how many patients do you think you can reach at the time of launch? Mark Eisner: Yes. So excellent question. So in terms of the HDV addressable population and launch, I mean, we're estimating approximately 60,000 patients in the U.S. who are viremic with HDV. We really think we can -- our regimen -- the patients will be eligible for a regimen [ broadly ] because we can treat patients effectively with high viral loads or lower viral loads. We can treat patients with compensated cirrhosis or non-cirrhotic. So we expect to be able to treat a very broad population of patients who are viremic with HDV. So we don't feel that, that will be constrained to any kind of subgroup at all. We feel like it will be a broad population. In terms of the -- how are we approaching the launch? Well, first of all, I would note that -- I agree with you that the [ first ] enrollment of ECLIPSE 1 really speaks to the high unmet medical need for a regimen that like tobevibart and elebsiran that can meaningfully address the delta virus patient, the patients with HDV and their viremia and the liver disease that follows. We also think that Gilead launching bulevirtide ahead of us, like I said before, would be a real advantage because it will drive disease awareness, drive testing and those things. We are in active discussions with KOLs, with advocacy groups, diagnostic companies, et cetera, about the best way forward to make -- to driving awareness ourselves. And back to an earlier question in terms of what will be the impact of our SOLSTICE presentation at AASLD this year, I mean I think it's going to be very significant because this is the first time we'll present the 48-week complete data for the combination, which really undergirds our ECLIPSE program and provides further confidence, I think, in what we're trying to achieve with ECLIPSE, which is really high rates of target not detected, HBV surface antigen suppression and really hopefully driving good outcomes for patients. Marianne De Backer: Yes. And Patrick, as you know, I mean, both from an efficacy perspective and also from a patient convenience perspective, our regimen being monthly dosing, that is a very big differentiator. Operator: This concludes the Q&A session of the call. Thank you for participating. I will now turn the call back over to Marianne. Marianne De Backer: Thank you, operator, and thank you all for joining us today. We look forward to updating you on our progress in the coming months. Operator, you may end the call. Operator: This concludes our call today. Thank you for joining. You may now disconnect.
Operator: " Brad Wise: " David Cherechinsky: " Mark Johnson: " Adam Farley: " Stifel, Nicolaus & Company, Incorporated, Research Division Jeffrey Robertson: " Water Tower Research LLC Nathan Jones: " Stifel, Nicolaus & Company, Incorporated, Research Division Operator: Good morning. My name is Van, and I will be your conference operator today. At this time, I would like to welcome everyone to the DNOW Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Thank you. Mr. Brad Wise, Vice President of Digital Strategy and Investor Relations, you may begin your conference. Brad Wise: Well, good morning, and thank you, Van, and welcome to DNOW's Third Quarter 2025 Earnings Conference Call. We appreciate you joining us and thank you for your interest in DNOW. With me today is David Cherechinsky, President and Chief Executive Officer; and Mark Johnson, Senior Vice President and Chief Financial Officer. We operate under the DNOW brand, which is also our New York Stock Exchange ticker symbol. Please note that some of the statements we make during this call, including the responses to your questions, may contain forecasts, projections and estimates, including, but not limited to, comments about our outlook for the company's business. These are forward-looking statements within the meaning of the U.S. federal securities laws based on limited information as of today, November 5, 2025, which is subject to change. They are subject to risks and uncertainties, and actual results may differ materially. No one should assume these forward-looking statements remain valid later in the year. We do not undertake any obligation to publicly update or revise any forward-looking statements for any reason. In addition, this conference call contains time-sensitive information that reflects management's best judgment at the time of the live call. I refer you to the latest Forms 10-K and 10-Q that DNOW has on file with the U.S. Securities and Exchange Commission for a more detailed discussion of the major risk factors affecting our business. Further information as well as supplemental financial and operating information may be found within our earnings release on our website at ir.dnow.com or in our filings with the SEC. In an effort to provide investors with additional information regarding our results as determined by U.S. GAAP, you'll note that we disclose various non-GAAP financial measures in our earnings press releases and other public disclosures. These are non-GAAP financial measures and include earnings before interest, taxes, depreciation, amortization or EBITDA, excluding other costs. EBITDA, excluding other costs as a percentage of revenue, net income attributable to DNOW Inc., excluding other costs, diluted earnings per share attributable to DNOW Inc. stockholders, excluding other costs and free cash flow. Please refer to a reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure in the supplemental information available at the end of our earnings release. As of this morning, the Investor Relations section of our website contains a presentation covering our results and key takeaways for the third quarter of 2025. A replay of today's call will be available on the site for the next 30 days. Please note that the results presented today are for DNOW only and do not include any results from MRC Global, which remains a separate independent company until our merger transaction with them is completed. Now let me turn the call over to Dave. David Cherechinsky: Thank you, Brad, and good morning, everyone. I am impressed with the performance our DNOW team has delivered and confident 2025 will mark the fifth consecutive year of revenue growth despite 3 years of market softness. The third quarter delivered our strongest revenue since 4Q 2019, and we converted that revenue far more efficiently, producing greater than 7x the EBITDA dollars achieved on a comparable revenue in that prior period. Our performance continues to be driven by a steadfast focus on customers, disciplined cost management and greater operational leverage while focusing our resources and our strengths where the customer sees value. The announced merger with MRC Global has yet to close, but we have received shareholder and regulatory approvals. I'm excited about collaborating to build a stronger, more durable and more impressive future together. Regarding our third quarter results, revenue for the third quarter grew in line with our guided forecast to $634 million and to a level we haven't seen since before 2020. In the third quarter, we delivered EBITDA of $51 million or 8% of revenue, reflecting continued earnings durability and a marked improvement year-over-year. Activity resulting in demand for our products and services remained healthy. Operators continue to prudently deploy capital with a keen focus on production volume economics and deployment of resources. As crude oil production, natural gas and produced water volume modestly grew, this requires infrastructure and together drove customer demand for our pipe, valves, fittings, pumps and fabricated process, automation, production and measurement equipment. In today's market, improved capital efficiency and customer consolidation has led to a period of operators optimizing their production portfolio and cautiously evaluating market growth opportunities. It's encouraging to see continued capital investment in the gathering and transmission midstream sectors, primarily driven by increased demand for power and LNG exports. A continued strength is this team's disciplined approach to working capital management. During the quarter, we improved our inventory turn rates and days sales outstanding, demonstrating efficient use of our balance sheet. When combined with earnings, we delivered $39 million in free cash flow for the third quarter, elevating our year-to-date free cash flow to $58 million, which we expect could approach $150 million for the full year 2025. Our overall achievements are representative of the strong focus by our teams to deliver a solutions-oriented approach to our customers' challenges. Now to some comments on our results by region. In the U.S., revenue was $527 million, lower by $1 million sequentially despite a 5% sequential contraction in U.S. rig count and a 6% decline in U.S. completions in the third quarter. Our U.S. Energy Centers business increased in the Permian and in the Northeast, combined with steady activity in the Northwest and Southeast. Operator improvements in drilling efficiency, combined with the incorporation of digital tools and AI are extending the economic life of existing acreage. As a result, we remain in a period of industry optimization and experts believe rig counts are at or below levels needed to maintain current U.S. onshore production. In the Haynesville, demand for our products improved, primarily tied to the new construction of tank batteries, gathering lines, storage and distribution of natural gas linked to increased demand for power generation and LNG exports. DNOW is positioned well to capture revenue and market share from these opportunities. Operators remain focused on leveraging drilling and completions efficiencies, driving the need for more -- for larger, more centralized tank batteries with specialized equipment. This shift tends to favor DNOW due to our fabrication capacity, inventory and service capabilities. The midstream sector is active with customers allocating capital to gathering, transmission and takeaway projects to meet the growing downstream demand. During the quarter, the midstream sector accounted for 24% of overall DNOW revenue. Midstream activity was strong and held steady with demand for pipe, valves and fittings supporting several capital projects. One project consisted of a new 400-mile 42-inch pipeline and corresponding lateral to connect the processing plant project, which provides more flexibility for the operator to deliver natural gas to premier markets and trading hubs and its ability to support power plant and data center growth. Moving to U.S. Process Solutions. Demand for aftermarket pump services remained strong and has grown on a year-over-year basis. We remain focused on expanding our pump and service revenue to additional downstream markets winning orders with numerous chemical processing companies along the Gulf Coast. For our water management business in Flex Flow and Trojan, rental activity remained steady with strong performance in the U.S. and Canada. We see increased demand for higher horsepower rental pumping units where operators are requesting larger assets to move greater volumes of produced water. Our Flex Flow engineering teams are working on retrofitting several existing H-pump units to take advantage of the shift in customer preference. We have secured orders for several H-pump rental units targeting the growing CO2 sequestration space. As more operators look to expand enhanced oil recovery applications as well as fund future CCUS projects, we believe there will be prospects to rent and sell these pumps. Since acquiring EcoVapor in December of 2022, we have expanded our product offering to drive increased market opportunities for our gas treating technology. I'm delighted to highlight the great work our product development team has done over the past year to unlock several opportunities. First, during the quarter, we shipped a O2E 2000 unit to a landfill gas operator. The E2000 is a much higher capacity unit designed to treat larger volumes of landfill gas by removing oxygen, allowing the treated gas to be moved to the midstream market for sale. Second, several of our customers have requested a combined gas treating and liquids removal process unit to handle larger volumes of saturated gas. In response, we developed the DryOxo and delivered our first unit to an RNG customer in the quarter. The DryOxo product is suitable for many RNG applications from small dairies and swine farms to large landfills, unlocking revenue growth for EcoVapor. And finally, we designed and shipped several new Oxygen Sentinel units, which enable operators to treat gas with higher H2S concentrations found in natural gas applications. In Canada, revenue was $53 million for the quarter, up $5 million or 10% sequentially, in line with our guide. Activity increased from the second quarter breakup period. Third quarter Canada rig count compared to the same period in 2024 was 15% lower year-over-year. As such, we are optimizing our footprint to improve our cost structure. Despite lower activity on a year-over-year basis, we see opportunities for several top operators and EPCs to drive future growth. For international, revenue was $54 million, sequentially up by $2 million or 4%. During the quarter, we saw growth in the Middle East and Singapore. Singapore activity in the fabrication yards remained strong, driven by high demand for FPSO conversions for Brazil, West Africa and Guyana alongside LNG module fabrication aligned with the global emphasis on energy security. Moving to digital. I'd like to share an example of how we are using digital technology to provide real-time information for our customers to provide better planning, improving on-time deliveries and yield higher fill rates from inventory to help improve inventory turn rates and customer satisfaction. For one of our larger customers, our DigitalNOW analytics team built a solution that provides real-time data and visibility to their demand for pipe in comparison to DNOW's on-hand and on-order inventory. This digital tool has enabled better planning and communication to fulfill customer pipe demand, resulting in a more efficient supply chain. Turning to capital allocation. Our long-term priorities remain unchanged. We will invest in organic growth in additional market sectors to help drive diversification of revenue, coupled with inorganic opportunities that drive accretive results where we are the national natural operator. A key area of interest for us is acquisitions, primarily in Process Solutions to further build out our service and product offering to better serve the needs of our customers. With that, let me hand it over to Mark. Mark Johnson: Thank you, Dave, and good morning, everyone. Total revenue for the third quarter of 2025 was $634 million, up 1% or up $6 million from the second quarter of 2025 and marks the highest revenue quarter in almost 6 years. EBITDA, excluding other costs or EBITDA for the third quarter was $51 million or 8% of revenue, marking the 14th consecutive quarter where DNOW has delivered approximately 7% EBITDA or better. Another notable improvement in performance can be seen when we compare the period starting when we became a stand-alone public company in the second half of 2014 through the end of 2019. That 5-plus year period delivered accumulated EBITDA performance of less than 1% of revenue. And now comparing this to the period after our transformation years of 2020 and 2021, we've averaged 7.8% EBITDA as a percent of revenue, which clearly speaks to solid execution of our strategy to improve profitability and grow earnings. U.S. revenue for the third quarter of 2025 totaled $527 million, effectively flat sequentially and an increase of $45 million or 9% from last year. U.S. Energy Centers contributed approximately 73% of total U.S. revenue in the third quarter, and U.S. Process Solutions contributed approximately 27%. In Canada, for the third quarter, revenue totaled $53 million, an increase of $5 million or 10% sequentially. The international revenue of $54 million for the third quarter was up $2 million or 4% sequentially. Overall, DNOW gross margins for the third quarter were 22.9%, flat sequentially and up 60 basis points compared to the third quarter of 2024. Now warehousing, selling and administrative or WSA for the quarter was $112 million, unchanged from the second quarter. We anticipate various other merger transaction costs in the future quarters. In the third quarter, we reported $11 million of depreciation and amortization expense and total company operating profit was $33 million, led by our U.S. segment that generated $28 million with the balance derived from our Canada and International segments, generating $2 million and $3 million, respectively. Now moving to income taxes. In the third quarter of 2025, DNOW's income tax expense was $7 million. And our effective tax rate as computed on the face of the income statement was 21.9%. We estimate our 2025 full year effective tax rate to be approximately 26% to 27%. Net income attributable to DNOW Inc. for the third quarter was $25 million or $0.23 per fully diluted share. And on a non-GAAP basis, Q3 2025 net income attributable to DNOW Inc., excluding other costs, was $28 million or $0.26 per fully diluted share. Moving to the balance sheet. At the end of the third quarter, we had 0 debt and an improved cash position of $266 million, an increase of $34 million sequentially. We ended the quarter with total liquidity of $629 million, comprising our net cash position of $266 million plus $363 million in additional credit facility availability. Accounts receivable was $429 million at the end of the third quarter with -- days sales outstanding or DSO of 62 days, a 2-day improvement from the second quarter. Inventory was $377 million at the end of the third quarter, down $6 million from the second quarter of 2025, with a strong annualized turn rate of 5.2x and a record high since 4Q 2021. Accounts payable was $305 million at the end of the third quarter, a decrease of $13 million from the second quarter. And for the third quarter of 2025, working capital, excluding cash as a percentage of annualized third quarter revenue was 15.6%. In the third quarter of 2025, we generated $43 million of cash from operating activities and invested $4 million of capital expenditures to support growth initiatives, primarily in Process Solutions and midstream areas. Year-to-date, share repurchases were unchanged from the second quarter at $27 million. And since our inaugural buyback program began, we have repurchased over 8.7 million shares of common stock, returning capital to shareholders. Over the last 12 months, we've completed acquisitions totaling $122 million, generated $177 million in free cash flow, which represents an EBITDA to free cash flow conversion of over 90%, while returning $32 million to our shareholders through share repurchases and increasing our cash balance by $5 million. Our commitment to growing the company through a combination of organic initiatives and M&A remains a key priority. And with that, let me turn the call back to Dave. David Cherechinsky: Thank you, Mark. Before I get to the outlook for the fourth quarter, I'd like to make some additional comments on the announced merger with MRC Global. We see the combined company bringing together unparalleled access to industry-leading energy, gas utility and industrial products, service and solutions from both companies to serve a broader and more diversified mix of customers. This combination enhances DNOW's earnings durability, cash flow, financial position and ability to capitalize on growth across a broad range of attractive sectors. We expect the transaction to generate $70 million of annual cost synergies within 3 years following the closing through public company costs, corporate and IT systems and operational and supply chain efficiencies. Combined with synergy realization, we project a solid free cash flow business and we will pursue deleveraging, having previously noted a target of a net cash position by the end of the first full year post close, timing subject to change based on future M&A. Recently, we publicly announced our future leadership team comprised of respected leaders from both companies who collectively possess deep industry knowledge, bringing with them serious tenure, meaning they've endured and learned from the rigors in our industry and know how to avoid pitfalls and seize opportunities in our business. Their experience, expertise and proven track records in talent management, their deep respect for fellow team members and a strong focus on the customer will enable us to grow in the energy, gas utility and industrial sectors. Our integration teams have been hard at work to determine how to best bring our two companies together, including how to harness the combined company talent to position us for success as we move forward. Capitalizing on the deep supplier and customer affection, we will retain the MRC Global brand in multiple sectors to include gas utility, downstream and will be a strong additional brand in our international segment. While there remains work ahead, I am confident that as we progress, our customers and suppliers will recognize DNOW for providing an expanded range of products, comprehensive solutions and greater value to support the efficiency of their operations. Now I'd like to switch to our outlook for the fourth quarter. In the U.S. and Canada, we expect typical fourth quarter seasonality. Therefore, we expect a seasonal decrease in revenue sequentially. Internationally, we expect activity to be relatively flat sequentially. And we expect DNOW's fourth quarter revenue compared to the fourth quarter of 2024 to be up in the mid-single-digit percentage range, but down sequentially seasonally. We expect full year 2025 EBITDA could approach 8% of revenues, and our 2025 full year free cash flow could approach $150 million. In closing, I'd like to thank our DNOW team for their stellar performance. In a year that has had its share of macro challenges, including a continuation of customer consolidations, geopolitical uncertainty tied to tariffs and OPEC+ policy shifts impacting our industry, we are excited about how well we have navigated and grown our business. We ended the quarter adding to an already stellar balance sheet with $266 million in cash and 0 debt. We will continue to focus on what sets DNOW apart, our team members, our culture and proven track record of improving business unit performance, prioritizing customer service, innovation and supply chain management, combined with a solutions-oriented approach that delivers value for our customers and suppliers while maintaining a balance sheet, which provides a solid foundation for continued growth. We believe 2025 will represent our fifth consecutive year of growth and are forecasting our best full year earnings ever as a public company in terms of total EBITDA results. I would like to thank all the women and men of DNOW for their continued hard work and dedication to our pursuit of excellence. With that, let's open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Nathan Jones from Stifel. Adam Farley: This is Adam Farley on for Nathan. Starting on MRC, with another quarter to explore the merger, have you gained any new insight into the opportunities to drive additional cost synergies or maybe give you more confidence in achieving your cost synergy target? David Cherechinsky: Well, our focus -- really since we announced the proposed merger in June, late June, our immediate priorities are around connecting our sales teams to grow the business once we come together. Our integration teams have been focused on itemizing those things that can enable us to achieve the $70 million in synergy savings. We've asked them to identify how much is available, what the timing would be and they're pursuing that $70 million target. That number, we don't have a change for that number. We're focused on delivering that. But the immediate priorities, and I really want our employees to hear this, is we want to retain the top talent in our company on both sides to be a better distributor, to the suppliers we support and a better supplier to our customers. Our focus is on growing the business while we achieve those savings. And by retaining the top talent and having a singular focus on our customer, we can maximize our performance at the top line and the bottom line in that regard, whether we get there through $70 million in savings or more. Adam Farley: Okay. Fair enough. Maybe following up on that last point. What do you think are going to be the most difficult parts of the integration? How do you manage the risk? And do you think you have all the systems and processes in place to limit disruption during the integration and really focus on growth here? David Cherechinsky: I think that the opportunity is to sell the story to our fellow team members about the future for the company. By doing so, we can keep them engaged in the future, focused on the future. We'll be a company better able to address the wide array of challenges our customers face. We'll be better able to do that. And we need the top talent in the industry to stay with us on a go-forward basis. The biggest challenge is to motivate, promote the future, get folks engaged. And we'll do that the moment we close, we'll be on the ground in key locations, promoting the story and the future and the promise of these two great companies coming together. The challenge is to then leverage that enthusiasm, grow our relationships with customers, avoid the spotty revenue leakage, which we will experience and then we'll get it back as we prove to the customers we're better as a combined company, and then we'll provide a platform for growth. Our sales teams can work together on revenue synergies and the possibilities of selling from locations that they didn't have access to before for product lines we didn't support within DNOW or MRC didn't support and sell those to their current customers. So I think the opportunity is for growth and the vehicle and to avoid the risk is to keep our top talent engaged and focused on the future. Operator: [Operator Instructions] Our next question comes from the line of Jeff Robertson from Water Tower Research. Jeffrey Robertson: Dave, it sounds like from your comments with respect to U.S. revenue that you continue to gain share with your E&P operator customers. Is there still a lot of room for that as you look into 2026? David Cherechinsky: Well, I think as the two companies come together, we can grow that in a combined sense better than we can separately. We talked a little bit about this. Adam asked about it a bit ago about savings as we come together, we will have resources -- we'll have some overlap resources, which we can deploy more efficiently to grow business with our existing customers and prospective customers. So I think that's going to be one of our top opportunities is to take advantage of where we see some crossover primarily in upstream to be -- to become a more powerful, more beneficial supporter for our customers, prove that to them and win that business, take that market share in the combined sense. So that's a big focus for us, Jeff. Jeffrey Robertson: And you called out Flex Flow and EcoVapor and then highlighted the midstream growth opportunity. Can you provide any visibility as you think about that into 2026 and what impacts those types of opportunities have on D&O's margins? David Cherechinsky: Brad, do you want to speak to Flex Flow and Trojan. Brad Wise: Yes, Jeff, thank you for the question. With regard to Flex Flow and Trojan, they make up our water management solutions group, which is primarily focused on the upstream produced water infrastructure. And as you know, year-over-year barrels grew in the U.S. And so especially in areas of the Permian, there's increasingly a number of barrels of produced water per barrel of oil, requiring assets to be able to transfer that water and then pump those at off-site locations, usually miles away to a permitted SWD location. So that presents opportunities for DNOW to provide water management solutions. We package that also with an automation package that came with the Trojan acquisition. So our solutions offering is kind of growing as those produced water barrels are growing. Now in prior calls, I think we've called out opportunities where we've been able to leverage those solutions from the upstream into different market sectors. Dave talked a little bit about CO2 and CCUS projects. And as those ramp up, -- we've successfully deployed some of our Flex Flow H-pump rental units into CO2 applications. We've also got additional Flex Flow units at some refining locations, so kind of in the downstream firewater service locations. We've deployed some Trojan assets into agricultural processing. So there certainly is opportunities to leverage our knowledge and our asset base from that upstream into additional sectors. As far as 2026, still early to kind of forecast that, but our plans are to continue to evaluate the business to grow, to invest organically in those assets to grow our fleet and footprint. And certainly, there's more opportunities not only in the U.S., but Canada and international. Jeffrey Robertson: Brad, Dave highlighted the DigitalNOW and some of the things you're doing with your -- to integrate your customers with supply chain solutions. Does the MRC Global customer base offer margin accretive opportunities to extend that platform and bring them -- or to bring some of their customers onto that platform? Brad Wise: Yes, I think so. I'll start and maybe Dave or Mark might have a comment. But as far as understanding MRC Global's technology, I think it's early for us, but we're during this period before the completion of the merger or kind of having a better understanding. But if you review their release this morning, they talked about the ERP deployment and -- the ERP certainly offers long-term benefits to the company going forward. It's a state-of-the-art system that really lends itself to improved inventory management and visibility, order processing efficiency, supply chain optimization, improved financial control, customer service enhancement and then certainly more data-driven solutions. So I think collectively, we're really excited about that investment and the future of what that ERP system could do to the combined company. Within DNOW, we operate on SAP. We've got our technology stack as well. We've invested and deployed solutions through our DigitalNOW initiative. And so we're excited about the future as we bring these companies together and really kind of put together a digital strategy going forward that allows us to better serve our customers and differentiate DNOW in the marketplace versus our competitors. Jeffrey Robertson: And Mark, if I can ask one question. I think you said for the full year 2026, the effective tax rate would be 26% to 27% compared to 21.9% in the third quarter. Does that imply that there's an increase in the effective rate in the fourth quarter? Mark Johnson: Yes. That range is for 2025. And you're right, yes, we expect some discrete items in the fourth quarter having a little higher tax burden. So that tax rate is probably is in line with kind of where we've estimated it over the last several quarters for the full year. David Cherechinsky: Van, this is Dave. Operator: Dave, please go ahead, sir. David Cherechinsky: If we don't have a question or queued up, I want to hit a couple of additional topics before we break. Operator: Okay. I think Nathan Jones has a follow-up question. Nathan Jones: Maybe we can talk about gross margins, came in strong again, up 60 basis points year-over-year. Maybe some color on how price cost is tracking in the business, maybe your expectations for product line inflation for the balance of '25 and into 2026. David Cherechinsky: I'll take a crack at that, Adam. Our focus has always been on maximizing gross margins. We provide a lot of services to our customers. We try to gain reciprocation, provide the kind of value that drives greater margins. And we focus on higher-margin product lines, higher-margin services, et cetera. The companies we buy tend to have gross margins, sometimes much better gross margins than our core business. So that's a focus for us. That's enabled us for us to see significant legacy improvement in gross margins over the years and to sustain markets -- margins in a low inflation environment. I think we are in an inflationary environment. Lead times for a while were extending and helped gross margins. Tariffs have helped pricing or have helped increase resale prices. And we try to navigate that real well to drive improved gross margins over time, although we're in a pretty competitive environment right now, I'd call it hypercompetitive. A lot of bidding. We've got strong competition out there who focus on price, sometimes as the weapon to feed a more service-oriented company. And we're still doing very well in that space. So that's going to be our continued focus into 2026. It's going to really depend on end market growth. We expect LNG and midstream and other components of our business to grow, we'll focus on growing gross margins there. And then we'll have to be a little bit more tactical about how we maximize gross margins in the more flatter sectors, which we'll talk about on our next call. Nathan Jones: Okay. That's helpful. And then Brad hit on this a little bit earlier, but can you provide an update on your growth opportunities in adjacent industrial markets? And maybe remind us what your exposure is to data centers and maybe the opportunity set there to go after the opportunities that require cable pumps and PVF for cooling in data centers? Brad Wise: Yes, Adam, I'll start and maybe Dave or Mark or have a follow-up comment. But as we've talked about in the last couple of earnings calls, we've really made an intentional effort to grow our midstream business. This quarter and the third quarter amounted to 24% overall DNOW revenue, largely aided by our acquisition of Whitco. And we're seeing continued investment in midstream. A lot of it's on the natural gas side, right, of course, tied to increased export flows of LNG and then power gen, the ability to generate power, whether on the grid or off the grid and temporary power seems to be a pretty hot commodity in the investor side right now, obviously leading to the growth in data centers and the demand for power that's needed there. For DNOW, on the data center side, if you think about the feed gas going into permanent power locations, natural gas-fired turbines to generate power, that's a sweet spot for us, providing pipe valves and fittings and fabricated equipment. Dave highlighted a success story we had there in the midstream sector with a customer that is kind of in the Southwest in the Texas area, growing their opportunities to be able to provide more natural gas for power gen for to feed data centers. And then internationally, we have opportunities with MacLean Electrical on the cable side. Coming back to the U.S. within the data center four walls, they tend to be more industrial PVF product lines. We've been successful in selling valves in some of the data centers that have been built through general contractors. We're anxious to see how successful MRC Global has been in that area. I think combined, that could be a real sweet spot for the combined company. And then really on the cooling side, I mentioned the PVF on the cooling side, but also with our U.S. Process Solutions business, being able to offer pumps, the cool, the servers within the data center lends us -- lends certainly growth opportunities. But if we look at outside of upstream, we really got some bright spots in midstream for growth. I think we feel like that's a growth area for 2026 as well. RNG, we talked about the 3 products that our product development group within our EcoVapor business has developed to really seize opportunities in the RNG side, which is landfill gas and swine farm dairy farm. And then also tied to the data center growth, we think dry gas areas in the future may see an increase in rig count, whether that's Haynesville, whether it's Marcellus. We're seeing data centers grow in investments in the Northeast with traditional stranded takeaway assets in the Northeast, I think being able to find a home for that gas in the Northeast out of the Marcellus to data centers, I think that's certainly a growth opportunity for us in the future. So we're excited about all those prospects. And let's not forget about Energy Evolution and CCUS, those are projects coming down the future for us. And then, of course, we know MRC Global is very big in gas utilities. We're excited about gas utilities future and what growth that might be able to provide for us in the future as our companies come together. Operator: There are no further questions. Mr. David Cherechinsky, you may now proceed with your remarks. Thank you. David Cherechinsky: Okay. So there's a few things I wanted to cover. I expected them to come up on the call if they didn't, and I've been getting some off-line questions about them. So I'm going to address them. Number one, we just got the green light from the regulatory bodies that our merger has been cleared from those bodies. We're working on finishing off customary closing conditions. Our teams are working to get closed as soon as possible, and it's possible to be closed in the coming days. So we're very excited about that. MRC Global just released their earnings this morning. I do want to make some comments on it, a little awkward on a DNOW earnings call. We are two separate companies, but we're close enough to the finish line that I'll take some small liberties here. MRC Global implemented an ERP system across a large distribution network of at least 130 locations by my count. MRC Global's business, like DNOW's is a high transaction volume, low dollar value business, and with that, an ERP implementation is a complicated exercise. MRC characterized their issues with implementing the ERP as an isolated onetime event. We see it as a moment in time and recoverable. DNOW implemented SAP in a similar context after making two large acquisitions, and we experienced something very similar, and we recovered, and it seems MRC is already on the path to recovery. I encourage folks to read the MRC Global earnings release on the third quarter 2025 results. They did a real nice job explaining what happened with the language like experienced significant challenges that adversely affected their results. Financial and operating performance improved dramatically by the end of the third quarter and more normalized performance continued through the month of October. So very encouraging words. They anticipate to grow in the mid- to high single digits going into the fourth quarter where they normally decline like we do. That's a very nice encouraging sentiment in their earnings release. So I'm encouraged by where MRC Global is. They will get past this. We experienced a similar issue and recovered. And I want to add this, MRC Global is a 100-year-old successful enterprise. They're smart business people. And finally, they just implemented a world-class ERP. The opportunity is where I see this as an opportunity. They're now on a truly modern enterprise-wide system, linking all of their U.S. businesses. This will help them be more efficient, assess inventory requirements, allow for more fluid movement of inventory across the large network, help with pricing and price optimization to win more business and help with pricing to improve margins as well. So MRC Global has done the heavy lifting, and we're very excited about having kind of gone through this cauldron and coming out a much better company going forward. So I wanted to make those comments. I'm excited about our imminent coming together with another great company, and I'm excited that they've gotten the pain behind them. Anyway, I'll close with that. Brad, do you want to close this out? Brad Wise: Sure. And thank you, Dave. Appreciate the additional comments, and thank you, everybody, for joining us today and your interest in DNOW. We look forward to discussing our fourth quarter and full year 2025 results on our next earnings call in February of 2026. Hope everybody has a wonderful Wednesday. And with that, we'll turn it back to the operator to conclude the call. Operator: Thank you for joining today's conference call. You may now disconnect.
Operator: Good day, and welcome to the Lantronix, Inc. 2026 First Quarter Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Brent Stringham, CFO. Please go ahead. Brent Stringham: Good afternoon, and thank you for joining our fiscal first quarter earnings call. Joining me today is our President and Chief Executive Officer, Saleel Awsare. A live and archived webcast of today's call will be available on the company's website. In addition, you can find the call-in details for the phone replay in today's earnings release. During this call, management may make forward-looking statements, which involve risks and uncertainties that could cause our results to differ materially from management's current expectations. We encourage you to review the cautionary statements and risk factors contained in the earnings release, which was furnished to the SEC today and is available on our website and in the company's SEC filings, such as its 10-K and 10-Qs. Lantronix undertakes no obligation to revise or update publicly any forward-looking statements to reflect future events or circumstances. Please refer to the news release and the financial information in the Investor Relations section of our website for additional details that will supplement management's commentary. Furthermore, during the call, the company will discuss non-GAAP financial measures. Today's earnings release which is posted in the Investor Relations section of our website, describes the differences between our non-GAAP and GAAP reporting and presents reconciliations for the non-GAAP financial measures that we use. With that, I will now turn the call over to Saleel. Saleel Awsare: Thanks, Brent, and thank you, everyone, for joining today's call. We entered fiscal 2026 from a position of strength, and our first quarter results reflect that momentum. We delivered revenue of $29.8 million and non-GAAP EPS of $0.04, both at the high end of our guidance range. Revenues grew 3% sequentially and 3% year-over-year, excluding Gridspertise, underscoring the progress we have made in positioning Lantronix for profitable growth. Importantly, non-GAAP EPS improved from $0.01 in Q4 to $0.04 in Q1, driven by gross margin expansion and the operating leverage created by last year's cost optimization initiatives. Turning to the overall market environment. Industry dynamics remain favorable for Lantronix. We continue to see record defense funding and supportive regulatory momentum driving long-term opportunities across our 3 verticals. At the same time, demand for networking and connectivity solutions remain strong, creating continued tailwinds for our network infrastructure business and reinforcing our role as a trusted partner in government and smart city applications. Starting with unmanned aerial systems, commonly known as drones, we are benefiting from broad-based demand across multiple customers. The AUSA event in Washington, D.C. was highly productive as we met with several strong existing and new partners, further strengthening our position in the market. We made good progress in fiscal Q1 as we expanded our presence and scale production with Red Cat's teal drones, where we've already secured meaningful follow-on orders, a clear sign of customer confidence in our capabilities. We are also partnering with Red Cat on next-generation platforms designed to further enhance the drones performance and mission readiness. At the end of Q1, our OEM engagements grew from 10 last quarter to 17 today, highlighting accelerating customer adoption and market momentum. This activity is supported by a few recent developments. We introduced our Edge AI drone solution, which integrates payloads from Gremsy and Teledyne FLIR. Working with these partners, we completed a reference design that validates the solution performance and simplifies integration for OEM customers. The solution enables longer flight times, real-time edge data processing and up to 80% faster integration for developers. Just as important, it meets stringent NDAA and TAA requirements for defense and government programs. More recently, Sightline Intelligence selected our Edge AI technology for integration into its new high-performance video processing solution for defense and commercial drone applications, further expanding our reach within the UAS ecosystem. Together, these advancements underscore our ability to deliver secure AI-enabled flight systems at scale. While still early in the fiscal year, we are encouraged by our momentum in our drone business. This is a growing contributor to Lantronix and positions us for potential upside to our initial expectations as these programs scale through the remainder of fiscal 2026. Building on this momentum, we recently introduced EdgeFabric.ai, our new visual orchestration platform for Edge AI deployment, which debuted at Qualcomm's Imagine Conference in September. Purpose-built for our Open-Q System on Module or SOM solutions, EdgeFabric.ai enables customers to design and deploy AI application in minutes instead of months without needing a team of AI experts. Whether configuring smart cameras, industrial IoT monitors or other Edge AI-enabled devices, customers can now visually design their AI workflows and deploy them instantly. All without writing a single line of code. By simplifying development and automating deployment, EdgeFabric.ai strengthens customer engagement, accelerates time to market and creates a foundation for recurring software and services revenue over time. In asset monitoring, a key long-term component of our industrial IoT strategy, we partnered with Vodafone IoT to launch Kompress.ai by Lantronix, a subscription-based SaaS platform targeting the $27 billion global industrial air compressor market. While still in the early stages, we view this as a significant long-term opportunity, one that expands our reach, enhances our edge-to-cloud capabilities and creates incremental high-margin recurring revenue potential over time. Together with our progress in drones and EdgeFabric.ai, Kompress.ai reinforces our execution of the long-term strategy to build scalable platforms that expand recurring revenue and strengthen our diversified model. Our strategy is clear: scale high-growth verticals, expand software-enabled recurring revenue and drive operating leverage from a leaner cost structure. This quarter marked another important step forward with increased engagement with aerospace and defense customers, the launch of EdgeFabric.ai and continued expansion in targeted platforms. At the same time, our core network infrastructure business delivered solid growth and margins in focus areas, demonstrating consistent execution and strengthening our diversified model. I'll now pass it on to Brent to cover the financial results. Brent? Brent Stringham: Thanks, Saleel. With the business off to a strong start in fiscal 2026, I'll walk through our first quarter financial results, discuss the key drivers behind our performance and then provide our outlook for the second quarter. As Saleel mentioned, in the first quarter, we delivered revenue of $29.8 million, an increase of 3% from the prior quarter and approximately 3% higher than the same period last year when excluding the impact od Gridspertise. Sequential growth was primarily driven by strength in some of our network infrastructure products, continuing to highlight our diversified revenue base. Turning to margins. In the first quarter, GAAP gross margin was 44.8%, up from 40% last quarter and 42.1% a year ago. On a non-GAAP basis, gross margin was 45.3%, an improvement from 40.6% in Q4 and 42.6% in the prior year quarter. The increase reflects a more favorable product mix, lower inventory charges and benefits from certain royalties. We're encouraged by the continued strength in our underlying margin performance, supported by a higher mix of premium products and disciplined cost management. Looking ahead, we expect gross margin to remain healthy and generally consistent with first half fiscal 2025 levels. We continue to proactively manage our global footprint in a dynamic trade environment, and we are closely monitoring evolving tariff and trade developments. We're also working closely with customers to help them adapt to changing cross-border requirements. Turning to expenses and profitability. GAAP operating expenses in the first quarter of fiscal 2026 were $14.9 million, up less than 2% from the prior quarter and down 10% from $16.6 million in the year ago period. GAAP net loss for the first quarter of fiscal 2026 was $1.4 million or $0.04 per share compared to GAAP net loss of $2.5 million or $0.07 per share in the year ago quarter. On a non-GAAP basis, we reported net income of $1.5 million or $0.04 per share compared to non-GAAP net income of $400,000 or $0.01 per share in the prior quarter. Turning to the balance sheet. Net inventories were $26.7 million as of September 30, 2025, compared to $26.4 million in the prior quarter and $29.5 million in the year ago quarter. We ended the quarter with cash and cash equivalents of $22.2 million, an increase of over $2 million from the prior quarter. During the first quarter, we also generated positive operating cash flow of approximately $3.6 million. As we noted on our last call, in August, we refinanced our term debt into an asset-backed line of credit with the same lender. During the quarter, we paid down another $1 million of our outstanding debt, leaving a remaining balance of approximately $10.7 million as of September 30, 2025, and a corresponding net cash position of $11.5 million. Now turning to our outlook for the second quarter of fiscal 2026, which ends December 31, 2025. We expect revenue to be in the range of $28 million to $32 million. Non-GAAP EPS is expected to be in the range of $0.02 to $0.04 per share. With that, I'll turn the call back to Salil for closing remarks. Saleel Awsare: Thanks, Brent. To close, fiscal 2026 is off to a strong start, and we remain confident in the trajectory ahead. At the midpoint, our Q2 guidance implies sequential revenue growth and nearly 20% year-over-year growth, excluding Gridspertise, together with another quarter of solid profitability. This outlook reflects the operating leverage and cost discipline we established last year while enabling continued investment in our highest growth opportunities. We are encouraged by the sustained momentum across our drone and asset monitoring platforms, driven by new customer programs and growing adoption of our integrated AI solutions. At the same time, our core network infrastructure business is performing well with steady demand in out-of-band management and strong contribution from switches and device service, supported by healthy enterprise and industrial connectivity demand as we approach the calendar year-end. With robust industry tailwinds, a strong balance sheet and disciplined execution, we believe we are well positioned to deliver growth and profitability in fiscal 2026 and beyond. With that, we'll now open the call for questions. Thank you. Operator: [Operator Instructions] The first question today comes from Ryan Koontz with Needham & Co. Ryan Koontz: Nice quarter, guys. With regards to the drone opportunities, Saleel, can you maybe outline like where we are in this kind of adoption period? You talked about some wins, these -- when you count a win, you count that as a design win? And what gives you confidence that it's yours? And what's the competitive landscape like for you there? Saleel Awsare: Ryan, thank you for your question. As I spoke in my prepared remarks, we are now working with 17 OEMs. A few of them have already gone into design-in, design win and some of them into shipping. So we're seeing accelerating momentum in the drone business and very proud of the progress that we've made. Our outlook definitely has improved over the last 90 days. And while it's still early, we expect demand to accelerate throughout the fiscal year, presenting potential upside to what my current expectations are. And longer term, as I said, we expect this opportunity could be 10% to 15% of the company's revenue. So good progress in all areas for the drone area and feeling good as we sit here today. Ryan Koontz: Got it. Great. And I know you had a generator win with a major service provider. Any update there as far as how that business is progressing? Saleel Awsare: Yes. Thanks for that question. So as we had mentioned earlier, we have the generator win with a large MNO, if you remember. That is progressing well, and we are now moving beyond the diesel generator to other equipment that needs to get tracked. So it's a growing business for us for asset tracking. Additionally, we announced Kompress.ai, which is focused more on the compressor space, but based on the same theme, which builds on our successes of the Tier 1 MNO and expands our recurring revenue model and supports our critical infrastructure strategy. So it's going as per plan, and the deployment for the MNO is also continuing nicely. Ryan Koontz: Great. Maybe just a follow-up there. You talked about a new product here with this Kompress.ai. What's the sales and fulfillment model there you have with Vodafone IoT? Saleel Awsare: Yes. Kompress.ai is an AI-powered SaaS solution designed really to generate long-term high-margin recurring revenue while addressing urgent market needs with compressors who have really no tracking in there. So we -- Vodafone has partnered with us. They will provide the connectivity for it, Ryan, while we provide both the hardware and the SaaS deployment and the revenue for that longer term. So it's early days, but we expect this in the next 24 months to start providing revenue into the model as we think about it. But more and more ARR. So it builds on what we did with the Tier 1 MNO and now it builds on that and more ARR revenue as I think about the future. Operator: The next question comes from Scott Searle with ROTH Capital. Scott Searle: Nice job on the quarter. Saleel, maybe just to dive right in, you had a couple of comments about out-of-band management, but I'm wondering if you could provide a little bit of color there in terms of strength, weaknesses, kind of how you're feeling about growth on that front. And then to go back to drones for a second, with the government shutdown ongoing, is there any impact on that? Or because you're basically dealing with various primes and vendors that the design activity continues, but there just might be some delays in terms of how shipping and revenue ramps up? And if that changes your expected time line to get to 10% to 15% of sales? And then I had a follow-up. Saleel Awsare: Thank you for that question, Scott. Let me start with the second question first because it's current. Most of the defense drone in UAS are funded through multiyear contracts. So we are seeing minimal to no disruptions to our existing work. So as I sit today, we are full on with the customers. We are shipping to them. So no -- I don't anticipate any issues or concerns with that. Does that give you a perspective, a clear idea of what I'm thinking about the drones perspectively on this? Scott Searle: Yes. Saleel Awsare: Going on to the out-of-band one, we are seeing growth in out-of-band from last -- from the June quarter to the September quarter, and we are anticipating as we go into the December quarter to see -- again, we don't call it out specifically. It's part of our IoT business, but we are definitely seeing growth in that space as more deployments are happening. And we'll be able to do some announcements probably later this year, early next year on some big win that we've done in that space. So feel confident around out-of-band as we go through the fiscal year. More importantly, we are going to be introducing a brand-new out-of-band product late this year to go after some new markets. But stay tuned for that. We'll get into it more in our next call with you, Scott. Scott Searle: Got you. And then on the ARR front, you've got a couple of different ways that you're attacking the market with the sell-side monitoring, with Kompress, attacking the compressor market. Two things. I guess I'm wondering how big of an opportunity can that be as you look out 12, 18, 24 months in terms of the recurring revenue stream? And then as I think about other adjacent opportunities, particularly once you start to bring in your video performance and video AI capabilities that you're using in the drone market, are there other adjacencies that you could see expanding into over the next couple of quarters? Saleel Awsare: So again, I'll take your second question first because we are very good with cameras, and we've been good with cameras, and that's why we are winning in drones. We supply what you call. We are in the payload. And if you think about it, that's the most important part of the drone. So what's the next adjacency, which we are definitely looking at. I won't be going to details this time around is robotics. Human-eyed Robots are going to happen, what do they need? They need a good camera. Second one is security and surveillance, an area that we are doing well in with some customers. So again, good adjacent opportunities, same basic IP and technology and a solution that we provide to. Going to your first question about ARR, as I said, our first foray into ARR has happened with the MNO opportunity, as we said, with the sell side. And it's a small portion of the revenue. Software and services is 5% to 7%, and Brent can correct me if I'm wrong. I expect that to keep on chugging along to 7% to 9% and 10% in the future as you aggregate all of that as a bucket that we call out, Scott. Operator: The next question comes from Christian Schwab with Craig-Hallum. Christian Schwab: Congrats on a good quarter. I guess it wasn't clear to me the 17 OEM potential on the drone side of the business, when would you anticipate being that being 10% to 15% of revenue? Is that something that could happen as soon as fiscal year 2027? Saleel Awsare: Yes. As I sit here today, it's definitely on my radar for a fiscal year 2027 possibility of 10% to 15% of revenue. Christian Schwab: Okay. And then last quarter, you highlighted a Tier 1 telecom service provider. I think it was on the backup power systems, but it was an $8 million to $10 million win. Did you recognize any revenue in the quarter? And what is your outlook on that for the next few quarters? Saleel Awsare: Yes, we recognized revenue in the September quarter, and we intend to recognize revenue in the December quarter. So it's going well and as planned. No surprises here. Last quarter, it's progressing nicely is all I was trying to say, Christian. Christian Schwab: Okay. And then a follow-up on that. When would you anticipate follow-on orders from that customer? Saleel Awsare: So we get quarterly orders from them. So maybe the way to think about it is it's a run rating business now. We had talked about the 50,000 piece opportunity, and we have purchase orders from them for that whole opportunity in place. We haven't shipped it all. We'll continue to ship it as the year progresses. Beyond that, we are expecting probably sometime in calendar '26 to get follow-on orders for additional -- not necessarily for the diesel generator that we talked about, but additional equipment that they want to have tracked. Operator: The next question comes from Scott Searle with ROTH Capital. Scott Searle: Just 2 quick follow-ups on the financial front. Just first, I wanted to clarify the gross margin outlook. I think you said in line with fiscal first half of '25. So in the low 40s, 42%, 43% to think about that the next couple of quarters. And then, Saleel, just in terms of an early shot at fiscal '26 in terms of how you're thinking about growth that this is, in fact, a growth year, and we should continue to expect sequential progression of the revenue stream over the next couple of quarters? Brent Stringham: Yes, Scott, thanks. On the gross margin, you're right. We -- last quarter, we talked about returning from a down quarter, low -- we're right around 40%, I think, last quarter and talked about returning to 43%, 44%, which is what we saw a year ago. And so we think modeling at that level going forward in the near term is appropriate. Saleel Awsare: Yes, Scott, to add more color, the September quarter, we did a non-GAAP gross margin of 45.3%. It's the highest gross margin that the company has had in the last few years that I have been here and beyond that. So it's turned nicely as we are focused on cost controls, working with our CMs, all good things. What was your second question, Scott? Scott Searle: The growth rate for fiscal '26, how you're expecting the sequential progression just conceptually over the next couple of quarters and if you're, in fact, still expecting growth overall for the year? Saleel Awsare: Yes. Again, we do quarterly guidance. So put it in perspective, Y-o-Y without Gridspertise, we are growing close to 20%, Scott. That's darn good. So I expect sitting here today, we expect to staircase up. Again, we don't give annual guidance, but nothing has changed in my mind. We feel good today, sitting here today. Operator: The next question comes from Jaeson Schmidt with Lake Street. Jaeson Schmidt: Just looking at that wireless operator opportunity or just that market in general, can you talk about any sort of discussions or engagements you're having beyond that customer you've already won? And how are you looking at that opportunity longer term? Saleel Awsare: Yes. Jaeson, thank you for that question. So with that MNO, the opportunity, as we've said in the past, could be 3x the size. So we could grow that business nicely just with them. With the introduction of Kompress.ai, we've opened a new market right? And we were at the compressor show a few weeks back, and we feel good about that. It's early days. But then you've got another MNO who's working with us. We haven't named the first one, but this one we named and they were very happy to do a joint announcement with us, which is Vodafone IoT. So this is a part of one of the key verticals, asset tracking, asset management, just preventive maintenance, all of that is what we did. So moving forward, this is a focus area in addition to all the drones that we talked about, and we should see growth moving forward with this. Jaeson Schmidt: Okay. Perfect. And then just a follow-up for me. Looking at that drone opportunity, to your point, kind of 10% to 15% potential in fiscal '27, as drones become a bigger portion of the pie, does that significantly alter what gross margin ultimately will settle out to be? Saleel Awsare: I'll let Brent opine on it a little bit after I'm done. The good news with the drone opportunity right now, it's a decent gross margin for us right now. So we are uber focused on gross margin. So I expect to continue where we are at right now, but Brent can add to it. Brent Stringham: Yes, I think that's generally accurate, Jaeson. I mean with the kind of the wide breadth of products we have, we're still kind of forecasting that margin profile into the near and middle term that I mentioned previously. Operator: This concludes our question-and-answer session. I would like to turn the conference back over for any closing remarks. Saleel Awsare: Thank you very much for everyone for joining the call. We will be at the Craig-Hallum and the ROTH conferences in New York in a couple of weeks. Thank you so much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: " Josh Wood: " Christopher Bogart: " Jordan Licht: " Jonathan Molot: " Mark DeVries: " Deutsche Bank AG, Research Division Operator: Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to Burford Capital's Third Quarter 2025 Financial Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to Josh Wood, Head of Investor Relations. You may begin. Josh Wood: Thank you, Bella, and good morning, everyone. We appreciate you taking time to join us to discuss Burford's third quarter results. On the call, we have our Chief Executive Officer, Christopher Bogart; our Chief Investment Officer, Jonathan Molot; and our Chief Financial Officer, Jordan Licht. Earlier this morning, we posted a detailed earnings presentation, which we'll refer to during the call and also filed our Form 10-Q, both of which you can find on our Investor Relations website. Before we get started, just a reminder that today's call may contain forward-looking statements that involve certain risks, uncertainties and other factors that could cause actual results to differ materially from those discussed during the call. For more information regarding these risk factors, please refer to our earnings materials relating to this call posted on our website and our filings with the SEC. We'll also be referring to certain non-GAAP financial measures during the call. Please refer to today's earnings materials and our filings with the SEC for additional information, including reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures. With that, I will turn the call over to Chris. Christopher Bogart: Thanks very much, Josh, and hello, everybody. Thank you again for joining us today. We're going to do this call today a little differently than usual. Before we turn to Jordan and the usual financial review, I would like to cover a few different topics with you. Let's start with YPF, given the market reaction to last week's oral argument. The YPF case was adjudicated in the Southern District of New York. That's the Federal Trial Court in Manhattan. It is one of the highest quality courts in the United States. Court-wide its reversal rate on appeal is 6.28% over the last 10 years. The YPF case was decided by Judge Preska, the former Chief Judge of the Southern District. Her individual reversal rate is 4.63% over the same period. So, the statistical reality is that a judgment from this court and especially from Judge Preska is likely to be affirmed on appeal. Because of some of the questions and comments from the panel at oral argument, the market seems to have freaked out a little bit about the risk of the case being dismissed on the legal doctrine known as Forum non conveniens, literally an inconvenient forum. Forum non, as it's called, is a discretionary doctrine. It allows the court only once it has determined that it has jurisdiction, which is settled law already here. It allows the court to send the case to another more convenient court for trial. This occurs most often when there is some logistical issue going on, for example, that witnesses can't travel to the U.S. courts for trial. A sort of hooky example of Forum non is for Jordan and me to go to a conference in Arizona and get into a fight and for Jordan to punch me in the nose and for me to sue him for damages. That case could be brought in Arizona because that's where the punch happened. But given that Jordan and I both live in New York and never otherwise go to Arizona, Jordan could try to argue that it would be more convenient for the case to be heard in New York and not in Arizona. That's really the essence of what Forum non is all about. And although anything can happen in litigation, it would be extraordinary for the appellate court to dismiss the YPF case on this ground on Forum non grounds now for several reasons. First of all, the trial judge has discretion to decide Forum non motions. And Judge Preska twice exercised her discretion to deny 2 separate Forum non motions over time. To reverse her decision, the appellate court would not only have to disagree with her rulings but also conclude that she abused her discretion in deciding the matter. That is a very high standard, and it is very hard to satisfy. Second, there is a substantial body of law out there that says that further along a case goes, the less viable a forum non dismissal is. It's one thing to send the Jordan-Chris case to New York as soon as it's filed. It is quite another to do so after 10 years of litigation, a trial and a judgment. Indeed, it would be extraordinary to dismiss a case after trial judgment. As the plaintiff's lawyer, Paul Clement, who is the former solicitor General of the United States, said during the oral argument, the only case example Argentina could find was 38 years old and from another circuit. And its facts are nothing like the fact here with a New York Stock Exchange issuer being sued in New York by U.S. shareholders. In fact, the old case was about a Peruvian sailor who died on a Peruvian ship that just happens to have been docked in Texas at the time. Every single other element of the case was Peruvian, and that's the best-case Argentina could find 38 years old. Third, Argentina would also have to show substantial prejudice from having to litigate in New York, for example, by not being able to have witnesses show up to testify, which was a problem in the Peruvian case. That is simply not an issue here. Every witness showed up for trial. And Argentina suffered no prejudice at all from litigating New York, which it has been doing for decades in numerous litigation matters. In short, although we don't litigate cases in the press and while there is always litigation risk and Forum non was not the only issue on appeal, it would be exceptional for this case to be dismissed out of the U.S. courts at this juncture and sent to Argentina on Forum non grounds. And even then, by the way, wouldn't be the end of this case. The market seems to us to have completely overreacted to the appellate argument. As we said in our release before the argument, trying to read the tea leaves in an oral argument is a perilous course. Of course, it would be lovely if all the judges came in and said loudly and in unison, of course, you win. But that is just not how the process works. Judges ask probing questions of both sides as part of the Socratic process. So now we wait for the court's decision. That will take months, but we remain bullish on this case. The YPF case is only part of our business, and it's not the largest part. And we are excited about the broader business and its growth and performance potential. We're continuing to grow organically and inorganically, and we're confident in our 2030 plans as laid out in our April Investor Day. Looking at Slide 9, we are having a great year for the business. Definitive commitments up more than 50%. The overall portfolio is up 15% already year-to-date, that's 20% annualized. That is well above the level to achieve our goal of doubling the business by 2030. I don't care much for quarterly results, but looking just at the third quarter, deployments were up 61%. And this slide that we're looking at just underlines the new business point. We have done a lot more business this year in dollars and in number of cases than last year. And as we have discussed before, the thing that makes the difference quarter-by-quarter is the presence of big cases, and we have already had more than our fair share of those this year. As Jordan will show you later, a lot of that new business is also in the nicely high returning zone on a modeled basis. In other words, we have seeded the ground for substantial realizations in the years to come. And don't forget the overall potential of the portfolio. We showed you modeling at Investor Day, estimating $4.5 billion of potential realizations from the portfolio as it was then, and we keep on growing it. Let's shift from new business to actual realizations and move to Slide 10. We are running ahead of last year in the volume of realizations. And we're making new realization records on a rolling average basis. That's consistent with how we are feeling about the portfolio that things are moving. They never move as fast as we would like, and Jon is going to address this a little bit more in a few minutes, but they are moving, and you can't look at this on a short-term basis. This is always a long game. Results. In fact, the weighted average life of both the concluded book and the ongoing portfolio are pretty stable, around 2.5 years for the former and a bit over 3 years for the latter. Does every location drive us nuts? Sure. And especially because delays can cause accounting noise has occurred this period when some duration extensions negatively affected the unrealized line. No court ever calls and says, "Hey, good news. We've moved your trial date up by 6 months. So while delay and a lack of predictability is something that is a constant frustration to anyone involved in litigation, it is simply how the system operates. And frankly, we are good at managing through that process and structuring deals around the inevitability of delay. Our focus really has to be in running this business on whether bad things are happening like a spike in losses, which simply isn't happening and not whether the system is working as it has for the entire 35 years I've been involved in what are always delayed litigation matters where, frankly, no deadline ever actually holds. And notwithstanding delays, notwithstanding uncertainty, our IRRs are also remaining steady at 26%, and that's now on $3.6 billion of realizations. So with that and loss rates steady, we're feeling very good about the portfolio. Let me add just a bit of color to those bare numbers as a cross check. As we showed you at our Investor Day, the business relies on big cases for a material portion of its growth and performance. Whether we do a new big deal in any period will affect our new business numbers and whether a big case concludes or has forward progress will affect our realized and unrealized gains. As we have said since the beginning of time, this doesn't happen smoothly. And as you can see, our realized gain numbers are down, suggesting that we haven't had a big case realization yet this year, although we have actually had more case realizations in total this year than last year, just not as many big chunky ones. However, we have lots of good forward progress. As just one example, we have had 4 large case wins so far this year, each of which, if held at their current levels, would generate more than $100 million in proceeds for us. Those cases aren't over. And as a result, their value is nowhere close to being reflected in our accounting numbers, but they offer a window into the potential performance power of the portfolio. And at the same time, we have not had any case losses of anything approaching that size because of the continuing positive asymmetry in the business. Another important point about the business reflected in Slide 11 is the very significant spread between our book value and our expected value. That disconnect exists because of the nature of our asset class. Value occurs at the end of the case because that is when the binary nature of litigation has ended in either a trial conclusion or a settlement. Our history demonstrates that we know how to identify that value and to do so much earlier in the process than the accounting will actually drive. That being said, we can't just create income or GAAP value in a case by merely investing. We need the case to run its course. And that leaves is a disconnect between the likely ultimate value of our assets versus the accounting value, as you can see with this graphical illustration of the point. If our track record holds true, there is a significant amount of embedded value in our assets yet to come. So in short, Jon and I are passionate about the business and the portfolio. Investors can take confidence in our strong alignment of interest as large shareholders and committed executives. Our personal financial performance is directly tied to the success of the portfolio and to the performance of the stock. We recognize that needing to take the long view and put up with volatility like the volatility you've seen in these quarterly numbers isn't the perfect fit for quarterly earnings obsessed public markets. But that is just the way this business works, and that is the price of high uncorrelated returns. Turning more directly to the market. Shareholders have, I think, every right to be unhappy with our share price performance, just as we are. As we all know, markets can become obsessed with elements of the company, and they can attract an undue level of attention, often masking more fundamental valuation presets. That seems to be what has happened with respect to the YPF case. When a company's share price goes down, especially when it declines in what seems to be a fashion unrelated to its fundamental value, shareholders tend to respond by wanting management to buy stock or for the company to do a share buyback. Here, management has indeed been buying the stock because we think there's a good value. In fact, Jon and I bought more than 1.3 million shares of Burford stock in just the last year. But we don't think it's prudent at this moment, much as we think Burford shares are cheap to use corporate funds to buy back stock. This is something we've talked a lot about with the Board, with shareholders and with our advisers. And here's our reasoning and Slide 12 tries to help make this point. We are continuing to grow this business. In fact, we are sticking to our prediction of being able to double it by the end of 2030 as we laid out at Investor Day. And given that we don't reliably have incoming cash flow from realizations at any particular point in time to meet our growth capital needs, we fund the gap with debt. Because the asset cash flow isn't predictable, we don't want to take on too much leverage. But we think the current level of long-dated maturities is fine, and we have confidence in the portfolio performing over time to meet our debt service needs. However, diverting cash to a buyback changes that equation because we're now essentially funding the buyback with debt; but we're removing the cash and its earning power permanently from the business. This isn't just about accretion. So for example, given our returns and the average life of our assets, we would expect $200 million today, as this slide shows you, to generate about $800 million of cash by the time we need to repay the underlying 33 debt. That's a comfortable position. But if we divert the $200 million to a buyback, we will have to find all that repayment capacity elsewhere. And at some point, that becomes less comfortable. I'm not saying that we couldn't do that. Our leverage is low enough, we probably could, but it doesn't seem very prudent, and it would certainly add risk to the business. And when investors sit back and think about that dynamic, they tend to agree in our conversations with them. To be clear, we're not a closed book on this point, coming back to our shared frustration with the stock price. And we will keep on discussing it ourselves and continue to welcome shareholder feedback. I think it's clear to the market what we believe about the business and the share price. And so I don't think a signaling release where we do a little buyback does a whole lot for us. And a big buyback just seems imprudent when we talk through the issues. But as I said, it's something that we will continue to talk to people about and continue to listen to shareholder feedback on. And then just before I turn you over to Jordan, I'd just highlight Slide 13. First of all, to highlight the appointment today of Bank of America as a corporate broker for us, representing yet another step forward in both the U.S. and the U.K. markets, and just more evidence of our maturity and market leadership. I'm not going to spend time on this, the rest of this slide orally, but it's worth a look for those of you based in London, where the LC, frankly, never ceases to lose its capacity to amaze me. And with that, I'll turn you over to Jordan and Jon and look forward to taking your questions later on. Jordan Licht: Thank you, Chris, and good morning, everyone. I'm going to take us through the 2 segments, Principal Finance, Asset Management. Jon will spend some time in the middle on the portfolio. Three things that I want to make sure to hit upon a little bit deeper and coincides directly with some of Chris' comments, which is to talk about capital provision income, discuss realizations and new business. When you look in overall at the financial results and you see that year-to-date, we're down in capital provision income revenue. A lot of that was driven by extension of fair model durations. And I'll unpack that even further when we get into the Principal Finance segment and the bridge. But before we get to that, I'd like to spend a little bit of time just commenting on the portfolio. Right now, ex YPF, I'm on Page 19. ex YPF, we're deployed cost of just under $1.7 billion. Chris already highlighted and it reflects in some earlier slides, the amount of fair value unrealized gains associated with that, which is around 32%. So as mentioned, there's significant upside to come in terms of future gains to the extent we hit our historical ROICs. I really do love the right side of the page, and it correlates with not just the historical portfolio, but the way in which the business is continuing to grow. You look at all the different colors and you can see the diversity. On the top, it's the diversity in geography and on the bottom, the diversity in the actual portfolio, whether it's arbitration, antitrust, contract cases or patents. We really have a diversified portfolio and a diversified team around the globe. Moving to Page 20, we can go through the capital provision income and the fair value bridge. I'm going to focus specifically on the bottom left-hand side to illustrate some of the numbers. And this shows how we moved from $3.8 billion to $3.9 billion in total fair value. First 2 pieces to discuss that somewhat offset each other when you look at the quarter or the year is deployments and realizations. Deployments putting the money out, and we'll discuss that more on a future slide and then realizations with the cash coming in. The middle is how we earn the income in terms of fair value as well as the realized gains, and we break it apart into 3 components. First is the Duration Impact. Now this Duration Impact that's what we're outlining here as passage of time is truly just the passage of time. So, this is if you take all of the fair value models and you move forward a quarter towards the ultimate completion date. You then have change in discount rate. We've discussed that before. When rates go up, the value comes down slightly and vice versa, it works the same way as bond math when you're discounting an NPV. And then you have the collection of milestones and other model impacts. And so, this is the recognition of an objective event with a milestone or in the case of this quarter, if we've identified some cases in which we've extended the fair value model estimated duration. And when you push that out, it will then correspondingly have a reduction when you think of an NPV, we will have a reduction in value. It's important to take a pause there and say, by moving duration, that doesn't necessarily at all change our view of the case or the outcome. It also doesn't necessarily impact what we're going to receive. In some cases, or in many instances and in most of our assets, we have back-end adjustments in which multiples can rise the longer the capital is outstanding. We have back-end fee arrangements. Duration can also be extended because the case has progressed through the lower courts and has made it through objective milestones. And so, while the movement of duration was a significant impact on this quarter, it doesn't necessarily change our view on the portfolio at all. So that gives you a little bit of more color around what happened in this quarter. Flipping back to new business, though, and how that portfolio expands, the first piece on Page 21 is to think about new definitive commitments. Chris highlighted the diversity of the risk bands associated with this year, not to mention the growth that we've seen in 2025 compared to where we were at the same point in 2024. That also corresponds with a growth in deployments. Ultimately, the commitments are great, but you still put the money out and the cases are progressing and it's the money that earns the returns. And so you can see our deployments here have increased over 2025. And it's important to harken back, I'm not going to make a switch back to all the slides, but just the different diversity in the numbers of different new commitments, and we highlight that on some of the earlier slides that Chris mentioned. I move to 22 and talk about realizations. And it's important to note that we look at this business on a multi-period basis, not just on a single quarter. We highlighted that on some earlier slides, $310 million of realizations this year. The other thing that's important is we do not look at ROIC on a quarter-by-quarter basis or even on an annual basis, but rather on a blended basis across the entire portfolio. And I want to remind folks that 43% ROIC that we see that occurred in 2025, we did have a very large event that ended quickly in Q1. That was a great IRR, but given the short duration resulted in a low ROIC. And so given where we stand, we would expect to see that number obviously be lower. I'll pause there to hand it over to Jon to talk more about the portfolio. Jonathan Molot: Thanks, Jordan. Thanks to you all for joining. And I'm going to turn to Slide 23, which you've seen before, but I want to talk to it in a way that emphasizes and fleshes out something Jordan said earlier, which is as a shareholder and running this business, I don't pay as much attention, as Chris said, to how we do in a particular period, except maybe to make sure that we are continuing to put out money. And why is that so important? Why is the growth in commitments and deployments are important. You kind of understand from Slide 23, it is a reminder that we have a really good asset class that when we are the ones managing that asset class and deploying capital into it. When you put out new money in a new deal, there's only 3 things that are going to happen. It's going to go to trial and win, it's going to go to trial and lose or it's going to settle. And over the course of our life, these numbers have stayed pretty steady. In any particular period, they could bump around because you could have one really large adjudication gain. Large adjudication losses are kind of harder, as Chris said, because I mean they don't happen in the same way because we've got these asymmetric returns, which I'll turn to on the next slide. So they're not as possible. But when you look at this is what we're putting the money into, that we know the majority of our matters are going to settle as long as we continue to pick good cases and our track record shows that we have been able to do that. And the adjudication gains outnumber the adjudication losses, both in number and size. And so you just look if you can produce, which we've stayed constant, 83% ROIC, 26% IRRs, you want to be sure that pipeline is continuing to move, you continue to bring in new matters, and that is what we've been experiencing, which is experiencing, which is really wonderful. It is the thing we can control. As Chris said, we can't control court dates. We can do everything we can to make sure that parties and lawyers know the urgency and the importance of moving things forward and not agreeing to extensions, but courts are going to make those decisions. What we can control is being out there in the market, solving people's litigation problems by providing capital to those who need it to litigate effectively. If you turn to Slide 24, you see the same theme, but in a different representation, which is basically, again, I described how the nature of the asset class as invested in by us and why that produces attractive returns. Here, you actually see what we've achieved. You see the asymmetry of outcomes where we can have truly outsized returns. And for the smaller number of losses, it's much smaller numbers. And so you take these 2 slides together and you say, how did Burford do? Well, it continued to put out money into this very attractive asset class that has been generating these returns over time. And that to me is what, as Chris said, makes me so bullish about this business. And with that, I will turn it back over to Jordan. Jordan Licht: Thanks, Jon. So, coming back to the asset management part of our business, and I'm going to focus on Slide 27. To take a step back and remind folks where we are with asset management, we're continuing to deploy capital for the balance sheet. And we've been clear on the importance of doing that and enjoy the partnership that we do have with the sovereign wealth funds, which we also call the BOF-C portfolio. The rest of the other funds are in runoff. And so we wouldn't see management, continued management fees from those funds, and we'll see episodic performance fees from the fund. Overall, you'll see cash receipts from asset management was approximately flat year-to-date at $17 million between '25 and '24. If you isolate just to the quarter and you look at the negative in the asset management, the reason for that is simply put that when fair values move and we then book a corresponding adjustment to the future potential profit sharing income that we would receive. And so if you have a negative there in fair value movement, you'll have a negative with that. It doesn't impact our view necessarily of the future of the cases. So that gives you a little bit more color with respect to the quarter there. Switching to Page 29 now to go through some of the capital structure and expenses. We sit in a great cash position at $740 million. Obviously, that number has been impacted by 2 things. One, which is the recent issuance of the $500 million notes in July of 2025. And as a reminder, we do have a maturity coming due in December of 2026. And so part of that cash is sitting there to address that maturity. The bottom of the page shows the cash receipts, again, being consistent and coming back over $100 million in the third quarter. On our operating expenses on Page 30, while we look at this also more frequently on an annual basis, and it's important to look at that, a couple of items I want to make sure to pull out. The first is when you look at the share-based and deferred compensation. And I've discussed this before, but that also includes the movements in our share prices that impacted both up and down given the DCP program. But also what's included is a onetime item related to a mechanical acceleration of tenure-based awards that vested in this period but haven't been paid out, and that's a onetime impact. With respect to the G&A overall for the year, you also see that, that's slightly up, and that's due to increased costs associated with policy and planning. On Page 31, some highlights. And in a couple of quarters, this page will actually change. And I mentioned before the USD 235 million that's in U.S. dollars on this page that's outstanding for the '26 maturity. As we look to address that, and we're addressing that similarly to how we addressed this year's '25, looking to potentially purchase in the open market as well as then addressing it at its final maturity. But that's the last of the bond that has a covenant that's outlined on the left-hand side of the page. We'll then move to the covenants associated with, on the right-hand side of the page, that's with the 144A U.S. transaction. And as you can see, at 0.9x, we're well within our debt to tangible equity covenant levels, approximately 5 years average on the debt outstanding and a 7.4% weighted average cost. So with that, I will turn it over to Chris to take us through Q&A. Christopher Bogart: Great. Thanks, Jordan. And rather than doing yet more closing remarks, why don't we just go straight to questions, operator? Operator: [Operator Instructions] Your first question comes from the line of Mark DeVries with Deutsche Bank. Mark DeVries: I appreciate all that new perspective on the YPF case. Just had a related follow-up on that. Could you just give us a sense of potential timing of the appeal of the Second Circuit on the order for Argentina to turn over its YPF shares? Christopher Bogart: Sure. Although like everything in, as you've heard from us today, the timing of litigation is inscrutable to some extent. But that appeal is going to be fully briefed, if I'm not mistaken, Jon, correct me if I'm wrong with this, by sometime in December. And then after it's fully briefed, the court will schedule it for argument. There's no argument date for it at the moment. As you know, from the main appeal, that can take a long time. It doesn't always take a long time, but it can take a long time. And then after the oral argument of the appeal, there will be court will go out and write a decision about that again, that doesn't have any particularly fixed timing associated with it. So it's certainly not a 2025 event. It's likely, but not certainly a 2026 event. Mark DeVries: Got it. And then just a question on realizations. How are you guys thinking about the trajectory of that over the coming years, particularly as we think about the impact from the pandemic on courts and the backlogs that created? Are you still getting, are you seeing elevated realizations as courts play catch-up? And what might the implications be for the next couple of years? Christopher Bogart: Well, you sort of, we tried to show the data on a few different metrics when we did some of these slides. So some of the slides that we put together had some new information because we know people are focused on this theme. And I think that looking at the rolling 3-year realization is kind of an interesting way to do it as opposed to having sort of quarter-by-quarter up and down shocks. And I don't know, Rob, if you want to put that back up again, that was Slide 10. And so what that slide is telling us is there's quite a lot of activity going on. You've seen 61 assets so far this year have realizations. And if you look forward to next year, and again, like I don't want to use these kinds of numbers as predictors because courts change their minds about schedules all the time. But if you look at where we stand today, we have more events, more trials, more hearings and so on scheduled for the next 12 months than we had for the 12-month period a year ago. So what that says is there's this continuing velocity in the portfolio. And the thing, of course, that drives settlement activity, cases really don't settle without a catalyst for them settle. And so when Jon was showing you the slide that we've used before that show really a very high level of settlement activity in the portfolio in the upper 70s percent. I think it might even be 79% now. So how do you get that settlement done? And the answer is you need some pressure on the defense usually to get there, and that pressure is a looming trial date. So, when cases get set for trial and when trial approaches, that's the most likely time for them to resolve by settlement. So I just think you're seeing, you're continuing to see forward momentum, at the same time, you have frustrating moments, like we had this quarter where we also saw courts, not do things as quickly as we would have otherwise expected. And when that happens, because of the relatively new valuation approach that we use, that can have a negative impact on our unrealized gain and loss line. So, it looks like Julian Roberts is joining us by webcast today. So, his question is, thanks for the presentation. Are you able to give us any more detail on the change of expected or modeled timing of the case whose duration has been extended. Jordan, do you want to try your hand off? Jordan Licht: Sure. And thanks for the question. I'm going to answer that in a second and first, just to make sure everyone understands how we think about modeling. First and foremost, we look at all of our assets every quarter and the assets are constantly changing with a variety of different inputs, whether that's an observable milestone event, whether it's expected proceeds or duration discount rate that I've mentioned. With respect to this, Julien, I'm not going to answer the part of saying, hey, which case or cases it was, I think that would be inappropriate. But overall, if you looked at the impact of the duration change, it's somewhere in the $40 million to $50 million of impact when you look at that compared to the overall deployed cost fair value associated with the non-YPF book. Christopher Bogart: So, we've got another webcast question. This is from Jonathan Alexander at Evergreen, who says, on the buyback, the logic that you have laid out makes sense. But if we anticipate a positive YPF return, isn't it merely a short-term levering of the business when the stock is cheap that will then be paid off when the YPF result comes through and the overall risk to the business hasn't increased. So again, as I said, like we're not dogmatic and dug in on this point. It's something that we talk about a lot. I think, frankly, my partner, Jon Molot, would probably agree with you on that question. I think it all comes down to a question around the prudential management of the business. as we were just talking about in other contexts, we lack the ability to be able to accurately predict when cases are going to turn into cash. We have shown that we're pretty darn good at predicting whether they'll turn into cash. We've got a really long and successful track record of being able to do that. But that doesn't answer the “when” question. And of course, that sits somewhat uncomfortably beside a world where public debt does come with a “when”. And so, the interest on the debt has to be paid and the principal has to be repaid on agreed timing, obviously. And it doesn't work. The debt holders don't say, "Oh, well, the court delayed, so that's fine. We'll delay too.” Like that's just not how it works. And so that's really the dilemma that we have always had, not even just in the context of a buyback, but in the context of how much leverage to use in the business in general because you are not wanting to put the equity holders in the business at risk of the debt becoming an obstacle to be able to manage the business properly. So those are sort of the things that we weigh. And where we've come out thus far, and this has been talking to lots of investors and talking to advisers and talking to the Board and so on is to be on the prudential side of that equation. But as I said, it's something that people are frustrated with the share price. Jon and I are frustrated with the share price. Our team is frustrated with the share price. So, it's something that we welcome continued dialogue and debate about. Let's see. There's another question. This is from Steve Thompson about buying and selling of shares. So let me explain how Jon and I largely buy shares in the business. So, we make use as this is a very common U.S. corporate practice, which is considerably less common in the United Kingdom. So, what we do is we take cash income and we put that cash income into a deferred vehicle. And we could, in that deferred vehicle, buy something other than Burford stock. We could buy S&P 500 indexes. But Jon, I don't do that largely. We principally have been taking that cash in substantial quantity now and using it to put against Burford stock. And when we do that, it's disclosed publicly in security filings. But the stock itself lives within the plan in the hands of a custodian as opposed to living in my own individual brokerage account. So that's how the significant purchases are going. But they are realized purchases and Burford typically goes into the market and makes those purchases to hedge the position as well. Another webcast question from Igor Arkhipov, sorry if I messed up that name. Has there been any impact from the U.S. government shutdown? No is the short answer. In fact, and this is I think why the shutdown progresses, like living in the United States, you don't really notice that there's a shutdown going on except maybe when you go to the airport sometimes. And, but it hasn't had any impact at all on our litigation portfolio. The courts are continuing to operate. The place in litigation it has impacted things is with respect to the U.S. government, but that doesn't really affect us. So, if the U.S. government is a party, they have been asking for delays and accommodations and so on, but that's not a factor in our book. So, waiting for another question that is being typed from Thomas Fickel. With several peers facing refinancing and balance sheet pressures, do you see opportunities for Burford to accelerate growth through portfolio or corporate acquisitions as part of broader industry consolidation? I think the short answer is we don't know. It's, we've certainly talked about the competitive landscape before. And you've seen a migration in what has been going on in the competitive landscape a little bit. If you went back some years, you would have found litigation finance mostly being done by smaller pure-play litigation finance specialists. And those firms have, many of them have struggled to grow and the financial, sorry, the COVID really, the pandemic really caused them some distress because that really did slow down durations. And many of them are organized as 220-style funds and that really through the ability to earn performance fees into some degree of chaos. And so, you've seen, as the question suggests, you've seen some level of distress among both of the other public peers that we have out there, the other public much smaller players. Where that all shakes out at the end is a little bit unclear. We're always happy to look at things, but Jon has a pretty sharp pencil when it comes to things and forms, our team forms its own view about value, which sometimes is lower than the valuation expectations of others. So, we'll just have to see how it all plays out. And with thanks for another investor who says, not even as a question, just well done to management, I agree completely on the view of not doing a buyback, investing in the business. And now I think there is a question on the phone. Operator: Your next question comes from the line of Mark DeVries with Deutsche Bank. Mark DeVries: Just a follow-up question on kind of the recent commitments deployments, whether there's any kind of noticeable trend worth calling out on kind of the distribution of those among some of the shorter duration, lower ROIC versus some of the longer duration, higher ROIC. Christopher Bogart: Jon, do you want to comment on that? Jonathan Molot: Sure. I guess what I'd say is our approach is to be all things to all people. So, it depends what comes in the door, and we end up achieving diversification, not just of the sort that Jordan described geographically and by subject matter, but also in terms of duration and risk. I don't know, like I haven't, I don't have the numbers at hand as to the portion of new deployments that are on the shorter or longer, although I did would note, Jordan noted that a sizable chunk of the new business that was done is in deals that are, that have the capacity to generate higher returns and higher ROICs. Jordan, if you have the statistics more in hand than I do, I would just be talking anecdotally. We've put out, we've done some big deals that are that have very high profit potential. Of course, we do know is things can settle earlier and you can end up with lower returns earlier, but with attractive IRRs. But if they go as we would project, they are meatier investments with higher upside potential. Mark DeVries: Okay. That's helpful. Just a follow-up then for Jordan, I guess, on Slide 9. Does the lack of kind of the larger north of $25 million commitment speak to the point that Jon just made. Are you less likely to put a lot of money out the door if you're not expecting a more immediate return? Or is that kind of unrelated? Jordan Licht: I wouldn't necessarily correlate the 2. We do see opportunities that are smaller but can also be more towards the monetization in which we're putting more money out the door earlier. So I don't want to necessarily equate the two. Christopher Bogart: So we've had some more sort of capital allocation buyback-related questions and comments. And so if I sort of sum them up, like one perspective was will, over time, this dynamic change? If we're successful in meeting our objective of doubling the base portfolio by 2030, that obviously means we'll be doing a significantly larger number of cases. And one hopes at some point, the law of large numbers kicks in and you get more predictable, steadier returns. And I think that there's some truth in that. We have sort of not succeeded in achieving that thus far because of the way that the asset class has grown and the way we've been able to grow the asset class. And so we are doing much larger transactions than we were a decade ago. If we had stayed at our average ticket size a decade ago and had the business of the size it is today, then I think you would have that kind of greater predictability. But at the same time, you'd have such a volume of business that I think the OpEx and the business model would be slightly challenged. And so because we have more than quadrupled the average ticket size, that has led to us having this, still this dependence on pretty large cases for a significant portion of the returns, and we haven't yet reached or even frankly, come close to the sort of the law of large numbers point. Will that change in the future? And will that result in us having a greater sense of predictability of cash flow such that we would expand our capital return options. I think that's entirely possible. And of course, we also have the dynamic of YPF sitting out there because assuming a positive return from YPF, that is a very large cash event for us as well that as we've said repeatedly to shareholders, would require a discussion with shareholders about what to do in terms of capital utilization and capital return. So that's sort of where we are on the buyback front. I know that there are also people who are going to say, but it's accretive, right, who are just going to do the corporate finance math and say, look at the book value, look at the share price, do the math, you should, instead of putting a new dollar into a new case, you should put that dollar into the existing portfolio. And I understand that corporate finance math, which is why we keep on having this discussion. But I think if you go back to the slide that we showed earlier, I think that it is not as simple in a levered business that isn't always reliably producing positive cash flow. I don't think it's as simple as just doing the corporate finance math. But as I said, it's something that we don't claim a monopoly of brilliance on. And so it's certainly something that we're happy to hear from shareholders about as we continue to walk down the road. And with that, I am told we are done. So thank you all very much for your time and attention. We enjoy being able to give you these updates. And hopefully, we shed a little more clarity on our views about what's going on both with YPF and with the business as a whole. We remain bullish and fans and sorry for my raspy voice. So thank you all for joining us today, and we look forward to talking to you soon. Operator: Ladies and gentlemen, that does conclude our conference call for today. Thank you all for joining, and you may now disconnect. Everyone, have a great day.
Graeme Jennings: " Renaud Adams: " Marthinus Theunissen: " Bruno Lemelin: " Sathish Kasinathan: " BofA Securities, Research Division Tanya Jakusconek: " Scotiabank Global Banking and Markets, Research Division Anita Soni: " CIBC Capital Markets, Research Division Mohamed Sidibe: " National Bank Financial, Inc., Research Division[ id="-1" name="Operator" /> Thank you for standing by. This is your conference operator. Welcome to the IAMGOLD Third Quarter 2025 Operating and Financial Results Conference Call and Webcast. [Operator Instructions] The conference call is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Graeme Jennings, Vice President of Investor Relations for IAMGOLD. Please go ahead, Mr. Jennings. Graeme Jennings: Thank you, operator, and welcome, everyone, to our conference call today. Joining us on the call are Reno Adams, President and Chief Executive Officer; Martin Newson, Chief Financial Officer; Bruno Lemelin, Chief Operating Officer; Annie Torkia Lagace, Chief Legal and Strategy Officer; and Dorna Quinn, Chief People Officer. We are calling today from IAMGOLD's Toronto office, which is located on Treaty 13 territory on the traditional lands of many nations, including the Mississaugas of the Credit, Anishinaabe , the Chippewa, Haudenosaunee and the Wendat Peoples. At IAMGOLD we believe respecting and upholding indigenous rights is founded upon relationships that foster trust, transparency and mutual respect. Please note that our remarks on this call will include forward-looking statements and refer to non-IFRS measures. We encourage you to refer to the cautionary statements and disclosures on non-IFRS measures included in the presentation and reconciliations of these measures in our most recent MD&A, each under the heading non-GAAP Financial Measures. With respect to the technical information to be discussed, please refer to the information in the presentation under the heading Qualified Person and Technical Information. The slides referenced on this call can be viewed on our website. I'll now turn the call over to our President and CEO, Renaud Adams. Renaud Adams: Thank you, Graham, and good morning, everyone, and thank you for joining us today. This is an exciting time for IAMGOLD with another quarter of production, led by strong performance at Cote Gold and Esakana mines, helping to fuel record cash flow generation for the company. The current strong gold market has been very well timed for IAMGOLD, coinciding with the advancement of our assets, allowing the company to advance our strategic plans ahead of schedule. We are proud of this transformation and also to introduce today our new logo and refreshed brand, which we believe reflects who we are today. We are extremely proud of our roots and history. But now our name stands for innovative, accountable mining. IAMGOLD is a modern gold mining company that is proudly Canadian with strong cash flow and significant long-term growth opportunities ahead. We mine with a mining redefined purpose in mind, putting safety, responsibility and people first. We hold ourselves accountable and embrace change and drive innovations at every level from smarter systems and technology to better ways of working. There are many highlights to discuss for IAMGOLD today from our operations, financial achievement and an improved share buyback program, which remains subject to TSX approval. We will also discuss our forward-looking plans, including the expansion scenario for Cote Gold, which is expected to demonstrate significant upside to the current mine plan at Cote. Finally, we will cover the recent announcement of acquisitions to consolidate the Chibougamau region in Quebec to create an elegant complex. These transactions further position IAMGOLD as a leading modern Canadian-focused multi-asset gold mining company. I am proud of our team's achievement and remain confident in our ability to deliver enduring values for our investors and partners while maintaining a steadfast commitment to safety and accountability. Turning to the quarter, and we're now on Slide 5. At IAMGOLD, the safety of our people and communities remains our top priority. In the third quarter, our total recordable injury rate was 0.56, a 15% improvement year-over-year on a 12 months rolling average and comparing well with our industry peers. We are focused on advancing our critical risk management program, including an important integration of contractor into the IAMGOLD way of safety management with the goal to reduce high potential incidents. Looking at operations on an attributable basis, IAMGOLD produced 190,000 ounces of gold in the third quarter. The quarterly performance was led by strong results at Cote, which produced a record 106,000 ounces on a 100% basis. followed by improved quarter-over-quarter attributable production at Essakane as the mine saw grades bounce back while mining deeper into Phase 7 of the pit. Year-to-date, IAMGOLD has reported 524,000 ounces of attributable production. As we will walk through in a moment, production is expected to be the highest in the fourth quarter, positioning the company well to achieve our guidance target of 735,000 to 825,000 ounces of gold this year. On a cost basis, IAMGOLD reported third quarter cash cost of $1,588 an ounce and an all-in sustaining cost of $1,956 an ounce. Costs remain higher year-to-date as the record gold prices directly translate into higher royalty compound with the new royalty regime in Burkina Faso as well as higher unit costs at Cote from an increased proportion of supplementary contracted crushing to stabilize operations during our first full shutdown and until the second cone crusher is installed in the fourth quarter. Cash costs and all-in sustaining costs for the year are expected to be at the top end of the guidance range, though we expect to see a strong end to the year with higher expected cash flow in the fourth quarter on an improved production and higher margins. With that, I will pass the call over to our CFO to walk us through our financial highlights. Maarten? Marthinus Theunissen: Thank you, Rud, and good morning, everyone. It was indeed an important quarter for IAMGOLD as we were able to use the strong financial results to take significant steps towards our goal of delevering the company and advancing our plans to reward shareholders. Mine site free cash flow was $292.5 million in the third quarter, a record achieved of IAMGOLD's high production levels following the ramp-up of project, increasing the company's exposure to the gold price during a record high gold price environment. The record mine site free cash flow improves our financial position and the company's net debt was reduced by $210.7 million to $813.2 million at the end of the third quarter. IAMGOLD had $314.3 million in cash and cash equivalents and approximately $391.9 million available on the credit facility resulting in total liquidity at the end of the third quarter of approximately $707.2 million. As we noted last quarter, Essakane declared a significant dividend in June of approximately $855 million, representing all of the undistributed profits of Essakane up to and including the 2024 financial year. IAMGOLD's 85% portion of the dividend net of taxes was approximately $680 million and is expected to be paid over the next 12 months through a revised framework that enables payments to be made at any time of the year based on the cash generated in excess of working capital requirements by Essakane. At September 30, $186 million of IAMGOLD's consolidated cash and cash equivalents was held by Essakane in Burkina Faso. -- which was used to pay IAMGOLD a dividend of $98 million in early October. The remaining portion of the company's dividend receivable was converted into a shareholder account with the first payment against the shareholder account of $56 million also received in October. The company expects to receive monthly payments going forward. These funds were used to make additional payments of $170 million against the company's second lien notes with $130 million of the original $400 million remaining outstanding on the 4th of November. Holistically, when we consider our liquidity outlook under high gold price environment, we are in the fortunate position to continue to repay debt and commence in the not-too-distant future on another of our strategic initiatives, which is to reward our shareholders. Accordingly, subsequent to quarter end, our Board of Directors approved a share buyback program to be put in place through an NCIB program, allowing for the purchase of up to approximately 10% of IAMGOLD's outstanding common shares. All common shares purchased under the NCIB will be either canceled or placed under trust to satisfy future obligations under the company's share incentive plan. IAMGOLD will file a notice of intention to implement an NCIB with the TSX and which is subject to TSX approval. Following the approval, IAMGOLD will be allowed to purchase these common shares over a 12-month period in the open market. This initiative reflects management confidence in the company's long-term value and its commitment to disciplined capital allocation. The actual number of common shares that may be purchased if any, and the timing of such purchases will be determined by the company based on a number of factors, including the company's financial performance, the availability of cash flows and the consideration of other uses of cash, including capital investment opportunities and debt reduction. Turning to our financial results. Revenues from continuing operations totaled $706.7 million from sales of 203,000 ounces on a 100% basis at a record average realized price of $3,492 per ounce. Cost of sales, excluding depreciation, was $324.2 million and adjusted EBITDA was a record $359.5 million compared to $221.7 million in the third quarter last year. At the bottom line, adjusted earnings per share in the third quarter was $0.30. Looking at the cash flow waterfall on the left side of Slide 7, we can see the year-to-date impact on our operating cash flow of the gold prepay deliveries, which we completed in June as well as the impact of the second lien term payment and the dividend payment to the government of Burkina Faso following its account driven declaration. On a mine site free cash flow IAMGOLD generated $292.3 million in the third quarter, including $135.6 million from Cote and $150.5 million from Essakane, driven by higher revenues due to the higher realized gold price, partially offset by higher production costs. And with that, I will pass the call to Bruno Lemelin, our Chief Operations Officer, to discuss our operating results. Bruno? Bruno Lemelin: Thank you, Martin. Starting with Cote Gold, it was a strong quarter with Cote reaching new milestones while maintaining stable performance at the processing plant. Notably, the plant underwent its first full shutdown in August, which was executed successfully. I'm very proud of our team at Cote. It's important to remember that it's still the first full year of operation at the mine with nameplate throughput achieved at the end of Q2. Our teams are learning every day how to better position Cote for success, including the refinement of the mine plan of the maintenance schedules and identifying efficiency to drive continuous improvement. Now looking at the third quarter, Cote produced 106,000 ounces on a 100% basis, which is a record quarter of production for the mine. Mining activity totaled 11.5 million tonnes in the quarter with 3.8 million ore tonnes mined equating to a strip ratio of 2:1. The average grade mined was 0.96 gram per tonne in line with plan and demonstrating good reconciliation with our reserve and grade control model. Looking ahead, mining activities will continue to work on extending the pit perimeter to support efficient gold mining and also in preparation for the future expansion of Cote. On processing, mill throughput totaled 3 million tonnes in the quarter, averaging near nameplate in July and September. The first annual maintenance shutdown in August was successful with the comprehensive maintenance cycle completed and including the replacement of the high-pressure grinding roll tires, relining of the ball mill, changes to the primary crusher outer shell and additional maintenance work on the electrical infrastructure. Head grade averaged 1.18 gram per tonne with feed material comprised of a combination of direct feed ore and stockpiles. Mill recoveries averaged 94% in the quarter, which continues to be above design rates. Turning to cost. A major driver of cost this year has been associated with the temporary aggregate crusher, which is being contracted to support the processing plant. The plant was built with a single secondary cone crusher as part of the crushing circuit. And through day-to-day operations, we learned that this is a bottleneck. This has been addressed with the addition of a second cone crusher to sustainably achieve the nameplate throughput rate and provide redundancy during shutdowns. We accelerated the push to achieve nameplate to midyear from our original target of Q4 in part because we found a way to maximize throughput and offset the bottleneck by incorporating an additional refeed system using a contractor aggregate plan. Moving ahead, nameplate by 5 to 6 months allows for maximizing tonnes milled today versus waiting for the second cone crusher to provide the additional facility. This may account for an extra $4 per tonne milled, yet brings the opportunity to monetize tonnes already mined through the end of the year. In the third quarter, the aggregate crusher processed a higher proportion of ore due to the shutdown in August. The use of the aggregate crusher is expected to be reduced following the installation of the secondary cone crusher in Q4 and eventually eliminated. Looking at mining costs, we averaged $4.51 per tonne in the third quarter. Mining costs are higher than planned due to higher tire and wear and also impacted by the operation of the aggregate crusher and the feed system. The aggregate crusher requires the utilization of mining equipment to feed it, including haul trucks and a shovel, resulting in higher amounts of rehandling that is accounted to mine. These trucks will decrease into 2026 as further operational improvements are made and the elimination of the contracted aggregate plan. Milling unit costs also increased in the quarter, averaging $22 per tonne mill. The temporary aggregate crusher system has a direct impact on our processing unit cost as it is more costly to operate. And in the third quarter, we rely on it more due to the August shutdown. Overall, we estimate around $6 per ton was associated with the cost of the aggregate crusher in the third quarter. Maintenance costs to replace the HPGR tire and wear components accounted for $1.87 per tonne during the quarter. Unit costs are expected to decline over the course of 2026 following the installation of the additional cone crusher in the fourth quarter of this year. Looking ahead, we remain confident in our Cote Gold production guidance of 360,000 to 400,000 gold ounces on a 100% basis, which is essentially a doubling of production from last year. As noted here, we expect cash costs to exceed the top end of our updated guidance range of $1,100 to $1,200 per ounce sold, primarily due to a combination of higher royalties impacted by a significant increase in gold price, an increase in the expected usage of the supplementary crushing during the year to support the mill feed and the expensing of certain parts and supply that were previously expected to be capitalized. Taken together, Cote is performing very well from operation of this site less than 20 months after pouring its first gold. We are looking forward to seeing the impact of the installation of the second cone crusher in Q4 on availability and throughput paving the way for future expansion option, which leads us to what is the most exciting slide, the advancement of the Cote Gas and super pit scenario. As we have discussed previously, we are working towards announcing in 2026 an updated mine plan that envision the Cote operating at a higher throughput, targeting a significantly larger ore base from both Cote and Gosselin. The first step is drilling out the super pit of Cote and Gosselin to provide the resource foundation for the mine plan. Our drills are busy at work with over 50,000 meters drilled so far this year with the goal to infill and upgrade mine and bring the bulk of mineralization there into measured and instated. Our currently designed, Cote has the mining capacity to average an annual ore mining rate of 50,000 tonnes per day versus our current nameplate processing rate of 36,000 tonnes per day. As part of the 2026 technical report, we will look to find the right balance between an increased processing rate with mining rates targeting the combined Cote Gosselin super pit. In this scenario, we anticipate a mine plan that prioritize the expansion of the plant, which should be implemented years before other major capital items that would be part of the super pit scenario, including tailings capacity expansion and all. The updated mine plan and technical report is expected to be completed by the end of next year. And in the interim, we will continue to focus on optimizing Cote, reducing our cost profile and capturing low opportunities for operational improvements and capacity expansion. Turning to Quebec. In the third quarter, Westwood produced 23,000 ounces, bringing the year-to-date production to 76,000 ounces, tracking below the bottom end of the guidance range of 125,000 to 140,000 ounces. The third quarter at Westwood saw similar results as prior quarters this year as mining activities underground operated to lower grade stopes encountering areas of challenging ground conditions resulted in higher-than-expected dilution and lower mining recoveries. The teams are implementing mitigation measures that include changes in blasting techniques and refinement, stope design and sequencing. We are already seeing improvements from these efforts in October with the average grade so far this month from underground averaging over 9 gram per tonne in the month. The Grand Duc open pit added another quarter of decent ore volumes with a reported of 315,000 tonnes mined. Open pit activities from Grand Duc are currently being evaluated for an expansion and extension of the pit. The outline scenario would push the pit into Phase 4, which would allow for mining until 2027. Mill throughput in the third quarter was 250,000 tonnes, which was below the average throughput rate over the previous quarter due to a 14-day shutdown of the plant in July for the replacement of a critical gear in the grinding circuit, resulting in plant availability in the quarter of 75% versus 90% in the same prior year period. We expect to see mill throughput return to near 90% as we see in the fourth quarter. As a result of the low availability and lower tonne mill, we saw an increase in milling unit costs in the quarter. Likewise, mining costs also remained elevated due to an increase in the number of stopes prepared underground to set up the mine for the remainder of the year, combined with an increase in mining cost, labor cost and exclusive and power consumption. Together, cash costs were $1,924 an ounce in the quarter. Looking at this year, as noted, Westwood production is expected to be below the bottom end of the range of 125,000 to 140,000 ounces. Accordingly, and despite unit cost improvement expected in the fourth quarter, annual average cash costs are expected above the guided range of $1,275 to $1,375 per ounce and AISC is expected to be above the range of $1,800 to $1,900 per ounce. The turnaround in October is expected to be sustainable as we continue to refine stope design and the varying underground condition at Westwood. Despite the challenges in the first 9 months of this year, I'm very proud of the team there as they have demonstrated their innovative and accountable mindset to operation, safety and environmental care. Turning to Essakane. It was a strong quarter for the mine with production of 108,000 gold ounce on a 100% basis or 92,000 ounces based on our 85% interest. Production rebounded on higher grades as mining activities were deeper into Phase 7. Mining activity totaled 8.7 million tonnes with ore tonnes mined of 3.2 million tonnes, equating to a strip ratio of 1.7:1. Total tonnes mined was lower than prior periods as the mining fleet did not operate at full capacity in August due to a fuel shortage in the country. The situation improved in September and the mining fleet was able to operate at capacity to end the quarter and into October. Net throughput was 3.1 million tonnes at an average head grade of 1.18 grams per tonne. The transition to the higher grade benches in Phase 7 was initially expected earlier in the year, but was realized in the third quarter. Grades have continued to reconcile positively to the reserve model in October, positioning the mine for a strong fourth quarter. On a cost basis, Essakane reported cash costs of $1,737 per ounce and AISC at $1,914 an ounce in the quarter, an improvement on the prior quarter. Despite the production improvement costs remained elevated in the quarter. Over the same period last year, royalty costs have increased 61% on a per ounce basis due to the strong gold market and the new royalty decrease. Royalties accounted for $283 an ounce in the third quarter. Additional drivers include a higher proportion of mining costs being expensed as well as higher maintenance activities and an increase in consumable costs, including diesel and grinding media. With the equivalent labor, contractor and facility costs also increased due to the appreciation of the local currency, which is drag to the euro. Looking ahead, we estimate that Essakane will be at the midpoint of the 100% basis estimate of 400,000 to 440,000 ounces, which equates to the lower end of the attributable production guidance target based on 85% of 360,000 to 400,000 ounces. Production is expected to be higher in the first quarter due to the higher grade as the mining sequence move in the primary zone of Phase 7. Cash costs are expected to be at the higher end of the guidance target of $1,600 to $1,700 per ounce sold and AISC is expected to be $1,850 to $1,950 per ounce sold. Looking beyond next year, we are initiating conversations with the government on the mining lease renewal when ours expires in 2028. While the cost of operations in country have risen, Essakane continues to be a world-class mine and an important member of the Burkinabe. The mine has over 2 million ounces in reserves and is positioned to generate significant free cash flows moving forward. With that, I will pass it back to Renaud to discuss our latest exciting news coming from Chibougamau Chapais. Renaud? Renaud Adams: Thank you, Bruno. I really want to take a moment here to talk about our news from the 2 weeks ago when IAMGOLD announced the proposed acquisitions of Northern Superior in Orbec mine for total consideration of approximately $267 million in shares of IAMGOLD and approximately $13 million in cash. The strategic rationale for these transactions are clear when you look at this map here. Our goal was to consolidate IAMGOLD's land position and gold resources in the Chibougamau Chapais district, where IAMGOLD Nelligan and Monster Lake assets are located, creating the next great Canadian mining camp. Our Nelligan deposit has 3.1 million ounces indicated and another 5.2 million ounces of inferred with rapid growth from minimal drilling in recent years. Nelligan is a large-scale open pit style of deposit with average grades around 0.95 grams a tonne. Monster Lake located approximately 15 kilometers north of Nelligan is a high-grade underground style project. Prior to the acquisition announcement, we were looking at putting out economics on Nelligan and Monster Lake envisioning a project that would take most of the ore feed from Nelligan with a high-grade kicker from Monster Lake. The potential additions of Philibert may result in a revised time line of technical study and proposed mining scenario. Northern Superior's primary asset, Philibert, is an open pit style deposit located 8 kilometers northeast of Nelligan. Philibert has estimated mineral resources of approximately 2 million ounces at an average of 1.1 grams of gold, making it at this time, smaller but yet higher grade than Nelligan. In the consolidated scenario in a conceptual mill to pit and underground complex mine plan, we envision Philibert as having the potential to be the initial deposit due to the higher grade infrastructure advantage, providing important synergies versus a stand-alone Nelligan. This year, we have drilled over 16,000 meters at Nelligan and over 17,000 meters at Monster Lake, with both projects having seen the programs upside and continued success at the drill pit. Upon completion of the transaction, we look forward next year to putting together a comprehensive program at Philibert to extend and expand mineralization as we look to bring all these assets together. As of today, the combination of Nelligan and Monster Lake with Northern Superior's assets an Orbec's property, which are now referred as the Nelligan Mining Complex will rank as the fourth largest preproduction gold camp in Canada with estimated mineral resources of over 3.8 million ounces indicated and 8.7 million ounces inferred. The closing of the proposed transactions remain subject to shareholder votes from both Northern Superior and Orbec shareholders as well as other customary closing conditions for transactions of that nature. Together, this asset has a bright future, and we look forward to welcoming the Northern Superior and Orbec shareholders to the IAMGOLD team. It will be an exciting year for us with significant value growth opportunity ahead and many catalysts, starting with the upside scenario for Cote Gold, but also including the advancement of the Nelligan mining complex as well as the valuable contribution of Westwood and Essakane. So thank you for your support. With that, I would like to pass the call back to the operator for the Q&A. Operator?[ id="-1" name="Operator" /> [Operator Instructions] First question will come from Sathish Kasinathan with Bank of America. Sathish Kasinathan: Congrats on a strong quarter in addition to initiate share buybacks. My first question is on Cote Gold. So once the secondary crusher is installed, can you give us a sense of like what the anticipated cost improvements could be? Maybe talk about how you see the exit rate of cost as you exit 2025? Renaud Adams: Yes. It's an excellent question. As we mentioned, we appreciate the very high record free cash flow at Cote and everywhere, but that doesn't take away our focus on cost. We made a conscious choice in the Q2 to maintain the aggregate plant functioning, maximizing throughput, maximizing grade by allowing more rehandling and maximizing grade and production and free cash flow it has worked just perfectly. Now as you've mentioned, moving forward. So as Bruno mentioned in his note or Maarten both, there's about $6 a tonne right from the start on a per tonne of ore by using and operating the aggregate plant. And we think that with the second crusher, we'll be capable to generate our own stockpile internally. So that's one of the focus. So right from the start down the road, and I'm not saying that's going to be a walk in a park in a quarter. But on the milling side, definitely, our objective remains to stabilize eventually down the road towards the $12. We appreciate that there are other assets maybe that could do slightly better. But for us at $12, we believe with the kind of design and configuration, that's probably achievable. There will be some transitions, of course, Q1, probably a transition as we enter Q2. On the mining side, yes, we appreciate the -- again, there's rehandling has been a big component of it. Could we stabilize in the short term more towards the 350. So we're working on our plan as we speak. But we believe that the big component here is to be capable to operate without the aggregate plan, which will have a big effect. There's other aspect we need to improve. We need to improve significantly tire consumption, life on it. There's probably room to improve significantly, 50%, 60% consumption. So all that will have an impact on it. Our objective remains down the road to be as close as the $3 per tonne mine. I know there's been inflation is all over the place and everyone is facing the same. But this is an objective, not going to be there at the start of the year, but as we advance in the year, 3 and 12 remains our strategic target. And that's the risk become pure math. You mine at the reserve grade as we're doing, you try to uplift your grade as you separate the lower grade. And with the 400,000 ounces plus and with a better unit cost and a very low strip ratio at Cote, we definitely see this asset performing amongst the best leading on the cost side. That's what we see. Bruno, do you want to add anything? Bruno Lemelin: That's exactly right. The mining costs will have better performance once we stop using the aggregate crusher, producing much more leading inland. There's also many projects in terms of improving drilling performance as we drive vertically in the pit with less fracture time. So we expect improvement quarter after quarter. Renaud Adams: No, no, that's what we could say at this stage as we complete our plan for next year. Sathish Kasinathan: Yes. That's helpful. Maybe one follow-up on the share buybacks. So I understand that you will begin share repurchases after you pay down the $130 million in debt. But is there like a minimum target in mind maybe tied to a certain percentage of free cash flow that we should look at in terms of the potential for buybacks going forward? Marthinus Theunissen: Once we have the program in plan by the end of the year, it gives us that flexibility to start allocating capital to the different parts of the business. And we're kind of looking at it in third, where we would look at internal growth and opportunities as well as we still want to repay the amount drawn credit facility, $250 million. And then the third part is buying back shares. We don't have to do this sequentially. We can do all of this at the same time. So we were kind of breaking it down into 2/3 and starting next year, we'll look at the cash being generated and then do it that way. So that's kind of as close as a percentage, I guess, 1/3 that we can give at this point. [ id="-1" name="Operator" /> The next question will come from Tanya Jakusconek. Tanya Jakusconek: On the balance sheet. I really was impressed on you getting your net debt to EBITDA down so low versus Q2. Sorry, the 4 calls going on at the same time. So I've missed a lot of yours. I want a clarification, if I could. Slide 11, you have a new technical report and mine plan to be released in the second half of '25. I thought that was coming in the second half of '26. Has that been moved forward? Renaud Adams: No. If there was any mention to '25, that would be a typo or a mistake, Tanya. But no, we remain with disclosure of our next Cote Gold expansion late '26. Tanya Jakusconek: No, no. I just -- I joined when you talked about Westwood and so it was a slide before, and I noticed that and I said, Oh my God, they've moved it. I wasn't aware of it. Okay. No worries. And just maybe still on Côté, if I could. You talked about bringing the processing cost down to about $12, the mining cost down to 3. We had talked on the previous conference call that you thought you would get there by mid-2026. Should it be fair to say that we're still looking for that second half of '26, where we should see these costs get into that range? Is that a fair assumption? Renaud Adams: Well, there is one thing that we don't control and it's some external factors. So let's start with that, like if there is an inflation. So I'm looking at our peers, I'm looking at what we could eventually do, and this is our objective. I think the parking the aggregate plan, you would start like transitioning in Q1 and starting in Q2, you must see the effect of much less rehandling, more direct feed to final destinations, a little bit of -- we're going to continue to rehandle around the HGO and if your mine, your grade is lower for a period of time, you would swap in an NGO. But yes, starting Q2, this is where we start seeing effect of it and continue to work very hard towards achieving the lowest. But we need to control our consumptions, mostly around, of course, mentioned tires and rehandling and so forth. I think we're competitive when it comes to the procurement and so forth. So it's really on consumptions and better control of our maintenance. We believe that the HPGR should be running better at 2, allowing to feed it at a smaller size and so forth and increases life. So it's not just like a ticket type of item, but the big impact would start with the pricing. And the cost will be what it would be in the sense that we cannot control some external factor. But what we can control, this is our intention in '26 to get it done. Tanya Jakusconek: Okay. SO I should sort of mid-'26 that we should hopefully be there. Renaud Adams: Yes, mid-'26 you should start. Tanya Jakusconek: Yes. Okay. And can I just come back? I wanted to -- one more technical, if I could. On just on your reserves and resources, I'm asking all companies, what are you thinking about in terms of pricing as you get your mine plans in place and start thinking about your pit shells and so forth. What pricing assumptions are you looking at for year-end 2025 and 2026 sort of inflation in cost? Renaud Adams: The most important aspects are the reserve. And as we're relooking at Côté and so forth. We're very comfortable to remain at the 1,700 or so for reserve at Côté, and we're going to -- we'll look at as well what the industry is aligning and so forth. So there is no real rush there. Essakane is a longer short-term life of mine. So there's an ability here to increase a bit and maximize cash flow down there. But typically, for our main asset like Côté, we're not seeing more than 1,700 at this stage for the year-end exercise. And we're also testing the long-term resource deposit like the Nelligan and so forth. We'll be testing it probably up to 2,500 as a resource exercise. But we'll be disciplined. We're not intended to use the full gold price in the short term and like to see how the industry -- eventually, of course, we're going to pick the price for the Côté study and so forth, but it is not our intention to transform our asset in low grade using the gold price. Tanya Jakusconek: Okay. And if I can ask a financial question. I just -- I saw your debt target, your net debt to EBITDA down to 0.74. And I think I heard that we still have another $250 million in 2026 that we want to reduce our debt by. So I'm just wondering, one, is that correct? I should think about another $250 million for 2026. Do we have a net debt-to-EBITDA target you're comfortable with so that I can -- and a minimum cash balance on the balance sheet, so I can then sort of look at my share buyback. Marthinus Theunissen: So that is correct. We $250 million drawn on the credit facility, and we would like to pay that down in 2025 or 2026. But we also have $130 million left on our second lien that we plan to do this year. So that then leads us to next year. We think $200 million to $250 million is a good minimum cash balance for our company. Over time, as I mentioned earlier, we will probably build that up as 1/3 of the capital allocation would go to that. But that's kind of the main benchmark is $200 million to $250 million minimum cash and then pay down that $250 million. So from a net debt-to-EBITDA ratio, that would bring us down to 0.5 or maybe even less. We are comfortable with 1 and lower, but we also understand it's a very high gold price environment. So we don't put all of our targets for net debt-to-EBITDA using a high gold price. So we're kind of looking at it what would it be at lower gold prices as well. So we don't want it to be much higher than in a lower gold price environment. Tanya Jakusconek: Okay. That's great. And if I could squeeze in an exploration question. I would really like to talk a little bit about the Nelligan camp. And maybe, Renaud, I'm keen to -- you said there are synergies of that entire camp. It's never going to be called the Nelligan camp once this is done. Can you talk about like is it going to be -- are you envisioning like one central mill to sort of treat all of these ores? Like how are you envisioning this? Renaud Adams: Well, the -- I have the pleasure to be leading the Rosebel Gold Mines at the very early days of IAMGOLD following the takeover of Cambior. And at the very early days when I rejoined this company, and I was looking at this camp, there was like a kind of an obvious type of look alike, if you will. And I'm sure you're very familiar as well with the Rosebel concept back in time where we started with 2 and eventually had 6 mining areas and so forth. I like that one even further because of the high-grade underground component as well that comes at play. So the kind of the close is for us, and we've operated this place for many years. So we have a pretty good understanding and mining experience. But think of it as a bit of a kind of a Rosebel concept back in time, definitely a center processing facility kind of gravity center and fed and hopefully, multiple mining sources that eventually comes and go as you advance in time. So that's the closest example I could take -- I could think of. Tanya Jakusconek: And one tailings facility or should I think of that as well? Renaud Adams: Sorry. Yes, definitely. Yes. One tailing. But again, with the new concept and minimizing footprint and the importance of protecting and minimizing environmental footprint, I could see over time, a kind of a use as well of depleted pit to be incorporated in the scenario of how you minimize for tailings purpose. So early stage, but this is our concept here. So the priority will be Philibert, Nelligan, and Monster Lake and eventually, hopefully, as we continue to drill, maybe incorporating more areas. Tanya Jakusconek: Look forward to hearing more about it next year. [ id="-1" name="Operator" /> [Operator Instructions] Our next question will come from Anita Soni with CIBC World Markets. Anita Soni: Similar position to Tanya with a number of competing conference calls. So I apologize if I missed anything. But I just want to follow up on Tanya's questions around costs going into next year. I guess I was just trying to understand if as we look at Cote and sort of push towards higher tonnage sort of things that you're thinking about what are the inflationary factors that you're facing on the mining cost front? And where do you see some offsets in terms of maybe pushing higher tonnes? Renaud Adams: You were breaking up a bit Anita. Maybe on the mining -- well, if we got your questions on the inflationary aspects on the cost and so forth, yes, we did see some pressure, but it's more around -- we don't see necessarily like on the pressure on the procurement side. And Maarten, you can add to this. I think it's really around the productivity and creating -- moving more towards bulk mining, as Bruno said, as we open the pit even further and creating more phases and minimizing the movement of equipment during blast. This is all productivity. This is all like same equipment, more movement, less rehandling and the tire and improving on drilling blasting. This is like the most important aspect of '26. that would probably get us to a significant improvement. There's no reason for Côté to lag its peers when it comes to the best mining we could do. But we've been very restricted, we haven't allowed the group to really mine within the perfect setting and force a lot of rehandling and so forth. So we need to be patient here and give a chance to the winner here to run the race. Bruno? Bruno Lemelin: Just to give you an example at the mill maintenance, we've done like numerous operation to try to find the right liners for secondary cone crusher like more than one, I guess. So 5 different type of liners were tested out. And now we are very glad to see that we have one that is performing very well that's going to double the lifetime of the liner. So we expect improved productivity, improved production, and lower cost on the tonne basis. But when you start an operation like the size Côté you need to do some predictors, you need to have an interactive process on some areas to find the best part that will trigger your top line. And that's what we do. It takes sometime, but we know where we have to work on. Anita Soni: Okay. I know these operations take some time to ramp and you've done a good job. Renaud Adams: Yes, exactly. And you mentioned more than once. And this is the thing maybe we sound like not direct to the question, but the reality being is from the commissioning, the building of the '23 to the full commissioning in '24 and you're looking at this year, our first year was to really eliminated any red flag remaining and so forth. 90% recovery at the mill, perfect reconciliation, mining at the mining grade, proven our concept of minimizing on segregation and make it more like work. And as you could see 3 quarters in a row where you've actually been capable to uplift at the mill. So those are all like significant milestones for us at the very early days. To say that we enter '26 and that what we want is an average for 4 years of the 36 with a full focus on the cost and you turn back and you look at what this group has achieved to date and now the mission is on the cost, and we're going to have the same focus and the same discipline and attacking this. I have all reason to believe that we're going to do like great, great, great improvement on this and that would be the first time really where we're going to be focusing on. So from -- it's kind of the next logical step for us after focusing this year on throughput and free cash flow and ounces and so forth. So I have all reason to believe, Anita, that you're going to see great things coming out of Côté as we make it our priority next year. Anita Soni: Yes. So for most of the operations that are doing well, year 3 is definitely the optimization year and that's year 2026. Renaud Adams: Absolutely. Anita Soni: So can I just ask just one more question in terms of grades. The mill plant feed has been above the mine grade, right? You had created something is in stockpile previously. But now the mining the grades are sort of in the 0.9 level this quarter. What should we be expecting like what the grade profile looks like going into next year? Is it going to be more along reserve grade? Or will you still have a couple of quarters of mill feed… Renaud Adams: I'll pass it to Bruno. Bruno Lemelin: Anita, this is Bruno. We have already like good inventory of high grade at the end of Q3. But the question is if we mine at 0.96, how long are we going to be able to mill at a grade above that. So we are currently looking at our 2026 budget and intent is still to mine higher proportion of ore that would have grade above the average grade. So the goal for Côté is definitely to be averaging mining at average grade, but the first three years is going to be a little bit above that. So we are talking about 1.1, 1.2, which will give us like a good path forward 400,000 gold ounce per annum. And while we are increasing capacity at the mill the grade will be reduced, but still protecting that 4, 4.50 level. Renaud Adams: Yes, if I may just add something to it. It has a lot to do as well with the volume you mine, correct? So if you look at this year how do you move from 0.96 mine to uplifting above 1.1 at the mill has a lot to do with, not super segregation, at least remove the lower grade glass from your inventory and just talk about the long term. So that practice could continue a little bit down the road. So I am confident by mining the reserve we will be capable to continue to uplift along the line of what we're seeing here. [ id="-1" name="Operator" /> The next question will come from Mohamed Sidibe with National Bank Capital Markets. Mohamed Sidibe: Apologies, I missed the start of the conference call due to conflict there. But on the grade front, but not at Côté, but maybe at Westwood, given the challenging ground conditions, I think you've seen improvement in October in terms of the underground grade there. How should we think about Q4 and maybe next year 2026 as we think about the Westwood grades and the mining rate there? Renaud Adams: Go ahead, Bruno. Bruno Lemelin: Mohamed, so the plan or if I can explain Westwood on the east side as areas with less challenging ground conditions, but with lower grade. On the central zone and western zone it has the ability to give better grades but with more challenging ground condition. So what -- when we started facing those challenging ground conditions, we just shifted our strategy and resequence the production mine tonnes toward the east. So that's the reason why you see the lower grade since the beginning of this year. Since then, we have readjusted the way that we do our blasting pattern, drilling patterns, stope design, stope parameters to take into account these ground conditions. I'm very pleased to say that we have been very successful in October in those zone and the average grade that we collected was above mine grams per tonne. And right now, what we have is we have an inventory of almost 1.5 months in front of us that are accessible. So I think the algorithm that we have developed over the past few years is working fine, but we just need to refine it further at the stope level so we can safely and profitably each so that we have in the sequence. So we just had to make some readjustment. So for the Q4, we expect a very strong Q4. And for 2026, it's going to be a balancing act between how much stope we're going to be scheduling in the east side and the central zone. So it's a risk adjusted type of plan. And again, Westwood is a mine that needs to deliver 10,000 gold ounce a month to be on [ XO ]. So very, very confident about the rest of the year and 2026 bodes very well. Renaud Adams: If I may just add to this, and thank you, Bruno, for this. To be very frank, like the mine like we did extremely well in '24, rehabilitated all the zone. There is maybe some aspect of it that maybe we try to run a little bit before walking. But the plan is I really have all the confidence that it's pure engineering, and we're already seeing quite a bit of turnaround and back on our feet. But the way we look at the mine is like we'll be absolutely happy, as Bruno says, an average of $10,000 a month, a mine capable to operate sub-2,000, bringing like significant free cash flow and longevity. So that's how we think of this mine for the next 2, 3 years. The future could be very exciting, depending on what happens in uncovering all the resources to the east and so forth. So more to come on that one. But for the time being, when I look at the next 2, 3 years, we'll be absolutely happy with the mine predictable capable to deliver if it's 10,000 a month, sub 2,000. With that, we'll be very happy and it would do very well for us. Mohamed Sidibe: That's very helpful. And if I could maybe shift to Essakane. I think you noted -- again, maybe you already commented on this, but you noted that you had in August a fuel shortage in the country. As you're looking at your operations now, we've heard kind of neighboring countries having issues and know that some of the Ivory Coast energy being provided to Burkina may have had some challenges there as well. But are you seeing any impact from fuel pressures at operation at Essakane currently? Or what is the latest that you can provide us on that front? Bruno Lemelin: So Mohamed, we are not using the same route as Mali does. So we have a very specific supply routes for fuel. So that's one. The second thing is that we have more than 48 days of inventory at site. So it gives us enough time to rearrange our logistics should we have like some hiccups. We have enough to maintain the operations uninterrupted. So it requires good logistic efforts, and we have continuous support from the government, allowing us to bring the fuels at sites at the appropriate time. But the main strategy was to make sure that we have enough fuel depo at Essakane so we can withstand a long period of time without supplies arriving to Essakane. So in a sense, we're not using the same roads. We don't see the same type of pressures as Mali and so far the other strategy that we have is increased inventory at site. Mohamed Sidibe: Great to hear. And a final question maybe on the complex and great consolidation of the complex there. What should we look at in terms of next key steps for this complex? I know that you're advancing an exploration campaign there with potential resource update in early 2026. But how could we look at this beyond what are the next key steps for the zone? Renaud Adams: So just quickly on it. So expect us like focusing on resource growth in '26, the incorporations of Philibert. So we need to answer one question that is really key. How big could that Philibert be and how does it fit in the mine plan, right? So this is the very, very key focus of '26, increased drilling program. We'll be aggressive but smart about proven record from the team. I'm not concerned at all there. And I think we will do a very good use of money deployed there. But that's the very short term. And as I mentioned, we were hoping of maybe putting some sort of a study in '26, but I think it's worthwhile like getting great answers from. Objective with almost 12 million already. So we could only shoot for the 15 million, 20 million camp. And this is what we're going to be doing. We're going to drill, drill, drill and hopefully having a very good update resource update late '26. Having said that, Nelligan and Monster Lake will be somewhat updated at year-end with the drilling of '25 in it. But look at it as resource grows in the next year or 2, and then we'll start putting study out there. And anything we could advance and start putting in place, we'll do it. But we have a high, high level of confidence that this is going to be a mining camp. Bruno, if you want to add anything to this? [ id="-1" name="Operator" /> This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Graeme Jennings for any closing remarks. Please go ahead. Graeme Jennings: Thank you very much, operator, and as always thank you, everyone, for joining. If you have any questions please reach out to Bruno or myself. Thank you all. Be safe. Have a great day. [ id="-1" name="Operator" /> This brings to a close today's conference call. You may disconnect your lines. Thank you for your participation, and have a pleasant day.
Operator: Good afternoon, and thank you for joining Zevra's Third Quarter 2025 Financial Results and Corporate Update Conference Call. Today's call is being recorded and will be available via the Investor Relations section of the company's website later today. The host for today's call is Nichol Ochsner, Zevra's Vice President of Investor Relations and Corporate Communications. Please go ahead. Nichol Ochsner: Thank you, and welcome to those who are joining us. Today, we will provide an overview of our recent accomplishments, followed by a review of our third quarter financial results. I encourage you to read our financial results news release, which was distributed this afternoon and is available in the Investors section of our website. Before we begin the call, please note that certain information shared today will include forward-looking statements. Actual results may differ materially from those stated or implied in any forward-looking statements due to risks and uncertainties associated with Zevra's business. Forward-looking statements are not promises or guarantees and are inherently subject to risks, uncertainties and other important factors that may lead to actual results differing materially from the projections made and should be evaluated together with the Risk Factors section in our most recent quarterly report on Form 10-Q, our annual report on Form 10-K and other filings with the SEC. I'm pleased to welcome Zevra's management team members participating in today's call. Neil McFarlane, Zevra's President and Chief Executive Officer; LaDuane Clifton, our Chief Financial Officer; and Josh Schafer, our Chief Commercial Officer. Our Chief Medical Officer, Adrian Quartel, will also be available today for the question-and-answer session. Now, it's my pleasure to hand the call over to Neil. Neil McFarlane: Thank you, Nichol, and welcome to everyone joining our quarterly call this afternoon. Zevra is building on a foundation for success, guided by our strategic priorities and fueled by the strong performance of MIPLYFFA, which is delivering meaningful benefits to patients with Niemann-Pick disease type C or NPC. This impact is translating into revenue generation and leading us towards operating stability that enables us to invest strategically to build a leading rare disease company. MIPLYFFA is a foundational advancement in the management of NPC and the first treatment approved in the United States for this indication. NPC is a progressive and fatal disorder caused by mutations in the NPC1 or NPC2 gene, which disrupts intracellular lipid transportation. This leads to cholesterol and lipid buildup in cells, causing widespread dysfunction. NPC affects both children and adults with symptoms, including cognitive decline, speech and swallowing difficulties, motor impairments and premature mortality. NPC is considered to be an ultra-rare disease with an estimated 900 individuals affected in the United States. And of those, only 300 to 350 have been diagnosed. We're excited to deliver on the promise of strong scientific data, which demonstrates that MIPLYFFA in combination with miglustat is the only disease-modifying therapy that halts the progression of NPC at 12 months and demonstrated a rapid onset of effect within 12 weeks of treatment initiation. Long-term data showed that MIPLYFFA was both safe and effective in halting the progression of the disease for more than 5 years. This compelling data is resonating with the community and driving continued strong performance. I'm pleased to share that our third quarter net revenue reached $26.1 million, driven by $22.4 million in net revenue from MIPLYFFA. Additionally, there were 8 new prescription enrollment forms received in the quarter, bringing the total to 137 since MIPLYFFA became commercially available just a year ago. Building on the success of our launch, our commercialization strategy is focused on identifying diagnosed patients who may benefit from MIPLYFFA and on implementing targeted initiatives to improve detection and diagnosis for the many people who remain unaware they are living with this life-threatening disease. We have seen traction in both of these cohorts, and Josh will further elaborate later in the call. A significant near-term growth milestone is to expand into the European market, where we estimate approximately 1,100 people are living with NPC. In Europe, there is an established precedent for treatment with miglustat. And with the existing clinical network, there is a favorable environment for a foundational treatment such as MIPLYFFA. As a reminder, we filed the Marketing Authorization Application or MAA at the end of July. That application has been validated and is under review by the European Medicines Agency. We are highly confident in our submission, which incorporates an expanded data set beyond what served as the basis for the FDA filing and U.S.A. approval. As a reminder, our filing submission included data on more than 270 NPC patients that have been treated with MIPLYFFA through the pivotal trial, open-label extension study, expanded access programs and pediatric substudy. Our go-to-market strategy for Europe is under active development and will inform our decision to launch independently or through a strategic collaboration. Additionally, our Expanded Access Program in Europe and the U.K. is playing a critical role in building product experience and fostering strong relationships with physicians and clinics with 92 patients enrolled at the end of the third quarter. These engagements not only support awareness and education, but also lay the groundwork for a potential commercial launch. We've established a solid patent position for MIPLYFFA, and we've also requested a patent term extension with the U.S. Patent and Trademark Office, which could provide coverage beyond the term granted through our orphan drug exclusivity. For OLPRUVA, there was one new prescription enrollment form in Q3 and covered lives reached 81%. Notwithstanding our best commercial efforts, OLPRUVA’s clinical differentiation has not penetrated a mature and well-served UCD market. As a data-driven organization committed to making judicious investments that drive meaningful benefit for patients, we have made the decision to scale back our sales and marketing efforts for OLPRUVA. While we evaluate the options for OLPRUVA, we will maintain market access and product availability for patients and continue providing support through our patient services program, AmplifyAssist. Going forward, we will provide updates if there's anything material to report. Turning to our development pipeline. We are actively recruiting patients in the DiSCOVER trial, our ongoing Phase III trial to evaluate Celiprolol as a treatment for Vascular Ehlers-Danlos Syndrome, or VEDS. VEDS is a rare inherited disorder caused by mutations in the COL3A1 gene, which impairs Type 3 collagen production, essential for vessel and organ strength, leading to fragile tissues that put patients at high risk of ruptures in the arteries, intestines and uterus. In Q3, we enrolled an additional 5 patients in the DiSCOVER trial, bringing the total to 44 of 150 patients required for full enrollment. Our efforts are focused on bolstering our relationships with clinics involved in the management of these patients' care while also expanding the network of genetic testing centers collaborating with us to identify individuals carrying the gene mutation. In parallel, we are conducting educational outreach to vascular specialists who frequently encounter these patients following rupture-related surgical interventions. As an event-driven study under a special protocol assessment with the FDA, we have an interim analysis built in after 28 qualifying events, and there has been one confirmed event through the end of Q3. In summary, we continue to have strong momentum in Q3 and are excited about the many future growth opportunities for MIPLYFFA, including continued performance in the U.S., potential for patent term extension, significant upside potential through geographic expansion and the late-stage development asset with Celiprolol. I'll now turn the call over to Josh for a deeper dive into our commercial progress with MIPLYFFA. Joshua Schafer: Thank you, Neil, and good afternoon. Physicians have expressed enthusiasm and interest in MIPLYFFA as the foundational treatment for NPC. As Neil mentioned, in the third quarter, we received 8 new prescription enrollment forms. This quarter marks the 1-year anniversary of the launch. And as we reflect on our progress, we are pleased with the overall trends. We have received enrollment forms from the leading NPC centers of excellence that our rare disease specialists have been targeting, demonstrating the impact of our field teams. In addition, our sales efforts have expanded beyond the centers of excellence into community practices where many NPC patients are treated after initial diagnosis and treatment recommendations. Our sales and medical teams have been informing and educating clinicians about our differentiated mechanism of action, demonstrated clinical benefit as well as the recently published long-term data from our open-label extension trial. These compelling data provide real-world evidence that resonates deeply with physicians and patients alike. We recently conducted independent market research with clinicians and NPC patients, and I'm pleased to share that MIPLYFFA was recognized as the preferred disease-modifying therapy for NPC. Clinicians reported confidence in prescribing MIPLYFFA for long-term use based on its efficacy and tolerability and patients and caregivers described noticing improvements in balance and swallowing, fewer falls and changes in cognition and speech. We continue to focus on raising awareness of not only MIPLYFFA, but also of NPC to support the diagnosis and treatment of new patients. Our early investments in disease awareness initiatives, including our Learn NPC, Read Between the Signs campaign and our genetic testing resources are identifying patients who were previously undiagnosed. Through this testing program, physicians can order a genetic test for individuals suspected of having NPC. Anecdotally, we are hearing of physicians previously unfamiliar with NPC who have identified suspected patients, confirmed diagnosis through our resources and are now prescribing MIPLYFFA. We have built bespoke AI-driven models to analyze electronic medical records and claims data to identify both formally diagnosed but untreated patients and those who have not yet been -- who have not yet received a diagnosis. These examples highlight the tangible impact of increased disease awareness, and they underscore the importance of continued education and outreach in ensuring patients receive timely diagnosis and treatment. In the third quarter, we also maintained an impressive presence at local, regional and national scientific conferences and patient events. These included an oral presentation at the International Niemann-Pick Disease Alliance face-to-face meeting, several poster presentations at the Child Neurology Society Annual Meeting and 4 poster presentations at the International Congress of Inborn Errors of Metabolism. The presentations included new data demonstrating that patients who were randomized to receive miglustat only in our pivotal trial and then added MIPLYFFA in the open-label extension phase experienced a decline in annual disease progression. We continue to generate, publish and present peer-reviewed data to reinforce MIPLYFFA's use as a foundational treatment for NPC. Finally, growing market access via reimbursement coverage remains top of mind for us. And in the third quarter, we increased the percent of covered lives to 66%, which is in line with what we would expect 1 year into the launch. We're achieving high overall reimbursement rates for MIPLYFFA, either through direct formulary coverage or through medical exception pathways. We seek to provide access to as many patients as possible. And to date, there has been broad utilization of our co-pay assistance and patient services. Importantly, MIPLYFFA patients are showing continued adherence and staying on treatment. Patients conveniently receive their monthly refills through our AmplifyAssist program, which aims to deliver a first-class experience for patients and has helped to establish Zevra as a preferred partner within the NPC community. In short, our strong third quarter performance reflects MIPLYFFA’s differentiation and our focused commercial execution, and we are encouraged by the sustained momentum heading into 2026. Now I will turn the call over to LaDuane. R. Clifton: Thank you, Josh, and good afternoon, everyone. In addition to the financial details included in today's call, we encourage you to refer to Zevra's quarterly report on Form 10-Q for more detailed information, which we intend to file later today. In the third quarter of 2025, we reported net revenue of $26.1 million, which includes $22.4 million from MIPLYFFA, $2.4 million in net reimbursements from the French EAP for arimoclomol, $1.2 million from royalties and other reimbursements under the AZSTARYS license and $100,000 from OLPRUVA. For our commercial products, we recognize revenue when shipments are received by the specialty pharmacy. Q3 MIPLYFFA net revenue was impacted by the redesign of Medicare Part D rebates, which led to recognition of a gross to net true-up from prior quarters of $1.2 million. The updated rates will become an ongoing component of gross to net estimates going forward. Cost of product revenue for the third quarter, excluding noncash intangible asset amortization, was $1.2 million. Operating expense for the third quarter was $20.4 million, which was a decrease of $6.8 million compared to the same quarter a year ago. R&D expense was $3.4 million for Q3 2025, which was a decrease of $7.5 million compared to Q3 2024, primarily due to reduced third-party costs following the completion of the KP1077 Phase II trial, combined with a decrease in personnel-related costs. SG&A expense was approximately $16.9 million for Q3 2025, which was an increase of $700,000 compared to Q3 2024 due to additional investments in our commercial, medical and launch activities. Looking ahead to the impact of scaling back on promotional activities for OLPRUVA, these resources are expected to be reallocated to MIPLYFFA and to our patient services activities. Therefore, a meaningful change in selling expenses is not anticipated. Net loss for Q3 2025 was $500,000, which led to loss per basic and diluted share of $0.01. This includes noncash stock compensation expense of $2.8 million, noncash fair value adjustment related to warrant and CVR liabilities of $5.5 million during Q3 and noncash intangible amortization expense of $300,000. For the same quarter in 2024, we reported a net loss of $33.2 million or $0.69 per share. As of September 30, 2025, total cash, cash equivalents and investments were $230.4 million, which was an increase of $12.7 million compared to the end of Q2 2025. The increase in cash included $6.6 million in nonoperating cash received in exchange for the exercise of warrants and options during Q3 and $2.3 million in cash from interest income. Total debt was approximately [ $61 million ]. Based on the company's current operating forecast, we believe available financial resources are sufficient to execute on our strategic priorities independent from the capital markets. While we continue to anticipate variability in our working capital requirements, which is largely dependent on the timing of receivables and payables, our disciplined approach to operating investments and capital allocation has significantly strengthened our financial position. Our commitment to maintaining cost efficiency and rigorous operational accountability has cultivated the flexibility and capacity to strategically invest in high-impact opportunities such as the MIPLYFFA U.S. launch and the Phase III study of Celiprolol while also preparing for the potential launch of MIPLYFFA in Europe. We are well positioned to pursue the opportunities we have to drive long-term value creation for our stakeholders and to accelerate our growth initiatives with confidence. Now, I will turn the call back to Neil for his closing remarks. Neil McFarlane: Thank you, LaDuane. We're pleased by the continued success of MIPLYFFA and deeply encouraged by the support from both patients and physicians. Looking ahead, we believe we have a significant growth opportunity on the horizon with the potential approval and commercialization in Europe. We're committed to aligning our capital allocation with our strategic plan and to invest in opportunities that meaningfully impact patients while maintaining a sharp focus on creating sustainable growth. Thank you. We'll now open the call for questions. Operator? Operator: [Operator Instructions] Our first question will come from Kristen Kluska with Cantor. Kristen Kluska: The first one I have is, as we think about the last 2 quarters, there's been 15 new start forms. Curious if any of these have been patients that are newly diagnosed through perhaps some of your efforts? And also, as we think about the next few quarters up ahead, how you're thinking about the potential of finding additional patients that currently aren't diagnosed today? Neil McFarlane: Kristen, thanks for the questions. I'll get us kicked off a little bit here. You're absolutely right. The last couple of quarters, we've had about 13 new start forms and really pleased with where the team has been continuing to move forward. And actually, as I'm thinking about this, I think it's not 13, but 15, we had 8 and 7. So I just want to make sure we clarify that on the call. The reality, though, is that our team continues to move forward with the investments that we're moving. I'll ask Josh to talk a little bit more around the newly diagnosed components of where we are. Joshua Schafer: Kristen, thanks for the question. And yes, we're really excited not only with the performance we're seeing in terms of the number of enrollments coming in. But as you noted, many of them are coming in as newly diagnosed patients, and that number has increased from last quarter to this quarter. And that is largely through the efforts that we've articulated in the prepared remarks. But specifically, these are coming from the disease awareness campaign and our partnership with the genetic testing collaborators to be able to identify these new patients and make us aware of these newly diagnosed patients so then we're able to go into those offices and work with the physicians and clinicians to get them onto MIPLYFFA. We've also done a lot in terms of helping to build disease awareness through our medical teams and building the evidence through conferences and publications. And we've also done quite a bit in terms of using advanced analytics and machine learning to be able to look into electronic medical records and claims data to find these undiagnosed patients. And so we are seeing a lot of that success. Neil McFarlane: And Kristen, let me follow up on that just a little bit. When we think about our 1 year in the market, which we're celebrating here right now, the total number is 137 prescription enrollment forms. That's approximately 40% of the diagnosed patient population that we've actually seen. And that's really a testament not just to the team and what they're doing, but also the strength of the long-term data that we've been able to execute on educating physicians and getting that awareness out there with patients and the like. So really pleased with where we are 12 months into the launch. Kristen Kluska: Okay. Appreciate that. And then when I think about your balance sheet, it's very robust. And this quarter, you were pretty much on the edge of breaking even. So how are you thinking about perhaps in the near to midterm, how you might take advantage of your robust balance sheet? Neil McFarlane: Yes. Thanks, Kristen. So we go through an annual cycle of planning for strategic session with our Board. And part of that, we thought -- we talk about capital allocation and understanding where is it that we can best be positioned to be able to move forward. I'll ask LaDuane to touch base on it, but this is all about us leaning in, executing on what we have, doing the best we can for both the commercial products as well as the development programs and then earning the right to do something else later on. LaDuane? R. Clifton: Yes. Thank you, Neil. And Kristen, as we execute against the MIPLYFFA launch, we certainly see that our operating results are beginning to reflect that success. And so we're appreciative and thankful for how that's coming through. Although I will tell you, although we did generate cash -- some cash this quarter, there remains some variability in our results as we continue to have dynamic working capital requirements between accounts receivable timing and accounts payable timing. So we haven't turned the corner yet, but definitely, things are pointing in the right direction. And as Neil said, we are very much guided by our strategic plan. And I think executing right now on what's in front of us, the MIPLYFFA launch in the U.S., the expansion and potential approval in Europe, other ex-U.S. opportunities that we're exploring and then maintaining and continuing to support Celiprolol. These are the opportunities we have in front of us. And as we execute on those, we can continue to apply discipline and think about how we deploy capital across all the opportunities that may present themselves. Operator: Our next question will come from Sami Corwin with William Blair. Samantha Corwin: Congrats on the progress. I guess since the majority of patients that are submitting the new enrollment forms or newly diagnosed patients, how are you kind of thinking about reaching the additional 200 or so patients that have already been identified? I guess when I'm kind of thinking about strategy, that kind of seems like it'd be low-hanging fruit. So how are you thinking about that? And then given you're a year into the launch, what percentage of patients are you seeing that are getting refills? Neil McFarlane: Great. So Sami, I want to make sure that I clarify. We didn't say the majority of the new patients that are coming in or hope we didn't say that the majority of the new patients that are coming into prescription forms are undiagnosed patients that are newly diagnosed patients. There are a component of them that are, but majority would be an overstatement. We have actually -- this is not the first quarter we've gotten new patients, though. We've actually had new patients in our last quarter as well. So that -- I just want to clarify that. In regards to how we're thinking about the additional patients that are out there, I'll actually ask Josh to hit on that. And then 1 year in terms of refills, I'll ask Josh to hit on that as well. Joshua Schafer: Yes. So Neil, thank you for clarifying that majority comment. I was going to make the same. The majority of patients who are getting -- submitting enrollment forms are, in fact, patients who have previously been diagnosed and either on a current treatment or have been diagnosed and not received treatment. And we're continuing to find more and more patients like that every day. As we've noted on prior calls, we know where the majority of these patients are, and we continue to go into those offices and work with the clinicians to get those patients on to MIPLYFFA. In addition, we are very pleased that there are undiagnosed or previously undiagnosed patients who are now coming into the enrollment or now receiving enrollment forms as well. With regards to the percent of refills, I would note that we are really, really pleased that the majority of patients are actually who are coming in, we're able to find a pathway to getting reimbursement. We have 66% of covered lives today. And even those who are not covered through formulary, we're able to get paid coverage through a medical exception pathway. And almost all of those patients are getting refills on a month-to-month basis. Samantha Corwin: Got it. And one more, if I may. What is the average age or weight of the patients currently on therapy? And has that kind of differed with the -- or differed compared to the patients who are on the Expanded Access Program versus those that have come on to drug after? Neil McFarlane: Yes. So I'll take that one, Sami. So when -- if you recall, our clinical trial program was primarily skewed towards children. Our Expanded Access Program actually brought in more adults, and it was about a 50-50 mix between children and adults. As we now actually get into the real world, the real world experience has continued to actually allow us to actually have that [ 50-50 percent ] split in regards to kids and adults. In regards to the weight, what we did when we actually announced our pricing for the program is we used an average weight that was based on our 83 Expanded Access Program patients that were in there as well. So we don't provide the guidance specific to weight, but I do believe that it's still at a 50-50 today. Operator: Our next question will come from Eddie Hickman with Guggenheim Securities. Eddie Hickman: Congrats on the progress this quarter. Just a few for me. It's really nice impressive increase in coverage, I think, growing from 52% to 66%. So what have been the key drivers to see that much increase this quarter? And how fast and how high do you anticipate that coverage level going? And then when you -- now that you have a year under your belt, can you talk about how the patient enrollment form split is between the centers of excellence and the non-centers of excellence? Neil McFarlane: Yes. I'll ask Josh to take both of those. It’s right up his alley. . Joshua Schafer: Yes. So we're really pleased with the progress that we're making in terms of the percent of covered lives. I think it really speaks to the strength of the data and the fact that MIPLYFFA is the only disease-modifying treatment out there with the data that shows that it halts the progression of disease at 12 months. And that data has been really compelling to payers. We're continuing to see and anticipate that, that coverage will increase. And we feel like we are right where we should be 12 months into launch, and we're going to continue to work to increase that coverage and to ensure as many patients as possible can receive MIPLYFFA. We're also really pleased that we've been able to target and receive enrollment forms from almost all of the centers of excellence that our sales representatives or rare disease specialists are targeting. But more importantly, what we're seeing now is that the new enrollments coming in are coming from community-based physicians as well. And the dynamic is maybe a patient will go to one of these centers of excellence, get an initial diagnosis and a referral and then go back to his or her local GP or internal medicine specialists who is then managing the care going forward. So what we're seeing is a real breadth and increase in the overall number of prescribers as well, and we're really pleased with that. Eddie Hickman: Appreciate that color. And then one final one, if I may. For Europe, when do we expect the next update on that? And when just thinking about maybe just the French EAP, like should we assume a similar conversion as the U.S. EAP once that's approved there? Or help us think about the dynamic of how that EAP will factor into paid drug if you got approved there? Neil McFarlane: So Eddie, we are in the valid -- as we talked about in the prepared remarks, we are right now in the post-validation phase, 120-day clock that will allow us to be able to get our first inclination as to where we are. But I think it is important to remind everybody that we are coming off of the back of an FDA approval and an AdCom and a positive vote and a very solid launch into the U.S. market. It's the largest, most compelling data package in NPC. We've added, as we talked about in our prepared remarks, the additional data on top of what we submitted to the FDA. So we feel really good and confident about the MAA submission. Once we get that 120-day information, it will provide us with an opportunity to know a lot more. I don't know when we will then come back to you and the Street to understand what that looks like because it's a list of questions. It's not an approval. For us to be able to understand how to be able to then talk about that more broadly, I think it will be more closer to the 150 days. So give us some time on that and then see if we come through. You talked about the French EAP conversion. We do feel really good about the opportunity, but it will be based on reimbursement on the conversion rates within Europe. Once we get the product approved, each country will go country by country around how we reimburse -- navigate reimbursement within those countries. And those countries that come quickest will convert fastest. And today, as I mentioned on the call, we have 92 patients now in our -- it's really, we call it our global EAP. It's primarily Europe now. And those patients are a very small number of countries. So we feel like we've got the ability to continue to drive patients in the EAP -- well, not drive, fulfill patients in the EAP that we'll be able to convert them at the same rate once we get reimbursement in the countries. Operator: Our next question will come from Sumant Kulkarni with Canaccord. Sumant Kulkarni: On MIPLYFFA in the U.S., we appreciate the 40% share that you achieved pretty quickly, but do you think we are at steady state with respect to addition of patient enrollment forms for a quarter? And what are the key variables that might cause a step change in that number, especially given that the sales force will only have MIPLYFFA to focus on given the scale back on OLPRUVA? Neil McFarlane: Yes. So we've seen 13 in the first quarter, 7 in the second quarter, 8 now in this third quarter. I think it's way too early for us to call this a steady state. We are seeing the results of our efforts to find new patients and to diagnose new patients. And as mentioned, several of the new enrollments that we got in the quarter were from newly diagnosed patients. So I expect that we're going to continue to see more of that taking place and the efforts of our sales team to continue to identify currently diagnosed patients, to also find these undiagnosed patients. I think all of that is really telling a good story looking forward. I'd also mention that we completed recently some market research, which we completed with payers, clinicians as well as patients. And clinicians stated that they felt very confident in prescribing MIPLYFFA for the long term based on its safety and its efficacy, and they recognized it as really the preferred disease-modifying therapy for NPC. And patients stated that they saw median improvements in their balance, their swallowing, fewer falls and change in cognition. And I think all of that really speaks well for what future quarters might bring. Sumant Kulkarni: Got it. On MIPLYFFA in Europe, what are your initial thoughts on what price might be like relative to the U.S. or the EAP in France? And finally, there's been -- I guess, the sleep market is waking up with buyouts orexin data. What are your latest thoughts on KP1077 and the strategic options there? Neil McFarlane: Yes. Let me take a couple of those. In regards to Europe -- in terms of European pricing, Sumant, we've done in parallel to our marketing authorization application, a lot of work in regards to understanding the market dynamics in Europe, what the pricing potential is in Europe. As you just stated around our EAP in France, we do get pre-commercial revenue from that, which has also been part of the calculation. We won't know based on -- until we understand what the label looks like, what a final price in Europe is. What we do really appreciate around Europe is that of the 1,100 patients from a prevalence perspective, there are the majority of those patients with miglustat being approved for well over a decade that have actually been diagnosed and have been on some type of a therapy, that provides us with an opportunity to be able to impact the European market at a faster rate than that of what we even have seen in the U.S. because the diagnosis rates in the U.S. have been lower than that of in Europe. So that's something that, for us, we believe the penetration will be good. Will it be the same price as the U.S.? That's to be determined at this point. Sumant Kulkarni: Got it. Neil McFarlane: You also asked another question, Sumant, around 1077. Yes. No. So to comment on 1077, we remain open to strategic alternatives. We are having conversations, but I can't really comment more on that right now. Operator: [Operator Instructions] Our next question will come from Brandon Folkes with H.C. Wainwright. Brandon Folkes: Congratulations on the quarter. Maybe just following on from a few questions before. How are you thinking about additional commercial investments behind MIPLYFFA in the U.S. in 2026 versus the current commercial infrastructure? And given you're seeing some success, right, in the disease awareness campaign driving previously undiagnosed, right? I think it's the success to have any of those patients kind of being enrolled at this stage. But how are you weighing up maybe potential additional investments behind disease awareness and increased diagnosis in 2026? Neil McFarlane: So Brandon, I'm going to ask Josh to comment on some of the specifics around this. But if you recall, we have been investing now into a commercial infrastructure to be able to not only invest in one product, but in multiple products in these centers of excellence and providing value to these centers that we can then provide the education, the patient services, the medical support, the clinical data that's necessary to be able to pull products through and provide patients with the best experience that they can once they get prescriptions. So I think that our investment is rightsized to be able to move forward and execute on this product. And as we have mentioned in the past, getting OLPRUVA up to speed too in terms of the awareness and clinical differentiation. Josh, do you want to talk a little bit about 2026? Joshua Schafer: Yes, sure. And just to kind of underscore what Neil said, our top priority from a commercial and medical standpoint is to identify patients who can benefit from MIPLYFFA. So there really is no single tactic that we're talking about. It is a cross-functional across the entire organization. This is a top priority for us. And so we continue to invest in new publication strategies and new data generation, continuing to look at ways that we can identify patients through claims data and electronic health records. So we're continuing to evaluate that, and our budget is really based on that as a priority. We've been doing that in 2025. We'll continue to do that in '26 and onward. So I don't see any market change in our investments to do that. We're going to continue to evaluate the -- what works, what doesn't work and pivot as we need to because it really is an absolute priority for us. Operator: Our next question will come from Jonathan Aschoff with ROTH Capital. Jonathan Aschoff: Congrats on the quarter. And I was just curious, what's the rough cost you expect to have to sell out to launch in the EU? And is there anything noteworthy to say about MIPLYFFA inventory levels end of the second quarter versus end of the third? Neil McFarlane: Yes. Thanks, Jonathan. I'll take that in regards to the European opportunity. We've laid out a number of different approaches in terms of the research we've done, the pricing we've done, the approaches we may take. We've been having capabilities presentations from local distributors to some type of a hybrid approach that we might take or to just put it in the hands of folks who can actually deliver for patients better than we could. I mentioned previously that we had 92 patients already in Europe in our Expanded Access Program and continuing to grow that on a quarter-over-quarter basis. Our goal is to be able to either execute on the opportunity in Europe ourselves or put it in the hands of somebody who can do it better, [Technical Difficulty] shareholders as well. What that cost is, is to really depend upon the approach that we take. So I can't give you a number today. But what I can tell you is that we've done all the work that's necessary for either going it alone or put it in the hands of another party that can service patients better and with better economics as well as the ramp that it would take to be able to get MIPLYFFA in the hands of patients in Europe. So stay tuned on what that might look like as we get through our labeling discussions and the MAA. I'll ask LaDuane to talk about your inventory question on a quarter-over-quarter basis. R. Clifton: Yes. Thank you. The MIPLYFFA inventory, we monitor carefully, and we utilize internal metrics like days on hand to make sure that what's in the channel is consistent and is sufficient to service patients. So there is no large fluctuations quarter-to-quarter since we use those metrics to guide us and make sure that, that's not driving any kind of trends. One other detail I want to make sure is clear, though. When we think about revenue, we also have the impact of our gross to net. And while we don't normally give the details of that, we did note that there was a true-up adjustment from the recent changes redesigned to the Medicare Part D rebates. And that did have some impact as we noted. About $1.2 million was recognized in Q3, therefore, reducing net sales by that amount, which was from prior periods. So just calling out that there's 2 dynamics there to be clear. Inventory in the channel is consistent at the levels appropriate that we've maintained throughout the launch period. And then this gross to net had a unique impact in Q3, and we've adjusted our rates based on that to go forward from there. Jonathan Aschoff: Lastly, Neil, just remind me how many of those 92 patients are French or in France? Neil McFarlane: Yes. Approximately 30 patients is what has been consistent over a number of years in the French EAP program. It's remained the same. Operator: This concludes the Q&A portion of today's call. I'll now turn it back over to Neil for closing remarks. Neil McFarlane: Thank you all for joining us today. Sorry, operator, are you still there? It looks like we have one more person in the queue. Operator: We'll next go to Jason Butler with Citizens. Jason Butler: I guess just wondering if you could comment qualitatively on the number of patients that have received -- have an enrollment form but haven't received reimbursed drug yet. And I guess what I'm asking is directionally quarter-over-quarter, has that remained stable? Or are you seeing that number decrease or any comment there? And then also the time from receiving an enrollment form to getting reimbursed drug. Is that now stable? Or is that changing at all? Neil McFarlane: Yes. We are still in the active phase of launch, Jason, but it's a really good question that I'll ask Josh to hone in on. The pull-through of patients to paid drug, I am incredibly impressed with the team. And then also in regards to as we get new enrollments in and then are able to move through that reimbursement process, team is doing an outstanding job. So Josh? Joshua Schafer: Yes. Jason, thanks for that question. And again, it is something that we're incredibly proud of what we're seeing. The number of patients who are able to receive a paid drug is exceptionally high. We do have patients who are going through some period of free drug as we're investigating their benefits. They might go on for a 30-day period. Those patients are oftentimes unable to get into paid patients. So at any given time, we might have some patients in the free goods program who then become paid in the following month. So it's a little bit difficult to give you any precise numbers there. But what I can tell you is the vast majority of them do end up getting paid. And we are seeing -- your second question was around the time from an enrollment coming in to then a paid dispense. And we have seen that time shrunk dramatically since launch. And I think that's due to, again, the execution of our team. It's also due to the payers really beginning to appreciate the strength of MIPLYFFA data, and the benefit that it brings to patients. And so that time has really gone from what was, in some cases, months, now down to weeks. And we have, in fact, seen some patients get turned around in 24 hours. And so we're really pleased with that. Jason Butler: Got it. And then just a quick follow-up for LaDuane on the gross to net point. Is this reestimation or true-up something that we should expect to happen on a seasonal basis, an annual basis? Or just how should we think about the stability of the gross to net moving forward? R. Clifton: Yes. So this specific adjustment came from the redesign of the Medicare Part D, which came out of recent sort of administration changes, Inflation Reduction Act, et cetera. And so this one is sort of, I think, behind us. But -- and let's be clear, this was a change in the rebate in terms of catastrophic coverage. So MIPLYFFA being one of the higher price as a rare disease drug, it does get through to catastrophic coverage under Medicare sooner. So 2 changes. They made that threshold to get to catastrophic sooner, and they also increased that rebate from 9% up to 20%. So that's a change now that's in the system, and we've adjusted our estimates going forward. But the other detail about gross to net and one of the reasons we don't always dig into the details, except for in this case where it had a meaningful impact in this quarter is there could be other adjustments to gross to net going forward. Payer mix is something that early days in the launch. We know where we are today, but that could shift. We could continue to see changes in other dynamics within that. And so gross to net changes probably are something we will live with as a commercial company. But for right now, I think this specific item is now trued up and would be in the computations. Operator: I am showing no further questions at this time. Neil McFarlane: Thank you, operator, and thanks, everybody, for joining us today. We look forward to discussing our year-end and Q4 data with you in the coming year. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and patience. You may now disconnect. Thank you.
Operator: Good afternoon. My name is Lauren, and I'll be your conference operator today. At this time, I would like to welcome everyone to Paycom's Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] I will now turn the call over to James Samford, Head of Investor Relations. You may begin. James Samford: Thank you, and welcome to Paycom's earnings conference call for the third quarter of 2025. Certain statements made on this call that are not historical facts, including those related to our future plans, objectives and expected performance, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this conference call. While we believe any forward-looking statements made on this call are reasonable, actual results may differ materially because the statements are based on our current expectations and subject to risks and uncertainties. These risks and uncertainties are discussed in our filings with the SEC, including our most recent annual report on Form 10-K. You should refer to and consider these factors when relying on such forward-looking information. Any forward-looking statement made speaks only as of the date on which it is made, and we do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Also during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP net income and certain adjusted expenses. We use these non-GAAP financial measures to review and assess our performance and for planning purposes. A reconciliation schedule showing GAAP versus non-GAAP results is included in the press release that we issued after the close of the market today and is available on our website at investors.paycom.com. I will now turn the call over to Chad Richison, Paycom's CEO and President. Chad? Chad Richison: Thanks, James, and thank you to everyone joining our call today. I'll briefly comment on third quarter results and recent product innovations. I'll then turn it over to Bob for a review of our third quarter results and our full year guidance. We will then take questions. Let's get started. Third quarter results came in strong with double-digit organic recurring revenue growth and continued margin expansion, setting us up to exceed our full year financial plan for 2025. In addition to strong financials, we also executed the launch of our award-winning and industry-first command-driven AI product, IWant. Now enabled across our entire client base, IWant is transforming how our clients and their employees engage with their HR and payroll data. IWant has already successfully responded to millions of queries from employees, managers and executives, extending the power of our full solution automation. We are seeing a dramatic uptick in usage, especially among new users, which include the C-suite and newly onboarded employees of our clients. The intuitive nature of IWant means new employees no longer need training on the system and are able to utilize the full solution upon hire. I'm particularly encouraged by the engagement we are seeing among the C-suite. Traditionally, executives have not been daily users of HCM solutions. With IWant, thousands of C-suite executives are already pulling data and insights directly from the Paycom system and the feedback has been phenomenal. I'm confident that command-driven functionality is the future for all software. Beti is another example of automation that delivers significant ROI and is driving new sales. This award-winning payroll solution reduces payroll processing labor by up to 90%, while also cutting the time spent correcting payroll errors by up to 85%. Beti not only protects employees against insufficient funds by ensuring the payroll is correct prior to payday, it also eliminates human interaction with nonrevenue-generating tasks associated with voided payments, check reversals, ledger updates and post-payroll adjustments, just to name a few. Beti also enhances payroll compliance, ensuring accurate tax withholding, along with wage and hour accuracy, which reduces employer liability because employees have control over the accuracy of their check. Additionally, automation and perfect payroll with Beti is also attracting former clients back to Paycom. Recently, 2 clients who were not previous Beti users came back to Paycom, thanks to Beti. One of these was a large auto group who after leaving Paycom had numerous issues processing multiple payrolls across their more than 25 locations that impacted their employees. They quickly realized the mistake they made and reached out to us to come back. Upon the return, they were quick to adopt Beti because of the payroll automation and paycheck transparency. The second example of an organization returning was a manufacturing company whose employees quickly voiced frustration over the switch away from Paycom, especially managers who lost access to the information they were accustomed to, resulting in a slowdown in revenue-generating work. This organization pointed to Beti as a significant reason for the return and a game changer with 100% accurate payrolls, thanks to Beti identifying and notifying employees of items that need attention prior to payday. Beti continues to be a powerful differentiator for us in the market as we continue to drive even more automation and deliver very strong ROI to our clients. To facilitate the automation experience, including IWant and future AI developments in the pipeline, we significantly expanded our data center capabilities, spending roughly $100 million of AI-focused CapEx on our Phoenix and Oklahoma City data centers. We front-loaded this CapEx to match the timing of our IWant rollout in Q3. Owning and operating advanced data centers is a sustainable competitive advantage for Paycom, particularly for clients who have reservations about opening up their critical data to external LLMs. IWant hosted by Paycom only draws from Paycom's single database, which eliminates conflicts created by inconsistent or duplicative external data sets, significantly improving data integrity and the quality of the user experience. Thanks to our product innovation and our focus on world-class service, client satisfaction trends remain strong. We provide high-touch personal service and our clients appreciate our service levels now more than ever. We complement our high-touch service model with full solution automation, which drives service operation efficiency. As a result, we've seen a 20% to 30% year-over-year decline in internal tickets and inbound client call volume. These are positive influencers on client satisfaction. With our strong third quarter results and the outlook for the remainder of 2025, we are set to deliver a milestone year with over $2 billion in total revenues, all through organic growth and near record level adjusted EBITDA margins. Paycom has been leading our industry in innovation and client ROI achievement since we were founded. Now with automated products like IWant, Beti and GONE, we are well positioned for continued strong performance in the future. I want to thank all of our employees for their consistent contribution to Paycom's success and also thank our clients for trusting us to deliver unmatched value through full solution automation. With that, let me turn it over to Bob. Robert Foster: Thank you, Chad. Before I review our third quarter 2025 results and updated outlook for 2025, I'd like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis. We delivered strong third quarter results with total revenues of $493 million, up 9.1% over the comparable prior year period and recurring and other revenues of $467 million, up 10.6% year-over-year. Interest on funds held for clients declined 11% year-over-year to $27 million in the third quarter of 2025. GAAP net income in the quarter was $111 million or $1.96 per diluted share based on 56 million shares. Included in GAAP net income is a tax-adjusted onetime gain of approximately $26 million or $0.47 per diluted share related to the modification of our naming rights agreement. Non-GAAP net income for the third quarter increased 17% year-over-year to $110 million or $1.94 per diluted share. Profitability continues to increase as we realize operational efficiencies and deliver consistent margin expansion. Even with the 11% decline in interest on funds held by clients in the third quarter, our robust business model produced a 13% year-over-year increase in adjusted EBITDA to $194 million. Adjusted EBITDA margin in the quarter was 39%, representing a 150 basis point increase over the prior year period. Margin strength in the quarter was driven by automation and operating efficiencies in service, support and in G&A. As we indicated in our last earnings call, we ramped up marketing spend in the third quarter to support our product and brand strategies, including marketing related to our recent launch of IWant. Feedback has been very positive, and we look forward to seeing the benefits from our marketing initiatives in the quarters to come. We continue to invest in the areas of sales, personal service, new client operations and our product. With our solid Q3 results, we are on track to deliver on our full year plan for double-digit organic recurring and other revenue growth and expanding adjusted EBITDA margins. Our single database and our owned and operated data centers are competitive differentiators that enable us to rapidly develop and deploy new automations to benefit all our clients. During the quarter, we launched our most advanced automation solution ever, IWant, which is now enabled to our entire client base. To support IWant, we front-loaded a significant CapEx investment in advanced AI hardware and equipment within our data centers. More specifically, we invested approximately $100 million into our data centers, and that spend is now largely complete. This investment provides us a multiyear capacity runway to support our AI initiatives. Over the last 2 months, we repurchased $319 million of common stock in the open market, buying back over 1.5 million shares or almost 3% of shares outstanding as of the end of August 2025. Since the beginning of 2023, we have returned over $1 billion to shareholders through our buyback and dividend program. During that period, we repurchased 4.1 million shares of common stock for $806 million or approximately 7% of our 2022 year-end shares outstanding. We paid approximately $213 million in dividends. We still have approximately $1.1 billion remaining under our buyback authorization as of October 31, 2025, and a revolving credit facility of $1 billion available for us to execute on. Earlier this week, the Board approved our quarterly dividend of $0.375 per share payable in mid-December. Even with these significant uses of cash in the quarter, our balance sheet remains very strong. We ended the third quarter with cash and cash equivalents of $375 million and no debt. The average daily balance on funds held for clients was approximately $2.5 billion in the third quarter of 2025, up 9% over the prior year period. Now let me turn to guidance for 2025. Based on our strong year-to-date results, we are well positioned to meet our full year revenue and adjusted EBITDA guidance ranges. We continue to expect total revenue to be between $2.045 billion and $2.055 billion, up 9% year-over-year at the midpoint of the range. Within revenues, we expect organic full year recurring and other revenue to be up 10% year-over-year and interest on funds held for clients to be down 10% year-over-year to $113 million, assuming one additional rate cut later this year. Our full year adjusted EBITDA guidance range is $872 million to $882 million, representing year-over-year adjusted EBITDA margin expansion of 160 basis points to near record levels at approximately 43% at the midpoint of the range. Other forward-looking items include full year GAAP and non-GAAP tax rates of 27% and 26%, respectively, and stock compensation of approximately 7% of revenues. We delivered strong results in the third quarter and reinvested our capital into data centers, while at the same time, returning significant cash to shareholders through buybacks and dividends. 2025 has been a strong year, and we are well positioned for a robust 2026 and beyond. With that, we will open the line for questions. Operator? Operator: [Operator Instructions] Our first question today comes from Raimo Lenschow from Barclays. Raimo Lenschow: Perfect. Chad, one question I get a lot from investors here at the moment is that historically, your beat levels were a little bit higher. Can you speak a little bit what you're seeing? Is it in terms of economy kind of, et cetera, that might kind of change the situation there because that we kind of -- you get used to a certain track record. It doesn't -- and this looks like a slight departure from them. Chad Richison: Yes. Well, 2025, we did change the way we guide. We broke out recurring revenue. We broke out our interest tax. And we provided a wider range at the beginning. I would point out that since providing that initial range that revenues raised by $25 million and adjusted EBITDA is raised by $47 million at the midpoint so far this year. So I know that people might want a little bit different type of number. I will say that I'm very proud of the hard work that we've done and are doing. And I believe the accomplishments that we've made both this year and last year really set us up for a strong foundation for our future growth opportunities. So I would say that we didn't really guide to beat by certain amounts. I would say that we came out with a good guide. And then throughout the year, we were able to raise, and I feel like 2025 is going to be a good year for us. Raimo Lenschow: Okay. Perfect. And then what -- in terms of IWant that was one of the highlights from the HR Tech Conference that we saw there. How does that drive extra conversation for you? Because that was -- you were very early in the market. It seems like you're relatively unique in the market. What do you see in terms of what the sales guys are reporting back to you in terms of how that helps in terms of lead generation, pipeline build, et cetera? Chad Richison: Yes. So while we're seeing a complete change as new employees are added on to our system. Most of them are utilizing IWant versus any level of navigation. We've been able to engage the C-suites into the system again. The types of users at the C-suite level and administrative level at some level needed the information and was always able to receive information through others that work for them. But with IWant, they're able to do it directly. I mean as far as being first, I've heard people say they have AI. I've seen a brochure. We don't experience that when we're working with their clients. And our AI initiatives would have cost us for our full capacity opportunity about $25 million a quarter. So we've spent about $100 million this year setting it up ourselves, which we've done all of our own database and our own data centers since 1998. So I don't know who our competitors are using for AI, but it sounds like they got a really good deal on it. Operator: Our next question comes from Mark Marcon from Baird. Mark Marcon: With regards to IWant, I also demoed it at HR Tech with a group of investors, and I thought it was really slick. I'm wondering, can you talk a little bit more about like what you're seeing in terms of the usage pattern? You mentioned that you're seeing more executives using it. But like how frequently you've got some pretty good data capture in terms of being able to track how people are using it. Like how broad is it at this point? How many times are you seeing executives using it? Are all of them using it? And a little bit more just on the -- in terms of what you're hearing from the field in terms of sales with regards to the potential for the selling season with it? Chad Richison: Yes. And so when you think of IWant, you think of it as an easier way to access the value that's there. A lot of what we're focused on right now is decisioning automation and full automation of our system just due to decision fatigue that's out there right now everywhere. It's not that they're tired of making decisions. In many cases, they've just given up. And so when you think of IWant, you think of it as an easy way to access that value. In answer to your question, it changed -- if you were a current user of our system and you were used to going in utilizing it, well, it's an easy-to-use system already. And so it changed your behavior a little bit from that standpoint and kind of widen the aperture on what you're able to do. But if you're a new user being added on to our system, meaning you're a new employee, meaning you're just now gaining access to this system, it's your predominant way to use our software. And so as we look into the future, I would expect we would see more and more people utilizing IWant as a way to access and navigate through our system in order to make changes and receive information than what you would -- those that are actually navigating through the traditional way. Mark Marcon: Great. And then can you talk a little bit about your cost of service? If we take a look at your operating cost of revenue, it had a pretty nice sequential decline, a significant decline on a year-over-year basis. Can you talk a little bit about those efficiencies? And then I -- there were some press reports with regards to some changes. Are those going -- just in terms of personnel, are those falling into the fourth quarter? And how should we think about that? Chad Richison: Yes. I mean any changes that we've had this will primarily -- the benefit for that we will receive in 2026. Of course, we're very aggressive on what we're doing now, focused on our growth and focused on other initiatives. And so I'm not saying all that will fall into next year, but we have that there. And look, we've got a backlog of development that's either already come out or is in the process of coming out, which led us to reduce mostly administrative by about 500 people. And I just will say, I mean, letting people go for no fault of their own as a founder of this company, I mean, that just makes me sick of my stomach. I don't expect we'll go through that again. We do have plenty of work for people. But what I will say is we have always and will always seek to automate administrative tasks that slow down the flow or accuracy of data and information, but it doesn't always materialize into reduction of staff. And so we've always been focused on becoming more efficient in how we do things. And you're already seeing that materialize prior to any of these reduction impacts on our numbers. Operator: Our next question comes from Steven Enders from Citi. Unknown Analyst: Okay. Great. This is [ George Curso ] on for Steve. Just wanted to follow up on the demand environment. If you could characterize what you saw out there in terms of sales cycles, retention, et cetera. Any color commentary would be great. Chad Richison: Yes. Demand remains strong. I mean we have a very differentiated product. We're going at it a different way. And so demand remains strong. I mean we still have less than 5% of the total addressable market even here just in the U.S. And so we create the demand that's available to us. We do continue to capture it. We do talk about retention once a year. We'll be reporting that next year. I will say how proud I've been of our people and all the work that we're doing internally, and they know what we're doing. And we do expect all this work to have a meaningful impact on the value that clients are achieving. And then in turn, over time, we would expect that to have a favorable impact on retention as well. Unknown Analyst: Okay. Great. And then I wanted to follow up on the $100 million in CapEx you called out for data center and AI investments. Looking at your free cash flow number, I think we wouldn't have guessed that, that was so big. Maybe if you can -- is it right to think that your free cash flow number ex that, we should think about that basically $100 million higher than what the reported number is? And then if you could remind us the big components of that spend and why you feel like you're now set up and that's sort of a onetime investment, if you will? Chad Richison: Yes. Well, you run certain models on your -- when you go through and you develop something and you're looking at the capacity, you're going to need to be able to run it. You have to run certain models, how many people are accessing it at the same time and you have to make sure you have enough capacity. I mean this is our system now. We've got a lot of employees and users at our clients, and this is the predominant way they use the system. So the way they use our systems forever changed. And so we did have to make a spend in order to have that capacity for both what we're doing now and into the future. So we're in this business now. I don't expect that we would have any level even close to this type of spend over the next couple of years. But we are focused on growth. We are focused on providing the best product. And with us, I mean, it's not a brochure. It's something you actually utilize when we convert you on to it. And so when you're expecting that utilization, obviously, you have to spend the money to be prepared to receive it. We chose to do that ourselves just because we've always been in the data center business since 1998. So we chose to add it that way. We actually think it will be accretive to our free cash flow conversion as we move into the future. And again, to the extent our competitors do have AI, we're not running into it when we talk to their clients. And I don't know how they're paying for it because when we looked into it, it was pretty expensive to rent. Operator: Our next question comes from Jason Celino from KeyBanc Capital Markets. Zane Meehan: This is Zane Meehan on for Jason today. I was just hoping for a little extra color on the 3Q recurring revenue results. I understand that it was a tough comp, but anything worth noting on that decel in the growth rate, maybe possibly softer workforce levels in the platform? Or is there anything onetime in nature that's worth calling out? Robert Foster: Yes. There's nothing onetime in nature. I think if you remember back to Q2, we had certain levers hit in Q2 that may or may not could have hit in Q3. We also provided some color on what recurring revenue growth would be in Q3 at around 10.5%. And for the fourth quarter, we said that would be 11%. So it came in right above where we thought it would. Zane Meehan: Okay. Great. And then just on the workforce levels, I mean, was that in line with expectations? Or I mean, we -- one of your competitors yesterday talked about flat for the rest of the year. Is that how you're thinking about it? Chad Richison: We've only seen stability in the employment numbers, and we're not seeing it react any differently than what it has in the past with the exception of the COVID time period. Operator: The next question comes from Alex Zukin from Wolfe Research. Unknown Analyst: This is Jason John for Alex Zukin. So more of a high-level question, you've talked about you guys are less than 5% TAM penetration right now. What is the latest thinking on how to actually accelerate that new logo acquisition and at the same time, maintain double-digit recurring growth even beyond the FY '25 time frame? And where do you see the greatest white space opportunity in terms of modules, customer segments or verticals? Chad Richison: I think our biggest opportunity is going to come from new logo adds. I mean we're very focused on that right now. We're streamlining the ability for our prospects to see the value a lot easier. We've shifted the value and what we're focused on, I would say, shift that enhanced the value that our clients can receive. We're seeing that, I mean we have clients that have left that come right back, and we have clients that are getting great value out of the software now. And so I think it's our opportunity as we move forward, continue to make it easier for prospects to buy from us, which you have to have enhanced sales skills and you have to have a product that actually delivers the value that you're promising. And I feel really good about the work that we've done in both of those areas that set us up really well as we continue into both next year and the future. Unknown Analyst: Great. And as you previously mentioned that the FY '25 free cash flow will be similar to last year. And given your comment that the AI-related CapEx investment are largely completed in this quarter, does that free cash flow outlook still hold? And should we view that 3Q as the peak quarter for the CapEx investment? Chad Richison: Yes. Well, I was just saying I don't know of any major CapEx opportunities for next year or even the year after from a CapEx perspective. Operator: The next question comes from Daniel Jester from BMO Capital Markets. Daniel Jester: So I want to spend a moment on the product. And now with IWant that you have executives using the product more, are there opportunities in your mind to beyond just AI, build more products on the platform, which serve a broader set of use cases with your clients? Chad Richison: Yes, absolutely that we're focused on that. We're putting out a lot of automation right now, and we'll continue to release product sets that create value for our clients. And there's a lot of opportunity there. I mean I'm not going to telegraph all the things that we're working on, but there's a lot more in front of us to automate than what we've even automated up to this point. Decision fatigues for real. And when it exists in the HCM business and the HCM market and it exists in every single module that we have, there's opportunities to automate. And you do want to automate decisions where you expect a consistent behavior and adherence. And so we've been focused on that as we've created our software. We're getting a lot of positive responses from both prospects and clients around that. I think as you move into the future, we'll have a lot more of that. And of course, then also we'll be automating a lot more areas of the HCM process. Daniel Jester: Great. And then maybe just a quick one about how you're seeing the new offices ramp? And any change in your philosophy in terms of how you're thinking about adding sales capacity as we go into next year? Chad Richison: We have had changes in our focus for development of sales rep managers in our backfill. We are bullish on kind of what the next couple of years looks like in an effort to be able to expand and open up more offices. All of that comes from success at the sales rep and sales manager level. And so everything we are doing is about generating greater success than what we've had in the past. And that's not -- this could be a record year this year. We've been -- had a very successful year this year. But I do think there's opportunities with the overextended value of our product to really put a -- pour on the gas there. And we're focused on that as an organization right now. Operator: The next question comes from Jared Levine with TD Cowen. Jared Levine: In terms of IWant, are there any initial signs of it driving increasing product attach rates to date? Chad Richison: Yes. Yes. With IWant, the more of our product that you have that you're utilizing, the more access to the information that you have. So it becomes important in that as well as with IWant, you're eliminating all navigation as well. So you don't really need training on the system. Most new employees, they would come into our system and they would have some level of training on how to use the system. With IWant, we're just not seeing that with new employees coming on to the system. You just tell it what you want, and it takes it there. And so again, sometimes usage patterns are hard to change. And I don't think someone should change their usage pattern unless there's an opportunity to be more efficient or get something -- get there quicker. And we're seeing that with new people that are onboarded in the system. And then we've also seen that with traditional users that may not have been achieving full value for all the modules that they have. Jared Levine: Great. And then in terms of the 540 employees impacted by the recent layoff announcement there, can you talk about expectations surrounding annualized cost savings and how much of that will be reinvested back into the business? Chad Richison: Yes. I mean that will be a part of our guide next year. Again, we're focused on automation. I do -- for that, as we come out with automation, it doesn't necessarily mean that you're displacing certain employment levels. It's not something I'd necessarily want to go through again. But I also think as we look into the future, we'll have opportunities to become more efficient without necessarily, employees not being here for no fault of their own. Operator: The next question comes from Bhavin Shah from Deutsche Bank. Bhavin Shah: Bob, just on the 4Q -- I guess, the implied 4Q guide, it's -- you talked about in the past that 4Q growth should be the highest for the year and -- but the guide is kind of slightly below what 2Q and 3Q grew at. And given the 3Q strength, you would think 4Q would benefit from that. Is this just conservatism? Or is there something else that we should keep in mind for 4Q recurring revenue? And is 4Q a good exit rate to think about for next year? Robert Foster: Yes. It's not below. It's above the 3Q number. And I said earlier about Q2 where some things fell on either side that could have happened in Q3. But there's nothing in there that you need to be thinking about going into next year or into the quarter. We're happy with how that's ending up and the momentum that we've picked up over the last 6 months and going into 2026. We're trying ton guide -- Let me -- we're just trying to guide to what we can see right now. Reminder, Q4 has bonus runs and unscheduled runs. So we don't know what those will be yet. Bhavin Shah: That's fair and I appreciate that. And just one quick follow-up. You talked about kind of spending on marketing for IWant. How do we think about the timing of those kind of investments playing back from a top of funnel to conversion perspective? Chad Richison: I mean we spend very well on marketing. We measure it on a weekly basis. Our marketing spend is very strategic, and we would expect a return from our marketing dollars. There is a point where you can get a diminishing return off the amount that you spend, and we're always mindful of that as we focus on marketing and our growth initiatives for both fourth quarter and beyond. Operator: The next question comes from Joshua Reilly from Needham. Joshua Reilly: All right. If you look at the strong bookings that you've had over the last few quarters, just curious what's the trajectory been of how this has been translating to revenue here in Q3 and Q4? And did some -- maybe more of the starts from earlier in the year get pushed to Q4 or 2026? Just kind of wanted to get a sense of how that may be impacting the upside to the revenue here in Q3. Chad Richison: No. I mean when a deal starts in a quarter matters, if I start the deal at the very first of the quarter, I get 100% of the revenue dollars for that quarter. If I started the last month of the quarter, I'm getting 1/3 of the revenue dollars for that. So in any given quarter, you have some of that happen. But I don't have anything to call out of any changes of what we expected or any difference from what we expected out of book sales and starts for third and fourth quarter. Joshua Reilly: Got you. That's helpful. And then -- I'm guessing I know the answer to this, but I just want to check and see, has there been any difference in the demand dynamic between the high end or larger customer opportunities versus the mid-market or more SMB opportunities out in the market? Chad Richison: No. I think the demand is there. It's -- these things are always controlled by us. We create our own demand. We only have less than 5% of the total addressable market. That's something we've been focused on. It's something our group has done very well with. And I would just say we're working very well as a group right now and all focused on the same thing. Operator: Our next question comes from Siti Panigrahi from Mizuho. Phillip Leytes: This is Phil on for Siti. It sounds like IWant is pretty differentiated in the market. Is there an opportunity to eventually maybe monetize the product more directly? Or should we view this as more of like a retention and module cross-sell play? Chad Richison: Well, IWant came out in July, we have 100% of our clients and all of their employees have it. So I would think that you would kind of look at the monetization of IWant coming through increased sales and increased retention as we move forward over time with a differentiated strategy. Again, IWant helps you access value and automation that's been created. So IWant is a part of it, but there's a lot more there of value. Again, it's not something I want to sit here and telegraph of all the things that we're doing. But all of that to say is if you're talking to our clients today, I think you're going to find a different value achievement that they have today maybe than what they had a couple of years ago. And then I think as you look into the future, that continues to accelerate. Operator: Our next question comes from Madeline Brooks from Bank of America. Madeline Brooks: Maybe more of a high-level one here. If I think about the stock performance year-to-date and the catalysts that are kind of on the horizon for the stock, what I'm kind of thinking is like, look, right, we're getting over some execution strategy here, right? Our sales force is getting more effective now. We should be lapping that data center build-out expense. So free cash flow should be going back up, right? These are all catalysts for the stock. But it feels like from this quarter, the numbers are leaving a little bit to be desired, but the opportunity is there for the taking, right? It's really mostly here on execution. So I guess I'm just wondering what -- from an execution perspective, could go right over the next couple of quarters to really kind of maybe get growth back up to that 12%, 14%. We're also going to see this inflection in cash flow. And maybe what is also kind of viewed as a challenge or what might make it difficult to get there? Chad Richison: Yes. Well, we're focused right now on revenue growth. I really feel good about all the work that we've done to set ourselves up in every other area. And so we're really focused on that. That doesn't mean we're not focused on product innovation, and we're not focused on service and the full client value achievement. I just feel like we've set ourselves up very well now to attack the revenue growth opportunity. I'm not confirming what our growth rates are going to be next year, and we're not setting guidance right now. But what I will say is that over the last 2 years, we've done a significant amount of work that needed to be done throughout our organization. And as we sit here today, we're all focused on one thing, and that's capturing more market share, and that's available to us now. We have a very differentiated product. It's meaningful. It's not a brochure. It's something you actually achieve value from once you start using it. And so as time goes on, I think we're going to have more and more opportunities to create greater distance. I do think the more growth you have, obviously, with strong margins in both operating, adjusted EBITDA and other, that's going to be accretive to the rest of our financial profile, including free cash flow conversion and a lot of the other things that you spoke about as we look into 2026. Operator: Our final question today comes from Jacob Smith from Guggenheim Securities. Jacob Cody Smith: You talked about IWant moving the impediments to value for customers with no change management required to use it. We see some AI systems out there that users may use initially, but then go back to how they've operated before. Can you share a little bit about the ramp and consistency of usage you're seeing so far? I think that would be helpful in demonstrating the stickiness of the product. Chad Richison: Sure. Well, IWant is a quicker way to access this data and information. First of all, it's the only way to access it for certain people because they were never set up on any of the systems. I, as a CEO, I'm not set up on our benefit system to go run benefit information. I'm not set up on our applicant tracking or talent acquisition system. I'm not set up on our payroll to run all the payroll stuff or HR or any of it, expenses, any of it. With IWant, I can go in and I get access to everything. I don't need to know how to use it. I don't need to know how to do anything. I just tell it the information that I want. If I'm needing to navigate through something as an employee or a manager or what have you, same thing. I can both access information or it will put me where I need to be, to be able to make these changes. And so we're continuing to both do that through IWant as well as the functionality you're accessing is more automated today as well. So you really attack it from both sides. But IWant is removing the impediments of usage that were there in any level of complicated usage, and it speeds everything up. And so you do see new employees utilizing it because it's just a much quicker way for them to either get to where they need to go or be able to pull information. We're not seeing people use it a couple of times and then stop using it. I will say that when you looked at it in the early days, people didn't know how to use it. If you ask IWant where the closest pizza restaurant is to you, it's not going to be real successful in answering that question. And so people had to kind of learn how to use it to their benefit. And it's been a short period of time. Again, we've had IWant out since July. And every client we have has it and all their employees do now. Jacob Cody Smith: And just on gross margins, are you guys doing anything to optimize the usage of GPUs to better handle the millions of queries you're already seeing, whether it be in the underlying LLM or just teaching users what they can and can't do? And can that over time, potentially extend the runway of these GPU investments as you get more experience running these workloads in your own data centers? Chad Richison: Yes. I mean, obviously, there's a lot you have to do to optimize. It matters how many times you're hitting it. It matters how you're filtering through. We use these things to also look at nonresponse rates and everything else. So there's a lot that we go through to be able to analyze. And this is a daily analyzation of what's going on within our product. So I don't want to describe everything that we're doing. It does matter though, how you develop something to how much capacity of the GPU you're going to actually utilize or need. And we've gone through those processes. That's kind of what I talked about of you have to load test for lack of a better word, what your expectations are on simultaneous inquiries and responses. And so we run through that. And obviously, we work to continue to make it more and more efficient as we move forward. Again, we did make a significant purchase in what we went to set up. We didn't set up a little bit of a process here. We knew 100% of all of our clients would be on it. And so we made the purchase to meet that. We also looked at utilizing public cloud type data centers, if you will, to be able to host for us and utilizing their GPUs. And with where we see ourselves going in the future and what the costs were associated with just being able to handle our current load, initial load for IWant, we felt it better for us to go ahead and just set up and buy our own plus that way we have control over it, and it's operating just as all the rest of our business has for the last 27 years of operating our own data centers. So it's really worked for us. I do think it's going to be a key differentiator into the future. And I think as our competitors actually take it from a brochure and an earnings call to install it at a client level, I think you'll start to see maybe either some changes in their financials or what they do with that. But our AI is costing us money, and you saw that being spent in the third quarter. Operator: This concludes the question-and-answer portion of today's call. I will now turn the call back over to Mr. Chad Richison for closing remarks. Chad Richison: All right. Well, I want to thank everyone for joining the call today. We look forward to speaking with many of you at the UBS Conference on December 1 in Scottsdale and the Barclays Conference in San Francisco on December 10. I'd like to thank our employees for their contributions throughout this year and our clients for their continued commitment to Paycom. With that, operator, you may disconnect. Operator: This concludes today's conference call. You may now disconnect your lines.
Operator: Welcome to the ATS Corporation Second Quarter Conference Call and Webcast. This call is being recorded on November 5, 2025, at 8:30 a.m. Eastern Time. Following the presentation, we will conduct a question-and-answer session. I'd now like to turn the call over to David Ocampo, Head of Investor Relations at ATS. David Ocampo: Thank you, operator, and good morning, everyone. On the call today are Ryan McLeod, Interim Chief Executive Officer of ATS; and Anne Cybulsk, Interim Chief Financial Officer. Please note that our remarks today are accompanied by a slide deck, which can be viewed via our webcast and available at atsautomation.com. We caution that the statements made on the webcast and conference call may contain forward-looking information and our cautionary statement regarding such information, including the material factors that could cause actual results to differ materially from the statements and the material factors or assumptions applied the making the statements are detailed in Slide 3 of the slide deck. Now it's my pleasure to turn the call over to Ryan. Ryan McLeod: Thank you, David, and welcome to ATS. It's great to have you on the team. Good morning, everyone, and thank you for joining us today. Today, ATS reported second quarter results for fiscal '26, highlighted by strong organic revenue growth and an improvement in adjusted earnings margins in line with our expectations. These results reflect the strength of our decentralized organization and the collective efforts of our teams. During this leadership transition period, it is business as usual as we build on our culture of continuous improvement through the ATS business model with a clear focus on creating value across our diversified global portfolio. As we've previously discussed, the Board began its search for a permanent CEO over the summer and is now well into the process, while our entire senior leadership team remains intensely focused on advancing our strategic growth priorities. This morning, I will update you on the business and our markets, and Anne will provide her financial report. Starting with our financial value drivers. Order bookings were $734 million, up 6% sequentially, reflecting solid performance and strength across our diversified end markets. Q2 revenues were $729 million, up 19% from Q2 last year, driven primarily by organic growth and supported by solid performance in services. Adjusted earnings from operations in Q2 were $79 million. Moving to our outlook. Order backlog of approximately $2.1 billion continues to provide good revenue visibility. Our opportunity funnel remains healthy and well diversified. Within Life Sciences, order backlog at quarter end remained strong at $1.1 billion, supported by demand across submarkets. Importantly, the wider life sciences funnel includes a mix of opportunities in radiopharma, auto-injectors, diagnostic wearables and automated pharmacies. ATS works with a broad set of leading GLP-1 customers, providing diversification across platforms and drug delivery formats. In addition, as other applications for GLP-1 therapies emerge, including for treatment of cardiovascular and neurological disorders, ATS is well positioned to support providers of drug delivery solutions. Momentum remains especially strong in the radiopharma space, supported by investments in production capacity and the advancement of new therapeutics. To support growth and meet evolving customer needs, our recently opened Comecer Competence Center in Indianapolis delivers enhanced service capabilities and faster response times for customers in North America. During the quarter, Comecer secured new wins in diagnostic and therapeutic projects, advancing next-generation capabilities for radiopharmaceutical production. Within the lab research space, government-funded customers continue to take a more measured approach to capital investment given the changing U.S. funding environment. While orders from these customers represent a small portion of our overall business, our lab equipment businesses have been leveraging the common ABM framework to improve joint commercial initiatives and to expand shared access to their individual customer bases. In Food and Beverage, quarter end backlog was $218 million with customer wins in multiple regions during Q2 in primary processing and in sorting and inspection supported by internally developed products and technology. Our food and beverage funnel remains strong with customer investment focused on automation that enhances yield, quality and energy efficiency across our comprehensive solutions, spanning primary processing, inspection, primary and secondary packaging and aftermarket support. In Energy, order backlog was a record $277 million, up 154% over Q2 last year. This increase was driven primarily by nuclear refurbishment projects as operators continue to invest in life extension programs. The nuclear funnel continues to broaden beyond refurbishment, covering service and new nuclear reactor builds, including small modular reactors. On new builds, initial activity centers on early phase design and engineering programs that support modular fabrication of reactor structures and fuel handling systems. These programs position ATS to participate as projects move into commercial deployment. While order timing may vary, supportive policies and growing demand for clean and reliable energy, including from data centers, support a strong outlook for nuclear. In Consumer Products, our funnel remains stable with ongoing programs in personal care and household goods packaging, along with warehouse automation. In transportation, the funnel consists of relatively smaller opportunities, consistent with our expectations. Our capabilities in battery assembly allow us to win and deliver on these opportunities as they arise. Overall, our balanced exposure to regulated and growth-oriented end markets, along with a strong order backlog positions us well to navigate the current environment. Turning to the ATS business model. It remains central to how we operate and is well embedded into our culture. I recently attended our global ABM Conference where our continuous improvement leaders from across the business demonstrated their commitment to driving the ABM, along with a renewed focus on creating impact for customers and shareholders through disciplined execution and operational efficiency. I continue to be impressed by our team's use of the ABM to drive value within their operations. This includes daily visual management tools to create immediate focus and drive problem solving as well as sustained process improvements through Kaizen and strategy deployment. On M&A, our funnel is healthy and active as we cultivate and review opportunities that align with our long-term strategic priorities. We continue to integrate our more recent acquisitions and drive further synergies, particularly through shared customer access and integrated offerings from across our portfolio. We're also working diligently to return leverage to within our target range with good progress made during the quarter. On innovation, we have further developed our Illuminate Manufacturing intelligence platform to support new deployments of select businesses, including some of our more recent acquisitions. These efforts allow us to efficiently integrate equipment, standardize data capture and analytics and improve visibility across our installed base. The 2025 ATS Innovation Summit is being held this week, bringing together key innovation leaders from across the ATS organization. Through panels and workshops, the summit seeks to foster a unified innovation ecosystem, accelerate product development and strengthen collaboration on translating emerging technologies into customer value. Our investment in innovation has been core to our strategy and remains a key differentiator for ATS. In summary, our results this quarter reflect good progress across our value drivers, supported by a strong backlog. Our advantages today, including our global footprint, our talented workforce aligned around our ABM culture and our strong customer relationships will serve us well in advancing our growth and long-term value creation strategy for the future. Now I will turn the call over to Anne. Anne, over to you. Anne Cybulsk: Thank you, Ryan, and good morning, everyone. Starting with our operating results for the quarter. Order bookings were $734 million, down 1.1% compared to Q2 last year, which included several larger enterprise bookings in Life Sciences. This was largely offset by growth in all other markets over last year. Our trailing 12-month book-to-bill ratio at the end of Q2 remained healthy at 1.12:1 and was at or above 1 across all market verticals. Revenues for the second quarter were $729 million, up 18.9% compared to last year, including organic growth of 12.6%, along with a 3.9% benefit from foreign exchange translation and a 2.4% contribution from acquisitions. Moving to earnings. Second quarter adjusted earnings from operations were $79.1 million, a 40% increase from prior year, primarily on higher revenue volumes. Gross margin for Q2 was 29.9%, a 36 basis point increase on Q2 last year. On SG&A, excluding acquisition-related amortization and transaction costs, expenses in the first quarter totaled $134.5 million, a $14.5 million increase over the prior year, primarily a result of incremental SG&A from acquired companies and FX translation impact. Excluding a recovery related to forfeitures from our former CEO's departure and mark-to-market impact related to changes in our share price, stock-based compensation expense was $4.3 million in Q2. Earnings per share were $0.45 on an adjusted basis. Moving to our outlook. We ended the quarter with an order backlog of approximately $2.1 billion. Q3 revenues are expected to be in the range of $700 million to $740 million. As a reminder, this assessment is updated every quarter, taking into account revenue expectations from current order backlog and new orders booked and billed within the quarter. This quarter, we have identified an opportunity to realign our cost structure to strategic focus areas and to drive global operational efficiencies. We estimate restructuring costs of approximately $15 million will be incurred in the final half of this fiscal year with an expected payback of less than 1 year. For clarity, there is no change to our expectations for full year high single-digit revenue growth as previously disclosed. We continue to expect adjusted operating margin improvement on a full year basis in fiscal '26. ABM discipline and tools help to create focus across all of our value drivers, including margin expansion. The macro environment remains dynamic, including geopolitical tensions and trade and tariff considerations. As a reminder, the majority of our exports from Canada into the U.S. remain covered under the USMCA. Our global and decentralized operating model positions us well to navigate market dynamics to serve customers where they are deploying capital. In this environment, ATS continues to execute well, maintaining leadership in our key submarkets and driving progress on our growth priorities. Moving to the balance sheet. In Q2, cash flows from operating activities were $28 million. Our noncash working capital as a percentage of revenues was 18.3%. And while timing of milestone billings and collections do impact this percentage, our focus on driving working capital efficiency across the business and our target of 15% remains unchanged. We expect to see improvement by the end of the fiscal year. During the quarter, we invested $18.3 million in CapEx and intangible assets, reflecting our disciplined focus on innovation and strengthening our capabilities. For fiscal '26, we expect our CapEx and intangible investment to be within our previously disclosed range of $80 million to $100. On leverage, our net debt to adjusted EBITDA ratio was 3.4x. This progress since the beginning of the year supports our expectation of reducing leverage to within our target range of 2 to 3x. In summary, we are pleased with second quarter results and with the alignment of our leadership team and global employee base as we continue to execute on our plans and drive the business forward. Our strong order backlog supports our outlook for sustained growth and our expectations for revenue and margin expansion in fiscal '26 are unchanged. ATS is leveraging our culture of continuous improvement and our embedded structural advantages to drive tangible value through a consistent disciplined approach. We are confident that our team's continued efforts will deliver value to both our customers and shareholders. Now we will open the call to questions from our analysts. Operator, could you please provide instructions? Thank you. Operator: [Operator Instructions] Your first question today comes from the line of Cherilyn Radbourne from TD Cowen. Cherilyn Radbourne: When we look at your results, the one thing that is of some concern to us is that it appears bookings momentum has slowed over the last 6 months relative to the second half of last year. So just curious what gives you confidence that, that's just normal lumpiness in the business and not something more? Ryan McLeod: So I mean a couple of things. First of all, I mean, when we look at the state of the business, there is normal course variability and there are some larger programs, which can really drive that. But our book-to-bill is healthy at 1.12. From a backlog perspective, we're up about 14%, 13.5%, 14% year-over-year. So we're in a really good position from a backlog standpoint. But I think importantly, to your question, funnel activity, and I talked about it a little bit in my prepared remarks, but in general, it is healthy across our vertical markets. So life sciences, really good activity. Auto-injectors remains very active. We're seeing a lot of activity in radiopharma as well as medical -- general medical device wearables, contact lenses, automated pharmacy. So a lot of activity across life sciences, which supports that outlook. Food continues to be strong. We're seeing some really good uptake and interest based on what we're doing in primary processing, packaging as well as some of the inspection and sorting capability that we have. Consumer is stable. It's been very resilient. And transportation is as we expected, it's lower relative to where it was a couple of years ago, but there's still opportunities that are arising. I think the other area that we're seeing a lot of growth opportunity in is energy, and there's a lot happening. Refurbishment has continued to be active. we're seeing good activity in decommissioning and maybe a bit more mid- to long term, but certainly accelerating is the new nuclear space. So new builds, whether it's conventional technology or SMRs, we're seeing a lot of activity in that space and participating in a lot of early-stage projects to support the ongoing build-out that's going to be coming in that -- in the nuclear space. So overall, I mean, as I said, our funnels were very positive in terms of where they sit and support the continued growth that we expect. Cherilyn Radbourne: Okay. That's helpful color. And then just specifically, how did the services business perform in the second quarter? And along with that, are you intending to recruit someone to replace Simon Roberts to head that segment? Anne Cybulsk: Cherilyn, I'll start with the numbers question. And so overall, we're happy with the performance of the service business in the quarter, also on a year-to-date basis. I would call the performance strong. There were some EV numbers in the comparatives, but really good performance across other areas of the business. And services, as you know, are kind of reoccurring in nature. So we have some in the numbers that are like upgrades that are less regular, but services remains strategic to our overall growth plans. So good performance, happy with what we're seeing across the business, and I'll let Ryan comment on the other piece. Ryan McLeod: Yes. So Cherilyn, the short answer is yes. I mean, first of all, we're very pleased that Simon has taken on the leadership role within our Packaging and FoodTech business. Simon is a long-time ATS executive, very experienced, knows the business very well. And aftersales is an attractive opportunity within packaging and FoodTech. So very well aligned with some of Simon's background. And we will be replacing that role, yes. Operator: Your next question comes from the line of Sabahat Khan from RBC. Sabahat Khan: I guess just looking ahead to sort of the back half of this year and into fiscal '27, as you think about the margin trajectory, it at this point in the cycle, do you think it's more driven by some incremental initiatives you need to take on the cost reduction side? I know you announced the restructuring a little bit this morning. Or is it more from sales picking up on a more consistent basis over the next 4 to 6 quarters that sort of gets you moving towards the medium to longer-term targets you have on the margin side? Anne Cybulsk: So let me start with just reiterating what we're expecting on a full year basis from a margin expansion perspective. It remains an area of focus for us. There's nothing really in the backlog that I'd call out that would drive a different view. We do continue to have a number of levers available to us to drive improvement across the board on margin. We've talked about those before. And I think the growth of the business will continue to support that margin expansion expectation. On the restructuring, one of the areas that we expect to see is while we will have some cost savings from that, we would also expect to be able to reinvest some of those savings in higher growth areas of the business as well as in innovation. So overall, a number of levers available to us to continue to drive towards that longer-term objective that you referenced. Sabahat Khan: Great. And then just for a follow-up, I guess, as you think about sort of the inorganic side, it sounds like you are still sort of keeping your options open, but should we expect that to pick up in a more meaningful way when leverage sort of has in that with a 2 handle on it? Or is that something you're sort of open to right now? And if so, what are some of the end markets in focus as it relates to your pipeline? Ryan McLeod: So yes, I mean, we're certainly very active in cultivating, reviewing opportunities. At the same time, we are, as Anne said in her prepared remarks, focused on bringing our leverage down. And really, that provides us more flexibility. Cultivation does take time. We have seen good activity over the last several months in terms of what's happening in our funnel. But I mean, we're going to be prudent in how we go forward here, certainly conscious of where we're trading right now. I mean equity remains an option for us. And as I said, we're conscious of where we're trading right now. But for the right deal and in the right circumstance, that certainly remains an option for us. So just to go back, I mean, the U.S. listing, one of the rationale there was that does make our shares more attractive as currency and M&A. So all of those options remain on the table. But as I said, we do want to delever as that ultimately provides us more flexibility. At the same time, there's an active market right now. So we're going to find the right balance on both. Operator: Your next question comes from the line of Maxim Sytchev from National Bank of Canada Markets. Maxim Sytchev: Ryan, I was wondering if it's possible to get a bit of your general sense on the health care space. I mean we seem to seeing more health care M&A as the pharma companies need to replace the pipelines. I guess how quickly can we see potentially sort of inflection point in terms of opportunities on that side, even though like obviously, you're quoting a pretty healthy funnel. But just curious around your general thoughts in relation to that. Ryan McLeod: Yes. I mean, Max, I'll probably reiterate a little bit of what I said, but we are seeing good activity in our funnel. And so if I start with auto-injector, and that's really the drug delivery format that's really being used in -- with GLP-1 drugs. We're in the middle of executing some larger programs there. But as I said, funnel activity is still encouraging. And some of that is tied to continued expansion of those drugs and consumer adoption and as well as some new therapies. And I mentioned conditions such as cardiovascular health and neurological conditions, which are -- there's research and trials ongoing to support GLP-1s as therapies for those conditions. So all of that, we do expect to drive continued growth in the auto-injector space. And we're also working with customers on new technologies there. So a lot of the drug delivery today is single-use auto-injectors, and there's a move towards fixed dosage multi-dose auto-injectors. So rather than onetime use and throw it away, it can be used for multiple injections. So there is, as I said, a good funnel there and good activity. I think -- sorry, just Yes. The other area that I mentioned, but I'll spend a little bit more time on is radiopharma. And that's very active. There's a lot of drug discovery, drug development happening, customers moving from R&D into clinical trials and then into commercial manufacturing. And so we've been winning projects in new diagnostics and therapeutic applications, and there's a lot of activity happening in that space. And it's very exciting. And we talked -- I talked in my prepared remarks about our Comecer competence center, which recently opened in Indianapolis, and that really positions us well to provide regional support in North America, collaborate more closely with our customers and have an improved service response time for customers in that region. Maxim Sytchev: Yes, that's great color. And then maybe just a question in relation to nuclear. And I'm not sure if Anne wants to take this one. But in terms of -- I mean, obviously, backlog is up significantly in that space. But how should we think about the tail of that backlog to revenue conversion? Can you -- like is there anything different in relation to these projects? Can you provide any more color there? Anne Cybulsk: Max, so yes, we've seen good growth in terms of the nuclear backlog, as you said. Most of the -- a good chunk of the backlog is related to the reactor refurbishment or life extension programs that are primarily CANDU technology driven. That said, there are a number of customers that we have also in the backlog that would represent our earlier participation from a design perspective in some of the new build work that is ongoing. So it's a good cross-section of customers in terms of overall weighting of the backlog. We'd expect to see that refurbishment work continue over the next, say, call it, 1.5 years to 2 years at a minimum and then be supplemented over the mid- to longer term with some of the work that we're doing on the new builds. So from an early participation standpoint on new builds, we're very active there. So -- and that's important to the longer-term play. Operator: Your next question comes from the line of Justin Keywood from Stifel. Justin Keywood: I'll start off with leverage. Does the target remain to exit this fiscal year at 3x? Anne Cybulsk: Just the short answer is we do expect to come back within our targeted range by the end of the fiscal year. That's our goal. Justin Keywood: Okay. So suggest some healthy free cash flow generation over the next few quarters. And then just on the -- circling back on the nuclear, just to drill down here because in the backlog, it does show as the second largest segment, which is a bit surprising. And I understand that some of these projects are longer term in nature. But how should we see that Nuclear Energy segment as a percentage of revenue trending over the next year or over the next few years? Ryan McLeod: Justin, so I mean, the short answer is it's going to grow. I don't want to get too specific in terms of percentage of business. But as you noted, it's become a significant part of our backlog. The activity in that space and the funnel activity is very healthy. We are working with a number of customers in the new build space in addition to the work that we continue to execute on in refurbishment. Decommissioning also is a growing space. So there's a lot of opportunity, and it's an attractive growth opportunity for us. So it will continue to grow, but I'm not going to put a percentage on it in terms of how big of a business it will be. Operator: [Operator Instructions] Your next question comes from the line of Jonathan Goldman from Scotiabank. Justin Keywood: Maybe just on the backlog, when do you expect to lap the large enterprise orders? Anne Cybulsk: Just to make sure I heard your question, Jonathan, when do we expect to, can you repeat it? I didn't hear you. Justin Keywood: Cycle over the large enterprise orders from last year. I think that seems like a pretty clear reason why backlog is kind of stabilized or not growing as fast. I just want to know when you would plan to lap those large tough comps from last year. Anne Cybulsk: So we are -- as I said in my prepared remarks, we're executing on some of those larger orders that we did book in Q2 last year. They are -- there's a number of those that are still in progress, and we continue -- we're getting into the later stages of them. That said, we continue to book new work. As Ryan talked about, the funnel is healthy. And so as we continue to execute on those larger programs, we'd expect the backlog to fill in with new work. Justin Keywood: And remind me, I think the larger enterprise orders have a longer delivery period beyond 12 months. Is that correct? Anne Cybulsk: Yes, that's right. They tend to run more in the 12- to 18-month range and sometimes up to 24. Justin Keywood: Okay. Perfect. And I guess the second one for me on the working cap, what's the visibility? Or maybe what gives you confidence as we sit here today that you can hit the 15% target this year? And I don't know if that's an exit rate for the year totally, but what do you think needs to happen to get there? Anne Cybulsk: So there's obviously things that could affect that from a timing perspective. And the main piece of that would be related to timing of milestone billings and then collection on some of those larger opportunities. But as we continue to work through that backlog, we would expect improvement by the end of the year. Throughout Q3, I would say we'll still see that higher working capital need on some of those larger programs. But overall, our objective remains 15%. There are opportunities across the business to drive working capital efficiency, including some of our more recently acquired businesses that came on board with a heavier working capital intensity. So overall, business is focused on this, and those are the factors that will drive the improvement by the end of the year. Operator: Your next question comes from the line of Patrick Baumann from JPMorgan. Patrick Baumann: I had a couple of questions here. One is on Life Sciences. Any reason why the revenue seems to be coming in a little bit slow there? Just wondering if there's hesitation at all related to some of the order backlog that's been built there related to government policy and things of that nature? Ryan McLeod: Patrick, I mean, the short answer is no. It's largely timing on execution of projects in our backlog that drives the bulk of our revenue conversion. As I said, in my prepared remarks, so we do have some exposure to publicly funded institutions, organizations within the lab space, but it's a small part of our business. And I mean, if we step back on that, a couple of years ago or even last year, China was weak, and we've actually seen that improve in that part of the business. And now this year, with some of those funding changes that's created headwinds in North America. So -- but as I said, it's a small piece of our overall business. And we're actually -- I think I mentioned this in my prepared remarks as well, in the process -- we are in the process of doing some joint go-to-market approaches across our lab businesses to share customer lists and how we're approaching customers in certain geographies. So early days of that initiative, but we do expect that will provide some offset to some of the funding challenges that do exist within the U.S. Patrick Baumann: Got it. And have you -- I guess I missed maybe the first part of the Q&A. Did you comment on how you think margins will trend sequentially in the third quarter? And then also the $15 million of restructuring, what's that targeted at? Anne Cybulsk: Patrick, yes, I did briefly mention it. But just to recap, when we think about the margin trajectory for the back half of the year, we do expect to see full year margin expansion. And that's consistent with what we've said previously. On the restructuring, the benefit of that as we execute on those initiatives will flow into -- there'll be some cost savings that we'll see as part of our overall margin expansion efforts. There's also an opportunity for us to reinvest some of those savings in higher growth areas of the business. And Ryan had flagged energy and nuclear as a growth area, and we also continue to focus on innovation. And that has really been a core of our strategy and the key to our success over the years. Patrick Baumann: And then so if you don't want to comment on quarterly trajectory, what -- remind me what the annual margin expansion target was? Anne Cybulsk: We didn't peg a specific number, but we did say we were expecting to see year-over-year margin expansion compared to last year. And last year, we were at from an adjusted EBITDA perspective, 13.8%. So better than that by the end of the year through continuing to execute on the projects we've got in our backlog and driving some of the efficiencies that we've talked about through the levers that we have available to us. Patrick Baumann: And the high single-digit revenue growth guidance that was reaffirmed for the year, can you remind me if that is organic revenue or if it's total revenue? Anne Cybulsk: It is total revenue. We do have in our year-to-date numbers, some M&A benefit, barring any further M&A in the back half of the year, which we don't build into our guidance. There will be no M&A benefit in the back half of the year and the FX rates will do what the FX rates are going to do. But we do still expect that high single-digit growth top line that would include continued organic growth. Patrick Baumann: And that includes FX as well and M&A? Anne Cybulsk: From the first half, yes, the M&A from the first half. Operator: Your next question comes from the line of Michael Glen from Raymond James. Michael Glen: Ryan, are you able to comment on what the customer feedback is with the oral application for GLP-1s? Are you seeing this impact your funnel? Or is it raising any concerns as to what the -- how this may impact future orders for auto-injector? Ryan McLeod: Michael, so customers in this space, they are working to develop an oral alternative. And I think that really stems from the belief that, that will drive wider consumer adoption versus an injectable. But to date, a lot of the studies and the development work, there's been some challenges with that. Some of it tied to the patient experience causing nausea. So there's a tolerability trade-off. There's also been some challenges around the active ingredients and how they get absorbed into the system. So -- but nevertheless, I do expect that's going to continue to be a focus area for customers. But to date and as we see it, that auto-injectors really remain in direct injection really remain the most reliable, effective and widely adopted delivery format for these GLP-1 drugs. Oral formulations could certainly become a complement to that if you get into maintenance phases as an example. But we continue to see that auto-injectors will have a very prominent place in drug delivery for GLP-1 therapies. Michael Glen: Okay. And then can you remind us -- I believe in the past, you've indicated that GLP-1 is roughly 20% of the Life Science backlog. Are you able to give an update on where that figure sits today? Ryan McLeod: Yes, it's still in that range. Michael Glen: Okay. And then last one for me. Just looking at the SG&A for the overall business, Anne, I believe you gave the $134.6 million figure as the run rate ex share-based comp. Is this the right level for -- at this point in time, should we start to see leverage on SG&A, should SG&A on that adjusted basis grow slower than overall revenue growth? Anne Cybulsk: So that's the goal as part of our margin expansion focus internally. We do have a focus on SG&A. But as the top line grows, I would expect to see that improved leverage drop through. Operator: And that concludes our question-and-answer session. I will now turn the call back over to Ryan McLeod for some final closing remarks. Ryan McLeod: Great. Thank you, operator, and thank you, everyone, for joining us today. We look forward to speaking to you on our third quarter call in February. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Rob Fink: Greetings, everyone, and welcome to the electroCore Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce you to your host, Dan Goldberger, electroCore's Chief Executive Officer. Dan? Daniel Goldberger: Thank you all for participating in today's electroCore earnings call. Joining me today are Dr. Thomas Errico, one of our founders and investor and our newly elected Chairman; Joshua Lev, our Chief Financial Officer; and our Investor Relations team from FNK IR. Earlier today, electroCore published results for the third quarter ended September 30, 2025. A copy of the press release is available on the company's website. I'd like to remind you that management will make statements during the call that include forward-looking statements within the meaning of the federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements. All forward-looking statements, including, without limitation, any guidance, outlook or future financial expectations or operational activities and performance are based upon the company's current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list of the risks and uncertainties associated with the company's business, please see the company's filings with the Securities and Exchange Commission. electroCore disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information that is accurate only as of the live broadcast today, November 5, 2025. To begin, our Chairman would like to share a few thoughts on the company's strategy and future. Dr. Errico? Thomas Errico: Thank you, Dan. Good afternoon, everyone, and thank you for joining electroCore's Third Quarter 2025 Earnings Call. My name is Tom Errico, and as the newly elected Chairman of the Board, it's an honor to address you today. As a founder, practicing physician, consistent investor and daily user of our noninvasive vagal nerve stimulation technology for over 15 years, I am deeply committed to our mission of transforming lives. Today, I'll outline our strategic vision and discuss the background behind our key shift to accelerate growth. Dan and Josh will follow with an in-depth review of our financial and operational performance. Let's begin. electroCore was established to modernize vagal nerve stimulation by developing a noninvasive technology, starting with our FDA-approved medical device for the prevention and treatment of migraines and cluster headaches. While I personally do not suffer from these conditions, I use noninvasive vagal stimulation daily. About 12 years ago, during investment meeting on vagal nerve stimulation in New York City, Dr. Kevin Tracey, the pioneer of VNS, was asked if he used the technology himself. At that time, he used an auricular device for at least 20 minutes a day. When questioned about this commitment, he answered, because it gives me a daily overwhelming sense of well-being. As a routine user of VNS, his words strongly resonated with me and helped explain the positive performance-enhancing effects I was experiencing. Fast forward a decade or so and research from Air Force Labs has further confirmed the remarkable performance benefits of noninvasive vagal nerve stimulation associated with electroCore's technology. As a practicing physician working with both adults and children, I encounter patients daily who could benefit from the substantial health and wellness impacts of VNS. Expanding access to this technology inspired us to launch Truvaga. As a microcap company listed on NASDAQ, we are uniquely positioned to innovate, although we contend with challenges related to scale and visibility. Previously, the company anticipated achieving positive quarterly cash flow from operations by the end of 2025. Along the way, opportunities emerged to significantly boost shareholder value by redirecting investments towards areas with higher growth potential. We were confident navigating this pivot, having experienced quarters with modest shortfalls but approaching positive cash flow on an adjusted EBITDA basis. After a thorough evaluation, the Board determined that maintaining the status quo would cap our growth and market penetration, failing to realize ECOR's full potential and meet shareholders' expectations. To accelerate progress, we executed targeted investments, completed a strategic acquisition, expanded our medical division through key hires, onboarded a new software AI partner to enhance our wellness app and welcomed 2 new Board members from Microsoft and Google. These immediate investments may slightly delay near-term profitability, but we are confident that they will set the stage for accelerated revenue growth in future quarters. We are managing these expenditures rigorously and strategically to ensure sustainable long-term value creation. To provide greater transparency and detail, our path to profitability would have likely yielded limited short-term gains, primarily from one FDA-cleared medical device within the VA and the single wellness product, Truvaga. Instead, we chose to defer profitability and invest in 3 priority areas: to broaden our product range; diversify revenue streams; and enhance long-term shareholder value. This intentional diversification also reduces customer concentration risk and is expected to increase electroCore's resilience over time. Pivot 1, the NeuroMetrix acquisition. We acquired the Quell portfolio, including a second FDA-cleared neuromodulation therapy from NeuroMetrix at a minimal upfront cost aside from the transaction expenses and a minor capped royalty. Quell Fibromyalgia gained FDA de novo authorization in 2022, becoming the first nondrug device indicated for fibromyalgia-related chronic pain. In addition to Quell Fibromyalgia, we added the over-the-counter Quell Relief brand to our platform. According to Persistence Medical Research via a Global Newswire article, global fibromyalgia treatment revenue reached $1.3 billion in 2022 with a projected CAGR of 7% to $2.7 billion by 2033. This acquisition diversifies our offering within the VA and meaningfully mitigates product risk in that channel. We launched Quell Fibromyalgia through our sales force in July, and its early performance has exceeded expectations. Third quarter and fourth quarter projected results should cover the full acquisition cost and support years of revenue growth. Dan will share more details on this. Pivot 2, strengthening our VA channel. Our foundation in VA medical sales is robust. Although we saw a temporary slowdown in Q4 2024 due to external macroeconomic and political factors, we navigated these headwinds effectively. VA revenue growth resumed, and we secured a new 5-year contract and upgrade from our previous 3-year agreement. We are selectively expanding our VA sales team and pursuing multiple strategies to boost adoption and drive growth within the VA. Beyond VA, there are short-term opportunities in certain managed care systems. Even though our therapy has been included in formularies, we recently finalized a contract that provides a clear route to access and coverage. We have made a modest investment in a dedicated sales team to create a sustained revenue stream. Pivot 3, developing our wellness division. We have enhanced our expertise in the Wellness division and strengthened our Board. James Theofilos, formerly at Microsoft and now at Google is a member of the Theofilos family, our largest investor, and I look forward to continued collaboration with him on the Board. More recently, we welcomed Elena Bonfiglioli from Microsoft to our Board. She brings expertise in artificial intelligence, international product development and wellness. Her insights are shaping our approach to developing integrated software applications for our wellness products. Through her introduction, we partnered with StratejAI, a European software and AI firm to build software that complement Truvaga and Quell, providing users with personalized data-driven experiences and potentially generating new recurring revenue streams. We're not just participating in the $600 million global VNS market. We're targeting the fast-growing noninvasive category, aiming at an $80 million to $120 million global wellness opportunity with Truvaga and Quell. If we succeed in building out AI integrated software, we could establish a recurring revenue model in a market growing 15% annually with data supported by InsightAce Analytics and Global Wellness Institute. Additionally, I want to mention another significant investor in electroCore, Stephen Zhang, an experienced China-based investor. electroCore is broadening its options outside the U.S. through a royalty-based arrangement with his company to commercialize electroCore products in China. Time lines for approval and commercialization depend always on local regulatory processes, but this arrangement requires no capital investment from ECOR. Regulatory and commercialization efforts fall to the licensee. We appreciate Mr. Zhang's ownership and enthusiasm for our products. This teamed with Ms. Bonfiglioli's residents and connections in the EU and the Middle East, we have made a direct decision to broaden our opportunity outside of the U.S. Dan can provide more specifics. As a founder, investor and daily user of noninvasive VNS, I remain confident that prioritizing focused investments over immediate quarterly profitability is the right long-term strategy for our shareholders. Dan will outline our revised time line shortly. The Board's decisions are intended to transform how people manage their health by merging the ancient practice of neuromodulation with cutting-edge AI and data technology. In summary, electroCore stands at a pivotal moment. Through acquisitions, expanded channels, board enhancements and advanced software integration, we aim for sustained growth and broader impact. We are evolving into the company we always aspire to be. Thank you for the ongoing support from our shareholders, employees and users. I look forward to what the future holds. I'll now hand things over to Dan for a detailed review of our quarterly performance. We welcome your questions. Thank you. Dan? Daniel Goldberger: Thank you, Tom. Turning to the details on the third quarter. electroCore delivered another strong performance, extending our growth trend and strengthening our foundation for scale. The VA hospital system remains our largest customer and continues to grow. Following the closing of the NeuroMetrix acquisition on May 1, 2025, Quell is showing strong early traction as a noninvasive pain therapeutic for fibromyalgia in the VA hospital system. Truvaga sales also returned to growth, driven primarily by our e-commerce store at www.truvaga.com and an expanding network of affiliates who actively promote Truvaga to their audiences. As Dr. Errico noted, electroCore pioneered noninvasive vagus nerve stimulation. Today, we are broadening that innovation into a suite of noninvasive bioelectronic technologies that improve quality of life for patients and for wellness consumers in the United States and select international markets. Science and data continue to guide every step we take. In the third quarter of 2025, revenue reached a record $8.7 million, up 33% year-over-year and 18% sequentially. Gross margins remained strong at 86%, up slightly from 84% last year. We model gross margins in the mid-80s going forward. Prescription device revenue grew 19% year-over-year to $6.8 million, driven by both gammaCore and Quell sales in the VA hospital system. As of September 30, 2025, 195 VA hospital facilities have purchased prescription gammaCore products, up from 166 a year ago. The VA Headache Centers of Excellence estimates approximately 600,000 patients are being treated for headache in the VA hospital system, including approximately 24,000 cluster headache patients. We have now dispensed 12,000 gammaCore devices, roughly 2% of the addressable VA headache market, with additional opportunity among patients experienced headaches related to PTSD and mild traumatic brain injury. We believe there are as many as 550,000 fibromyalgia patients in the VA hospital system based on published incidence and prevalence data. NeuroMetrix has dispensed less than 700 Quell fibromyalgia stimulators since launch in 2024. So we believe there's plenty of room to grow here as well. We plan to continue growing our VA hospital business by adding W-2 and 1099 staff in select locations through 2026. While the VA remains our largest customer, we are also investing in sales talent to focus on a large commercial managed care system. In the third quarter, our DME distributor, Joerns, was finally able to add gammaCore Sapphire to their contract with that managed care system. This step could remove a lot of the friction prescribers have faced and opens an additional pathway for growth. Health and wellness product revenue reached $1.9 million, a 54% increase sequentially and 121% year-on-year. That includes a $500,000 onetime Truvaga order for a third-party clinical trial. Excluding that transaction, Truvaga revenue grew 18% sequentially and 79% year-on-year. We believe this return to sequential growth is a result of the shift away from Amazon and the team's increased focus on driving sales through other direct-to-consumer platforms. Return on advertising spend, or ROAS, ROAS for the period was approximately 1.80, meaning for every $1 spent on media, we generated nearly $1.80 of revenue. Return rates across our e-commerce platforms are approximately 11% to 12%, consistent with prior periods. We have sold more than 19,000 Truvaga handsets, powering more than 1.6 million user sessions on our mobile app. We plan to continue making marketing and promotional investments in our Truvaga platform to drive growth in 2026 and beyond. For example, national media outlets like Women's Health and Men's Health have been driving website traffic. Miranda Kerr mentioned Truvaga on The Skinny Confidential podcast this month. Affiliates like TruMed, Ben Greenfield and Luke Storey have been promoting Truvaga and Truvaga will soon be available through online retail outlets like Best Buy and Rehabmart. We expect to add new use cases in target demographics for our nVNS products and launch additional health and wellness offerings such as Quell Relief for lower extremity pain. In addition, on the recommendation of our new Board member, Elena Bonfiglioli, we've begun developing our next-generation application to complement Truvaga and Quell, creating personalized data-driven user experiences and potentially a new recurring revenue stream. Based on the opportunities in front of us, we are investing now in people, marketing and product to accelerate growth and drive scale in '26 and 2027. As Dr. Errico described, this is a strategic decision to prioritize growth and long-term value creation, delaying company-wide profitability as measured by adjusted EBITDA until the back half of 2026. We believe that a Truvaga copycat from Eastern Europe has been infringing our patents and trademarks. You may have seen some filings in the Federal Court in the District of New Jersey about our escalating dispute. The case is ongoing, and we will refrain from commenting beyond the public filings. Josh will discuss operating expense, cash trajectory and guidance in more detail later in the call. However, our cash balance as of September 30, 2025, was $13.2 million. We used approximately $1.5 million in the 3 months ended September 30, 2025, and a total of approximately $6.5 million in the first 9 months of the year to fund operations. We forecast a pro forma cash balance at December 31, 2025, at approximately $10.5 million. Let me return to the 3 pivots that Dr. Errico mentioned earlier. The NeuroMetrix acquisition closed on May 1, 2025, was integrated and launched in our VA hospital channel ahead of schedule and has exceeded our revenue expectations. We had to increase our estimate of future royalties due to the legacy NeuroMetrix shareholders because revenue is ahead of plan, resulting in a noncash hit to EPS of about $0.05 per share. That's actually great news even though it negatively impacted our income statement. We're strengthening our VA hospital sales channel by adding talent in key geographies. We are further investing in developing a parallel channel through a large managed care system. We're strengthening our wellness initiatives through the addition of key people, recruiting influencers, affiliates and new outlets and investing in products. Quell Relief for lower extremity pain could be an exciting new offering in our direct-to-consumer channel. I expect that operating expenses will increase as we scale marketing and sales. Accordingly, the quarterly revenue required to reach cash positive operations is expected to rise. On our August 25 earnings call, we indicated that approximately $12 million in quarterly revenue would cover our OpEx plan and support positive cash from operations as measured by adjusted EBITDA. Based on our current trajectory, we believe that we can achieve these levels and deliver positive adjusted EBITDA in the second half of 2026. Just to summarize our guidance. First, we are increasing full year 2025 revenue guidance from $30 million to $31.5 million to $32.5 million. Second, we expect to have approximately $10.5 million of cash at December 31, 2025. Third, we believe that the business can achieve cash positive operations as measured by adjusted EBITDA at approximately $12 million in quarterly revenue. Fourth, we expect to reach $12 million in quarterly revenue and positive adjusted EBITDA in the second half of 2026. And finally, we expect to use approximately $5 million of cash to fund operations in the first 9 months of 2026, after which we expect the business operations will become self-funding. Now I'll turn the call over to Josh for a review of our financials and select guidance. Josh? Joshua Lev: Thank you, Dan. Net sales for the third quarter of 2025 were $8.7 million, an increase of 33% as compared to $6.6 million for the third quarter of 2024. The $2.1 million increase was driven primarily by higher sales of prescription devices and growth in the company's non-prescription general wellness Truvaga product. Gross profit for the third quarter was $7.5 million as compared to $5.5 million for the third quarter last year. Gross margin was 86% compared to 84% for the third quarter last year. Research and development expense in the third quarter was $662,000 as compared to $521,000 in the third quarter last year. This increase was primarily due to increased development costs associated with our next-generation health and wellness mobile application in the 3 months ended September 30, 2025, as compared to the 3 months ended September 30, 2024. Selling, general and administrative expense was $9.7 million for the 3 months ended September 30, 2025, an increase of $2.1 million as compared to $7.6 million for the previous year. This increase was primarily due to greater investment in selling and marketing costs, consistent with the company's increase in sales. For the remainder of 2025, the company plans to continue to make targeted investments in sales and marketing to support its commercial efforts. Total operating expenses in the third quarter were approximately $10.4 million as compared to $8.1 million in the third quarter last year. Total other expense was $521,000 for the 3 months ended September 30, 2025, which consisted primarily of $384,000 of acquisition-related costs in connection with the change in the estimated liability payable to pre-closing shareholders of NeuroMetrix pursuant to a contingent value rights agreement or CVR, and $150,000 of interest expense on the convertible debt financing with Avenue Capital. This compares to total other income of $154,000 for the 3 months ended September 30, 2024, which consisted mainly of interest income. GAAP net loss in the third quarter of 2025 was $3.4 million or a loss of $0.40 per share as compared to net loss of $2.5 million or a loss of $0.31 per share in the third quarter of 2024. The increase in net loss is primarily attributed to an increase in other expense related to the CVR liability and interest expense on the convertible debt financing with Avenue Capital. GAAP net loss per share includes a loss of $0.05 per share and $0.02 per share attributed to the CVR liability and interest expense, respectively. Adjusted EBITDA net loss in the third quarter of 2025 was $2 million as compared to adjusted EBITDA net loss of $2.1 million in the third quarter of 2024. A reconciliation of GAAP net loss to non-GAAP adjusted EBITDA net loss has been provided in the financial statement tables included in today's press release. Cash, cash equivalents, restricted cash and marketable securities at September 30, 2025, totaled approximately $13.2 million as compared to approximately $12.2 million as of December 31, 2024. On August 4, 2025, we secured a term debt facility with Avenue Capital, providing approximately $7.2 million of net cash at closing. Additional details on the Avenue Capital facility can be found in our filings. On October 2, 2025, we closed a small private placement with certain institutional investors in satisfaction of an aggregate of approximately $1.9 million of legal services rendered or to be rendered to the company by the investors. Our balance sheet has been strengthened by these transactions, and we have no plans to access the capital markets at this time. For the full year of 2025, the company is increasing its revenue guidance to $31.5 million to $32.5 million and a cash balance of approximately $10.5 million as of December 31, 2025. And now I'll turn the call back over to you, Dan. Daniel Goldberger: Thank you, Josh. I echo Dr. Errico's enthusiasm about the future of electroCore. We continue to report above-market operating results. Prescription device sales continue to grow with sales of both our gammaCore and Quell Fibromyalgia products. Our strategy of offering a suite of bioelectronic products and technologies into our established channels is developing nicely. Demand for prescription devices in the VA hospital channel is driven by clinical data and our increased presence in the field. The launch of prescription Quell Fibromyalgia has exceeded our expectations. We plan to hire additional W-2 territory business managers to increase adoption of our technologies in the VA hospital system as well as dedicating resources to accelerate adoption in managed care systems. We currently have approximately 80 sales agents, including sub reps, managed by an internal sales team of 16 salaried employees. Truvaga Plus has been favorably received by the market since its April 2024 launch. The brand continues to show tons of potential as a direct-to-consumer general wellness offering and has returned to sequential growth. We sell Truvaga products direct-to-consumer through our e-commerce site, www.truvaga.com, and through Truvaga partners like Ben Greenfield, Perks at Work, TruMed, Rehabmart, Best Buy Online and through a growing number of affiliates and influencers. We continue exploring the expansion of the Truvaga proposition through new product offerings and have begun development of our next-generation mobile application. We believe the Truvaga brand has potential to become a significant player in the health and wellness space, and the evolution of the brand is important for providing shareholders with long-term value. For the third quarter of 2025, our sales and marketing expense increased sequentially by approximately $640,000, while sales grew by roughly $1.3 million, demonstrating operating leverage in spite of those increased investments. The acquisition and integration of NeuroMetrix exceeded our expectations. Adding products like Quell Fibromyalgia into the prescription VA channel allows our field sales team to offer a growing suite of bioelectronic self-administered therapies for certain debilitating conditions. As we continue to add new products to our established channels, we'll also continue working towards additional indications for prescription gammaCore to treat post-traumatic stress disorder and other clinical opportunities. In summary, I believe we are poised to accelerate growth and we'll be increasing our investment in the high-margin prescription device space to help underwrite investments in the health and wellness channel. With our current cash position, we believe we have access to sufficient liquidity to execute this plan as we get closer to breakeven in 2026. At this time, I'll return the call to the operator. Operator, please open the line for questions. Rob Fink: Thanks, Dan. We're now going to open the line for Q&A. [Operator Instructions] But just note, if we run out of time and have a constraint, someone from the IR team will get back to you if your question is not asked on today's call. With that, we're going to go and open up the call, and we'll start with Jeff Cohen from Ladenburg. Jeffrey Cohen: Sorry, can you hear me okay? Just a couple of quick questions for you. So firstly, congrats on the Quell in both the VA channel as well as the other channels. Can you remind us previously what channels NeuroMetrix was selling into before the acquisition? Daniel Goldberger: So the prescription Quell for fibromyalgia was sold in 4 or 5 VA hospitals off contract through open market access prior to the acquisition. And there were a few cash pay customers who were served through HealthWarehouse, which is a PDM, but small numbers. Jeffrey Cohen: Okay. Got it. Can you give us any further color on the [indiscernible] Truvaga sale for a clinical trial? I'm assuming one clinical trial. Daniel Goldberger: Yes. It's one clinical trial that's being run in long COVID subjects. There are a variety of other therapies that are being evaluated. It's a pretty large trial. Candidly, we don't know very much about it because it's an investigator-initiated trial, and they really didn't share the protocol with us, et cetera. Jeffrey Cohen: Got it. Okay. And then lastly, talk about the next-gen mobile app that you're working on. I'm assuming it's software-only, and will it be usable for all your platforms being gammaCore, Truvaga and Quell? Daniel Goldberger: So great question. So the next update of our app will be Truvaga Plus only. It will work with the legacy Truvaga Plus that we've been selling since inception in April of last year, but it is not set up to work with gammaCore or Quell. Quell has its own app, mobile app environment. As we wrap our arms around it next year, we're going to look at harmonizing the various mobile apps for vagus nerve stimulation and for the Quell fibromyalgia apps, but that's going to take us a little bit longer to get our arms around it. Rob Fink: Our next question comes from RK of H.C. Wainwright. Daniel Goldberger: RK, are you there? Swayampakula Ramakanth: Can you hear me, Dan? Daniel Goldberger: Yes. Swayampakula Ramakanth: And thanks to Dr. Errico for giving those comments, which is really helpful for us. So I have a few questions. So let me start off with a high-level one in terms of how the strategy of acquisition of Quell fibromyalgia seems to be doing much better than what we were in internal expectations? So can you kind of comment on what's helping this product especially in the VA space? And what sort of learnings do you have at this point that you can help the next class of salespeople that you're going to bring on board? Daniel Goldberger: Great question. Thanks, RK. So the time line is that -- in May and June, we did 2 things. We moved the production facility down here to Rockaway, New Jersey, and we were able to add prescription Quell for fibromyalgia to our VA hospital contract. Once we did that, once we had product and contract in June and July, we were able to start training our sales team. They, in turn, were able to start demoing the product to their accounts. And the uptake has been much faster than we expected. Our primary headache call point is neurology. The primary call point for fibromyalgia is rheumatology, but both of those cross over in pain and in polytrauma. And we've been very upside surprised at the willingness given the safety profile that we've already demonstrated with gammaCore, the safety profile of the NeuroMetrix, Quell for fibromyalgia. The folks in pain and polytrauma have been very quick to adopt the fibromyalgia solution. Part of it is the safety profile. The other is that fibromyalgia patients don't have a lot of other options. It's a surprisingly unmet clinical need. Swayampakula Ramakanth: Fantastic. So thanks for actually telling -- giving me commentary on what is causing that pull. So now that you have it in the VA segment. Is it -- how easy is it to replicate in other areas, other segments, especially like the Kaiser Permanente or other hospital systems given the knowledge that you have now? Daniel Goldberger: So we're going to do that carefully. We've just got on contract at a large managed care system. I'm not allowed to say Kaiser. But that contract is specific for gammaCore Sapphire. We have not even attempted to bring Quell fibromyalgia to that system. But obviously, that's something that we're going to do once we gain traction with Kaiser. Swayampakula Ramakanth: Perfect. And then maybe you made some comments that I didn't listen. I was looking on some commentary on TAC-STIM and what is -- what should be our expectations in terms of Air Force procurement and not just for this year, for the next 45 days, but thinking about '26, I do understand it is a lumpy business, but just trying to get a feel for things. Daniel Goldberger: Yes. So it's a tale of 2 cities. The anecdotes, the research, the use cases that we hear about from Army and Air Force is incredibly enthusiastic, but the actual revenue generation continues to be small and lumpy. We did roughly $140,000 of revenue in the September 30 quarter for TAC-STIM products sold to active duty military. The current quarter, the fourth quarter has come to a screeching halt largely because of the government shutdown. I think we will get some orders in November and December, pending, of course, the government opening up, et cetera, et cetera. Our internal forecast for 2026 is about $400,000 for the full year, similar to the sort of $100,000 per quarter pace that we've had in 2025. There's huge upside, RK. I just can't -- and we're talking -- we're in conversations about some very large orders, but I just have no credibility to say what the timing of those orders is going to be. So we're going to be conservative for 2026. Swayampakula Ramakanth: Okay. And then last question from me is as Dr. Errico was talking about China, how meaningfully in a higher market is that going to be? And how do you really plan to commercialize that opportunity? Daniel Goldberger: So great question. We, as electroCore, do not plan to commercialize it at all. Mr. Zhang now owns roughly 10% of electroCore. He has a license to commercialize our technology in China and only in China for the time being. He seems to have significant resources, financial and access to product development and access to manufacturing. And what he has shared with me is that he plans to go through the CFDA process in China with a product that uses our technology, but of his own design, it will be manufactured in country and will pay us a royalty on unit sales and revenue. Rob Fink: Our next question comes from Jeremy Pearlman of Maxim Group. Jeremy Pearlman: Okay. Can you hear me? Daniel Goldberger: Yes. Jeremy Pearlman: Congrats on the quarter. Just firstly, the current growth, let's say, just specifically the VA segment, is that coming from more new accounts or increased utilization from existing customers? Daniel Goldberger: It's both, right? We're going deeper into our existing customers. We added what -- almost 40 new VA hospitals over the course of the last year. And so that's the leading indicator is opening up new hospitals. And then the Quell fibromyalgia project -- Quell fibromyalgia product was meaningful revenue in this quarter. Jeremy Pearlman: Right. Is there an expectation for 2026, how many additional VA hospitals you hope to start prescribing in? Daniel Goldberger: Yes. But it's a secret. Jeremy Pearlman: Secret. Okay. Then for a year's time, we'll hopefully get that answer. And then maybe also, is there maybe -- could you tell us what specific geographies? You said there's only -- you've only tackled 2% of the potential patient population in the VA system. Where do you see the most growth potential geographical-wise? Daniel Goldberger: So that's a good question. Right now, we are strong in Texas. We're strong in the Southeast and all up and down the West Coast. The New England, Mid-Atlantic, the -- we're pretty good in the Chicago area, but New England, Mid-Atlantic, the rest of the Midwest is all greenfield territory geographically for us. Jeremy Pearlman: Okay. Understood. And then just maybe one more question related to your clinical development pipeline. In the past, you've talked about many other indications. Maybe any update on the progress of how any of those trials are going? And when we could expect maybe potential new indications? Daniel Goldberger: Yes. So I've put -- we've been putting the most energy into PTSD, gammaCore in PTSD. And we had meetings with the FDA over the course of this year. We're still trying to convince them that the data that we have is adequate. But in the background, we're spinning up yet another pivotal trial in PTSD that will start enrolling next year. I don't think we needed to get the label, but even if we don't need it to get the label, it will be great for marketing support. And if FDA continues to be difficult, we'll have the additional data once and for all to get across the finish line. We've had a couple of publications about mild traumatic brain injury, what I know of as concussion. And so now we are doing some planning around what would it take to collect pivotal data to support a de novo submission around mild traumatic brain injury. So that's going to be a 2027 initiative. NeuroMetrix has quite a bit of data in neuropathy secondary to chemotherapy. And so we're going to look at whether or not we should go after a label extension for the Quell product line in that indication. And then there's intriguing data in low back pain that we'll take a look at as we get into 2026. Rob Fink: Our next question comes from Walter Schenker of Maz Partners. Walter Schenker: Just one quick question. My first comment is my wife and I do use the product every day and at least -- and we are very happy that we use it every day. So it can't hurt to have us do a plug through just our Chairman. Daniel Goldberger: Thank you. Walter Schenker: The Quell royalty is capped, which means that -- and this is actually a question that for the current year, since you just paid $400,000, you've largely paid and then incrementally, there should be minimal payments. And next year, it's capped at a lower level so that incrementally next year, the royalty payment will be less than it was this year. Is that correct? Daniel Goldberger: Yes, in Spirit, what we didn't pay anything. We adjusted the estimate that flowed through the income statement and now sits on the balance sheet as a future liability. The payment, the cash doesn't go out until May or June of next year. But otherwise, the income statement effect, you are correct. Walter Schenker: But the income statement, I understood, I should have stated it more clearly. The income statement effect both in the next quarter and in the coming year will be -- will decline? Daniel Goldberger: Correct. Walter Schenker: Year-over-year and quarter-over-quarter? Daniel Goldberger: Yes. Walter Schenker: And secondly, although someone asked the main question, I was curious about given how large the market is and given that your Chinese investor is a significant investor having filed on the company, just to further expand. So he is planning on moving forward as best you know, as a medical device, not as a consumer device. Daniel Goldberger: Correct. He is moving forward as a prescription medical device for a really exciting list of indications. And what I should have mentioned to the previous caller is that given the clinical studies that he's planning to underwrite, we may be able to migrate some of his data back to the U.S. for additional indications. Walter Schenker: And don't answer the question, if you don't owe me answer, I'm going to ask it anyway. As he looks at the Chinese market and given what you just said, their trials are as lengthy as ours. So even if he is very successful, we're talking substantial number of years before that data might be useful either in China or here... Daniel Goldberger: That's my understanding. In headache and in PTSD, where the clinical trial protocol is pretty well understood, he can get up and running relatively quickly. But for some of the other like rheumatoid arthritis things that he wants to chase, it's going to take longer. But in any case, it's years, not months. Walter Schenker: And lastly, not as a question, but as a comment, I was -- the most positive thing in this whole call for me is the fact that you have finally -- so it's a left-handed compliment or something. You finally meaningfully accelerated the penetration in the VA hospital system given the fact that there are -- we were at 10% penetration, and there's a lot of opportunity there if we can continue to expand the hospital penetration. Daniel Goldberger: Very well said and thank you for the compliment. It was not left-handed at all. Rob Fink: Okay, Dan, Josh, in our last few minutes here, we're going to try to bang out all of the texted-in questions. First, what is being done to combat the copycat marketing vagus nerve stimulation devices? Daniel Goldberger: Yes. So there's a European company, they go by the name Pulsetto. We have sued -- they sued us for the declaratory judgment that they do not infringe our patents earlier this year. We very quickly filed a cross complaint that's not only do you infringe that patent, you infringe this laundry list of additional patents. And by the way, there are a bunch of trade-related and trademark-related cross complaints in all of that. The filings are in the in Federal Court District of New Jersey, and my lawyers will not let me comment beyond what's in those public filings. Obviously, since we are in litigation, we want to focus on winning and winning big. There may be other infringers. We've put them on notice, but we're going to focus on the pending litigation. Rob Fink: Can you guys break out what neuro revenue contributions were for the quarter? The question came in from [Andrew Rem]. Daniel Goldberger: So Quell fibromyalgia or actually the full Quell line was $595,000 of net revenue in the third quarter. Rob Fink: Okay. And how about on Truvaga. Can you -- did you break that out? Could you break that out on Q3? Daniel Goldberger: I think we did, but it was $1,674,000. Rob Fink: Okay. Well, everyone, thanks for your participation. Dan, I'm going to turn the call back to you for your closing comments. Daniel Goldberger: Thank you, Rob. Thank you all for your time and attention. I know this was a little bit longer call. A special thank you to Dr. Tom Errico, our new Chairman, who has been a profound champion for this technology and for this company for many, many years. I want to thank all of our employees and sales reps out there that are working hard every day. I want to thank the folks in the VA hospital system and our other customers, but especially the federal workers who are struggling under this ridiculous government shutdown stuff going on right now. And yes, there's probably a bunch of other people I need to thank. But thank you all for your time and attention. Have a great day.
Operator: Good afternoon, and welcome to HubSpot's Q3 2025 Earnings Call. My name is Gigi, and I'll be your operator today. [Operator Instructions] I would now like to hand the conference over to Head of Investor Relations at HubSpot, Chuck MacGlashing. Please go ahead. Charles MacGlashing: Thanks, operator. Good afternoon, and welcome to HubSpot's third quarter 2025 earnings conference Call. Today, we'll be discussing the results announced in the press release that was issued after the market closed. With me on the call this afternoon is Yamini Rangan, our Chief Executive Officer; Dharmesh Shah, our Co-Founder and CTO; and Kate Bueker, our Chief Financial Officer. Before we start, I'd like to draw your attention to the safe harbor statement included in today's press release. During this call, we'll make statements related to our business that may be considered forward-looking within the meaning of Section 27A of the Securities Exchange Act of 1933 as amended and Section 21A of the Securities Exchange Act of 1934 as amended. All statements other than statements of historical fact are forward-looking statements, including those regarding management's expectations of future financial and operational performance and operational expenditures, expected growth, FX movement, and business outlook, including our financial guidance for the fourth fiscal quarter and full year 2025. Forward-looking statements reflect our views only as of today and Except as required by law, we undertake no obligation to update or revise these forward-looking statements. Please refer to the cautionary language in today's press release and our Form 10-Q, which will be filed with the SEC this afternoon for a discussion of the risks and uncertainties that could cause actual results to differ materially from expectations. During the course of today's call, we'll refer to certain non-GAAP financial measures as defined by Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between such measures can be found within our third quarter 2025 earnings press release in the Investor Relations section of our website. Now it's my pleasure to turn over the call to Spot's Chief Executive Officer, Yamini Rangan. Yamini? Yamini Rangan: hank you, Chuck, and welcome, everyone. Today, I'll share our Q3 2025 results and the key trends driving our performance. I'll then dive into what we launched at INBOUND, where we are seeing AI momentum and how we are reimagining marketing for the AI era. I'll wrap with our growth formula and how both our current and emerging levers create a durable path to growth. Let's dive in. Q3 was another strong quarter for HubSpot. Revenue grew 18.4% year-over-year in constant currency, reaching $810 million. We delivered solid operating leverage with an operating margin of 20%, reflecting our ability to balance growth and profitability. Total customers increased by 10,900 in the quarter, bringing our global customer base to nearly 279,000. Our results were powered by 3 drivers that continue to show up quarter after quarter, platform consolidation, multi-hub adoption and upmarket momentum. These themes are consistent, compounding and reinforce the strength of HubSpot as we scale. HubSpot is winning as a truly unified customer platform. Companies are consolidating their go-to-market stacks on HubSpot to reduce total cost of ownership, gain a unified view of their customers and accelerate AI innovation. Multi-hub adoption has become the norm across both new and existing customers. 43% of Pro Plus installed base by ARR now subscribe to our 3 core hubs, up 4 points year-over-year and 39% own 4 or more hubs, up 6 points. This expansion shows the value customers see in growing with HubSpot, and it is clear proof that our platform-first strategy is working. Our upmarket segment is humming. Larger companies are choosing HubSpot for its power, sophistication and speed to value. Deals over 5,000 monthly recurring revenue grew 35% year-over-year, reflecting the payoff from years of product investment, strong partner alignment and rising brand awareness amongst upmarket decision-makers. A great example is QS, a global education services company with over 1,000 employees. They replaced a 20-year-old legacy CRM and chose HubSpot to power their AI-first transformation, citing our AI strategy, approach to agents and pace of product innovation as key reasons for signing a multiyear multi-hub agreement. AI innovation took center stage this quarter. The highlight was, of course, our annual INBOUND conference. It was great to bring together 13,000 people in person and another 550,000 online from across our ecosystem. We launched more than 200 new updates and products that were well received by our customers and partners. The energy and feedback from INBOUND reinforce that our AI strategy is resonating and customers see HubSpot as the platform to help them grow and win with AI. Our strategy is simple: embed AI into hubs our customers use every day, build agents that do work and create breeze assistant and connectors that turn data into insights. At INBOUND, we launched new features in every hub from AEO strategy tools in Content Hub to AI-powered e-mail in Marketing Hub and AI meeting assistant in Sales Hub. We introduced Data Hub, which helps customers bring their data together in one place to get more value from AI. We enhanced our featured agents, customer agents and prospecting agent, launched a new data agent and opened up Breeze Studio, so customers can build and customize their own agents. And we became the first CRM to connect directly with the 3 leading LLMs, ChatGPT, Cloud and Gemini. These innovations are delivering real results for customers. Customers who use our embedded AI features in Marketing Hub get better results, higher click-through rates and over 50% higher lead conversion. Similarly, customers who use AI features in Sales Hub are winning almost 10% more deals. Our agents are also gaining strong adoption. Customer agent now has over 6,200 customers, up 48% from last quarter with an average resolution rate in the 60s. Prospecting agents has been activated by 6,400 customers, up 94% from last quarter, and customers have used it to engage over 1 million prospects. Data Agent is new, but already has 1,700 customers who have activated it. Breeze Assistant is the digital assistant for every go-to-market employee, and we have seen weekly active usage increase by 56% in the past 6 months as customers use it to summarize records and uncover insights that drive performance. A key part of our AI strategy is our LLM connector approach, and the momentum we are seeing here is impressive. Our ChatGPT connector has been activated by more than 47,000 customers with 55% of them being Pro Plus customers, and our Cloud Connector is already being used by over 6,000 customers. We believe that LLMs and HubSpot are powerful together and complement each other. Why? Well, there are 3 reasons. First, LLMs create insights. HubSpot provides the context that makes insights possible for go-to-market teams. LLMs are great at generating ideas from public data or a user prompt. But HubSpot is where the full go-to-market context lives, every interaction, sales conversation, support ticket, marketing campaign. That context is necessary to turn generic AI output into insights that are accurate, relevant and actionable. Second, LLMs generate ideas. HubSpot turns them into action within a business context. On their own, LLMs can tell you what to do. With HubSpot, you can actually do it. HubSpot is where companies build sophisticated workflows, launch multichannel campaigns and take actions to drive growth. And third, LLMs are great at single-player tasks, and HubSpot is built for multiplayer teams. HubSpot remembers each user, their role, preferences, team, what they have permissions to access and where they can take action. Now stepping back, HubSpot houses AI and is the customer platform where intelligence and context are applied, acted on and shared across teams. Platforms were sticky pre-AI, they will be even stickier in the AI era. Okay. Let's talk about how we are reimagining marketing for the AI era and the opportunity it creates for HubSpot. Marketing landscape is changing fast. Search traffic is declining globally as AI overviews provide answers. Customers are spreading their attention across channels and visiting fewer websites. At the same time, AI is creating entirely new opportunities via LLMs like Answer Engine Optimization, or AEO. At HubSpot, we saw these shifts coming early. We've been diversifying marketing channels and experimenting with AEO, and that strategy is working. At INBOUND, we introduced the Loop, our new playbook for growth in the AI era. It gives customers clear step-by-step guidance on how to drive growth by combining human creativity with AI efficiency. And the response has been incredibly strong with 270 million impressions on Loop content and over 100,000 views of the Loop playbook experience. We also launched new products to help customers put the loop into action, including Data Hub, which makes it easy to build ideal customer profiles and Marketing Studio, which helps marketers personalize content based on buyer intent. A key part of the loop is helping customers show up in AI-generated answers. Our AEO grader and AEO strategy tools launched at INBOUND make it easy for businesses to come up with a strategy and improve their visibility in LLMs. And last week, we announced an agreement to acquire XFunnel, one of the first and most complete platforms for tracking and improving how brands appear across LLMs. XFunnel shows when and how often your brand is mentioned in AI-generated answers and provides clear guidance on how to strengthen that presence. We'll natively build XFunnel into HubSpot, giving our customers even more ways to understand, improve and grow their brand visibility in the AI era. Now let's talk about our growth formula and how we are unlocking new levers for HubSpot. Our core growth levers continue to perform, platform consolidation, multi-hub adoption and upmarket traction. At the same time, emerging levers are gaining momentum, including seats pricing change, core seats and credits. We introduced the core seat last year to give customers edit access to the Smart CRM, the unified record that powers our platform, and that strategy is working. At INBOUND, we made the core seat even more valuable by adding AI and data capabilities like Breeze Assistant, Smart starts, projects and enrichment data and by unbundling the Smart CRM so customers can start right there. Our vision is to make the core seat essential with AI and data value for every go-to-market employee. Credits are another powerful emerging lever. They are our universal usage-based pricing system, covering AI agent actions and data hub sinks and soon will extend across the entire platform. Credits tie our growth directly to customer value. And as customers use more data, use more AI and automation inside HubSpot, they'll grow with us. Together, core seats and credits expand how HubSpot captures value, building on our durable foundation and creating a long runway for growth. As I wrap up, I want to share our conviction that HubSpot is positioned to lead in the AI era and drive durable long-term growth. We are innovating rapidly, transforming into an agentic customer platform and operating efficiently at AI speed. We have durable differentiators and growth levers, and we deeply understand our segment and what small and medium businesses need to grow with AI. We are uncovering new ways to drive efficiency and finding signals to show our customers what's possible with AI. I'm more confident than ever in our strategy and our ability to deliver value for customers in this new era. Thank you to all our customers, partners and shareholders for your continued support. And a huge thank you to all HubSpoters around the world for staying focused on solving for our customers every single day. With that, I'll turn the call over to Kate to take you through our Q3 financial results in more detail. Kate? Kathryn Bueker: Thanks, Yamini. Let's turn to our third quarter 2025 financial results. Q3 revenue grew 18% year-over-year in constant currency and 21% on an as-reported basis. Subscription revenue grew 21% year-over-year, while services and other revenue increased 19% on an as-reported basis. Q3 domestic revenue grew 17% year-over-year. International revenue growth was 20% in constant currency and 25% as reported, representing 49% of total revenue. We added 10,900 net new customers in Q3, bringing our total customer count to 279,000, growing 17% year-over-year. Average subscription revenue per customer was $11,600 in Q3, up 1 point year-over-year in constant currency and up 3 points on an as-reported basis. While we're happy with the strong net adds in Q3, we continue to expect net additions to be in the range of 9,000 to 10,000 in Q4 and for ASRPC growth in constant currency to be up roughly 1 point. Customer dollar retention remained in the high 80s in Q3, and net revenue retention was flat sequentially at 103% as expected. As I shared last quarter, we expect to see a step-up in net revenue retention in Q4, resulting in a couple of point improvement in net revenue retention for the full year of 2025. Calculated billings were $804 million in Q3, growing 19% year-over-year in constant currency and 18% on an as-reported basis. The remainder of my comments will refer to non-GAAP measures. Q3 operating margin was 20%, up 1 point compared to the year ago period and 3 points sequentially. Net income was $140 million in Q3 or $2.66 per fully diluted share. Free cash flow was $147 million or 18% of revenue in Q3. Our cash and marketable securities totaled $1.7 billion at the end of September. In Q3, we repurchased 780,000 shares of common stock under our share repurchase program, representing $375 million. With that, let's dive into our guidance for the fourth quarter and full year of 2025. For the fourth quarter, total as reported revenue is expected to be in the range of $828 million to $830 million, up 16% year-over-year in constant currency and 18% on an as-reported basis. Non-GAAP operating profit is expected to be between $183 million and $184 million, representing a 22% operating profit margin. Non-GAAP diluted net income per share is expected to be between $2.97 and $2.99. This assumes 52.7 million fully diluted shares outstanding. And for the full year of 2025, total as reported revenue is now expected to be in the range of $3.113 billion to $3.115 billion, up 18% year-over-year in constant currency and 19% on an as-reported basis. Non-GAAP operating profit is now expected to be in the range of $574 million to $575 million, representing an 18% operating profit margin. Non-GAAP diluted net income per share is now expected to be between $9.60 and $9.62. This assumes 53.2 million fully diluted shares outstanding. As you adjust your models, please keep in mind the following: we now expect CapEx as a percentage of revenue to be 6% for the full year of 2025, driven by higher capitalized software expenses. And we still expect free cash flow to be about $580 million for the full year of 2025. With that, I will turn the call back over to the operator for questions. Operator: [Operator Instructions] First question comes from the line of Samad Samana from Jefferies. Samad Samana: So Yamini, my question is for you. I think the core focus of investors is HubSpot getting back to 20% growth and I think investors were pretty excited and myself included seeing that accelerating ARR slide at the Analyst Day. We might have gotten ahead of ourselves, but how do you think about the path to get back to 20% growth? Can the current focus on that 200 and below segment support that level of growth? Or do you think that hitting the gaps on enterprise is necessary. Maybe just help us think through that. Yamini Rangan: Yes. Thanks a lot, Samad. I appreciate it. Look, we believe we can grow faster than where we are today, and we are focused on doing it in a durable, disciplined way. The thing I would point out is that net new ARR is the leading indicator that we shared with you and revenue is the lagging indicator with flow-through. Now if I step back and look at the foundation, our core growth drivers are strong and they are proven. We have a playbook that works, which is platform consolidation, moving upmarket and multi-hub momentum. And you can see that in our customer retention numbers, the seat upgrades that are consistent and the large deal momentum that are compounding quarter after quarter. And we're going to continue to expand our sales capacity as well as the productivity across all of our segments to capture that opportunity. Then we have a set of emerging growth drivers that strengthen that outlook further and put us on a path of durable growth. And we shared that at Analyst Day, but I'll kind of walk through it. The pricing changes that we drove last year is a tailwind. We are seeing seat upgrades pick up. And as the change rolls through our installed base this year and next year, we'll continue to see growth from that. And AI is a multiyear tailwind. We are in the very early stages of this whole innovation cycle playing out, and we are acting with urgency to cement a leadership position and set ourselves up for long-term growth. And specifically, with AI, we see the opportunity to monetize both through seats as well as credits. Now core seats, which we talked about at Analyst Day, it is becoming more valuable, and it is embedded with AI data platform value, and that opens up a large opportunity. credits gives us a new way to monetize usage for customers as they consume more AI and agent-driven actions. So look, we are very excited about the emerging drivers, the strength that we see within the emerging drivers, and we're really excited about the upmarket momentum. We think we have plenty of TAM to be able to drive and grow faster than where we are. Most importantly, we have a track record of consistent execution and helping our customers grow. And that gives us confidence that HubSpot can be a durable growth business for years to come. Operator: Our next question comes from the line of Mark Murphy from JPMorgan. Mark Murphy: Yamini, several of your partners have said that they're pretty encouraged about their own growth potential moving into 2026. I'm curious if you see any signs that Google's AI overviews are actually driving an extra wave of interest for HubSpot to try to use your loop concept and your answer engine optimization tools so that they can gain their own kind of visibility in AI-generated answers. Is there anything tangible there that you can speak to? Yamini Rangan: Mark, thanks a lot for the question, and thanks always for talking to our partners to uncover the underlying trends. Look, I would say marketing and the trends that we are seeing within marketing is a big opportunity for our customers and for HubSpot to grow. And specifically, you talked about what is happening with the marketing. But really, we see it as a couple of things. One, AI overviews are providing answers, which means website visits are declining. And that means there is a need for a new playbook to diversify the channels that you are present in, including AEO. And that is exactly what we launched at INBOUND. At INBOUND, we launched the playbook, which you referenced, which is the loop. And I would say that the response from customers and partners have exceeded our expectation across every metric in terms of impressions, we had 270 million impressions, playbook impressions, number of conversations that's generating. And specifically, there are 3 parts of the playbook that are resonating with customers as well as partners. The first one is diversifying channels. And the #1 thing that you can do to counter SEO volume decline is to diversify your channels into YouTube and Insta and podcasts and newsletters, and that is resonating. The second is, how do you actually use AI for deeper segmentation and personalization. Look, there's just a lot of talk about AI driving disruption. But the bigger story is how AI can be helpful in using intent data to drive better conversion, and that is resonating. And then, of course, building visibility in LLMs through Answer engine optimization that you mentioned. And all of that is resonating. And we're seeing lots of conversations within AEO. AEO is early. We got in earlier, and we have an AEO grader out in the market that has been used by 70,000 customers already. Our AEO strategy tools are getting used in order to look at this nascent channel. And last week, we announced XFunnel, which completes our platform of providing visibility to customers on which LLMs they're showing up and how to improve their presence within that. And so look, if I step back, SEO is a big disruption, but this is also one of the biggest opportunities for our customers to figure out how to grow, and it is one of the biggest opportunities for HubSpot, which is why we have the playbook, we have products and we have the whole partner ecosystem activated to deliver on that. And we're super excited about the opportunity. Operator: Our next question comes from the line of Parker Lane from Stifel. J. Lane: Yamini, you continue to point to platform consolidation as one of the key drivers of the business. Traditionally, cost savings were one of the things that drove people towards that consolidation. How often are you seeing with the launch of Breeze and these new agents you brought to the platform that a desire to really embrace agents and have a unified data source is the reason for consolidation versus just traditional cost savings? Yamini Rangan: Yes. That's a fantastic question. I think equal parts. I would say 3 reasons why customers talk to us about consolidating on a platform. The first one, as you said, is total cost of ownership. And remember, we've come from a period of people buying a lot of point solutions and tools and TCO kind of like bloating up, and that continues to be the #1 reason. The second reason is actually getting all of the customer data and context into a unified platform. Whether they're leveraging AI or they're just getting their whole digitization journey going, you need data and unique customer context across the whole journey. And if you have a lot of point solutions and a lot of point agents, you just do not have the visibility to drive insights. And then I would say the third reason is really AI and wanting to adopt AI. And while AI is not always the primary driver, it is a clear pool in terms of the conversations. And what we hear from prospects, from customers is that they want one platform that has all of the data and they want to be able to have a clear road map so that they can future-proof their investments. And they like what we are doing with our AI strategy, which is embedding AI across all of the hubs and making it easier for our customers to build on that road map. So I see all 3 reasons probably kind of split equally. Operator: Our next question comes from the line of Alex Zukin from Wolfe Research. Aleksandr Zukin: I guess, yes, I'll be a little bit direct. If I look at the magnitude of the beat this quarter, it was a little bit lower than I think some people were thinking about. But at the same time, the raise for Q4 is, I think, the strongest raise on a constant currency basis that you guys have ever done. So is there any moving pieces that you can comment on? And billings, I think, was a little bit of a decel. But then net new ARR, as you showed us that slide at the Analyst Day, was really, really strong in the first half and seemingly in Q2. So any commentary on a forward-looking metric basis around how net new ARR performed in 3Q, maybe to disentangle some of the in-quarter versus guide confidence dimensions? Kathryn Bueker: Yes, Alex, it's Kate. Maybe I'll take this and if Yamini has more to add, she's welcome to do at the end. We did outperform in Q3. We executed really well. And the outperformance was driven by all the things you heard Yamini talk about, continued strength upmarket, continued strength with multi-hub and continued strong seat expansion. We also saw some incremental FX tailwind versus what we expected when we guided last quarter, and we've fully flowed that through our revised 2025 guidance. I think you heard from Yamini, and I've talked about it in the past as well as at Analyst Day, it will take some time for our strong net new ARR growth to translate into like an inflection in revenue growth, just given the scale and size of our installed base, but we've seen stability here over the last few quarters. All that said, our approach to guidance was consistent this quarter. Operator: Our next question comes from the line of Keith Bachman from BMO. Keith Bachman: Yes. Actually, it's a good segue from Alex. I wanted to ask a similar question, but I'll phrase it differently in that billings growth is one metric, but the constant currency billings growth is generally in the last 6 quarters been in a range of the highs 21%, the lows 19%. So in that range for 6 straight quarters. And so, a, you've talked about a lot of goodness that's coming through the model, but what's the offset? What's been constraining and particularly this quarter with 19% which was a little bit lower beat than you've had in the past quarters. What's not going as well that's constraining it? And then also, Kate, per your last comment, you've mentioned that net new ARR has been strong, but it takes a while. But maybe you could put a little more context around that and that the stock is down pretty materially here in the after hours. How should investors think about when will the net new be fulfilling enough, if you will, to then translate or show up into the revenue growth? What is the -- any timing expectations that we should put in consideration? Kathryn Bueker: Yes. Maybe I'll start with the billings question because I want to make sure that we are sort of aligned with the metric and our expectations for billings. My baseline expectation is that constant currency revenue growth and constant currency billings growth are going to track each other really closely. And that's because more than 90% of our billings come from revenue in period. Billings, as you know, is a bit noisier. It shows impacts of FX. It shows impacts of the mix of net new ARR, and it shows duration pretty acutely. And when you kind of look at what's happening in these factors this quarter versus last quarter, like we had a bit of a mix shift towards installed base selling, which has lower months upfront, and we saw less of a benefit of expanding duration versus what we saw in Q2. And so as a result, what you're seeing in billings growth is something that is still above revenue growth in constant currency, but just a little bit closer than -- excuse me, what we saw in Q2. And for Q4, there's always going to be some variability here, but I would expect that constant currency billings and revenue are going to track each other. Yamini Rangan: If you want to address the net new ARR question as well. Kathryn Bueker: Yes. I mean I think that what we have said, and you said it yourself is like net new ARR is the leading metric. Revenue is the lagging metric, and it will take repeating quarters of net new ARR growth above revenue for revenue to inflect. Net new ARR hit its low point in the first half of 2023. We saw a steady increase throughout 2024. And since the back half of 2024 through the first half of 2025, as we shared at Analyst Day, it has been above revenue growth. And so what we have seen is that our installed base ARR has started to inflect and then revenue will follow the inflection of the core installed base. It just will take time to get there. Operator: Our next question comes from the line of Elizabeth Porter from Morgan Stanley. Elizabeth Elliott: I wanted to follow up on some of the emerging drivers. You called out the customer adoption of HubSpot agents has been strong and credits are going to be a lever for growth in the future. So although some of the subscription plans currently include some usage credits. Among your early adopters, what are customers using up those credits? And kind of where are we on the path for customers to purchase additional ones? Just overall, some of the trends you're seeing in credit consumption or usage intensity that can give confidence for that lever to become a larger impact in the near to medium term? Yamini Rangan: Elizabeth, thank you. Thank you for that question. We launched HubSpot credits. And as everybody knows, that is our universal usage-based pricing system. Today, it includes agent actions for any agent that is out in general availability, and it also includes data hub things. Those are the 2 things. And as we go into the future, we'll add more and more usage-based features into that system. Now we have a clear framework for how we monetize credits. We focus on product and feature activation, then we drive repeat usage, then consistent customer value. And from then on, we monetize. And having this disciplined structured approach ensures that when customers start paying for usage with credit, it's because they are getting clear value and repeatable value. Now in terms of the patterns that we are seeing for credit monetization, it's been just about a quarter, but customer agent is the strong growth driver of credit. It's delivering value. It's highly retentive. So when customers adopt customer agent, they continue to use it. We're seeing positive signals on credit growth, which is they start with the included credits and they continue to grow beyond the included credits with customer agent. The second one is data hub sync. This is where when you bring in data and when you use that data, then it consumes credit, that's the second area where we're beginning to see credit consumption. And then the third is prospecting agent. This is one where our customers use it to research accounts and scale their outreach campaigns, and we're beginning to see clear trends. And I shared some of the adoption trends and metrics, which is also driving credit adoption. Look, it's early days, but we are very pleased with the progress so far in terms of credit consumption. The one thing that I will point out, and it's an important point, is that credits are just one way for us to monetize AI. Broadly, if you step back and think about it, credit monetization does not equal AI monetization at HubSpot, and that's because we have embedded AI. And when that embedded AI drives value, then we see it in attach rates as well as seat upgrades, which we have been seeing now for a few quarters. We're also driving AI value within core seats, and we will see the monetization there as we shared in Analyst Day, and we'll continue to monetize usage-based components with credit. So overall, we feel very good about our AI strategy and the monetization strategy, and this is a solid foundation for credits to emerge as a lever for growth. Operator: Our next question comes from the line of Tyler Radke from Citi. Tyler Radke: One clarification and then sort of a product question. So just on the clarification, I know there's been a lot of questions just around the net new ARR trends. And I guess the clarification is, did the growth rate in net new ARR that you observed in the first half, did that continue or perhaps accelerate or decelerate into 3Q? And then, Yamini, you talked about a lot of customers, I think, 47,000 customers using the ChatGPT connector. Just curious if you're seeing any interesting usage or expansion trends for customers that are using that versus customers that are not. Kathryn Bueker: Yes, Tyler, I'll start with a short answer to your question on net new ARR growth. In Q3, net new ARR growth did remain above constant currency revenue growth. Yamini Rangan: Yes. And then on the second part of the question in terms of the LLM connectors and what kinds of use cases and what types of trends we are seeing there. Look, I think we'll start with why we build these connectors. It's because our customers and prospects are spending a ton of time in LLMs, and we want to bring the insights from HubSpot regarding their business and growth opportunities there. And the more deeper reason is this. LLMs are basically the new AI operating system. And just like you had browser wars and mobile wars, there will be a clear winner in the AI operating system. Now that has just a lot of implications across the industry, but there is a very specific implication for our customers and our ecosystem, which is that LLMs will be a way in which companies will be found. And that means it will become an AI referral source for companies. We see this in our AEO efforts. We are seeing this in our customers' AEO efforts, and that is why we want to be the best platform that enables that growth. And so that's the reason. In terms of the traction, I shared some numbers. ChatGPT Connector is our fastest growing app in 5 years, 47,000 installations. And if I look at the patterns, I see a lot of directors about using it for meeting prep. So they're using it to understand pipeline trends before they go into a weekly meeting or a Board meeting. They are using it to get insights on what changed week-to-week or month-to-month. The second pattern that we see is doing deeper research and then being able to take actions within HubSpot. For example, we were talking to customer basement group. They used a prompt from our library to identify the highest converting persona and then they built a nurture campaign in HubSpot, and that campaign open rates actually jumped from 8% to 40%. So huge improvement in terms of conversion rate. So we're seeing customers ask questions, get insights and then begin to take the action within HubSpot. And that's the pattern that we want to see, get insights and then drive actions to drive growth within HubSpot and very encouraged by the patterns there. Operator: Our next question comes from the line of Brad Sills from Bank of America. Bradley Sills: I wanted to ask a question about ASP growth. It's been kind of bumping along at this kind of flattish level for several quarters. And historically, before we entered into some of these macro pressures, it was more in the 12% to 15% range. So my question is, what would it take to get ASP growth back to -- back in the green and moving up north? What are some of the unlocks there? I think in the past, Kate, you've talked about how you're still seeing some pressure on those upgrades. So maybe an update on that trend as well. Kathryn Bueker: Yes. Thanks, Brad, for the question. I think you know that there are a number of factors that drive ASRPC and it is also a lagging indicator because revenue is the numerator for ASRPC. It's impacted by the volume and mix of our customers. It's impacted by new ASPs and as you rightly point out, upgrades. We continue to see a number of headwinds and a number of tailwinds around ASRPC growth. They're all going to sound very familiar to you. The headwinds are robust starter additions and the lower ASPs associated with new customers post our pricing change in 2024. In terms of tailwinds, we continue to see momentum in large deals, multi-hub adoption and then increasingly seat upgrades and credits. We did see a bit of inflection in the third quarter with constant currency growth of ASRPC up 1%. We expect to see that continue into Q4. Operator: One moment for our next question. Our next question comes from the line of Rishi Jaluria from RBC. Rishi Jaluria: It's Rishi Jaluria from RBC here. I wanted to dive a little bit deeper into kind of the existing traction that you're seeing with your current AI products and agents, right, including the most recent announcements out of INBOUND. Obviously, you see some really good traction there. As we kind of think about new products that you're going to be working on and getting out of the market, I totally understand it's going to take a while before this turns into direct monetization, whether through credits or any other way. But how are you internally gauging the success of newer AI offerings and working directly with your customers to not only make sure that it's delivering kind of the value that I think they expect out of you, but also that the way they're using it is aligned with future contemplated pricing mechanisms that you have in place? Yamini Rangan: Rishi, that's a great question. And I think I'll kind of start with our strategy, the momentum and then how we are driving customer adoption because that is the right question to be digging into. If you step back, our strategy for AI has been consistent and clear, which is we want to embed AI into all of our hubs and platforms. We want to build agents that deliver work for our customers, and we want to deliver breeze, assistant and connectors that convert data into insights. And the strategy has just been consistent across the board. So when we look at momentum as well as traction in terms of the strategy, we look at all factors there. So the first thing is, is the embedded strategy working? And the answer for us is very clear because embedded features are being used across Marketing Hub, Sales Hub, Service Hub. They are improving the outcomes for our customers, things like conversion rate that I mentioned before, win rate, an improvement in 10% win rate in sales. I mean, previously before AI, I don't think that types of outcome would have been possible with Sales Hub. I think that's a huge improvement for our customers. And similarly, Service Hub customers who are using AI see much better ticket closure as well as much better customer sentiment. So -- all of that translates into much better attach rates for us, which we have seen with Content Hub, which we have seen with Service Hub as well as adoption of sales seats as well as Service Hub seats. The second part of the strategy, which is probably earlier in the journey is the agent journey, right? All of us within the industry, we know we're building agents that do work. And the adoption is slightly less than the embedded products. And for us, the 3 featured agents that we launched, which is customer agent, prospecting agent and data agent, we look at what are the signs in terms of adoption as well as repeat usage. And customer agent is the most mature there. It has been in GA the longest. 6200 customers with 62-plus percent resolution rate and credit consumptions that are really in the pattern that we expect. So really clear trajectory in terms of the agents. And you asked broadly about customer adoption. Part of what is happening is that when you look at AI, people have road maps, but they're on very different portions of the adoption journey. So we work with our partners. We work with our customer success managers, and we work with our customers to help them build a road map, and they like our strategy. They like that they're getting a platform that is future-proofed and all of that leads to traction. I continue to believe that AI is early. And this is going to play out for the next 5 years, 10 years, and we are setting ourselves up to be leaders within this and doing it in a way where we focus on small, medium businesses and helping them grow with this new technology. So very confident there. Operator: Our next question comes from the line of Gabriela Borges from Goldman Sachs. Gabriela Borges: For either Yamini or Dharmesh, I would love to hear you talk a little bit about what you're seeing in terms of customer data estates and the quality of those data estates. Yamini, you mentioned a handful of times this idea of converting data into insights. How would you describe customer readiness from a data hygiene standpoint? Is there a period of time where they have to work to clean up their data and/or work to standardize on HubSpot? I think you have a really unique position because of how your hubs are organically connected together. So maybe just a little more on what you're seeing in the environment with respect to that. Yamini Rangan: Yes. I'll start there, Gabriela, and I'm sure Dharmesh can add to it. That's a very broad question in terms of the state of data. And I would probably say that it's multiple the state of data maturity for our customer depends on how mature they are within their stack. And I would maybe talk about -- the first is, if they already have data, is it high quality? And within our customer base, if they have adopted all of our hubs, then it tends to be in higher quality versus having point solutions that they're trying to bring together. But partly, we also have Data Hub that we launched at INBOUND that helps with improving data quality. That is exactly what the purpose is for Data Hub. The second is it's not just about data quality. Can you get data across the customer journey and can you build a context layer on top of that data that enable you to do more with AI and this is where I have a very strong point of view that platforms that bring together data that the -- and helps build a customer context, they're going to be able to get much more done with AI. And then the third, which you didn't answer the question, but comes up in all our customer conversations is unstructured data. you can do a lot more with sales conversations with service conversations, pulling unstructured data together, and that is exactly where HubSpot shines. Our ability to bring better quality data to bring data across the entire customer journey and to add both structured and unstructured data. Those 3 things are the foundation to get anything done with AI. And that's one of the reasons why we brought Data Hub to the forefront at inbound. Operator: Our next question comes from the line of Taylor McGinnis from UBS. Taylor McGinnis: Kate, maybe for you. I think if I heard you correctly, you reiterated the outlook for NRR to be a couple of points higher this year than last year. And if I look at what that potentially implies for 4Q, it looks like it could be closer to 106. So one, just wanted to check if I'm doing that math right. And if that is right, that would be probably the biggest uptick in NRR that you guys have seen over the last several quarters. So is that an indicator of some of what you're talking about of like seat expansion activity and the new pricing model to throw through like evidence that you're starting to see that materialize into numbers and that alone potentially is a leading indicator? Or maybe you can just talk about like what are the puts and takes in that number and how to think about it going into next year? Kathryn Bueker: Yes. I appreciate the question. Thank you. And you are right, I did reiterate that we expect net -- we continue to expect net revenue retention to be up a couple of points this year. And it does imply a nice step-up in NRR into Q4. The drivers of net revenue retention are the same as they've been all year. We continue to see healthy customer dollar retention. We've seen very stable downgrades, which is a nice indicator that customers have rightsized. And then we've seen strong seat upgrades across both sales and service seats as well as core seats. And we have also seen a benefit and will continue into Q4 to see the benefit of the pricing increase for customers post their migration onto the new model. Operator: Our next question comes from the line of Raimo Lenschow from Barclays. Unknown Analyst: This is Damian Coal on for Raimo Lenschow. I guess piggybacking off the last question. I know it might be a little early for 2026. Would you able to tell us a little bit about how you're thinking about net retention with stronger pricing, healthy renewal rates on the new seats model, multiproduct adoption, is there any reason to believe that this metric does not improve? Kathryn Bueker: Yes, I appreciate the question. I'm sure that you're not surprised when I'll start by saying that I'm not going to make any specific comments around 2026. That said, we do think that there's a path for further improvement on net revenue retention over the longer term. We talked about some of the drivers, but I'll reiterate them for the sake of completeness here, like we are very confident that we can continue to support really healthy customer dollar retention. We've talked about the fact that we've seen downgrades stabilize nicely over the last year or so and actually cancellation and downgrades together were a benefit to net revenue retention in 2024. The pricing model change is resulting in both stronger seat upgrade motions, but also we will expect to see a continued tailwind to net revenue retention from the pricing changes on the remaining 50% of our installed base that will go through the renewal post the end of 2025. And then finally, Yamini talked a lot about the core seats and credits as emerging drivers, and they will begin to contribute in a more meaningful way in 2026. So again, nothing specific on 2026, but I do believe that this is a business that's capable of delivering higher net revenue retention. Operator: Our next question comes from the line of Steve Koenig from Macquarie Capital. Steven Koenig: Great. Some of your peers have also talked about expectation of net new ARR growth higher than revenue, but it's more of an anticipation than historically seeing that and predicated on sales capacity expansion as being an important driver. I'm wondering, you touched upon many of the drivers that you see for potential acceleration but I'm also curious, to what extent is your sales capacity or execution tactics aside from the pricing model change. To what extent are you lined up for further acceleration or changes to that strategy might be helping you? Yamini Rangan: I really like that question. I think that it's really good to ask us about the sales capacity and how we're teed up. And look, we have been investing in 2 fronts. One, in headcount, and we have consistently hired sales capacity in regions, in segments where we see clear opportunity, and that has continued, and that will likely continue into 2026. We see further opportunities for expanding sales capacity. The second thing, which I'm really excited about is all the investments that we have made in terms of AI to transform our own go-to-market have had a clear impact in terms of sales productivity, how we are using intent data to drive our prospecting, how we are using data during the deal process, we call it guided selling. So internally, every sales rep knows the insights that they need. They prepare better for meetings. The follow up faster for meetings. They have much better competitive insights during the call and post call. And all of that has had measurable impact in terms of sales productivity. So both sales capacity and sales productivity are really humming, and we see that continue going into 2026. So we feel pretty good about that. Operator: Our next question comes from the line of Brian Peterson from Raymond James. Brian Peterson: So I'd love to understand from your perspective, what you're seeing in terms of demand trends, maybe a little bit more by geography. We saw international was a little bit stronger this quarter. We picked it up in some of our partner checks. But as we think about the growth opportunity going forward, anything you call out in terms of international versus North America in terms of growth expectations? Yamini Rangan: Yes, I appreciate the question. Look, we have not seen any material changes in terms of segments or industries or geographies. It continues to be very consistent with prior quarters. Now if I look at our pipeline, we see a handful of trends that is not geo-based but generally based on the products that we have launched and the momentum we are seeing. We saw a very positive response from inbound. Specifically, customers are excited about the loop they are excited about Data Hub, and I explained why Data Hub is almost important and critical for value from AI. And I see a lot of our customers and prospects talking to us about customer agent prospecting agent. All of that has landed really well. I continue to see multi-hub adoption as well as upmarket momentum. The large deal momentum this year has been consistent and compounding and we see that both in Q3 as well as entering into the Q4 in terms of the pipeline, and that has been a consistent driver. So not as much as segment or geo change, but really consistency in what is driving the demand across all of these regions. Kathryn Bueker: And Brian, just one small point to make on the domestic versus international growth. You will just remember that the legacy Clearbit business is about 0.5 point of headwind to our growth in 2025. All of that business is domestic business. And so it's about a 1 point headwind to domestic growth this year. Operator: Our next question comes from the line of Jackson Ader from KeyBanc Capital Markets. Jackson Ader: I was just curious to ask on 2 things as far as the fourth quarter is concerned. Number one, is there anything kind of seasonally here in the fourth quarter? I know you guys aren't giant deal dependent, but is there anything in terms of the fourth quarter bookings that could impact the timing, Kate, of when you expect that net new piece to be kind of large enough to accelerate growth as we head into '26? And then also, I think we're getting into the heart of the pricing renewals for some of your larger customers. And so just curious whether the pricing -- how those larger customers are handling the pricing increases, whether it's firmer or softer than you expected? Kathryn Bueker: Yes. Thanks for the question. Look, I think that Q4 is always our most important quarter of the year in terms of being the largest net new ARR quarter with November and obviously, December being pretty critical. We do see a lot of the migrated customers coming up for renewal at the end of this year, and so that will impact Q4 a bit. And so far, they are performing as reported over the last couple of quarters. Operator: Thank you. This concludes the HubSpot Q3 2025 Earnings Call. Thank you to everyone who was able to join us today. You may now disconnect your lines.
Operator: " Omer Karademir: " Ebubekir Sahin: " Ümit Önal: " Unknown Executive: " Madhvendra Singh: " HSBC Global Investment Research Cemal Demirtas: " Ata Invest Co., Research Division Unknown Analyst: " Operator: Ladies and gentlemen, thank you for standing by. I'm Costantino, your Chorus Call operator. Welcome, and thank you for joining the Türk Telekomünikasyon conference call and live webcast to present and discuss the third quarter 2025 financial and operational results. [Operator Instructions] The conference is being recorded. [Operator Instructions] We are here with the management team, and today's speakers are member of the Board, Ümit Önal; CEO, Ebubekir Sahin; and CFO, Omer Karademir. Before starting, I kindly remind you to review the disclaimer on the earnings presentation. Now I would like to turn the conference over to Mr. Ümit Önal, member of the Board. Sir, you may now proceed. Ümit Önal: Hello, everyone. Welcome to our 2025 third-quarter results conference call. Thank you for joining us today. Before we begin our quarterly presentation, I would like to take a brief moment to share a few personal words. Following my recent appointment as the Head of Cybersecurity Direct trade under Turkish Presidency, I have transitioned from my executive role as the CEO of Türk Telekom while continuing to serve as a member of the Board of Directors. I am pleased to introduce our new CEO, Mr. Ebubekir Sahin, who assumed his role on October 24. I have full confidence that under his leadership, Türk Telekom will continue to flourish. With that, I would now like to hand over the call to our CEO for his remarks before I return to take you through our third quarter results. Ebubekir Sahin: [Interpreted] Thank you very much, Ümit Önal. It's a great honor to take on the role of CEO at such an important stage of Türk Telekom's journey. I would like to begin by expressing my sincere gratitude to Mr. Ümit Önal for his leadership and continued contribution as a member of our Board. Telecom today stands on strong foundations built on transparency, accountability, and consistent delivery. As we move forward, we will continue to build on this strength, maintaining an open dialogue with the investment community and driving sustainable growth across all our businesses. I am pleased to meet you all in this occasion. With that, I would now hand the call back to Mr. Ümit Önal, who will deservedly walk you through the third quarter development. And also, I would like to thank him for the good inheritance has left. Ümit Önal: Thank you, Ebubekir Sahin. First, I would like to take you through some important achievements that marked the period. Starting with concession renewal on Slide #3. I am sure most of you are familiar with this slide, as we had the opportunity to engage with you through our webcast and subsequent meetings to discuss this important milestone in detail. To recap briefly, the renewed concession extends our right to operate and develop Türk's fixed telecom network until 2050 under flexible and manageable financial terms, providing long-term visibility and continuity for our business. The total contract value is USD 2.5 billion plus VAT payable over a 10-year period, enabling a balanced cash flow planning over the coming decade. We have also committed to an investment plan of USD 17 billion through 2050 in areas covered by the agreement. The plan incorporates building flexibility that allows us to maintain our financial discipline. Beyond its financial framework, this agreement reinforces Türk Telecom's leadership position in fixed line services and enables us to accelerate growth in verticals, including AI, IoT, cybersecurity, data centers, and digital platforms, whilst continuing to further capitalize on Türk's fiber transformation. On Slide #4, 2030 targets. Our priority will continue to be FTTH conversion investments, an area that we have been monetizing effectively. Having completed most of the copper-to-fiber transformation, we now aim to significantly expand the share of FTTH connections in our network, targeting 37 million homes by 2030 with FTTH penetration rising to around 76% and fiber subscribers reaching 17 million. By 2030, through accelerated FTTH transformation, we aim to meet the growing demand for high-speed connectivity, enabling a sevenfold increase in average speeds of our customer base from 86 megabits to 570 megabits. This transformation will not only enhance network efficiency and customer experience, but also help contain churn and strengthen ARPU growth potential. On Slide #5, let's look into where we are with the 5G process. We achieved strong results in the recent 5G auction, securing available spectrum that will carry our mobile business into the next phase of growth. We acquired key spectrum blocks in both the 700 megahertz and 3.5 gigahertz bands with a total spectrum fee of USD 1.1 million plus VAT payable in 3 equal installments in January 2026, December '26, and May '27. Following the auction, we became the operator with the highest capacity per subscriber in 3.5 gigahertz frequency and in our overall capacity, expanding our total spectrum portfolio to 315 megahertz. With 56% of our LTE base stations fiber-connected, we are well ahead of global 2030 benchmarks. Our pioneering 5G pilot tests across health care, agriculture, transport, sports, and tourism have showcased our network capabilities and our ability to effectively implement next-generation technologies. Slide #6, financial and operational overview. Consolidated revenues increased by 11% to TRY 60 billion. Excluding the IFRIC 12 accounting impact, revenue growth was 9%. Once again, 22% of EBITDA growth year-on-year was well ahead of the revenue growth, pushing the EBITDA to TRY 27 billion, along with a solid 410 basis points margin expansion year-on-year to 45%. Net profit for the period came in at TRY 10 billion. CapEx, excluding license fees and solar investments, stood at TRY 18 billion. Unlevered free cash flow grew by 14% to TRY 6 billion. Net leverage improved to 0.6x. Slide #7, net subscriber additions. Our total subscriber base reached 56.2 million with 2 million net additions Q-on-Q. Excluding the 178,000 loss in the fixed voice segment, quarterly net additions were 2.2 million. Both mobile and fixed Internet enjoyed strong demand from individual customers during high season, but the mobile additions were further supported by the corporate segment. Fixed broadband base remained flat around 15.5 million. Subscriber dynamics were mostly shaped by pricing and seasonality in the STP market. We gained 15,000 net subscribers in the third quarter, thanks to the 71,000 net additions in retail segment, more than offsetting the losses in wholesale segment in the aftermath of July price revisions. Subscriber activity strengthened Q-on-Q amid a robust back-to-school period with net additions exceeding Q2 levels. Activations were strong across both retail and wholesale segment. Despite intensified recontracting volumes and pricing actions, monthly retail churn averaged 1.2%. Mobile segment added 2.3 million subscribers on a net basis in its historic high performance, pushing up the total base to 30.8 million. Activation volume reached its historically highest quarterly level. This was mostly driven by the postpaid segment, but prepaid acquisitions also came higher compared to same period last year and our expectation. Churn volume, on the other hand, was parallel to same period last year and our expectations. Mobile net additions were further supported by 1.5 million of M2M additions by the corporate segment. Subscriber growth remained on a strong track with 776,000 net additions, excluding M2M. While postpaid segment added 2.1 million subscribers, prepaid segment posted 208,000 net additions, marking its best performance since Q3 '22. Slide #8, fixed broadband performance. We introduced the first price revisions in the wholesale segment starting from July 1. Subsequent to that, we adjusted the retail segment prices for the second time in July for new acquisitions and in August for existing customers. Most players in the market followed our price adjustments to varying degrees. Still, price parity stayed distant but less so compared to prior quarters. Both recontracting and upselling volumes scored higher Q-on-Q and year-on-year. ARPU growth remained strong at 13% year-on-year in Q3 despite last year's exceptional 21% base. The combination of solid upsell and sustained recontracting performance, along with successful price implementation, enabled us to maintain double-digit growth. We expect the robust ARPU trajectory to continue in Q4. Average package speed of our subscriber base increased by 50% year-on-year to 86 megabits, while average speed in retail base reached 94 megabits with 54% growth. 58% of our subscribers now use 50 megabits and packages compared to 44% a year ago. Moving on to mobile performance, Slide #9. Effectively, competitive environment remained unchanged from previous quarter. MMP market where we reclaimed our long-standing net leadership after a pause in Q2, maintained its historic high volume in the high season. That said, we introduced the second price revisions of the year in August, which has been followed by competition. Given that December tends to be the month where promotional activity peaks, we do not expect a major shift in competitive landscape in the final quarter of the year. Postpaid segment recorded 2.1 million net additions in the third quarter. With that last 12 months postpaid net additions surpassed 4 million in total. The ratio of postpaid subscribers in total portfolio rose to 78% from 74% a year ago. Excluding M2M, postpaid base added 569,000 subscribers, marking a strong underlying trend in the segment. Mobile ARPU increased 2% year-on-year over last year's strong 17% base. Obviously, M2M additions had some dilutive impact at the blended level. Excluding M2M, ARPU growth depicted a healthy growth of 8%, thanks to successfully managed pricing and churn, as well as higher recontracting and upsell volumes year-on-year. Excluding M2M, postpaid ARPU was also on a robust trend with 10% growth year-on-year. On Slide #10, let's take a look at the full-year outlook. We were pleased to see first half's robust performance running into the second half in our main businesses. We keep our operating revenue growth and CapEx intensity guidance unchanged at 10% and 29%, respectively. As of the first 9 months, we are looking into nearly 13% operating revenue growth. Although this points to some upside risk to our 10% growth forecast, we prefer a cautious stance against Q4 inflation outlook. We stick to our CapEx intensity guidance as we tend to see an accelerated spending in final quarters. 9-month EBITDA margin has once again surpassed our revised guidance for 41%, thanks mainly to strong operational performance. We now revise our full year '25 EBITDA margin guidance up to 41.5%, taking into account better-than-expected Q3 performance and our expectation of a contained OpEx in the final quarter. Before I finish, it has been an immense privilege to lead Türk Telekom. I must say, a company that stands at the heart of Turkey's digital transformation, whilst adhering to create sustainable growth at all times. I take great pride in having been part of this journey, one that saw us strengthen our balance sheet, accelerate fiber transformation, renew the fixed line concession agreement until 2050, and kickstart the 5G era. These milestones have laid a strong foundation for the next phase of growth and innovation. I would like to express my sincere gratitude to all our investors and analysts for your continued engagement, feedback and trust in Türk Telekom. Your insights have been invaluable in helping us move to the company forward. Thank you. Omer, the floor is yours now. Omer Karademir: Thank you, Ümit Önal. Good morning and good afternoon, everyone. We are now on Slide #12. In Q3, consolidated revenues increased 11% year-on-year to nearly TRY 60 billion compared to TRY 54 billion in the same period of last year. As a result, total revenues for the 9-month period reached TRY 166 billion, up 14% annually. Excluding the IFRIC accounting impact, Q3 revenue was TRY 55 billion, up 9% year-on-year, including increases of 14% in fixed broadband, 13% in mobile, 21% in TV, and 31% in corporate data, as well as contractions of 1% in fixed voice, 40% in international, and 14% in other segments. Fixed Internet and mobile have continued to lead growth, together making 78% of operating revenue in the quarter. The 2 lines of business made the largest contribution to more than TRY 5 billion higher revenues in total year-on-year. The strong performance was maintained, thanks to seasonal support, ongoing subscriber growth, multiple pricing actions, as well as the contracting and selling performance. The strong pickup in corporate data can largely be explained by the contribution from repricing of contracts and strong growth in certain verticals, such as data centers and cloud, cybersecurity, and managed services. ICT Solutions' revenue strongly bounced in Q3 from a slow pace of project revenues in the first half, but still fell short of last year's figure in the same period due to a significantly high base. The sizable jump Q-on-Q is largely attributable to new projects secured. We expect strong performance in ICT Solutions revenue to continue in the final quarter. In our international business, the decline is largely owing to contracting voice revenue. Moving on to EBITDA. Direct costs fell 2% year-on-year, with interconnection cost and equipment and technology sales costs coming down 42% and 4%, whilst tax and cost of bad debts going up 11% and 8%, respectively. Decline in interconnection costs was driven by contracting international revenue, whereas drop in equipment and technology sales cost was driven by last year's high base, similar to the revenue side of this line item. Annual increase in commercial costs moderated from last quarter to 11%. Other costs remained flat year-on-year. Within other costs, network expense dropped 3% year-on-year and personnel cost rose nearly by 2% under the impact of inflation accounting. Another quarter of successfully continuous cost base led OpEx to sales ratio down from 59% in the same period last year and 58% in the previous quarter to 55%, the lowest level over the comparable 11-quarter period of inflation accounting as operational leverage continued. 22% of EBITDA growth year-on-year was lifted EBITDA to TRY 27 billion from TRY 22 billion a year ago, along with a robust 410 basis points margin expansion year-on-year and 270 basis points Q-on-Q to 55%. Excluding the IFRIC 12 accounting impact, EBITDA margin was close to 48%. As such, 9 months EBITDA margin surpassed 42%, whilst cumulative EBITDA rose to TRY 70 billion with a sizable 23% increase from last year. Operating profit grew 46% year-on-year to TRY 16 billion in Q3, bringing the 9-month total to TRY 37 billion, up 63% year-on-year. Coming to the bottom line, TRY 6 billion net financial expense was nearly 30% lower both annually and quarterly. Annual trend can largely be explained by a 25% increase in USD TRY and Euro TRY rates on average, behind inflation in the same period. Lower interest rates and hedging costs also helped. The quarterly change in exchange rate was about 5% on average, again behind quarterly inflation. Additionally, the impact of volatility in financial markets, which was triggered in March has subsided quickly, leading to lower market interest rates and hedging costs on Q-on-Q basis also. Hence, expectedly, the net financial expense in Q3 proved more favorable compared to Q2. We recorded EUR 3.5 million of tax expense in total, largely driven by current taxes. In a normalizing trend, effective tax rate receded to 26% from 33% a quarter ago. As a result, we recorded TRY 10 billion net income for the period, up more than 150% year-on-year, thanks largely to significantly improved operational performance and lower net financial expense. With that, net income exceeded TRY 21 billion in the 9-month period, up nearly 70% year-on-year. Moving on to Slide #10. CapEx spending, excluding license fees and solar investments was TRY 18 billion, higher Q-on-Q as pace of investments pick up in line with our expectation. As such, 9 months CapEx on the same basis reached TRY 40 billion, taking the cumulative CapEx intensity to 24%. Moving on to Slide #14, debt profile. Cash and cash equivalents of which 25% is FX-based, totaled TRY 14.5 billion. The FX exposure includes U.S. dollar equivalents of TRY 1.9 billion of FX-denominated debt, TRY 1.4 billion of total hedge position, and close to TRY 190 million of hard currency cash. Net debt over EBITDA fell to 0.6x from 1 a year ago and 0.7 a quarter ago. We have been consciously deleveraging our balance sheet for some time in order to comfortably accommodate the upcoming multiple investments. Obviously, that has helped us immensely to successfully raise a comprehensive and efficient financing package in a short period of time. To elaborate on that, we are now on Slide #15. We have recently demonstrated a remarkable capacity to access a wide range of funding sources, enabling us to deliver on our major strategic commitments, notably the fixed line concession renewal and the 5G spectrum acquisition through our solid positioning in our business, robust financial power, and long-standing relationships with key stakeholders. In September, October 2025, we successfully executed a comprehensive USD 1.8 billion financing program, securing the long-term and cost-efficient funding from a wide range of global sources. The package included 4 long-term credit facilities totaling USD 610 million equivalent, USD 600 million 7-year green Eurobond, and USD 600 million with an average maturity of 5 years. These transactions further enhance our liquidity position and extend our debt maturity profile. On the loan side, we obtained highly competitive long-term facilities backed by leading international financial institutions. reflect continued confidence of global lenders in Telekom's fundamentals and disciplined balance sheet management. On the capital market side, we achieved 2 landmark issuances, reaffirming our strong market access and broad investor appeal. The USD 600 million green Eurobond priced at 6.95%, more than triple oversubscribed or the new green issuances attracted more than 100 global investors, with more than 60% allocation to accounts with a strong focus on ESG. The deal expanded our green financing portfolio to USD 1.1 billion, the largest in the Turkish telecom sector. Shortly after, we issued USD 600 million 5-year skruk at 5.6%, marking a historic place for the transaction as the first international corporate skuk out of Turkey. The Sukuk was met with more than 3x demand led by Gulf-based institutional investors. The deal achieved the tightest yield for Turkish corporates since 2022 and for Türk Telekom since it is debut in international debt capital markets, once again, proving our ability to ride large-scale funding at attractive terms. Through this transaction, we secured the resource to fund majority of our commitments for the announced long-term investments of which the payment plan is shown on the table at the bottom. Following the completion of the legal process, we expect to see the accounting impact of the renewed concession agreement in our Q4 '25 financial statements, along with the mentioned financing transactions. Finally, on Slide #16, we recorded USD 410 million short FX position as of Q3. Excluding the ineffective portion of the hedge portfolio, namely PCCS contracts, our short position was USD 450 million. Finally, we generated close to TRY 6 billion of unlevered free cash flow, which carried the 9-month figure to TRY 22 billion. This concludes my presentation. We can open up the Q&A session. Operator: [Operator Instructions] The first question comes from the line of Singh Maddy with HSBC. Madhvendra Singh: My first question is on your margins performance. It looks very strong during the quarter. Incrementally, it looks like almost all of your revenues quarter-on-quarter growth in revenues basically translated to EBITDA. So if you could explain the cost dynamics and why the margins are so strong during this quarter, that will be very good. And is that the sustainable level we should think about going forward? So that's the first question. The second question is on your recent concession wins. So just wondering how the depreciation and amortization charges will be treated for D&A expenses going forward? Will you be looking at the entire length of concession? Or is there a straightline method? I mean if you could just talk about the annual number we should think about for D&A going forward, that will be on account of the 5G and the fixed concession that will be great. My third question is on your dividend policy, given that your margins in Q4 -- sorry, Q3 now is very strong for the full year, you are now guiding for more than 40% margin. Does that trigger a dividend event going forward, if at all? So if you could talk about that. So these are the 3 questions. I will get back in the queue for more. Unknown Executive: Thank you for your questions. On your first question, EBITDA margin, traditionally, we have got the highest season in the third quarter in our mobile and fixed businesses. The reason being the summer months and the back-to-school season. So we generally generate the highest margins in the third quarter. So this was the case, and in line with our expectation in the third quarter. And generally speaking, the fourth quarter is the lowest season, and that is why we are incorporating that into account for the fourth quarter and guiding for a 41.5% margin relative to our performance in the 9-month period of 42.2%. Is this a sustainable level? I mean this is really a good question because we have been enhancing our margin over the last 2 years since 2023 to be more specific by 9 points. So that's a huge margin improvement to. So for the next year, our aim is going to be to sustain these margins. And for the longer term, of course, for through operational leverage or efficiencies or transformation. So that would be the answer to the EBITDA question. The second question, how we are going to account for the concession is we did say that we will take it into our books in the fourth quarter. So what's going to happen is the fee that is $2.5 billion is going to be discounted today's value when we take it into the books. And then it will be written as CapEx. And then throughout the lifetime of the concession agreement, which is until 2050, it will be amortized on a straight-line basis. Have I answered your questions? [indiscernible] Madhvendra Singh: Yes, the D&A charges for the 5G. Unknown Executive: Yes, it will be more or less the same. So the amount that we are going to pay for the 5G is THB 1.4 billion. So I don't know, I mean, if it's going to be the fourth quarter or the first quarter of 2026. But when we take it into our books, it's going to be the similar methodology. So it's going to be recorded as CapEx, and it will be amortized throughout its lifetime, which is 2026. Ebubekir Sahin: [Interpreted] Allow me to answer your dividend-related question. First of all, 2025 is not finalized yet, and we haven't seen the fourth quarter yet. So first, we need to see the year-end results. Once we complete 2025, the Board of Directors, to which I am a member, is going to make a decision to propose the general assembly for the dividend -- if the dividend to be paid. So we should definitely keep in mind one thing. The upcoming period includes our annual investment expenditures as well as the fixed line concession and 5G frequency payments. In this regard, 2026 is particularly noteworthy in terms of looking like accumulation of payments. Of course, the final decisions will be made and taken by our main shareholders. However, as in previous years, when making a dividend decision, our Board of Directors will consider our company's debt service profile, cash flow, and investment needs in the coming years. Madhvendra Singh: If you could just details of any price hikes you have taken in the third quarter in mobile and fixed side? And the second question is on the hyperinflationary accounting. There were some talks about Turkey coming out of it. So in that scenario, hyperinflationary accounting is ended. What impact do you think will have on Telecom earnings and outlooks? Unknown Executive: Thank you again for the questions. On the hyperinflationary accounting, the methodology and the discussions is for the -- I mean, at the first place for the legal accounts, not for the IFRS accounts, which is all the CMD accounts. So it is early to say that it's going to be abolished for the Capital Markets Board reporting. Therefore, I mean, for the time being, it would be reasonable to assume that we will continue at this -- and on the price hikes, yes, I mean, there were several price hikes in the third quarter. To recap, we did the first price hike in the wholesale FPB segment. It was, I think, along the lines of 49%, 49%. And that was followed by the second price increase in the retail segment, which was about 13% on average. And following that, these are for the new acquisitions. And following that, we did the usual thing with a 1-month lag, and we increased the prices also for the existing customer base in retail segment in August. And that was around the same level. And in mobile, there was also the second price hike of the year in August, and I think it was around 10%-ish. So I mean, it will be reasonable to say that for the time being, I mean, we are more or less done with the price increases for this year, and we are preparing our budget for the next year for the -- I mean, all of the KPIs and price increases. Operator: The next question comes from the line of Cemal Demirtas with Ata Invest. Cemal Demirtas: Congratulations for very good results. First of all, I would like to thank Ümit Önal for a very good performance during his time. Sincerely, I really appreciate from the investor perspective, and I'm trying to be objective as much as I can. Just I want to point out that. And I wish the best to Mr. Ebubekir Sahin. And I think it will be good for him to just get your experience when you are in the Board. So it will be definitely support for him. And I wish you the best for your term. I think it's going to be a challenging, but very interesting time. And I think most of the uncertainties ended at least in terms of the regulatory side. So I wish you the best. at all. My question is about -- the first one is about the short-term performance. In third quarter, you had very good performance. And could we see some upside risk to your estimate? Is there any specific reason for you being very cautious about the fourth quarter, or just being just conservative? That's my first question. And the second question, I think for the following years, we need -- you will need more guidance from you from this -- because this investment period time. And at least for 2026, could you mention anything about the CapEx over net sales ratio or net debt to EBITDA limits you will have during 2026 or 2027? And the third one is about the financing side. And from the previous quarters, each quarter, we had difficulty to understand the high level of FX, even if there was stability in the currency side. But with this quarter, we see real improvements in terms of the -- I don't know if there was a specific in this quarter or more stability after a very volatile second quarter. So could you give us some hint about the fourth quarter if the currency level and the interest rate -- if the currency level continues like this and the interest rates coming down slowly, could we assume a similar level of financial expenses? Ebubekir Sahin: [Interpreted] Allow me to start and leave it to my first of all, I would like to thank you for your nice words. I mean I have been working as the CEO -- I have been working as the CEO of this company for over 6 years. And also I have been a part of the member of the Board of Directors for 3 years. Within this process, we have always carried the responsibility of abiding by the corporate governance principles, and we have always had this transparent communication with you. As of 24th of October, Ebubekir Sahin has taken over the CEO position. It's like carrying the flag from now on. He's going to be carrying this leg just like we have been doing so far, and I'm sure he's going to raise it even higher. And as we have said, I will continue as the Board of Director -- as the member of the Board of Directors, and I will be giving the best of my support. We know that, as you said, we have actually left behind a very important milestones and uncertainties behind. And now we have also got a very important momentum. And I believe Mr. Sahin is going to add better and more successful performances, which will be sustainable for the company. And then I will continue to answer your questions. I believe it would be reasonable to evaluate our 2025 operating income growth expectations by considering the base effects that emerged last year on the cost of inflation. We have recently seen some volatility in inflation with negative surprises in September and slightly positive surprises in October. As you know, our end-of-2025 inflation forecast is 29%, but we will be closely monitoring the last 2 months of data. Therefore, while our 9-month real operational growth was 12.7%, we choose to maintain our 2025 forecast at guidance at 10%. I mean, yes, if you see a positive trend in inflation over the last 2 months, we are run the risk of exceeding our 10% guidance. However, if inflation exceeds expectations, we believe our forecast is well protected and does not pose any downside risk. My friend continue to answer your question. Ümit Önal: For your financial expenses question, I'm going to report that. The financial expenses consists of the interest payments and hedging costs. As we have discussed in the second quarter investor call, we have stated that for the second quarter, the volatility in the market impacted our hedging costs. But we are not expecting that to continue, and we expect to decline in the third quarter. So that's why our hedging cost declined for the Q3. And also the interest payments also declined with the half of the disinflation program Central Bank. And in addition to that, lastly, our total debt is declining. So the leverage ratio came to 0.6 at the moment. Cemal Demirtas: There was one question about 2026 net debt to EBITDA and the CapEx over net sales ratio, where should that ratio be standing? Just a rough picture or indication. Ümit Önal: For the leverage ratio, our expectation for the next year, we have stated several times in quarter calls, we said that in our operations, we don't need to borrow. We don't need additional financing since our operations generate cash. So that's why our leverage declined to 0.6 at the moment. But for the upcoming 5G and concession payments, the leverage ratio, unsurprisingly, will increase. But we can say that it will not reach to a level, let's say, to close to 2.5x. But we can say that it will make its peak in 2026. But it's going to decline since our payments will be done, and with the help of our operations with the help of its operations, we are expecting it will be well below 2.5. And after its peak, it's going to decline in the year 2027. For CapEx over revenues, we can expect since regarding the time of big investment period for 5G and concession. So we can expect similar levels of this year's CapEx over sales -- CapEx intensity ratio for the next year, maybe next couple of years for our mainly FTTH conversion and 5G rollout. But we can expect it will decline to its historic average levels in the coming periods. Operator: The next question comes from the line of [indiscernible] with Barclays. Unknown Analyst: Congratulations on the results and also on the changes within the team, and all the best of luck. I have just maybe one follow-up question regarding your revenues outlook or revenue growth outlook. Do you think -- I mean, this year, it has been very great 10% and looks like you're on track to achieve that. So I was wondering how sustainable is this level of revenue growth going forward, maybe for next year and after that, given the concession expansion and the 5G? Unknown Executive: Thank you, Daniel. I think we are going through a relatively high growth period over the last couple of years because part of that was driven by the recovery from high inflationary periods. '24 and '25 have been great. We have to expect some normalization for the next year. But you're right, we have got new drivers now that we should be working on strategizing. These are the securing of the concession agreement and securing a successful result in the 5G auction as well. So we haven't finalized our budget yet. It needs a few more rounds to be completed, and we will be sharing our guidance together with the fourth quarter results. But I can tell you that we will hopefully, I mean, maintain a momentum in this business because unless an exogenous factor comes into the play, we have to be, I mean, building on this momentum. And therefore, we are hopeful and we are optimistic that we will be sharing a nice real growth together with you in the guidance. So that's all I can say at the moment. But hopefully, we will not -- I mean, keep you in the dark for too long. Operator: [Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Türk Telekom management for any closing comments. Unknown Executive: Thank you. Thank you, everyone, for joining us today, and we'll see you next time. Thank you. Have a nice day. Bye-bye. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.
Operator: Good day, ladies and gentlemen, and welcome to Energy Recovery's Third Quarter 2025 Earnings Call. During today's call, Energy Recovery may make projections and other forward-looking statements under the safe harbor provisions contained in the Securities (sic) [ Private Securities ] Litigation Reform Act of 1995 regarding future events or the future financial performance of the company. These statements may discuss our business, economic and market outlook, growth expectations, new products and other performance, cost structure and business strategy. Forward-looking statements are based on information currently available to the company and on management's beliefs, assumptions, estimates and projections. Forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors. We refer you to documents the company files from time to time with the SEC, specifically the company's annual Form 10-K and quarterly Form 10-Q. These documents identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. All statements made during this call are made only as of today, November 5, 2025, and the company expressly disclaims any intent or obligation to update any forward-looking statements made during this call to reflect subsequent events or circumstances, unless otherwise required by law. Our hosts for today's call are David Moon, President and Chief Executive Officer of Energy Recovery; and Mike Mancini, Chief Financial Officer. I would now like to turn the call over to Mr. Moon. David Moon: Thank you, and good day, everyone. Earlier today, we released a letter to shareholders on the Investor Relations section of our website that reviews business and financial performance during the quarter. Prior to opening the line for questions and answers, I'd like to highlight a few important takeaways from that letter. First, we had a strong quarter of sales execution. Mega-project shipments improved during the quarter and wastewater revenue continued to rebound such that we are reiterating our full year revenue guidance. Second, the team has done a nice job this year controlling costs, and we are reducing our full year OpEx guidance even further. We have made a number of decisions to drive efficiency and lower costs while still investing in our growing wastewater business. We expect growth in Q4 and next year to be achievable with only modest increases in operating expenses. And finally, our CO2 business had a nice summer season of testing. While OEM engagement is strong, we remain in the very early days for commercialization. We are focused on gaining traction in 2026 and plan to provide clear updates on our progress. As always, I want to thank our employees here at Energy Recovery. Our sales execution and cost control were strong this quarter, and this could not have been done without a lot of great teamwork. With that, we'll now move to the question-and-answer portion of our conference call. Operator, please open the line for questions. Operator: [Operator Instructions] And our first question comes from the line of Ryan Pfingst with B. Riley Securities. Ryan Pfingst: I'll start where you left off there on CO2. Just curious, what were some of the main takeaways from the recent white paper that you think customers and investors should most be aware of? David Moon: Yes. So I think there are 3. So the first, similar to the white paper from last year, we just validated the fact that we save energy and up to 15% at peak times. And so strong energy savings performance. So that's number one. Second is to the extent that a store is located in a part of the country or in Europe, in Southern Europe where adiabatic coolers are required, we can save tremendous amounts of water. So that's number two. And we validated that as part of our summer season of testing here in California. And then I think the third and a really important part of our value proposition that we didn't talk about, we should have talked about more last year was the fact that we provide an increased performance during high heat load days. So when the system is working its hardest, the PX G allows for additional capacity during those high heat load days. And so those are the 3 critical parts of the value proposition that we proved out over the course of this summer. Ryan Pfingst: Appreciate that. And then you touched on this and maybe you want to save it for your next update. But I was wondering if you could tell us about your progress with OEMs and your confidence in signing a commercial agreement with an OEM partner over the next few months. David Moon: Yes. So I think -- so look, this summer season of testing was about working closely with OEMs to prove our value proposition in the field. And I think we checked the box on that. So where -- so what's the next step? So what is happening now is that OEMs are now beginning to have conversations with some of their largest end users about the PX G, and to the extent that they already haven't done so. And what's going to happen, Ryan, is that most likely, those customers are going to want to test the PX G themselves over the course of next summer. So I think we have another summer season of testing in front of us. And I think because of that, we're probably a year away from being able to sign a commercial agreement with a large OEM. I think the large OEMs are going to want to see that summer season of testing, a successful testing season with some of their larger customers before they're going to sign a commercial agreement. Now we've signed an MOU with Hillphoenix already. And so we're on a path to being able to sign a commercial agreement with them, but it's likely going to be in 2026. Ryan Pfingst: Got it. Appreciate that. And then turning to the water side. We've seen the U.S. administration kickstart efforts across different industries, such as nuclear energy or critical minerals. Do you think there's a possibility that we could see something like that on the water front maybe for desalination? Michael Mancini: Ryan, this is Mike. Look, I think that all of the AI and the energy that's going to serve it only goes to improve our long-term water trends, right? There's a long-term desalination trend already, and I think it does help the long-term trends. I think what we're really cautious about is translating that to near-term results for us as this infrastructure takes a long time to build. So I think we're highly encouraged with the long-term trends and some additive stuff there. We want to be cautious about near-term expectations on it. Ryan Pfingst: Appreciate that, Mike. And then I'll just sneak in one more, somewhat related to your comments there. On the data center opportunity, curious if there's anything new to report there, either on the wastewater front or refrigeration. David Moon: No. Look, Ryan, we continue to monitor it closely. So -- and I think we said on the last call that because CO2 is still a very small part of the refrigeration portion of data centers, that there likely wasn't going to be any near-term opportunity for us. Now should CO2 jump to the front of the refrigeration line, then that could change. And so I think as it relates to refrigeration, still nothing near term that we see. I think as it relates to water reuse and water treatment for data centers, that's something that we're just starting to better understand. And I think we'll have a better view of that over the next couple of quarters. Operator: The next question comes from the line of Larry Solow with CJS. Lawrence Solow: I guess just a follow-up on the CO2 question first. So it sounds like the white paper takeaways and the data were in line or with your expectations and good. So your -- maybe your confidence in the adoption hasn't changed or maybe even better, but timing sounds less certain. I'm just curious, I know it's more, but you changed your strategy more to a top-down OEM to customer versus vice versa. But I guess at the end of the day, some of these larger customers still -- do they normally make the decision? Or is it in conjunction with the OEM? Or do the OEMs -- since their reputation is on the line on a big switch like this, do they -- is it just taking them more time and they just need to -- they want their customers to be on board as well? Or is there just anything that's holding up the adoption or pushing it out a little bit? David Moon: No, it's a good question. Look, large retailers, both in U.S. and Europe, rely on OEMs, not only for the design of the -- the equipment design, but the install and in some cases, the service [ afterwards ]. And so they really want to pull along their OEMs, especially when it comes to new technology. And so as we -- and then -- so that's what we're -- we knew that was going to be the case, and that's certainly what we're finding. And so our path to a large retailer like a Walmart is going to go through a large OEM like Hillphoenix. And so the 2 are going to have to be in lockstep. And so what we expect to happen as the next step now that we've gotten through a successful summer season of testing is that we expect Hillphoenix will now start promoting us to the likes of a Walmart, and we'll get test stores in the first half of the year with them. And so we'll start that process with -- confirming the technology with a couple of these large retailers over the course of next year. But it's going to be with these large retailers pulling the OEMs along in lockstep. That's just the way it's going to work. Lawrence Solow: Okay. So it doesn't sound like your confidence has changed at all, right? Or the inevitable -- listen, the ROI, I guess, goes down a little bit because it's pushed out 1 year, but it doesn't feel like -- right, that's kind of the one change. I guess I know you're not ready to make any major decisions today, but it sounds like you're not going to get to that sort of 4 or 5 customer adoption next year, but that doesn't necessarily mean your confidence in the overall program has changed. Is that a fair assumption? David Moon: No. Larry, look -- no, I think -- look, I think we had a good summer season of testing. That's what we know. And we know that OEMs are now starting to talk to some of their larger customers, which is a good thing. We know that we're going to have another season of testing in front of us in 2026, and that real commercialization is likely going to happen in 2027. So our view, OEMs are still very, very interested in the product, still very interested in the product. We're getting pull. And so it's just a question of speed. Lawrence Solow: Okay. That's fair. I appreciate that. Just quickly on the desal. It sounds like -- I know the long-term fundamentals don't change much. Just so fast that is just curious, we're somewhat newer to the name. Your visibility, I know always could move around a little bit from quarter-to-quarter. But this time of year, as you look out to the next year to '26 without giving us numbers, but does your visibility start to fill in as we look out on a 12-month rolling basis, even though I know quarters could slip a little bit? David Moon: Yes. We should start to see backlog building now for 2026. So now it will be relatively small because if you think about our last -- now what's going on in year 3, the sort of the pattern of backlog build for us has been sort of slow first half, very heavy second half. And that's not going to change for 2026. We expect the same sort of pattern. So we should enter the year with some backlog. It's likely not going to be significant, but the second half is where the story will be told. And that's been the MO for the last 3 years. Operator: The next question comes from the line of Jeffrey Campbell with Seaport Research Partners. Jeffrey Campbell: Congratulations on the solid results. I wondered -- David, I wondered if the impressive operating cost reduction that you have highlighted, did it benefit in some way from your efforts to establish an international footprint? Or did they occur in spite of those changes? Or were they just completely unrelated to each other? David Moon: Yes, they're unrelated to each other. Jeff, we were able to reduce costs, and we've been very mindful of costs since starting last year. And so we've been able to really, really watch our costs over the course of the year, especially when tariffs hit us so hard in the first quarter. So we took action very quickly. That's why we've been able to be so successful this year to be able to drive OpEx down. But it hasn't stopped us from investing in growing wastewater nor did it stop us from investing in this manufacturing option to be able to forgo the tariffs from China. So we've been able to do both. Jeffrey Campbell: Okay. The announced lithium project is an application of PX that I was excited to see progressing from a pilot to a project. I'm just wondering, is there enough potential work in this area to make it a meaningful niche in wastewater treatment. David Moon: Yes. I mean this lithium extraction project that we just won, which is in Argentina, that's a $350,000 project, and that should hit us this quarter. And so we think this is the first -- and we've had several projects in China already where we've been able to win lithium extraction projects. And so we think there are more to come here. Jeffrey Campbell: Okay. I was just curious, you've talked intermittently about hiring new people for the wastewater effort as your confidence in this growth has increased. I just wonder what do you look for in these kind of hires? Are you looking for existing relationships or industrial knowledge or something else? David Moon: Yes. So we're looking for people that have a track record in the wastewater space. That's number one. Number two, a track record within at least 1 or 2 of the 5 verticals that we're focusing on. So that they bring experience, they bring relationships with OEMs, with end users. And so those are the 2 primary attributes that we're looking for when we're hiring these -- hiring new salespeople and technical support people. Jeffrey Campbell: And the last question, regarding these retailer tests for next year that you kind of laid out for us in CO2, are these likely to be skid installations as you've done in the past? David Moon: Yes, more than likely, Jeff, there'll be -- I would say majority will be skid. Existing CO2 locations with the skid install. Operator: There are no further questions at this time. I'd now like to turn the call back to David Moon for closing remarks. David Moon: So thank you, operator. So thank you to all of our stakeholders for your continued support, and we look forward to updating you on our next call. Enjoy the rest of your day. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good morning, and thank you for attending Unifi's First Quarter Fiscal 2026 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] Speakers for today's call include Al Carey, Executive Chairman; Eddie Ingle, Chief Executive Officer; A.J. Eaker, Chief Financial Officer. During this call, management will be referencing a webcast presentation that can be found in the Investor Relations section of unifi.com. Please familiarize yourself with Page 2 of that slide deck for cautionary statements and non-GAAP measures. I will now turn the call over to Al Carey. Albert Carey: Thank you. Good morning, everybody, and thank you for joining us today. Listen, I'll get started with a few comments. And to start out, I'd say our UNIFI business had a challenging quarter. However, I'd like to spend a few minutes to explain what unusual obstacles occurred in quarter 1. I think it would be helpful for those of you that follow our company to understand that this quarter had 2 primary challenges. One is beyond our control and one is within our control, but it's temporary. So let's start out with the first item, which is what is beyond our control. Most of you have probably read about this in our industry, the majority of our customers placed orders for goods that will get them through the holiday season, but they ordered them just before the tariffs went into effect in April. Then since April, orders have been extremely light and only for goods that are absolutely necessary, and this seems to be consistent across our industry, not just a UNIFI issue. This has had a significant impact on our sales revenues, particularly in Asia and also in Central America, and it's going to affect sales probably for another 8 weeks. So it will take us through our quarter 2. This is as best as we can determine. But most of our customers, retailers and brands have communicated to us that they expect to return to some level of normal ordering in January. And if not, we have a plan to deal with that. One positive development that we are keeping an eye on is that the sales growth of apparel remains solid at a plus 5% versus a year ago and inventory is declining pretty significantly. So ordering should follow. So that's topic one. Topic two, what is within our control. I think I mentioned this on the last call. We closed our Madison facility in June. We moved out of that volume. We took it from Madison to Yadkinville, our bigger facility, which added 40% to their capacity. The transition required us to hire many people, train them, moving equipment and incenting employees to stay working in Madison until we shut down so that we didn't miss out on business and kept our service up with our customers. We've had increased costs because of these transitions, but I will tell you that we've taken actions. You'll hear more about them today to put our costs back on track. And while you don't see it in our Q1 results, we are now seeing it in our October operating results, which is the first month of the quarter, the new quarter. And you can expect these transition costs are now fully complete for our company. The third item I wanted to mention is that we really have resized our company's cost model. We now have resized the operating cost to fit this new level of revenue, this new low level of revenue so that we can be profitable even at the lower levels. So we've taken some new cost reductions, headcount reductions and price actions that are now complete as of last week. These actions will allow us to deliver improved cash flow and EBITDA and the performance will step up as we move from quarter 2 through quarter 4. Then when the revenues do improve and they will improve, we will see much, much better leverage on our fixed cost as a total company. Now A.J. will take you through how our net debt is being reduced and our cash flow improves with these changes. And I'd like to mention that last, but not least, we have a plan on improving revenue growth with our efforts at beyond apparel products, which we've been talking about for quite some time, topics such as military segment, carpet, resin sales and packaging. All these products are relatively new to our business with better margins than the base. There have been a lot of work going on meeting qualifications for these projects. That's the one thing we probably didn't realize is how long it will take to qualify, but there's lots of work being done and orders are now coming in. Our efforts on the REPREVE innovation and textile Takeback are gaining a high level of interest from customers. They will see progress in the second half of calendar 2026. So in summary, despite the obstacles we faced in quarter 1, I'd say our team was agile in taking action that will make us a more profitable company and deal with these tariff uncertainties. While our comeback has taken longer than I would have liked, we have used this adversity to take additional actions fairly quickly and to be more sure of our ability to generate profits and cash flow even as the market has periodic downturns in the future. So now let me turn it over to Eddie Ingle, our President and CEO, who will take you through the actions that went on during this quarter. Edmund Ingle: Thanks, Al. I'm going to start with an overview of the first quarter, so please turn to Slide #4. As Al noted, our results for the first quarter came in below our expectations as we continue to be impacted by softer ordering patterns that are directly related to the recent tariff and trade uncertainties. Many of our global customers have continued to methodically slow down their ordering patterns until they are better able to formulate a strategy to handle this current tariff landscape, which remains highly fluid. While we're disappointed that the customers are being cautious, the holiday season should bring apparel inventories down to relatively low levels, and thus, we believe we should build revenue momentum at the beginning of calendar 2026. Now along those lines, I think it's important to offer a few updates on the current trade environment in the key markets that we currently operate in. In the Americas, while the short term remains challenging, the mid- and long-term outlook seems to be improving. The reality is many brand and partners of ours are starting the process of moving some of their production programs to Central America in calendar 2026. While more clarity on the global tariff situation will be needed, we are actively working with these retailers to highlight the fact that if they use our U.S. yarn during their production in Central America, they can receive much of the 10% reciprocal tariff back as all of our Central American supply chain is U.S.-based. In Asia, brands are also reassessing where they need to move the final assembly step of their supply chain. While there continues to be some uncertainty in terms of which country will end up being the most favorable, our model remains asset-light. And as we've noted many times in the past, we continue to see immense opportunity in Asia once trade pressures begin to subside, given that the majority of the world's polyester is still produced from China-based assets. In Brazil, we continue to see relative demand stability and feel highly confident in the long-term growth potential of the textured polyester yarn market. However, we are still seeing some dumping pressure from Asia-based companies whose Asia-based demand has dried up. The textured polyester industry has filed an antidumping case with the Brazilian government, and they are going through the evaluation process right now. If successful, it would help alleviate some of the short-term headwinds we are seeing in the region. However, that process will take until the end of our fiscal year to get a final resolution. So stepping back a little bit and looking at the big picture, the tariff and trade situation has hurt all of our business segments in the near term, but they may, in fact, offer the Americas segment even greater support in the long term. Given the short-term uncertainty, it was important to further align our cost structure and improve our ability to drive greater profits and cash flow in fiscal 2026. The first step was the [indiscernible] of a cost restructuring program that was executed right after the Q1 quarter close. A.J. will provide more details on the financial impact of this program, but these cost restructuring efforts reduced our headcount and brought down hours in some of our facilities as we wait for demand to recover. Implementing these actions are not something that we take lightly, but we do believe that it was a necessary step for us to help deal with the financial headwinds we are currently facing and achieve improved financial results. We have done this while keeping the manufacturing footprints and capacities of the Americas business segments intact. As the fiscal year progresses and revenues pick up, we will continue to be very selective about where we add back costs. And the second step we took during the September quarter was to communicate to customers inflation and tariff-related price increases. This increase in pricing will help drive a partial uplift to our financial results in Q2 and will be fully visible in our third fiscal quarter financial results. Turning now to our specific performance. During the first quarter of fiscal 2025, we reported $135.7 million in consolidated net sales, which was down 7.9%. In the Americas segment, we experienced a year-over-year decline, primarily due to reduced sales volumes stemming from trade uncertainty and some productivity shortfalls caused by our continued efforts to consolidate our U.S. yarn manufacturing operations. These transition costs are now complete. In our Brazil segment, we are continuing to see stable demand for our products, but as I noted earlier, our results during the period were impacted due to import pricing pressures from some dumping in the region and slightly lower sales volumes. With that said, we see -- we still see strong fundamentals in Brazil's textured polyester market, which we believe will help drive further improved financial performance in the second half of the fiscal 2026. In our Asia segment, sales continued to remain weak as trade negotiations drag on. As we've noted on our previous earnings call, our fixed cost profile in the region remains low and our asset-light model can be applied in many other countries. And thus, we will continue to adapt to the short term, and we'll be ready as global trade conditions shift and/or normalize. Turning now to Slide 5 for an update on REPREVE. During the first quarter, REPREVE Fiber represented 29% of sales, down 1% point from the previous year due to trade policy impacting ordering patterns. Despite this impact, we are seeing some green shoots for our REPREVE polyester resin, which performed well during the period. And we're cautiously optimistic that this momentum in resin will continue throughout the remainder of fiscal 2026. These REPREVE resin sales are part of the Beyond Apparel business growth in the U.S. Moving now to Slide 6 to highlight some of our recent innovation efforts. We are building off the momentum from recent global product launches. During the last quarter, we had announced the global product launch of our new offering under the A.M.Y. platform for sustainable odor control, A.M.Y. Peppermint and our updated offerings of ThermaLoop insulation and REPREVE Takeback. Both of these circular products are now offered with 100% textile fabric waste inputs. On Slide 7, you can see the first co-branded placement of our ThermaLoop insulation products with outdoor apparel leaders, Marmot and Lafuma. Both brands have launched jackets incorporating on-garment co-branding hangtags and callouts on e-commerce. Meanwhile, REPREVE Our Ocean was featured in a co-branded Instagram social media created in collaboration with Rain Rebel. The content effectively engaged audiences across both Europe and the U.S., serving as a compelling piece of brand storytelling using our REPREVE Our Ocean filament yarn in their rain ponchos made from 22 post-consumer recycled plastic bottles that are ocean cycle certified, which means they are removed from the ocean-bound environments in developing countries, lacking the formal infrastructure for waste management and recycling. Further, these customer validations were complemented by the announcement of recent award recognition as leaders in sustainable textile solutions. Our ThermaLoop insulation received an Honorable Mention from Fast Company's Innovation by Design Awards in the Sustainability and Circular Design category, standing alongside renowned companies like Google, Haworth and [indiscernible]. The REPREVE brand platform was awarded as a finalist for the Digiday Greater Goods Awards, which honors brands addressing critical social and environmental challenges. And before I call -- return the call over to A.J., I want to quickly mention that we are continuing to see positive momentum in our Beyond Apparel initiatives in carpet, military and packaging applications. So far, the government shutdown hasn't hampered sales much in the military market, but we hope to see that situation resolved reasonably quickly to keep our momentum here. We continue to believe that the sales from these initiatives will become a meaningful contributor to our financial and revenue growth in the second half of fiscal 2026. With that, I would now like to pass the call over to A.J. to discuss our financial results for the quarter. A.J. Eaker: Thank you, Eddie. As Eddie noted, we are disappointed in our financial results this quarter and thus have continued to take steps to better align and optimize costs across our business, which now includes the recent implementation of another cost restructuring initiative. This recent initiative is expected to result in significant savings on an annual basis as we reduce our headcount, match machine run rates with sales volumes and strategically reduce operating costs across our business. This new cost reduction plan includes approximately $5 million in SG&A savings on an annualized basis compared to fiscal 2025 and approximately $4 million of those savings should be reflected in this fiscal 2026. These are predominantly cash savings. Next, the new reduction in manufacturing costs are designed to drive a $5 million per quarter savings for the remainder of fiscal 2026. These measures were necessary to realign costs with the lower revenue levels that were not expected immediately following the closure of our Madison facility. Moving on to the financial results on Slide 8. You will see our consolidated financial highlights for the quarter. Consolidated net sales for the quarter were $135.7 million, down 8% year-over-year, primarily driven by trade-related uncertainty and short-term demand volatility across each business segment. Gross profit was lower at $3.4 million and gross margin was 2.5%. On Slide 9, in the Americas, net sales were down 1.3% compared to the prior year fiscal 2025 due to price and sales mix. Gross profit in the region decreased by $300,000, primarily as demand and production volatility mostly offset the savings from consolidation efforts during calendar 2025. Slide 10 displays our Brazil segment, which saw net sales and gross profit decrease versus the prior year. As Eddie noted, this was primarily due to import pricing pressures and lower sales volumes. That said, demand and growth opportunities continue to remain strong in Brazil. Finally, on Slide 11, our Asia segment net sales and gross profit declined by 19% and 16%, respectively, primarily due to lower sales volumes, a less favorable sales mix and pricing dynamics in the region. Despite these headwinds, our gross margin in the region did improve by 40 basis points, highlighting the benefit of our ability to adjust and flex our asset-light model. Slide 12 outlines our capital structure. From a CapEx perspective, we prioritize critical investments and are forecasting under $10 million in fiscal 2026. We've also continued to do a nice job managing our working capital over the last few years and expect to continue that work throughout fiscal 2026 from a leaner manufacturing base in the U.S. With all of our calendar 2025 cost actions, we have positioned the business to better generate operating cash flows under a strained revenue environment. For example, in monitoring our weekly cash spend in the Americas business, during October, we've seen a significant decrease versus August when we had more volatile customer ordering patterns and higher activity across all operating functions. Therefore, significant progress has been made. With that, I'll pass the call back to Eddie. Edmund Ingle: Thank you, A.J. Now let's turn to Slide 13 to discuss our forecast for the second quarter of fiscal 2026. For the second quarter, we are expecting to begin to see the full benefits of our proactive efforts to reduce costs, increase machine efficiencies and facility utilization to improve profitability throughout the remainder of fiscal 2026. We also expect to see adjusted EBITDA improve sequentially from the first quarter of fiscal 2026, primarily driven by cost savings in the Americas segment. Due to the holiday period, the net sales are expected to drop slightly in the Americas and Brazil and net sales in Asia are expected to increase ahead of the Lunar New Year, which this year is in mid-February 2026. And while it's difficult to -- for us to predict the exact timing of this, we also anticipate that the global trade situation will gain greater clarity by the end of calendar 2025. This as well as significantly reduced inventory levels in the channel after the holiday season should help us see incremental improvement of the top line throughout calendar 2026. Lastly, we do expect to see continued commercialization of our value-added products such as REPREVE Takeback in ThermaLoop in Asia and in the beyond apparel markets such as packaging, military, and carpets in the U.S. To wrap up on Slide 14 with our strategic priorities. While much of our cost actions were completed during the first 10 months of calendar 2025, we recognize that we still have some work ahead of us to position our business to be where we want it to be. As we've highlighted today, we are continuing to make the necessary changes needed to strengthen our business, which will help us capitalize on the investments we have made in new innovations and circular textile solutions. As we have previously noted, achieving our goals will continue to require patience and persistence. However, the cost actions we took will be seen in Q2 and beyond. And while October has not yet been rolled up, we have seen better revenues come through in the Americas. Further, now that we have rightsized our Americas footprint, we will see the cost benefits of this reduction begin to flow through. The tariff uncertainty should subside in the coming months, and the brands will have a clear supply chain strategy that we will adapt to. The focus going forward will be on growing revenues and margins through the commercialization of our value-added technologies and building our business in new markets. When successful, this is expected to create long-term value for our shareholders. With that, we would now like to open the line for questions. Operator? Operator: [Operator Instructions] And your first question comes from Anthony Lebiedzinski from Sidoti & Company. Anthony Lebiedzinski: So first, I just wanted to see if you could guys take a step back and just maybe just provide a little bit more comment and details about the volatility that you saw in demand and production, particularly in the Americas. And it sounds like things have gotten better there in October, which is encouraging, but if you could just kind of go over the volatility in demand and how that impacted the first quarter, that would be helpful. Edmund Ingle: Yes, Anthony, thanks for joining us today, and thanks for the question. Yes, the -- we did have a lot of volatility in demand. We mentioned a little bit of this in our previous earnings call. And what happened during our Q1 is we built inventory in the first 5, 6 weeks of the quarter, expecting revenues to come through. And when they didn't, we rapidly turned around and reduced our production levels. And that, in turn, resulted in some cost-cutting actions, but the demand falloff has certainly been something that we reacted to very, very quickly. We do expect -- as I said, October was good, and we expect a slowdown as we move into the -- in the Americas into the Christmas holiday period and then expect an uptick in the Q3 as we come out of that holiday. Anthony Lebiedzinski: And then just curious if you guys could provide more details as to what are you hearing from your customers about the operating environment and the upcoming holiday season. There seem to be a lot of mixed signals with the overall economy. So just wondering if you guys could talk about that. Edmund Ingle: Yes. What we're seeing is that everybody is very cautious with their inventories, and they're starting to do what we started 2 months ago, which is manage their inventory levels down by reducing their production levels and really being very reactionary to any demand. Everybody is telling us that this is really in preparation for managing their year-end inventories, which we understand. But they are also saying at the same time, like I said earlier, Q3 should be better. And it should be better for us in the Americas because Central America is expected to pick up and it's expected to pick up because of natural seasonality, but also because the brands are moving some of the programs back here. While there is still that 10% tariff for Central America, USMCA -- not USMCA, but CAFTA-DR goods, there is an opportunity for some of the brands to claim back some of that 10% reciprocal tariff if there is a U.S. supply chain. So we're excited about the fact that the brands are learning about how to capture some of that money back to make it a more level playing field with some of the Asia tariffs. Albert Carey: Anthony, this is Al. I'll just add something that was in the trade press. It's in April, I mean, if I were a buyer for a chain, I do the same thing. When the tariffs were announced, they went right to the point of April -- in April and everyone ordered product that would come in, in time for Christmas. And the report was that the ports in Los Angeles had the highest level of deliveries in any time in the 17 years that they've tracked. And then in July, August, September, they've gone very low and that the inventories for the Christmas holidays were in place and ready to go a month earlier than ever before. And they literally are sitting on a -- they were sitting on a bit of inventory and now blowing through it as the holiday comes in. So it's kind of remarkable that everybody is doing the same thing, but it makes sense. The tariffs, they got -- they almost bought into a price increase, right? Before a price increase. So the other thing I'd mention to you was in the last question you asked, the one thing that's really important is our plants -- I'll say these numbers to you, they don't mean anything, but you can see the change. If we were running in the summer at about 85 pounds per man hour. And since then, we've jumped to 107, and we have the ability to get well above that. So the training and the hiring and the production and the goals we've set for our people are starting to take place. That's one of the most important things that's happened in the last 3 months. And we think these cases per man hour go up a good bit above what I just mentioned as they -- as some of these people get in the saddle for a while. Anthony Lebiedzinski: And then, Eddie, I think you said earlier that you're seeing some green shoots with REPREVE. Can you expand on that? What are you expecting going forward? Edmund Ingle: Yes. Much of our REPREVE is in Asia. And I mentioned that there's 2 brands, Marmot, that were and Lafuma who have adopted ThermaLoop in their products, but we're also seeing some action on the REPREVE Takeback, which is also the 100% circular solution. So as we move through the year, we're expecting the Asia business to grow simply because REPREVE plus technologies and plus the circular solutions are going to grow. And we can see this in some of the ordering patterns that we have visibility to in the December, January period. In the U.S., there is still a renewed interest in keeping a lot of the performance apparel with REPREVE. And that is what that business is generally run through the Central America supply chain. So as we get into Q3, we should see the growth in Q3 of REPREVE also in the Americas business. Anthony Lebiedzinski: And then in terms of the price increases that you referenced, can you give us more details as far as like what's the extent of the price increases? And also, are these price increases in certain markets? How should we think about that? A.J. Eaker: Yes. I'll add a little bit of color there, Anthony. Certainly, we work closely with the customers to make sure we're delivering the right value. So we're not in a position to disclose the specific price increases or the overall amount, but know that these are responsive to costs and tariffs. And so we're doing our best to work closely with the customers to make sure everything is fair as we get through the supply chain and that we're delivering the same value we have. Anthony Lebiedzinski: That sounds good, A.J. And then I just want to follow up as far as the cost savings that you talked about, are these on a gross basis or a net basis in terms of the numbers that you provided? A.J. Eaker: So for SG&A, we are expecting a strong decline year-over-year in the annual consolidated SG&A amount. So in fiscal '25, you saw approximately $49 million of SG&A, and we expect that to be under $45 million for fiscal 2026. So that would be the overall impact to the SG&A line. From a COGS basis, at these revenue levels, we are expecting that $5 million per quarter to come through as compared to the quarter that we just completed. So improvement throughout the year beyond this Q1. Anthony Lebiedzinski: And then just also thinking about the beyond apparel initiatives. You've referenced the military and carpet, not just on this call, but on previous calls as well. Just wondering if you guys could comment as far as how much revenue are you currently deriving from these? And what's the opportunity going forward? Edmund Ingle: Yes. We still believe that in the calendar 2026, we should see a market improvements. And I'm going to put a range of around $20 million with the Q3 fiscal or Q1 calendar being on the lower range. And as we move through the 12 months in fiscal 2026 -- calendar 2026 to see a significant uptick to the run rate of around $20 million by the end of the calendar year. We are already seeing quite a nice improvement in our resin business, which is our flake and chip business, polyester, recycled polyester. And that is expected to continue as we move through 2026 calendar. Anthony Lebiedzinski: And then just overall, as far as the -- I guess the last question I would have here is just aside from military and carpet, are there any other key beyond apparel initiatives that we should think about? I think in the past, you've talked about automotive. Just wondering if you could provide anything else in regards to that. Edmund Ingle: Yes. We do, from time to time, talk about automotive specifically, and that has been quite actually good for us over the last few months. We are a little bit -- we haven't called it out because we're just a little bit nervous about the automotive industry with a lot of the changes going on. And so we still see that as being robust and helping us with our Beyond Apparel initiative. The trick there is to move it over to the value-added products that we have, and we're working hard on that. But it is something that's a very important part of our business. Operator: And your next question comes from Chris Reynolds from Neuberger Berman. Chris Reynolds: I have 2 questions. The first relates to Brazil and sort of Latin America in general. That's an area where you have some strength. But if I recall, you have a balance sheet there that's fairly significant with cash that sort of stays in region. Can you provide an update on what those general numbers look like and then the trends because I think one of your competitors went bankrupt, and that's helped you. The second question is any clarification on the changes to the de minimis import rules? I saw some numbers out of UPS, which said that they had big earnings gains because they didn't have to have a bunch of cost to handle that change in using software and AI and other things to help manage that transition. I'm just wondering if there's any real benefit that would come to the apparel industry in general from this change on customs. A.J. Eaker: Thanks, Chris. Two good questions there. A.J. here. I'll start with the first. Certainly, we've been proud of what the Brazil operation has been able to achieve over the last several years. Certainly, last year was stronger with the pricing environment there and a little bit more pressure in this current quarter. Fortunately, their operation has run quite well, especially from a working capital and margin perspective. Despite these pressures, they have been able to generate cash, both the quarter that we just completed and the quarter that we're in now. So that balance sheet remains healthy and their cash levels remain in excess right now of their absolute needs for the next few quarters. And I'll let Eddie comment on de minimis for you. Edmund Ingle: Yes. We're excited about what happened with the de minimis. It was August -- at the end of August, basically an executive order was signed that you can't bring in goods duty-free and regulation-free basically. We know that it's impacting a lot of the brands in a positive way because the very, very cheap imports that were coming in under the de minimis are no longer coming in. We do expect to see this translate into better revenues for the bigger domestic brands. And then some of the brands got caught because they were not got caught, but they were flat-footed because they were bringing in goods through the de minimis. So they are having to pay the extra cost, the extra duties and the extra transportation as the other brands who are not using that ruling. So I think we're going to see the benefit in the region over the next few quarters, but it will be -- it's right now hard to determine exactly how it's impacting us because we don't have the normal data that we get because of the government shutdown. So we're sort of running a little bit blind now on the exact import situation. So -- but more to come on that in the coming quarters. Thanks for the question. Operator: All right. There are no further questions at this time. And ladies and gentlemen, thank you all for joining, and that concludes today's conference call. All participants may now disconnect. Thank you, everyone.
Operator: Greetings, and welcome to the Arko Corp. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Ashleigh McDermott, Vice President, Financial Reporting. Please go ahead. Ashleigh McDermott: Thank you. Good afternoon, and welcome to Arko's Third Quarter 2025 Earnings Conference Call and Webcast. On today's call are Arie Kotler, Chairman, President and Chief Executive Officer; and Jordan Mann, Interim Chief Financial Officer and Senior Vice President of Corporate Strategy, Capital Markets and Investor Relations. Our earnings press release and quarterly report on Form 10-Q for the third quarter of 2025 as filed with the SEC are available on Arko's website at www.arkocorp.com. During our call today, unless otherwise stated, management will compare results to the same period in 2024. Before we begin, please note that all third quarter 2025 financial information is unaudited. During this call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please review the forward-looking and cautionary statements section at the end of our third quarter 2025 earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today. Any forward-looking statements made during this call reflect our current views with respect to future events, and Arko is under no obligation to update or revise forward-looking statements made on this call, whether as a result of new information, future events or otherwise, except as required by law. On this call, management will share operating results on both a GAAP and a non-GAAP basis. Descriptions of those non-GAAP financial measures that we use, such as adjusted EBITDA and reconciliations of these measures to our results as reported in accordance with GAAP are detailed in our earnings release or in our quarterly report on Form 10-Q for the quarter ended September 30, 2025. Additionally, management will share profit measures for our individual business segments along with fuel contribution, which is calculated as fuel revenue less fuel costs and exclude intercompany charges by our subsidiary, GPMP. And now I would like to turn the call over to Arie. Arie Kotler: Thank you, Ashleigh, and thank you all for joining. Our team delivered a strong quarter of execution, staying disciplined and focusing on what we can control. Stepping back, we're operating in an environment where consumers are still feeling stress as reflected in consumer sentiment data throughout this year. This has resulted in more deliberate shopping behavior, greater price sensitivity and increased reliance on loyalty-driven offers. These dynamics are consistent with what we're hearing across the industry, and they're shaping how we approach promotions and value across our business. It's important to recognize that consumer behavior is not uniform across our footprint. We're seeing healthier trends in the Northeast, Southeast and Mid-Atlantic, while in the Midwest and other select markets remain under pressure, reflecting broader regional differences in household budgets and fuel demand. Industry feedback suggests these patterns are consistent across the channel, particularly in rural markets where store traffic remains under pressure. Despite these headwinds, we are executing on our controllable to ensure our long-term opportunities remain intact. Our same-store sales, excluding cigarettes for the quarter, was nearly flat, representing the best comp performance we've seen in the last 18 months. We continue to believe Arko's transformation plan will make our business stronger, more efficient and better aligned with consumer trends. Now, I will provide an update on the core elements of our transformation plan, beginning with dealerization. Dealerization continued to be one of the most meaningful drivers of our plan. Since the middle of 2024, we've converted approximately 350 stores as of September 30, 2025, with an aggregate of approximately 185 additional sites committed for future conversion, which are currently under a letter of intent or contract or have been converted since the end of the quarter. The early performance from locations that transitioned 6 or more months ago continues to meet our expectations and validates the benefits of this approach, both in reduced overhead and improved operating efficiency. Beyond these initial stores dealerized or under letter of intent or contract, we see an additional opportunity to round out our dealerization strategy in 2026 with a meaningful number of conversions to come. As we have stated before, once fully scaled, we expect this program to deliver a cumulative annualized operating income benefit of more than $20 million before G&A. As our dealerization efforts continue, we have identified more than $10 million in expected annual structural G&A savings with the opportunity for additional upside. As we continue to execute the dealerization program, we expect the benefits will increase and be fully reflected in our financial performance and free cash flow generation moving forward, particularly given the savings from maintenance CapEx. Dealerization remain central to how we plan to drive more consistent returns and long-term value creation for shareholders. Our Fueling America's Future campaign and fas REWARDS loyalty platform continue to play a central role in deepening customer relationships and driving engagement in our retail stores. These programs not only help us stay relevant with consumers who are seeking more value in every trip they drive incrementally and provide a valuable lever, which we believe can improve same-store sales performance over time. Average daily loyalty enrollment for our fas REWARDS program grew 37% in the quarter and 43% from the beginning of the promotion compared to the average daily loyalty enrollment prior to the campaign. During the quarter, we saw continued fas REWARDS members growth, adding nearly 35,000 new enrollees to reach approximately 2.4 million total enrolled members at quarter end. Our enrolled customers spend approximately $110 per month or 53% more compared to nonmembers and pump-to-store conversion is at 55% of visit year-to-date for enrolled members. This engagement metrics reinforce the value of the program and highlight the behavior differences that make fas REWARDS a key contributor to in-store performance. As consumers remain increasingly value conscious, our loyalty program meets their demand for everyday savings and convenience while reinforcing Arko's relevance at the pump and in-store. Fueling America's Future remain an ongoing part of our value strategy into 2026. While we've seen continued growth in loyalty engagement, we also recognize that total program penetration is still developing, creating a runway for future growth. To build on this momentum, we plan to launch a new version of our app by the end of first quarter of 2026. This platform will introduce enhanced technology and new benefits, including improved reporting, personalization, gamification and geofencing capabilities, just to name a few, that we expect will deepen customer engagement and drive incremental traffic. Our investments in other tobacco products and refreshed back bar layout also continue to drive positive results. Our OTP basket grew by approximately 16% compared to the same quarter last year. OTP same-store sales were up 6.6% as compared to the same quarter of last year, along with a margin rate increase of more than 300 basis points. Our redesigned back bars deliver better product visibility and more modern presentation and stronger promotions. This initiative is a key highlight in our merchandising strategy. It's driving incremental traffic, higher margins and improved category mix while allowing us to compete more effectively in a value-conscious environment. During the quarter, we made steady progress on our store remodel program. Our first remodel location reopened earlier this year. One additional location opened in early August 2025 and a third location is planned for the fourth quarter of 2025 with several more that are moving through permitting and construction phases and are planned to open in the first half of 2026. While only 2 of our new format stores are complete and operating, we are pleased with the results thus far. The growth we are experiencing by category in these stores has been as planned and has continued to improve. These new format stores are built around a food-forward model that emphasize old, grab-and-go breakfast, lunch and snacking, bakery, pizza and an expanded dispensed hot, cold and frozen beverages assortment, all supported by improved layout and a better overall customer experience. Turning to our new-to-industry stores. We continue to expand our presence through select and targeted opportunities. We opened a Dunkin' store and 2 new-to-industry stores so far this year and have begun working on 3 more NTI stores, of which 2 are targeted to open in the fourth quarter of 2025. Our latest NTI location in Kingston, North Carolina exceeded our plan for the quarter with food and beverage contributing 23% of merchandise sales, which is multiples higher than the food and beverage contribution of our same-store network. These investments are focused on high-traffic, high-visibility sites where we can introduce the full Arko offering from fresh food to fuel and loyalty-driven promotions supported by a modern, scalable design. Turning to fuel performance. Our results reflected broader industry demand trends this quarter. Our disciplined pricing strategy and network optimization drove strong per gallon margin performance, allowing us to deliver solid fuel contribution even as gallons modestly declined. The quarter ended with same-store gallons trend better than Q2, with September performance improving from August. Our approach remains consistent, prioritize profitability over volume and leverage our scale to capture opportunity when market conditions allow. As the dealerization rollout continues, we're also seeing the benefits of our more diversified and stable fuel contribution base across our retail, wholesale and fleet fueling channels. Our wholesale and fleet fueling businesses remain strong contributors and key growth engines for Arko. Dealerization-driven site conversion has expanded our wholesale footprint, driving mid- to high single-digit growth in wholesale fuel contribution. The fuel distribution industry is highly fragmented, providing ample opportunity for acquisition given our size and scale. In fleet fueling, disciplined customer management and pricing supported stable margins and consistent volumes even amid softer industry fuel demand. Looking ahead, we're advancing a number of new cardlock locations for 2026, reflecting the attractive recurring cash flow profile of this business and its growing role in Arko's long-term strategy. We continue to see compelling value in our common stock and repurchased approximately 935,000 shares in the third quarter. We have the flexibility to continue investing in our highest return opportunities, dealerization, remodels and strategic growth in wholesale and fleet fueling while maintaining a balanced approach to shareholder returns. Our priorities are clear; strengthening the balance sheet, execute on our transformation plan and drive sustainable long-term value creation. I will now turn the call over to Jordan to review financial results for the third quarter and discuss our outlook for the fourth quarter and full year 2025. Jordan Mann: Thank you, Arie. Good afternoon, everyone. Before I begin, I'd like to note that this is my first earnings call as Interim CFO. I'm grateful for the opportunity to step into this role and continue working closely with Arie and our leadership team. Now turning to third quarter 2025 results. Adjusted EBITDA was $75.2 million for the quarter, slightly above the midpoint of our guidance. This compares to $78.8 million in the year ago period, with the decrease caused primarily by softer retail performance. At the segment level, our retail segment contributed operating income of approximately $77.5 million compared to $85.1 million in the year ago period. Same-store merchandise sales, excluding cigarettes, were down 0.9% versus the year ago period, while total same-store merchandise sales were down 2.2%. Both showed sequential improvement from the second quarter. Same-store merchandise margin rate was up approximately 60 basis points versus the prior year. Same-store fuel contribution was down approximately $1.3 million for the quarter with a 4.7% decline in gallons, partially offset by an increase of $0.015 per gallon of fuel margin. Same-store fuel margin was $0.438 per gallon for the quarter. Same-store operating expenses were up approximately 1.8% for the quarter. Turning to our wholesale segment. Operating income was $24.1 million for the quarter versus $20.3 million in the year ago period. Fuel margin was $0.096 per gallon, in line with the year ago period. Gallons were up approximately 7.5% to the year ago period, driven by approximately 24.5 million incremental gallons from retail sites converted to dealers since the middle of 2024. Excluding channel optimization, gallons were down approximately 2.7% at comparable wholesale sites. We continue to be pleased with the impact of our channel optimization program, which has driven approximately $6.5 million in incremental operating income before G&A for the first 9 months of 2025. For our fleet fueling segment, operating income was $12.2 million for the quarter versus $12.6 million for the year ago period, with total gallons down 1.6% as compared to the prior year period. Fuel margin for the quarter was $0.458 per gallon, up from $0.435 per gallon in the prior year period. Total company general and administrative expenses for the quarter was $40 million versus $38.6 million for the year ago period. The year-over-year increase in G&A was driven by a $1.7 million increase in share-based compensation expense. As we continue the dealerization of our company-operated stores, we expect to see the favorable impact on our G&A moving forward. Net interest and other financial expenses for the quarter were $20.1 million compared to $23.6 million in the year ago period, with the decrease primarily related to lower average interest rates in the third quarter of 2025 and a decrease in fair value adjustments primarily related to our warrants. Net income for the quarter was $13.5 million compared to net income of $9.7 million for the year ago period. Please reference our press release for a detailed reconciliation of net income to adjusted EBITDA. Turning to the balance sheet. Excluding lease-related financing liabilities, we ended the third quarter with $911.6 million in long-term debt. We maintained substantial liquidity of approximately $890 million, including approximately $307 million in cash on hand at quarter end, along with remaining availability on our lines of credit. Total capital expenditures for the quarter were $24.9 million. Looking at our guidance. For our fourth quarter, we expect adjusted EBITDA to be in the range of $50 million to $60 million. This guidance is based on the following key segment assumptions. First, for our retail segment. We expect our Q4 2025 average retail store count to be approximately 1,150 sites. On a per store average basis, we expect merchandise sales to be up low to mid-single digits, reflecting the higher productivity of our retained stores versus the year ago period, partially offset by same-store merchandise sales performance, which is positioned down low to mid-single digits. Again, on a per store average basis, we expect gallons to be up mid-single digits, reflecting the higher productivity of retained stores versus the year ago period, partially offset by same-store gallon performance, which is positioned down mid-single digits. We are modeling total retail fuel margin in the range of $0.425 to $0.445 per gallon. For our wholesale segment, we expect mid-teens operating income growth driven by our ongoing channel optimization work. For our fleet fueling segment, we expect operating income growth to be down mid- to high single digits, driven by gallons roughly in line with the prior year on a lower cents per gallon compared to the elevated environment last year. Turning to the full year. We are updating our adjusted EBITDA guidance to a range of $233 million to $243 million. This updated range reflects our performance year-to-date. With that, I'll hand it back to Arie for closing remarks. Arie? Arie Kotler: Thanks, Jordan. I'm proud of the way our team continues to execute through a challenging environment. We've maintained discipline, manage our controllable and stay focused on the long-term transformation of our business. As we look ahead, our priorities are clear; complete our dealerization program, continue driving loyalty-led engagement and execute the next phase of our growth strategy. We're entering the final quarter of the year with focus, momentum and confidence in the action we're taking to position Arko for 2026 and beyond. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question is from Bobby Griffin with Raymond James. Robert Griffin: Jordan, congrats on the appointment. I guess, first, I wanted to talk a little bit about the store remodels. You gave out an interesting stat there about, I believe, the merchandise side of things and the foodservice popping up as a percentage of sales. What is the opportunity or what's the pathway to kind of accelerate this? When you look at 7 stores in your store base, it's pretty tiny. So how can we accelerate this? And kind of what's the time frame along that given that you're seeing some good results from the early pilots? Arie Kotler: Sure. Well, we started with 7 stores. And as I mentioned earlier, we are already working at the moment increasing the amount of stores in the region that we're working on the 7 stores at the moment. We are seeing encouraging results, no question about it. We mentioned the foodservice. So the NTI that we opened in Kingston out of the gate just exceeded the 20% food and beverage mix target. That was our target as long as those stores perform for the first 12 months, but for some reason, this store really, really exceeded the performance. Because of that, we are working on additional stores that will come along immediately as we complete the first 7 stores. We're already working on [ benefinding ] those stores. And I'm assuming that, that's going to be probably another 20, 25 stores that will come on board immediately after the 7. But the name of the game, of course, is going to be food service, food service, food service and core categories. This is really what we are going to concentrate going into 2026. Robert Griffin: Okay. And I want to maybe switch gears and hit on the dealerization aspect a little bit. I believe you disclosed 185 more under letters of intent and then you think there's an opportunity to continue some of this work in '26. I mean without putting a number out there of how many potential stores, I'm just curious, when you look at the book of retail stores that are not up for dealerization that you will keep when you're ultimately done with this work, what is the difference in those stores performance on a comp basis? Because investors do have concerns here about the same-store sales of the retail network. And I know there's a lot of things moving around. So if you could share anything on gallons or merchandise or even CPG of what the potential portfolio looks like versus kind of what the results we're seeing now, that would be helpful. Arie Kotler: Yes, I cannot comment, Bobby, in particular on the stores. But what I can say is that we are targeting on stores that we actually can have economy of scale. In the script, I mentioned earlier that there are some differences between region in the country. There are like the -- if you're looking at a different region in the country, we feel that the Northeast, Southeast and Mid-Atlantic states, those are the areas that we have a lot of economy of scale. The market is being -- from the economy standpoint, from the volatility in the market, we feel that there is a lot of opportunity for us. I mean, that's the reason we started the 7 stores pilot in the Mid-Atlantic states in Virginia. And we believe that those are the stores that we're going to continue to grow in this part of the country. We're just seeing better results from a same-store sales, from gallons, from margin, core categories. I mean, we just see great results in those part of the countries, and those are the areas that we would like to invest more and get more out of them. I think the most important thing about dealerization is there's a few things that I would like to maybe reiterate on this call. We took a meaningful amount of stores. We're converting them to basically to dealer. We are increasing this segment. We have the wholesale segment and the fleet segment, but we're increasing the wholesale segment. And not only that we see also increase in EBITDA in those basically moving from retail to wholesale, the conversion to cash flow is also much higher. I just want to remind you that we spend on a store about $20,000, $25,000 for -- basically for maintenance CapEx. That's what we usually spend in roughly per year. So if you think about it, we're talking about 550 stores that we are converting from -- basically from retail to dealer, not only that we're talking about a $20 million or so in EBITDA uplift, we're also talking about spending less money on maintenance CapEx. The number I just quoted right now is probably between $15 million to $20 million just on CapEx that all of a sudden, we're not going to spend over here. And like I said, the conversion -- when you move those stores from retail to wholesale, the conversion to free cash flow is much, much higher. And I think that's something that we need to point on this call because cash flow is very important for us as we move along. Robert Griffin: Yes. That makes sense. And I guess just lastly for me, Arie, in your prepared remarks, you called out the fleet card segment as an area for some new location growth in '26. Just curious if you can unpack that opportunity a little bit more. Where do you see -- like how big of white space do you see there? Is that all organic? Or is there opportunities for tuck-in M&A there again? Just curious kind of what that opportunity could look like over the next couple of years. Arie Kotler: I'm talking about building additional sites. As you know, this -- the fleet segment, it's very, very fragmented. There is not a lot of companies like us that are operating in this arena. I think we are one of the largest one in the country. We have today 280 sites. We see a lot of opportunities in the market that we operate and outside the markets we operate. Just for your benefit, to build a cardlock, it's anywhere between $1 million to $2 million. That's the cost to build a cardlock, versus when you build a new-to-industry store, you're talking about $6 million to $8 million. The cardlock it's much, I'll call it, less expensive on one end. On the other end, it's also from an operating standpoint, I mean, it's unmanned. It's unmanned. And as you can see, we operate those -- we operate the 280 cardlocks. We enter into this in 2022. We generate a lot of cash, a lot of free cash flow from those assets. And we just see that this is another great opportunity for us to increase the amount of cardlocks that we operate. We already identified 5 going into 2026, we identified 5 and the idea is to build more into 2026. I mean, as I said, currently, we found 5 that we are actually tackling at the moment. And the same thing goes, by the way, to the wholesale segment. As you can see right now, we're spending a lot of time moving stores and figuring the best way to position our company. And wholesale continue to be also a great opportunity for us. Operator: Our next question is from Benjamin Wood with BMO Capital Markets. Benjamin Wood: This is Ben on behalf of Kelly Bania and BMO, and congrats, Jordan, as well. I wanted to start with the improvement on some of the organic metrics you saw sequentially. Wondering if you can help frame how much of that improvement was better store trends versus benefiting from having maybe a better performing or more efficient store base as a result of the dealerization. Arie Kotler: Sure. I will start with some remarks, and then I will let maybe Jordan jump in if you have anything else to add. So I think the performance that you see not only that I mentioned that this quarter was probably one of our best quarter for the past 18 months from a trend standpoint. But it's not only that the sales ex cigarettes were almost flat compared to prior year. I think it's really all about the things that we did in 2025. We started with OTP. You saw what happened to OTP. OTP was basically up 6.6%, margin improvement of 300 basis points. In addition to that, we basically outperformed in many categories like candy, pack bev, for example. And those categories are the categories that are really driving the margin up. So it's not only that the performance is better, it's also that the mix that we are having over there, it's a better mix. The mix drives the margin up. And like I said, I think we started with OTP at the beginning with the back bar, then we went to Fueling America. I think the loyalty platform that we have with the Fueling America campaign that we have, we are selling right now items that actually have a high margin. And on the top of it, of course, I mentioned OTP, but OTP also drives traffic. So I think between the back bar investment and the Fueling America investment, along with loyalty, that's what really would drive the result. And I think right now, you see -- you start to see more and more and more quarter after quarter, you start to see that the results are just improving. And like I said, you see it in margin. I mean we increased margin again this quarter. And quarter after quarter, we continue to increase margin. And I think this is -- that's all because of those promotions that we are having out there. Jordan Mann: Yes. Ben, the only thing I would add is if you look at the prepared remarks and the guide from last quarter, we talked about same-store -- underlying same-store sales and same-store gallon trends. And on an average per store basis, we were roughly in line with what we guided, which means to me, the productivity of those stores was in line with what we expected, if not a little bit better. So you are seeing the benefit from higher productive stores in that base of stores that we've retained. Benjamin Wood: Great. That's helpful. And just as a quick follow-up on that, are you able to give any details on kind of the monthly cadence and how things are looking quarter-to-date? I know we started July off pretty strong, I believe we talked about, but how did the rest of the quarter end up as far as cadence? Arie Kotler: Well, I think July was very, very strong. I think August declined a little bit, and I think September start to come up. So it's really -- like I said, I think overall, the quarter was a good quarter. Unfortunately, August was a little bit lighter than July. But as I said, September started to come back a little bit better. And that's how we end up the -- like I said, that's how we end up the quarter with very, very close to flat on sales, excluding cigarettes. At the same time, you probably saw we also were able to get a higher CPG over here during this quarter. I mean our CPG is $0.023 better than prior year. Benjamin Wood: That's great. And then, Arie, you gave a lot of color on the work you're doing to drive the gross margin expansion, and it continues to come in above at least our expectations. I just want to -- how should we think about where the upper limit is of your gross margins? And it sounds like it's all benefiting from promotions, but are you still as competitive on your pricing across the store? Just the sustainability of margins, please? Arie Kotler: Yes. We continue to be competitive. I think the margin increase is really from the heavy promotions that we're doing with our vendors. And I can tell you that we started Fueling America with X amount of vendors. And as we start to show results and as we start to show those vendors how they can actually grab market share, more and more and more and more suppliers have decided to basically to join the program. I can tell you that going into 2026, Fueling America is going to actually to continue to be one of our top promotions. And I think that's what you see over here. It's really all of those promotions are supported 100% by our vendors. I mean they see the results, and that's why they are participating. So I think the -- we believe that this is sustainable, the improvement that you see over here. There is a lot of work put into it. I want to be very clear. This is something that our category managers and our team is working really, really hard to put those programs together. And like I said, we expanded merchandise margin in multiple consecutive quarters, and I believe this is sustainable, and we're going to just continue to improve it as we move along with those promotions. Operator: Our next question is from Daniel Guglielmo with Capital One Securities. Daniel Guglielmo: Just following up on the various capital spend projects, so remodeling stores, new NTI retail and new NTI cardlock. Is there one of those project types that you think offers the best returns right now? And how do you think about CapEx allocations for each into '26 and '27? Arie Kotler: Daniel, we started with those 7 stores. And we spend -- we said on average, we spend around $1 million, $1 million, $1.1 million on those stores. We throw a lot of things into those stores to make sure that we concentrate on food service. As we move along into 2026 and as we add more stores, the idea is really to scale it moving forward so to adjust cost and scale the price, scale the cost moving forward. In addition to that, of course, our focus remains on maintaining flexibility to deploy capital towards high-return opportunities. So the 7 stores, it's not significant. But as we move along over here, we're measuring return on investment on each and every capital project. And the ones that we feel will actually provide us the best return, those are the ones that we are going to utilize. That's one of the reasons I mentioned earlier, converting over 500 stores eliminate approximately $15 million, $18 million, $20 million in maintenance CapEx. And when you have this free cash available, that can help us to invest in some of the other projects to increase our return. Daniel Guglielmo: Great. I appreciate that. And it actually segues into my next question. So I know that the majority of the dealers that take over the converted retail stores are mom-and-pops. In this difficult consumer environment, has their appetite for taking on conversions changed at all? And then maybe you can just remind us why these dealers can take on the lower-margin properties and still make the economics work for their businesses. Arie Kotler: I don't think it's the lower margin, by the way, Daniel. It's not in particular the lower margin. We have decided to take stores that do not meet our return on investment criteria. We have decided to take stores that are in area that we don't have maybe a large concentration. And at the end of the day, if you're looking on this industry, like I said, I'm here from 2003, 22 years, the amount of mom-and-pop stores in terms of percentage didn't really change. I mean, 20 years ago, it was, I don't know, 65%, 70% of the stores in the U.S. were mom-and-pop. And if you're looking today, it's exactly 65%, 70% stores are still mom-and-pop. Those guys are very entrepreneurial. They concentrate on 1 or 2 stores. They spend all of their time in the store. They're coming up with many ideas that they can add to the stores, which we can't. As a large company, I can't tell my guys just to sell different type of foods in different stores and different -- basically in different regions. I mean, we have to be very, very consistent. Those guys are, like I said, are very entrepreneurial, and they know how to make things better in some areas. And that's why they're very, very successful. And that's why there's still 65%, 70% of them are mom-and-pop. Operator: There are no further questions at this time. I'd like to hand the floor back over to Arie Kotler for any closing comments. Arie Kotler: Thank you very much, everybody, for participating this evening in our earnings call. I wish you guys all the best and happy holidays ahead of us. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.