加载中...
共找到 25,014 条相关资讯
Operator: Good afternoon, everyone, and welcome to the DHI Group, Inc. Third Quarter 2025 Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your touch-tone telephones. To withdraw your questions, you may press star and two. Please also note, today's event is being recorded. At this time, I'd like to turn the floor over to Todd Kehrli with Pundell Wilkinson. Please go ahead. Todd Kehrli: Thank you, operator. Good afternoon, and welcome to DHI Group's Third Quarter Earnings Conference Call for 2025. Joining me today are DHI's CEO, Art Zeile, and CFO, Greg Schippers. Before I hand the call over to Art, I'd like to address a few quick items. This afternoon, DHI issued a press release announcing its financial results for 2025. The release is available on the company's website at dhigroupinc.com. This call is being broadcast live over the Internet for all interested parties, and the webcast will be archived on the Investor Relations page of the company's website. I want to remind everyone that during today's call, management will make forward-looking statements that involve risks and uncertainties. Please note that except for the historical information, statements on today's call may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements reflect DHI management's current views concerning future events and financial performance and are subject to risks and uncertainties. Actual results may differ materially from the outcomes contained in any forward-looking statements. Factors that could cause these forward-looking statements to differ from actual results include the risks and uncertainties discussed in the company's periodic reports on Form 10-K and 10-Q and other filings with the Securities and Exchange Commission. DHI undertakes no obligation to update or revise any forward-looking statements. Lastly, on today's call, management will reference specific financial measures including adjusted EBITDA, adjusted EBITDA margin, free cash flow, and non-GAAP earnings per share, which are not prepared in accordance with US GAAP. Information regarding these non-GAAP measures and reconciliations to the most directly comparable GAAP measures are available in our earnings release, which can be found on our website at dhigroupinc.com in the investor relations section. With that, I'll now turn the call over to Art Zeile, CEO of DHI Group. Art Zeile: Thank you, Todd. Good afternoon, everyone, and thank you for joining us today. I'm Art Zeile, CEO of DHI Group, and with me is Greg Schippers, our CFO. If you're new to the story, welcome. At DHI, our mission is simple. We help employers find and connect with the technology professionals who drive innovation across the US economy. We do this through two brands, ClearanceJobs and Dice, both with strong positions in attractive markets. Our model is straightforward. More than 90% of our revenue comes from annual or multiyear subscriptions. Customers who are employers or recruiters use our platforms to search, engage, and recruit tech talent. Our exclusive focus on tech occupations, brand longevity, scale of our communities, data insights, and continued product innovation give us a durable, competitive advantage. ClearanceJobs is the leading marketplace for professionals with active US security clearances, serving over 1,800 customers including Lockheed, Booz Allen Hamilton, Leidos, Raytheon, and many others. With 1,900,000 candidates on our platform, we have the largest number of profiles of US cleared professionals, giving CJ a significant competitive advantage as a platform for hiring cleared talent. Dice is essentially LinkedIn for tech hiring. Built over thirty-five years, with 7,600,000 profiles in our database, representing the vast majority of technology professionals in the US. While LinkedIn emphasizes a person's title, we focus on tech skills. Tech professionals on Dice actively update their profiles with new tech skills making it the most relevant platform for recruiters who need to source tech talent. Both businesses generate strong recurring revenue and robust EBITDA margins, particularly at ClearanceJobs, where margins run above 40%. Investors often mistake us for a staffing and recruiting firm, but we are an essential software tool used by employers and recruiters to find top tech talent for their open positions. Over 6,000 employers and staffing companies subscribe to our two SaaS platforms. Despite a mixed macro backdrop, and recent headlines, tech hiring has stabilized this year, although remaining under historical levels. While we don't have updated BLS tech job posting figures, due to the government shutdown, we know from our alternative source Lightcast, that new tech job postings were roughly the same as the second quarter. Dice is an essential platform for staffing firms. And according to the staffing industry analysts pulse reports, the median tech staffing firm in their membership is now growing revenue in low single digits compared to 2024. The most notable trend driving current and future tech worker demand is AI. At the beginning of 2024, approximately 10% of job postings on Dice required at least one AI skill. As of last month, that number has risen above 50%. As companies expand their use of AI, the need for skilled technologists that implement these projects will only increase. Platforms like ClearanceJobs and Dice with their combined databases of over 9,000,000 tech professionals, are an essential tool for employers seeking to find, attract, and hire the tech talent they need to fill these projects. Now I would like to provide an overview of our brand performance quarter, and outline the steps we've taken to improve our position moving forward. ClearanceJobs continues to generate strong margins and retain its leadership position, despite a bookings decline of $800,000 or 7% due to the government hiring freeze and eventual shutdown. But the long-term outlook is very favorable. The proposed $1.1 trillion US defense budget for fiscal year 2026 marks the largest single-year increase in peacetime history, representing a 13% increase over the previous year's budget. Historically, the defense budget has grown roughly in line with GDP growth rates of around 3%. So this is a significant year-over-year increase. Also, NATO countries are boosting defense spending to a target of 5% of their GDPs, which would represent a spending increase of more than $500 billion, with US contractors likely to secure a significant portion of this incremental spend. Traditionally, over 60% of EU defense procurement spending goes to US military contractors. These dynamics are promising for ClearanceJobs, with over 10,000 employers of cleared tech professionals and more than 100 government agencies also in need of cleared tech professionals, CJ has a significant growth opportunity as government contractors look to staff new projects. On the product side, we've integrated Agile ATS with our ClearanceJobs offering and are beta testing our premium candidate subscription ahead of its general release in 2026. Our first candidate monetization opportunity. As we announced last quarter, Agile ATS is the only applicant tracking system in the market designed specifically for the cleared recruiting environment. It's the only ATS on the market developed from the ground up to meet the unique regulatory and compliance requirements of government contractors. With Agile ATS now integrated with ClearanceJobs, we have begun offering a bundled solution to customers who want a seamless end-to-end cleared hiring workflow. Based on our analysis, we believe approximately half of our CJ customers today meet the target profile for this solution. With a historical average contract value of around $7,000 annually, we see strong incremental recurring revenue potential for Agile ATS, both from our existing CJ customer base and from new customers in the broader GovTech market. Additionally, we are excited about the opportunity for CJ to create a new recurring revenue stream from our new premium candidate subscription. We will be looking to roll out a similar offering on Dice in the future. With our Dice brand, the third quarter, we continue to face macro headwinds from tariffs, budget uncertainty, and higher interest rates. As a result, the number of new tech job postings remain around 70% of normal, resulting in Dice bookings being down 17% year over year. Having said that, as I mentioned earlier, we are seeing significant interest in AI-related job postings, which we believe will drive future tech hiring demand. During the quarter, we made meaningful progress with our Dice platform from a product perspective. More than half of our 4,200 customers, primarily smaller accounts, have now migrated to the new platform, with all customers expected to be migrated by 2026. This new platform allows existing customers to add new products to their existing subscription online. It also allows new customers to sign up for a subscription with a swipe of a credit card. The price point is $650 a month for the lowest tier subscription package, which is easier for smaller customers to manage than an annual upfront charge. This move to a more self-service model allowed us to reduce Dice operating expenses significantly moving forward. Looking ahead, even though the past few years have been difficult, we have successfully laid the foundation for future growth. Dice is increasingly becoming the go-to destination for AI talent. In ClearanceJobs, operates in a specialized high-barrier market at the intersection of defense, security, and technology, with significant upside from defense budget growth and NATO spending. Our subscription model and margin structure give us resilience. We continue to believe the market doesn't fully reflect the value of each distinct brand today, which is why our board authorized a new $5 million buyback program starting this month. Over time, as we execute, modernize our platforms, and grow our customer base, we see a clear path to meaningful continued shareholder value creation. And as always, remain committed to delivering solid profits and robust free cash flow for our shareholders. With that, I'll turn the call over to Greg to walk you through the financial results and our guidance in more detail. Greg Schippers: Thank you, Art. And good afternoon, everyone. Jumping right in, we reported total revenue of $32.1 million, which was down 9% on a year-over-year basis and roughly flat compared to the second quarter. Total bookings for the quarter were $25.4 million, down 12% year over year. Our total recurring revenue was down 11% compared to the prior year, and the bookings that drive our recurring revenue were down 13% for the quarter. ClearanceJobs revenue was $13.9 million, up 1% year over year and up 2% sequentially. Bookings for CJ were $12 million, down 7% year over year. We ended the third quarter with 1,822 CJ recruitment package customers, which was down 8% on a year-over-year basis and down 2% on a sequential basis. This reduction is attributable to churn with smaller customers, whereas the number of CJ accounts spending greater than $15,000 in annual recurring revenue increased versus prior year. Also, as Art mentioned, CJ's new business teams were impacted by uncertainties surrounding the federal budget freeze and eventual shutdown. Our average annual revenue per CJ recruitment package customer was up 7% year over year and up 2% sequentially to $26,600. Approximately 90% of CJ revenue is recurring and comes from annual or multiyear contracts. For the quarter, CJ's revenue renewal rate was 85% and CJ's retention rate was 106%. This solid retention rate demonstrates the continued value CJ delivers in the recruitment of cleared professionals. Dice revenue was $18.2 million, which was down 15% year over year and down 1% sequentially. Dice bookings were $13.4 million, down 17% year over year. We ended the quarter with 4,239 Dice recruitment package customers, which is down 3% from last quarter and down 13% year over year. Dice revenue renewal rate was 69% for the quarter, and its retention rate was 92%. The reduction in customer count and Dice's renewal rate from the prior year quarter is mainly attributable to churn with smaller customers spending less than $15,000 per year, representing over 75% of the total churn on count, and who are more likely to be impacted by the difficult macro environment and uncertainty. We believe the introduction of our new Dice platform, which offers customers the flexibility of monthly subscriptions, will help reduce future churn among smaller accounts by lowering upfront commitment and improving affordability. Our average annual revenue per Dice recruitment package customer was $15,727, down 4% year over year and up 2% sequentially. As with CJ, approximately 90% of Dice revenues were recurring and come from annual or multiyear contracts. Despite this churn, both brands onboarded notable clients in the third quarter. For CJ, this includes Blue Origin, Boston Fusion, and CDW. While Dice landed HighIQ Robotics, Cloud AI Technologies, and Mango Analytics as customers in Q3. Let's move to operating expenses. For the third quarter, our operating expenses increased $1.9 million to $36.6 million when compared to $34.7 million in the year-ago quarter and includes a $9.6 million impairment of the intangible assets. Excluding the impairment, our third-quarter operating expenses declined $7.6 million or 22%. Because of the difficult market conditions over the past two and a half years, we have reduced costs through restructurings in 2023, in 2024, in January, and most recently in June. Together, these restructurings have reduced our annual operating and capitalized development costs by approximately $35 million. For the quarter, we had an income tax benefit of $800,000 on a loss before taxes of $5 million. Our tax rate for the quarter differed from our approximate statutory rate of 25% due to deduction limitations on executive compensation. The new tax law signed in early July allows for the immediate deduction of R&D costs, which will reduce our income tax payments in 2025 by over $2 million while also providing an incentive for technology spending in the broader US market, thereby increasing tech hiring. Moving on to the bottom line, we recorded a net loss of $4.3 million or $0.10 per diluted share in the third quarter. For the prior year quarter, we reported a net loss of $200,000 or 0¢ per diluted share. Net loss for the quarter was impacted by the previously mentioned $9.6 million impairment. Non-GAAP earnings per share for the quarter was $0.09 per share compared to $0.05 per share for the prior year quarter. Diluted shares outstanding for the quarter were 44.8 million shares, down slightly from the prior year quarter. Adjusted EBITDA for the third quarter was $10.3 million, a margin of 32%, compared to $8.6 million or a margin of 24% in the third quarter a year ago. Margin for the quarter benefited from certain expense savings that are not expected to recur. On a segmented basis, CJ adjusted EBITDA remains strong at $5.9 million in the third quarter, representing a 43% adjusted EBITDA margin as compared to adjusted EBITDA of $6.3 million or a margin of 46% in the prior year period. Dice's adjusted EBITDA increased $2.2 million or 56% to $6.2 million, representing a 34% adjusted EBITDA margin, which compares to $4 million and a 19% margin last year. Operating cash flow for the third quarter was $4.8 million compared to $5.5 million in the prior year period. Free cash flow, which is operating cash flows less capital expenditures, was $3.2 million for the third quarter compared to $2.3 million in the third quarter of last year. Our capital expenditures, which consist primarily of capitalized development costs, were $1.6 million in the third quarter compared to $3.2 million in the third quarter last year, a savings of $1.6 million or 51%. Capitalized development costs in 2025 were $400,000 for CJ, and $1.1 million for Dice, as compared to $600,000 for CJ and $2.5 million for Dice in the 2024 period. We are targeting total capital expenditures in 2025 to range between $7 million and $8 million as compared to $13.9 million last year. From a liquidity perspective, at the end of the quarter, we had $2.3 million in cash and our total debt was $30 million under our $100 million revolver, resulting in leverage at 0.86 times our adjusted EBITDA. We continue to target one times leverage for the business. Deferred revenue at the end of the quarter was $41 million, down 13% from the third quarter end of last year. Our total committed contract backlog at the end of the quarter was $94.3 million, which was down 9% from the end of the third quarter last year. Short-term backlog was $72 million at the end of the third quarter, a decrease of $2.2 million or 3% year over year. Long-term backlog, that is revenue to be recognized in thirteen or more months, was $22.3 million at the end of the quarter, a decrease of $500,000 or 2% from the prior year quarter. During the quarter, we repurchased 741,000 shares for $2.1 million under our stock repurchase program. For the year, we've repurchased a total of 2.6 million shares or $6.2 million under our stock repurchase program and from the vesting of share-based awards. Following the close of the third quarter, we completed the $5 million plan authorized in January and last week, our board approved a new $5 million stock repurchase program, which will begin this month and will run through November 2026. Moving to guidance, we are reiterating our annual revenue guidance of $126 million to $128 million. For the fourth quarter, we expect revenue to be in the range of $29.5 million to $31.5 million. We are raising our full-year adjusted EBITDA margin guidance to 27%, reflecting our cost management and operational efficiency. To wrap up, although the hiring environment over the past two plus years has impacted our revenue growth, we remain optimistic about the road ahead. We anticipate the record-breaking defense budget will be a growth driver for CJ and that companies across all industries will steadily increase their investments in technology initiatives, creating a strong growth opportunity for both ClearanceJobs and Dice. We remain focused on strengthening our industry-leading solutions, optimizing our go-to-market strategy, and executing with efficiency, ensuring we are well-positioned to capitalize on the opportunities that lie ahead. And with that, let me turn the call back to Art. Art Zeile: Thank you, Greg. I want to thank all of our employees once again for their outstanding work this quarter. It has been a pleasure to be part of such a great team. That said, we are happy to answer your questions. Operator: Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Again, that is star and then one. Join the question queue. We'll pause momentarily to assemble the roster. And our first question today comes from Gary Prestopino from Barrington Research. Please go ahead with your question. Gary Prestopino: Hey, Art, Greg. How are you? Art Zeile: Good. Good. Thanks. Appreciate it. Gary Prestopino: How are you? Greg Schippers: Good. Just fine. Thanks. Gary Prestopino: Several questions, but I won't ask them all at one time. Somebody else can get in the queue. But the Dice margin expansion is just fantastic. And I guess there's no one-timers or anything in there. Right? It's that is just pure adjusted EBITDA numbers quarter to quarter. Greg Schippers: So yes, Gary, I'll take that. There are a few, I would call true-ups in there. And so really what's driving that is we had some headcount vacancies during the third quarter that have now largely been backfilled. And then we also had a few kind of what I'd call year-to-date expense true-ups that, you know, were the result of some of our margin changes throughout the year and forecast on the revenue side. And then also as it relates to Dice, the tech team had a very efficient quarter. Therefore, there was more cost allocated to the capitalized development costs in the quarter as opposed to operating expenses. And really, that was a result of the delivery of the DX platform. That we've been talking about that was delivered in September and, you know, another release in October. So that team really zeroed in. And as a result, there was a classification from OpEx down to capitalized development. But from a dollar perspective, there was no change. Free cash flow on that. So I would expect that, you know, we're gonna return to a little bit more of a normalized margin on Dice next quarter. Gary Prestopino: And what would that be? Greg Schippers: So on Dice, you know, we had been running in the mid-twenties, so I would say we're gonna stay in that range. Gary Prestopino: Okay. Thank you. That's helpful. And then what was the write-off for $9 million? Was that in Dice or ClearanceJobs? Greg Schippers: Yep. It was the Dice trade name. So which is directly related to Dice revenue. Trade name valuation uses a technique called a relief of royalty rate and so you apply a third-party royalty rate to a revenue stream. And discount that back. And so that's the nature of that test that has to be done every year. And, you know, it resulted in impairment in this case given the revenue declines that Dice has experienced. Gary Prestopino: Okay. And then last thing I want to ask about capitalized development, you're looking at $7-8 million for this year. Given what's going on in the market, particularly with Dice, do you see that that changes in any way to the upside next year? Our spending on Capdev, will it get better next year as in decrease? Greg Schippers: I don't anticipate we're gonna have a significant decrease next year because our teams are pretty well put together now. I think we have the right staffing levels. And so, you know, we'll continue largely at a level similar to what you would see this year. Maybe slightly less given that the first part of the year, we had more employees before the restructure that happened in June. Gary Prestopino: Thank you. Operator: And our next question comes from Zachary Cummins from B. Riley. Please go ahead with your question. Ethan Waddell: Hi. This is Ethan Waddell calling in for Zachary Cummins. Thanks for taking my questions. I guess to start with the I think you said 70% bookings declined from government volatility. Maybe can you speak to how much of that impact you're seeing from government shutdown versus maybe government efficiency initiatives, just broader volatility? And how do you view that being offset going forward in light of the robust defense budget? Art Zeile: So, ultimately, I think that we have seen a lot of the smaller and midsized defense contractors become more conservative over the last let's say, three to six months. We're entering a period of time right now, specifically in December and January, where we have a seasonal high amount of our larger enterprise bookings take place. And these are with firms like Lockheed and Raytheon and Booz Allen Hamilton. They are actually feeling much more bullish because they can obviously withstand the government shutdown. They could withstand kind of turbulence of the market in general. They have larger balance sheets. So I personally think that we're getting now to the point where people acknowledge that the $1.1 trillion budget is going to be a big benefit to the defense establishment in the United States in total. We mentioned also the impact of NATO spending is positive for the US military establishment. I would say that we have to get to the actual bills being passed and signed into law by President Trump. So there's still a process of reconciliation between the house bill, the senate bill, and they've gotta be debating this. They have to essentially make sure that the reconciliation process happens. This year, it took until February, March for the reconciliation to take place. So really have an estimate as to when this is gonna happen for fiscal year 2026. But there seems to be more urgency I have to say, also, with the administration. The articles you read just about every day indicate that Secretary Hegzip wants speed to be part of the equation for getting more military gear and weaponry and preparedness into the hands of our warfighters. Ethan Waddell: Got it. That's some helpful color there. Thank you. And then in terms of the new platform migration, it's nice to see that you're seeing traction there. I guess, are there any particular actions that need to be taken to onboard the remaining customers that you have by first quarter? And do you expect any uptick in churn with your final customers on the legacy platform? Art Zeile: So I would say that much like any major technology implementation and any feature that's delivered on either one of the platforms, we always make the migration to our smaller customers first. Because it's just a risk-off kind of way of moving through waves of customer migrations. And so we've had a very good experience with those customers moving over. We've moved over half of them. I personally do not perceive that there is churn risk with the remainder of the customers that we move. Now they become the mid and large-sized customers, so the stakes are higher. But I think that we've also honed the process by virtue of these small customer migrations. Ethan Waddell: Thank you. That's all really helpful. Appreciate it. Operator: Our next question comes from Max Michaelis from Lake Street. Please go ahead with your question. Max Michaelis: Hey guys, thanks for taking my questions. Few for me. First, kinda wanna start with just the macro in general. I know you said Dice seems to be stabilizing. Play devil's advocate just a little bit here. The bookings seem to bookings declined seem to increase from last quarter, so down 17% versus down 16%. Can you kind of characterize the stabilization you are seeing in the market just to kind of give me a better sense? Art Zeile: That's a good point to say that ticked up by one percentage point versus the last quarter. I would say the two things that are giving me confidence personally then I'll turn it over to Greg. Are that you know, we are seeing this slow and steady increase in the number of new tech job postings. And they are very much AI-related. So I believe that that is indicative that the United States economy is moving towards one that is going to accept AI at ever larger scale. And then I'd say, the third quarter is traditionally our smallest renewal book. For the business. And it consists of our smaller customers. So I don't think that it's necessarily a matter of the percentage point decrease that really should be focused on. But Greg, do you have additional thoughts? Greg Schippers: Yeah. The one other thing I'd mention is the amount of inbound opportunities has started to pick up a bit. That doesn't necessarily translate quite yet to bookings, but is a little more activity in that area too. Max Michaelis: Okay. And there have been for a while. Makes sense. And and you do brought up AI. What percentage of your job postings on your platform and maybe I know a lot postings probably mention AI, but how many are actually related to an AI-related job? I guess, I don't know how to characterize that. But let you take it. Art Zeile: So over 50% as of October are related to an AI project. So the person is being hired specifically to tackle an AI project for the firm that's hiring them. And that's grown from 25% at the beginning of the year and 10% at the beginning of 2024. So it is a very significant trend from our perspective. Max Michaelis: Wow. That's a lot. And then the last one for me. It's a little if we look out kinda into the future, I know you guys acquired Agile ATS a few months ago. But, I mean, is there any other opportunities out in the GovTech space that you guys can go after? That's it for me. Art Zeile: Yeah. That's a great question. I would say that we are evaluating a number of them. I think that CJ is a great platform. It has a great reputation with its customer community, has high credibility. Has always been the platform of choice for anybody that is hiring cleared technology professionals. So I do think that there are adjacencies. In fact, we always show a diagram to our board that says that talent sourcing is just one part of the whole end-to-end process for hiring an individual, onboarding them, and then managing them. In the cleared context or any context. So I think that there will be more opportunities for us in the future. Max Michaelis: Alright. Thanks, guys. Art Zeile: Thank you. I appreciate it. Operator: To withdraw your questions, you may press star and 2. Our next question comes from Kevin Liu from Kevin Liu and Company. Please go ahead with your question. Kevin Liu: Hi. Good afternoon, guys. Maybe just starting with CJ, and I apologize if you had dropped in your prepared remarks. You joined a little bit late, but can you put a finer point in terms of how kind of renewal activity versus new business activity has kind of trended since the shutdown? And then your sense as to any sort of pent-up demand that could come through assuming the shutdown ends shortly? Art Zeile: I think those are the exact right questions to ask. I would say we have seen a solidification of renewal rates in the third quarter and even moving into the fourth quarter. Our bigger customers definitely feel bullish about the future. And as I kind of indicated in one of the answers, they have the balance sheets to withstand whatever kind of a government shutdown we actually endure. It's been the smaller and medium-sized customers that have been more challenged even with new business activity. But I'd say new business activity has picked up and we have seen a bigger pipeline than we have in a long time. Speaking to the second part of your question, which is I think that if once we get back to the business of running the government, I do think and we have to have a defense bill passed or actually, it's a multitude of different bills that constitute the defense budget. Then there will be more activity, more projects that will allow these smaller defense contractors to feel really good about where they stand with regard to their future success, and therefore, their willingness to purchase a platform like ClearanceJobs. Kevin Liu: Got it. And maybe switching gears to the new Dice platform. Can you talk I know it's still early days, but maybe talk a little bit about what you're seeing in terms of new customer signs and, in particular, how that kind of impacts your cost per acquired customer. And then anything notable in terms of, you know, customers that have migrated over and kind of their renewal rates or upsell potential. Art Zeile: Yeah. I think that, obviously, this is pretty new for us. And I have to say that with regard to the idea of swiping a credit card, what we found is that the customers are less willing to do that for an annual subscription even the lowest tier of package. Because it involves roughly about $6,000 to $7,000 and so that's a large charge at one point in time. Once we rolled out the monthly option, which, I mean, as you're well aware, is part of a lot of different B2B and B2C experiences. That's when we saw the number of people signing up start to escalate. So, you know, $650 for a month worth of Dice seems like it's a lot more tolerable, a lot more kind of like from a psychology perspective. More acceptable. So that's what we've seen so far. I know that Greg is working on how to essentially report that for the future because most of our reporting metrics in the past have been associated with subscription activity. We do have what we call transactional or non-subscription activity, but I think that's gonna be a part of how we essentially report progress in the future is a lot of people will be taking especially new customers, this monthly option. But, Greg, do you have any additional thoughts? Greg Schippers: Yeah. I would just point out that at this stage, we haven't advertised anything new around the platform, and that is gonna get kicked off this week. So we're very interested to see how that takes off with an advertising campaign that's coming up. But we're getting new customer relationships on there literally every day. With no advertising, kind of no focus on it. Yet. So it's only been out there a few weeks, and I think early results are pretty good in that respect. Kevin Liu: Yeah. Interesting. And just so I can clarify, it sounds like your current reporting metrics around customer recruitment packages since that on an annual basis, you're not including any of these customers. Greg Schippers: Yeah. We're working out still the kind of fine-tuning the best way to that information. If you think about a self-service versus a managed customer relationship for instance, it's gonna change a little bit on how we think about the business and how we report it through our calls and investors and analysts. So we'll be forthcoming with that probably, you know, in our Q1 call. Oh, the call in February. Kevin Liu: Alright. And just lastly for me, you know, it's good to see the buyback authorization the other day. You talk a little bit about kind of your appetite for being aggressive on that given where the stock price is currently and trying to balance that with some of the ongoing uncertainty both with the shutdown as well as the macro conditions? Greg Schippers: Yeah. There's always a balance with capital allocation, of course. And, you know, our board is comfortable with one times leverage. And so we're gonna continue to target in that neighborhood where you know, a bit under it right now. We're a bit over it last quarter, I think. And so we're comfortable with this $5 million plan. And, you know, it definitely will keep continue to evaluate it. As we move through the next couple of quarters and as we evaluate our 2026 plan. And kind of see where it takes us. But right now, I think we're pretty comfortable with that mix. Kevin Liu: Alright. Thank you for taking the questions. Nice job on the EBITDA performance this quarter. Art Zeile: Thank you. Thanks, Kevin. Appreciate it. Operator: And with that, ladies and gentlemen, we'll be concluding today's question and answer session. I'd like to turn the floor back over to Art Zeile for any closing remarks. Art Zeile: Thank you, operator, and thank you all for joining us today. And as always, if you have any questions about our company or would like to speak with management, please reach out to Todd Kehrli, and he will assist in arranging a meeting. And thank you everyone for your interest in DHI Group. Hope you have a great day and week to come. Operator: And the conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.
Jordan: Ladies and gentlemen, thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Skye Bioscience, Inc. Third Quarter 2025 financial results and business update call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, I would now like to turn the conference over to Bernie Hertel, Head of Investor Relations. Please go ahead. Bernie Hertel: Hello, and thank you all for participating in today's call. Before we begin, I'd like to caution that comments made during this conference call will contain forward-looking statements under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, including statements of Skye Bioscience, Inc.'s expectations regarding its development activities, timelines, and milestones. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially and adversely, and reported results should not be considered as an indication of future performance. These forward-looking statements speak only as of today's date, and the company undertakes no obligation to revise or update any statements made today. I encourage you to review all of the company's filings with the Securities and Exchange concerning these and other matters. I'll now turn the call over to Kaitlyn Arsenault, Skye's CFO. Kaitlyn Arsenault: Thanks, Bernie. After the market closed today, we issued a release and filed Skye Bioscience, Inc.'s Form 10-Q with the Securities and Exchange Commission, outlining our quarterly financial results. We encourage you to reference our filings for the details of our financials and the risk factors described therein. I will now provide a brief overview of our key financial results for the third quarter ended September 30, 2025. We ended the third quarter with cash and cash equivalents and short-term investments totaling $35.3 million. We expect our current working capital to fund operations and key clinical milestones into 2027. This includes the completion of the extension of our Phase 2a study for Nimazumab, certain manufacturing, and preparatory clinical activities needed to initiate the next study. In addition, our runway continues to include a modest discovery R&D budget, the dose concentration, and process intensification work required to support our expected TPP and scale and support later-stage studies for Nimazumab. R&D expenses for the three months ended September 30, 2025, were $9.4 million as compared to $4.9 million for the same period in 2024. The increase was primarily due to contract manufacturing, clinical trial costs associated with our obesity study for Nolasimab, discovery R&D expenses, salary and stock-based compensation expense, and consulting, advisory, and professional fees. General and administrative expenses for the three months ended September 30, 2025, were $3.9 million as compared to $4.6 million for the same period in 2024. The decrease was primarily related to decreases in consulting, advisory, and professional fees, recruitment fees, salaries, and stock-based compensation expense. Our net loss for the three months ended September 30, 2025, totaled $12.8 million, including non-cash share-based compensation expense of $1.9 million, compared to $3.9 million for the same period in 2024 with non-cash share-based compensation expense of $1.9 million. Now, I'll turn the call over to our President and CEO, Punit Dhillon. Punit Dhillon: Thanks, Kaitlyn. Today and during this quarter and the subsequent quarters, we're really focused on what matters most: turning the answers from our CBEYOND study into the logical next steps. We're going to walk you through what we've learned from our Phase 2a CBEYOND study so far, and how that data has really sharpened our focus, maintained our focus on our clinical path, and strengthened our conviction in the Nimazumab opportunity. From the start, we said that the next step for Nimazumab would be to determine an optimal dose for Nimazumab. And to that end, the top-line data from the Phase 2a study provided us with a wealth of information that we continue to mine for further insights. Most importantly, it gave us evidence in the biological activity of Nimazumab and the clarity on the PK to move forward confidently on our combination development pathway while simultaneously planning to further understand Nimazumab's benefit in a monotherapy setting. On today's call, we'll walk you through the progress that we've made over the past ninety days, the data that we've generated, and the path that we're really focused on in terms of charting forward. We're going to cover four key areas today. One is clinical development, specifically what we've learned from the CBEYOND study, how those insights are shaping the potential for future next studies. Number two is CMC and product economics, how we're designing Nimazumab for scalability and long-term market penetration. Number three is R&D and the work we're doing there, the science that continues to validate that peripheral CB1 antibody. And, or sorry, the Nimazumab or peripheral CB1 antibody is differentiated, and it's a durable mechanism. And four, the continued emphasis on just really strong accountability and consistency, how our actions this quarter measure against what we said that we would deliver. And I'm going to conclude with an outline of what's next. I'll look ahead at the key milestones and the catalysts over the coming ninety days. So first, let's get into clinical development. We'll start with what we said last quarter and where we are now. In Q2, we committed to three different things. One was to deliver top-line data in Q4 from CBEYOND. Two was to use that dataset to inform the dose-ranging strategy for the next clinical phase, and three, maintain operational and regulatory milestones and readiness to move efficiently into the next study. And we've delivered on each one of those commitments. At Obesity Week last week, Dr. Louis Aroni presented the late-breaking results from CBEYOND, and the findings are both clear and very encouraging. They showed synergistic efficacy with Nimazumab plus semaglutide and achieved an additional approximately 3% weight loss at twenty-six weeks compared with semaglutide alone. This is with a p-value of 0.0372 on a modified intent-to-treat population. That's nearly a 30% improvement with this combination with no observed plateau at twenty-six weeks. We also showed quality of weight loss that the combination of Nimazumab and semaglutide improved lean to fat mass ratio of 0.26 versus 0.13 with a p-value of 0.0126. And reduced waist circumference by an additional 3.17 centimeters with a p-value of 0.0492. We also showed durability that in the twelve-week post-treatment follow-up, Nimazumab plus semaglutide blunted weight regain with only an 18% regain or 2.3 kilograms versus 50% regain or 4.7 kilograms on the semaglutide alone arm. And that's with a p-value of 0.006 versus placebo. The safety signal has also been very positive. There's been no neuropsychiatric signal and no additive GI burden. And so this overall data really confirms that Nimazumab is biologically active, clinically meaningful in combination, and exceptionally well tolerated. They validate our long-held view that the mechanism is sound, and that the value now lies in refining, really, the dose to unlock the Nimazumab true efficacy window and fully capture the therapeutic potential of a peripheral CB1 antibody. Additionally, in September, we completed enrollment of the twenty-six-week extension study. A total of forty-three patients were enrolled with nineteen and twenty-four patients in the combination and monotherapy cohorts, respectively. Retention in the extension study has been very strong. And the data from the twenty-six-week extension study is expected in late Q1 2026, and we'll provide information on the potential for full treatment duration of fifty-two weeks followed by a twelve-week follow-up period. This long-term follow-up from the extension will be a new inflection point with a richer dataset and a more complete understanding of Nimazumab's clinical potential. In parallel, we're going to continue moving up the dose. So the monotherapy extension study is evaluating a slightly higher dose where we've stepped it up from two hundred milligrams to three hundred milligrams weekly, but our current plan is to even go higher. Analysis of our preliminary PKPD model showed that patients achieving higher systemic levels of Nimazumab corresponded with greater weight loss. And that aligns with the range where we expect to show clinically significant results. Our PKPD model based on the clinical data and the preclinical dose-ranging really gives us confidence that a higher dose of Nimazumab can potentially achieve better monotherapy efficacy and drive even further weight loss when combined with semaglutide. The parallel approach that we're taking with further clinical data from the extension study for the durability and then evaluating a higher dose-ranging in a well-powered Phase 2 focused combination study. With understanding a better characterization of the monotherapy dose, will really keep the development of Nimazumab on track and we're really focused on that. And we think that that's the next logical step for understanding our next important decision points. Next, I'll move to CMC. So another area that we've continued to make progress in has been all of our manufacturing and CMC work. That includes our high concentration formulation strategy. And that remains on track. And we believe a path to achieving the formulations that really align with our clinical protocols and expectations for our TPP. As well as patient convenience. Remain on track. This isn't simply, like, a technical milestone for us. It's really rooted in a commercial TPP, and our focus is on reducing overall injection volume, lowering costs per gram, and ensuring we can compete as pricing pressures on incretins continue to intensify. This aligns, we believe, perfectly with our titration-free target product profile. And that's a key advantage over the incretin-based injectables that require a step-up dosing for tolerability. To clarify, Nimazumab has shown no additive GI burden at the two hundred milligram once-weekly dose. And we expect to evaluate any higher dose without the need for titration, making it easier for both prescribers and patients. Equally important, we're continuing to evaluate and manage execute on measures that can significantly impact our cost of goods. This process includes optimization of the upstream and downstream manufacturing steps for Nimazumab and scaling up into high fermentation volumes, and we're continuing to evaluate multiple delivery devices, including autoinjectors, that will improve the patient experience. Together, these activities will have a significant impact on reducing our cost of goods to support an eventual pricing model that aligns with Medicare and is rapidly influencing the obesity market. Ultimately designing a product that is potentially not only clinically differentiated but commercially durable and real-world affordability. From a manufacturability standpoint, next, we'll move into R&D. So beneath all of the clinical data sits an increasingly powerful scientific base. The preclinical and translational work continue to show that Nimazumab reduces fat mass while preserving lean mass, improves insulin sensitivity and glucose control, lowers leptin, increases GLP-1, reduces hepatic steatosis and inflammatory markers, and maintains weight loss durability after treatment stops. And this is consistent with what we're seeing clinically. Combination studies in DIO models with tirzepatide and semaglutide show greater than additive weight loss and minimal rebound, confirming that peripheral CB1 inhibition complements incretin biology mechanistically. And collectively, these results reinforce why Nimazumab is really the right molecule, the right mechanism, and the right program to move forward. Our message to investors ever since we began development on the Nimazumab program has been about discipline and delivery, and that remains true today. In Q2, we said we'll complete the top-line readout by late Q3, early Q4, and we did that. And we presented late-breaking data at Obesity Week last week. We also said we're going to continue with the current dataset to guide our dose-ranging, and that's what we're doing. We're going to continue advancing our CMC readiness in parallel. And we continue to improve manufacturing capability. As well as process improvements are going to continue to be ongoing. We're focused on the higher concentration formulation path, and that's on track and synchronized with our clinical development planning. We ultimately expect our monoclonal antibody to be the best way to target CB1 inhibition to enable confidence in the safety, and this pathway will ultimately show the clearest mechanism validation in terms of targeting this particular pathway. With our Phase 2a data, we have now provided an important initial demonstration of Nimazumab's utility that does offer the validation of the mechanism and, notably, we did that by showing that there are no neuropsychiatric adverse events or other unexpected adverse signals across the different cohorts that receive Nimazumab. And we've just completed the fifth DMC meeting this past week with no concerns. So every commitment that we've made, we've made it on time, we've made it with precision, and we're going to continue doing that. Over the next ninety days and into 2026, our focus is on converting what we've learned from the clinical data into further execution. We're going to generate a more complete picture of Nimazumab's potential using insights from our PKPD modeling and the ongoing extension study. We're finalizing the next Phase 2 design. We're concentrating on combination and also in the maintenance indications where the data already point towards a really strong direction. And we're continuing to advance the formulation and manufacturing work so that Nimazumab can be delivered practically at scale and with the cost discipline that the market demands. We'll also be presenting at several investor conferences beginning next week and into December and gearing up for sharing new preclinical and clinical data at all the major scientific conferences and meetings in 2026. Across each of these fronts, the through line is really about consistency. We said what we would do, and we've delivered on the data, then on the timelines and on the execution. Our next steps are an extension of that same discipline, and we're interested in continuing to focus on translating all of this into momentum and the momentum into value. So this concludes the prepared remarks and comments today. We thank you everyone for joining the call, and we'll now open the call for questions from our covering sell-side analysts. Operator, over to you. Jordan: Thank you. As a reminder, if you'd like to ask a question, press 1 on your telephone keypad. Our first question comes from the line of Michael D'Afurrier from Evercore ISI. Your line is live. Michael D'Afurrier: Hi, guys. Thanks so much for taking my question. Just two for me. Now that you've had some time to further digest the data from the trial, have you gained any additional insight between late weight loss and exposure? Recalling at the time that the data were revealed, only had PK exposure versus weight loss up to sixteen weeks. That's my first question. My second question is regarding the twenty-six-week extension. Simply, are there enough patients? Forty-three patients seem sort of low, and do you have enough patients to draw any statistically significant insights? Thank you. Punit Dhillon: Hey, Michael. Thanks for dialing in and the questions. So I'll take the first question and kind of hand it over to Chris because he can further elaborate. But as you indicated there, obviously, we showed a really strong validation of the mechanism in the combo efficacy. Monotherapy dosing, I think, has been evident in terms of issue with dose, not the biology. The exposure response really has demonstrated that the observed concentrations at the two hundred milligram dose didn't achieve the efficacy that we would expect because they were patients were underdosed. But Chris, yeah, can further elaborate in terms of what we've seen now based on the twenty-six-week dataset as well as any he wants to point to from the preclinical data. Christopher Twitty: Thanks, Punit. Yeah. So to that point, we have, in fact, looked at a more complete PK dataset. I would just note that the final PKPD analysis is still underway, likely won't be available probably for another few more weeks to a month. But we do have a more robust build-out, and we looked at a mixed-effects model both controlling for the placebo effect as well as doing a similar type of modeling where we controlled for the semaglutide effect and looked at that in a combo setting, and in both instances, we see that there's really no bias in the residuals, so the models fit well. They align with the observed weight change that we saw in the trial. And importantly, they point to the point you're making. That is, we're seeing a nice slope, a very believable, credible slope that demonstrates this response related to exposure. We feel very comfortable that the PK data is holding. We'll again have the final PKPD model, but we feel very confident that, in fact, there is a dose response. And as we get to better and better exposures, we will see better and better weight loss as both monotherapy and in combination. And the other thing I've just pointed briefly since we've last talked, Michael, the translation of the DIO data has been further validated. We've done some important biodistribution studies looking at where are the compartments and how those fill relative to what's in the serum and using that along with some other approaches to really get a good fit in terms of how the DIO data, which demonstrates very clean dose response as well, how that translates to the clinical doses. So both those pieces are really supporting this concept of higher dosing in the clinic to see better weight loss. Punit Dhillon: Michael, would you mind just repeating your second question? Or did we answer it? Michael D'Afurrier: No. So my second question is regarding the twenty-six-week extension data. It just seems that only forty-three patients are enrolled, it seems kind of on the low side. And I was wondering if that's enough patients to draw any statistically significant insights for when the trial wraps up. Punit Dhillon: Yeah. So the good news on the extension is that enrollment has been well, obviously, that was good. That we saw a good interest in the study, and then retention has continued to stay really strong. You know, it is a smaller number of patients relative to the core study, the first part. But we do believe that there will be a clear separation, that we would be able to see, especially, if you recall in the twenty-six-week time point, the first twenty-week time point in the combination, we did see a really strong difference. And then the slope wasn't plateauing. It continued at So we hope that we're going to continue to see that separation between semaglutide alone. On the monotherapy, you know, as we've indicated, we believe that there's still room to go higher in terms of dose. So we'll see what the data reveals. But, at this point, it's a little tough to comment on that because we don't have that separation that we expected in the first twenty-six weeks. Michael D'Afurrier: Great. Thanks so much. Jordan: Your next question comes from the line of Andy Isaiah from William Blair. Your line is live. Andy Isaiah: Great. Thanks for taking our questions. We have two. One is more on the regulatory side. So we're curious, you know, very provocative data looking at the weight rebound. Do you need to have a monotherapy approval before a potential maintenance approval? Just trying to get a sense of the sequence and requirements, you know, based on your regulatory discussions with the agency. So that's number one. Number two is we looked at comparative kind of randomized withdrawal studies in particular step four. With semaglutide, it seems like in that study, the weight regain was about 50%. Out to one year. In this study, the weight regain was much faster. So I'm curious if there's any sort of patient baseline characteristics that you want to highlight that could explain the more rapid than expected weight regain from the semaglutide arm. Thank you. Punit Dhillon: I think these are both great questions and interrelated. I can pass it over to Dr. Arora to take those, and then I might come back with some additional commentary on the maintenance setting. Puneet Arora: Yeah. Andy, to address your first question, yes. If we were to do maintenance therapy with Nimazumab as a monotherapy, that would require monotherapy approval. Although, you know, if that is the strongest suit for the drug, then the approval could be as maintenance as well. And, you know, we are as part of our plan as we go forward is to continue looking at the monotherapy to find that optimal dose and frequency on how to dose monotherapy for varying indications, including maintenance. That's a question that we will be discussing with the agency, and I think that will be part of our continuing interaction with them as to how to push both monotherapy and combination forward and what differential path each one may need. So I'm sorry. What was your second question? Punit Dhillon: It's just on the regain piece. Yeah. Dr. Arora, I think Oh, yeah. Puneet Arora: So, you know, if you look across if you look at weight rebound data across a bunch of studies, there was a step one withdrawal study. I think it's one of the ones you're had some. And then tirzepatide did some randomized withdrawals. In one year, the total weight regain is about it does tend to be somewhat accelerated in the first half because the weight begins faster initially and then tends to plateau a little. We do see a somewhat faster regain in this study. We don't know why. It's, you know, we don't know particular characteristics that we're seeing in the demographics. The study of, frankly, the same as you see in most other studies. So we don't know why these patients regain their weight this quickly, but they did. And, you know, being a randomized trial, we figure that both the cohorts are effectively similar. Punit Dhillon: If I could just elaborate on one thing, Andy. So you look. The durability data that we've showed last week with the only eighteen percent regain versus fifty percent semaglutide alone, is I believe, a real cornerstone of our strategy, and it really validates what you saw from an R&D preclinical perspective. It shows that peripheral CB1 inhibition can provide a durable effect after treatment stops, which is a significant issue for the incretin-only therapies. And I noticed, you know, from coming from Obesity Week, there's been a growing emphasis of the incretins or companies that have incretin pipelines focusing on the maintenance market as well. We believe that it's this comment we made at the last earnings call, and we stand by it, is we do believe that we really have an interesting opportunity for Nimazumab to aggressively pursue a maintenance indication, which we, you know, conformally kind of look at once we finalize our dosing strategy. But we see a massive commercial opportunity that's differentiated because it's more likely and doctors will confirm this, that they would treat with a differentiated mechanism rather than maintenance with another incretin after induction of incretin is completed. And, no twos investigated that from a commercial standpoint, from the survey that we've done. And that's been confirmed. Two, do you want to just expand on that? Christopher Twitty: Yeah. No. I don't I think you kind of covered it. Pretty well. I think it is important to understand that the maintenance approach therapy is something that's being looked at a lot, not just by Skye Bioscience, Inc., but from investigators and clinicians as well as obviously, you know, other companies. And then as Punit said, you know, right now, there's not a lot of options other than another GLP-1 to go on. And so physicians are generally either reluctant or, in fact, I said at least the ones I've spoken to, generally, I should put them on something else other than a GLP-1. Like a phentermine or something like that. That makes more sense because it's a different mechanism of action. Even though it may have some other comorbidity issues as well as maybe not be as effective. So I think, again, in that space, I think there's a real market for a drug like Nimazumab. That we think we can where we think we can win. Andy Isaiah: Oh, great. Thank you so much. Yep. Jordan: Your next question comes from the line of Ananda Ghosh from H.C. Wainwright. Your line is live. Ananda Ghosh: Hi, guys. Thanks for taking my question, and congratulations on the combo data. Looks really impressive. One of the questions I have is, like, what kind of, you know, the magnitude of data do you believe can be clinically and commercially viable when you are thinking about the combo potential? And was also curious to know what was the quality of weight loss in terms of, you know, the lean mass. That will be helpful. Thanks. Punit Dhillon: Yeah. I think it's a great thanks, Ananda. I'll turn it over to Puneet Arora. He can take both those questions. Puneet Arora: Yes. Ananda, thanks for that question. Now you've seen that a lot of the effective weight loss medications that we've cluster is around the 22% range. In fact, if you, you know, if you speak to most basic physicians, they'll tell you that a lot of patients don't even need, frankly, once you start exceeding about 10% weight loss, you can reverse a lot of comorbidities. But insofar as the benchmark today is about 20%, semaglutide or a generic GLP-1 usually gives you about 15% and then you start seeing the other combinations adding up to another 6% like you see with tirzepatide, the differential that we would hope for. We're already seeing in our protocol set here of 14 and 14 something percent weight loss. At twenty-six weeks, which is three and a half percent more than semaglutide alone. So about a 35% increase. And we think that when we do a full 52, actually, a sixty-eight-week treatment, which is where all these are measured, we will have a combination treatment effect that will be in the range or better than what we are seeing with all these other current combinations. We are actually seeing improvement in body composition along with this thirty extra. So we had planned this at Obesity Week as well. What they're showing is that if you just look at the crude numbers, semaglutide alone has about 72% fat loss and 28% lean mass. And when you add Nimazumab to it, this actually becomes 76% fat loss and only 24% lean fat loss. So there is a transition towards fat mass loss. And when we break this down, we see that as you know, there is 30% extra weight loss. Right? But the fat loss goes from 15% for semaglutide to more than 20% when we look at the combination. Whereas the lean mass loss almost doesn't change. It goes from about 5.5 to 6%. And that is what is showing that is the effect that we are seeing in the Lean2FatMask ratios and why the body composition is improving. So all of the additional weight loss that we've seen is almost all fat mass loss. Our secondary endpoint, to be specific, was linked to fat mass ratio. And that ratio should increase with weight loss. And the more the increase, the better your body composition is. And in our trial, semaglutide increased that lean to fat mass by 0.13. And the combination improved it by 0.26, which is twice the improvement. And this number was actually significant. The p-value was 0.01. Ananda Ghosh: Got it. Thanks. That was very helpful. Jordan: Your next question comes from the line of Jay Olson from Oppenheimer. Your line is live. Jay Olson: Oh, hey. Thank you for providing this update. We have two questions. Our first question is about your current thinking around the potential for studying a combination of Nimazumab plus semaglutide for induction of weight loss versus maintenance of weight loss. While acknowledging the regulatory considerations, it seems like they both may offer potentially significant commercial opportunities. So how are you weighing the pros and cons of induction versus maintenance? And then I had a second question, if I could. Punit Dhillon: Yeah. Thanks, Jay. Thanks for joining the call today. That's a key question. We are certainly focused on the induction side, you know, when we're seeing this improvement that we've showed over the course of this early dataset with no observed plateau at twenty-six weeks. It really demonstrates a synergistic activity. And it's been very encouraging. We're looking forward to seeing what the fifty-two-week data reveals, but the current focus for the Phase 2b is on evaluating the right and optimal dose in combination with sema. And I think there's a little bit of other supportive data that we've seen from a preclinical perspective that Chris might be able to point to, in terms of why we feel confident that dosing higher can lead to a better deeper weight loss in sema because of the data that we've seen so far, which tirzepatide and SEMA in combination. Chris, do you want to discuss that? Christopher Twitty: Sure. Yeah. To that point, we directly ask that question in light of our recent clinical data. It's important to understand as we get better exposure moving from what we've modeled to be something very similar to our CVRN lumasiran dose, which we're calling sort of a suboptimal dose in this DIO preclinical model, and then a more active dose. An active dose represents something that we're looking towards potentially using in future trials. So, comparing the difference between the active and the suboptimal, you can, of course, see that as a monotherapy in terms of weight loss. Importantly, when we look at this in the setting of combination, we see while the additive effect is there, we really see a large improvement beyond the magnitude you might expect with the monotherapy. So it seems to really unlock the combo potential as well and maybe even beyond what we said with monotherapy. It's important, we think, to really get the dose right as we look towards sort of that induction or that combination approach in the clinic. Punit Dhillon: And I think it's just important to us to emphasize that it's really relevant in terms of being a truly differentiated, alternative or orthogonal approach to what's out there in terms of current combinations. So although the data is early in the twenty-six-week data, it is very, very encouraging. When you do stack it up across these other combinations, it's really interesting to see how deep that response is initially. So like, you know, we're all excited to see what how that reveals in a longer fifty-two-week data point. But it makes a at the moment, it makes a very compelling case for us to evaluate this in a Phase 2b combo. Hey, Jay. Jay, this is two. I just wanted sort of also add in the relevance of this sort of this rebound data and what I think that also means potentially for a market opportunity, not just in the maintenance setting, but also more in the combination setting where you can get that induction of weight loss. And if, you know, in the real world for patients, you know, need to go on a dosing holiday. For whatever reason. Maybe they're actually going on holiday. They just don't want to bring their drug with them. Or maybe they have other things. Maybe there's access issues, things like that. You know, what our data suggests is that that's not going to be a big as big of a problem as it has been when patients do either lose access to their GLP-1 or lose or have to go on vacation or have other reasons, that they're not going to have a significant rebound by like, we're seeing in that, like, the step one data has shown and that you can have this sort of holiday without sort of losing the gains that you've achieved through the treatment. So I think that's really meaningful. I think a lot of because physicians are looking at that and what that means as well, how you can manage patients' weight. Over a much longer period of time than just sort of these sort of compressed times you're seeing in clinical trials. And what that really, really means in the real world for patients. Jay Olson: Okay. Great. Thank you. That's super helpful. And if I could ask a second question. Can you please talk about any KOL feedback you've received following your top-line, CBEYOND Phase 2a data and also any feedback you may have received at Obesity Week? Punit Dhillon: Yeah. I think Chris is, or sorry. Two, probably versed and two and Dr. Arora, you guys can take those questions. Christopher Twitty: Yeah. Thanks for the question, Jay. I'll say that the reaction was positive. I think they see the combination data as very intriguing. They think that the responses that they're seeing are different, and they definitely look forward to us looking at much at sort of the dose-ranging study. They obviously see that that's a key and that's going to be really important for us to establish that sort of baseline with that optimal dose. Dose is going to be. In terms of the blunting of the rebound, data that also has kind of resonated with a number of physicians and KOLs that we've spoken to to the point that I actually just brought up earlier in one specific physician actually brought that up and said, this is really cool data. And if this means that a patient can, you know, go on a dosing holiday and not have to worry about gaining their weight back, then this can be really meaningful for their practice. So, yeah, I think ultimately, positive. They and, again, from a monotherapy side, I think they recognize our need to dose higher. And but they don't see that as necessarily a deterrent for the future of the program. Puneet Arora: And I think that, you know, some of the leading physicians out there had experience with CB1 before. So that's where they've had interest in for a long time. And the, you know, psychiatric events have been a source of trouble. They're really I think they're really enthusiastic about the idea that you can get these if and get them in a safe and tolerable manner. So there's a rekindled interest now that we are showing with this biological activity, and you can do that with an antibody without crossing the blood-brain barrier and getting these neuropsychiatric effects. Punit Dhillon: Yeah. That's great that you emphasized that, Dr. Arora. I mean, I think that was the biggest immediate takeaway once the data hit the tape that we saw when we spoke to our clinical advisory board and other investigators that a lot of folks had recognized that this was a big leap forward for the class. This is the first time that any dataset has been shared with no neuropsychiatric adverse events. So that's a really important kind of step for us in being able to give us the comfort to be able to dose higher. And we feel confident that there's going to be biological activity. Jay Olson: Excellent. That's super helpful. Thanks for taking the question. Punit Dhillon: Thanks, Jay. Jordan: Your next question comes from the line of John Wolleben from Citizens. Your line is live. Catherine: Hi. This is Catherine on for John. I got kind of a quick question about what you expect from the monotherapy arm. In the twenty-sixth-week update. What do you want to see in order to give you confidence in kind of choosing the password? I know that we talk a lot about the comm arm because for obvious reasons. I was wondering about that. Punit Dhillon: Hey, Catherine. Thanks for joining the call and stepping in for John. We, yeah. So from the next twenty-six-week data, the differences here is that we've added increased the dose from two hundred milligrams to three hundred milligrams. What we have emphasized, obviously, to our clinical sites is really making sure that there's strong follow-through in terms of the not only from a patient retention standpoint but ensuring that if there's any noise here regarding compliance, we rectify that. So at the end of the day, what we're really looking for is a better understanding for our PK model. At this dose. In terms of efficacy, so really hard to predict at this point in terms of what that's going to be relative to what we've seen so far in the first, you know, based on the twenty-six-week data. We're obviously encouraged by the PKPD modeling that we've done at higher doses that we should be able to reach the five percent or higher bar but we need to see that data, and we want to make sure that we have improvement in terms of our sensitivity around the PKPD understanding. Puneet Arora: Okay. So much. Definitely. That's just to clarify, we did use a slightly higher dose in the extent but as Punit said, primarily to help us help us refine our PK models. We will be when we do a Phase 2 study, we will look at meaningfully higher doses and different exposures, and we think that will give us a more positive result. Catherine: And I know that in the past, said about a thousand you're going to go up to a thousand milligrams. Have you changed your thinking at all on that on the target for the higher dose? Punit Dhillon: Yeah. We're still working through that, Catherine. For monotherapy, we expect basically to unlock efficacy at higher doses. So we've, you know, like we said, it's in line with our exposure in response modeling, and it hasn't necessarily ruled out that the two hundred and three hundred are effective doses as well. I think we had some lack of consistency in terms of what we saw in the face in the first twenty-six weeks and in our slides that we shared during the top-line data review. I think we showed some indication of what the optimal dosing would reveal and those patients that had increased exposure response, they tended to do really well. Versus the patients that were suboptimally dosed or had lower exposure response. So I think what we need to see is if that is kind of course-correcting in what we're evaluating, and then we have confidence that dosing higher is definitely going to show a higher likelihood of efficacy signal that we expect to see and we expect that to be over five percent at twenty-six weeks. At these higher doses that we want to evaluate. Thank you. Jordan: Your next question comes from the line of Ted Tenthoff from Piper Sandler. Your line is live. Ted Tenthoff: Great. Thank you so much for taking that question. And I wanted to maybe dig into the other side of going higher on dose. And from the combination of earlier studies preclinical data, and then the initial CBEYOND results, obviously, we're going to keep a close eye on potential CNS side effects. Is there anything else that we should be really focused on or that could sneak up on us from a safety standpoint of taking the doses to the substantially higher level? Thanks so much for answering the question. Punit Dhillon: Hey. Thanks, Ted. Yeah. I think we feel really confident about the safety signal and allowing us the room to go higher in terms of dose, especially from the standpoint of any concern of neuropsychiatric adverse events. So we, you know, in this study, based on our phase one data, based on our tox data, there's a substantial amount of room relative to where we're at in terms of dosing. In terms of other safety concerns, I think we have to see. So we don't have, you know, the data yet with at higher doses over this longer period of time, whether that's a change in terms of GI tolerability. But we feel at this point, based on the data that we've seen in the Phase 2 that there wasn't any concerns to be able to go higher. But, you know, across the class, it seems to be a little bit different. Some small molecules have had only about 30% GI issues, and then the 60% GI issues. And we don't know if that's linked to CB1 yet or if it's, you know, or it's, like, if it's molecule specific. At the moment, though, there still seems to be substantial room for us to be able to evaluate that. And mechanistically, it's not, you know, it's not the same. It doesn't the mechanism is different than what the GLP-1 drugs are doing. So we feel that we shouldn't have any exacerbated GI burden. But, Dr. Arora, you might want to take that further. Puneet Arora: Yeah. You know, it's been my sense that even with the data, if you go back to rimonabant, that even though they showed 30% GI effects, there was a certain placebo effect as well that's worth comparing to, which seems to suggest that the GI effects that you see with the CB1 pathway are not that significant. And, of course, with Nimazumab, we are showing even better results at this dose where essentially there's no difference between placebo and what we are seeing with the drug. Some with the GLP-1s, which is where, you know, all the attention comes from, I believe that a lot of the GI effects tend to come because of the central action on the area on places near the hypothalamus like the area postrema, whose job is to see what's going on in your blood and cause you to have nausea or vomiting if they think that there is something that's deleterious and stimulating receptors that is causing that. And it's very possible that the CB1 mechanism doesn't actually do that. And that's why you see GI effects being so much more muted with this mechanism, and especially with the antibody, Nimazumab. We will test this as Punit said, with higher doses, but we're pleased to see that at least with the dose that we've tested, we are seeing really neutral effects. Ted Tenthoff: Yeah. That's great. And in the next study, how long do you think you'd be able to dose? Thanks so much for taking my questions. Punit Dhillon: Thanks, Ted. So in a yeah. Puneet Arora: Oh, go ahead. Go ahead, Punit. Punit Dhillon: Yeah. Go ahead. So in a Phase 2 study, I mean, we would we wanted those people all the way out to a year of fifty-two weeks, but we haven't we're still looking at what the primary structure of the study should be. What we'd like is to design a study that will move us meaningfully towards doing pivotal studies. So we may still read out data at, say, twenty-six weeks where, you know, you can get a substantial indication of how individual doses are working and get a lot of safety information. But, you know, we do want to design studies in the end where the patients that we recruit get longer-term treatment and can be treated for a year or even longer. Ted Tenthoff: Yeah. That's great. I really appreciate all the answers, guys. Thanks so much. Punit Dhillon: Thanks, Ted. Jordan: There are no further questions for the Q&A session. Thank you for attending Skye Bioscience, Inc.'s Third Quarter 2025 earnings call. You may disconnect. We are now back in private mode. Great job, everybody. Have a great day.
Operator: Greetings, and welcome to the Plug Power Third Quarter 2025 Earnings Conference Call and Webcast. At this time, a question and answer session will follow the formal presentation. You may be placed into the question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press star 0. It's now my pleasure to turn the call over to Teal Vivacqua Hoyos. Please go ahead. Teal Vivacqua Hoyos: Thank you. Welcome to the 2025 Third Quarter Earnings Call. This call will include forward-looking statements. These forward-looking statements contain projections of our future results of operations, or of our financial position or other forward-looking information. We intend these forward-looking statements to be covered by the Safe Harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933. Andrew J. Marsh: And Section 21E of the Securities Exchange Act of 1934. However, we believe that it is important to communicate our future expectations to investors. Investors are cautioned not to unduly rely on forward-looking statements. Such statements should not be read or understood as a guarantee of future performance or results. Such statements are subject to risks and uncertainties that could cause actual results or performance to differ materially from those discussed as a result of various factors, including but not limited to risks and uncertainties discussed under Item 1A Risk Factors in our annual report on Form 10-Ks for the fiscal year ending December 31, 2024, or subsequent quarterly reports on Form 10-Q, as well as other reports we file from time to time with the SEC. These forward-looking statements speak only as of the day on which the statements are made. We do not undertake or intend to update any forward-looking statements after this call or as a result of new information. At this point, I would like to turn the call over to Plug Power Inc.'s CEO, Andy Marsh. Andy Marsh: Good afternoon. And thank you for joining us. Plug Power Inc. delivered a strong third quarter, one that reflects continual growth, improving margins, and disciplined execution across our global hydrogen business. For the quarter, we reported $177 million in revenue, with balanced strength across our core businesses. Our GenEco electrolyzer business generated about $65 million, up 46% sequentially and 13% year over year. Clear evidence that Plug Power Inc. technology continues to gain traction globally as customers scale hydrogen production. I think just as important, we're improving the quality of the growth. Operation cash burn improved by more than 50% from the prior quarter, driven by pricing discipline, better execution, and tighter working capital management. These results show the tangible impact of Project Quantum Leap, which is transforming Plug Power Inc. into a leaner, more efficient, and more profitable enterprise. Bottom leads about focus, simplifying the business, aligning investment to near-term profitability, and resolving legacy issues that have limited performance. The noncash charge we've recognized this quarter reflects that effort, cleaning up the past while sharpening our strategic priorities. As a result, today, Plug Power Inc. is more streamlined, more focused, and better positioned to deliver continual margin improvement and cash flow gains. Operationally, we continue to execute at scale. To date, Plug Power Inc. has more than 230 megawatts of GenEco electrolyzer programs underway across Europe, Australia, and North America. A real highlight this quarter was the delivery of our first 10-megawatt electrolyzer, the GAP project in Portugal. The first phase of a planned 100-megawatt installation, a clear validation of Plug Power Inc.'s ability to deliver complex world-class hydrogen infrastructure. Our hydrogen production network also continues to improve. In August, our Georgia green hydrogen plant produced 324 tons, with 97% uptime and 92.8% efficiency, underscoring the strength and reliability of our operating platform. Earlier today, we announced a strategic initiative to monetize our electricity rights in New York and one other location, in partnership with a major US data center developer. This transaction is expected to generate more than $275 million in liquidity through asset monetization and the release of restricted cash. It also positions Plug Power Inc. in the rapidly growing data center market, where our fuel cell systems can deliver resilient zero-emission backup power to mission-critical facilities. This initiative is directly linked to our new global hydrogen supply agreement with one of the world's leading industrial gas companies and potential purchases from some of our North American electrolyzer companies as they deploy hydrogen sites. The agreement secures competitively priced long-term hydrogen supply for Plug Power Inc. and our customers, a major strategic milestone that reduces the need for near-term self-development of new plans. As a result, we suspended activities under the DOE loan program, allowing us to redeploy capital towards higher return opportunities across our hydrogen network. Together, these actions strengthen our balance sheet, expand our reach into dynamic new markets, and reinforce our disciplined approach to capital allocation. Finally, I want to touch on leadership. As announced last month, Jose Luis Crespo will become Chief Executive Officer on March 1. Jose has been instrumental in driving Plug Power Inc.'s commercial growth and building our customer relationships worldwide. This transition represents continuity in strategy, not change. The roadmap we've built together remains in place, focused on growth, profitability, and disciplined execution. Also, look, the world changes. It gives Jose flexibility to evolve our strategy as the hydrogen market matures. He is the right leader for this next chapter, and I am confident Plug Power Inc. will continue to thrive under his direction. In summary, Plug Power Inc.'s progress this quarter demonstrates a company that is executing, improving, and building momentum. Our technology, people, and strategy are delivering results, and the fundamentals of our business have never been stronger. With that, I'll turn the call over to Jose, who will discuss our commercial performance and marketing activities in more detail. Jose? Jose Luis Crespo: Thank you, Andy. Good afternoon, everyone, and thanks for joining us today. This is my first earnings call as President and incoming CEO of Plug Power Inc. I have to say I'm both excited and honored to take on this role. I've been with Plug Power Inc. for twelve years, helping drive our commercial growth and making sure customers are always at the heart of what we do. And that won't change. My focus will continue to be on growth, profitability, and disciplined execution. As Andy mentioned earlier, we delivered $177 million in revenue in the third quarter, and we're seeing solid momentum across our core markets. Let's start with material handling. This business continues to perform well, and our customers are really seeing the productivity and energy benefits that come with fuel cell technology. More than ever, customers are recognizing how fuel cells free up utility power in their distribution centers, power that they can use elsewhere or simply save by reducing peak demand. And the investment tax credit for fuel cells has been reinstated, which makes the financial case for our customers stronger than ever. We're having great conversations with our major pedestal customers, Amazon and Walmart, about their 2026 plans, and we are expecting to continue growth there. We are also excited about new customers like Floor and Decor, where we deployed our GenDrive fuel cells and GenFuel hydrogen systems at the Frederickson, Washington facility. Floor and Decor has strong potential to grow into one of our next pedestal customers. Now I'm going to turn it into our GenEco electrolyzer business. We have delivered $124 million in revenue year to date. This is up 33% year over year, and it's putting us on track for a record year in the electrolyzer business, around $200 million in expected sales. We continue to see big opportunities for green hydrogen, particularly in replacing gray hydrogen in refineries like GALP and BP and in the production of e-fuels, such as e-methanol, synthetic fuel jet fuel, and ammonia. Our $8 billion electrolyzer funnel remains very active, and the quality of the projects we are pursuing right now is the best that we have ever seen. The probability of many of these projects reaching final investment decision (FID) has never been higher. In Australia, government support remains strong. Andy spent time there recently, and we are very encouraged by the progress on the three-gigawatt Allied Green Ammonia project as it moves towards FID. We're also happy to have Alfred Alight Green's CEO speak at our symposium next week, November 18. In Europe, we are seeing policy clarity finally take hold as the Green Deal and Red Free mandates are being transposed by the EU member states and becoming law. This is giving our industrial customers more certainty around their green hydrogen targets and timelines. We're also seeing subsidy programs like those from the European Hydrogen Bank start real projects, many of which should reach FID in the next twelve to eighteen months. And we are already executing at scale in Europe. We delivered our first 10-megawatt electrolyzer array to GALP in Portugal, part of the 100-megawatt project we have there, and 25 megawatts of containerized systems to Iberdrola and BP in Spain. These are flagship projects that demonstrate Plug Power Inc.'s ability to deliver large, complex systems globally. Here in the US, we announced a new partnership with Edgewood. Plug Power Inc. will provide engineering, plant design, and commissioning for a facility that will convert waste streams into sustainable aviation fuel, renewable diesel, and biomethanol. If you want to hear more about that, Steve Edgewood's CEO will join us at the symposium on November 18, so I encourage you to come. Edgewood is a great example of how we are adapting to market conditions. The US continues to support blue hydrogen, and we're using our deep experience with more than 20% of our team coming from oil and gas backgrounds to capitalize on those opportunities as well. Our path to profitability will be powered by growth. We have built real, scalable capabilities. We know how to produce, deploy, and operate hydrogen solutions. We have an $8 billion funnel of opportunities ahead of us that gives Plug Power Inc. a unique position to lead as the hydrogen economy accelerates globally. Thanks again for joining us today, and I'm looking forward to sharing more at our Plug Power Inc. symposium on November 18 and to continue this journey towards sustainable profitable growth. Back to you, Andy. Andy Marsh: Okay. It gets question time. Teal? We're ready for questions, Kevin, please. Operator: Thank you. We'll be conducting a question and answer session. If you'd like to be placed into question, you may press star 2. If you'd like to remove your question from the queue, for participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. One moment please while we poll for questions. Our first question today is coming from Colin William Rusch from Oppenheimer. Your line is now live. Colin William Rusch: Hey, Colin. Andre Adams: Hi there. You've got Andre Adams on for Colin. But Hi, Andre. Got a couple questions for you. Hi there. So first, could you just speak to the cadence of JUUL margin improvements and when we might expect margins for that business to turn positive? Paul B. Middleton: You wanna take that, Paul? Which business did you ask about, Andre? Was there a specific one you mentioned there? Andre Adams: Fuel. Fuel. Paul B. Middleton: Oh, yeah. So I'd say what you see is a progression in the margin even in Q3. We had some plant issues in the network from the suppliers and from ours. But despite that, you see a progression because of the strategic agreement which dropped that, you know, we're starting to see the benefits from that. You'll see even incrementally more benefits from that in Q4 given, you know, the leverage of that. And there's certain of that agreement that allow us to work with them and collaborate to, you know, navigate the network more efficiently as we move forward. So, again, start to build. Plus, Plug Power Inc. is continually investing in its own infrastructure in our own networks and how we distribute and manage our plants. And so there's just this continual building process. So I expect to see, you know, another big step function improvement in Q4. And I think, you know, in the course of next year, kinda targeting kinda middle of the year, moving to that breakeven target, if not sooner. So we're laser-focused on it, and you know, we postured with the right cost structures between what we have in our supply and the supply agreement of the new arrangement that we can, you know, continue focusing on all the levers that drive in that direction. Andre Adams: Great. Thanks. And then, appreciate the color on the electrolyzer pipeline and just hoping you could give us some expectations on the cadence of growth on an annual basis that you would expect for that business? Jose Luis Crespo: You wanna take that, Jose? Andy Marsh: I'm going to just add. We're not yet providing any guidance for 2026. No. But there is a good deal of activity in the electrolyzer business. You know, we would expect growth next year, and our plan is for the business to continue to grow. We've been very cautious about guidance because, you know, one quarter slip on a project developing can change your results, but as you could see, we grew 43% versus the last quarter. We have a strong quarter coming up. I think most of GAAP will be deployed by the fourth quarter. And that were shipped by the fourth quarter. So I think you'll continue to see, I think, some good announcements coming out. And good progress, especially later this quarter and the beginning of next quarter. With announcements. Jose Luis Crespo: You're right. We will see some good progress in the next few weeks. And projects that we're gonna be able to deploy in 2026. So we will be able to see revenue from those projects in 2026. We've been working in many of the projects that we have in the funnel for years now. These projects take a long time to materialize and to go to FID. But we're seeing that many of these projects are gonna come to FID in 2026 and 2027. Because they are very large projects. It will take time to also deploy them once they go into execution mode. In many of them, we have the project-based revenue recognition in the contract. So we will see some revenue. And as Andy said, we will see growth in 2026. And as time goes by and more projects go FID, we're gonna continue to see that growth into the following years. Andy Marsh: What I would add, Jose, is our sales team has said the quality of the engagements are so much higher than we've ever had. Jose Luis Crespo: A 100%. I mentioned a little bit of that in the introduction. We're seeing the quality of projects and projects that have high probability to go FID in the funnel compared to a few years ago where we had a lot of projects that had, you know, not so many chances to actually materialize. Andre Adams: That's great. Appreciate all the color. Operator: Thank you. Next question is coming from Manav Gupta from UBS. Your line is now live. Manav Gupta: Good morning. I just wanted to focus a little bit on the news announcements today morning. I think you signed a nonbinding letter of intent with the need to ask to raise to the monetizing of electricity to the data center. So help us understand a little bit your leverage to this entire data center and AI revolution. And various ways in which Plug Power Inc. can benefit from it. I'm assuming through power would be the primary ways. If you could help us elaborate on those. Andy Marsh: Yeah. I think it's we've taken a step back and first, I wanna take a wanna make a note. We expect this transaction will close in the first quarter. It's been far along, you know, we've, you know, so, you know, think it's mid-first quarter when this closes. This will provide the liquidity on the balance sheet which, you know, which part of Project Quantum Leap has been about. And, you know, Plug Power Inc. next year, is gonna be sitting there with a strong balance sheet which will have a complementary improvement to our income statement. So it's really about liquidity to start. And the second item that's driven a good deal of this is, and I touched on in my opening remarks, about not only our relationship with a large industrial gas company, but relationships with people who are going to build hydrogen plants. Who want our electrolyzers. So, you know, we looked at the world and said, we know how to do a combination of sourcing competitive hydrogen and generating competitive generating hydrogen to balance those two out. As part of this program, we've been exploring with our product management team and development team opportunities to provide levels of backup power using hydrogen to support the data center deployments. It'll make sense in some applications, and so that is a real focus that Jose and the team will continue to be engaging in next year. So, you know, it's, you know, it's not going to be primary power. But, at least in 2026, I think when you get in out years, you know, us here in North America are not always aware of activities going in Europe including hydrogen pipelines. And in that case, you know, Plug Power Inc. fuel cells become a real viable solution even for primary power. So we're excited. I'm primarily excited that, you know, Jose and Paul next year will have not be spending as much time worrying about where's the cash gonna come from. You know, I think your cash usage last quarter was operational cash use. Was $90 million. Manav Gupta: Yeah. Andy Marsh: And that was a 50% improvement. And so, you know, we're gonna have a good balance sheet to really position ourselves to achieve being, you know, achieving the goal of being cash flow neutral as soon as possible. And that is the goal. Hope that helped. Manav Gupta: Thank you so much for taking my questions. I'll turn it over. Operator: Thank you. Next question is coming from Eric Stine from Craig Hallum. Your line is now live. Eric Stine: Everyone. Thanks for taking the questions. Andy Marsh: Hey, Eric. How are you doing? Eric Stine: Hey. Doing well. Thanks. So just sticking with the data center opportunity, I remember several years ago, you had a, I think it was a pilot project with Microsoft to some degree. And so I'm curious. You know, I know that over the last, I don't know, year to two years, you've been prioritizing some other growth initiatives, but curious kinda how that product offering has evolved or the technology has evolved because, clearly, you know, certainly sensing a higher level of confidence that that potentially is something near term, at least in terms of announcements, whether, you know, whether that means near-term deployments or not, I guess, remains to be seen. Andy Marsh: Yeah. I would say we've gained a lot of experience, Eric. Both in providing we have sites where we're actually powering electric vehicles. We have done some smaller backup power deployments. We do see opportunities there. Don't want to overstate the opportunities, but you know, the products work. We have confidence in the products. You know, we think a lot about hydrogen all the time. And you know, we're, you know, working with people who actually get things done. So I would just say that I don't want to, you know, the big growth opportunities for us is certainly electrolyzer projects that's going on around the world. Material handling, next year will be core to this company's success. But I think we'll keep on seeing more and more activities associated with data centers in hydrogen. As you think through how you can provide sensibly cost hydrogen to provide that critical backup. Eric Stine: Okay. Thank you for that. And then maybe last one for me. Just, I'm it sounds like you've obviously got a lot of confidence. In getting to that gross margin positive or neutral level exiting the year, but I guess I'm unclear whether you're sticking with that. And then I also noticed in your commentary. Andy Marsh: So let me be clear. We're sticking with that. Eric Stine: Okay. Good. Alright. That's good to hear. It seemed like it, but just clarifying. And then on, EBITDA positive, that previously had been an end of '26 goal. And I noticed in your release that it looks like that may now be a mid-'26 goal. So maybe or I'm sorry. Let's see. Target in the second half. But potentially before the end of the year. So maybe some of the drivers that are leading to that increase confidence as well. Paul B. Middleton: I think I'll let Paul answer that one. Paul B. Middleton: Yeah. And I think, you know, we maybe terminology, we're focused on the second half just given our projections and thoughts on cadence of sales and volumes and cost downs and things we're doing. I'd say the good news is it doesn't take much movement of the needle on sales to have a meaningful effect. So our focus is to keep doing the prudent things and driving cost down and doing, you know, all of the different cost initiatives we have and trying to ramp those as fast as possible. But you know, we definitely see continued strength in the pipeline and the efforts that we got going on in the sales channels. And so, you know, our focus is to continue trying to pull as much of that forward as we can. So more to come, I guess, as we evolve the next couple quarters and see how it's tracking. But it's definitely in the art of the possible to go sooner. But you know, that's we're laser-focused on driving volumes and driving cost downs and maintaining headcount, you know, not growing the overall resource base so that we can achieve those goals as fast as possible. Eric Stine: Got it. Thank you. Operator: Thank you. Next question is coming from Craig Irwin from ROTH Capital Partners. Your line is now live. Craig Irwin: Good evening. Thank you for taking my questions. Andy Marsh: Hey, Craig. Craig Irwin: The thing you said in the prepared remarks that got me the most excited is that your pedestal customers are moving again. Can you unpack that a little bit for us? Can you maybe explain what they're seeing or what changed for them that has these very important customers saying it's time to buy again, grow our fleets, and, you know, use more fuel cells going forward? Andy Marsh: So I wanna start off by, you know, I think that, you know, the customers, Craig, have always loved the solution. I mean, we do help the Walmarts and Amazons move more goods. And that's the business they're in. I think that what they have seen over the past, and I can tell you, one of these customers I had deep discussions with over the last three months. What they have seen that Plug Power Inc. is actually on the right track and financially much stronger. And third, when you look at policy, and I think all of us were pleasantly surprised that the bill that passed in July, you know, extended the investment tax credit through 2032. Republicans have always supported. If you go back to last time it passed, it was under President Trump in 2018. So they like the application. They can see that Quantum Leap is actually working. The government supports it. And they basically what's always driven was they save money by using fuel cells. And not using batteries. So that's why they're growing. It's never been a loss of desire to use the product. I think us getting our financial house in order has dramatically changed our relationship with these customers. Who want to do business with us. Craig Irwin: That's really nice progress. That's good to hear. So my next question is really one of clarification. And I may be reading the tea leaves a little bit here, but your GALP commentary in the press release, you know, 10 megawatts on the 100-megawatt project, it sounds like you could probably ship the rest of that pretty quickly. Is it possible that we see the rest of GALP shipped in the fourth quarter, or is this something that's gonna go out over the course of '26? Jose Luis Crespo: We are gonna ship the majority of it before the end of the year. There's gonna be a portion of it that is gonna be shipped in Q1, mainly tax because the tax we wanna get them there, you know, when as close as possible to installation and commissioning. So you're correct. We are aiming at shipping the majority of GALP in the next couple of months. Andy Marsh: And just I think this is probably the largest real deployment in Europe. The largest real deployment in Europe. Right now. Yes. Craig Irwin: Excellent. Well, congratulations again on the progress. Thank you. Andy Marsh: Thanks, Craig. Operator: Thank you. Our next question today is coming from Sherif Elmaghrabi from BTIG. Your line is now live. Sherif Elmaghrabi: Thanks for taking my questions. First, on the excuse me, first on the electricity rights, are those permanently being signed over or, you know, some years down the road, do you have the ability to come back and use that power to produce green hydrogen? Andy Marsh: We are permanently signing them over. Doesn't mean that there couldn't be other relationships established. But we are permanently signing them over. And look, as I mentioned before, you know, by showing we can build plans, we dramatically change the competitive environment for purchasing hydrogen. And that, you know, our goal is to continue to work with these folks and look for opportunities to deploy hydrogen where it makes sense. And look. I think when you look at what this will do for our balance sheet, and the fact that, you know, we're taking care we'll take care of a good deal of the debt overload overhang. I think it'll be I think investors will see this as really will be a real good decision for the company long term. Sherif Elmaghrabi: Thanks, Andy. And then on the equipment side, for these plans reaching FID over the next twelve to eighteen months, sounds like mostly in Europe. Can you tell us a little more about the different sectors they're in, like oil refining for example? And really here, I'm just hoping to get a sense of the revenue opportunity for downstream equipment. Jose Luis Crespo: So, Sherif, we're getting the majority of the opportunities on green hydrogen right now. On transformation from gray hydrogen in industry, especially in Europe, to green hydrogen. This is the directive from the European Green Deal. So given that, what we're seeing right now is opportunities, as you mentioned, refineries. There's a lot of opportunity there. There's a lot of hydrogen that needs to be converted. The laws, you know, at the members levels, at the country levels, are being finalized right now. If not final already in many of the countries. And they determine the pace and the quantities of hydrogen that needs to be converted into green. That's gonna drive adoption. Also, when you think about the same kind of concept, you have the EU moving or pushing industries like aviation and maritime towards e-fuels. We see a lot of the opportunities also on sustainable aviation fuels and ammonia or in methanol. So we are seeing the majority of the projects at scale in those areas in Europe and really globally. Same thing in Australia. We are working with Allied Green for an ammonia project. Which is kind of the same logic. And then the majority of the large projects are in that in those markets. Sherif Elmaghrabi: That's great color. Again, thank you both. Andy Marsh: No. Thank you. Jose Luis Crespo: Thank you. Operator: Our next question today is coming from Sameer S. Joshi from H. C. Wainwright. Your line is now live. Sameer S. Joshi: Hey, Andy. How are you? Andy Marsh: Okay. Thanks for taking my questions. Sameer S. Joshi: Jose, first of all, congratulations on the new role. Looking forward to working with you. Jose Luis Crespo: Thank you. Sameer S. Joshi: Just to follow-up sort of follow-up on some of the earlier questions. We, of course, we have Portugal megawatts and maybe a majority of the 100 megawatts going before the end of the year. And then Australia is also emerging. Given the international exposure, are you planning to deploy resources? Like, are you increasing your sales presence in Europe and Australia and other regions? Andy Marsh: Yeah. So, Sameer, we have a big presence, especially in Europe already. We have probably close to 300 people in Europe. Paul? Paul B. Middleton: Yeah. Andy Marsh: So, you know, we have, you know, if you look at our product development activity, a good deal of that happens in alpha and in the Netherlands. If you start thinking about how we build an electrolyzer product, the products that are going to GALP, the system portion of it were actually built with one of our fabricators in The Middle East. And it's sent to Portugal, and our stacks are married at the site. You know, we have activity in Vietnam. We have large integrators in Europe. So we do have a relatively large international footprint both with fabricators and our own people to support the business. So, you know, we have people in The Middle East today, for example. So there's, you know, that footprint, you know, we've been able to build this business because we do have a sales team in Europe. We do have a sales team in Australia. Do have salespeople in The Middle East. So, you know, that, you know, we don't expect, you know, there may be some strategic decisions to make some expansion. But we are there already. And I think and more important, we can make products there already. So if you think about GALP, that's good. What we're using doesn't really have, you know, the Trump tariffs have almost zero impact on us at GALP. Sameer S. Joshi: Yeah. No. It makes sense. Thanks for that color, Andy. On the cash and balance sheet front, of course, this transaction will provide additional cash or free up additional cash. I think when the last capital raise was completed, there was talk about paying down some of the Yorkville lower. Given all these dynamics, how long do you have a runway? I mean, I think it is is it going to extend beyond 2026 with your current cash on hand? Or how should we look at your cash burn over the next six to twelve to eighteen months? Paul B. Middleton: Yeah. It's a good question. I guess I just put context that if you look over the last two years, the fact that each consecutive year we continue to the burn by 50% to 60% directionally it's going the right way, right? So when you look at next year, I mean, we haven't given exact guidance and thoughts on next year, but I would tell you I certainly expect that trend to continue. And it should be, you know, a much more nominal amount. And when you look at the combination of the capital that we had on our balance sheet at the end of the third quarter plus the capital raise from the recent equity transaction from an existing investor and then you look at the $275 million targeted on this data center deal, you know, we feel like we have more than ample capital accessible to us to bridge through that positive cash flows. So we're in a great position and that, you know, we even have more if we wanted to deleverage some of that, we could. So and probably will work with our lenders to do that. So, you know, it's just a question of timing, but we feel like we're in a great position to navigate through bridge and to get to a point when we get that positive cash flows. Sameer S. Joshi: Understood. Thanks a lot, Paul, for that, and thanks for taking my question. Andy Marsh: Thanks, Sameer. Operator: Thank you. Next question is coming from George Gianarikas from Canaccord Genuity. Your line is now live. George Gianarikas: Hi, everyone. Thank you so much for taking my questions. Andy Marsh: Sure. George Gianarikas: Oh, thanks. So maybe this is for Jose Luis. I'm just curious, you know, first, congratulations on the new role coming next year, but also yeah, if we look to March of 2028, two years after having taken the position, you know, how do you think Plug Power Inc. will look different? Like, what are the metrics by which, you know, we should sort of judge the performance of the company by then? Obviously, profitability is a big milestone, but what growth drivers do you think we should look forward to over the next couple of years that may be underestimated by us on this side of the table? Thank you. Jose Luis Crespo: So, first, George, thank you. It's exciting to take over this new role. And, on the question, 2028, well, you know, from 2028? Yeah. He asked about twenty twenty years ago. Two years from now. I gave you two years. We've only given him a few months. Well, number one, the financials of the company would be in line to what we've been discussing. Profitable company, now, you know, being able to probably think about growth in other areas of the hydrogen market. And have access to. To be able to finance us to that type of growth. We will concentrate on still on ELX. ELX has a lot of room to grow all the way to the end of this decade or if not beyond. And we will keep on being the leaders in that market. And the more we deploy, the more the more profitable we will become. Our values will go higher and, you know, profitability of the company will improve. On material handling, we will keep on growing. We were looking today at what is the available market for material handling. And it's over $14 billion. And, obviously, we have only started scratching the surface on that market. Right? So as you know, more hydrogen is available, the cost of the technology goes down, we will go deeper into that market as well. And then as you said before and we were talking before, we kind of put a little bit of a pause on high power stationary. By that time, probably, we'll be we will be thinking about taking again on that the data center market, once we understand and find solutions for the hydrogen equation on that market. And there would be a pretty substantial opportunity for growth in that market as well. Andy Marsh: So those are some of the things that, you Andy, you may have other other ideas. 2021. I would just say, a strong balance sheet, strong revenue growth in our core markets, will give you opportunities to explore new applications for hydrogen and fuel cells as they evolve. It's clear that hydrogen needs to be part of the global energy solution. Whether as a substitute in things like ammonia or methanol production oil refineries, but, you know, execution over the next year will open up a whole new array of opportunities. And I'll be cheering for you as the chairman. George Gianarikas: Thank you. And maybe as a follow-up, clearly, a thawing or an increase in activity from an electrolyzer perspective in Europe, when you go into these competitive bids, what's the, I guess, couple reasons that you're winning, and who are you seeing from a perspective? Thank you. Jose Luis Crespo: So the other day, somebody asked exactly the same question to one of our customers. And the way that the customer answered was when we look at other electrolyzer companies, there's no other electrolyzer manufacturer that actually has deployed their own technology and operates the technology the way that Plug Power Inc. does. That is incredibly valuable for companies that have not deployed electrolyzers before. Knowing that the OEM, the partner that they're working with, in this case, Plug Power Inc., has done it, is doing it, and is operating those plants. That is a competitive advantage that no other electrolyzer company can put on the table. On top of that, we have deployed at scale. We are, you know, we've been in this market for almost three decades. And that's also really valuable. And when we start and when we have started to show that we can turn around the company and our financials are beginning to improve, this makes a very strong partner for anybody that is looking to deploy an electrolyzer project anywhere in the world, really. Thank you. Operator: Thank you. Next question is coming from Chris Tsung from Wolfe Research. Your line is now live. Chris Tsung: Hey, guys. Good afternoon. Thank you for taking my question. Andy Marsh: Hey, Chris. Chris Tsung: Hey, Andy. I wanted to just clarify on Texas, like, about the DOE loan with activities paused, is that the other location where the electricity rights that was sold? Andy Marsh: You know, Chris, I would love to answer the question, but I've been asked not to. As part of the LOI. Chris Tsung: Okay. Alright. Understood. Alright. And then could you just as you continue to shore up your balance sheet, which is certainly better and better, just potentially look to divest or monetize your Georgia asset or maybe even your Tennessee Louisiana, like, liquefaction sites. Andy Marsh: I don't expect to. Don't expect to. Going to keep we're going to keep offering them. Those facilities give us first cost competitive hydrogen. But, look, it lets people know, you know, we can deliver hydrogen ourselves and produce cost-effective hydrogen. So I think it's a healthy it gives us a healthy negotiating position. The fact we know how to build. Right? Okay. Go ahead, Chris. Operator: Thank you. Next question today is coming from Ryan Finks from B. Riley Securities. Your line is now live. Ryan Finks: Hey, guys. Thanks for taking my questions. Andy Marsh: Hey, Ryan. Ryan Finks: Andy, you're gonna be my last question ever. Is this CEO on an earnings call. Andy Marsh: That's why I waited to hit star one because I wanted that honor, actually. Ryan Finks: So that would be a good question, Ryan. Bill Peterson just supplied it to you. So I'm sure someone else is gonna hop back in the queue now, but I appreciate it. Alright. So for the electricity rights monetization, are there other opportunities to complete similar transactions based on the assets that you have today or will this likely be the only announcement of this kind? Andy Marsh: The first question is, we do have other assets. And I noticed I didn't use plural. And I don't know if it'll be the last one, but we have been engaging in another asset. Ryan Finks: Understood. Appreciate that. And then for 2025 guidance, not sure if I missed it, but are we still targeting $700 million in revenue for this year? Jose Luis Crespo: Yes. Ryan Finks: Excellent. Thanks, guys. I'll turn it back. Andy Marsh: Okay. Sorry there. I was hoping you were the last. But, Bill, next question is coming from Bill Peterson from JPMorgan. Your line is now live. Bill Peterson: Yes. Hi, Andy, Jose Luis, and Paul. And I thought I hit star one, like, forty-five minutes ago, but apparently, I didn't. So I'm happy to be your last question here. Actually, probably a few sort of clarifiers that are follow-ups to some of the prior questions. Maybe first on the quarter, you just had reiterated that $700 million is a target. Maybe within that, sort of the puts and takes amongst the various segments you have, and then on gross margin neutral, I think you're probably saying that's coming off the adjusted loss of $37 million not the GAAP loss of $120 million. So I guess, similarly, amongst your various segments, what are the puts and takes that gets you there? That's my first question. Then I'll save the last one for Andy on the second one. Andy Marsh: K. You wanna go, Paul? Paul B. Middleton: Yeah. And there's three elements, Bill. One is if you think about the math on the volume, that means that higher volume in Q4 than Q3. So volume, particularly in equipment sales, is incredibly lucrative for us. So that every incremental dollar of equipment sales means a lot. Number two is, you know, we've already been making a lot of traction on service. We're trying to be prudent and thoughtful about that progression. But we expect that to continue and that will actually provide meaningful margin enhancement in Q4 and onward just from that continued progression. It helps us in many different ways, but that's another step function change as we continue to enjoy that positive trend. And then the last, as I talked about earlier, is fuel. You know, we saw certainly progression in Q3. We expect to see a lot more progression in Q4 as we leverage new platform, and we really continue to drive improvements off of our efficiencies. So those are the biggest drivers that kind of drive the levers here for Q4. Bill Peterson: Yeah. Terrific. And then again, somewhat similar to some earlier lines of questions, but you know, in the last year or so, you've been focusing primarily on materials handling sounds like data center is now maybe back to being an emergent application. So can you speak to when you may actually need to make investments to bring on new hydrogen capacity? Would you prefer to still pursue Texas or maybe expand your supply agreements with the third parties under, you know, the renegotiated terms? Guess I'm trying to get a sense, at this stage, would you need to pull the trigger around taxes at some point, or maybe there's your second set you're talking about? Or is there any other types of funding you could be considering if that, you know, the deal amount, which is off the table. Andy Marsh: So, Bill, I when I take a look at our new agreement with the industrial gas company, when I look at opportunities Jose has been developing for folks who are looking to build plans, we're gonna be strategic and thoughtful about when we build next. I don't foresee a need in the immediate future. You know, we've spent a lot of time looking at this. And we sat down and we thought about it from a financial performance point of view, you know, it feels quite honestly, Bill, it feels really good. To hand off to Jose and Paul a balance sheet that works. You know, we've discussed a lot over the last year about Quantum Leap being improving the income statement. But look, Jose is gonna be and Paul are gonna have essentially zero debt. You know, and we between the $150 million we ended with or $160 million, the $350 million we raised, this activity, you know, we're gonna focus on let's get our debt down. And, you know, I look in and I wanna position them. So and we wanna position because we're doing this as a team. The position that next year, you know, when Jose goes to see customers, he can say to them, look how strong my balance sheet is. Look how strong my income statement is. And as I mentioned earlier in the call, people want to buy from us. And strong balance sheet will make it a lot easier. And for every electrolyzer dollar Jose sells, you know, it really contributes 30 to 40¢ to the bottom line every dollar. So I think the company is much healthier. And with Jose's leadership, I think the company will continue to expand. And, you know, I think growth is tied very, very tightly to this balance sheet. And now it's gonna be a much, much better balance sheet. Bill Peterson: Appreciate that, Andy. I appreciate the dialogue in the past several years. Look forward to following the progress and look forward to hearing more about strategy in a few weeks. Or actually next week. Thanks. Andy Marsh: Great. Good. Good. Good. And for us, Bill, because I need to remind folks. You can too, you can register for digitally for the listening to Plug Power Inc. symposium. Know, it's an exciting event. Have many cast what customers are gonna be here, Teal? Teal Vivacqua Hoyos: Oh, we have lots of customers. We'll be showcasing our electrolyzers with customers like Arcadia. We have customers like Amazon and Uline. Presenting on customer panel. So we'll have lots of customers showcased throughout the different panels we're excited about. Andy Marsh: Yeah. I am excited, and I know teams put a lot of effort in and we really wanna show folks all the great progress. Plug Power Inc. has made to date. Probably more important, where Jose is gonna take us in the future. So thank you, everybody. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
Operator: Good afternoon, everyone, and welcome to the Kaltura third quarter 2025 Earnings Call. All material contained in the webcast is the sole property and copyright of Kaltura, Inc. With all rights reserved. For opening remarks and introductions, I will now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead, Erica. Erica L. Mannion: Thank you, Operator. I am joined by Ron Yekutiel, Kaltura's Co-Founder, Chairman, President, and Chief Executive Officer, and John Doherty, Chief Financial Officer. Ron will begin with a summary of the results for the quarter ended September 30, 2025, and provide a business update. John will review the financial results for 2025 in greater detail, followed by the company's outlook for the fourth quarter and full year of 2025. We will then open the call for questions. Please note that this call will include forward-looking statements within the meaning of the federal securities laws but not limited to statements regarding Kaltura's expected future financial results and management's expectations and plans for the business, including our planned acquisition announced earlier today. These statements are neither promises nor guarantees and involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Important factors that could cause actual results to differ from forward-looking statements can be found in the risk factors section of Kaltura's annual report on Form 10-K for the fiscal year ended December 31, 2024, and our other SEC filings, including the quarterly report on Form 10-Q for the quarter ended September 30, 2025, filed with the SEC. Any forward-looking statements made during this conference call, including responses to your questions, are based on current expectations as of today, and Kaltura assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. Please note, we will be discussing non-GAAP financial measures, adjusted EBITDA, non-GAAP net loss, and non-GAAP gross margin during this call. For a reconciliation of these measures to the most directly comparable GAAP metric, please refer to our earnings release, which is available on our website at investors.kaltura.com. Now, I will turn the call over to Ron. Ron Yekutiel: Thank you, Erica, and thanks to everyone joining us on the call this afternoon. Today, we reported total revenue of $43.9 million for 2025 and subscription revenue of $42 million. We posted a record adjusted EBITDA of $4.2 million, representing our ninth consecutive quarter of adjusted EBITDA profitability driven by a strong non-GAAP gross margin of 70%, up from 68% in the same quarter last year. Cash flow from operations was $9.3 million, in line with our forecast of strong cash flow in the second half of the year. Non-GAAP net profit in the third quarter was $2 million, representing the fifth consecutive quarter of non-GAAP profitability. Before continuing the review of our third quarter results, I would like to discuss some exciting news. After market close today, we announced that we signed on November 5 a definitive agreement to acquire Ethof.ai, a deep tech GenAI lab developing conversational AgenTek AI technology and models for real-time photorealistic avatars, speech recognition and generation, and screen understanding. Esoft Avatar technology is planned to power a new line of Kaltura immersive real-time conversational virtual agents which will hear, speak, see, and understand, and harness video in other forms of rich media to provide highly engaging, personalized, customer and employee experiences. It is also planned to serve as the foundation of a new Kaltura content creation tool which would enable customers to create and publish videos with recorded avatars. This dual capability positions ESOP as an important driver of both our live conversational agentic experiences and next-generation video on demand content creation offerings. In our previous earnings call, we reiterated our vision to transform our AI agent from reactive prompt-based agents into proactive, automated, conversational, ambient agents that will anticipate needs and take action to not only drive productivity but become intelligent enough to replicate human roles and automate tasks acting as AI twins. We also said we plan to gradually evolve our offerings into AI specialists that are intended to be role-aware, use case-specific, and ultimately also industry-specific. Likewise, our investor presentations throughout the past year outlined our intent to launch immersive AI agents that would be fully automated, conversational, hyper-personalized, and context-aware, elevating us from powering video experiences to providing end-to-end video-based AI-infused customer and employee experiences. We believe we are entering the decade of agents where Avatar-based conversational agents will become a primary interface for work, learning, and entertainment. To meet this shift, organizations will require a real-time video experience generator that assembles scenes, user interface, and narrative based on user intent. Instead of static pages or precut videos, real-time immersive agents will use user context, goals, constraints, and accordingly, construct personalized digital experiences that include a tailored dialogue, visuals, data overlays, and calls for action to drive the best outcome on every digital touchpoint across all employee and customer journeys. The planned acquisition of eSelf, which is expected to close in the fourth quarter of this year, is an important milestone in achieving this vision and in our evolution from powering video content management and experiences to harness the capabilities to provide immersive virtual agents for customer and employee experiences. In our transformation from a video company to a rich media-powered AI-infused CX and EX company. After this acquisition, customers will continue to receive from Kaltura cutting-edge products to manage their video lifecycle, publish, and stream content online and on TV, run virtual events, etcetera, but the plan is that soon customers will also get from us two additional new offerings. First, a Kaltura-powered content creation tool that generates AI-based videos on demand with both photorealistic and animated avatars. And second, immersive conversational virtual agents with live avatar interfaces that utilize real-time video creation and repurposing, voice chat across over 30 languages, image creation, interactive whiteboarding, and screen sharing. This will include a wide array of prebuilt off-the-shelf agents that are optimized to fulfill CX, EX, and industry-specific tasks and roles as well as development tools and professional services to create these agents for customized needs. These immersive virtual agents will address tasks and fulfill roles in areas such as marketing, sales, customer care, recruiting, onboarding, teaching and training, communications, entertainment, and more. Essentially, they represent the next generation of Kaltura's recently launched AI-based genies, turning them into fully conversational agents and adding to them a mouth, ears, eyes, and a face. So they could better fulfill human roles, increase customer and employee engagement and retention, streamline and accelerate processes, reduce costs, and increase revenue. We plan to integrate and offer ESOP technology alongside our current video experience products, as well as offer eSelf-powered immersive virtual agents separately as new self-serve offerings which are expected to boost our product-led growth go-to-market motion, and expand our target market from large enterprises to also small and medium businesses across industries. Examples of potential integrated offerings include enabling the creation and insertion of avatars to VOD assets within our VCMS platform and video portal product, as well as adding live conversational avatars to all our products, including video portal, LMS and CMS extensions, virtual events and webinars, virtual classroom, and TV streaming apps. Examples of potential new self-serve offerings would be CX, EX, and industry-specific immersive virtual agents based on the combination of Genie and the Avatar interface that would be easily embeddable in any website and online application. These self-serve agents will include native integrations with a full suite of Kaltura products, so if warranted, they would enable our customers to harness the full powers of Kaltura across video creation, management, distribution, publishing, and monetization. ESOP was founded by Dr. Alan Becker and Elan Shoshan, and is home to an exceptionally talented team of more than 15 AI experts in the field of computer vision and vision language models, NLP, and speech. The company commenced development in 2023 and has recently started piloting its offering and receiving strong early user endorsement and industry recognition, including being recently honored by Staff Company as one of the next big things in tech in 2025. We engaged with the Esoph team as they were switching gears from piloting to further hardening and scaling their offerings towards full commercialization, and they appreciated the opportunity to join hands with Kaltura to accelerate this process and their go-to-market motion because of our proven track record of successfully commercializing enterprise products, our highly synergistic technology and product portfolio, our strong market positioning, and prominent customer base. In recent months, we presented together the planned joint offering and its future potential and promise to various Kaltura customers and prospects across industries and were met with great interest and excitement. People love the rich multimodal conversational interface, appreciate the ability to integrate it deeply into their enterprise workflows and systems, and are excited by how it connects with Kaltura's products and the vast video database that we manage and draw insights from. We believe that closing this acquisition will enrich our technology and AI development talent base, boost the breadth, depth, appeal, and mission criticality of our offerings, increase our addressable markets, shorten our sales cycles with a new PLG motion, and altogether, support revenue growth. This transaction will also support the repositioning of Kaltura from a video company to a media-rich AI-infused CX and EX company, from providing video products as an end to harnessing them as means for improved employee and customer engagement and success. As for the deal structure of the ease of acquisition, the purchase price consists of $7.5 million in cash, payable upon closing, $12.5 million in cash payable over three years contingent upon the attainment of specific earn-out milestones of incremental recognized revenue, and 4.7 million common shares of Kaltura vesting over three years subject to retention holdback provisions for ESL founders and key employees representing 3% of the company's outstanding stock before the deal. The total deal value as of the day of signing, assuming all earn-out milestones and retention targets are achieved, is approximately $27 million. We believe that this deal structure provides significant value accretion to Kaltura shareholders while at the same time, recognizes the ESOP team and shareholders for their great achievements to date and their expected significant future contribution to our joint success. For further details regarding ESOP and the transaction, please refer to the press release sent out this afternoon. You can learn more about our planned joint offering post-closing and the potential exciting opportunity ahead by visiting www.kaltura.com/avatars-agents. Next, I would like to turn to discuss another announcement from today, the repurchase of Kaltura common shares held by Goldman Sachs. Goldman Sachs invested in Kaltura in 2016. They have been a strong supporter of the company and have held all their shares since that time. Considering the extended duration that they have owned our stock, and in line with their publicly traded strategy and efforts to harvest long-tenured non-core investments, we have come to an agreement to repurchase all their Kaltura shares at a 25% discount to the thirty-day VWAP. The deal concluded on Friday, November 7, whereupon we repurchased 14.4 million shares representing 9.2% of our outstanding shares that day, for a total price of $16.6 million. Our board believes that this represents a smart, timely, and value-accretive move for all company shareholders and is committed to pursuing similar rewarding opportunities in the future in conjunction with our planned increased generation of cash and operational profit. It is worth noting that following the Goldman Sachs share repurchase in Q4 and the expected closing of the ESOP acquisition, the company is forecasting to close the year with approximately $660 million in gross cash, representing approximately $30 million in net cash after deducting our outstanding bank debt. Furthermore, once the acquisition closes, the net combined impact of these two deals, assuming all the ESOP transaction shares will ultimately vest, represents a reduction in our share base of 9.8 million shares, translating to a 6.2% anti-dilutive accretive effect. So we expect to come out of these two transactions with stronger technology offerings, positioning, and business opportunities, far fewer shares outstanding, and more than enough cash to execute our exciting future plan. Returning to the business update, new subscription bookings in the third quarter were comprised of twelve six-digit deals, including new customers such as a large Japanese conglomerate, a leading European professional services firm, and a prominent Asian telecommunications company. As for AI deals, in the third quarter, we closed five AI deals for ContentLab and Genie, following last quarter's initial sales with a multinational fast-food restaurant chain, a leading US-based healthcare provider, and three universities. We expect many more AI deals in the quarter ahead. In fact, more than previously forecasted, given the earlier stated accelerated efforts in this area. On the last earnings call, we forecasted new bookings to pick up in the second half of the year. While this has not happened yet in the third quarter, our current pipeline supports this pickup in the fourth quarter. On the gross retention front, the gross retention rate in E and T continued to be strong in the third quarter, and we still forecast an annual E and P gross retention rate in 2025 that is better than that of the previous four years. M and T growth retention rate was better than that of the first and second quarters, though still lower than usual as forecasted. We continue to expect a strong M and T growth retention rate in the fourth quarter. Moving on to the product front and beginning with our continued and growing investments in our AI offerings. In the third quarter, we expanded our family of Genie agents with additional features and functionalities. As mentioned before, these developments help prepare our genies to become proactive, automated, conversational, and ambient agents. As discussed, soon, they are expected to become fully immersive with the addition of a mouth, ears, eyes, and a face. As for ContentLab, in the third quarter, we enabled custom instructions designed to empower content creators and administrators to guide the AI with specific prompts to ensure that the generated clips emphasize the right messages, that the summaries and chapters match their communication style, that the generated metadata aligns with their internal taxonomy, and that the generated quizzes fit their specific learning objectives. Lastly, AI development, in the third quarter, we launched the first version of our new publishing agent, which automates the entire process of publishing content, taking over complex and repetitive tasks that previously required manual efforts. Once the content creator or administrator defines the publishing workflow and rules, the agent is empowered to take action and make decisions autonomously to ensure content is prepared, enriched, and published according to policy, including automated captioning, clipping, quiz insertion, metadata generation, and content approval. I want to tie all these AI developments together and also connect them to my earlier statements about eSelf and our exciting AI plans to evolve towards providing immersive virtual agents. Our AI offerings and consequently, our entire product portfolio is becoming smarter, richer, more accurate, consistent, interactive, engaging, reliable, and compliant. Our offerings are becoming more contextualized and personalized, are saving people and organizations more time and money, and are assisting in achieving more mission-critical business goals. As stated before, we are excited about this transformative transaction and the continued repositioning of Kaltura from a video company that powers video content management and experiences to a rich media-based AI-infused customer and employee experience company that specializes in harnessing the power of rich media to deliver better business results. Moving beyond our AI innovation, in the third quarter, we delivered a broad set of enhancements across our portfolio. Our virtual events and webinars product supports events with much larger scale, fewer manual steps, and lesser human resources, thanks to a more streamlined setup, including event application and our new events MCP model, a powerful new way to connect our platform with AI assistant or third-party AI system. In the video portal front, we fully integrated the modern Kaltura Studio, enabling our customers to run events directly from the portal with full chat and collaboration support, offering an integrated and streamlined live experience. We also upgraded our LMS and CMS extensions in virtual classroom with native embedding, so instructors can deliver live and on-demand classes without leaving the LMS, and students can learn in the same place. Finally, our underlying platforms for video and TV content management gained improvement in hyper-personalized content discovery, the experience API, analytics, and security. We are proud to continue to lead the market with the most robust, flexible, and engaging video and TV platforms. Continuing beyond our products, in the passing quarter, we hosted four Kaltura Connect in education events across the US, where we discussed how AI is transforming the way institutions capture, preserve, and personalize knowledge, empowering educators and learners with smarter, more connected experiences that drive engagement, success, and student retention. Additional education events are being conducted globally throughout the fourth quarter. During the third quarter, we also showcased at the IBC Broadcaster Conference in Amsterdam our newly launched media publishing agent, and the latest enhancements in our TV Genie offerings and ad monetization options. Beyond education and media and telecom markets, for the broader enterprise market, we conducted several executive-level dinners across the US and Europe and showcased our offerings at large industry conferences like DigitalX by Deutsche Telekom, CEMA, IFMA, and DevelHub. The focus of the conversation was our new and upcoming AgenTic offerings for customer and employee experiences, and we were met with great interest and excitement. In summary, we wrapped up another quarter where we surpassed the high end of our subscription revenue, total revenue, and adjusted EBITDA guidance, as well as our expected cash flow from operations. Our pipeline still indicates a pickup in the level of new bookings in the fourth quarter for both E and T and M and T, coupled with an expected improvement in our M and T growth retention rate. We continue to be fueled by customer consolidation around our platform, the maturity of our newer products, and our exciting new Gen AI offerings that are expected to yield more bookings in the quarters ahead. As for our outlook for the remainder of this year, we are guiding for the fourth quarter a sequential increase in total revenue for the first time this year. This embodies a fourth-quarter subscription revenue guide that is at the same level as our third-quarter results after taking into consideration revenue recognition delays with two existing customers. We are increasing for the third time our adjusted EBITDA guidance for the year and are forecasting to post another record high in the fourth quarter, which is reflective of the strength of our operations and our continued focus on disciplined execution. We are also forecasting another quarter of positive cash flow from operations. We are very excited about joining hands with ESOP to accelerate the introduction of additional video on demand content creation tools and our transition from providing video solutions to rich media-based AI-infused customer and employee experience solutions. We believe this will increase our value, appeal, and stickiness, shorten our sales cycle, increase our addressable market, and support revenue growth. And we see a path to achieving all of this while continuing to grow our adjusted EBITDA profits and cash flow. To that end, we remain committed to achieving double-digit revenue growth in a rule of 30 combination between revenue growth and adjusted EBITDA margin by 2028 or sooner. Lastly, we will continue to look for opportunities to allocate our capital efficiently to increase shareholder value. Now before turning it over to John, our CFO, to discuss our financial results in more detail, I would like to follow up on our announcements in early October about John's upcoming departure on December 5. To thank him again for his great contribution to Kaltura over the last couple of years, and to wish him well in his next endeavor. As noted, we have initiated a search for a new CFO, and John will continue to support and consult the company and its seasoned finance team throughout the search process and new CFO onboarding. I will now pass it over to John. John? John Doherty: Thanks, Ron. I really appreciate the kind words, and thanks to all of you joining the call this afternoon. I will say a few words about my departure after I cover our third quarter 2025 results. In the third quarter, we surpassed our top and bottom-line guidance, improved our M and T gross retention rates sequentially, and took strategic and tactical actions to allocate resources towards higher ROI opportunities while improving our overall operating efficiency. Touching on a few highlights in the quarter that demonstrate this, surpassing the high end of both subscription and total revenue guidance ranges, a record level of adjusted EBITDA, also surpassing the high end of our guidance range, and representing the ninth consecutive positive quarter of adjusted EBITDA profitability, highlighting our continued focus on operating expense management. Strong cash flow from operations, improved M and T gross retention rate, and a continued strong E and T gross retention, which is still forecasted to yield an annual E and T gross retention rate in 2025 that is better than that of the previous four years. And working throughout the quarter to subsequently announce the signing of the ESOP definitive agreement and the repurchase of our shares from Goldman Sachs. With that, let me move on to our results. Total revenue for the quarter ended September 30, 2025, was $43.9 million, down 1% year over year as expected and above the high end of our guidance range of $42.8 million to $43.6 million. Subscription revenue was $42 million, flat year over year. This was also above the high end of our guidance range of $40.8 million to $41.6 million. Professional services revenue contributed $1.9 million for the quarter, down 14% year over year and consistent with the expected trends we discussed on our previous earnings calls. Before I speak to our remaining performance obligations, the RPO metric, I wanted to let you know that we made an adjustment to this metric this quarter which has also been applied to our historical numbers. Ron spoke to our use of AI as it pertains to our product innovations and the introduction of Genie ContentLab and publishing AI agents. In addition to harnessing AI technology to boost our own offerings, we are adopting new AI-based systems internally to improve our operations and controls. To that end, as part of a new AI-based scan of all our contracts, to ensure nothing was missed in our records, we discovered that not all contracts with the termination for convenience or TFC clause have been duly reflected in our systems and RPO calculations. For context, the TFC clause means that notwithstanding the defined contract term, a customer could terminate a contract midterm at its sole discretion. The TFC clause is only included in a small percentage of our contracts. And less than 1% of our contracts were terminated before the end of their term, whether through such a TFC clause or without. We do not have reason to believe this trend will change, nor do we have any indication of any customer currently planning to exercise this clause. The current and historic RPO numbers I will now speak to all include this adjustment for consistency. We have also included a slide in the Q3 2025 investor deck that provides a full comparison of our RPO calculation both pre and post adjustments. As a result of this correction, the remaining performance obligations, including an $18.1 million downward adjustment this quarter, were $159.3 million, a decrease of 4% sequentially and year over year, of which we expect to recognize 60% as revenue over the next twelve months. Again, these comparisons are all based on corrected historical RPO figures as well. To close this one out, this correction to our RPO calculation does not reflect any change in our outlook for the business or our growth prospects going forward. Continuing to our other reported KPIs, annualized recurring revenue was $19.1 million, up slightly year over year. Our net dollar retention rate for the quarter was 97%, compared to 101% last quarter, and in the same quarter last year. This decrease was anticipated and is reflective of the increased churn in M and T in recent quarters. As Ron mentioned, we still expect our annual NDR to reach 100%, same as last year, and we are to start improving next year along with an improved gross retention in M and T. I will now touch on the segments briefly. Total revenue of our E and T segment for the third quarter was $32.4 million, a slight increase year over year. Subscription revenue was $31.8 million, up 1% year over year, while professional services revenue contributed $500,000, down 37% year over year. M and T segment performance improved sequentially in the third quarter with the deceleration of the churn impact as discussed in the last two earnings calls. Total M and T revenue for the third quarter was $11.5 million, representing a decline of 4% year over year, but up 3% sequentially. Subscription revenue was $10.1 million, down 4% year over year, but also up 3% sequentially. Professional services revenue contributed $1.4 million, down marginally year over year. GAAP gross profit in the third quarter was $30.7 million, up 4% year over year. Gross margin was 70%, which is up from 67% in 2024, and subscription gross margin was 77%, which is up from 75% in 2024. Total operating expenses in the quarter were $32.2 million, compared to $34 million in 2024, a reduction of 5% year over year. Adjusted EBITDA for the quarter was $4.2 million, an increase of $1.7 million or 72% from $2.4 million in 2024. This result is a new record for us, being moderately higher than the previous record that we set both in the first and second quarters of this year, and along with our improving expense and margin profile, highlights our continued focus on improving our operating efficiency over time. I will discuss this more in a moment. GAAP net loss in the quarter was $2.6 million or $0.02 per diluted share. This is an improvement of $1 million year over year. Non-GAAP net profit in the quarter was $2 million, or a penny per diluted share. This is an improvement of $2 million year over year. Moving to the balance sheet and cash flow, we ended the third quarter with $84.1 million in cash and marketable securities. Net cash generated by operating activities was $9.3 million in the quarter, up $6.6 million from 2025, however, a decrease of $1.4 million year over year. You may recall that in 2024, we did receive a $2.3 million payment from a large customer that had been delayed from the second quarter in 2024. As Ron touched on earlier, given the two transactions that were signed after the third quarter close, it is worth noting that following the Goldman Sachs share repurchase and the ESL acquisition expected to close in Q4, the company is forecasting closing the year with approximately $60 million in gross cash, representing approximately $30 million in net cash, after deducting our outstanding bank debt. As Ron mentioned earlier, while new bookings have not yet experienced the expected second-half pickup, our pipeline of opportunities for both E and T and M and T points for this to occur in the fourth quarter. As our strong adjusted EBITDA and net operating cash flow indicate, we are gaining operating leverage, and we believe we are in a strong position to support a growth in demand, which we expect would be further accelerated in the upcoming quarters as we continue our evolution to provide immersive virtual agents. In addition, we continue to effectively manage through the churn we experienced in M and T this year, as well as the continued uncertain macroeconomic environment. Let's now turn to a quick update on the reorganization we announced in early August. While still early, we are on track to realize the benefits that we discussed on the second-quarter earnings call, namely incremental savings of $2.6 million in 2025, and $8.5 million on an annualized basis. The total one-time charge related to the reorganization was $800,000 in the quarter. As stated, these reductions are not expected to affect our marketing and sales activities, which we still plan to sustain and gradually grow. Finally, a few financial comments related to the ESelf acquisition. The deal is expected to close around year-end, and we expect the acquisition will have minimal financial impact on 2025 numbers. This is driven by ESL's burn rate, which represents approximately 2% of ours, and their non-material revenue in 2025 as they only recently started piloting their offerings. We expect to start recognizing incremental revenue from the acquisition by 2026 following further hardening, scaling, and commercialization of their offering as well as integration with our platform and products. We will provide guidance for 2026 on our next earnings call, but can already reaffirm our plan to continue increasing our adjusted EBITDA profits and cash flow. I would now like to discuss our outlook for 2025 and for the fiscal year ending December 31, 2025. Regarding the fourth quarter, we are guiding for a sequential increase in total revenue for the first time this year, as Ron touched on earlier. We expect total revenue to be between $45 million and $45.7 million. As Ron also noted, we expect subscription revenue to be at the same level as our third-quarter results after taking into consideration revenue recognition delays with two existing customers. We expect subscription revenue in the fourth quarter to be between $41.6 million and $42.3 million. We expect to hit in the fourth quarter another record high level of quarterly adjusted EBITDA that would be between $4.2 million and $5.2 million. Accordingly, for the full year, we are expecting subscription revenue to be between $170.9 million and $171.6 million and total revenue to be between $180.3 million and $181 million. For the full year, adjusted EBITDA, we are raising our guidance for the third time this year to be between $16.6 million and $17.6 million, a $1.8 million increase of the middle of the guidance range. This is close to a $10 million year over year when compared to the $7.3 million adjusted EBITDA of 2024. As Ron mentioned, we are expecting to post again positive cash flow from operations in the fourth quarter. In summary, E and C gross retention remains strong, and we have continued to manage through the delayed M and T churn that impacted us this year, and believe that M and T gross retention will be strong in the fourth quarter. Our new bookings pipeline suggests improvement in the fourth quarter and in 2026, driven by momentum in our sales pipeline, which also includes exciting potential AI deals. We are on very solid ground given the financial operating leverage we have built over the course of the past two years. It has allowed the company to allocate capital strategically to support organic growth, to buy back over 21.3 million shares since June 2024, and to pursue the acquisition of Ecell to advance our evolution in 2026 and beyond. As most of you know, this will be my last earnings call for Kaltura. My decision to move on to another opportunity, while, of course, a professional choice, was also very personal for me with mixed emotions. Kaltura is a special company with a very passionate and committed team, strong senior leadership, a very talented CEO, as you all know, and a top-notch finance organization. The company is very well positioned within the existing markets it serves, and will be even more so with the acquisition of Ecell, as well as exposure to new market opportunities. My belief in Kaltura has never been stronger and deeper than it is today. As I have said in the past, and I want to reinforce here, I know that the company is committed to targeting both revenue growth and adjusted EBITDA profitability. And I believe that the company is on the right path to achieve these objectives and to drive consistent returns to shareholders. Our target continues to be to achieve double-digit revenue growth, the rule of 30 combination between revenue growth and adjusted EBITDA margin by 2028 or sooner. As I have said before, Kaltura has achieved this goal in the past, and I know that it will achieve it again. The company will provide guidance for 2026 when it reports Q4 2025 and 2025 full year, in February 2026, but as discussed, is already confirming our intent to continue growing our adjusted EBITDA and cash from operations. With that, we will open up the call for questions. Operator? Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press A. You may press 2 if you would like to remove your question from the queue. For participants using speed equipment, it may be necessary to pick up your handset before pressing the star keys. And our first question will come from Ryan Koontz with Needham. Hi, this is Jeff Hopson on for Ryan. Thank you for the question and congrats on the acquisition. Jeff Hopson: I guess I had one on the acquisition. Any thoughts on, you know, the investments that are gonna go into, you know, the new product and how it's gonna integrate in. I guess, and, like, day one, will sales reps be able to sell the product? Or was that second-half revenue contribution kinda got into, you know, like, six-month period of investing in a product. Ron Yekutiel: Yeah. Thank you very much. So in short, I would say I would focus more on the second half, not to say that things can come earlier. But we would like to set the goal kind of in a realistic comfortable way for us to get there. Big move for us, there's a lot installed for this, and it's not about immediate gratification. It's about strategic long-term value. Share a little bit about that, maybe give you a bit more information about cost structure, and how much will be needed to be invested plus what are the type of developments for your question. But first, why are we buying new stuff? And as I noted, it's like for twenty years enterprises have been streaming video. But with the advent of AI, video can be created on the fly in a very hyper-personalized, contextualized way, and we have been talking about that. Last one and a half years, we have been building AI-based agentic video workflows, and we launched our Genie family of products for work, school, and TV. And with that, we are able to repurpose video delivered in real-time. Customers, employees use that, flashcards, images, short videos. But what it did not include is an actual video representation. And now what we are doing with ESOP technology is we are giving Genie a face, mouth, ears, eyes, that's gonna be human. It's gonna be fully conversational. It's gonna also see, quote, unquote, your screen. They could do a sharing and maybe at a later time take over your screen. And that's really important. It's part of this move where we are gradually changing our mission statement, from powering video experiences to powering immersive virtual agents and experiences. So the immersive virtual agents are, again, the genie and the next generation, which it's not just video, it's fully immersive, and these are agents. It's not just about the experience. It's about replacing roles, replacing people. As such, we are moving from being a video company to a video-based CX and EX company. We believe that real-time AI-generated video and avatars are the next user interface, and we believe that each and every meaningful visual CX and EX touchpoint will be rendered as real-time video. We think navigation is gonna transform from static to conversational and seeing the video. Video carries so much emotion and context and intention. It's gonna provide a much more engaging and hyper-personalized experience. So we are excited about that. A word about, you know, what we are gonna do with this, and I am happy if there are any later questions to talk more about, you know, why we chose Eself and why they chose us. But generally speaking, Safav, what we are gonna do that's very different than some of the other folks are gonna do first. We are gonna be offering these agents running on our VCMS and TV CMS. We are gonna gradually productize them as standalone and self-served agents. And they are gonna run on any website and any app. And they are gonna cater to sales, marketing, customer care, recruiting, training, employee communication, teaching, entertainment, banking, everything. Right? So we are gonna build them. We are gonna integrate them into the product. So that's gonna be connected to our portal, connected to our events, connected to our TV system, connected to our virtual classroom, connected to the LMS. And we are gonna also connect them to more third-party systems. So you could expect to have it fed by CRM, Dan, CDP, element, you know, LX Bs LMSs. We are gonna also build a soft development kit and SDK so that could integrate a third-party agentic logic. And ultimately, we are gonna also add tools for VOD avatars as discussed. So you asked about the time to market. It will take a bit to scale it. To make sure that it's fit for compliance and security that it could run on a larger database. That's gonna take anywhere between one and two quarters. Gonna commercialize the agent. We are gonna do the integration. Everything we just said, it will gradually take the next year, but certain things are gonna come much, much quicker. I want to end up just saying why I think this differs so many other options out there. There's not a lot. By the way, they are all big and exciting. You may have seen some teaser recently. Decline a $3 billion offer by Adobe. So it said. And they raised $4 billion from Alphabet's JV fund. Agen is there. Thales is there. So there are companies that are quite exciting. We are optimized for conversational more so than others that are doing VOD. And we also include the agentic logic. It's not just the avatar. It's not just a pretty face. It's about having a smart engine behind it so you could boost the business results. But that's unique. Another thing that's unique is that it's connected, as I mentioned earlier, to our video system. So we are gonna serve within these experiences hyper-personalized rich media content. I also mentioned it's gonna be connected to our SaaS products, and that's unique. And, also, lastly, when you think about the fact that we are hitting the ground running, it's the same customers, same buyers, same use cases, and we have a very significant data and workflow mode because we are sitting on a mountain of rich data. At years of classes, meetings, events, which we are gonna feed it. And so that's extremely, extremely unique. And I am just gonna end up by saying this is the only public company that we are aware of. In this space. There's a bunch of private companies that are doing very well. But from a public company investment, it's exciting. So and also lengthy answer. I want to make sure that we all understand the context. I did promise lastly to say something about the spend. I mentioned revenue second half. But from a spend perspective, their current spend of about 17 people is $3.5 million added to our OpEx. That's gonna be added starting to be at the end of the year, coming from closing throughout next year. We might add some more people for R&D to double down on this effort. I do not think we are gonna need to add SNM or customer service or G and A because we could have that covered with our team. So all in all, that's kind of the impact, and we said we are gonna continue to grow bottom line. And I am just excited that we are entering a big market with a very differentiated technology. Jeff Hopson: Awesome. Thank you. And maybe just one follow-up. As we kind of look into Q4, just curious if there's any specific verticals or customer cohorts that are kinda coming in better or worse than your expectations. That's a good question. Ron Yekutiel: I mean, we have seen so what are we seeing in the third quarter? We have seen the gross retention starting to get better in M and T. We said that Q4 is going to get even better. So we are happy to see this kinda land in the right place. We did say that the new bookings, the kind of the sequential increase did not happen in the third quarter, and it is, we said, second half. So it's gonna what we see is we expect that to happen in the fourth quarter. It is happening in both M and T and E and T. So we expect that trend to build up in both of them. Jeff Hopson: Thank you very much. Ron Yekutiel: No. Thank you. Appreciate it. Operator: And, again, that is star one if you would like to ask a question. And we will go next to DJ Hynes with Canaccord. DJ Hynes: Hey. Good evening, guys. Congrats on all the news. Very exciting stuff. Ron Yekutiel: Thank you, DJ. DJ Hynes: Well, maybe also yeah. Of course. Ron, maybe I will start with you. I am just curious. Are you seeing any tangible signs in the customer base that the adoption of AI technologies is increasing either the velocity or the amount of video content created? I am just curious if there are data points that support that the thesis is already starting to play out or if it's still a little too early here. Ron Yekutiel: So it's definitely there's excitement that, you know, the more we have seen more people interested in utilizing Genie and ContentLab. Again, we closed five deals this quarter. Both education, enterprise, there's more around the corner. The list is growing. They are using that to generate more video, period. The whole idea of recreation, repurposing of videos, is one of the biggest issues of AI. So we are seeing that happen. Like I said, I think that the big jump is gonna happen in continuous investment in the regular stuff we have done, but also with this Genie 2.0. And I think that's 2026, so I am very excited about that. From a multi-quarter trend, there's no doubt it's getting there. Again, we have been careful from the beginning to talk about how quickly revenue is gonna hit. Because there are issues pertaining to compliance and just the rapidity in which people fully adopt these things that take a bit of time. But we have been out there in conferences showcasing also the new vision. We have people take cameras out and take photos of what we have been doing in video. Their jaws dropped. The excitement level is really high. We have had some of our customers, including the very biggest customers that we have, couldn't talk to us about what they could do with us now. So there are very, very interesting buying signs to the new stuff that we are doing. But look. We, you know, as we do not overpromise. We like to overdeliver and we also want to build this company for the mid to long term. It's not a tell-me market. You know, it's a show-me market. And, it's not overnight. I also want to set that stage that it's gonna take a few quarters here. It could come quicker. It could take a bit longer. But I think that as we go through this, we are gonna have more and more design partners, more and more launch partners. Hopefully, we would be able to share these as they come by. Hopefully, they are gonna be big and exciting, so everybody's gonna get excited by that. But we see this as very, very disruptive. DJ Hynes: Yeah. Good to hear. And then maybe we could just follow-up on the rev rec delays you called out with two customers. What is causing those? And when do you expect those issues to be rectified, and we could start to see that revenue drop in? Ron Yekutiel: Yeah. That particular there's a couple of customers that's to the tune of half a million-ish in that. Otherwise, if you add that up and it's kind of look at our current guide and maybe if we were as usually yes or no gonna meet our guidance, maybe go above and kind of coming back to the original numbers. Because we have taken it just a tad down. But let's wait and see what happens in Q4. These two are one of them is E and T. The other one is M and T. And it's really projects that were planned to have happened by the end of the year. And they spilled over into next year. And so that's gonna take a little bit longer after that, whether it's fully in Q1 or a little bit after. That's just news coming for the customers for reasons that relate to them which was not pre-known to us. And when it did come up, we needed to adjust for. DJ Hynes: Okay. So it's not a Kaltura delivery issue. It's counters on behalf of the on the customer end. Okay. Got it. Okay. Ron Yekutiel: That's correct. It's something that has to do with them. You know? DJ Hynes: Yeah. Makes sense. Okay. Thank you, guys. Ron Yekutiel: I appreciate it. Operator: And this now concludes our question and answer session. I would like to turn the floor back over to Ron Yekutiel for closing comments. Ron Yekutiel: Yeah. Appreciate that. Again, a special day for us. You know, it's once every few years, we make a leap that is inorganic in this form. If you look at our past behavior, when we have done these, they have landed significant big customers. Required DaVinci in 2014, brought in Vodafone that kinda brings $20 million a year. We brought in Neuro in 2020, and that brought in AWS. Brought in on the first year close close to $13 million a year. So it's not just the issue of technology and strategy and positioning. But the very significant, we believe, potential commercialization and revenue. It's an exciting new step, which is aligned very much with what we have been talking about for a long time. It's not a new direction. It is an evolution into the right direction, which is to become a full CX and EX platform that harnesses video in order to be a better CX and EX platform and that harnesses AI at Genie 2.0. We are excited. We love the team that's joining us, and we love the DNA mix that they bring. We commend them for what they have done so far, and thank Alan, Alon, and his team for choosing Kaltura as their partner and to continue the journey together. We are excited from what lies ahead. We did not mention, but we also repurchased stock, quite significant stock this quarter. So we are ending up as I mentioned earlier, with a lot more technology and exciting opportunity with far less shares. So it's anti-dilutive accretive value for shareholders at a great price. We are able to hopefully command the growth and profitability that we are planning to command in the quarters ahead. And that's it. I want to thank everybody for their continued trust and support. Once again, as we wrap up, thank my friend here and colleague, John, for his great support and partnership. We are gonna remain close friends, and we are gonna continue to work together. And he's gonna continue to consult the company in the months ahead as we bring in the new CFO. So and, of course, amazing, amazing finance team and leadership within the finance team that's enabling this transition to happen. We have the number one finance team in the world. So thank you, folks. Appreciate it. Have a wonderful day. Take care. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good afternoon, and welcome to Peraso Inc. Third Quarter 2025 Conference Call. At this time, participants are in a listen-only mode. As a reminder, this conference call is being recorded today, Monday, November 10, 2025. I would now like to turn the call over to your host for today's conference call, Mr. Jim Sullivan. Please go ahead. Jim Sullivan: Good afternoon, and thank you for joining today's conference call to discuss Peraso Inc.'s third quarter 2025 financial results. I'm Jim Sullivan, CFO of Peraso Inc., and joining me today is Ron Glibbery, our CEO. Today, after the market closed, we issued a press release and related Form 8-K, which was filed with the Securities and Exchange Commission. The press release and Form 8-Ks are available on Peraso Inc.'s website at www.perasoinc.com under the investor relations section. There is also a slide presentation that we will be using in conjunction with today's call, which can also be accessed through the webcast link on the Investor Relations website. As a reminder, comments made during today's conference call may include forward-looking statements. All statements other than statements of historical fact could be deemed as forward-looking. Peraso Inc. advises caution and reliance on forward-looking statements. These statements include, without limitation, any projections of revenue, margins, expenses, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, adjusted EBITDA, non-GAAP net loss, cash flows, or other financial items, including anticipated cost savings. As well as any statements concerning the expected development, performance, and market share or competitive performance of our products and technologies. As well as any potential statements related to prospective future financing arrangements or capital transactions and the evaluation or pursuit of strategic alternatives. Actual results may differ materially from those implied by the forward-looking statements, including unexpected changes in the company's business. More detailed information about these risk factors and additional risk factors are set forth in Peraso Inc.'s public filings with the Securities and Exchange Commission. Peraso Inc. expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information in terms of GAAP and non-GAAP. With respect to remarks on today's call involving non-GAAP numbers, unless otherwise indicated, referenced amounts exclude stock-based compensation expense, amortization of intangible assets, severance costs, and the change in fair value of warrant liabilities. These non-GAAP financial measures definitions, and the reconciliation of the differences between them and comparable GAAP measures are presented in our press release and related Form 8-Ks, which provide additional details. For those of you unable to listen to the entire call at this time, a recording will be available on the Investor Relations page of our website. Now, I would like to turn the call over to our CEO, Ron Glibbery, for his prepared remarks. Ron Glibbery: We appreciate you joining today's conference call. We had a notably strong third quarter highlighted by growing orders and shipments of Peraso Inc.'s industry-leading 60 gigahertz wireless solutions. Total revenue increased more than 45% sequentially, driven by record quarterly revenue from our millimeter wave products. Gross margin also increased significantly from the previous quarter, achieving our targeted gross margin level in the mid-fifty percent range. Consistent with prior recent quarters, we continue to exercise prudent cost management and drive operational efficiencies across the organization. Collectively, these metrics contribute to improved operating and bottom-line results as well as reduced cash burn from operations in the third quarter. Jim Sullivan: Turning to Slide four. Ron Glibbery: Beyond the 60 gigahertz millimeter wave solutions, we have welcomed a steady recovery throughout the year in market demand and customer orders, both of which are reflected in our third quarter results. We believe that fixed wireless access markets' renewed momentum is sustainable, particularly for our 60 gigahertz wireless solutions, as there continues to be growing millimeter wave adoption to enable reliable high-speed and low-latency broadband connectivity to homes and businesses without the time and cost burdens associated with fiber infrastructure. For further evidence of fixed wireless access and millimeter wave broadening market traction, with a strong background in millimeter wave technology, we had good quarterly revenue for millimeter wave products with multiple prominent wins in fixed wireless access. The first of these wins was with one of our leading partners, Tachyon Networks, which we announced in early July and covered on a previous conference call. Jim Sullivan: To briefly recap, Ron Glibbery: Tachyon Networks chose to incorporate one of our prospective series modules with an integrated 16-element base array antenna to power its latest outdoor 60 gigahertz fixed wireless solution. On a previous conference call, we announced a renewed collaboration with Wheeling Communications to accelerate the deployment of high-speed broadband access across dense urban areas in multiple major U.S. cities. More specifically, Wheeling's mesh-based fixed wireless access architecture is leveraging Peraso Inc.'s 60 gigahertz technology for both businesses and consumers in dense urban neighborhoods. Also notable, they are successfully rolling out this high-speed wireless broadband service at a fraction of the cost and implementation time of typical fiber deployments. Most recently, in September, we secured an initial volume order. Jim Sullivan: Market. Ron Glibbery: I want to highlight that this order for our prospective millimeter wave modules was not only received from a first-time OEM customer, but they are a well-established equipment supplier to service providers. As a result, this new OEM customer has the potential to facilitate broader use of our millimeter wave solutions by an expanded number of fixed wireless service providers, many of which may not have previously been aware of or experienced the benefit of Peraso Inc.'s industry-leading technology. Listening to these recent wins, we are continuously supporting a broad number of proof of concepts with wireless Internet service providers utilizing Peraso Inc.'s millimeter wave technology. With the majority of customers at or approaching more normalized inventory levels, we expect to see additional production orders as successful proof of concepts are completed. Together with our ongoing efforts to convert other existing customer engagements into production, we anticipate continued year-over-year growth. Turning to slide five. As discussed on previous quarterly update calls, we are continuing to see increased market awareness of 60 gigahertz technology that extends beyond fixed wireless to access completely new markets. New emerging markets for Peraso Inc.'s millimeter wave solutions include what we refer to as tactical communications, which includes diverse mission-critical military defense applications. During the course of exploring inbound interest and prospective engagements with potential customers and ecosystem partners, the substantial value proposition of 60 gigahertz wireless for tactical communications has become unmistakably clear. The everyday performance benefits that have made millimeter wave the go-to technology in fixed wireless access, such as high data rates, ultra-low latency, and power efficiency, are also ideal for enabling next-generation solutions for tactical communications. Additionally, millimeter wave's inherently stealthy attributes and low probability of intercept represent a unique and unmatched advantage over potential wireless technologies for overcoming critical communication challenges encountered in tactical defense environments. This included securing a strategic contact with a specialized defense contractor with whom we have subsequently continued to collaborate on a jointly developed system solution that leverages Peraso Inc.'s 60 gigahertz technology for a first-of-its-kind tactical defense application. This new mobile system solution is designed to provide heightened communications situational awareness to help safeguard military personnel and noncombatants such as medics and humanitarian responders operating in high-risk environments. As a reminder, we announced the delivery of initial production shipments of our advanced 60 gigahertz wireless solutions in support of this jointly developed solution in the June timeframe. Today, I'm pleased to report the recent and successful completion of initial field trials of this innovative solution. Upon the completion of additional trials, we expect the jointly developed solution with our lead customer to represent a significant long-term revenue opportunity for Peraso Inc. In addition to the successful initial field trial validating the robust capabilities of Peraso Inc.'s millimeter wave technology, we believe it represents and will serve as a foundation for further commercial expansion into the tactical defense communications market over the coming quarters. In fact, despite our lead customer's understandable sensitivity to being named or publishing additional details about our jointly developed solution, we are confident that this engagement is contributing to the increased dialogue and engagement that we are fielding within the tactical communications market. Jim Sullivan: Moving to slide six. Ron Glibbery: On our previous conference call, I addressed how we secured a production order to incorporate our 60 gigahertz technology in a customer's video system targeted for use in the educational market. Although the revenue contribution from these adjacent market opportunities is often smaller relative to our fixed wireless business, the purpose of my commentary around adjacent markets last quarter was to demonstrate the true versatility of Peraso Inc.'s millimeter wave technology. Like the future customers about potentially utilizing our 60 gigahertz technology in various markets, I wanted to circle back on today's call and dig a little deeper into adjacent markets. While each of these prospective discussions were focused on completely different end markets, they all shared a common use case, namely overcoming the challenges associated with processing massive amounts of high-bandwidth video for edge AI applications. A few natural examples of these edge AI applications would include last-mile delivery services, autonomous vehicles, and drones. Jim Sullivan: Stepping back for a second, what's really compelling is that the same inherent Ron Glibbery: high performance and advanced capabilities that millimeter wave brings to fixed wireless and tactical communications, the same attributes can be critical enablers for high-bandwidth video for edge AI. More specifically, 60 gigahertz millimeter wave readily supports multi-gigabit data rates for streaming or transferring high-resolution video. Additionally, ultra-low latency enables near-instantaneous data transfer for real-time applications. And lastly, 60 gigahertz millimeter wave is also inherently and exceptionally power efficient. This is especially critical for edge AI devices, many of which are battery-powered. High-resolution video at multi-gigabit data rates. We'll keep you posted with our progress over the coming quarters. Turning to slide seven. This is an updated snapshot showing the evolution of our engagements pipeline over roughly the past two years. The figures on this slide represent the different SKUs or distinct device models at each stage of engagement. And then at the bottom is the cumulative number of SKUs that customers have released to production. For those that may be familiar with previous versions of this slide, you might notice that the current number of funnel opportunities is smaller than in the past. Jim Sullivan: This is the result of a recently completed effort. Ron Glibbery: To narrow the total pool of identified opportunities down to those our team believes have the most commercial potential and highest probability of formal engagements. As such, you can consider the currently greater than 30 funnel opportunities shown at the top as qualified opportunities. We chose to do this for two reasons. First, it better reflects the number of realistic near to intermediate opportunities we are actively cultivating. And then second, it also reflects our heightened focus internally towards advancing the most attractive and highest probability opportunities into formal engagements with customers. Jim Sullivan: I can continue to like using this slide, Ron Glibbery: because it clearly demonstrates not only the progress that we made over time, but also provides near real-time insight into the literal pipeline of potential new incremental business that we are currently working on. In addition to briefly mentioning that all of the pictures shown here are actual customers and products, I want to call out a couple of key takeaways. First, we have nearly doubled the number of customer SKUs in production over the last two years, contributing to a meaningful diversification of our customer base as well as end market applications. Then lastly, this is the first time that Peraso Inc. has had a double-digit number of new customer devices in preproduction at any single point in time. This is a testament to our team's focus and dedication as these preproduction SKUs represent line of sight to new potential revenue streams once released to commercial production by customers. In closing, we had a great third quarter and we are pleased with the continued progress of our growth initiatives highlighted by the record revenue contribution of our millimeter wave product. In addition to capitalizing on the momentum of the fixed wireless access market, we are seeing rapidly expanding opportunities for our 60 gigahertz wireless solutions in new end markets and applications. All of which are poised to benefit from the high bandwidth, secure, and power-efficient connectivity offered by Peraso Inc.'s technology. Jim Sullivan: Look Ron Glibbery: of engagements into additional design-ins and production orders spanning both millimeter wave fixed wireless access as well as adjacent new market opportunities for our 60 gigahertz solutions. We believe that today we are well-positioned to deliver continued year-over-year growth from our millimeter wave products in the fourth quarter and into 2026. Coupled with this anticipated growth, we are remaining committed to disciplined expense management with the goal of driving steady improvement in our quarterly operating results. With that, I'll turn the call back over to Jim to review the financials and provide our revenue outlook for the fourth quarter. Jim Sullivan: Thank you, Ron. Turning now to the results for 2025. Total net revenue for the third quarter was $3.2 million, compared with $2.2 million for the prior quarter and $3.8 million for 2024. Product revenue from the comparable period in 2024 was primarily attributable to the reduction in shipments of memory IC products due to the previously announced end of life of the products. Specific to sales of millimeter wave products, revenues were $3 million in 2025, compared with $2.2 million in the prior quarter and $100,000 in 2024. Consolidated GAAP gross margin increased to 56.2% in the third quarter from 48.3% in the prior quarter and compared with 47% in the year-ago period. The increase in GAAP gross margin for 2025 from the prior comparable periods was primarily attributable to a more favorable revenue mix of millimeter wave products and solutions as well as shipments of inventory written down in prior periods. On a non-GAAP basis, gross margin for the third quarter was also 56.2%, compared with 48.3% in the prior quarter and compared with 61.7% in 2024, which was primarily attributable to shipments of memory IC products. GAAP operating expenses for 2025 were $3 million, full reversal for software license obligations, and $4.5 million in 2024. The decrease in operating expenses on a GAAP basis from the comparable period of 2024 was primarily attributable to reduced stock-based compensation expense and amortization expense related to intangible assets fully amortized in 2024. Non-GAAP operating expenses, which exclude stock-based compensation, were $2.9 million in the third quarter compared with $2.7 million in the prior quarter, which included a $200,000 accrual reversal for software license obligations, and $3.3 million in 2024. The decrease in operating expenses on a non-GAAP basis from the comparable period of 2024 was primarily due to containment initiatives. Ron Glibbery: Per share in the prior quarter and Jim Sullivan: compared with a net loss of $2.7 million or a loss of $0.98 per share in the same quarter a year ago. Ron Glibbery: And changes in fair value of warrant liabilities, for 2025 was $1.1 million or a loss of 15¢ per share. Jim Sullivan: This compared with a non-GAAP net loss of $1.7 million or a loss of $0.28 per share in the prior quarter and a net loss of $900,000 or a loss of 34¢ per share in the same quarter a year ago. Ron Glibbery: The weighted shares. The and fair value of warrant liabilities. Interest expense, depreciation and amortization, and the provision for income taxes. Was negative $1 million in 2025, compared with negative $1.6 million in the prior quarter and negative $800,000 in 2024. With regards to the balance sheet, as of 09/30/2025, the company had approximately $1.9 million of cash Jim Sullivan: compared with $1.8 million as of 06/30/2025. Ron Glibbery: The net positive change of approximately $100,000 in the company's cash balance for the third quarter included approximately $900,000 of net proceeds from a warrant inducement offering of certain series C warrants and approximately $700,000 of net proceeds from the company's at-the-market offering program Jim Sullivan: during the quarter. As of today's call, the company has approximately 8,980,000 shares of common stock Transaction. Ron Glibbery: As well as various potential sources of additional capital. Aside from confirming that the strategic review process continues to be ongoing, in coordination with the company's financial adviser, there are no related updates to share on today's call from what we have previously disclosed. Now turning to our outlook. Jim Sullivan: As Ron previously discussed, we are Ron Glibbery: process sixty gigahertz wireless solutions. Based on current backlog, the company expects total net revenue for 2025 to be in the range of $2.8 million to $3.1 million. This concludes our prepared remarks. We thank you for your time this afternoon. Jim Sullivan: Operator, please commence the Q&A Operator: A session. You may press 2 if you would like to remove your question from the queue. David Williams: Confident. But it sounds like you're making a lot of momentum here. So I guess maybe on my first question is on the new OEM that you announced or spoke to. Can you give a little more color on that? And it sounds like you're very optimistic about that. What does that opportunity look like and what does that mean, you think? Ron Glibbery: Well, it's the Jim Sullivan: and we feel the number two OEM in the space. Ron Glibbery: So they're very sensitive to confidentiality. So we can't really the specifics. But from our perspective, it's just to get another validation. You know, something I didn't mention on the call might sorry, Dave, that I should have said, these OEMs now, historically have been using, like, other and I won't say which competitors, but other competitors, who are who now we're beating out because we have better performance. That's exactly what happened in this case. So, you know, a couple of things are happening. Obviously, the inventory, you know, kind of correction is coming to an end. But I think more importantly, we're starting to see all of these, you know, OEMs who are using other chipset vendors come over to Peraso Inc., and I think we're gonna continue to see that over the coming quarters. David Williams: For you, obviously, it signals grand and that fixed wireless access, but does that specifically speak to, anything from your perspective in either positive or negative? Ron Glibbery: Well, broadly, it's positive. I mean, that you know, I think Starry made no bones about their use of millimeter waves, so I think it's another great validation of the technology. You know, you they'll have to infer whether they were using for us or not, but I would say, generally, it's been a very positive endorsement for Peraso Inc. But yeah. I mean, he's you know, Starry was a real advocate of and what's interesting actually is they're using it for MBUs. Multiple, dwelling units. So it's turning out millimeter wave is a really nice technology for satisfying that market as well. And we're still now, you know, in other jurisdictions. But we think the real kind of catalyst in that situation was support for MBUs, if you will. David Williams: Okay. Great. And just a couple more quick ones. But I wanted to ask about the timing customer production schedules. You talked about your funnel. You're obviously gaining some momentum there. There any way to kind of think about your customer's typical design cycles now that we're through this inventory? You get a sense they're coming to market more quickly, or will there still be an elongated, kind design cycle before we see them turn into production? Ron Glibbery: Yeah. I mean, I think it's case by case, but here's how I would look at it, Dave. Like, excuse me, in the fixed wireless space, you know, that's tried true, you know, well-oiled machine. In nine to twelve month period, you know, kind of from an engagement to kind of mass production. New opportunities like military, you know, you're looking at probably twelve to fifteen months, obviously, because there's more work that has to be done, more customization. So, you know, it really depends if it's an existing market or a new market. And, again, like, you know, we're seeing these opportunities now in Edge AI, and that may take again, twelve to fifteen months would be my estimate. But that's kind of the time frames that we're looking at normally. David Williams: Okay. Great. And then maybe just, Jim, on the balance sheet, it looks like, you've got inventory and the AR were both up, pretty sharply sequentially. And anything to speak to there, or should maybe how should we think about, your working capital going forward? Jim Sullivan: Yeah. No. The, you know, the AR was, you know, really a timing of functioning of Ron Glibbery: of sales. And I know, certainly, as of today, we've collected, I think, over 70% of it Jim Sullivan: and the remaining amount is Ron Glibbery: you know, one customer which has a little bit longer terms. Jim Sullivan: So nothing, you know, unusual in there. Just a function of the higher product revenues. And then from, you know, inventory, we've actually used a fair amount of the inventory for certain products. That we had on hand. So we've actually been building more inventory on certain products. Ron Glibbery: You know, to meet anticipated, you know, demand looking out for Q1 and Q2. So you know, the good news is we, know, continue to sell what we have and in those cases where we've depleted it, we've actually, you know, gone out and, built more wafers. So, you know, we're gonna continue to tightly manage the Jim Sullivan: you know, the working capital looking, you know, looking forward. Ron Glibbery: And, yeah, we're really kind of managing the bills based on, Jim Sullivan: you know, what we see in the backlog. Ron Glibbery: We want the orders placed, know, so we're not too you know, don't lean too far forward on inventory. David Williams: Alright. And just one last one if I can. Sorry to take up time here. But wanted to ask just on the gross margin given that you've some of that was written down. Previously, obviously, millimeter wave doing better. How should we think about kind of the balance on the gross margin as we kind of go forward from here? Jim Sullivan: You know, we're still trying to keep it in Ron Glibbery: you know, right around 50% range. It was a little bit higher here Jim Sullivan: the third quarter because of the you know, it certainly benefited from product mix. Ron Glibbery: You know, with the mix of customers. And then, as well, I've as you pointed out, the sales reserve, you know, inventory, which you know, we still have some of that we're gonna move through in the next few quarters. You know, 50 there was also a very small contribution from our memory products, you know, like 75 k or so revenue that Jim Sullivan: you know, also contributed as well as the, you know, the NRE revenue that we brought in. Ron Glibbery: On the millimeter wave side. You know, I think, you know, more realistic here in the short term is we're still kind of working through things. It's kind of in that you know, we're still targeting kind of that 50% you know, on the low side kind of Jim Sullivan: you know, high forties. But kind of right around 50 is where we're targeting. David Williams: Fantastic. Well, thanks, for all the time, and the best of luck on the quarter, gentlemen. Thank you. Ron Glibbery: Thanks a lot, David. Thanks for your time. Operator: Thank you. The next question is coming from Kevin Liu from K. Liu and Company. Kevin, your line is live. Kevin Liu: Hey, good afternoon, guys. Maybe just a follow on to some of the production schedules I mentioned earlier. You know, you have that double-digit number of customers in your pipeline that are in preproduction mode. Once they get to that late stage, how long does it typically take, before you start to see them to see them, in more meaningfully to your Oh, one yeah, once they get to preproduction, Kenneth. So preproduction is quite a long way. I mean, a lot of a lot of it's a very strong part of the pipeline process. Pipe cleaning process. Typically, that's about three months away, I think. One quarter away at the Once a customer gets to that point, they're well down the path. But, you know, the thing thing you know, it's like some more fundamental things, like, for example, regulatory approval. By then, they've normally got it. You know, they've got like, if there's any late parts in their, you know, kind of in their billing material. So there are a few things. But, once you see a customer at preproduction, it's about three months away. Kevin Liu: Sounds good. And I know you can only say so much about kind of that lead tactical defense customer you have, but you did mention some additional trials before they get to more meaningful long-term revenue for you guys. You know, how long do you expect some of these trials, to go before, you get to that? Ron Glibbery: Know? Yeah. They've got trials. I mean, there's trials coming up at Christmas. I think we'll see real production from these guys. I mean, what they're telling us now, it looks like you know, we'll start to see the real production for that in 2026. But, you know, obviously, they'll have to place the orders before then, but that's kind of the time we're working at, which, you know, net net is about that fifteen to kind of, like, call it five to six quarter, you know, lag from the time we engage to the time they're in full production. So pretty typical. But frankly speaking, now it's, you know, it's a very complex product. You know, but we put a lot of effort into it. But, I mean, just to give you a, like, a quick example. I mean, our power consumption was cut down, like, you know, 20 times from our standard power consumption. So you know, when we see these new opportunities once in a while, we have to make a contribution to get that, you know, get that product to market as well. Case it took some time, but that'll be about a five to six quarter lag time from the time we engage. But I you know, we're seeing for that customer 2026. Kevin Liu: Got it. And what's some of the adjacent market opportunities, you pointed out and these customers evaluating your products, Can you talk a little bit about kind of the pipeline of NRE opportunities and how much, if any, sort of additional research or customization might need to occur, to win these customers? Ron Glibbery: Well, it turns out that this there's kind of two buckets. And just to clarify, I mean, I tried to clarify on the call, Kevin, but, you know, really what's interesting about these opportunities is historically, you know, we're very good at doing video, but this is really let's take a VR headset. You know, that was video going to the VR headset. The change on the examples that we gave are is, like, cameras within the device, like, either in a self-driving car or maybe in like, AR glasses, that's video coming out of the device. And it turns out there's no good way to do that, honestly, today. Except for Peraso Inc. So it turns out there's two different buckets. One bucket is with our existing chips. Again, still requires some NRE to get those things to market, but, you know, they want to move very, very quickly. The other bucket is actually, you know, customization of chips. That'll take longer, but kind of a much bigger deal. So I would say that those are the two categories we're looking at in terms of NREs. Of with our existing chip, but also almost more exciting. Well, not as more exciting, but as exciting, is the opportunity to do, you know, silicon spins for these specific applications as well. We wouldn't do it unless it was a big deal. Kevin Liu: Yep. Understood. And then just lastly, maybe for Jim. For your Q4 guidance, curious how much more memory revenue there is from that deal you guys announced last quarter, and if, because of that higher margin revenue, we should assume kind of gross margin increases on a sequential basis? Ron Glibbery: Yeah. There's still, you know, we had press release Jim Sullivan: those memory orders Ron Glibbery: a couple weeks back. There's still about, 375 k memory shipments. Jim Sullivan: In this current fourth quarter. David Williams: Which will be pretty high margin. Ron Glibbery: You know, we'll definitely, you know, definitely need some improvement there. Jim Sullivan: The memory benefit. Coming in, you know, kind of mid-fifties. Kevin Liu: Alright. Sounds good. I'll leave it there. Congrats again on the quarter, and thanks for taking the questions. Ron Glibbery: Thanks a lot, Kevin. Operator: Thank you. And there were no other questions at this time. That does conclude today's Q&A session. And this also does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Ron Glibbery: Thank you.
Operator: All sites on hold. We do appreciate your patience in holding and ask that you please continue to stand by. We should be getting started in approximately two more minutes. Thanks again, everyone. Please stand by. We're about to begin. Good afternoon, everyone. Welcome to the Arcturus Therapeutics Third Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. Also, today's call is being recorded. And if you should need any operator assistance during the call today, please press 0 at any time. Now at this time, I'd like to turn things over to Neda Safarzadeh, Vice President, Head of Investor Relations, Public Relations, and Marketing. Please go ahead, ma'am. Neda Safarzadeh: Thank you, operator. Good afternoon, and welcome to Arcturus Therapeutics Quarterly Financial Update and Pipeline Progress Call. Today's call will be led by Joseph E. Payne, our President and CEO, and Andrew H. Sassine, our CFO. Dr. Padmanabh Chivukula, our CSO and COO, will join them for the Q&A session. Before we begin, I would like to remind everyone that the statements made during this call regarding matters that are not historical facts are forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties, and assumptions that may cause actual results, performance, and achievements to differ materially from those expressed or implied by the statement. Please see the forward-looking statement disclaimer on the company's press release issued earlier today, as well as the risk factors section in our most recent Form 10-K and in subsequent filings with the SEC. In addition, any forward-looking statements represent our views only as of the date such statements are made. Arcturus specifically disclaims any obligation to update such statements. And with that, I will now turn the call over to Joseph E. Payne. Joseph E. Payne: Thank you, Neda. It's good to be with you again, everybody. I will begin today with an update on our ARCT032 program. This is our messenger RNA therapeutic candidate for cystic fibrosis, or CF. ARCT032 utilizes Arcturus' LUNAR lipid-mediated aerosolized platform to deliver CFTR messenger RNA to the lungs. Expression of a functional copy of the CFTR mRNA in the lungs of people with CF has the potential to restore CFTR activity and mitigate the downstream effects that cause progressive lung disease. In October, the company announced interim data from its ongoing Phase II clinical trial of ARCT032. Treatment with inhaled ten milligram doses daily over twenty-eight days in six class one CF adults was generally safe and well tolerated. A protocol pre-specified analysis of high-resolution computed tomography lung scans, or HRCT lung scans, using FDA 510(k) cleared AI technology revealed reductions in mucus burden in four of the six class one CF participants in our second cohort. The ongoing third cohort is enrolling up to six subjects to assess the safety and tolerability of the fifteen milligram dose daily over twenty-eight days and the impact on the efficacy endpoints. The company intends to evaluate daily dosing of ARCT032 over a twelve-week duration in up to 20 CF participants. Safety and preliminary efficacy data will be collected in this study, which is planned to begin in 2026 after the third cohort top-line data is understood. Joseph E. Payne: Two weeks ago, I, along with our team, had the privilege of attending the North American Cystic Fibrosis Conference in Seattle. It was great to meet with the CF Foundation leadership team and share our enthusiasm for the class one population based on our encouraging data. I met with the physicians and principal investigators involved in our ongoing clinical trials and was very pleased to hear their anecdotes, positivity, and encouragement. I enjoyed meeting with multiple CT scan experts and felt their passion as they described the present and future importance of HRCT imaging data in lung disease trials. I affirmed my appreciation of the significant unmet medical need represented by class one CF and other CFTR modulator nonresponders here in the United States. There is an even higher prevalence of people with class one CF in countries outside the US, especially in Europe, India, the Middle East, and Israel. All in all, the conversations with the CF Foundation, people with class one CF, their physicians, investigators, CT scan experts, and global CF representatives reinforced Arcturus' commitment to advance ARCT032 further into development. The safety and tolerability profile data, along with the before and after treatment HRCT scan images showing mucus plug reduction, were well received by the CF community. We look forward to collecting additional and potentially meaningful clinical data in 2026 for our CF program. Moving on to the ARCT810 program, this is our messenger RNA therapeutic candidate for ornithine transcarbamylase deficiency, or OTC deficiency. With positive interim phase two data in hand, the company is diligently preparing for meetings with regulatory agencies in 2026 to discuss pivotal trial strategy for both pediatric and adult populations. Understanding what the FDA requires for ARCT810's path to approval is the next key milestone for this program. We aim to provide more details pertaining to these regulatory alignment meetings in 2026. I will now provide regulatory updates for our partnered COVID-19 vaccine program, also known as Costave. Our Japanese partner, Meiji Seika Pharma, has launched the two-dose vial of Costave updated for the JN1 variant XE in Japan. This is the first time the two-dose vial presentation is being distributed in Japan. Meiji received approval from the Pharmaceuticals and Medical Devices Agency, or PMDA, in August. Also in August, the company published the phase three manuscript on the immunogenicity and safety of our self-amplifying mRNA COVID-19 vaccine ARCT2303. The study shows that ARCT2303 induces a robust immune response against SARS-CoV-2 and can be co-administered with licensed influenza in adults with no impact on safety or immunogenicity of either vaccine. The results were published in eClinical Medicine. Moving on to ARCT2304, this is our next-gen STAR vaccine candidate for pandemic A/H5N1 influenza virus. This is the program contracted with and funded in part by BARDA. We conducted a Phase I study in 132 young adults and 80 older adults. ARCT2304 induced a humoral immune response after a single dose in all tested dose levels. The administration of a second dose of ARCT2304 further increased immune responses. ARCT2304 at dose levels of 1.5, 5, and 12 micrograms induced a hemagglutinin-specific immune response similar to or higher than the MF59 adjuvanted pandemic vaccine in both young and older adults. No safety or tolerability concerns were raised from available data. These data further validate our STAR SA mRNA platform. The study results support the further development of the self-amplifying mRNA pandemic influenza vaccine candidate. With that, I'll now pass the call to Andy. Andrew H. Sassine: Thank you, Joe, and good afternoon, everyone. The press release issued earlier today includes financial statements for 2025 and provides a summary and analysis of year-over-year performance. Please also reference our most recent Form 10-Q for more details on the financial performance. The Costave BLA filing has been delayed indefinitely due to the sudden regulatory changes by the FDA. Combined with uncertain commercial visibility for Costave in the United States, we have decided to reduce additional expenses to extend the runway for the cystic fibrosis and OTC program. The company expects continued support from CSL to commercialize Costave in Asia and Europe and will provide additional detail on our year-end call in March. Revenues for the three and nine months ended 09/30/2025 were $17.2 million and $74.8 million, respectively, representing a decrease of $24.5 million and $54.7 million compared to the same period in 2024. These declines were primarily driven by reduced revenues from the CSL collaboration reflecting lower supply agreement activity and lower amortization of the upfront payment as Costave became a commercial product. Total operating expenses for the three months ended September 30, 2025, were $33.7 million compared with $52.4 million for the three months ended 09/30/2024. Total operating expenses for the nine months ended 09/30/2025 were $119.8 million compared with $191.8 million in the prior year. Andrew H. Sassine: R&D expenses were $23.3 million for the three months ended 09/30/2025 compared with $39.1 million in the prior year. The decrease was primarily driven by lower manufacturing costs for the COVID, flu, and CF program, as well as reduced clinical trial expenses for COVID and cystic fibrosis. Lower payroll and employee benefits further contributed to the decrease. R&D expenses were $87.7 million for the nine months ended 09/30/2025, compared with $151.4 million in the prior year. The decrease was primarily driven by lower manufacturing and clinical costs related to the COVID program reflecting the program's transition from a development program to the commercial phase. Additional decreases were attributable to lower manufacturing costs for the cystic fibrosis and flu program. These reductions were partially offset by higher clinical costs for Phase II of the cystic fibrosis program. Payroll and benefits expenses also decreased primarily due to lower stock-based compensation expense. G&A expenses were $10.4 million and $32.1 million for the three and nine months ended 09/30/2025, compared with $13.3 million and $40.4 million in the comparable period last year. The decreases in both periods were primarily due to reduced share-based compensation expense as well as reduced payroll and benefits. We expect general and administrative expenses to continue to decrease slightly in fiscal year 2026. For the three months ended September 30, 2025, Arcturus reported a net loss of approximately $13.5 million or $0.49 per diluted share, compared with a net loss of $6.9 million or $0.26 per diluted share in the three months ended 09/30/2024. Cash, cash equivalents, and restricted cash were $237.3 million as of 09/30/2025 and $293.9 million on 12/31/2024. Based on the additional planned cost reductions in Q4 and the delay in the phase three cystic fibrosis clinical trial commencement, the cash runway remains extended into 2028. More details regarding our cost reduction and runway will be provided on our year-end call in March. In summary, the company remains in a strong financial position and has the cash runway needed to achieve multiple near-term value-creating milestones for both therapeutic programs. I will now pass the call back to Joe. Joseph E. Payne: Arcturus continues to make progress across our mRNA therapeutics and vaccine pipeline. We look forward to initiating the planned twelve-week CF study for ARCT032 in 2026 and engaging regulatory agencies regarding the pivotal trial designs for ARCT810. With that, let's turn the time over to the operator for questions. Operator: Thank you, Mr. Payne. Ladies and gentlemen, at this time, if you do have any questions, please press 1. And if you find your question has been addressed, you can always remove yourself from the queue by pressing 2. Again, 1 for questions. We'll go first this afternoon to Yasmeen Rahimi of Piper Sandler. Yasmeen Rahimi: Good afternoon, team. Thank you for the update. I guess the first question is, given this data, have you been able to do some PKPD modeling to help us understand the sort of expectations as you are initiating the third dose cohort and what do you hope to gain and how we should be thinking about that? That's sort of question one. And then question two is, as you are preparing for the meeting with the agency to discuss your OTC pivotal program, what are sort of some of the optionalities of sort of base case, best case, both in development for the pediatric population as well as development in the adult population. Joseph E. Payne: Thank you so much, and I'll jump back in the queue. Hey. Thanks, Yasmeen. It's good to hear from you. With respect to PKPD modeling, the third cohort, which is being evaluated at a dose level of fifteen milligrams, is being conducted in a very similar manner to the first two cohorts at five and ten milligrams respectively. So all of the activities with respect to data collection are going to be in line with the first two cohorts. With respect to the fourth cohort, or, I guess, you would say this planned twelve-week safety and preliminary efficacy study, this is an expanded study. So in addition, from extending the duration of the study from four weeks to twelve weeks, we're also increasing the population up to 20. But a large amount of the data that's being collected is very similar to what we're doing in the first three cohorts. There are some noted differences that we're intending to conduct this trial under. First of all, we're going to be adding an extra screening visit to establish a more stable FEV1 baseline. We're also going to be, of course, looking at the high-res CT scan before the study, but at twelve weeks this time instead of at four weeks. So we'll allow those two additional months to occur before we take an imaging scan. We're also going to be looking at adding questions to the questionnaire. There's what's called an EQ-5D-5L general health questionnaire where we're going to be looking at mobility and self-care and usual activities, pain and discomfort, anxiety, depression. We're going to be adding this general health questionnaire to the standard validated CFQR questionnaire that people are familiar with in CF. But with respect to PK and PD markers, it'll be very similar to the first three cohorts. With respect to your second question, you were asking about OTC. We're looking at two separate populations. The adult population and then the more severe disease in children. And these will likely require two separate conversations with regulatory agencies to gain alignment on a pivotal study. The adults will likely be involving glutamine as a biomarker because that's where we captured success already, and we've learned that we've collected some positive data already in our trials to date with respect to glutamine in adults. With respect to children that are suffering from more severe disease, the focus will be more on ammonia itself. And getting alignment with the FDA on that. Can we do a single-arm study, for example, in children to capture approval? But these sorts of conversations are separate and distinct enough to have separate meetings to address them is our expectation. The best-case scenario, of course, is that we gain alignment with both adults and pediatrics, and that would be very exciting for this program to have line of sight in a broader population to get this approved as soon as possible. And any different scenarios would be if one or both of these were approved to proceed, for example. But, anyway, thanks for your question. Yasmeen Rahimi: Thanks, Joe. Operator: Thank you. We'll go next now to Myles Minter of William Blair. Jake Roberge: Hi. This is Jake on for Myles. Thanks for taking my question. Just reflecting back on the imaging data you showed for CF, do you expect that the improvements you see in mucus over time, especially in that twelve-week study, will be bronchial or alveolar specific as you sort of showed in that initial dataset? And is that what you saw in the mucus burden from the ferret model preclinically? And then just wanted to also check in on Costave and see if you've updated your guidance as to when you're going to start realizing revenue from that program. Joseph E. Payne: Thanks. Okay. So first the first question is, with respect to mucus plug reduction, one of the key observations that we've observed and is familiar with the field is mucus plugs form in the smaller airways. Right? So as you resolve that, you measure smaller changes in airway improvement. FEV, on the other hand, is mainly a measure of larger airways. So they're complementary, but they do not measure the same thing. And given enough time, we believe that both of these will improve. And so that's one of the purposes of the twelve-week study. Before I move on to the Costave commercial question, did I address your question, Jake? Jake Roberge: I guess I wanted to know whether you expect those mucus reductions to occur across the entirety of the lung or whether a specific bronchial or specific alveoli are going to be resolved given that's you sort of boxed specific bronchioles in your presentation. Yeah. Denoting that because potentially LNPs are directed there primarily, that's where you're going to see an effect. I just wanted to know that and whether you also saw sort of bronchial specific reductions in the lungs of the ferrets when you dosed those. Joseph E. Payne: No. Great question. So first of all, with respect to the data that we collected in the images, you do see in the lower register the lower lobes that they are first to resolve and show a reduction of mucus plugs. And that's simply because this is an inhaled therapeutic. We've talked to now several pulmonologists that view this as a confirmation that we see first the lower register, the lower lobes being addressed simply because this is an inhaled therapeutic. We expect over time that the effect will continue to improve, and that's one of the primary purposes of the twelve-week study is through an extended duration that will continue to address not only the lower lobes but the upper lobes as well. With respect to your question about ferrets, this is a different lung type entirely. They're not a vertical animal. So gravity is not and this was an injected process. This wasn't a traditional inhaled therapeutic like the humans experience. So we didn't expect to see a similar dataset. And we didn't do CT scans in these ferrets as well. We analyzed the data separately through mucociliary clearance. Now with respect to the second question on Costave guidance, Andy, do you want to provide, you know, maybe an answer there? Andrew H. Sassine: Yeah. Thank you for the question. Typically, we do not provide guidance with respect to, you know, Costave commercial revenue. And as of the last comment that came in the press release that came from Meiji, they did order about a million one doses for the fourth quarter. And that was delivered to them in October, November. So they're in the process of selling those doses in Japan. We don't really have an update subsequent to that. But probably look for an update sometime at the end of the year call in next March. Hope that helps. Jake Roberge: Thank you very much. Joseph E. Payne: Thanks, Jake. Operator: We'll go next now to Seamus Fernandez with Guggenheim. Evan Wang: Hi, guys. Thanks for the question. This is Evan Wang on for Seamus. Just two questions on cystic fibrosis. With the upcoming fifteen mg dose, can you just talk through about the metrics that will drive the go/no-go decision? It's ten or fifteen mg in the subsequent phase two. Whether it's FEV1, CT scan, or both, and what specifically you might be looking for. And then with the subsequent twelve-week study, curious what you define as success then with longer treatment in terms of either FEV1 or high-res CT we think about data relative to the interim data we've shown so far? Thanks. Joseph E. Payne: Yeah. Thanks, Evan. With respect to the fifteen milligram cohort, we want to gain additional confidence in the dose response. If we did not see any mucus plug reduction at five milligrams, yet we saw four out of six in the second cohort at ten milligrams exhibit mucus plug reduction. So one of the things we're looking for at fifteen milligrams is is there a continued or elevated response, and is that a dose response? But the most important dataset that we're collecting from this third cohort is really safety and tolerability. If it's well tolerated, then I think we have our dose that we will select for this twelve-week study coming up. The first half of next year. With respect to what we would define as success is if we see continued or further reduction of mucus plugs and that translates into additional benefits, that can be either imaged or experienced in terms of lung function improvements, then that would be fantastic. Given that this is a first-in-line therapy for a considerable unmet medical need in class one subjects and modulator nonresponders. So anything positive for FEV would be viewed positively. If we see an improvement with extended duration or elevated dosing in this twelve-week study with respect to the mucus plug reduction and mucus burden being decreased, that would be also very promising to encourage the board and our company to advance this into a phase three trial. Evan Wang: Thanks. And if I could ask one follow-up. Just curious in terms of the CT scan when you get bugs, what mentions you as clinically meaningful and what in terms of some of the regulatory discussions you've had, especially as they approach to include CT scan as an exploratory endpoint. What they might view as potentially approvable endpoint or whether focus would be on FEV1. Thanks. Joseph E. Payne: Well, we'll be the first company in CF to establish that. That's one of the key tasks at hand here as a group. As we share this data with the FDA, we need to determine what's clinically meaningful. What do we know now is that the more optimized mature modulators out there after a year of treatment, you can see near complete resolution of mucus plugs. And at an interim time point, you'll see not a complete resolution of mucus plugs. Unfortunately, we're the first company in therapeutic to evaluate CT scan measurements after only twenty-eight days of treatment. So the fact that we saw some of these subjects responding 30, 40% mucus reduction after just twenty-eight days is encouraging. But the question you asked is what is meaningful? I think we're already in that phase of a meaningful reduction. We just now need to extend treatment to see if that translates into other benefits and lung function improvements over an extended term. But the specific number, we're not prepared to share right now. No one is. That is something that we can discuss at a later time with the agency. Evan Wang: Great. Thank you. Operator: We'll go next now to Whitney Ijem with Canaccord. Angela Qian: Hey, Whitney. Hi. This is Angela on for Whitney. Thank you for taking our questions. So you're planning to start the twelve-week study starting in the first half of next year. Any idea when we should expect to see data from the fifteen milligram cohort? And any thoughts on what endpoints you would show for the fifteen milligrams? Joseph E. Payne: Well, for the fifteen milligram cohort, if you're referring to the third cohort, that's the twenty-eight day study. It's the same data being collected under the same protocol for the first two cohorts, and that data is expected likely in the first quarter of next year. And as soon as that top-line data is understood, we will be able to quickly then transition to the twelve-week study and focus on that. But the parameters and the efficacy endpoints and safety and tolerability investigations are all identical to what we did for the first two cohorts for the fifteen milligram third cohort. Did I address your question? Thanks, Angela. Angela Qian: Yeah. Maybe just one quick follow-up. Any chance you would show the analyses of the CT scan for patients who might not have responded and seen the decrease in mucus plugs, or do you expect it to be similar? Joseph E. Payne: Well, there's going to be a time for us to share the complete data package for the first three cohorts. Right? We do have a five, ten, and fifteen milligram cohort. I'm sure that'll be a nice presentation or publication at some point. We haven't determined exactly when, but that would be an appropriate time to share all the data we've collected. Determine if there's a dose response and provide those details. I've already shared on this call already that at five milligrams, we did not see any mucus plug reduction. There was none observed. And at ten milligrams, we saw four out of six. So the fifteen milligram cohort, we'll see if that recapitulates or gets better, and we'll have the opportunity to see if there's a dose response at that time. Angela Qian: Great. Thank you, guys. Joseph E. Payne: Thanks, Angela. Operator: We'll go next now to Yanan Zhu with Wells Fargo. Kwan Kim: Hi. Thanks for taking our question. This is Kwan on for Yanan. So our question is also around CF. Are wondering, have you seen any data from fifteen mg? And if so, any updates on the safety? And will you be planning to evaluate any dose higher than that? And I have a quick follow-up. Thank you. Joseph E. Payne: Yeah. Fifteen milligram will be the highest dose that we're evaluating. We intend to choose either ten or fifteen milligrams or something in between perhaps for the twelve-week study next year. When the fifteen milligram cohort data is completed in the first quarter of next year, that's when we'll be able to make that decision. In terms of when we share data around that third cohort, that hasn't been guided. We'll first collect it and then make a determination how and when to share it. Did I address your question, Kwan? Kwan Kim: Yes. Thank you for that. Yeah. And we're wondering, do you need to show a clear correlation between mucus or plaque reduction and FEV1? Wondering, hypothetically, you only, for example, only mucus or plaque reduction data is positive, and FEV1 is not. Would that affect how you view the program and how you make the go/no-go decision? Joseph E. Payne: I had great conversations with a lot of the experts here at the NACFC in Seattle last month. And, yes, CT imaging has been a primary endpoint previously. However, that's not our present expectation. The FDA may not yet consider CT imaging as a surrogate endpoint at this time. But I think it's safe to assume that it will be a supportive endpoint for, like, a phase three or a pivotal trial. We first have to collect the data from the twelve-week study and then share it with the FDA and have that conversation. You know, if the data's convincing, yes, we'll look at a primary or a co-primary endpoint that involves CT scan. But the present expectation is that CT imaging will be a supportive endpoint, very similar to what ORKAMBI had to go through, where they had their primary being FEV, but the supportive data played a key role in getting that approved as the first modulator. One of the early modulators. Kwan Kim: Got it. Thank you so much. Joseph E. Payne: Yeah. Thank you. Operator: Thank you. We'll go next now to Yigal Nochomovitz of Citi. Joohwan Kim: Hi. This is Joohwan Kim on for Yigal. Thanks for taking our question. Regarding the extra screening visit that you had mentioned for the twelve-week study, can you just provide additional clarity on whether you're planning on averaging the screening visits together to get a more reliable baseline? And also, are you planning on just doing the one extra measurement? And I guess why not multiple? Joseph E. Payne: And why not do multiple? It's a great question. We haven't had that conversation with the FDA yet. But our present thinking around designing the trial is not only increasing the duration from four to twelve weeks and increasing the number of participants from six to twenty, but it's also strengthening the baseline. And whether that's an additional FEV pre-visit or a second one, and do we average screening and two FEV pretreatments or not, that conversation will be one of the key questions that we'll have with the FDA. If once we have aligned on that, I can provide more clarity. But the present expectation is just an additional pretreatment value that can be averaged and strengthening the baseline twofold. Joohwan Kim: Got it. Thank you. And if I could just follow up more, I believe you had mentioned previously that the quality of life assessment for the phase two for the CFQRS was also variable. And so you had decided not to share that. But I guess is there a strategy in mind to reduce the variability there so you could better interpret meeting in place in the future? Or is the EQ-5D-5L questionnaire just less subject to variability? Joseph E. Payne: Yeah. So just to catch everybody up, the validated questionnaire that's used in the modulator space is well validated and quite comprehensive. And it addresses multiple organs in the body. Our CFQR is truncated and focused on just the lungs because it's an inhaled therapeutic. So there are questions in the pulmonary section. And because of that and for other reasons and because of the smallness of the nature of these n of six cohorts, the variability is just, you know, these questionnaires are more powerful in larger phase three studies, but it's still variable. To address that in our upcoming twelve-week study, we do intend to add additional general health questionnaire questions, what's called an EQ-5D. And I touched on this earlier, but we look at mobility and self-care, and pain, discomfort, anxiety, depression, and this general health questionnaire will be coupled with this truncated CFQR that's more validated. Just to add weight to the questionnaire, and we'll see what we can glean from that. And to what extent we modify it or keep it for the phase three trial will also be helpful in this upcoming twelve-week study. Joohwan Kim: Got it. Thank you very much. Appreciate it. Joseph E. Payne: Yes. Thanks, Joohwan. Operator: Thank you. We'll go next now to Thomas Eugene Shrader with BTIG. Thomas Eugene Shrader: Hi. Good afternoon. Thanks for taking the questions. I'm wondering in the next CF cohort, there's any interest or thoughts about adding slightly less impacted patients where the lungs might be a little cleaner and delivery might be easier? And then I appreciate you're at arm's length on Costave, but can you comment are there ongoing discussions, or has the FDA kind of made a statement and there's no room to discuss anything? Thanks for the answers. Joseph E. Payne: Yeah. Cool. There's definitely room to discuss. They, of course, are interested in this first-in-line therapy for such a huge unmet medical need in the CF space. So there is still flexibility to discuss. With respect to your first question about less impacted individuals, we did it you'd have to go to our website, but we labeled the cohort patient five. Cohort two patient five. This is someone who had more advanced disease and much more numerous plugs and even larger plugs. And we've we just got, you know, considerable positive feedback from this subject even though their mucus plug reduction was only 9%. And because the mucus of the plugs that were reduced were meaningful, were larger. So we found we had just, you know, success, I would call it, with one particular more advanced subject. So the short answer to your question is no. We're not refining the list of who's going to be getting the drug for this upcoming twelve-week study because we found success in less advanced and more advanced disease. Thomas Eugene Shrader: Okay. Great. Thank you. Operator: Thank you. We'll go next now to Yale Jen with Laidlaw and Company. Yale Jen: Thanks for taking the questions. I apologize I missed this. Earlier part of the conversation. Just a quick question about the CSL. In terms of the I understand the initial contract deal with them just sort of full target infectious disease area. Yeah. Treatments and virus treatments. So I wonder any progress on those two other than the influenza and COVID? Any comments on that? And thanks. Joseph E. Payne: Yeah. It's a great question. CSL and Securis are considering a demerging process, and they've publicly disclosed that. The timing of that remains uncertain. But if CSL and Securis demerge, then Securis will be focused on the vaccine enterprise going forward, especially the flu enterprise. So the future of the program and the collaboration will come through that arm of the company. As of right now, you know, COVID is, of course, still very active. Any guidance on the flu program will come from them going forward and likely the Securis branch if they demerge. With respect to any new programs, we have communicated in the past that those are being considered or active in certain degrees. But we haven't disclosed any of those details that there'll be the right time and place to do it, and it'll likely be coinciding with any updates we hear from a CSL Securis demerger. Yale Jen: Okay. Great. Thanks a lot. Appreciate it. Operator: Thank you. And we'll take our next question now from Lili Nsongo of Leerink. Lili Nsongo: Hi. Two questions. First, on the cystic fibrosis program. The program the study was initiated in January, about nine patients were dosed by September. You had mentioned initially that the three additional patients for cohort three would be dosed by year-end. How should we think about the enrollment pace? Is three patients a quarter what we should expect moving forward? And does that also apply going into the twelve-week study? Joseph E. Payne: Yeah. We've expanded the third cohort from three. At our last quarterly call, we indicated that we or estimated that we would have three subjects in our third cohort. We've now communicated that that could be expanded up to six. And that would take us into the first quarter of next year. With respect to did I address that question? Lili Nsongo: I mean, this wasn't a question, but based on that pattern of having about three patients enrolled per quarter, should we also expect the pace of enrollment for the 20 patients for the twelve-week study to be similar? Joseph E. Payne: Yeah. No. We're looking to add a considerable amount of sites in different countries as well to facilitate enrollment for this twelve-week study. I alluded to this previously, but when we were at the Seattle conference, or the NACFC, we got to meet with a variety of investigators globally, not just limited to the US. So the percentage and prevalence of class one and modulator nonresponders in other countries is extraordinary and untapped. So in addition to the dozen or so sites that we have open here in the US, I believe that we'll be adding additional sites outside of the US. And that is intended to accelerate the enrollment pace to support the n of 20 rather than the n of six for this upcoming twelve-week study. So the short answer to your question is that we expect the enrollment rate to increase with these additional sites and additional access to class one and modulator nonresponders. To what extent that increases, we'll be the first to find out. Lili Nsongo: And is there a global extension and the additional is that captured in the current cash runway guidance? Joseph E. Payne: Yes. But, Andy, you can confirm that that's captured in the runway guidance. Correct? Andrew H. Sassine: Yep. That is all captured in the runway guidance. And the good news is that we had produced additional material for the CF clinical trials and consequently, the additional cost of expanding the trial is pretty much de minimis. So we're in very good shape there financially. Lili Nsongo: Thank you. Second question regarding the OTC program. So can you give us an age range in terms of what your pediatric population target would be? Because the data we've seen so far is in 12 and older, and I was wondering what would it take to go to the younger patient, or would you solely focus on pediatric patients that are 12 to, you know, the 12 to 18? Joseph E. Payne: That's one of the agenda-related questions that we expect for these type C meetings with the regulatory agency, with pertaining to pediatrics, is what the cutoff age is. It's whether it's five years old or eight years old is going to be determined and finalized as part of that meeting. And then adults as well, is it going to be 12 and above or 16 and above, that'll be that's one of the purposes of these meetings to get aligned with the pivotal trial protocol. And that clarity will be provided in the first half of next year as our anticipation. Lili Nsongo: So you expect to be able to go into pivotal in pediatric patients without an additional study needed to bridge between the data with teens? Joseph E. Payne: Well, if we can accomplish that, then that would be fantastic. But, yes, that's the intent. To what extent we can accomplish that, we'll find out. And all I know is there's a much more considerable unmet medical need in these young, especially X-linked males or boys. And the younger they are, the more severe the disease. And the less their requisite or requirement that we have to track glutamine as a primary driver like it is in the adults. Adults is likely going to be more closely associated with glutamine as a biomarker. So they're two separate discussions. Lili Nsongo: Thank you. Joseph E. Payne: Thank you. Operator: Thank you. And, Mr. Payne, it appears we have no further questions this afternoon. Sir, I'd like to turn the conference back to you for any closing comments. Joseph E. Payne: Hey, thanks, everyone, for participating on the call. And if there are remaining questions or by those that weren't able to pose them, don't hesitate to reach out to our team. We'll get back to you as soon as we can. Thanks again. Operator: Thank you very much, Mr. Payne. Again, ladies and gentlemen, that will conclude the Arcturus Therapeutics third quarter earnings conference call. Again, thanks so much for joining us, everyone. And we wish you all a great afternoon. Goodbye.
Operator: Alright, everyone, and welcome, everyone. And thank you for joining us to discuss Insight Molecular Diagnostics third quarter 2025 results. If you have not seen today's shareholder letter, please visit Insight Molecular Diagnostics Investor Relations page at investors.imdxinc.com. Today's prepared remarks build upon the information already shared in this robust letter. Joining us today are Insight Molecular Diagnostics President and CEO, Josh Riggs, Chief Science Officer, Ekke Schutz, and CFO, Andrea James. We also have our analysts with us as panelists. After our prepared remarks, our analysts may ask questions. Before turning the call over to Josh Riggs, I'd like to go over our safe harbor. The company will make projections and forward statements regarding future events. Any statements that are not historical facts are forward-looking statements. These statements are made pursuant to within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. We encourage you to review the company's SEC filings, including the company's most recent Form 10-Ks and subsequent Forms 10-Q, which identify risks and uncertainties that may cause future actual results or events to differ materially. Please note that the forward-looking statements made during today's call speak only to the date they are made, and Insight Molecular Diagnostics undertakes no obligation to update them. And with that, I would like to now turn the call over to Josh Riggs. Josh Riggs: Thanks, Gabby, and welcome, everybody. If you've had a chance to look at our shareholder letter, you'll have seen that our momentum is building. I'd like to talk a little bit about how we got here before shifting to how we are positioning ourselves for success in 2026. A couple of years ago, we set out to change how transplant patients are managed. The idea was and is simple. Transplant centers should have the tools on-site to monitor their patients. Intuitively, that makes a lot of sense. Each year, hundreds of thousands of tests, hundreds of millions in payments go out for post-transplant monitoring. As of today, not one of those tests is performed at a transplant center, and not $1 of reimbursement accrues to these centers' benefit. In 2026, with the expected FDA authorization of GraftAssure DX, this is going to change. Last summer, we started a pilot program that put a research version of the assay, the same design we were taking to the FDA, in the hands of researchers around the world. We wanted to do three things. One, get feedback on the workflow so that we could get ideas on what needed to be improved. Two, get technical data on the performance of the assay so we could have a sense of how robust our design was in the field. And three, engage with clinician researchers so we could get a look into what clinical demand might be for a regulated product. Feedback from transplant centers' labs helped us optimize our test workflow from two steps down to one step. That improves our turnaround time and ease of use, which means faster results with less labor for our customers. As you probably recall, our PCR-based technology is already much simpler and faster than sequencing-based technology used by major centralized labs. With our one-step workflow, we have further increased these advantages. Just last month, we published a white paper that showed that our performance across multiple centers from Singapore to Switzerland had exceeded expectations. You can find this white paper on our website. This gives us high confidence that the assay will perform well in the very rigorous FDA process. Across the board, in the U.S. and Europe, we are feeling pent-up demand for in-house testing. Because we are a kit-first company, we are seen as a partner in patient management, and institutions are eager to support our mission of broadening access. I should point out that just getting through the FDA is not enough to give us the market. The expectation is that clinicians will want to familiarize themselves with GraftAssure and compare it to legacy technology before making a switch. This could look like head-to-head comparison or interacting through the registry program we recently announced. Case in point, earlier this year, we saw data come out of Heidelberg, a research transplant center in Germany, where they compared the performance of our test to another commercially available RUO assay that is on the market in Europe. This data showed statistical equivalence on the relative measure of ddCF DNA between the two tests. It's great because the market today is largely dominated by the relative measurement method. Showing that we get to the same answer with an easier-to-use technology reduces the barriers to adoption. Recently, we've also seen preliminary results from a 100-plus patient study at a major center here in the U.S. that is a direct head-to-head against a leading U.S. centralized lab test. We and the researchers are very happy with those results. Showing that you can get equivalent to better results with on-site technology is critical to our success. There are more of these types of studies ongoing, and we expect that data will start coming out in the new year that shows clearly that GraftAssure is reliable and that it compares well to legacy technology. The feedback we get from transplant centers, primarily in the U.S., is that they are optimistic about being able to bring testing in-house, but fully expect that some level of head-to-head work will be needed to fully support conversion and internal adoption within their center. We welcome this activity. The more data that gets out there showing positive comparison to cumbersome legacy providers, the faster we'll see broad adoption. Alongside the generation of head-to-head data, we announced the launch of a registry program. The goal of this program is to capture how the industry uses our alternative measurements of ddCF DNA, namely absolute quantification and our proprietary combination model score algorithm, while they use our currently available relative measurement for patient management. The benefits of this approach in our registry are twofold. Firstly, it familiarizes clinicians with our report and test, probably making them more likely to use the technology once it's available in-house. And secondly, it generates real-world data on the utilization and performance of our alternative measures. Early data and publications suggest that these alternative methods may be superior ways of quantifying and analyzing the ddCF DNA data. If we are successful, we should see improved biopsy yield at transplant centers that are using the combination model score because of its expected higher positive predictive value. When the Centimeters score data first came out at the World Transplant Congress this summer, we saw an immediate spike in interest from our clinical partners. So we've been moving as quickly as possible to get the novel score into production. I expect that we will see the first reports going out with the new Centimeters score in 2026. Early access is likely to be limited to participants in the registry. Once the peer-reviewed publication is out, we will start to make it more broadly available and begin a conversation with MolDx on any potential positive billing impact. I'm amazed by the progress we made in such a short time. That is attributable to our team of researchers and development scientists, clinicians, and centers around the world that have embraced our partner-first approach and the strong support from Bio-Rad, who have been with us every step of the way in our planning engagement with the FDA. And now, after almost three years of absolutely grinding on product development with a modest staff, we are in November 2025, very close to our planned FDA submission. While the shareholder letter details our recent accomplishments and our FDA submission timeline, I'd like to add some color on our clinical trial. You can really feel the energy at the sites right now. They're excited. They're engaged. We love to partner with them. Tampa General was the first to bring in samples, and Vanderbilt and Cleveland Clinic were up and running shortly thereafter. These are leading transplant centers in the U.S., and they are genuinely committed to this effort, and that makes all the difference for us. Some of you may have recognized this sentiment in the comments from Dr. Anthony Langone of Vanderbilt University on our August 15 KOL call. He pointed out the issues with the current paradigm of send-out transplant monitoring, many of which can be resolved with in-house testing. Now I'm gonna take a few moments to talk about what's going on at the FDA. After our planned submission in December, we start the clock on their review process, which is listed as 150 days on their website. That being said, the FDA is not accepting new submissions while the government is shut down. We have been told that our FDA reviewer team is still working through the shutdown, which is good for clearing their docket and review backlog. At the same time, the FDA has paused answering questions from companies like ours that are preparing a new submission. It's common for companies like ours to ask the FDA questions on their preferences and what they would like to see. We do have some outstanding questions that we asked in September. Since the government shutdown on October 1, we have not received those answers. We are staying focused on what we can control, which is completing our clinical trial and being ready to submit to the FDA by the end of the year. I want to make clear that the government shutdown does not affect our ability to drive engagement with customers. We can process tests at our Nashville CLIA lab and pursue our registry study even while the government is closed. Looking forward to 2026, we expect to move forward with validation of both heart and lung assays in our lab. That work sets us up to submit for reimbursement for heart in 2026 and lung in 2027. The nice part is that for heart and lung, we can leverage all of the analytical work already done for kidney when we go to the FDA, which really streamlines the regulatory submission process. We are excited about Heartnext. You'll see a chart in our shareholder letter that showcases our assay versus legacy technology regarding the threshold for rejection detection in heart transplant patients. We are in the rare event detection business, and so lower on the bar chart is better. Being able to quantify at low volumes matters when you need to establish a trend line prior to reaching the clinical threshold. We've also made real progress on our registry study, which we announced in September. The study design is complete, the protocol is written, and we already have 10 centers, including three of the top 10 programs in the country, lined up and working their way through legal. We expect that you'll see the registry study show up on clinicaltrials.gov early next year. As we approach FDA submission, I believe the excitement around our company is building. This excitement extends to other companies with whom our products and services are symbiotic. We continue to be thrilled with our relationship with Bio-Rad, which has been mutually supportive and productive. And we continue to pursue strategic relationships that can support our increasing reach and need to scale as we go into 2026. We've been a development-only stage company for the past two to three years, and that period of time is coming to an end. Now we are focused on shifting into a commercial organization. We believe we are building a product that is going to be the de facto standard of care assay. We also have opportunities to grow the pie. There are developments changing the structure of the market itself. We see tailwinds when we look at the potential for reference lab adoption, anti-CD38 approval, and ddCF DNA guideline adoption. We believe we are bringing to market the most precise testing for transplant rejection while broadening access to the test for patients. The margins available to us in GraftAssure, along with a highly concentrated market, represent a rare opportunity to create an exceptionally profitable business line with an operating margin that should be industry-leading. Now let me turn it over to Andrea, then we can take questions. Andrea James: Thank you, Josh. Hi, everyone. Thank you for joining us. And I also just want to do a quick shout-out to Gabby Woody, who's emceeing this call and whose Zoom decided to malfunction right before we went live. So, anyway, you've got our financial tables in the shareholder letter and in the 10-Q, so I'm just gonna touch upon the highlights. We finished the quarter with $20 million in cash and equivalents and no debt. Lab services revenue came in as expected, and you can model that sequentially flat in Q4. Last year, recall that we did perform some work late in Q4 that came in, and, of course, we'd be thrilled to do that again if the work comes in. So far in the fourth quarter, we've billed for about $100,000 worth of these services. We kept our cash burn in Q3 below our stated goal of $6 million per quarter, and we expect that $6 million to tick up a bit in Q4 due to expenses associated with our FDA submission and clinical trial. This is the same as our prior communication with one small change. The Q3 cash burn came in favorably because some expenses did shift into Q4 instead. You can see that we've invested incrementally in research and development over the course of this year as we prepared for FDA submission. We were able to absorb these expenses while still maintaining our cash burn levels at $6 million a quarter, and we achieved that by continuing to deliver gross profit by performing extra lab services work at our Nashville lab. We're really proud of that, actually, and we expect to continue to cultivate activities like this and others to extend our cash runway. Also, it's worth noting that going into next year, we have the option to scale back select expenses as needed because much of the incremental 2025 research and development expenses are tied to consulting, software development, and laboratory supplies and materials associated with our FDA program. Okay, onto some quick housekeeping for our analysts. Historically, our company has presented its operating loss on both a GAAP and a non-GAAP basis. Starting next quarter, we will begin talking about adjusted EBITDA instead, which is essentially the same line item as non-GAAP operating loss, but it's just more intuitive phrasing for investors. We also intend to introduce non-GAAP net income and a corresponding non-GAAP EPS. The primary reason for this is we want to give you metrics that help you to track the underlying profitability of the business that we are building. To do this, it makes sense to back out certain non-cash items, such as the contingent consideration line that fluctuates from quarter to quarter. Contingent consideration, for those of you who are not familiar, relates to acquisition accounting. In our case, it's tied to certain earn-out arrangements related to our prior acquisitions. Okay. I want to leave you with two ideas as I close. The first is I want to give you an easy way to think about our total addressable market or TAM and how it's growing. And then the second thing is I want to give you fly-on-the-wall visibility into our strategic planning meetings that we hosted all last week at our Nashville headquarters. Okay. So on our TAM, I'm gonna throw a bunch of numbers at you, but I think you can follow this. So we publicly state that we have a greater than a $1 billion TAM. And this is for kitted transplant testing. And I want to walk you through some of the easy math on our assumptions and how to think about our growth relative to TAM expansion itself. Okay. So we assume about 150,000 transplanted organs per year in our key markets. That's the U.S., Europe, some of Asia, and Latin America. Then we talk about total patients under management being 10 times the annual transplant volume, and that's based on estimated median survival rates. So the total expected patients under management is simply 10 times 150,000 or 1.5 million patients. Next, you take the 1.5 million patients under management and you assume a number of tests per year per patient. You're gonna see a lot of numbers out there floating around, but the most conservative is two per year per patient. And this number factors in higher testing volumes in earlier years post-transplant and lower testing volumes in later years for an average of two. In fact, the MolDx Draft LCD, which many of our analysts are very familiar with, on kidney surveillance testing, is for four tests in the first year of a transplant and two tests per year thereafter. So you can see that assuming two tests per year per patient under management is a conservative and reasonable number. If you take the 1.5 million patients under management and multiply it by two tests per year, you get 3 million testing opportunities per year. You multiply 3 million testing opportunities per year times our expected ASP on our kit, and you can easily get an expected TAM of over a billion dollars. That ASP is supported by the fact that our laboratory version of our kidney test is reimbursed by Medicare at $2,753 per result, and we believe we can sell our kits to hospital customers for a significant fraction of the reimbursement value. So you'll hear us talk about market expansion a lot, and it's usually focused on one of those key levers that I just described. For example, expanding into more solid organs helps us to grow into our sedative TAM. Also, some organs, such as the heart, require more than two tests per year. Investments in market access and geography should also help us expand into our state of TAM. But then there are some things that could grow the TAM itself, and this is what Josh was talking about when he talks about growing the pie. So remember the multiplier, two tests per year. When Josh mentions reference lab adoption, anti-CD38 drug approval, ddCF DNA guideline adoption, we're actually talking about developments that would help the industry to increase its testing volumes well beyond an average of two tests per year. Also, any therapies that extend the lives of patients grow the patients under management because they're living longer, and therapies that require testing to manage dosage already grow the testing opportunities per year. Okay. And then organ transplant itself—I'm sorry. This is so macro, but I think it's important. Organ transplant itself is growing as a category, so remember that our kitted testing strategy sits within the macro truth about the strong benefits of organ transplants. For example, kidney transplants not only dramatically improve a patient's life but also can represent a tremendous cost savings over dialysis, and so we believe we are so well situated with these tailwinds. And that's just in transplant. We haven't talked about oncology today. Our long-term objective after we establish our GraftAssure franchise is to also unlock whole new testing markets in cancer, which, of course, grows our TAMs substantially. Another thought I wanted to leave you with is we're shifting from a development stage company to an integrated commercial operation. This is obviously very exciting. Our strategic planning meetings last week were appropriately intense and pinpoint focused on driving engagement and utilization of our assay via our Nashville laboratory. This is something we can do now even before we have achieved FDA marketing authorization for our test kits. We're also honing and streamlining our market access strategy in the U.S. and EU, which we believe will set us up with some nice natural growth over the coming years as we achieve expanded coverage. I believe that if an investor or an analyst could have been a fly on the wall during these meetings, you would have seen that we are a company that is playing and preparing to win. We want to enable our customers, which are the transplant centers themselves, to participate in the testing value chain, and we want to drive better and more localized accessible patient care. But this doesn't mean that we intend to lose our hard-earned cost discipline. If you look at the market capture activities that we seek to invest in, we see customer acquisition costs that are quite favorable relative to these customers' expected long-term value. This is particularly owing to the fact that we are targeting a highly concentrated market with only about 100 transplant centers doing most transplants in the U.S., for example. It is also owing to the fact that the life sciences industry, and particularly kitted diagnostic tests, usually enjoy a nice degree of customer stickiness that we believe should help us to retain our customers for many years. Okay. Now we can take questions and just, IT house housekeeping, Eric, if you could please bring everybody up into gallery view. And we also have Gabby back on screen. Yay. Gabby Woody: If go ahead. Andrea James: And wonderful Gabby appears to be frozen. So I will just start. Mark Massaro, you popped up on my screen first. Mark Massaro at BTIG. Go ahead. We'll take your question. Mark Massaro: Hey. Thanks, Andrea. Yeah, congrats on the progress. Wanted to start with maybe a macro question. Just about the LCD that we're waiting for with Palmetto GBA. I think if I heard you correctly, you know, you're talking about the four-two-two kidney protocol. Is it safe to say that even if the interval is finalized as is, you know, you expect to have that billion-dollar opportunity in front of you? And then maybe, Josh, if I could just get, like, your latest temperature on how you think the final LCD might come in. You know, do you see there's any opportunity for improvement from the interval? And, also, do you think there's a possibility that the limits could potentially be removed? Josh Riggs: Oh, man. Some great questions there, Mark. I think you know, I'll start by saying, you know, I think we're hopeful along with the rest of the industry that the brakes get taken off. Here. It feels unnatural to, you know, limit access to a technology that a clinician feels they need to manage their patient. I think we heard some of that commentary from Dr. Langone when he was, you know, speaking in the KOL call. We're behind him 100%. You know, he expects that if he had this technology in-house, that he'd be doing four tests a year. And so, you know, right now, he wouldn't get paid for that under the current draft of the LCD, which is unfortunate. I mean, I think we'll support him in that process as far as negotiating with MolDx on expanding. We haven't heard anything around how that conversation is going, so I don't have any special knowledge there. But, you know, we agree with the industry that this needs to be a clinical decision. Mark Massaro: Okay. And then, I think you mentioned this, but, certainly, the increasing organ transplant access model or IOTA—I wanted to just maybe pick your brain on that. You know, to what extent do you think that could be helpful to the utilization of transplant testing? And I'm just curious if you have any thoughts on that as a potential driver. Josh Riggs: You know, it's another great reason why you don't take the clinical out of the hand of clinicians. Right? As you're changing how transplant centers are being incentivized to use more at-risk organs and then tell them, well, they can't monitor them on the scale and schedule that they need, it feels counterintuitive to me. You know, we have seen some positive feedback, some negative feedback on the program itself. But in general, I think it drives demand for testing. I think it's natural as you use more at-risk organs that you're going to want to follow those patients more closely. You should expect to see higher rates of AMR in that population. And so then you need to know if you can bring in these next-generation drugs, like the fezartumab or daratumumab. So we're optimistic that it increases demand for technology and, you know, more kidneys going into patients. Mark Massaro: Okay. And I'll just ask one more if I can, and then leave some FDA questions for others. But I wanted to ask about GraftAssure core LDT. You know, recognizing you've got the lab up and running in Nashville, maybe just walk me through how you're thinking about that as a potential source of upside. Obviously, I think that could be potentially, you know, a source of, if you will, cash preservation. So can you just give me a sense for what the strategy is on, you know, the LDT? Josh Riggs: Thank you. And it's very closely tied to the registry for us. I mean, we've looked at the market initially. I think one of the big reasons we went kit is that we didn't feel like we could compete, at least initially, toe to toe with the big guys that are out there. You know, when the opportunity to do the registry came up, it's like a natural fit for us and a reason to kind of spool up sort of our capabilities with the CLIA lab. And we think the process is gonna be, you know, call it somewhere between four and six months with each site as we kind of negotiate through the various contracts. And I think we've engaged with about 10 right now. That puts us kind of '1, '2 before we start to see patients coming in off of that registry. The expectation is that we'll be able to bill, you know, for the relative measurement of ddCF DNA, which is what our current claim is with MolDx, you know, while we capture the information around those other measures that we have. I'd say, in general, I mean, this has been very normal for the industry. I think, you know, we've seen, you know, very successful registries out there for our competitors. I think we're kind of following in that vein, although with a slightly different clinical question that we're asking. So yes, it should improve the revenue profile for next year. But we're not predicting that that starts in a meaningful way in Q1 or Q2. That's kind of like just when it starts to pick up. Andrea, anything that you would add to that? I know you've been a little bit closer to the numbers on that than I have. Andrea James: No. I love it. The only thing I would add is you might be wondering, like, what changed? Why are we doing this? And it really is we press released that late-breaking data at the World Transplant Congress. We do have the opportunity to look to see if there is extra clinical utility in our And so that's really what changed and what's driving the strategy. It's we've had new data come out in our favor. Mark Massaro: Got it. Thanks, guys. I'll hop back in the queue. Josh Riggs: Thanks, Mark. Andrea James: I'll just keep calling on people. Harrison Parsons at Stevens. Please go ahead. Harrison Parsons: Hey. Yeah. This is Harrison on for Mason. Thanks for taking the questions this afternoon. So as institutions validate GraftAssure DX head-to-head against current readout assays, what conversion curve are you expecting over the next twelve to eighteen months post-clearance? And what are the gating factors to go from early adopter physicians to center-wide adoption? Josh Riggs: Yeah. I'd say Andrea put out a curve in our shareholder letter back in, I think, August. So coming out of Q2 of last year, which gives at least a look at it. I think what we're trying to do is influence that curve right now. I think when we get a little bit more confidence in how clinicians are feeling about the technology and what kind of engagement we're getting, I think we'll update that curve. But right now, that should be considered our best thinking, and then we can share that with you afterwards if you don't have access to it. But I think in general, it's, you know, the market's gonna be very much show me. You know, which is, you know, they've been very comfortable using technology that has helped them, you know, manage their patients for five, six, seven years now. And I think they're gonna want to see that they're getting similar to better results before they jump. I think once there's enough data out there, there's kind of a saturation point where the question comes off of the table. But, you know, certainly in the early days, it's incumbent upon us to help generate that data and get it out there for the industry. Andrea James: Yeah. And Harrison, if you look in the shareholder letter, we actually put a launch framework graphic where we talk about driving engagement and utilization with potential future customers. We can't start talking about GraftAssure DX as a kitted test until we have FDA marketing authorization. So there's a wall there, and you can't But we can start to drive utilization of our Nashville labs, start talking about a registry study. And so when we talk about influencing the slope of that curve, these are activities that we can do now. Today, and we are doing them actively today. Harrison Parsons: Got it. Yeah. That I think that all makes sense. And then, I guess, next, so you previously highlighted the favorable PPV data and how, you know, this could be a differentiator for your kitted product. Could you share any broader feedback you've received from clinicians on this point? Josh Riggs: Yeah. I think I'm happy to. And, Ekke, if you have any comments, I think you've been out there on the front end with some of our research partners. Love to hear how you think about it. But I'd say it's broadly been very positive. I think there is a general sense that we are, you know, applying biopsy too frequently. And, you know, that a higher positive predictive value perhaps is better suited to the screening application that the world is looking at right now. But let me hand it over to Dr. Schutz, who's been out there. You know, he's obviously the one that created the score. I've been working with our research partners on it, and sort of why they're looking at it and what they're looking for. Ekke Schutz: Thank you, Josh. Yeah. Harrison, I think what the entire field in transplant was always missing is gets to the fact that if cell-free DNA is normal, is a way of using cell-free DNA as a rule-in test, well. Right now, it's a rule-out testing, so which also you might forfeit a biopsy. But if it's not, then you do a biopsy. But under those where you are doing a biopsy, way more than fifty percent are not turning out to have a rejection. So and that's actually the, I would say, conundrum clinicians are in. And what we are able to provide is a way of testing that if you see, okay, this patient doesn't look normal, which means I would not forgo a biopsy, then your chance of having really a rejection is way over fifty percent. So it's actually really good for the patients. So you are not biopsying patients when you only have a thirty percent chance of that the patients even had something. And that is clearly something that clinicians understand. They don't want to do a biopsy if it's not really necessary. And we have only had really a lot of positive feedback. It's really up to people are saying, oh, that's a change in paradigm for cell-free DNA. And so, yeah, that's why we put it in the center of our registries and, okay, let's convince the field that this is really a huge step forward for your clinical interpretation of cell-free DNA. And I think it's going to more or less get into a world of its own once we can show that there's going to be a lot of clinical debates around are you using do you want to use a test that really has no positive predictive value or do you want to use a test where you can also make the positive decision for a biopsy with way better chance of doing it in the right situation. Harrison Parsons: Okay. Thank you, Ekke. And then I'd just had one more last question, and then I'll let others go. I guess so at this point, after the government shutdown, is mid-2026 still the right timeline to think about potential regulatory approval or commercial launch, or has that timeline been pushed out at all, if any? Thanks. Josh Riggs: You know, it's tough. Government ever opens again. Yeah. I think we're hopeful that the government, you know, gets funded and stays funded. Obviously, the current conversation that's going on in Washington only funds the government through January. I can't predict, you know, what happens if the government shuts back down. I can't predict, you know, what's going to happen to, you know, to our reviewers. I would say, you know, it helps that these reviewers are funded by industry, you know, by and large, you know, through the doofah. But, you know, I can't guess. I mean, I assume as long as everything's normal, and we get through the FDA fine, then, yes, we're still on pace. But outside of that, there's the piece that we don't control. Andrea James: If I could just add, Harrison, I think the takeaway is that we are still preparing for a mid-2026 launch, and we're not changing anything. And there's things that we can do regardless of the government shutdown, which is focus on the engagement and utilization of our assay, which we are very much gonna focus on. We can drive revenue out of our Nashville lab. We don't need the government to be open to do those things. And then the other thing, and we pointed this out in the shareholder letter, but we got word that our reviewer was working, you know, that's nice to hear that they were working even though they were not accepting new submissions. So just focused on that. And the final thing I would say is when we've talked about the FDA review timeline, we did bake in some time for them to ask questions and for them to respond. The FDA would say that the review timeline is actually shorter than the number of months we gave you. Because we did bake in a bit of cushion for them to ask questions. They stopped the clock. We respond. And so we're still planning on the same thing we've been planning on all along, but, of course, we have as much insight as you do into what's gonna happen with the government. Harrison Parsons: Great. Thank you. Andrea James: Of course. Thanks, Harrison. Okay. Mike Matson, I'm gonna take your question. Thank you for coming on video. Oh, I need him. Here. Mike Matson: No problem. Thanks. So, you know, just in terms of the trial, it sounds like it's still on track, you know, for the end of the year. But I was wondering, can you give us any sort of metrics around enrollment or samples that have been collected to date? Josh Riggs: Yeah. I would say the, you know, gosh. I guess everybody would say that sample enrollment is going slower than they would like. Yeah. But, you know, we are enrolling samples. You know, there are, I think, we can't actually update our clinical trials that go up listing right now because, you know, the government is shut down. But I think we actually have five sites that are actively enrolling patients at this point. And so I think we're medium to high confidence that we're gonna have all of the samples that we need to complete the submission by year-end. Mike Matson: Okay. And then you mentioned that, you know, in terms of, you know, once the test is commercialized, the centers and the doctors are likely to try to, you know, do head-to-head testing or maybe potentially use the registry. Can you maybe just explain I guess I'm a little confused in terms of how the registry would help them figure out. You know, I understand head-to-head. You run both tests and kinda compare them. But the registry, how does that kinda pull, you know, serve that same purpose, I guess? Josh Riggs: Oh, it's a wonderful question. And I think it's really on the engagement and utilization front. And so it's an opportunity for a clinician who's never used our technology before to have, you know, our report in their hands, you know, see how it comes out, see the data, and then use it in their patient and see how it performs in kind of a real-world setting. And so that's that familiarization piece that we're trying to get to. Also, show them the new ways of measuring donor-derived cell-free DNA. So to engage that kind of intellectual curiosity that they have around it. So that, I think, is that's not head-to-head. That's more getting in their head, if you will, and getting them comfortable using our technology. Mike Matson: Alright. And then, you know, in terms of if the doctors, the centers are doing head-to-head testing, how would that work from a reimbursement standpoint? I imagine they can't bill for both, and then I would be sort of helping them out with that. I mean, I don't even know if that's you're allowed to do that, but giving them a price break or test or something like that. Josh Riggs: Oh, so, no, it's a great question. And we've done this before in some of our oncology assays, and what we call is a clinical evaluation program. And so it's a specific program. It's where we sign an agreement with them for a certain quantity of samples. And it's, I think the number is 20 samples where they send 20 out to our competitors. They send 20 to us. We don't bill for those samples. We just generate a report because under CMS rules, only one center is allowed to bill per patient. So we basically just eat the cost on that to generate the data for them. Mike Matson: Okay. Got it. And then finally, just stepping back, you know, the mid-2026 launch, what do you think are the biggest risks to that timeline? Is it mainly the FDA, as you mentioned, in terms of them, you know, back and forth there kind of stopping the clock? Or is there something else you would point to, I guess? Josh Riggs: Yeah. I guess there's always unknown unknowns. I'd say we feel like we've checked a lot of boxes, kind of your retiring risk over the past, you know, two and a half years. Obviously, government being in flux right now is a big one for us. That can immediately impact the timeline. Outside of that, I think, I mean, that's probably the biggest risk. I don't know, Andrea, if you've got some I know we get this question a lot, and I think you generally have better answers because I'm so optimistic on all of this stuff. It's hard for me to say, you know, where it's all gonna blow up. But Andrea is much more level-headed than I am. Ekke Schutz: Go ahead, Ekke. Yeah. I think, Mike, we are pretty confident with production and everything. So I think we don't have really a big risk in-house. We are right now producing our third lot for the FDA trial, and it's working out pretty well. Just looked at the results today. So I would really think our biggest risk is the FDA. If they drag it out, then there's not much we can do about it. My philosophy or strategy right now is that whatever we can think of that the FDA might ask us, we shall be prepared to have the answer already before they ask. So which means it's not really stopping the clock. They're always if they're sending out a question, they stop the clock until they have the answer. And my wish is that when they send us a question in the morning, the answer goes out in the afternoon. So that's more or less what I'm trying to do. Mike Matson: Yeah. Okay. That makes sense. Kinda like prepping for an earnings call. You wanna try to predict what the analysts are gonna ask you guys. Right? Ekke Schutz: Yes. Yes. Mike Matson: Alright. Thank you. Andrea James: I love that. And, Mike, the other thing is we've communicated with you guys. We had all those pre-submission meetings with the FDA. So that's great because the team has been getting feedback from the FDA. And so it's not like the first time the FDA sees our submission. They're like, what is this? There have been, you know, meetings I have. Mike Matson: Alright. Thank you. Thomas Flaten: Thomas Flaten at Lake Street. Hey, guys. Thanks for taking the question. So not to get too granular, Josh, but so there's fifty-one days or so until the end of the year and a bunch of holidays. And with five of 10 sites recruiting, you know, are the others gonna meaningfully contribute to the number of samples? And then how many days do you guys need to take that data, analyze it, compile it, get it into a format that is acceptable to FDA, and squeeze it into an application then send it off. Can you just walk us through I know we're getting way in the weeds here, but Sure. Sure. Sure. Josh Riggs: Yeah. I'll take the first half of the question, and I'll hand the second half to Dr. Schutz, who's a lot more closer to it than I am. I'd say there are sites that won't contribute to the first phase of the submission. You know, we are looking at this in two waves with the FDA. So the first is to get basically just over the bar, which is, you know, that 85% negative predictive value. And then there's the combo score, which is kind of the second wave of this. And that's where, you know, the other sites come in. We're gonna continue to enroll past the new year. Andrea talked about this in the shareholder letter. I think we have a few more points to prove with, you know, with this study that will create kind of like follow-on submissions. But, you know, Ekke, maybe you can talk us through. I know a lot of focus on the number of events as much as the number of samples that are going into the study. Ekke Schutz: Yeah. So, Thomas, if we are recruiting as we think we are, we know from each and every one of our co-sites how many biopsies they are doing per month. And from there, we can more or less calculate are we on track? We are on track. And we are right now full steam writing the submission already. So we are not waiting until we have this data. This clinical data are, believe it or not, the smallest part of the entire submission. It's, if you wish, a very simple evaluation. What is the sensitivity? What is specificity, and I can do the calculations in an hour. So what we are doing, we are really preparing the entire submission right now. And at the very last day, if you wish, we just plug in these two numbers from our clinical study and push the submit button. Thomas Flaten: Got it. Super. Yeah. Got it. Yeah. Okay. Super helpful. Andrea, I know you said your expenses were ticking up a little bit because of the study and FDA expenses, etcetera. How should we think about the first half of next year? I know we haven't gotten there yet, but do you expect the cash burn to moderate a little bit? Or do you expect it to go up as you prepare for launch? Andrea James: It's a great question. Right now, I would say we're preparing to keep it flat. If we were to go faster and we want to go faster for some reason, we would communicate that to you. I would keep your expenses flat for now. Now I would say flat to, you know? I mean, I think they're gonna grow up a go up a little bit. We are looking at areas where we could invest to go faster. We scrutinize every dollar, and so we haven't greenlit anything yet. But I think we'll come back at you in March, and we'll update you on how we think 2026 is gonna look. Thomas Flaten: Got it. Appreciate it, guys. Thank you. Josh Riggs: Thank you. Ekke Schutz: Thank you, Thomas. Josh Riggs: Alright. Any other questions? Alright. Well, guys, thank you so much for making time for us today. You know, it is fun to get to share sort of the results of all the hard work that the team has put in. I think we're encouraged. We're excited. You know, we've been waiting to celebrate submission for about two and a half years, and you know, it feels like we're finally about to give birth. So, we're excited and looking forward to sharing this positive news when it happens. So thank you, everybody, and we'll talk soon. Andrea James: Thank you all. Ekke Schutz: Mike, can you hang up? Josh Riggs: You still have 40 participants. Yeah. Everyone can see, I think. Andrea James: Alright. I think we are still broadcasting live to everyone, so we probably just hang up. Bye bye.
Operator: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LivePerson's Third Quarter 2025 Earnings Conference Call. My name is Irene, and I'll be your conference operator today. At this time, all participants are in a listen-only mode. After the prepared remarks, the management team from LivePerson will conduct a question and answer session and conference participants will be given instructions at that time. To give everyone the opportunity to participate, please limit yourself to one question and one follow-up. As a reminder, this conference is being recorded. I would now like to turn the conference call over to Mr. Jon Perachio, Vice President, Investor Relations. Thank you, Irene. Jon Perachio: Joining me on today's call is John Sabino, CEO, and John Collins, CFO and COO. Please note that during today's call, we will make forward-looking statements, predictions, projections, and other statements about future results. These statements are based on our current expectations and assumptions as of today, November 10, 2025, and are subject to risks and uncertainties. Actual results may differ materially due to various factors, including those described in today's earnings press release, and the comments made during this conference call, as well as in 10-Ks, 10-Qs, and other reports we file with the SEC. We assume no obligation to update any forward-looking statements. Also during this call, we'll discuss certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release. Both the press release and the supplemental slides, which include highlights for the quarter, are available on the Investor Relations section of LivePerson's website, ir.liveperson.com. With that, I'll turn the call over to LivePerson's CEO, John Sabino. Thank you so much, Jon. And thank you all for joining us today. John Sabino: I will begin by briefly reiterating the decisive actions we took to the company this quarter. Then I will cover our results and key business updates. First, the debt refinancing agreement we discussed on our last call is now closed. This is a pivotal achievement and most importantly, resolves a concern we heard from our customers and partners. Second, we executed a cost restructuring to reduce our cash burn. This ensures we can operate efficiently and allows LivePerson to retain cash on the balance sheet. Together, these actions address a primary headwind of renewal hesitation and slower bookings and indeed, the tone of our customer conversations has started to change. They recognize that our cost and capital structures have been stabilized and are looking to us for continued strategic partnership. Now turning to our operational performance for the third quarter. We delivered results that were above the high end of our guidance ranges for both revenue and adjusted EBITDA. Revenue came in at $60.2 million, exceeding the high end of our $60 million guidance. Adjusted EBITDA was $4.8 million. This significantly exceeded our high end of our guidance range, demonstrating our continued financial discipline with the cost reductions made during the quarter. Turning to our product. We're seeing strong momentum and validation from both our customers and the market. Our customers' adoption of our Generve AI suite continues to grow, with nearly 20% of all conversations on our platform now using generative AI. At the same time, Gartner recently recognized LivePerson as a niche player in their 2025 Gartner Magic Quadrant for conversational AI platforms. One of only 13 vendors. We were also recognized in the 2025 Gartner report for digital customer service. Building on our previously announced partnership with Google, we were honored to join them on stage at their recent RCS event. LivePerson's integration with Google's RCS platform enables brands to deliver rich, interactive, and verified messaging experiences, that drive higher engagement, and customer trust. It also allows businesses to seamlessly transition from campaigns to two-way messaging, combining multimedia content with LivePerson's platform to create personalized scalable customer conversations. It's an exciting development and we expect to share more on this in the future. This partnership with Google extends even deeper. We just launched Copilot Translate built on Google's Gemini 2.5. This capability is embedded directly within our agent workspace, eliminating language barriers by automatically translating all inbound and outbound messages. It allows our brands to effortlessly serve customers in many languages, boosting agent productivity, and delivering a truly AI-native experience. Our innovation extends beyond these powerful partner integrations. We are applying our deep conversational expertise to solve customers' most fundamental challenges. We continue to hear consistent feedback from our customers and prospective customers about the challenges they face in deploying and scaling both AI and human agent workforces. These challenges range from the complexity of safely training and validating AI models before production to the long ramp times, high training costs, and quality assurance demands of their human teams. To address these needs in the market, we are leveraging our decades of conversational expertise and deep culture of innovation to introduce Conversation Simulator. This is a transformative product that enables brands to safely test, train, and validate AI agents in real-world conditions while simultaneously providing in-workflow training and quality management for human agents. Our fundamental differentiator is providing this dual capability in a single unified platform. It accelerates the time to value for AI deployments, improves human agent performance, and positions our customers to scale more efficiently, driving stronger business outcomes across the enterprise. This will be a standalone product with its own revenue stream. And we believe it represents a significant new opportunity for LivePerson. It has a fundamentally open architecture designed to serve as the vendor-agnostic testing and insurance hub for a business' AI and human conversational ecosystem. This means that while it integrates seamlessly with our platform, it will also work with any CCaaS platform and any third-party AI. The core purpose of this product is to make AI agents more predictable, trainable, testable, and audible. This product allows businesses to simulate, analyze, and continuously improve performance across their conversational ecosystem. This is precisely where we bring AI and human training together. For AI bots, this product validates and optimizes performance against business-critical synthetic scenarios before they ever reach a live customer. This tests end-to-end conversational orchestration of care, sales, and commerce use cases across live agents and virtual agent experiences. For human agents, it provides a new style of training. We can inject synthetic scenarios and test agents directly in their workflow. This provides real-time feedback and training without ever taking them out of their day-to-day activities. The value this provides to our customers is significant. Early data points to a 30% decrease in agent ramp time, and a 60% reduction in the time to test AI bots. Beyond these efficiencies, it's giving our customers the confidence to launch AI agents at scale for high-stakes customer-facing use cases. Our product provides the visibility, risk management, continuous monitoring, and training necessary to bring velocity and trust and scale to AI deployments. We believe these capabilities remove key obstacles that have prevented further generative AI adoption. This proactive, continuous approach marks a shift from recent failure analysis from excuse me, from reactive failure analysis. Customers can now identify and preempt errors. This is how we will deliver trust, value, and more predictable business outcomes. Driven by a unified strategy for both AI and human agents. This capability unlocks a significant opportunity by extending LivePerson's reach beyond the traditional enterprise segment. Conversation Simulator has been designed to provide critical assurances to businesses of all sizes, allowing us to address an adjacent market for training, simulation, and compliance. This market represents a $10 billion TAM today and is projected to grow to $20 billion by 2030. Best of all, this is resonating with our customers. We have several early access customers actively using the product and seeing initial results. These customers include Telstra and Open University amongst others. Additionally, we have a strong pipeline of customers expected to begin testing in the coming months. This early adoption is validation that Conversation Simulator provides a critical new layer of trust and predictability that the industry demands and we are uniquely positioned to lead. We look forward to updating you on the growth and success of this new product. Now moving to go to market. We are seeing encouraging early signs of improvement in our commercial performance. Nowhere is this progress more evident than in our renewal discussions, where the tone and confidence of our customers has shifted meaningfully. We successfully renewed several large accounts that had previously expressed hesitation, including a major U.S. telecom company and a leading amusement park and entertainment company. This renewed confidence extends beyond renewals and into new growth opportunities. For example, a leading travel brand which had initially raised concerns about our financial stability, recently signed a new upsell contract. In addition, a large financial services organization which had shared similar concerns is now expected to grow with us, including an upsell this quarter. These expansions from accounts that had previously expressed concern are powerful indicators of increasing confidence in our innovation and stability. This returning customer confidence is also beginning to appear in our numbers. We delivered a slight sequential increase in bookings this quarter, even as we continue to navigate the headwinds from renewal hesitation, longer deal cycles, and new AI-related approval processes across the industry. Our commercial momentum is being strengthened through our key technology partnerships as well. Notably, we're now officially live on Google Cloud Marketplace. A major milestone that makes it significantly easier for organizations already operating in the Google ecosystem to discover and purchase our platform using their committed Google Cloud spend. This opens a powerful, new, frictionless channel for growth, and it deepens our reach across enterprise markets. In fact, we already have a deal flowing through this new channel, validating the strategy. At the beginning of this call, I laid out the decisive actions we took to stabilize this company and we're beginning to see the benefits. The tone of our customer conversations is changing, and we're seeing better momentum in key enterprise accounts. We're also seeing continued strong adoption of our Genever AI capabilities, early traction of our new Conversation Simulator, and a growing partnership with Google creating additional paths to market. With better than anticipated variable revenue performance in Q3, falling through to the full year, we're raising our full-year revenue guidance range to $235 million to $240 million, up $2.5 million at the midpoint. And our full-year adjusted EBITDA guidance to a range of $7.5 million to $12.5 million, up $8 million at the midpoint. With our financial foundation stabilized, commercial traction building, we are well-positioned to continue to execute our strategy. Now let me hand our call over to John Collins. John? John Collins: Thanks, John. In the third quarter, we continued to deliver on the plan we committed to at the start of the year. We closed the previously announced debt refinancing agreement and significantly reduced our cost structure. Together, these milestones give LivePerson the financial foundation needed to succeed in the market. In addition, we began migrating customers to our public cloud infrastructure and we launched a new product innovation, as John discussed, Conversation Simulator, for which we already have paying customers and a growing pipeline of opportunities. While it's early, we are seeing indications of meaningful demand. In terms of deals and significant wins, in the quarter, we signed a total of 28 deals including two new logos and 26 expansions and renewals, translating to a sequential increase in total deal value of 14%. Key themes for the quarter included continued traction in regulated industries, mainly banking, healthcare, and telecommunications, where there is demand for compliant, centralized, and AI-agnostic orchestration to securely deploy and manage a variety of AI agents. Significant renewals and expansions included a 7-figure deal with a leading US health plan provider, a leading amusement park and entertainment company, and Sanlam, a leading South African financial services group. We also added a global industrial company as a new logo. In addition, with the debt transaction behind us, we began proactively educating customers on our improved financial foundation, which has already resulted in the renewal status of certain customers changing from cancellation or short-term extension to full renewal. As for our third-quarter financial results, total revenue was $60.2 million, above the high end of our guidance range. Note that the upside relative to guidance, which resulted in a slight sequential increase in revenue, was driven by variable overage revenue and the timing of revenue recognition for certain deals. Adjusted EBITDA was $4.8 million, also above the high end of our guidance range, driven by strong cost discipline and the immediate benefits of the cost restructuring executed during the quarter. Revenue from hosted services was $51.2 million, down 18% year over year. Recurring revenue was $55.1 million, or 92% of total revenue. Further segmenting revenue, professional services revenue was $9 million, down 23% year over year. From a geographic perspective, U.S. revenue was $37 million and international revenue was $23.2 million, or 61% and 39% of total revenue, respectively. Average revenue per customer was $665,000, up 6% year over year, driven in part by expansions with our largest customers and in part by customer retention. RPO declined to $182 million, consistent with the same factors driving declines in revenue. Net revenue retention was 80.4%, up from 78.2% in the second quarter. This sequential increase was driven by the same factors that caused the sequential increase in revenue. In general, we expect net revenue retention to track within period revenue and experience slight sequential declines going forward. Finally, in terms of cash, we ended the third quarter with $107 million of cash on the balance sheet. Turning to guidance. Considering the revenue upside in the third quarter, which we are flowing through, and our improved outlook on renewals, we are raising guidance for the full year. For revenue, we now expect a range of $235 million to $240 million, an increase of $2.5 million at the midpoint. For adjusted EBITDA, we expect a range of $7.5 million to $12.5 million, an increase of $8 million at the midpoint. We also expect adjusted EBITDA to exceed capital expenditures for the full year. The implication for revenue in the fourth quarter is a range of $50.5 million to $55.5 million. Note that the sequential decline is driven in part by the timing of revenue recognition that benefited the third quarter. We expect recurring revenues to be approximately 93% of total revenue in the fourth quarter. As for adjusted EBITDA in the fourth quarter, we expect a range of $0 to $5 million. Before taking questions, I'll briefly summarize by emphasizing that the third quarter demonstrated strong execution against our strategic plan. We strengthened the capital structure and rationalized costs, setting us on a path toward producing sustainable free cash flow. Simultaneously, we continue to deliver value for customers, with on-schedule GCP migrations and product innovation in the form of Conversation Simulator. Collectively, we believe these milestones have positioned LivePerson to continue building commercial traction going forward. And with that, we can move to Q&A. Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, one moment please while we poll for questions. The first question we have is from Geoff Henry of Craig Hallum Capital Group. Please go ahead. Jon Perachio: Hey. Good evening. This is Daniel Hipschman on for Jeff Van Rhee. Maybe just Hi, could open with giving a little bit of color on the upside to the core and what drove that. I mean, sounds like a few factors perhaps, you know, customers getting some additional confidence in the finances. And a few other factors to test out. But maybe if 80/20, you could point us to what drove the upside this quarter. John, do you wanna talk about revenue? And I'll talk to bookings afterwards. Thank you. Yeah. John Collins: No problem. Good to hear from you, Daniel. In terms of the upside, we characterize it as timing, which means there's some deals that were to otherwise taken place in the fourth quarter than that are now in the third. And there's variable revenue that we recognized in the third. That drove the balance of the upside in the quarter. The timing is the larger factor there. For your 80/20. John Sabino: Okay. And then on bookings is Daniel, as you can imagine, the conversations around financial stability and other things not only impeded renewals, but it also had to do with our ability to expand in some of those accounts. And we're starting to see those conversations have some forward progress. Positive progress. Okay. And then on the competitive landscape for conversational simulator, maybe just walk us through. You know, I'm not familiar with the landscape there. What are some of the key peer products that are out there for this already? Jon Perachio: You know, what's the differentiation that LivePerson is looking to bring to the market? What's the right to win? Just anything about the tiers there. John Sabino: Yeah. There's a few things with that. There are quite a few folks that are in the space, but no one that really addresses both sides of the equation, which is both human and bot. We're one of the few that we can find that do that in the market. Additionally, our experience around the verticals and the businesses we plan give us the dataset and the unique knowledge in which to train certain scenarios, personas, for our customers that separates us quite a bit from some of our competition. But the interesting thing around this is that the approach that we're taking, the ability to actually inject a training scenario or evaluation of a human agent's performance right into their daily work stream or messaging queue, is something that's pretty unique to us. So we're not you know, you're not training in an out environment. You're there doing your job, and the ROI is still there in place. And when it comes to bots, we're able to do this in a way that really does allow you to simulate at scale how that full orchestration is going to perform. And so because we have both sides of the equation, our product is pretty unique in that regard. Additionally, it's an open product, meaning that we can test any LLM that's out there, any CCaaS platform in addition to activity on our own. So what I think really does separate LivePerson here is that we're not looking at one side of this in isolation. We're looking at it from a complete CX perspective, and we can do a continuous improvement in training loop compliance and governance, in a way that is pretty unique in the market. So those are the things that we think differentiate it. And we haven't really seen someone else doing exactly the same thing as us. Or being in a position to because we are both human and AI in how we, how we address an agent and a CX experience for a brand. Jon Perachio: Okay. Thanks, John. That's helpful. Then just one last one for me on the modeling. Just, I think, John, you mentioned a little bit on restructuring and some additional costs coming out. Just anything is that something that happened here in Q3? Is that in reference to something that's layering more so in Q4? And then just anything on the scale of that, I see the EBITDA here guide is a Should we take, you know, something in that scale is what A few million ahead of the street for Q4. You know, the few million, maybe sequential change in OpEx is what driving that beat in Q4? Just any thoughts on that. John Collins: And to answer your earlier question, Yeah. That's correct, Daniel. That's what's driving the beat in Q4. The timing was Q3, so we shouldn't begin to experience the full effects of the cost restructuring during Q4 and for full year '26. Jon Perachio: Okay. Great. Thanks, guys. John Sabino: Thanks, Daniel. Good to hear from you. Operator: At this time, there are no further questions. And with that, this concludes today's teleconference. Thank you for joining us. You may now disconnect your lines. John Sabino: Thank you.
Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the CoreWeave, Inc. Class A Common Stock Third Quarter 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. It is now my pleasure to turn the call over to CoreWeave, Inc. Class A Common Stock. Deborah Crawford: Thank you. Good afternoon, and welcome to CoreWeave, Inc. Class A Common Stock's third quarter 2025 earnings conference call. Joining me today to discuss our results are Michael Intrator, CEO, and Nitin Agrawal, CFO. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today's earnings press release and in our quarterly report on Form 10-Q to be filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The earnings press release and an accompanying investor presentation are available on our website at investors.coreweave.com. A replay of this call will also be available on our Investor Relations website. Now I'd like to turn the call over to Michael Intrator. Michael Intrator: Good afternoon, everyone, and thank you for joining us. CoreWeave, Inc. Class A Common Stock, once again, delivered an exceptional quarter showcasing the accelerating momentum underlying our business as AI adoption proliferates globally across industries. We continue to operate in a highly supply-constrained environment, where the demand for CoreWeave, Inc. Class A Common Stock's best-in-class AI cloud platform far exceeds available capacity. This insatiable customer demand is a clear signal that the world's leading companies trust CoreWeave, Inc. Class A Common Stock to power their most critical AI workloads. In Q3, we beat expectations, delivering revenue of $1.4 billion, up 134% year over year. We added over $25 billion in revenue backlog in the third quarter alone, bringing us to over $55 billion in revenue backlog to end Q3, almost double Q2 and approaching 4x year to date. Further, CoreWeave, Inc. Class A Common Stock has reached $50 billion in RPO, faster than any cloud in history. These results demonstrate the deep confidence customers have in CoreWeave, Inc. Class A Common Stock, the company they trust as their essential cloud for artificial intelligence. We continue to scale aggressively even as the industry remains capacity constrained. We expanded our active power footprint by 120 megawatts sequentially to approximately 590 megawatts while growing our contracted power capacity over 600 megawatts to 2.9 gigawatts. This leaves us well-positioned for future growth with more than one gigawatt of contracted capacity available to be sold to customers that we expect to largely come online within the next twelve to twenty-four months. In Q3, we executed large-scale compute contracts with many of our largest customers, including Meta and OpenAI. Each represents a meaningful expansion of existing relationships and a diversification away from any single customer. We also grew our relationship with a leading hyperscaler, marking the sixth contract with this customer to date. In fact, nine of our 10 largest customers have now executed multiple agreements with us, the only exception being a new customer we onboarded in Q3. CoreWeave, Inc. Class A Common Stock is the force multiplier that empowers pioneers to accelerate breakthroughs in AI innovation. These are the world's most sophisticated AI organizations, and once they experience the performance, flexibility, and reliability of CoreWeave, Inc. Class A Common Stock Cloud, they consistently expand with us. That is the strongest validation we could ask for. Our exceptional growth illustrates just how quickly AI adoption is progressing beyond the frontier AI labs and hyperscalers. Broader global demand and our recent large wins are driving diversification of our revenue base. For example, the number of customers that exceeded $100 million of revenue over the last twelve months tripled year over year. AI native and enterprises across sectors are embracing CoreWeave, Inc. Class A Common Stock to transform operations and unlock new sources of innovation, productivity, and growth. At the forefront of foundation model development, Poolside selected CoreWeave, Inc. Class A Common Stock to power its mission to build artificial general intelligence and enable the deployment of agents across enterprises, while Periodic Labs is using CoreWeave, Inc. Class A Common Stock to push the boundaries of scientific discovery and computational research. At the application layer, we added AI native customers like Jasper, who chose CoreWeave, Inc. Class A Common Stock as their cloud partner as they transform the digital marketing landscape. We are also seeing incredible momentum within enterprises. CrowdStrike chose CoreWeave, Inc. Class A Common Stock to advance the development of AI agents for cybersecurity, while Rakuten is using our platform to transform their visual language models, helping to achieve greater transparency, reproducibility, and speed in their AI workloads. We also saw further expansion with a wide range of enterprise customers, including a leading software design platform and a large telco operator in the U.S. Our reach now extends into the public sector, a market with unique performance and security requirements. We recently launched CoreWeave Federal to bring our cloud services to U.S. government agencies and the defense industrial base. Already, NASA is leveraging our services to advance scientific exploration at its Jet Propulsion Lab. We are honored to help strengthen America's AI infrastructure, enabling agencies to accelerate innovation and address critical missions and our national interests. These recent wins underscore that we are enterprise-ready. With our customer base broadening across verticals and geographies, we are excited to welcome John Jones as our first Chief Revenue Officer. John joins us from AWS, where he served as global head of startups and venture capital. John is a strong addition to our team and will play an important role in scaling our global revenue organization, driving expansion through this next phase of growth. Next, as I move to discuss our growing data center footprint, I want to briefly touch on our previously proposed acquisition of Core Scientific, which was terminated in October. While the deal made sense strategically for both companies, the valuation required by their shareholders was simply not a price that was appropriate for CoreWeave, Inc. Class A Common Stock, particularly because the outcome of the transaction in no way adversely impacts our ability to achieve our growth ambitions in the coming years. Instead, we will continue to work closely with Core Scientific on the approximately 590 megawatts of capacity we have already leased. Our disciplined approach to expanding our capacity footprint ensures we are meeting the surging global demand for CoreWeave, Inc. Class A Common Stock's cloud services. As I mentioned, we grew our contracted power capacity to 2.9 gigawatts this quarter as we diversified across size, geography, and developers, enhancing resilience and flexibility across our portfolio. As of Q3, no single data center provider represents more than approximately 20% of our contracted power portfolio. In the past quarter, we added eight new data centers across the U.S., strengthening our domestic coverage with additional expansions underway across Europe, including a major new presence in Scotland, which is being developed in partnership with the UK government. And as we announced over the course of the summer, we have embarked on self-build projects to further accelerate our footprint and provide us greater operational control. While we are experiencing relentless demand for our data center developers across the industry, they are also enduring unprecedented pressure across supply chains. In our case, we are affected by temporary delays related to a third-party data center developer who is behind schedule. This impacts fourth-quarter expectations, which Nitin will discuss shortly. Having said that, the customer affected by the current delays has agreed to adjust the delivery schedule and extend the expiration date. As a result, we maintain the total value of the original contract, and the customer preserves their capacity for the full duration of the initial agreement, demonstrating the confidence they have in our ability to provide the most performance solutions in the market. We are incredibly proud of our technical accomplishments, and our customers continue to tell us that CoreWeave, Inc. Class A Common Stock is the absolute best place to run AI workloads. In the third quarter, we continued to deliver many of the initial scale deployments of the GB200s, while once again being first to market, this time with the GB300s, further highlighting our incredible track record of operational excellence. CoreWeave, Inc. Class A Common Stock's industry leadership is unmatched. We are the only cloud provider to submit MLPerf inference results for GB300, setting the benchmark for real-world AI performance. And just last week, Semi Analysis once again recognized our dominance, awarding CoreWeave, Inc. Class A Common Stock its highest possible distinction, its platinum cluster max ranking, for the second time ahead of more than 200 providers, including the hyperscalers and emerging neo clouds. No other cloud has achieved this once. CoreWeave, Inc. Class A Common Stock has done it twice, underscoring yet again that CoreWeave, Inc. Class A Common Stock stands alone at the forefront of the AI cloud. Demand for AI cloud technology remains robust across generations of GPUs. For example, in Q3, we saw our first 10,000 plus H100 contract approaching expiration. Two quarters in advance, the customer proactively recontracted for the infrastructure at a price within 5% of the original agreement. This is a powerful indicator of customer satisfaction as well as the long-term utility and differentiated value of the GPUs run on CoreWeave, Inc. Class A Common Stock's platform. CoreWeave, Inc. Class A Common Stock is the world's first AI cloud at hyperscale, comprising compute, storage, networking, and software purpose-built for AI workloads. Our growing cloud portfolio is underpinned by an expanding suite of software and services that help our customers build, train, and deploy new products faster. In addition to mission control, our proprietary orchestration solution, which is critical to autonomously operate our AI cloud at the bleeding edge, we recently launched CoreWeave AI object storage, a fully managed storage service that eliminates any friction of moving data between regions, clouds, and tiers with zero egress or transaction fees. CoreWeave, Inc. Class A Common Stock's AI object storage delivers the highest amount of throughput of AI workloads while cutting the customer's cost by more than 75%. We have already seen tremendous interest in this offering, adding a number of initial customers, including Frontier AI Labs like Mistral. Across our entire storage platform, we have seen rapid customer adoption, eclipsing $100 million in ARR in Q3. Combined with our unique global network backbone purpose-built for AI, this positions CoreWeave, Inc. Class A Common Stock as the hub for customers and their key AI workloads, enabling consistent best-in-class performance and seamless user experiences when utilizing CoreWeave, Inc. Class A Common Stock Cloud or a secondary provider. We've supplemented these capabilities with further expansion of our observability and security suites to ensure that CoreWeave, Inc. Class A Common Stock is best positioned to handle all of our customers' critical workloads, regardless of the use case or geography. Our role over the last few years has been to support the pioneers who are developing and improving AI. Now we are expanding our role to help put AI to work. From the tools that developers require to build AI to the solutions that the physical world requires to adopt AI, we've used M&A as a key tool to accelerate this journey, including the recently announced acquisitions of Open Pipe, Marimo, and Monolith. With Open Pipe, we quickly integrated their solutions into our broader fine-tuning product suite and introduced the first publicly available serverless reinforcement learning tool. With Marimo, we are expanding CoreWeave, Inc. Class A Common Stock's exposure to and impact within the open-source community, starting with entry-level exploration and prototyping. Both Open Pipe and Marimo fit seamlessly with the capabilities of weights and biases, where we are rapidly growing the developer base reliant on CoreWeave, Inc. Class A Common Stock's holistic platform. With Monolith, we are expanding these capabilities into the physical world to unlock the monetization of AI today, initially focusing on industrial use cases with an established enterprise customer base and mature workloads, including leading auto OEMs like Nissan and Stellantis. Through the rapid and successful launch of new products and services, we are expanding our addressable market and growing with our customers. We are fundamentally evolving the capabilities of CoreWeave, Inc. Class A Common Stock, creating beachheads and expansion opportunities into new markets, all in the service of further supporting the rapid growth of AI and enabling AI builders and innovators to get to market faster, more reliably, and drive ROI. Our engagements are getting more sophisticated, as evidenced by our partnership with CrowdStrike, which will unlock and accelerate partner-driven growth. Our new storage product and partnership with Vast Data is another example of accelerating both our product portfolio and partner go-to-market motions and allows us to compete in new markets where we previously had limited or no offerings. This facilitates customer-driven platform adoption and product-led growth, creating tailwinds for our business. As I close, I want to emphasize what truly sets CoreWeave, Inc. Class A Common Stock apart. We are the essential cloud for AI, combining unmatched technical and operational excellence with a rapidly diversifying customer base. We deliver the most performing infrastructure, the fastest time to market, and the most advanced capabilities in the industry. The world's leading AI innovators choose CoreWeave, Inc. Class A Common Stock because we enable them to move faster, scale smarter, and achieve outcomes that simply are not possible anywhere else. Our momentum has never been stronger, and the opportunities ahead continue to expand. Powered by exceptional products, an extraordinary team, and unrivaled execution, CoreWeave, Inc. Class A Common Stock is ready to enter the next phase of growth as a full-stack AI service provider and hyperscale. The future runs on CoreWeave, Inc. Class A Common Stock, and we are just getting started. With that, here's Nitin. Nitin Agrawal: Thanks, Michael, and good afternoon, everyone. Our impressive third-quarter results reinforced the relentless demand for CoreWeave, Inc. Class A Common Stock and our focused execution in building the essential cloud for AI. As Michael shared, we continue to execute within a highly supply-constrained environment, which we expect to persist for an extended period of time. Our continued focus on delivering the most performance solution in the market and investing up and down the stack is spurring growth and diversification across our customer base, from new enterprises and AI natives to expansion with existing customers. Now turning to Q3 results. Q3 revenue was $1.4 billion, up 134% year over year, driven by robust customer demand and strong execution. Revenue backlog for the quarter ended at $55.6 billion, almost doubling in the third quarter alone. Demand remains robust for not just the Blackwell platform but across our GPU portfolio. In the third quarter, we signed a number of deals for older generations of GPUs, adding new customers and re-contracting existing capacity. The breadth of demand for CoreWeave, Inc. Class A Common Stock's cloud services has enabled us to reduce our customer concentration significantly. Today, no single customer represents more than approximately 35% of our revenue backlog, down from approximately 50% last quarter and even more meaningfully from approximately 85% to begin the year. Additionally, as of Q3, more than 60% of our revenue backlog is tied to investment-grade customers. This is what successful execution against our stated goal of platform customer diversification looks like. Operating expenses in the third quarter were $1.3 billion, including stock-based compensation expense of $144 million. We continue to ramp our investments in data center and server infrastructure to execute against our growing revenue backlog, which contributed to the increase in our cost of revenue and technology and infrastructure spend in Q3. In addition, the increase in sales and marketing was driven by investments in marketing and scaling our go-to-market organization to capture the rapid growth of AI opportunities across enterprises and AI natives. The increase in G&A was driven by professional services and headcount. Adjusted operating income for Q3 was $217 million compared to $125 million in 2024. Our Q3 adjusted operating margin was 16%. Adjusted operating income was better than expected due to higher revenue, lower costs due to timing of data center deliveries from our third-party partners, and improved fleet efficiencies. Net loss for the third quarter was $110 million compared to a $360 million net loss in 2024. Interest expense for Q3 was $311 million compared to $104 million in 2024 due to increased debt to support the scaling of our infrastructure, partly offset by the benefit from better interest rates on our debt as we make further progress in lowering our cost of capital. Adjusted net loss for Q3 was $41 million compared to approximately breakeven in 2024, while adjusted EBITDA for Q3 was $838 million compared to $379 million in 2024, increasing more than 2x year over year. Our adjusted EBITDA margin was 61%. Turning to capital expenditures. CapEx in Q3 totaled $1.9 billion, lower than anticipated due to the delays Michael mentioned related to deliveries from a third-party data center provider. The meaningful growth in construction in progress to $6.9 billion, an increase of $2.8 billion quarter over quarter, is a direct result. As a reminder, construction in progress represents infrastructure not yet in service and is excluded from CapEx until it is deployed. Now let's turn to our balance sheet and strong liquidity position. As of September 30, we had $3 billion in cash, cash equivalents, restricted cash, and marketable securities. Growing rapidly and operating at scale demands a strategic approach to securing capital. CoreWeave, Inc. Class A Common Stock has established itself as the leading AI cloud and the leading innovator financing the infrastructure required to power the world's most advanced workloads, enterprises, and AI labs. We continue to make great progress in strengthening our capital structure and lowering our cost of capital. In Q3, we amended the DGTL 2.0 facility by increasing its remaining drybulk capacity by over $400 million to create a new $3 billion tranche at SOFR plus 4.25%, which is significantly below the original cost of the facility. As we discussed previously, we also closed TDTL 3.0 in the third quarter, priced at SOFR plus 400, which represents a 900 basis point decrease from the non-investment grade portion of our prior facility. Going forward, we expect to continue to be able to finance at lower spreads as our capital providers increasingly appreciate our best-in-class execution as well as the durable cash flow and visibility that underpin our take-or-pay customer contracts. Further, we raised $1.75 billion in senior notes in July, extending our exposure to the high-yield market at a cost 25 basis points lower than our inaugural offering in May. Year to date, CoreWeave, Inc. Class A Common Stock has successfully secured $14 billion in debt and equity transactions to support our execution on our rapidly growing backlog and efficient scaling for long-term growth. Other than payments related to OEM vendor financing and self-amortizing debt through committed contract payments, we have no debt maturities until 2028. Turning to tax, in Q3, we recorded a non-cash tax benefit primarily due to the impact of One Big Beautiful Bill. While the size of the impact to Q3 was one-time in nature, due to a year-to-date catch-up, we expect the change in law to enable CoreWeave, Inc. Class A Common Stock to realize cash tax savings in future periods. Now turning to guidance. As mentioned, the delays in powered shell delivery associated with the data center provider will have an impact on our fourth-quarter results. These delays are temporary, and as Michael noted, the affected customer has agreed to adjust the delivery schedule to preserve their capacity for the full duration and the total value of the original agreement. With that backdrop, we now expect 2025 revenue in the range of $5.05 billion to $5.15 billion. In addition, we anticipate 2025 adjusted operating income between $690 million to $720 million and expect to end the year with over 850 megawatts of active power. In Q4, we will be bringing online some of the largest scale deployments in our company's history. This will have a near-term impact on adjusted operating margin due to the timing difference between when data center costs are first incurred and when we start recognizing revenue. We expect 2025 interest expense in the range of $1.21 billion to $1.25 billion, driven by increased debt to support our demand-led CapEx growth, partly offset by an increasingly lower cost of capital. Moving to CapEx. We now expect 2025 CapEx in the range of $12 billion to $14 billion. We expect this reduction in CapEx from our prior guidance will be mostly reflected by a corresponding increase in construction in progress due to the buildup of infrastructure waiting to be deployed following the delivery of powered shell capacity. As such, the vast majority of the remaining CapEx had previously anticipated to land in Q4 will now be recognized in Q1. In addition, given the significant growth in our backlog and continued insatiable demand for our cloud services, we expect CapEx in 2026 to be well in excess of double that of 2025. These investments in our infrastructure platform will strengthen our competitive moats and support our continued hyper-growth. In closing, we delivered a record third quarter and remain more confident than ever in the long-term trajectory of our business. Over the course of this year, we've made tremendous progress, accelerating our revenue backlog growth that now exceeds $55 billion while diversifying our customer base, executing strategic partnerships and acquisitions to strengthen and broaden our platform, accessing new capital pools that meaningfully reduce our cost of capital, and scaling both our capacity and organization at an unprecedented pace. This progress enables us to seize the opportunities in front of us today and create a strong foundation for years to come. Our addressable market continues to expand, not only as AI adoption proliferates across industries and use cases but also through deliberate business decisions we've made to broaden our product portfolio and capture greater wallet share across the industry. CoreWeave, Inc. Class A Common Stock is reaching escape velocity, scaling more rapidly and efficiently, and solidifying our leadership as the essential cloud for AI. Thank you to our investors and analysts for your support and engagement. We look forward to updating you on our progress in the quarters to come. With that, we move to Q&A. Operator: And our first question comes from the line of Mark Murphy with JPMorgan. Please go ahead. Mark Murphy: Thank you, Michael. Every discussion we have across the AI landscape, we hear that bookings are booming, and obviously, that applies to CoreWeave, Inc. Class A Common Stock. But the bottlenecks around power and manpower are becoming so severe. Can you speak to that situation relating to the third-party provider? Specifically, is it a shortage of power or manpower? Is it something outside of that with GPUs or memory or storage? And then have you spoken to your other third-party providers to get a sense of their own trending relative to schedule and whether they think they can hold on their deliver on their commitments into early next year? Michael Intrator: Let me take that question apart a few different ways. Right? So first of all, correct. It is very frustrating for clients. It's very frustrating for us. The kind of systemic challenges that exist within the supply chains that are necessary to deliver the global infrastructure required for artificial intelligence. Having said that, we have taken a number of steps along the way here to really drive home our ability to manage that environment, which is going to be challenging into the future. We've really spent a lot of time diversifying our data center providers. We have created a significant portion of the company dedicated to being able to facilitate and assist with the operational component of delivering infrastructure. We set up our own self-build efforts, including Kenilworth and Lancaster, Pennsylvania, so you see us kind of really spreading out and ensuring that we're doing everything that is possible to limit the damage associated with or the delays associated with delivering this infrastructure, which is just overwhelming the supply chains. Now, when you have a diversified portfolio of paths to infrastructure, the relative impact of each delay becomes smaller. You'd just be able to draw on different data centers as you're getting delivered. And so we really look at this as this is a significant block of infrastructure that's come on late. But the fact that the ultimate end customer that's going to be consuming this has shifted the contract back to allow us to be able to deliver the full contract value in spite of the delays really speaks to the value that the customers get out of our infrastructure. So you're going to be hearing this theme repeated again and again as you talk to not just CoreWeave, Inc. Class A Common Stock, but you talk across the space. And it is a real challenge at the powered shell level. It's not a challenge for power. There's plenty of power right now. And we believe that there will be ample power for the next couple of years. But really where the challenge is is the powered shell. Mark Murphy: And so, Michael, does this not relate to Core Scientific in any way, or is this totally removed from that situation that you've gone through? Michael Intrator: So I'm not going to speak to any specific one of our data center providers. We're working with all of our data center providers to do everything we can to facilitate the ultimate delivery of the infrastructure that they're going to deliver to us. We've had some incredible success getting infrastructure delivered to us as you continue to see us scaling. You saw us hit approximately 590 megawatts. We're up 120 megawatts since the last call. So you are seeing a significant amount of success as we continue to scale delivery. But I don't think it really matters who the individual data center provider is. This is a systemic problem that the industry is going to have to deal with for the foreseeable future. The important part here is that the infrastructure, which is undergoing a delay, is not going to impact our backlog and our ability to extract the full value from the contracts that we're going to deliver on. Operator: Our next question is from the line of Keith Weiss with Morgan Stanley. Please go ahead. Keith Weiss: I just want to thank you guys for taking the question. And congratulations on another super impressive quarter in terms of building out that backlog. You're right, we've just we've never seen this in terms of any cloud provider being able to build out that quickly. Mike, I wanted to ask you a question that's been asked of us a lot that we're hearing a lot on CNBC. And it's really about sort of the risk of overcapacity. And I think it's more narrow than that, that people are worried about overcapacity from or of what's being contracted by AI labs out there. The question I want to ask you though is how we should think about your guys' infrastructure and the infrastructure that you build and how fungible that infrastructure really is. When you're building out for a particular customer, do those data centers, is that usable for any customer? Is it usable for inference and training? Or do you really build suit a certain customer that would lock you in and give you kind of less degrees of freedom, if you will, if one customer is doing better or worse? Michael Intrator: Yes. Keith, that's an excellent question. It's actually something that we've spent a lot of time thinking about here as we kind of proceed with our relationships with all our customers. And so in short, the infrastructure is fungible. It would be able to be transferred from one client to another. The infrastructure is built to the most demanding specs, so it's able to be used for training, able to be used for inference. We really have thought a lot about making sure that we maintain as much flexibility in our infrastructure build as possible. And I want to highlight for everyone that a lot of that flexibility, a lot of that fungibility really does tie back to the incredible software suite we provide that allows for such effective use of the infrastructure. When Semi Analysis did their annual review of the alternatives out there, there's a reason that CoreWeave, Inc. Class A Common Stock has come back time and time again as singular as the best solution for this type of infrastructure that exists in the world. And that includes the hyperscalers, neo clouds, and everyone else that's trying to deliver this infrastructure. We just do a great job, and we believe that there's a lot of value that we are protecting by providing such a robust software suite to be able to deliver infrastructure. Operator: Our next question comes from the line of Kash Rangan with Goldman Sachs. Please go ahead. Kash Rangan: Hi. Thank you very much and impressive back growth. Two things that I wanted to just touch upon. One is Mike, I think you've talked about how you're going to be diversifying your contractors and the data center side. Maybe you could give us an honest-to-goodness update on how far are we away from potentially reaching a point where any disruptions that have nothing to do with your business should not affect your revenue outlook, how far away are we from that point? And secondly, when you look at the developments, I mean, nobody expected maybe some did, but at $250 billion contract for OpenAI with Microsoft, nobody expected a $300 billion contract OpenAI with Oracle. All of a sudden, certainly, CoreWeave, Inc. Class A Common Stock has got a unique value proposition being able to stand up clusters very quickly and very effectively. At the speed of thought, almost in a landscape where we're talking hundreds of millions of dollars being awarded to the hyperscaler giants, what gives you the uniqueness three to four years from now when things have sort of settled into a supply equals demand, what when we look back at CoreWeave, Inc. Class A Common Stock, what will be the shining value proposition that keeps you in the game at that point? And thank you so much, and that's it for me. Michael Intrator: Yeah. Thank you. Let me break that question into two pieces. Right? The first question you asked is about diversification and when does it start when does it stop kind of causing dislocation in our numbers as we're delivering them quarter to quarter. And what I would like to focus you on here is as the individual builds become smaller relative to the size of the entire portfolio of data centers that we are running, the impact of being a couple of weeks late will become less and less meaningful in the general accounting of what's going on. Right? So when you're delivering 590 megawatts of power, and you have a step function of two or 300, it's a material percentage that's going to be delivered over the next quarter. Right? As we become larger and larger and start to build out the full 2.9 gigawatts of power that we have, having a data center that's 100 megawatts delayed a week or two is not going to have a material impact. And as Nitin said, we expect the overwhelming majority of that 2.9 gigawatts of power to be brought into service over the next twelve to twenty-four months. And so that'll give you a really good idea of how the curve begins to become more smooth as we get larger and the relative impact of each data center becomes smaller. And so that's the first part on the scaling side. The second part is the question you're asking has been asked of us since we started this business. Why is CoreWeave, Inc. Class A Common Stock going to be able to deliver GPUs faster? Why are we going to be able to deliver the GPUs that NVIDIA uses to run its ML perf? Why are we going to be able to create software going to define the space? And with each quarter, you see us extending the lead with which we have because of the customization of our cloud to the use case that is required. And once again, you saw us in the semi analysis, like, we're singular in this. We are out there building our product offering. We're building or buying additional capacity to further decommoditize compute that we're delivering. And so a company that's built singularly to deliver this type of compute will be effective on a go-forward basis. Operator: Our next question is from the line of Amit Daryanani. Please go ahead. Michael Intrator: Amit, are you on mute? Unmute. Your line is open. Nitin Agrawal: Operator, let's go to the next question, and we'll come back to Amit. Operator, can we go to the next question and we'll come back to Amit? Operator: Our next question is from Tyler Radke with Citi. Please go ahead. Tyler Radke: Hey, hopefully you can hear me okay. Thanks for taking the question. So double-clicking on some of the delays that you called out in the quarter, can you just help us understand the implications on 2025? I know, Nitin, you provided some high-level commentary on CapEx. But just given the visibility you have particularly on the twenty-four-month component of RPO, how should we be thinking about sort of the revenue implications of the shift? Is this a delay that you think kind of gets fully resolved into Q1? And should we see sort of a step-up in growth rate next year relative to this year? Just any color on that would be helpful. Michael Intrator: Yes. So I'll start, then I'll hand it over to Nitin. I think it's important to understand that the ramp that we are seeing is associated with the infrastructure from a single provider. And we are parallel with other providers for other contracts. And so you're going to see a short-term impact associated with this delivery. And then what you're going to see is our ability to accelerate through the year back to schedule. So the overwhelming majority of the delay that you're seeing should be taken care of within Q1 of next year. Nitin Agrawal: Yeah. Tyler, that is correct. The vast majority of the CapEx push out that we experienced in Q4 will be done in Q1. And as you can imagine, we're going to ramp the capacity through the course of Q1 for this. As Mike earlier mentioned, the impact on the total revenue associated with the customer is not impacted here because we've been able to adjust the delivery dates associated with the customer so that the customer keeps the full capacity as well as contract value associated with it. We'll share more details on the 2026 build and our revenue plan associated in the next earnings. But as we highlighted in this quarter, given the strong customer demand that you see, that is demonstrated in our revenue backlog growth, as well as the continued customer demand we see, 2026 CapEx to be well more than double that of 2025. Operator: Our next question is from the line of Michael Turrin with Wells Fargo. Please go ahead. Michael Turrin: Hey, thanks very much. I appreciate you taking the question. Want to just try to tie some of the commentary together. Because the bookings growth clearly stands out and there are a lot of questions just around the sequencing. And so it sounds like what you're saying is the supply chain impacts you're seeing are more single customer specific. What I'm trying to get a better sense of is does this at all impact the cadence at which you're able to sign on new customers or is this more tied to post-ramp signing and one more specific customer environment? And just as a small follow-up, does the NVIDIA deal specifically show up in the backlog metric? It might be useful to hear you expand on what that deal opens up given it's a bit of a different structure there as well. Thanks very much. Michael Intrator: Sure. So there is no impact on our ability to bring on more clients. I think it's important to understand that we're parallelizing the build of infrastructure. There is a problem at one data center that's impacting us. But there are 32 data centers in our portfolio, all of them are progressing to one extent or another. And so each one of those is independent. And as Nitin spoke earlier, we have 2.9 gigawatts worth of contracted power that will come on in the next twelve to twenty-four months. And we are going to be looking to fill that with clients that are going to be using that, which will have a substantial impact on our revenue on a go-forward basis. This one data center will catch up, and then we will move forward from there. Want to talk about the NVIDIA deal? Nitin Agrawal: Michael, on the NVIDIA deal perspective, we're really excited about this deal. This contract allows capacity contracted and reserved for NVIDIA to be interrupted and resold to different customers. So the nature of this contract allows us to offer our services profitably to a wide range of smaller customers, such as high-growth AI labs that prefer shorter and lower upfront commitments while eliminating any utilization risks capacity from our side. So we're really excited about this. Given the flexibility in the contract, interrupt and to resell capacity, accounting rules require us that we exclude the amount we expect to be resold to other customers from RPO. To be clear, if not resold, capacity will remain committed to NVIDIA and will be recognized as revenue. So you see this NVIDIA contract in our revenue backlog, but not in our RPO to a large extent. Michael Intrator: So just to follow up with that for a moment there. As Nitin said, we're extremely excited about this because what this contract is going to allow us to do is to provide infrastructure to emerging companies, startups, companies that are struggling to get access to the computing infrastructure that they require to be able to build their business. And so the interruptibility here is an incredibly powerful tool for the resiliency and opportunities for new companies to become part of CoreWeave, Inc. Class A Common Stock's broader offering. And we're really excited about this. We think it's a great structure. It is a deal with NVIDIA. They fully underwrite the economics because we will sell the compute to them. And I want to be clear that this really does represent an incredibly disciplined way of financing the compute in order to be able to reach parts of the market that we have been unable to reach or anyone for that matter has been unable to reach up to this point. Operator: Our next question comes from the line of Brent Thill with Jefferies. Please go ahead. Brent Thill: And then just wanted to be clear, you cut CapEx by 40% for the year. And just to be clear, this is from one customer, correct? This is you're not assuming other delays across the board. Correct? Nitin Agrawal: That is correct. So this is associated with a single provider, data center provider partner. The delays associated with that. As we talked in our prepared remarks, most of it, a vast majority of it is going to be recognized in Q1. And in Q4, you're going to see a major impact on the buildup of construction in progress associated with the buildup related to it. Brent Thill: Okay. Terrific. Operator: And our next question comes from the line of Raimo Lenschow with Barclays. Please go ahead. Raimo Lenschow: Perfect. Thank you. As we think about CapEx next year, Nitin and Michael, can you speak as well about the sources of funding a little bit? Because what we've seen for a lot of the other players is that leasing is coming up a lot more. Talked about CapEx, is kind of what you need to do. How do you think about that path for you going forward between the different ways of kind of funding the business, which might give you even more flexibility? Thank you. Michael Intrator: Thank you. So look, we've driven innovation on the technology side. And we've driven innovation on the financing side. The way that I look at this is that we will look at the full suite of potential ways of financing and expanding our footprint. And then we will choose whatever is the most cost-effective way of increasing our scale and serving our clients. And so if leasing is the path, that's the path we'll go. But we've seen a lot of different structures. We've created a lot of different structures that have given us access to capital over the past three years. And we believe that we're going to explore the full suite of those as we look forward. We don't sign customers without knowing where the financing is going to come from. We go deal by deal. We make sure that we have the physical data center spoken for. We have the power spoken for. We have the GPU spoken for, and we have the financing spoken for in order to ensure that we are able to successfully deliver compute to them. Operator: Our next question comes from the line of Amit Daryanani with Evercore. Please go ahead. Amit Daryanani: Yep. Hopefully, this works better. Michael Intrator: We got you. Amit Daryanani: Alright. Perfect. Mike, I was hoping if you could just talk about as you shift from, you know, third-party data center providers to perhaps do more of your own self-build, how does that impact your CapEx and time to market for Power as you go forward? Would love to just understand how do you think that optimal mix looks like and what the CapEx requirements could be as you perhaps go more towards self-build versus third-party data center providers? Thank you. Michael Intrator: Yeah. So I want to be clear. We're not saying that we're going to go self-build and not use third-party data center providers. What we are saying is that self-build is a component of the way that you go about de-risking delivery across the broader portfolio. And so we're going to go ahead and we're going to work with our partners who provide data center capacity that allow us to co-locate at their facilities that build facilities for us. All of that is going to continue to be true. We need that capacity in order to be able to continue to move and operate at the speed and scale that we are. We just look at self-build as an additional piece of the puzzle. It puts us closer to the physical infrastructure. It embeds us deeper into the supply chain around the world so that we have firsthand information. We just think that you need to be on both sides of this fence in order to be as effective as you can be de-risking what is a complicated supply chain environment. Operator: Our next question comes from the line of Brad Zelnick with Deutsche Bank. Please go ahead. Brad Zelnick: Great. Thank you so much for taking the question. Mike, with 2.9 gigawatts committed power and over a gigawatt yet to be contracted out to customers, meanwhile, we continue to see a number of other large deals get announced industry-wide. How do you think about and how might you frame for us the pacing on contracting out the remaining capacity given the demand is insatiable out there? Michael Intrator: Yes. So look, thanks for the question here. The fact that there are other deals getting contracted out there is incredible validation for the supply-demand environment that we have been describing for years now. There is no entity that has the capacity to be able to deliver infrastructure globally in order to meet the demand that's being driven by the largest technology companies in the world, by the largest AI labs in the world, by government, by enterprise, all of these things are coming to bear. And so the fact that there are other deals going to other players is part and parcel for the fact that we, like the hyperscalers, like the AI labs, like the data centers, are being overwhelmed by demand. It is just reinforcing and validating the theme that we've been talking about. We think that, at the end of the day, the product that we deliver, which is full stack everything from the hardware all the way through the software, is the most valuable representation of this infrastructure that can be delivered to the market. And we continue to think that that will drive a significant amount of demand for our infrastructure. As far as the remaining capacity goes, being very thoughtful about continuing to drive diversification across our cloud. We're continuing to think about different applications that are going to be meaningful contributors to the way the world will work in the future. And we are allocating that infrastructure to those parties as quickly as we can in order to ensure that they are successfully able to launch their products, their enterprises. Nitin Agrawal: And, Brad, a couple of things to kind of keep in mind here as we kind of talked about in our prepared remarks. Today, you know, approximately, no customer represents greater than 35% of our revenue backlog, which is meaningfully down from where we began the year at 85%. And 60% of our revenue backlog is with investment-grade customers. So vectors that we are very thoughtful around as we care for the capacity that we have available to be sold. Operator: Our final question comes from the line of Brad Sills with Bank of America. Please go ahead. Brad Sills: Great. Thank you so much. I did want to ask a question around this concept of the PowerShell as a bottleneck here, Mike. Is there any IP that CoreWeave, Inc. Class A Common Stock has you contribute to the build-out of these data centers? Any learnings from this delay that you might be able to apply to other contracts? Just trying to get a sense for how much is in your control here to kind of solve for this bottleneck issue that you're experiencing with this one contract itself? Thank you. Michael Intrator: Yeah. What I would say is, Brad, I don't think that I would say that our learning has come from this one delay. We've been operating in a systemically supply-constrained market globally now for three years. We understand how difficult it is with each additional wave of demand, the market gets tighter and tighter. So, you know, when you ask, you know, what are we doing to position ourselves on a go-forward basis, what I would really encourage you to think about is the fact that we've built out an entire organization within CoreWeave, Inc. Class A Common Stock that is capable of helping us build and deliver additional capacity on the self-build side. That's where you embed yourself into the supply chains. You understand where the power is, how it's being contracted. You understand what it takes to build the powered shells because you're doing it yourself. In addition to the fact that you're using other third-party providers, those are the type of relationships that will enable us to be as successful as possible in what is going to be a challenging environment for quite a while. Operator: Thank you. And that concludes our question and answer session for today. I would now like to turn the conference over to Michael Intrator for closing remarks. Michael Intrator: Thank you all for joining us today. As we wrap up, I want to emphasize how proud we are of the strong foundation we built this year and the incredible momentum driving our business forward. Our team's exceptional execution to build the essential AI cloud has positioned CoreWeave, Inc. Class A Common Stock to capture a significant and expanding market opportunity. We appreciate your support and engagement, and we look forward to updating you on progress next quarter. Thank you. Have a good night. Operator: This does conclude today's conference call. You may now disconnect.
Eric Martinuzzi: Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the American Public Education, Inc. 3Q 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, if you would like to withdraw your question, thank you. I'd now like to turn the call over to Brian Prenoveau, Investor Relations. Please go ahead. Thank you, and good afternoon, everyone. Welcome to American Public Education's conference call to discuss third quarter 2025 results. Brian Prenoveau: Joining me on the call today are Angela Selden, President and Chief Executive Officer, Edward Codispoti, Executive Vice President and Chief Financial Officer, Barry Jansen, Senior Vice President of Growth and Strategy, and Rick Sunderland, Executive Adviser to American Public Education, Inc., also on today's call and will be available for the Q&A session. Materials for the call today are available in the Events and Presentations section of American Public Education, Inc.'s website. Statements made during this conference call and any accompanying presentation or regarding American Public Education, Inc. and its subsidiaries that are not historical facts may be forward-looking statements based on current expectations, assumptions, estimates, and projections. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, such as those identified in our Form 10-Ks under the heading Risk Factors, including those related to potential impacts from government shutdowns or changing federal or state government policies, practices, and laws, including impacts on revenues or the timing of receivables. Forward-looking statements may sometimes be identified by words like anticipate, believe, seek, could, estimate, expect, and may plan potentially reject should, will, would, and similar or opposite words. Forward-looking statements include, without limitation, statements regarding expectations for registration and enrollments, revenue, earnings, and adjusted EBITDA, and other earnings guidance. Our foundation for growth, the planned combination of our institutions, governmental and regulatory actions, their impact, our response to those actions, changing market demands, and our ability to satisfy such demands and other company initiatives. This presentation contains references to non-GAAP financial information. A reconciliation between the non-GAAP financial measure we use and the most directly comparable GAAP measure is located in the appendix to today's and in the earnings release. Management believes that the presentation of non-GAAP financial information provides useful supplemental information to investors regarding its results of operations and should only be considered in addition to and not as a substitute for or superior to any measure of financial performance prepared in accordance with GAAP. With that said, I'd like to turn the call over to American Public Education, Inc.'s President and Angela Selden. Angie, please go ahead. Angela Selden: Thank you, Brian. Good afternoon, and thank you for joining American Public Education's third quarter 2025 earnings call. Before we begin with the third quarter results, I would like to take this moment to introduce Ed Codispoti, American Public Education, Inc.'s new Chief Financial Officer. Ed joined American Public Education, Inc. on 10/20/2025, and we are very excited to have him on board. Ed joins us from NV5, a leader in technology and engineering consulting solutions. Prior to NV5, Ed was CFO of Illumina Holdings, a higher education company providing learning platforms and technology solutions to universities in Latin America. I will let Ed introduce himself further before he provides the financial overview. I also want to take this opportunity to thank Rick Sunderland for his dedicated service. Over twelve years, he has been instrumental in building and shaping American Public Education, Inc. During Rick's tenure, American Public Education, Inc. has navigated significant transformation across the enterprise, including the integration of new institutions and strengthening of the company's long-term position. Rick has been a steady hand, always steering American Public Education, Inc. in the right direction through periods of growth and change, and his leadership has left a lasting positive impact on the organization. We appreciate that he has agreed to serve as an executive advisor over the next few months to facilitate a smooth transition. We will certainly miss him while also wishing him the best during his next chapter. Moving on to the third quarter. We have four areas to highlight during today's call. First, I am very pleased with American Public Education, Inc.'s third quarter 2025 performance. As we have again exceeded our guidance ranges for all metrics, including revenue, net income, EPS, and adjusted EBITDA, through continued registration and enrollment momentum and expanding margins. Registration and enrollment growth has outpaced our forecast and significantly contributed to the outperformance in our financial metrics. Registrations at APUS in the third quarter increased 8% as compared to 3Q 2024. This also represents a sequential acceleration in the rate of growth from 2Q 2025. Enrollments at Rasmussen increased 10% versus 3Q 2024. This represents the fifth consecutive quarter of year-over-year enrollment growth. I am particularly pleased that on-ground enrollments at Rasmussen are accelerating, taking advantage of our existing capacity or what we call filling the back row. Enrollment at Hondros College of Nursing continued their strong momentum, increasing 18% as compared to 3Q 2024. Angela Selden: Second, as previously disclosed, we completed the sale of Graduate School USA on 07/25/2025. Early this year, as we prioritized the combination of our degree-granting institutions, we determined that the graduate school training business was no longer a strategic fit within our future growth strategy. We were very pleased to find a new home for the graduate school that is more aligned with its mission and market position, allowing us to focus on growing our core degree-granting businesses, including the military, military-affiliated, veteran, nursing, and other healthcare communities. Third, as we continue our work to simplify the overall operational businesses at American Public Education, Inc., at the '5, we received HLC approval and submitted our combination request to the Department of Education. In Q3 2025, after dialogue with the Department of Education team newly assigned to our transaction, we were informed that we should follow a different process for the planned combination of our institutions rather than the one originally undertaken. As a result, in September, we were required to submit and completed the submission of a new application first to the HLC, which will be reviewed at their board meeting in February 2026. This application contains substantially the same content as our prior submission. We have also provided to the Department of Education our expected timeline for the completion of this newly submitted combination plan to take effect at the beginning of 2026 for the 2026 student financial aid award year. Fourth, our simplification actions have also strengthened our balance sheet and should enable our subsidiary institutions to continue to produce improved financial results. With the Department of Education removing the restrictions on the $24,500,000 letter of credit, that dated before the close of our acquisition of Rasmussen, that cash now unrestricted on our balance sheet contributes to the unrestricted cash and equivalents totaling $193,100,000 as of 09/30/2025. As a result of our recent redemption of our preferred equity, at the end of the second quarter, we will save approximately $6,000,000 annually from the elimination of the cash dividend payments. Also, the sale of the graduate school eliminated a $28,000,000 lease liability, which will save us approximately $4,000,000 in lease payments annually and also reduces our total liabilities. These changes have improved our cash position and will increase our cash flow by approximately $10,000,000 per year on a pretax basis, which will meaningfully improve net income and earnings per share. We believe we are now positioned with more financial flexibility and an improved capital structure to more confidently pursue our growth initiatives. Moving now to more details about the third quarter 2025 results. Starting first with American Public Education, Inc.'s nursing and healthcare institutions. Rasmussen continues to produce strong results. Rasmussen's enrollment increased 10% in 3Q 2025 and 9% in 4Q 2025, representing the fifth and sixth consecutive quarters of year-over-year enrollment increases. As mentioned in previous calls, by leveraging its existing fixed cost structure, Rasmussen has been and will continue to experience increased operating leverage as enrollments continue to increase. Continued enrollment growth will also flow through to EBITDA margins. Importantly, we are carrying an additional 1,300 enrollments into 4Q 2025 as compared to 4Q 2024, which we will continue to build upon in 2026. With our current campus footprint, we believe our strategy that we call filling the back row by working to ensure each of our classes and sections is maxing out capacity at our current campuses has been successful. With increasing enrollments and improving EBITDA flow through on each incremental student. At Hondros College of Nursing, as previously reported, 3Q 2025 enrollment was strong with 18% growth as compared to 3Q 2024. 4Q 2025 enrollments continue a positive trend, increasing 9% year over year to 4,000 students off of a very strong prior year comp. We believe that the business combination of Rasmussen and Hondros College of Nursing will provide us with an improved platform to add programs, scale enrollment, and increase margins. Turning to American Public Education, Inc.'s online university educating our nation's military, veterans, and their families, in the third quarter, overall APUS net course registrations increased 8% year over year. Revenue at APUS also increased over 8%. Turning our attention to Q4. The government shutdown has muted military enrollments at APUS for October and November. We are, however, pleased that several of the military branches are now authorizing tuition assistance benefits through the use of the $100,000,000 of tuition assistance funds that were authorized in the One Big Beautiful Bill Act. Further, those branches have been selectively bringing back furloughed workers to help assist with those TA approvals. Additionally, last night's Senate vote test vote yielded enough votes for the amended CR to pass the Senate, perhaps even today, and head back to the House for consideration, possible approval, and passage to the president for signature perhaps as early as the end of this week. It is our understanding that upon presidential signature, workers would be called back from furlough and TA funds would again be available for use during the CR period. We remain confident that TA will continue to be a critical Department of Defense recruiting tool, as it is a benefit to service members in exchange for voluntary enlistment. It is also seen as a force-shaping tool because by offering these educational opportunities, the military can attract and develop human capital with a higher skill set, thus strengthening our U.S. Armed Services Forces. As we await the passage of this CR and the defense appropriations bill, we have implemented various cost-saving measures and are continuing to evaluate additional opportunities to mitigate the adverse impacts. Overall, across our three education units, we are so pleased with the resilience of our team. Especially given the government shutdown uncertainty. We've delivered consistent performance that we've demonstrated over the last eighteen months. We are confident in our ability to continue executing and taking advantage of the growth drivers that we believe will accelerate growth and profitability and provide more students with more educational opportunities. We look forward to welcoming investors and analysts to our 11/20/2025 Investor Day at the New York Athletic Club in New York City to provide a longer-term view of American Public Education, Inc.'s growth strategies and financial outlook. American Public Education, Inc. enables students to experience a valuable lifelong return on their educational investment. Our vision remains to offer education that transforms lives, advances careers, and improves communities by providing online and campus-based post-secondary education to over 107,000 students. Our mission to power purpose, potential, and prosperity for those in service to others reflects our focus on a student population which is resilient in the face of AI transformation and potential threat. Our nursing education prioritizes in-person bedside care, and our military service members continue to be critical active participants in U.S. Military strategies. Each of our education units is purpose-built to deliver accessible and affordable higher education across a diverse range of subjects. I'd like to thank each of our employees and faculty that worked tirelessly to make our mission a reality. With that, I will now turn the call over to American Public Education, Inc.'s new Chief Financial Officer, Ed Codispoti. Ed Codispoti: Thank you, Angie. I'm delighted to be on today's earnings call as I begin my fourth week with the company. As Angie mentioned earlier, I came to American Public Education, Inc. after serving as CFO of NV5 Global, an engineering and technology solutions firm, and before that, I was with Illumina Holdings, a company that owned universities and delivered technology solutions to higher education institutions across Latin America. The CFO role at American Public Education, Inc. is an exciting opportunity to bring together my experience in driving growth and advancing higher education while focusing on meaningful student outcomes. I'd also like to say that I very much appreciate working with Rick Sunderland, who has done such a great job as CFO of American Public Education, Inc. for over twelve years. The transition so far has been seamless. I look forward to meeting with investors and analysts in the coming weeks and months. Turning now to our quarterly results. Total revenue in the third quarter was $163,200,000, an increase of $10,100,000 or 7% from the prior year period. As you know, we sold Graduate School USA in July. If you exclude Graduate School USA, third quarter revenue of $800,000 and third quarter of prior year revenue of $8,100,000, our revenues would have been 5% higher or aggregate growth of 12%. Total costs and expenses in the third quarter were $153,500,000, an increase of $4,500,000 or 3% as compared to 2024. The increase was primarily driven by a $3,900,000 loss related to the sale of Graduate School USA in July 2025 and a $2,500,000 increase in advertising costs as we invest in student enrollment for growth. In the third quarter, net income available to common shareholders was $5,600,000, which was almost 7x higher than net income of $700,000 in the prior year. And EPS increased significantly to $0.30 per diluted share in 2025 versus $0.04 in the third quarter of last year. Third quarter adjusted EBITDA increased 60% to $20,700,000 as compared to the prior year period adjusted EBITDA of $12,900,000, driven by increased revenue and margin expansion of 424 basis points. It was above the top end of the guidance range and represented an adjusted EBITDA margin of 13% as compared to 8% in the prior year. Looking now at our segments, at APUS, third quarter revenue increased to $83,100,000, an 8% increase as compared to the prior year period. The increase was driven by third quarter 2025 net course registration, which increased 8% as compared to the prior year period. EBITDA for APUS was $26,200,000 for the quarter, a 19% increase over the prior year period. At Rasmussen, third quarter revenue was $60,800,000, an increase of 16% as compared to the third quarter of last year. The increase was fueled by a 12% increase in on-ground enrollment and an 11% increase in online enrollment. This enrollment growth brings total Rasmussen student enrollment to 14,900 students and contributed to our EBITDA of $825,000, which grew significantly from the EBITDA loss of $4,500,000 in the prior year period. At Hondros College of Nursing, third quarter revenue was up 19% to $18,400,000 as compared to the prior year period due to continued enrollment growth. For the quarter, Hondros College of Nursing total enrollment increased 18% to approximately 3,700 students, and third quarter EBITDA was a loss of $336,000 compared to the loss of $259,000 in the prior year period. Our balance sheet and cash flows also improved when compared to the prior year period. Cash flow from operations for the nine months ended September 30, 2025, increased 56% to $73,500,000. Our free cash flow, defined here as adjusted EBITDA less CapEx, nearly doubled for the nine-month period at $45,200,000. As of 09/30/2025, total cash, cash equivalents, and restricted cash increased 22% to $193,100,000, an increase of $34,200,000 from the year ended 2024. Subtracting our $96,400,000 secured note, our net cash position was $96,700,000 at quarter end. Additionally, as noted earlier, at the end of the second quarter, we redeemed all our outstanding preferred stock for $43,100,000 and completed the sale of two corporate administrative buildings in Charlestown, West Virginia, for net proceeds of $22,500,000. CapEx totaled $11,800,000 in the first nine months of 2025 compared to $17,700,000 in the prior year period. Principal on American Public Education, Inc.'s term loan at September 30 was consistent with the prior quarter at $96,400,000, and our $20,000,000 revolving credit facility remains fully available. I believe this demonstrates the strength of our balance sheet, which we believe positions us well for future growth. Turning now to our fourth quarter and full-year outlook, which covers forward-looking statements subject to the various risks noted earlier. Before I discuss our guidance for the fourth quarter 2025, it would be helpful to refer to Slide 12 of the presentation deck so that we can describe how we have incorporated the government shutdown in our guidance. Our original revenue guidance for full-year 2025 was within a range of $650,000,000 to $660,000,000. We are pleased that APUS and Rasmussen outperformed with respect to our previous expectations by about $22,000,000. Additionally, we sold Graduate School USA in 2025, and its negative impact on the guidance, including its first-half underperformance, was approximately $18,000,000. If we assume that the shutdown would result in an impact on revenue between $20,000,000 and $24,000,000, our revised guidance for the year would be $640,000,000 to $644,000,000. For the fourth quarter 2025, APUS total net course registrations are expected to be between 65,000 to 74,400 registrations, representing a 33% to 23% decrease when compared to last year, impacted by the government shutdown. At Rasmussen and Hondros College of Nursing, fourth-quarter student enrollments are actual because the quarterly starts are at these schools. Are known at this time. At Rasmussen, in the fourth quarter, total on-ground enrollment increased 13% to approximately 7,100 students, and total online enrollment increased 6% to approximately 8,800 students, for an aggregate enrollment of approximately 15,900 students. This represents a 9% increase when compared to 2024. At Hondros College of Nursing, fourth-quarter total student enrollment increased 9% year over year to approximately 4,000 students. In 2025, consolidated revenue is expected to be between $150,000,000 and $153,500,000, again impacted by the government shutdown. The company expects fourth-quarter net income available to common stockholders to be between a profit of $5,900,000 and $8,300,000 or between $0.32 and $0.45 per diluted share. Ed Codispoti: Fourth quarter 2025 adjusted EBITDA is expected to be between $18,500,000 and $22,000,000. Therefore, for the full year 2025, we are changing our anticipated consolidated revenue to a range of $640,000,000 to $644,000,000. Net income available to common shareholders for the year is expected to be between $17,200,000 and $19,600,000. Our full-year 2025 adjusted EBITDA guidance is between $75,000,000 and $79,000,000, and our full-year CapEx is expected to be between $15,000,000 and $17,000,000. The updated full-year adjusted EBITDA and CapEx guidance translates to free cash flow expectations for the full year, defined as adjusted EBITDA less CapEx, to be between $58,000,000 and $64,000,000. I'll now pass it back to Angie for closing remarks, after which we will begin our question and answer session. Angie? Angela Selden: Thank you, Ed. Great job on your first call. In closing, we have spent much of this past year setting financial and operating goals and then delivering on those results. Rasmussen and Hondros College of Nursing are delivering consistent positive enrollment growth and profitability. APUS, with the exception of the market anomaly of the government shutdown, continues to deliver growth and high margins. At the beginning of the year, we set expectations for redeeming our preferred equity, selling our corporate buildings, and simplifying our business structure. We have delivered on these actions. Our organization was purpose-built to deliver affordable and accessible educational opportunities in fields that are in high demand. We believe that our platform and the sector tailwinds set American Public Education, Inc. up to accelerate growth and bring more educational opportunities to a greater audience across the country and across the world. We are as optimistic today as we've ever been about the long-term potential of our company, and we look forward to sharing more details about that long-term potential on our November 20 Investor Day in New York City. With that, I would now like to hand the call back to the operator to begin our question and answer session. Eric Martinuzzi: At this time, I would like to remind everyone, in order to ask a question, your first question comes from the line of Thomas White with D.A. Davidson. Please go ahead. Thomas White: Great. Thanks for taking my question. Good evening. First off, nice results on the quarter, guys. Congrats to you, Ed, on the new role, and good luck to Rick going forward. I guess just on the tuition assistance disruption at APUS. Ed Codispoti: Hoping, Andrew, maybe you could just talk a little bit about your plans for driving kind of re-enrollments for the students that were forced to be dropped. And I do not know, do you guys expect that there will be any sort of permanent demand kind of destruction as a result of this? Or is it just temporary? And then I had a follow-up. Angela Selden: Okay. Great. Thanks, Tom. First, I would say a couple of things are happening. Right? And I like to just emphasize a few. Even though the CR has not yet been approved, we are so pleased that the three largest branches, Army, Air Force, and Navy, are using the One Big Beautiful Bill, $100,000,000 of tuition assistance funds. To allow service members to register even without the approval of this CR. So we have seen more registrations flowing in December than we had in October and November as a result. So we are very pleased that we are starting to see demand come back already in December, even without the passage of the CR and inside the CR is the defense appropriations bill. We have electronic marketing campaigns to every single student who was registered in October and November and who got dropped for nonpayment. And we fully expect that those folks are going to continue their education. This has only happened once in the last twelve years, which was the last time was in 2013. And the results of that were no decrease in our demand. So we cannot be certain about what our future expectations for TA enrollments are going to be. That data point tells us that this should be a short-term matter and not a long-term decline in our expectations for TA enrollment. Thomas White: Okay. That's very helpful. Thanks. And then just maybe one follow-up if I could on the plan to integrate the three institutions. It sounds like maybe there's been a minor speed bump there. Can you just maybe explain whether the new process does it change at all kind of how you're thinking about the ultimate benefits of integrating the three institutions either from sort of an expense or revenue synergy standpoint? Thanks. Angela Selden: Sure. Great question. We remain very committed to the combination of our three institutions and nothing has changed about our conviction around that. I would say that this is a procedural matter. There's a different form that we needed to complete. And when we submitted to the HLC the second time around, instead of 3,600 pages of documentation, we submitted 4,000 pages of documentation to support the change, but I would say substantially all of what we had in the first submission was reused and reorganized for the second submission. When the Department of Education was reduced in force in 2025, we received a new team assignment. And that team assignment had a different view on which process we should follow than the team we had been working with prior. And so with that, we needed to recalibrate. We are completely in compliance with that new process. And are still on track with dialogue that we've had with the Department of Education for the expectation of a third quarter 2026 implementation in time for the 2026 financial aid award year. So we will continue to brief people if something were to change there, but that's fully still the timeline we're operating at. Gary: And this is Gary. On your second question about synergy opportunities, we're moving ahead with the opportunity to cross-pollinate the revenue. You'll hear more about that on the Investor Day. So we're not sitting back and waiting for the combination to occur to move forward our plans to, you know, expand our campus footprints as well as cross-pollinate programs from Rasmussen into Hondros in the interim period. So we do not see the timing as being an obstacle for that. Thomas White: Thank you very much. Angela Selden: Thank you, Tom. Eric Martinuzzi: Your next question comes from the line of Steven Sheldon with William Blair. Please go ahead. Steven Sheldon: Hey. Thanks for taking my questions. And first, congrats to you, Rick, on a great run and really look forward to working with you, Ed. So maybe starting here on just the guide for the fourth quarter, just wanted to confirm that you're assuming effectively a two-month slowdown for APUS registrations here and then kind of, more or less back to normal trajectory in December and into 2026. Are we kind of thinking about that the right way? Gary: So I would say, slowdown in October where I think we previously announced 1,700 registrations. Of TA flow through, which is a substantial decline. And then about 30%, we were able to recoup for November compared to the prior year about 5,000 registrations. The low end of our guidance does contemplate some shortfall in December as we ramp up not knowing the full timing for the CR. But you know, we'll see how that flows if we can, you know, get the CR, the CR in place and we continue to see the flow through from the OVBDA then obviously that would be towards the higher end of our guide. Steven Sheldon: Got it. That's helpful. And then on the cost savings side, I guess, you talk some about where you've been able to cut near-term spending. How much of that could be temporary reductions? Versus cost-cutting that could be more permanent and be something that, you know, help support profit and margin trends heading into 2026. Any detail there? Gary: Not a lot. But, I mean, we previously said we thought we had opportunities. And certainly, we've dialed back our variable costs that we think that we can manage through. We have taken the opportunity to streamline some operations at APUS. So that is an important piece to this. But for the most part, which will be permanent. That's a permanent reduction in force. But we've also made sure that we do not affect the revenue side of the equation. So we wanted to take the cost measures that we could that we thought were discrete and would not harm the business going forward. Things like not overinvesting in military marketing is a good example where, you know, we could dial that back until we had some certainty of reopening. But some will flow through to next year, but not a huge amount. Steven Sheldon: Got it. Very helpful. And then just one more if I could sneak it in. Just on the nursing side, I guess, can you just talk about how general demand to pursue nursing pathways have changed? It seems like you've been putting up very strong growth here at both Hondros and Rasmussen. Yeah, both 3Q and then into 4Q. And, generally, I think it's becoming even more attractive to learners, to pursue nursing given shortage, increasing pay, limited AI disruption risk. Will be relative to other industries. So is that starting to play out here? Are you seeing any notable uptick in application? And just generally, what are you seeing in terms of the top of funnel demand trends on the nursing side? Angela Selden: Yeah. I'll start by saying we're seeing acceleration. Obviously, we reported that we have a 13% enrollment growth on the campus side of Rasmussen in the fourth quarter, which we're very pleased to see. We reiterate that the nurses that we primarily educate are first licensure, meaning those folks are becoming nurses for the first time as opposed to post-licensure where they already have a license and are trying to advance their career. I think that there is a challenge across some sectors of the market around investing in that post-licensure degree program because the pay increase maybe isn't meaningful enough to invest in that post-licensure career in the short term. We're seeing substantial pay in our markets right now at LPN can make about $66,000 a year in an ADN, so a two-year degree RN can make $88,000. And so those are very meaningful comp packages for a forty-year career for a single educational degree and license. And so it is attractive from an ROI perspective, especially with the price point of our programs. And you know, there are plenty of open positions for people to obtain jobs. So we also believe that having insourced our marketing in the last eighteen months, we've really started to tighten those dials and identify how to reach those students in the local market effectively, and that is also driving the, you know, quarter over quarter, year over year performance improvement in our campus-based nursing program. So we're very pleased with how that's performing. Steven Sheldon: Great to hear. Nice work in the quarter. Angela Selden: Thank you so much, Steven. Eric Martinuzzi: The next question comes from the line of Jasper Bibb with Truist Securities. Please go ahead. Jasper Bibb: Hey. Good afternoon, everyone. Just on the filling the back row strategy, I'm not sure if maybe utilization is the perfect measure here, but is there any way for you to frame for us how much more room you have to drive enrollment into those existing programs and campuses at Rasmussen? Angela Selden: Great question, Jasper. We're gonna talk about this next week in our upcoming day where we're gonna give you a multiyear view of the different capacity opportunities. We've clustered our campuses into three segments. Because as we've talked in previous calls, our smaller campuses have arguably less total seats available. Our basically single market campus opportunity is the area where we believe there's the biggest opportunity in terms of filling those campuses. And then our multi-campus clusters in a single market also have significant demand. So we really look forward to sharing that with you on November 20. Jasper Bibb: Okay. Well, yeah. Looking forward to hearing more detail on that later this month. And then just last one for me. Are you expecting the decline in the registrations at APUS during the fourth quarter should give you a bit more cushion against 90 in the $25 calculation. Imagine from a mix perspective, that that might be helpful. Angela Selden: What we have seen is interestingly a shift of our primarily of our graduate military students paying their shortfall with cash. So instead of sitting out on the sidelines and not using TA, you know, waiting for TA to come back, we actually see grad military paying cash. And so, you know, every cash payer you can get one of those for every nine, you know, or 8.9 TA or FSA users. So that certainly had in a somewhat unusual way had a positive impact on our 90/10 calculation, yes. Jasper Bibb: Got it. Thanks for taking the question. Angela Selden: Great question. Thanks. Eric Martinuzzi: Your next question comes from the line of Eric Martinuzzi with Lake Street. Please go ahead. Eric Martinuzzi: Yeah. Just curious to know for the nonmilitary. So the military affiliate and veteran, if those enroll the registration trends are on track for you for those student segments? Gary: Yeah. Actually, Q3 and year to date, it's scary, we've seen very nice acceleration in the growth of both the extended family segments. As well as the veteran segments. So I would say a lot of the 8% growth that we saw in Q3 was attributable to those two segments where in the military's, I'll call it steady Eddie, you know, three, 4% growth. So I think we're very pleased with the performance year to date and especially in Q3 of those two adjacencies. Eric Martinuzzi: Gotcha. And then it was great to see the Rasmussen and on-ground 13% enrollment growth. Is that something that you feel is sustainable that there's a tailwind here macro-wise? Angela Selden: I'll start by saying, you know, we're firing on all cylinders. Now in terms of enrolling in our campuses. Certainly, as we start lapping ourselves, the comps are going to get trickier. But we believe there's a tremendous amount of opportunity to fill the back row of our Rasmussen campuses. And so we're focusing on a disproportionate amount of our marketing spend where it makes sense to make sure we're continuing to deliver on that enrollment momentum. So yeah. Eric Martinuzzi: Okay. That's it for me. We'll keep our fingers crossed for... Angela Selden: Great. Thanks, Eric. Thank you, Eric. See you next week. Thank you. Eric Martinuzzi: Next question comes from the line of Griffin Boss with B. Riley. Please go ahead. Griffin Boss: Hi, good evening. Thanks for taking my questions. Appreciate all the color you've given so far. Just one for me. Curious if you could dig in, to kind of where we should expect to see some of these cost-saving initiatives implemented in the fourth quarter. Obviously, looks like you pushed out some CapEx spend, maybe to 2026 or beyond that guidance came down a little bit. But in terms of the OpEx, just curious, I mean, are we going to see kind of a little bit more initiative on like the selling and promotion, you know, marketing expenses? Or where should we see, you know, kind of a relative uptick as a percentage of revenue in some of these areas that maybe you were not able to implement cost-saving initiatives? Gary: Yeah. I think we talked a little bit about this previously. But definitely, S and P, there will be a little bit of savings there. We want to make sure obviously, the timing of when everything comes back online will dictate that. We are looking at temporary and sometimes more permanent staff reductions in non-student facing functions. And then I would say we talked also about our variable comp that is tied to performance and that is another lever. Also important to note that given our variable cost model at APUS, which is on a per registration basis, that while we may lose x number of registrations, the variable cost for that will also come down. So there are three big buckets there. Outside from the little things that you always look at like external consulting and travel entertainment and the like. So those are the major areas that are contributing to the cost savings. Griffin Boss: Got it. Okay. Thanks for the color, Will. Great work navigating, has been a tough environment. I look forward to hearing more details next week at the Investor Day. Angela Selden: Super. See you there, Griffin. Thank you. Eric Martinuzzi: Your next question comes from the line of Raj Sharma with Texas Capital. Raj Sharma: Hi. Good afternoon. So thank you for taking my questions. Again, solid performance and resilience in the face of tough testing conditions. Had a question on the it was great that the $100,000,000 tuition assistance fund was you're able to use that. Any delays in payments from this to you? Angela Selden: You know, Raj, it's a good question. We are going to build, you know, according to our stated policy. I think the question is whether or not there are people working on the other end to push the button. But I'll turn it over to Rick who's on our call here today. Rick, do you wanna say anything about that? Rick Sunderland: Yes. Thank you. Raj, it is impacted by staffing at the various branches. It is not there to process the invoices. But the good news is, as was highlighted on the call, I mean, we've got a pretty substantial cash reserve to weather the very short-term shutdown feels long, but is actually relatively short. Given the, you know, the month or two of processing that would be otherwise processed. Raj Sharma: Got it. Thank you, Rick. And then I wanted to understand that now that the government sent assuming when the government shutdown is over, its business as usual in the sense that there likely isn't any medium-term or permanent damage from this on the enrollment. And then also, any of these registrations that you weren't able to know, get in October and November, are these sort of lost? Is this lost revenue? Or is there a scenario where service personnel might wanna, you know, double their course load to make up? Angela Selden: Well, I would say that our forecast, Raj, that what would have otherwise occurred in October, November has just simply shifted on the calendar. Right? We know that the reason why we purpose-built our education model to allow students to take one course at a time is because they don't often have time to do more than one at a time. And, you know, our flex allows them to pause and then restart. So we may see some people who are, you know, gunning for a promotion or something who wanna move like we saw some of these grad military students who are paying cash to keep going. But I think by and large, we're forecasting that we're basically gonna see those shift to when everything restarts in earnest. Raj Sharma: Got it. Thank you. And then on Rasmussen's side, the programs that are particularly showing really good momentum beyond ground healthcare, you know, up 13%. Any specific programs there that are doing really well and you expect that enrollment environment to sort of continue? Gary: Yeah. I would say our allied health programs are rad tech and our surg tech programs are doing good, although they're pretty capped right now that we're working on as part of our plans to expand that. It's really nursing. It's been across the board, predominantly in our ADN program and BSN. And it's also important to note that, you know, our growth of 13% includes the closure of two campuses in Wisconsin. Not that they were huge contributors to enrollment, but gives you a sense of how our nursing programs are growing. So we're really pleased with both our BSN and ADN programs and to a little bit smaller extent and the LPN program. But it's across the board nursing. Raj Sharma: Got it. Thank you. That's it for me, and I look forward to seeing you all at the analyst day. Angela Selden: Great. See you next week, Raj. Thank you. Raj Sharma: Yep. Absolutely. Thank you. Take care. Eric Martinuzzi: The next question comes from the line of Alex Paris with Barrington Research. Please go ahead. Alex Paris: Hi, guys. Thanks for taking my call and quick welcome to Ed. Look forward to working with you and a so long to Rick. I've enjoyed working with you. Ed Codispoti: Thank you. Looking forward to it. Alex Paris: Great. And now I know how to pronounce your last name. Now that you have the... Ed Codispoti: Perfect. Alex Paris: Just a few follow-ups. First question, on the fourth quarter guidance, just overall revenue and then APUS registrations, what are the assumptions at the low end and the high end? And related question, just to be clear, in October, even though you had to stop out some students, you still kept 1,700 students under TA. Then students that had been previously approved. And then in November, you said you're able to bring in $5,000 under the $100,000,000 OBBB? Gary: Yeah. So I'll answer that, Gary. So you think about November, about 30% of what was the prior year's registrations made it through. So on the TA registration. Prior year TA registration. So we're modeling on the low end that that's probably the same knowing that we've seen some improvement that was, you know, OBDA literally those changes got enacted the very end of the enrollment cycle. Some of the branches did keep over open for continued enrollment seven days. So we expect to do better than that. So at the high end, we're obviously assuming that we're able to improve upon that numbers. We're trying to bracket it on what we saw in November on the low end and on the high end what we would expect to see on, you know, normal pacing. Once either the CR goes through or if the OBB funding continues to flow. Alex Paris: And then what just remind me. What was the October TA registrations as a percent of the prior year? It was, 40% lower. Was under their... Gary: Oh, a lot. No. It was 1,700 registrations on what we normally would have been, I'm gonna say, this isn't exactly right, but 17,000. So it's probably 10%. So it's a very small number. May try it. Alex Paris: And then it improved. You got 30%. On a year-over-year basis. You got 30% of what you had in the previous year. As opposed to just 10% in the previous year. And then in December, you're saying the low end would assume that same 30%. Of the year-ago month. And the high end would be something higher than that. Gary: That's correct. Alex Paris: Okay. Good. Thank you. Question two. Well, that was question one and two, actually. Question three. The Graduate School USA loss, of $3,900,000 was that a lot less than you had forecasted? I thought on the last call you said to assume a $7,000,000 to $8,500,000 loss. On sale? Angela Selden: Yeah. Rick, do you want to answer that one? Rick Sunderland: Yeah. Yes. And the answer is yes. Alex, in the prior call, we estimated 6.5 to 8. We came in at 3.9. The difference was the resolution of the this is an accounting matter. The accumulated deficit that existed on the books of Graduate School is a separate company. To eliminate the deficit, we had to record a credit, which was offset to the otherwise, you know, higher number. So that number came down. Alex Paris: Thank you. And then the last question, again, just a point of clarification. Post-licensure, pre-licensure. Hondros is all pre-licensure or... Angela Selden: All pre. And then Rasmussen has some post-licensure? Alex Paris: Yes. Angela Selden: A small percentage. Yeah. Yeah. Okay. But not so but the post-licensure is contained within what is currently categorized as our online business. Right? Because that's all delivered without a need for a campus. Yeah. Alex Paris: Great. Well, thank you very much. I'll take the rest of my questions offline. Angela Selden: Okay. Thanks, Alex. Eric Martinuzzi: And then Pearson comes from next question comes from the line of Luke Horton with Northland Capital Markets. Please go ahead. Luke Horton: Yeah. Hey, guys. Congrats on the nice quarter. I know we've kind of answered most of the questions here, but just wanted to kind of touch back on the strong enrollment trends at Rasmussen, specifically on-ground. Are you seeing a change in student demographic at all? With the students that you're gaining here? And is this simply just a function of more efficient marketing and macro demand, or is there just anything else you could provide there would be great. Angela Selden: Yeah. Great question. Nice to hear from you, Luke. We are really trying to expand our marketing reach to not just enroll ADN or the two-year degree RN students, but also the BSN, the four-year, three and a half-year degree RN students. And so we are seeing momentum in both, but we are seeing an acceleration in our BSN students, which we're really pleased about. It has a longer tail of revenue, you know, often stronger NCLEX results. So we love that we are expanding our pool of BSN students at Rasmussen. Luke Horton: Okay. I got it. And then just one more, I guess. On the campus-based enrollment. I mean, are you seeing anything from a geographical standpoint? I know you're mainly Midwest harassment from in Florida to Kansas. Like, are you seeing any specific campuses outperforming on new start ins? Or new student starts at all? Or is it pretty much broad? Gary: Broad-based? I was gonna say it's a good question, but I would say it's broad. I think we're especially pleased with the I'll call it Minnesota where as you recall, we ceased enrolling in our ADN program and do what Angie just said, the BSN has been a nice lift there. But, no, it's been across the board. I mean, it's been nice to see and in Kansas, in Illinois, Minnesota, as well as in Florida. Luke Horton: Okay. Great. Awesome. Well, thank you guys for taking the questions, and congrats again on the quarter. Angela Selden: Thank you, Luke. Eric Martinuzzi: There are no more questions at this time. I would now like to turn the call back over to Angela Selden for closing remarks. Please go ahead. Angela Selden: Thank you, Eric. I'd like to thank each of you for joining our earnings conference call today. We look forward to continuing to update you on our ongoing progress and growth as we continue our rapid pace of enrollment growth, revenue growth, and margin expansion. We also look forward to welcoming many of you to New York City next week for our 2025 American Public Education, Inc. Investor Day Conference. If we were unable to answer any of your questions, please reach out to our IR firm, MC Group, whose contact information is on the last page of the PowerPoint, and they will be more than happy to assist in getting us all connected together. So back to you, operator. Eric Martinuzzi: Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Gevo, Inc. Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Eric Frey, Vice President of Finance and Strategy. Eric, you may begin. Eric Frey: Good afternoon, everyone, and thank you for joining us on today's call to discuss Gevo's Third Quarter 2025 Results. I'm Eric Frey, president of finance and strategy at Gevo. With me today, we have Patrick Gruber, our chief executive officer, Oluwagbemileke Agiri, our chief financial officer, Chris Ryan, our president and chief operating officer, and Paul Bloom, our chief business officer. Earlier today, we issued a press release that outlines our third quarter 2025 results and some of the topics we plan to discuss. A copy of the press release is available on our website at www.gevo.com. Please be advised that our remarks today, including answers to your questions, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently anticipated. Those statements include projections about the timing, development, engineering, financing, and construction of our alcohol to jet projects, our future carbon credit sales, our Gevo North Dakota and RNG plants, and other activities described in our filings with the Securities and Exchange Commission, which are incorporated by reference. We disclaim any obligation to update these forward-looking statements. In addition, we may provide certain non-GAAP financial information on this call. The relevant definitions and non-GAAP reconciliations may be found in our earnings release, which can be found on our website at www.gevo.com in the investor relations section. Following the prepared remarks, we'll open the call for questions. I'd like to remind everyone that this conference call is open to the media, and we're providing a simultaneous webcast to the public. A replay of this call and other past events will be available via the company's Investor Relations page at www.gevo.com. I'd now like to turn the call over to CEO of Gevo, Patrick Gruber. Pat? Patrick Gruber: Thanks, Eric. What a change we've had. The acquisition of our ethanol plant, carbon capture plant, and class six sequestration well is turning out even better than we imagined. All of this is located at Gevo, North Dakota, or GND as we refer to it internally, and it's all operating really well. We learned that our carbon sequestration well is unusual because, a, it has a class six sequestration well that's been operating since June 2022. B, we are the only ones using the formation of our well, and that simplifies the auditing as such. And c, it's in an unusually good geology. In fact, a European certification group, Pure Earth, which is owned primarily by Nasdaq, certified our well as a thousand-year performance well. We understand that we're the only alcohol site in the world so far with this certification. Also, I must say that North Dakota is an outstanding state in which to do business and grow. It's pro-agriculture and pro-energy business environment, so we fit in really well. Great assets combined with a great business environment combined with growing markets, I believe, leads to great opportunities for growth and making money. That's what's in front of us. At Gevo, we have long believed that carbon is an important coproduct that if we can monetize the value for carbon, we can unlock economics for growth products like jet fuel. We are pleased to find out that we can, in fact, monetize carbon value through a variety of methods that Paul Bloom, our chief business officer, will explain in a few minutes. In our business model, we view selling carbon as a key initiative. On a separate and unrelated front, we are learning how to generate and sell production tax credits. These credits are based on the volume of ethanol produced and the carbon intensity score of that ethanol. Because we have a very efficient ethanol plant, with a carbon capture and sequestration well beneath it, we can achieve very low CI scores utilizing the rules of section 45Z of the one big beautiful bill. Oluwagbemileke Agiri: Like, Yagiri, our CFO, will give more color on this topic in a few minutes, but I can't hold back. I am just so pleased that we sold all of our credits for 2025 production for a total of $52 million worth of credits. I gotta say, we had a lot of learning to do about this too. Lots of auditing, lawyers, insurance people to make these deals as bulletproof as possible. When we start adding up the potential adjusted EBITDA from selling carbon, generating tax credits, making more ethanol, using more of the well, we can see a picture for GND where we could potentially generate more than $100 million a year of adjusted EBITDA just from that site. Get this. This is all without deploying any large capital projects or building a jet fuel plant. Now the question is how best to go about it. Obviously, we're gonna go for the low-hanging fruit first, like incremental expansions of CO2 volume. Through my incremental ethanol expansion. And by optimizing which markets we place our carbon credit products in. It's all pretty exciting. Haven't seen our recent investor deck, please go take a look at it. It spells out more clearly what we're thinking. When we meet with investors and they see what we're doing at GND, they suggest that we should figure out how to use more of the well, produce more ethanol. To improve the adjusted EBITDA base. And then, of course, get on with getting the jet plant built. GND provides an outstanding platform from which to grow. It's obvious when people see what we're doing. GND does, in fact, present a great site to build a jet fuel plant. We have ethanol feedstock, great farmers to supply the ethanol plant, carbon sequestration, an industrial complex that's already built. And so now adding a jet fuel plant is incremental. It makes a lot of sense. When we look forward, we think that adding a 30 million gallon jet fuel plant would add an additional adjusted EBITDA uplift of about $150 million to the site. Operator: Think of that. Patrick Gruber: We recently were notified by the Department of Energy that they consider shifting their loan guarantee to Gevo North Dakota from South Dakota. I suspect they see the same things we do. Infrastructure already exists, The plants that are there make money. And we can build upon that. And we'll be working with them to sort it all out, taking advantage of what we learned from our ATJ 60 project. I hope to get the financing for the ATJ 30 plan closed sometime mid-2026. Chris Ryan, our president and chief operating officer, will talk about the operations of GND and our RNG facility, then give an update on where we are, with the ATJ 30 project giving color to the growth plan and cost. Okay. I've talked enough. I'll turn it over to my team. Leike. Oluwagbemileke Agiri: Thanks, Pat. We are pleased to have delivered another quarter of improved financial performance. Now here are the numbers. We ended the quarter with $108 million in cash, cash equivalents, restricted cash. During the quarter, combined operating revenue, interest, and investment income was $43.6 million. Our loss from operations was $3.7 million, and our non-GAAP adjusted EBITDA was a positive $6.6 million. Gevo North Dakota generated income from operations of $4.3 million, and a positive non-GAAP adjusted EBITDA of $17.8 million. Gevo RNG generated income from operations of $500,000, and positive non-GAAP adjusted EBITDA of $2.7 million. Net loss per share attributable to Gevo was 3¢ per share for the third quarter. Just as a reminder to everyone, last year, third quarter revenue was approximately $2 million, This year's third quarter revenue was approximately $43 million. Or an increase of approximately $41 million. Last year, our third quarter adjusted EBITDA was approximately negative $16.7 million. This year, third quarter adjusted EBITDA was approximately $6.6 million. Or an increase of approximately $23 million. A key driver for improved financial performance can continues to be Gevo North Dakota. Which is now a core earnings engine for us. This site is demonstrating reliable energy production, efficient carbon capture, and consistent monetization of clean fuel production credits, or section 45Z tax credits which are based on production volumes, we generate and carbon intensity score. We're also successfully selling voluntary carbon credits to customers who value verified carbon removal. After the end of the quarter, we completed a sale of our remaining 2025 section 45Z clean fuel production credits from Gevo, North Dakota bringing our total contracted sale for the year to $52 million of credit. We also received net proceeds of approximately $29 million so far. We expect to bring in the rest of the cash over the next quarter or two. We just need to get our carbon into the ground first. We generate production tax credit based on two key metrics. Our production volumes and our carbon intensity score. Our score reflects how we manage energy usage at our plants, the amount of cargo we sequestered, and other operational factors as measured under the section 45Z methodology. In order to deliver the credit to customers and bring the associated cash in, we need to generate the credits first. However, when we produce the gallon of ethanol, the value of the related credit is applied to our cost of goods sold. So this creates a timing difference between what we see on the income split versus when the cash comes in. One way to think of it is that our cash from operations can temporarily lag our adjusted EBITDA performance. We view this as a normal aspect of the tax credit monetization cycle. As we move forward, we expect our operating cash flows to normalize and trend towards breakeven or better in the coming quarters. An additional point I can't forget to mention, and it's important, is our tax credit sales continue to be backed by a tax insurance policy which mitigates much of the residual risk. Of this credit transfer transaction. Taken together, these steps positive adjusted EBITDA generation, recurring monetization of 45Z tax credit, and a credible pathway to breakeven operating cash flow. Positions us for steadily improving cash generation and financial flexibility. Now I will hand it over to Paul. Paul? Paul Bloom: Thanks, Lincoln. One of the most exciting parts of our progress this year is how we're capturing and optimizing the value of our carbon dioxide coproduct is approximately 165,000 tons per year, that we are sequestering at our CCS site in North Dakota. During Q3, roughly 90% of all the carbon benefits associated with our CO2 sequestration remained attached to ethanol gallons and were sold into low carbon fuel markets. We are seeing strong values in select low carbon fuel markets, and look to take advantage of those where we have active pathways that include CCS. Going forward, we are applying for more pathway approvals in low carbon fuel markets that include CCS, allowing Gevo optionality to target those markets with the highest returns. More importantly, we are expanding the portion of our carbon value derived from CCS that we separate from the fuel and sell into the carbon dioxide removal or CDR credit markets. Our recent $26 million five-year agreement with BioRecro for carbon dioxide removal credits is a prime example of this growth. In addition, earlier this year, we were featured in Nasdaq's corporate sustainability report as one of their suppliers of high integrity, durable carbon dioxide removal credits. This is great recognition and we believe it shows that major corporations are looking for the high integrity carbon removal credits that Gevo can provide. We think the high durability and quality of our carbon dioxide removal credits are critical components of the credit value and market acceptance. We anticipate our CDR sales will continue to grow from $1 million in the second quarter to 3 to $5 million by the 2025. We expect this business to keep growing in years to come. Backed by a combination of spot sales and multiyear agreements. Our CDR credits are certified under the PURAL EARTH standard, which we believe is becoming one of the leading frameworks for corporate buyers. When you buy our carbon credits, the CO2 has already been verified as being sequestered over a mile underground in the appropriate geological formation where it mineralizes over time and is rated to remain secure for at least a thousand years. We also believe our ability to produce high integrity credits to the market today is a differentiator for Gevo. According to the reporting platform CDR FYI, focuses on the durable carbon credit removal market, approximately 38.5 million metric tons of carbon dioxide removal credits have been sold. But only 2.5% of these have actually been delivered. We think this puts Gevo in a unique position of being able to produce and deliver credits today while others are still working to activate their projects this growing global market, that we understand has a total value exceeding $10 billion. We believe the ability to detach the carbon value from the commodity fuel is unique and powerful because it allows us to serve the market more efficiently. This approach also aligns with our planned synthetic aviation fuel business. For example, the agreement we signed with Future Energy Global or FEG in April demonstrates our intentions to offer customers more choices and improve service by selling voluntary carbon credits separately from our commodity jet fuel. Since it will take time for SaaS to be available at major airports worldwide, our agreement with FEG will allow airlines and corporate customers to purchase carbon credits from FEG which have been separated from the physical fuel we produce to offset their emissions through a book and claim approach. And, of course, we believe all of this will be better enabled by Verity, our digital carbon tracking and verification platform to deliver the proof customers need while avoiding double counting. Through measuring, reporting, and producing verifiable carbon intensity, from farm to flight or fleet Verity aims to simplify carbon accounting through complex supply chains to track final fuel products, and carbon credits with the transparency, trust, and truth customers require. It's going to help us farmers, and other biofuel producers turn carbon into measurable and marketable coproduct while bringing new transparency to the low carbon fuel ecosystem. And to that point, Verity has been installed at our Gevo North Dakota facility, and we anticipate it will be fully functional by the end of the year. In addition, in Q3, Frontier Holdings LLC announced a strategic partnership with Verity and Gevo to offer North America's first integrated carbon management platform for ethanol producers. Frontier plans to deliver CO2 by rail solutions and permanent CO2 storage in Wyoming while Verity provides the digital platform for full carbon tracking. Frontier anticipates this unique combination will provide carbon management solutions to ethanol plants don't have direct access to geological storage or access to proposed CO2 pipelines. While Verity brings our carbon accounting platform to the table, to help ethanol producers monetize their carbon dioxide coproducts. We like this approach for Gevo as it could unlock new potential ATJ 30 sites that we can explore with more verified low carbon ethanol producers. And with that, I'll hand it over to Chris. Chris? Chris Ryan: Thanks, Paul. At this time of year, the thing that takes up a lot of our attention in operations is corn harvest. At Gevo North Dakota, we're happy to have a great relationship with the farmers up there who supply us with the 23 million bushels per year corn we need to keep the plant running. This year, those farmers have done a great job turning out a record harvest in North Dakota in spite of the early frost that occurred in the western part of the state. This season is a good reminder that while weather can have a negative impact on some farmers, overall, the ag industry continues to get more crop out of the same amount of land which creates a need for new uses such as staff. Which I'll talk about in a minute. Farmers in North Dakota are nearing the end of harvest, and at Gevo, North Dakota, we're nearly full of our 3 million bushel capacity with our cash bids currently around 40 to 60¢ per bushel under the Chicago board price dependent upon delivery month. This is important for our investors to understand. The point is when thinking about making products like SAF from alcohol to jet, have a lot of low cost, low carbon, easy to handle feedstock at scale begins with our relationship with the farmers. Related to that, a few weeks ago, we had our second community event where we had nearly 100 farmers and community members spend a couple of hours with us at Gevo while we talked about our improvements at the North Dakota site and our vision for the future. The audience was very engaged and supportive, which makes our work up there much more meaningful. Moving beyond the farmers to our Gevo North Dakota operations, I'd like to acknowledge once again the great job our team is doing in maintaining, improving, and operating the assets. There. The improvements include fundamental things such as new truck scale critical for receiving corn and selling feed, improving roads to ensure safety for those farmers, and several energy efficiency improvements. The operations team successfully completed a safe turnaround of the plant in five days in September and came back online quickly. For Q3, they ground over 5 million bushels of corn, while producing and selling over 16 million gallons of fuel ethanol 46,000 tons of high protein animal feed, nearly 5 million pounds of corn oil, all while sequestering 42,000 tons of carbon dioxide which generates the carbon dioxide removal credits Paul mentioned. That brings us to over 550,000 metric tons of CO2 that's been sequestered at the site since the sequestration operation began in June 2022. That's proof that we can capture carbon reliably each and every day we operate. Which is well over 350 days a year. And remember that the captured CO2, it was it was originally pulled from the air through photosynthesis by plants. Then released during our fermentation process in nearly pure form us to sequester underground. Addition to the operations team, we have a team of engineers at Gevo engaged in engineering a number of improvements at the site along with engineering the 30 plant. Which is designed to make staff. Improvements include expanding the ethanol plant, both incremental and step change expansions, expanding corn storage and receiving, expanding our carbon sequestration and utilization, improving energy efficiency, We expect that incremental improvements to will lead to substantial increases in adjusted EBITDA at North Dakota. And the step change projects we have in mind could make it even bigger. The ATJ 30 project and expected adjusted EBITDA would be even more growth on top of it all. On the ATJ 30 project, design and engineering work are progressing well. We're leveraging our patents and know how from previous project design work to shorten our design time simplify construction, increase efficiencies, and and manage carbon. We currently estimate the installed capital cost to be around $500 million not including financing related costs. I'm happy to report that we've partnered with the state of North Dakota on a couple of our improvements, thanks to the North Dakota Department of Ag, for their generous grants of over $3 million to help us improve energy efficiency of the plant and expand infrastructure required for the ATJ 30 project. Our long term vision for the future of jet fuel plants is straightforward. Build ATJ 30 right here at Gevo North Dakota, prove it out, and then copy, edit, and paste that same blueprint across other strategic locations in The US and globally. Today, we want the site to showcase farming and carving management done right. In the future, we want ATJ 30 to showcase alcohol to jet done right. A model that can be replicated efficiently using abundant domestic feedstocks, proven carbon management systems. Behind all this progress is a talented team of operators, engineers, and community partners who make it happen every day. And, of course, we couldn't do it without the support of our farmer partners in the state of North Dakota which continues to be a terrific place to do business. Back to you, Pat. Patrick Gruber: Thanks, Chris, Paul, and Leke. We have advanced. We've been derisking our plans to get the jet fuel production. We've known that to achieve the best economics and carbon scores for jet fuel that ethanol and the ATJ process need to be integrated And that we need a carbon sequestration to achieve our carbon footprint goals. At Lake Preston, we would have had to build all three greenfield, albeit the sequestration would have been done in cooperation with the Summit Pipeline. Well, today, we have an outstanding ethanol plant and sequestration. Great. Derisks. We make money on those assets to boot. Oh, and we get learn we get to learn how to monetize the carbon with real carbon products. Now we should maximize the adjusted EBITDA from those assets and get on with the ATJ plant. The pieces are coming together. Let's go ahead and open it up for questions. Operator? Operator: As a reminder, if you'd like to ask a question at this time, please press wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from Derrick Whitfield with Texas Capital. Derrick Whitfield: Good afternoon, guys, and congrats on all of your progress over this last quarter. Patrick Gruber: Hey, Derek. Yeah. Thank you. It's been pretty cool. Referencing slide 12, it it's clear Gevo North Dakota represents significant upside to your EBITDA projections. Maybe speaking to this slide, could you elaborate on the incremental capital and steps required to optimize your operation? And a reasonable time line to achieve a $110 million of EBITDA. Yeah. So I it's incremental capital. Incremental capital is like in that $15 million ish, plus or minus a few million. Range. That's what we think it is. It could change. And this is about debottlenecking the ethanol plant to its natural get it so can reduce maximally with what we have there. Also, optimize the energy use, the capture of more carbon dioxide, all those kinda normal things you can do. Remember, there's leverage every time we do something like that because it's produced more ethanol. You get more CO2. We can capture more CO2. We can optimize energy, capture more CO2, etcetera. And when Chris is referring to a step change, that would be adding additional ethanol capacity per se, like a whole another plant. We're gonna look at too. I just wanna have a timeline for that. So what you see on slide 12 in our investor presentation, and what, for everybody else, what Derek is referring to is that we have a net EBITDA of something like $40 million on the left side adjusted EBITDA on the left side of the slide, it's $40 million On the right side, it's plus $100 million That, say, over the next eighteen months to twenty four months, we could get up there to a $110 million. How fast we do it I don't know. It depends on how the world is working for us. We're well on the way. If anyone's paying attention, they should see this. We're well on the way to moving towards that $40 million. This is all about just doing what we're doing. And have a full year at it and getting better at it capturing, more value from the carbon. We expect our CI scores to go down in the future, so that makes more for the 45Z tax credit. We have, Paul's team is really learning how to maximize value from the carbon by selling it as a bundle with a gallon. The carbon value with a bundle as a gallon at low carbon fuel markets. We're separating the carbon and selling it separately and maximizing that value. As they learn how to do that, I expect to that they will continue to increase. But that's what I'm most keen on is watching those numbers. Around the carbon value per ton. So, we made a good move by buying this plant. There's no question. Certainly. Great acquisition for you guys, and and as my follow-up, I wanted to touch on the DOE loan extension that you guys announced few weeks ago. Could you elaborate on kind of how that extension and the scope change of scope that you guys are pursuing increases the likelihood of DOE financing. I would say well, I'm gonna I'll I'll comment first. I'm gonna hand it over to Leke to give it a little more color. From my point view, you know, whenever you have a change of administrations like this, the fact that we survive straight away, was good. I mean, that's a good thing. It says we're kind of in their in their zone of that are interesting and attractive. They have taken a long time to get leadership in place. They've been you know? And I'm talking about not at the secretary level, who's the secretary. And so it took a while for people to get into place. And musical chairs a little bit. They're getting their act together. They're they're looking at it. They see realistically what we've done, and I'm gonna reiterate this. When you compare the site that we have at, like, Crestwood, the thing is Greenfield, to taking that site and moving north, to North Dakota where we have an ethanol plant that operates and makes money, has sequestration stuff right underneath the plant, It makes money. It is a different game to play in terms of how one thinks about the possibilities of financing. Now remember, they were committed. A you know, the conditional commitment is an actual commitment. To do the financing if we do all the prerequisites and get the rest of the funding in place, etcetera. We would be surprised that they suggested they suggested shifting it up to North Dakota because we think it's a good idea too. So it was a kind of a meeting of the minds thing. So we're very pleased about that. It's just the very beginning, and we gotta go work through it. So I think if they liked it before at Lake Preston, they're gonna like it a heck of a lot better up in North Dakota because we all make more money, and it doesn't require as much external financing. The project is much smaller. Because you only have to build an ATJ increment. Plus, might have to do some energy. Does that help you? Derrick Whitfield: It does. Thanks for the color. I'll turn it back to the operator. Operator: Our next question comes from Amit Dayal with H. C. Wainwright. Amit Dayal: Hey, good afternoon, guys. Thank you for taking my questions. Great to see the execution continue to come through. You know, with respect to the EBITDA drivers for next year, Can we maybe, you know, just give a little bit color on whether it's primarily gonna come from the sequestration capacity expansion or some of these, you know, debottlenecking efforts you may be implementing Just a sense of, you know, where the drivers are and how we should think about growth and cash flows for next day? Patrick Gruber: Yes. So on Slide 12 in our presentation, on the left hand of that slide is what I think a picture of what is closer to what 2026 should look like. It's something like that. And give or take still, we're working on it. We'll finalize something after the first year is what we really think. But that's kind of the picture. And remember, we're ramping up, and so this is kind of a curve that's going upward. And so how fast is go upward? How much faster can it go upward? We know for a fact that there's gonna be improvements of carbon score in 2026. Built into the big beautiful bill. So we know we're gonna make more money at that front. And then on I think on the carbon side, and I'm gonna let Paul comment on it, in the next year to give a picture of that. Because I think that's the the one I'm keeping my eye on mostly. I wanna see that grow. It's incremental. Already, we're projecting as to what we should be able to do from where we are today and on an upward trajectory. The ethanol itself is gonna be ethanol. The RNG is gonna be replanned super conservatively on RNG. And this is simply because we're realistic on this market. It is just a tough market with, you know, in general, but our plant operates really well. So we aren't these big we aren't padding anything or being super optimistic about that, although it generates value for us. So it's good. And, hopefully, if the market turns great, it'll be a huge upside for us. We are not planning that optimistically. But, Paul, I think this question of what's the growth look like gonna rephrase yours, Amit. Paul. Give us some color on what you think you know, the dollars per ton going forward. How's it look? What's that build look like, what's in front of us, how does that pan out? Because we're doing something different than everybody else here. Paul Bloom: Yeah. Thanks. Thanks, Pat. So just a a little more color on the carbon business. Right? As we talked about during this quarter, we're we're moving more. You see 90% of our carbon value today being sold in fuels But with, like, the BioRecord deal, we're selling much more into a separated carbon dioxide removal market. Right? These credits. And that's exciting for us because those can be like the BioRecord deal, longer term, deals in the market where we're bringing in more ratable revenue. We're not as subject to, you know, the ups and downs in the volatility that you see in low carbon fuel markets even in the low carbon fuel credit prices. So that's gonna continue to grow. That's you know, with the even with the BioRecord deal, right, we start growing into, you know, $5 million just, you know, a year down down the road with that type of a deal. And then we're gonna look to do more of those. Right? So you see this a big piece, and this is how long term we think this can start adding in this $30 million type range you know, over the next two years. Between the compliance markets and the voluntary markets as we balance that So we see where either of those markets go. But we've got a lot of flexibility That's what we like. And that's why we're continuing to do both. Right? We're putting on more pathways in the the compliance and the regulatory fuel markets where we can go after low carbon fuel, with that CCS value attached, or we can separate that out into the carbon dioxide removal market where we have that flexibility to to maximize our returns. And then I think the way to look at Slide 12 is on the right side of that. Slide is you know, a little further out, and I don't have a time frame on it per se because we could do it faster or slower depends on how projects get done. But that includes an incremental expansion of the ethanol plant taking it up to, like, 75 million gallons a year. That produced more ethanol, more CO2. So you can imagine how the numbers increase because of that because we have leverage. We're making more ethanol. We make more CO2. We generate more credits, generate more production tax credit. Etcetera. And that's why you see those numbers. So it's that's what our picture looks like. And as we work through stuff, and this is all with the the low capital version. Kind of exciting. It's a good place to be. And, ATJ is completely on top of all of that. That'd be a different spend in a different bucket, a different project. Amit Dayal: Right. No. Makes sense, man. So it seems like, you know, expanding the ethanol capacity to 75 million gallons per year is pretty natural. I guess, in terms of how you are executing and all the other interest you have over there to, you know, be able to monetize that. What I'm trying to get at is, you know, if if you were to have to make a call between ATJ 30 and, you know, much larger expansion of the ethanol capacity would you lean more towards the ATJ 30 with or without DOE funding? Patrick Gruber: Well, the ATJ 30 plan right now the way it pencils in with our contracts would be at a at an uplift of about $150 million a year of EBITDA. Now 45 turning back to ethanol. Ethanol the 45Z credits are they end at the end of what, 2029? So you're looking at long term plans of building new plants, what's gonna be in the money? Well, ATJ plant, a jet plant, is dependent upon the long run economics of a 45Z tax credit. Remember, our site, if we're lucky, we can take a Q too. And so we're pretty much indifferent between those two at the moment. The way that the world is structured. Remember, a queue runs out for twelve years. So we're in good shape on that kind of a front, and so we don't take it's not crucial It's we'd love to have it extended. Love to. But you know what? It'll be what it is. It's gonna compete economically, Paul, be successful, and his team will be successful selling carbon. So you know, it'll be what it is. Ethanol, if we can get it built really fast and do a, like, say, duplicate of what we currently have of capacity, how fast can we get it built, how long will the credits last really. You don't wanna be in a business of just doing ethanol. You do not wanna be in a plain old ethanol business. That's not a good business. It's too dang volatile. This is why Paul was emphasizing turning carbon into a product and selling it gets us into a ratable business. The BioRecord deal was a multiyear contract. Think of that. A multiyear contract selling carbon really. That's what we just did. We're gonna do more of that. That changes the game of what's possible and gets us out of this volatility. Over the long run. So that's how we're thinking about it. The getting to 75 million gallons is the natural expansion of what we should do in debottlenecking. There'll be other things we can do to optimize energy, lower the CI score further. We're already a very, very low CI score. And it'll go lower. As we improve. Well, after 75 million gallons, now we gotta build a brand new plant, and that's in the to do that capacity, that's in the multiple dollars per gallon. You know, two cut rounding it to $2.50 a gallon for new capacity. Once you're doing a full size plant, say 50 million gallons to 100 million gallons. It's in that kind of a range. Wallpark, So does it make sense? Under what circumstances it makes sense? Depends. So we'll sort that out later, but that's not our focus. We're gonna evaluate make sure we understand it so we can jump all over it. Make it happen. If we need to, if the right market conditions are there, But I'll tell you, first things first. Get the low hanging fruit. Get the 75 million gallons, get the credits, generate more credits, generate more revenue. Learn get better and better at selling the carbon. Remember, we have an advantage We have a sequestration site directly underneath our plant. The only ones in the world with that. We don't have all the complexities that everybody else has of you know, pipelines and sharing and all this kind of stuff. Ours is relatively straightforward, and still, it's a huge amount of work to get it audited and insured, and all the rest to generate these viable credits. So we need to need to get good at this. So we're gonna do that. Walk in before we run, expand incrementally, use our capital wisely, save our powder, we'll debottleneck, save our powder with the DOE, work work with them, get that plant financed, and the economics are good. And we will also treat then a full build out of a new ethanol plant as an opportunity to be evaluated on the market conditions as we see them and working with partners who wanna do it. Amit Dayal: Right. Understood. How we think about this. So use what we got, maximize what we got, expand ATJ, and then sure we're not losing sight of these other opportunities. To grow because we could have them. They might be very much real. Got it. Just last one on the Verity offering. How much more development work needs to be done before you can get more aggressive towards commercializing that offering? Paul Bloom: Paul, go ahead, man. So I want to Yeah. So I I think we're we're getting to that point right now. Amit. So this is what you know, I was talking about getting this implemented at at Gevo North Dakota is a critical step for us. I mean, we've we've already got it in implemented with other customers, but having it running in our own we'll be able to show, you know, even other Verity potential customers say, hey. Come look at it. Right? Stop by our plant. See how we're using it. See how it simplifies your life, how it makes everything better, totals up all your carbon. For voluntary markets, for compliance markets, for tax credits. Right? It's it's really a simplification tool. And and so we think that you know, we're really nearing that point, right, where we can now scale this just like Chris was talking about, ATJ 30 to do the the copy edit paste. I mean, this is where we can start to do the the copy, edit, paste for for Verity really, more broadly with biofuel producers. So we're in a we're in a really good spot. Amit Dayal: Yeah. Interesting. I think this is gonna be a really interesting catalyst. Well, here's here's and here's for everyone's perspective, there's everyone and their brother is going, hi. We know how to count carbon. We know how to you know, measure CI, all this. No. You actually don't. It's actually kinda complicated. And you gotta keep track of heck a lot of stuff. There's simple know, on the Internet, you can find air and you do everyone does their chat GPT version. Sorry. To get a product that someone buys and transfers money, actual cash, the barrelhead to pay you for something, that takes a whole lot more diligence to make sure it's right and have multiple parties auditing it. In our case, you heard, you know, Nikki talk about getting insured. How does that work, you know, in in getting that system operating well, working well. And then with Verity, that offers a whole new level of assurance and gets it tracking it back to farm by farm, field by field. Integrating the plant in its energy and giving you even a stronger score that can be verified and audited. This is the important part. Auditing throughout the whole supply chain. That's why we can get paid now That's why we will get paid in the future and why Verity is important because we can take that technology and use it as a service and get paid with other plants. That's why it's important and why it's interesting. We're doing an end to end solution. Other people aren't. They're doing pieces and parts and using their equivalent of Internet says we're not doing that. Amit Dayal: That's all I've missed. Thank you so much for all the color. Appreciate it. Operator: Our next question comes from Craig Irwin with Roth Capital Partners. Craig Irwin: Hey, Craig. Hey, Pat. Good evening, everyone. Thank you for taking my questions. Pat, can you maybe update us on the conversations with potential customers that could be using your well in Richardson to sequester their carbon? You know, these I guess, that would be tolling customers or, you know, customers where you provide the service for them. I mean, where do you stand with those those potential incremental additions to the the overall profitability? Patrick Gruber: Yeah. So I'm gonna restate your question. So we have this big site. Our capacity is million tons per year. We're currently only using, six about 16, 17% of that well. We should use more of it. And so Craig is right. We should use more of it. Paul? What's the plan? Paul Bloom: So, Craig, you know, couple couple things. One, as we expand our our footprint there and and make more fuel, we'll have more CO2 to sequester So that's that's one. Step one. Right? So that can we love that because we don't have to go anywhere else. We've already got the capacity. The second part is, you know, think about a complex. When when we're thinking about Gevo North Dakota, we're also thinking about what energy source we need, all the different stuff that we have to put in place. To really build out the the 30 plant, but hey, it could be other partners as well. So we are looking and have ongoing discussions today with other companies that would maybe wanna co locate with us and take advantage of some of that sequestration wells. So we could be storing CO2 for others, and, you know, obviously getting fees for that, helping them sell their carbon credits, all those type of things. And so we're we're pretty excited about that. And then just like this this deal where Frontier is looking at you know, taking CO2 by rail to North Dakota there's always options like that. We think we talked about on one of our earlier calls around looking at how can we take more CO2 in kind of virtual pipelines style, those are things that we're contemplating. Today. We don't have any concrete plans, but all of that coupled helps to use that capacity that we've already invested in. So it's really about how do we harvest that value from the investment that we already made with this great purchase at Gevo North Dakota because of that extra pore space that if we use it ourselves, use it for third parties, absolutely. Patrick Gruber: Yeah. So amplifying what Paul said, this thing about the virtual pipeline, what that means is taking CO2 at rail. That's how CO2 is transported. Has been transported forever. And, we could do that. The deal with Frontier contemplates that and tracking it, tracing it, the deal We we had a a rail terminal for example, and we can offload CO2 and put it down the hole for others. It that that also accomplishes yet another thing, I think, that in in a few years' time, call it, in the five year time frame, you know, the Bakken's gonna need more CO2. And, you know, great. Maybe there'll be a market for enhanced oil recovery CO2. So I think the world at large in that area is gonna be interested in CO2 collection. Sourcing treating CO2 as a product, great. People wanted to put it down a hole. Awesome. We can get paid for that. Cool. Get more credits for that. Great. Or sell it to somebody else. So it's a paradigm shift, and that CO2 is a product, should be valued, should be collected, and utilized. So we have to put those plans together, but that's part of what we're working on and figuring out. That kind of incremental expansion is not included on our slide 12 that we referred to earlier It's not part of that. That would be on top of it. That's gravy on top of what you see there. Craig Irwin: Understood. Understood. So then, actually, I wanted to go back a little bit of the content on your slide 12. The CI the incremental CI improvement that you you guys are tracking for over the next number of quarters, how should we go about projecting that or forecasting that from our side it ends up having a fairly material impact on on the overall level of profitability. And is this something that we should we should parse the the capital plan and and and the different pieces of of your capital plan that are likely to be completed on, you know, on a finite time horizon or what should we do to kinda to kinda understand and maybe be a little bit ahead of the curve as as we see the CI CI score improvements over the next couple of I think, Leke, you can help with this one. But there's basically and the big, beautiful bill, the CI score drops automatically next year. That's a large part of it. And, so go ahead and give that some color, like, hey. Then we'll come back to Oluwagbemileke Agiri: Thanks, Pat. So high level, I think Pat already sort of touched on it. In the big beautiful bill, the no eye look that reduces RCI score. By a tangible amount, which effectively increases our fortified degeneration by another 10¢ per gallon. And then the last bit of the puzzle, which for us we're working on is are there other decarbonization measures that we can introduce to our facility to effectively be able to get another 10¢ per gallon increase in credit generation. So the $52 million tax credits that we sold this year from Gevo North Dakota, I think folks can easily do the math based on our ownership of the asset for eleven months. Out of twelve months. That number rounds up to about call it, 80¢ per gallon of credit generation. So next year, we are working actively with the no eye look and the other decarbonization strategies hoping to be closer to a dollar per gallon. And keep in mind, production tax credit is also subject to inflation. And those annual inflation, for example, this year, that's released by the IRS, was around 6.6% and some change. Maybe inflation is not going to be that high next year. But you have to factor that into your math as well. So next year, we're we're gonna have tangible increase in that 45Z generation from where we are today. Does that help? Yeah. Craig Irwin: That definitely helps. That definitely helps. Well, that's also gonna help your cash flow. So, you know, congratulations on the progress. Patrick Gruber: You know, it's it's an interesting game, isn't it, Craig? I mean, it's like a the world, we did good. Our timing was good, and we're learning how to sell the car. Being having a real carbon product to figure out a real tangible thing where it's actual tons. Then what does it mean in terms of CI score? How do you monetize tax credits? One of the things that's different from what we're doing from what I think everyone else is doing, we're selling them directly. Directly. Lakegate's team has done an outstanding job of interfacing directly with the purchasers of these carbon credits. We aren't going to a broker where the broker has to go figure it out later. Our stuff is done from based on real CI scores audited by multiple parties, stuff that's based on carbon that's gone down a hole. And and then Lakegate's been able to strike really good deals getting good value. When he says remember, it's a 67 million gallon plant. He's talking about a dollar a gallon. The maximum value you can get is about a dollar a gallon from the 45Z. So we are one of the lowest CI score plants under the 45Z big billable bill. And it looks like we're in a really good position. That's awesome thing. And this is before we've done anything around decarbonization of the energy at the plant. It's just that it's a very efficient plant. It is not taking into account agricultural practices like so many people talk about. It's not taking that into account. It's just well run. A great sequestration plant. We're good our team is good at capturing carbon, putting it down a hole. Craig Irwin: So may maybe I can ask another question. Right? Red Trail, what did they do right on the commissioning of their well? You know, there's another well that was supposed to be testing, maybe commissioned. You know, it's another class six well for I guess, the third guy that's supposed to be on, but they've been late. And they're not eager to confirm that there's a ribbon cutting on Wednesday. Right? You guys have brought up your wealth, generated credits consistently off it. And, you know, obviously, had pretty clean execution. What did Gevo really do? What what did Redtail really do right, the team at Gevo now? That that that allows you to execute consistently? Yeah. Chris, would you wanna go ahead and explain this? Chris Ryan: Yeah. Go ahead and explain this because it's a fascinating story. Well, okay. Let me tell you that it starts with the former CEO of Red Trail, guy by the name of Gerald Bachmeyer, who, really led that And he earlier in his career, he did oil. And, was involved in drilling. So he I I would argue he knew how to pick the right contractors to do the work. And they really focused on doing good quality execution because, you know, the guys that ran that plant, including Gerald, were were boots on the ground, you know, get her done guys that know how to get things done. And know how to get things done well. And so that's really the nation that really led to doing that, doing that well. So so what you got here is, remember up in that area, you got farmers and farm remember, retro was a co op, big giant co op, 90 900 plus members. But corn guys or oil guys and vice versa out there, And so it's this very it's actually a wonderful place for to have a plant like this where you're trying to work with the petrochemical industry. And the guys are big farmers anyway, and so everybody cooperates. And so they have a lot of expertise about how to drill wells. That's what Gerald was about and knowing how to do it. And he definitely had his own way of going about it that was different than what was being sold to others. That I've been told over and over again, and I believe it to be true. And so that's why I think we didn't have the problems that other people have seen. Craig Irwin: Understood. Well, we don't have to to talk about those problems. I will say congratulations for your success. And and thanks again for thanks for taking my questions. Patrick Gruber: Course. Operator: As a reminder, if you'd like to ask a at this time, please press 11 on your touch tone phone. Our next question comes from Peter Gastric with Water Tower Research. Peter Gastreich: Hi. Congratulations on your results, and thanks for taking my my questions. The the partnership that you've discussed with Frontier, it's certainly very It looks like it presents a a lot of opportunities for you. You know, some of the pipeline has obviously been very, very quiet. Just curious you know, if we look at Frontier, entering this market, are they coming in as a potential competitor here to Summit, or should we think of Frontier more as being complementary and maybe focusing on the ethanol plants that are not you know, on that pipeline route? Like, how should we think about this this this entry into the the market Paul, go ahead and take that on, please. Paul Bloom: Yeah, Peter. No. Good great question. You know, I think it's if you look at what we had in or Frontier really had in the announcement, you know, they talk a lot about how many plants are kinda stranded. They don't have access to geological sequestration They don't have access to pipelines today. So I think that's really the the first and foremost market because like Pat said, you know, CO2 is transported by rail all the time. So this gives those plants that optionality. And, basically, so now you know, you think about you either have the right geology You may have access to a pipeline. Or if you don't, now you've got a real opportunity to to go to a sequestration site. Like what have in Wyoming and we have in in North Dakota. Okay. Got it. Thank you. Just a second question. About overseas markets. Could you talk a bit more about the agreement that you've entered with Hausch in Europe with and the ethanol to jet facilities? With the SAP feedstock restrictions in Europe, what's the strategy there? And, also, just curious broadly, your traction overseas markets and where you see the best prospects there. Paul, go ahead and take that one again. Paul Bloom: Yeah. Sure. How how should the interesting company that we really have enjoyed working with And, you know, they've got a a good focus. They're a hydrogen company fundamentally, and and you know, so as we're trying to find the right combination of sites and feedstocks, we think we've got a good partner. We When we think about the feedstock, right, there are limitations. So we do need to think about Refuel EU doesn't allow corn ethanol, crop based fuels to qualify. So we are looking at sources carbohydrate sources still for for ethanol, obviously. But could they come from waste and residue type feedstocks that that will qualify for those markets. So that's that's kinda where we're focused. Those exist We have a whole team that that's taking a look at that. And then the really comes down to what are the economics, the the netbacks from from Europe versus North America. But like Chris said, we really see ATJ thirty as a as a global business. So even not just Europe, this is, like, where can we find the right carbohydrate feedstock We ethanol is ubiquitous. And so it's really about how do we have a plan and then have the right partners in those geographies that we can execute. Peter Gastreich: Okay. That's great. Thank you very much, and, congrats again to the team. Paul Bloom: Thanks. Operator: That concludes today's question and answer session. I'd like to turn the call back to Patrick Gruber for closing remarks. Patrick Gruber: Yeah. One of the interesting things if, I would encourage people to take a look at the growth of the jet fuel demand out to the future. It's quite interesting in that continuing to increase here in The US and around world. Refining capacity, however, is not increasing. Not here in The US. In fact, it's decreasing. There's only a finite amount of jet fuel in a barrel. This means that there's going to be a shortage of jet fuel here in The US, a shortage, incremental shortage. But it adds up to big numbers, about 2.4 billion gallons a year by about 2024 of and we have to do something different. Bring it in, import it, or make it through alternative sources. You'll find that if anyone does start searching and looking at this, you'll find that the world predicts that everything is gonna be fulfilled with SaaS. And I and SAF you know, of course, is jet fuel plus it's carbon. But think of it as just jet fuel. And the question is, will all that get built really? And you look at these projections, and it's already behind schedule everywhere in the world. You know what that means? Jet fuel price is likely to go up and likely with The US, we'll have to import more jet fuel. With this administration, they're not big on importing products. And we can make them domestically. Remember our premise. We can because we get netbacks, of value from the coproduct of carbon, because we get netbacks from protein, and the oil, the corn oil. We can deliver cost competitive jet fuel to the marketplace. Cost competitive with petrol. Pretty fascinating. 2.4 billion gallons, remember, is more like 70 plants needed in The US over the next decade. Well, that's a target rich environment. That's what we're looking at here. That's what makes it interesting and why we don't lose track of those ATJ plants. Can use more ethanol. We can use more corn. And it makes huge huge job growth. It improves energy security. It's a good overall practical story of doing cost competitive energy delivered to the marketplace. As an alternative. And do I think that we'll wind up building 70 plants? No. That's not the ethanol industry did it when they blew when they when them went big, when ethanol did their boom between, what, 2007, 2012. They did more than that. So it's possible to do. But for us, realistically, no. I'll just take a bite of that, though. That would be great. And then we can do the same thing around world. That's what's in front of us. We got a great platform, Gevo North Dakota. Acquisition turned out better than we ever expected. We have cash flow coming It's good to see. We can expand it. And then we have this huge opportunity and platform along with all of our intellectual property and designs around the jet. One of the last comment around the ATJ that I'll mention because I think it's relevant to the questions that we get in the marketplace, is that in technology readiness sense, every single step that we're planning on deploying at our at ATJ thirty, every one of them is proven proven commercially already in this world. Technology ready level as nine. For all the steps. That's different than anyone else's ATJ technology. Thank you all for joining us. I appreciate it. For all your support. I'm proud of my team. Proud of what we've done. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good afternoon, and welcome to StandardAero, Inc.'s Third Quarter 2025 Earnings Conference Call. I'd now like to turn the call over to Rama Bondada, Vice President, Investor Relations. Please proceed. Rama Bondada: Thank you, and good afternoon, everyone. Welcome to StandardAero, Inc.'s third quarter 2025 earnings call. I'm joined today by Russell Ford, Chairman and Chief Executive Officer, Dan Satterfield, our Chief Financial Officer, and Alexander Trapp, our Chief Strategy Officer. Alongside today's call, you can find our earnings release as well as the accompanying presentation on our website at ir.standardarrow.com. An audio replay of this call will also be made available, which you can access on our website or by phone. The phone number for the audio replay is included in the press release announcing this call. Before we begin, as always, I would like to remind everyone that statements made during this call include forward-looking statements under federal securities laws. Statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission, including in the Risk Factors section of our annual report on Form 10-Ks for the year ended 12/31/2024. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Additionally, during today's call, we will discuss certain non-GAAP financial measures such as adjusted EBITDA, adjusted EBITDA margin, free cash flow, net debt to adjusted EBITDA leverage ratio, and organic revenue growth. A definition and reconciliation of these measures to the most directly comparable GAAP measures can be found in our earnings release in the appendix to the earnings slide presentation on our website. Non-GAAP financial measures should be considered in addition to and not as a substitute for GAAP measures. With that out of the way, I'd like to now turn the call over to our Chairman and CEO, Russell Ford. Russ, over to you. Russell Ford: Thank you, Rama, and thanks to everyone for joining our earnings call today. Before we begin, I'd like to take a moment to wish an early happy Veterans Day to all those who have served and those currently serving in the Armed Forces. I'm proud to say that at StandardAero, Inc., nearly 20% of our domestic workforce are veterans, and we are immensely grateful for their sacrifices they and their families have made through their service. Let's turn to our results beginning on slide three. The third quarter was another strong performance by StandardAero, Inc. We delivered revenue of $1.5 billion, growing 20% year over year, and adjusted EBITDA of $196 million, up 16% year over year growth. This marks another quarter of double-digit top-line and earnings growth driven by demand strength across our end markets and continued operational discipline throughout our business. Within a complex operating environment, our diversified business model across end markets, OEMs, and more than 40 platforms we serve continues to provide us with growth opportunities and resilience, enabling us to perform well through industry cycles. Now turning to our end market performance in the quarter. Our commercial aerospace revenue grew 18% year over year, led by a near doubling of LEAP revenues from last quarter and strong contributions from the CF34, CFM56, and turboprop engine platforms. Our backlog of MRO work remains strong, and the MRO supply-demand environment remains tight globally. We expect this favorable dynamic to continue for the foreseeable future. Business aviation revenue was up 28% year over year, driven by growth across mid and super midsize aircraft. We saw strong growth in our HTF-7000 program, which should continue supported by the successful expansion of our facility. Our military and helicopter revenue grew 21% year over year, fueled by AE1107 engine volumes after the V-22 grounding last year, ongoing strength of our C-130 transport aircraft programs, and the J85 engine, which powers the T-38 trainer, as well as the contribution from our AeroTurbine acquisition. From an earnings perspective, we continue to generate strong high-quality growth. Adjusted EBITDA rose 16% year over year, driven by volume growth, pricing, and mix, particularly within component repair services, where we delivered another record margin quarter. Even as we invest heavily in ramping our newest programs, we've continued to demonstrate double-digit earnings growth and margin resiliency. Our adjusted EBITDA margin was 13.1%, inclusive of some lower margin work scopes and the expected short-term impact of the ramps of our LEAP program in the new CFM56 DFW facility, both of which are expanding at a rapid pace while we come down the learning curve as planned. This result underscores the strength of our overall portfolio design. We anticipate these ramping programs will turn profitable in early 2026 and continue to accrete from there. Starting on the right side of Page four, I'll give some updates on the status of our strategic priorities, which we expect to drive long-term compounding value for our shareholders. We continue to be pleased with the progress of our LEAP industrialization and the outlook for this program. LEAP revenues continue to scale rapidly and are a key driver of our commercial growth. Through the end of the third quarter, we've inducted nearly 50 LEAP engines and expect to complete more than 60 LEAP engine inductions this year. LEAP sales in the third quarter nearly doubled sequentially from Q2. Importantly, the long-term demand outlook for LEAP is getting even more robust with multiple wins this quarter and a large number of sizable opportunities in the pipeline. With our recent wins, our planned 2026 slots are rapidly filling up, and we continue to gain even more confidence that our LEAP revenues alone will reach $1 billion annually in the next few years. Moving to our other growth platform investments. The CFM56 expansion at our DFW facility is also progressing well with strong bookings momentum, including a significant three-year award from a major North American carrier during the quarter. Last quarter, we talked about the expansion of our business aviation facility in Georgia. That expansion is now operational, with the added capacity helping drive significant growth on our HTF-7000 program, where we are seeing strong demand for mid and super midsize business jets and are positioned as the worldwide exclusive independent heavy overhaul provider on this engine platform. We are also pleased to announce today the planned expansion of our MRO facility in Winnipeg, Canada. This facility is home to our CF34 program, where we expanded our license relationship with GE last year. We continue to see outsized demand and share gains on this platform and are adding approximately 70,000 square feet to the facility to capture that growth. This expansion will increase our Winnipeg footprint for both the CF34 and CFM56 programs by more than 40% as well as significantly increase our CRS in-sourcing opportunities. We broke ground on the expansion in September and expect to complete it in 2026. The investment is supported by contributions from the Government of Manitoba, with whom we've been working closely in planning this project, resulting in a total net investment for StandardAero, Inc. in the high single-digit millions. We view this as an attractive and high-return investment opportunity given the long-term contracts we already have in place to fill a large portion of this capacity. Our component repair business continues to execute, delivering record margins this quarter, driving 32% adjusted EBITDA growth year over year. The team is performing well on synergy capture from the ATI acquisition, and we've expanded our portfolio of OEM-authorized LEAP for repairs to more than 450. Additionally, we're now the first non-OEM provider of source-controlled LEAP-1A and 1B fan blade repairs, including structural edge and coating repairs, and have stood up our dedicated LEAP fan blade repair cell at our CRS facility in Cincinnati. Furthermore, our CRS segment was awarded new OEM authorizations on two critical source substantiated fan blade repairs on the CF34-8 engine. We are continuing to expand our portfolio of over 20,000 licensed component repairs, which we expect to drive third-party sales growth and strengthen the synergies between our CRS and Engine Services business. As a result of our continuing strong performance and execution on our strategic priorities, we are raising our full-year 2025 guidance across all key metrics: revenue, earnings, and free cash flow, reflecting our confidence in the fourth quarter and continued strength across both segments. Dan will detail this guidance shortly. In addition, our balance sheet remains a source of strategic flexibility and gives us ample liquidity for both organic investments and accretive M&A. As we move forward, our priorities are clear. First, continue to ramp our growth platforms efficiently. Second, drive productivity and cash conversion across the enterprise. Third, continue expanding our CRS repair capabilities, and finally, investing organically and through acquisition in programs and capabilities that capitalize on our long-term growth opportunities. With that, I'll turn the call over to Dan to discuss our financial performance and outlook with additional detail. Dan Satterfield: Thank you, Russ. I will begin on Slide five with some highlights from our third quarter results. For the third quarter ended 09/30/2025, we generated revenue of $1.5 billion, up 20.4% year over year, including 19% organic growth. Adjusted EBITDA increased to $196 million for the third quarter, representing 16.1% growth with adjusted EBITDA margins of 13.1% compared to 13.5% year over year, driven by some lower margin Workscope mix and the ramp of LEAP and CFM56 DFW programs as those come down the learning curve, partially offset by record CRS margins. The prior period Q3 2024 included the one-time impact of our liability extinguishment that added $9.3 million to revenue and adjusted EBITDA and boosted margins by 60 basis points. Net income was $68 million, an increase of $52 million versus the prior year period, reflecting higher operating income, reduced interest expense, and lower non-recurring costs. Free cash flow was a $4 million use this quarter, a meaningful sequential improvement but still reflective of a challenging supply chain across various platforms that continues to drive record levels of contract assets in our shops due to specific constrained parts. Importantly, this is mainly a timing issue, and we expect a surge in shipping of completed engines in the fourth quarter, which will unwind a substantial portion of the increase in working capital experienced in the first nine months of 2025. As such, we are confident in raising our free cash flow guidance for 2025. I'll dive a little deeper into cash flow shortly. Now moving into our two segments, starting with Engine Services on slide six. Engine Services revenue increased 21% to $1.32 billion in Q3, driven by the LEAP, CFM56, CF34, turboprop platforms, and the HTF7000 business aviation platform. Engine Services adjusted EBITDA increased 12% year over year with margins of 12.5%, consistent with expectations given some lower margin Workscope mix in the quarter and a substantial growth on the LEAP and CFM56 DFW platforms. Keep in mind that in the quarter last year, Q3 2024, had a liability extinguishment that added $9.3 million to revenue and EBITDA and boosted margins by 70 basis points. Without that one-time gain, Q3 2024 margins would have been 12.8%. So excluding the currently dilutive effect of our growth platforms, we would have had significant year-over-year margin improvement this quarter. As Russ mentioned, we continue to expect both of these programs to become margin positive early 2026 as we move down the learning curve. On to Slide seven, CRS. Component repair services revenue increased 14% to $154 million in Q3. Notable drivers included select military platforms, continued robust demand in our land and marine business for aero derivative engines, which is benefiting from growth in applications like data centers, and strong performance from our ATI acquisition. This was partly offset by the timing of some commercial volumes that moved to the right. CRS segment adjusted EBITDA grew 32% year over year, reaching $54 million. Margins continued to see strong improvement and once again marked a record quarter. We did see some favorable mix in Q3 that we expect to normalize in the fourth quarter, which is reflected in our guidance. And more on this shortly. Now moving to slide eight. Free cash flow for the quarter was a $4 million use, continuing to reflect the impact of increased working capital, which was up $108 million in the quarter tied to key constrained part delays that persist. A significant amount of this working capital increase is purely timing related, driven by parts availability on a number of our platforms, which has been particularly challenging year to date. As a result, we had many engines largely completed and awaiting specific parts before shipment to the customer and invoicing, and thus cash collection. This situation is reflected in our contract assets balance sheet line item, which has increased $300 million over the last twelve months, with a vast majority tied to certain commercial programs. However, the good news is this is purely a matter of timing. The situation is improving, and we expect a significant unwind in Q4. As such, we expect cash flow in Q4 to be exceptionally strong, and we are raising our full-year free cash flow outlook by $15 million at the midpoint from our prior guidance, as we are now expecting free cash flow for the full year 2025 to be in the range of $170 million to $190 million. Along these lines, we also have some additional positive developments to share that will fundamentally improve the quality and sustainability of our margins and cash flow going forward. Over the past year, we have continued to execute on our goal of negotiating structural changes to several long-term customer contracts within our Engine Services segment. Historically, many of these contracts included a substantial amount of zero or low margin material pass-through revenue. Material that sits in inventory and contract assets consumes significant cash and obscures our true operating performance. We have now made meaningful progress renegotiating several contracts that achieved structural changes to reduce or eliminate this pass-through activity. And we expect to see a clear positive impact in 2026. As a result of these contract amendments, we now expect approximately $300 million to $400 million of material pass-through revenue to be eliminated next year. While that will appear to reduce our nominal top-line growth rate at the outset, it will have minimal impact on EBITDA or earnings growth, resulting in higher reported margins that better reflect the true operating performance of these programs. Importantly, these changes will improve our working capital efficiency and free cash flow conversion over time as they take effect through 2026. We'll provide full quantitative 2026 guidance incorporating these impacts when we report fourth quarter results early next year. Turning to slide nine. Our leverage at the end of the quarter improved to 2.9 times net debt to EBITDA and is down 2.4 turns from our leverage at the end of Q3 last year. We expect to continue to delever through organic earnings and cash flow growth with our long-term net leverage target unchanged at between two and three times. At the current level, we have ample balance sheet capacity to conduct organic investments and accretive and strategic M&A. Now to our guidance on slide 10. As Russ mentioned earlier, we are increasing our outlook ranges across all three of our main metrics from our August earnings call to reflect our continued operational outperformance. When we provided initial guidance for 2025 back in March, we expected 12% year-over-year revenue growth and 13% year-over-year adjusted EBITDA growth at the midpoints. Our new guidance calls for 14.5% revenue growth and 16.5% adjusted EBITDA growth at the midpoint. Expressed differently, we have increased our full-year guidance relative to our initial outlook by 350 basis points for adjusted EBITDA growth. This has come about despite the challenging 2025 supply chain environment we have referenced several times on this and prior calls. We now expect 2025 Engine Services revenue of $5.27 billion to $5.31 billion, which at the midpoint implies a 14% full-year growth rate. For our Component Repair Services segment, we now expect 2025 revenue of $700 million to $720 million, which at the midpoint translates to a 20% growth rate. On EBITDA, we have adjusted our 2025 Engine Services segment adjusted EBITDA margin guidance to 13.2% and are raising our 2025 component repair segment adjusted EBITDA margin from about 28.3% to 29%. This drives an increase to our total company 2025 revenue guidance to a range of $5.97 billion to $6.03 billion. Our 2025 adjusted EBITDA guidance increases to a range of $795 million to $815 million. As I mentioned before, we are also raising our free cash flow guidance for the year to $170 million to $190 million as we are confident in our Q4 cash generation as earnings continue to grow and working capital unwinds. With that, I'll now turn it back over to Russ to wrap things up. Russell Ford: Thank you, Dan. This call marks an important milestone for us as we recently completed our first full year as a publicly traded company last month. We continue to be pleased with the performance of the business, which is well ahead of the targets we set in advance of the IPO. And we're optimistic about the prospects for StandardAero, Inc. through this year and into the future with a positive market backdrop and the continued relentless focus on execution that's been a hallmark of our business since it was founded one hundred years ago. That concludes our remarks for Q3. And with that, operator, we're now ready to move to the Q&A session. Operator: Thank you. We will now be conducting a question and answer session. So that we may address questions from as many participants as possible, if you have additional questions, you may requeue, and time permitting, those questions will be addressed. One moment please while we poll for questions. Our first question comes from the line of Michael Ciarmoli with Truist Securities. Please proceed. Michael Ciarmoli: Hey, good evening, guys. Nice results. Dan Satterfield: Thanks, Mike. Michael Ciarmoli: I'm not sure Russ or Dan, think I heard this LEAP, are we now targeting $1 billion in revenues next couple of years? I think the previous target was 2030. Russell Ford: Yes. In the next few years, meaning towards the end of the late 2029, 2030 timeframe. Michael Ciarmoli: Okay. So still there, no change. Russell Ford: No change. But as we approach '26, '29 starts getting a lot closer. Michael Ciarmoli: Got it. Yes, makes sense. And then just the confidence level on the cash flow. I mean, you mentioned the contract assets with receivables and inventory up $185 million sequentially. What are the parts that are causing the choke points there? Do you already have them in stock? I mean, raising the free cash flow guidance, I guess you've got good line of sight and confidence there? Russell Ford: Yes, we do. Listen, first of all, Q3 would have been at my sort of my expectation level if it weren't for about a dozen engines that just slipped into Q4 in terms of shipment, and all of that is really due to the constrained parts, specific constrained parts primarily around forgings and castings. As a result, we have a line of sight on the engines that we'll ship in Q4 and result in that outcome. We're seeing the depth of delay on some of these constraint parts get better. Matter of fact, that's been the core issue all year. Is even though on-time delivery might be improving for the OEs, on certain constrained parts for me, the depth of delay got worse. So as that begins to improve, it's just a few parts on several hundred engines that result in the cash flow improvement quarter over quarter. Michael Ciarmoli: Got it. Helpful. Guys. I'll jump back in the queue. Russell Ford: Sounds good. Thanks, Mike. Operator: Thank you. Our next question comes from the line of Ken Herbert with RBC Capital Markets. Please proceed. Ken Herbert: Yes. Hey, good afternoon. Nice results. Maybe Dan or Russ, the adjustments you've made to some of your long-term contracts, which obviously I think you called out $300 to $400 million of revenues eliminated next year at zero margin. Do you see all of that benefit in 2026, or how much of that maybe then bleeds into 2027 as well? Russell Ford: Yes, most of it happens in 2026. So it starts to feather in. First of all, contracts change. I've also got to burn down existing inventory. But we believe over these contracts, the $300 million to $400 million accrues as a reduction of revenue year over year in 2026. Ken Herbert: Okay. That's great. And can you remind us what's the backlog on your LEAP business? I know you've called that out in the more recent quarters. And is there a reason maybe you're not giving an hour? Can you give us an update on that? Russell Ford: Yes. During the quarter, Ken, I we reported last time that we were a little over $1 billion in backlog, and we're seeing about 5% growth this quarter. Ken Herbert: Great. Thanks, Russ. I'll pass it back there. Russell Ford: Thanks, Ken. Operator: Thank you. Our next question comes from the line of Gavin Parsons with UBS. Please proceed. Gavin Parsons: Thanks. Good evening. Dan Satterfield: Hey, Gavin. Gavin Parsons: Just wanna go back to supply chain for a second. What unlocked there? Is your sense that that's sustainable? Or was that just kind of a surge or reallocation of parts maybe? Russell Ford: Amongst customers? I don't think it's going to be a surge of parts. During the year, I had this depth of delay on the constrained parts. That really got bad over the summer. We're seeing these constrained parts, and they really are the smallest part of our supply chain. That's holding up these very large dollar values of, in particular, contract assets. So you'll see that the contract assets unwind as these come in. It's forgings and castings, it's the same characters. And so it is true that the supply chain overall is getting somewhat better. But if it doesn't get better on my constrained parts for StandardAero, Inc. engines, sitting in the shop, engines don't ship. We are seeing that occurring now. Matter of fact, there is a discrete list of engines with ship dates on them that makes us pretty confident that all of this will unwind. This is an important part of our measurement system. Because people tend to focus on the measurement of on-time delivery. But on-time delivery only tells part of the story. You really do have to look at a second-order measure, which is what we call depth of delay. A lot of other companies use that same terminology. And the reason for that is because if you are two days late versus two months late, that's a big difference. But in the on-time delivery measure, they both count the same. So your on-time delivery may not be changing or may move one point. So you have to look to the next, the second order, which is your depth of delay. And if you see the delays that were thirty days, now becoming seven days and five days, then that gives you confidence that the supply chain in fact is getting closer to supporting the actual line flow that we need that we use for our forecasting. So that's what gives us confidence. We saw the depth of delay actually increase over the summer and then it started drawing back. So we feel comfortable that the supply chain is in fact improving even though we've not seen all of those parts flush completely through to us, we have good line of sight. Gavin Parsons: Great. I appreciate the detail. I guess speaking of days, when you think about long-term cash flow conversion, do you guys have a target DSO? And how much cash is this one day? Russell Ford: Yeah. I mean, we're gonna, you know, we've said before, we're gonna be an 80% to 90% free cash flow conversion company on net income. And that hasn't changed. Let's DSO, if that's what you're referring to, is not the driver. We get paid on time. DSOs are great. Terms are typically you'd expect in this industry. That's not the issue. It really is related to the supply chain. On a ton of demand but supply chain as it relates to some specific constraint parts. That's what the as that gets better over time, that will be the trigger for sustainable cash flows at the levels I'm talking about. Dan Satterfield: Thank you. Gavin Parsons: Thanks, Gavin. Operator: Thank you. Our next question comes from the line of Myles Walton with Wolfe Research. Please proceed. Myles Walton: Hey, good evening. I was wondering if you could start with CRS and the revenue outlook would was trimmed at the top end. Was that an internalization of the sales? That any deterioration in the core outlook? Russell Ford: I didn't understand the first part. There's not a deterioration in the core outlook. If you're asking about in-sourcing. Myles Walton: 700 to 720, right. Russell Ford: No, I mean, listen, it's a lumpy business. We're really excited about a lot of the growth we're getting in particular from the ATI acquisition. Land and Marine had a fantastic quarter. So did the GTF leap revenues were up really strong. As a lot of that work is getting in-sourced. And the military platforms are great. On the accessory side and the commercial side, it's lumpy. And it's kind of the same issue that we have on the MRO side of our house. Remember my third-party customers for CRS business are MRO operators themselves. And when they see constrained parts issues, that bleeds into their demand for component repair services as well. So a lot of the dynamics that my MRO customers are having with supply chain issues, are the same issues that flow through to CRS. But no, we're very bullish about the business. It grows strongly. Insourcing activity is up. Like I said, a lot of the play this business has 20,000 authorized repairs. And to Russ' point, that's growing rapidly. No concerns here over the medium term. Myles Walton: Okay. And the $300 million to $400 million reduction in sales from not having to pass through. Can you translate that to a benefit explicit on cash that you don't have to hold or maintain? Is there a direct working cash liquid that you have in 2026 as a result? Russell Ford: Yes. It does have a free cash flow benefit. And by the way, like personally, I'm super excited that we're making progress on this. We've been talking about this for a long time. The material pass-through overhang depressing our margins. And now we're beginning to show the true underlying margins of the ES segment. How does it benefit cash flow? It will feather into 2026 as the existing inventory winds down. And then the real benefit we'll see the significant benefit we'll see is in 2027. There was a fair amount of discussion about this during the run-up to the IPO, Myles. And we view this as we talked about this and in my opinion, is promises made, promises kept. We said we were going to do this. And in we've made very good progress. And like Dan said, moving this kind of revenue away from the balance sheet, it helps to illuminate the true financial and operational performance of the underlying business. And that's exactly why we've done it. Dan Satterfield: Yes. No, I completely concur. Makes a ton of sense. Is there platforms or customers specifically who are more interested in this than not? Russell Ford: I wouldn't say that. It's been a theme in a lot of the contracts that have been put in place over the last fifteen years. And so really there's for this as these contracts come up for renegotiation and renewal. And we're viewing this as something that we can pursue across all of our various customers. It's not just limited to one or two. Myles Walton: Okay. All right. Thanks so much. Dan Satterfield: Thanks, Myles. Operator: Our next question comes from the line of Kristine Liwag with Morgan Stanley. Please proceed. Kristine Liwag: I just wanted to follow-up on your discussion on the supply constraint parts. So in regarding your visibility, like how much visibility do you have that you're going to these parts available to you this year and also look next year when we look at the industry, demand from the OEs continues to go up, aftermarket is also very strong. Are you looking at your procurement process a little differently to make sure that you can have access to these parts? Russell Ford: First of all, visibility is strong for Q4. Otherwise, wouldn't be raising my raising guidance on cash flow. So we feel really good about those engines shipping. What will we do differently in the future? Yes, you should. We are making some supply chain changes. As it relates to constrained parts ordering those differently. However, I'll tell you Kristine, these constrained parts can change. Quarter to quarter. If you've looked into it into these forgings and casting suppliers, it can change quarter to quarter. What exactly the constraint is. But I'm confident that we'll have our Q4 cash flow. Improvement and we will have strong cash flow next year. Kristine Liwag: Great. Thank you very much. And following up on the LEAP engine, you've now done quite a few of these engines going through your shop. Can you provide some qualitative or any sort of quantitative information regarding what you've learned so far, how the processes versus what you had planned? And when you think about the potential cost reduction you could have over time in servicing these engines? Are there areas that have stood out to you so far? Russell Ford: Yes. Thanks. Good question, Kristine. Still we're still in low rate initial production. We're kind of in our first year of full production. So we're coming down a learning curve very quickly. We are learning lots of things. At the front end of the business, the backlog is really strong. The RFP environment is very busy. We're getting more than our fair share of wins here. And what we're beginning to see is more PRSV full performance shop visits, versus the early on, it was very heavily biased towards C TIM, hospital visits, lower work scope visits. So the fuller work scopes are now beginning to come through. That's important because it's really those engines that advance us down the learning curve and give us the full cycles of learning. Early on, we said that our experience with a new platform like this typically we start reaching an equilibrium state after about three years. And we are one year into it and we are coming down the learning curve exactly as anticipated. And that's why the second year, which will be next year, you'll see these things become margin positive. And then in the third year, you'll see these things start approaching accretive levels at the enterprise or the company level. So we're happy with the progress that we're making. As we come down learning curve, the other impact that has is it creates more capacity for us. We're not we don't have to spend as many hours on a set work scope and that gives us essentially free capacity. So no surprises. We're actually quite happy with how this program is progressing. Kristine Liwag: Great. Sounds good. Thank you very much. Dan Satterfield: Thanks, Kristine. Operator: Our next question comes from the line of Seth Seifman with JPMorgan. Please proceed. Seth Seifman: Thanks very much and good afternoon. Wanted to check-in on the Engine Services. Is anything you could say with regard to the mix in Q4? It looks like we'll see the margin rate step kind of back up above 13% but fairly big revenue quarter, based on your comments on LEAP, it seems like LEAP is growing pretty quickly. So just in terms of the ability to kind of see that uptick in the sequential margin? Is there any kind of mix element to that you point out? Russell Ford: Yes. Thanks, Seth. First of all, quarter for Engine Services. If you look at excluding that prior period item, and excluding the effect of the ramp, margins at ES actually accreted 70 basis points year over year in the quarter. So fantastic. In Q4, we're going to see better mix out of some of our platforms. Primarily on the biz app side and some of the military programs. LEAP is LEAP and CFM56 both of those programs as they grow they're growing at 0% margins. And that'll be the case until early 2026. And we feel really good about those turning into positive margins in 2026. Then marching their way up the learning curve. So super excited about that. But quarter over quarter, we're going to see benefit in, like I said, some of the mix on some of our platforms. In military and biz app. Seth Seifman: Okay, okay, great. And then really just more of a clarification on the last part. I think you'd said earlier that you expect to see just about all of the $300 to 400 million impact of changes in contract terms in 2026, but also that they would feather in as inventory on those particular contracts and as your work on the existing contract winds down. Does that mean there's a stub that's left to affect 2027 revenue and margin? Russell Ford: Yes, right. So what happens is the cash impact doesn't come as fast as the earnings revenue impact. Because I've got different turns on each of these engine platforms. They all turn differently. So that's one. Two, I'm going to burn down my current inventory on hand. And so you'll see the cash impact begin at 26% and get really strong at 27%. Seth Seifman: Okay. But no more revenue and margin impacts beyond 2020? Yes. So great question, Nob. Thanks for clearing that up. Russell Ford: It is a one-time impact. So you reset the level with these particular contracts to lower material pass-through and then you're done. Then you go forward on a normalized run rate. Yes. You don't recreate that in your forward contract. Dan Satterfield: Right. Russell Ford: But the margin, of course, margin benefit is ongoing. Dan Satterfield: Right. Yes, resets. Seth Seifman: Okay, great. Thank you very much. Russell Ford: Thanks, Seth. Operator: Thank you. Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed. Sheila Kahyaoglu: Good afternoon, guys, and thank you for the time. If you could talk about Business Aviation, it just drove some of the guidance revenue increase across end markets. How do we think about what surprised the upside? How much of the 7,000 capacity is now at full run rate? And how do you think about the growth of that business going forward in 2026? Russell Ford: Yes. Thanks, Sheila. We're actually quite excited about that particular end market. You look at flight hours for biz av, they continue to increase. And if you look at the concentration of where those flying hours are, they're in the larger aircraft. Which is where we're at on many of the engines that we work on, in particular the HTF 7,000, where we've got the best position as being the worldwide independent holder of that license along with Honeywell. And we're seeing those aircraft platforms are just as fast as they can be built. And the flying hours are continuing to go up. So that's why we saw that coming and we've experienced that over the last couple of years as the embedded base for the HTF-7000 continues to grow. And that's why we made the investment developed program with the state of Georgia and the Economic Development Council to expand the facility there in Augusta where our HTF 7,000 engine shop is at primary one. And we opened that new facility just a couple of months ago and it's pretty much full already. So it's allowed us to take on more aircraft as well and bigger aircraft, which generally have bigger work scopes as well as more of those HTF-7000 engines. And this engine is going to be the predominant biz av engine you're going to see in the market for the next twenty or thirty years. So we're excited that we're on the front end of this thing. We've moved quickly. We have a really strong, unique exclusive position on this program. And overall, our Business Aviation Group is out in front of this and the relationships we have with our customers are excellent. We're able to bring in new customers on the larger aircraft like Gulfstream class aircraft. That we really just we had limited access to before because of the facilities. But now that we've opened up that additional capacity, gives us access to the fastest growing portion of that end market. Yes. Just to clarify, we were just down on the Augusta facility just a couple of weeks ago. So the airframe shop is full, right? It's full of these super midsize jets. The engine shop is ramping, right? So that's what's going to provide the strong revenue growth in 2026 and beyond. Is the engine shop ramping up. So there's a lot of pent-up demand there that we're now going to be able fully advantage of. Sheila Kahyaoglu: Can I just ask one more follow-up on the cash flow? Is that possible? Just to better understand the contract adjustments? Why would an airline engine OEM agree to this change? And how does that, like, pass-through change you know, work, guess, and impact the free cash flow? Russell Ford: Yes. Sure. So, it's really no difference if not some advantage to the operator. Right? So the operator today purchases the material from the OE through StandardAero, Inc. with a small handling figure. And we talked about that before, right? Low single-digit margins on this. So that'll go away that incremental profit that I'm getting and they will work directly with the COE, which really for the end customer is no change to a positive impact for them. So it's hasn't been it's a long negotiation, but it's not it is value accretive to the end customer for sure. Sheila Kahyaoglu: Got it. Thank you. Dan Satterfield: Thanks, Sheila. Operator: Thank you. Our next question comes from the line of Jordan Lyonnais with Bank of America. Please proceed. Jordan Lyonnais: Hey, good afternoon. Thanks for taking the question. Wanted to just touch on the M&A pipeline. I know you guys have said it's robust. So where are you looking to supplement the portfolio now? And what are you seeing for valuations? Alexander Trapp: Yes. It's the same this is Alex, by the way. It's same as in past quarters where there's a lot out there. And we're evaluating everything we see and just waiting for the right one to jump on. So no change really. There continues to be quite a few things out there. Just a very fragmented industry with a lot of different opportunities and not everyone is a perfect fit. Jordan Lyonnais: Got it. Thank you. Dan Satterfield: Thanks, Jordan. Operator: Thank you. There are no further questions at this time. I'd like to pass the call back over to Russell for any closing remarks. Russell Ford: Thanks, Alicia. I appreciate everybody's continued support. We're real happy with the progress. Looking forward to a strong full year here and real happy to be part of your public market coverage. And StandardAero, Inc. will continue to deliver as promised. So thanks, everyone. Appreciate your continued support. That is all. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Quest Resource Holding Corporation's Third Quarter 2025 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press 0 for an operator. This call is being recorded on Monday, November 10, 2025. I would now like to turn the call over to Nick Nelson with Alpha IR Group. Please go ahead. Nick Nelson: Thank you, operator, and thank you, everyone, for joining us on the call. Before we begin, I'd like to remind everyone this conference call may contain predictions, estimates, and other forward-looking statements regarding future events or future performance of the company. Use of words like anticipate, project, estimate, expect, intend, believe, and other similar expressions are intended to identify those forward-looking statements. Such forward-looking statements are based on the company's current expectations, estimates, projections, beliefs, and assumptions, and involve significant risks and uncertainties. Actual events or the company's results could differ materially from those discussed in the forward-looking statements as a result of various factors which are discussed in greater detail in the company's filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such statements and may consult SEC filings for additional risks and uncertainties. The company's forward-looking statements are presented as of the date made and the company undertakes no obligation to update such statements unless required by law to do so. In addition, this call may include industry and market data, other statistical information, as well as the company's observations and views about industry conditions and developments. The data and information are based on the company's estimates, independent publications, government publications, and reports made by market research firms and other sources. Although Quest believes these sources are reliable and the data and other information are accurate, we caution that Quest has not independently verified the reliability of the sources or the accuracy of the information. Certain non-GAAP financial measures will be disclosed during this call. These non-GAAP measures are used by management to make strategic decisions, forecast future results, and evaluate the company's current performance. Management believes the presentation of these non-GAAP financial measures is useful to investors' understanding and assessment of the company's ongoing core operations and prospects for the future. Unless it is otherwise stated, it should be assumed that any financials discussed in this call will be on a non-GAAP basis. Full reconciliation of non-GAAP to GAAP financial measures are included in today's earnings release. With that, I'd like to turn the call over to Dan Friedberg, Chairman of the Board. Dan Friedberg: Good afternoon, everyone. And thank you for joining us for our third quarter call. Quest delivered a solid third quarter that showed important progress on several fronts. During the first half of the year, we took decisive actions across the business that included reducing costs, improving operations, and generating cash flow. We're on a much more solid footing as a result of these initiatives, and our third quarter results were consistent with our stated expectation for an improved trajectory of the performance of the business. The impact of these actions is already delivering important improvements in the business and validates our confidence in the path ahead. We will continue pursuing business efficiencies, reducing variability, generating growth, and driving business margins. We are confident in our ability to continue to drive improvements in the business and maintain this trajectory as we finish 2025 and move into 2026. With that, I'll turn the call over to Perry to discuss these efforts in more detail. Perry Moss: Thank you, Dan. We delivered a solid third quarter with strong sequential improvement in our financial performance despite what remains a tough operating environment. Since taking on the CEO role earlier this year, we've been on a mission to standardize and streamline our internal processes, relentlessly track our progress, as well as foster a culture of continuous improvement. This has been a comprehensive effort that spans every aspect of the business, from customer engagement, sales, payments and collections, and more. While these cultural changes can be complicated, I have been thrilled with the response from Quest employees as well as with what we believe are the early benefits of these efforts. Our operational excellence initiatives are driving better visibility into our customers' needs, enhancing the productivity of our sales team, elevating our vendor management practices, maximizing efficiencies for our operating teams, and ultimately, improving financial results and cash generation. Overall, the macro environment continues to present challenges. Volumes from our industrial customers remain subdued and the pace of adding new clients has been slower than last year and slower than what we had anticipated. Our pipeline remains very healthy, and potential clients have not fallen out, but economic uncertainty is leading to some decision delays that are extending the sales cycle. In response, we're focusing on what we can control. We recently redefined our sales process to direct our sales team with a greater focus on share of wallet opportunities. To do this, we focused on greater levels of collaboration between our relationship managers and our sales teams. This realignment combines the capabilities and talent of each team and gives our sales team better visibility into the ongoing and dynamic needs of customers. As a result, we're broadening the number of waste streams that we're handling for individual clients, adding new value-added services to existing client accounts, and expanding our coverage with large multi-location customers to handle a larger portion of their waste. There are many more opportunities that include geographic and service line expansion within our installed base. We expect these share of wallet initiatives to contribute greater levels of organic growth for us going forward as these are clients that already understand and appreciate the Quest value proposition and have seen the tangible benefits of the services we provide. They will all be strong contributors to gross profit dollar growth as we add and optimize services. From a process standpoint, we've also resegmented and better defined the different stages for our sales process. This has provided us with greater visibility into the sales cycle for individual accounts and offers a more detailed look at our total pipeline. We've replicated the same stage of approach for share of wallet opportunities demonstrating our focus here. And now actively maintain both a new business pipeline as well as a share of wallet pipeline. These sales-focused initiatives and process improvements are contributing to improved results as we continue to bring new clients and expanded services with others. We recently launched our two wins that we announced during our last earnings call. One is a major retailer and the other is a large full-service restaurant chain. And just last week, we signed another new contract with a company in the food products end market. Additionally, we continue to execute on our refocused share of wallet efforts by adding all the cardboard and organic food waste from one of our largest new customers from 2024 and adding a significant new number of stores from another existing customer. These efforts will also be important contributors to our commitment to broadening our customer base by adding to the total number of customers we serve and also through expanding our business in nonindustrial end markets. We are committed to diversifying our customer and revenue profile by expanding in markets like retail, hospitality, grocery stores, and more. These are all markets we are present in today and where we see compelling opportunities for our sales team to further penetrate. These are all markets and businesses that tend to perform better during the fourth quarter where industrial production typically moderates. And will provide a good counterbalance to our earnings profile and seasonality. Another critical area of focus of ours is our source to contract process where we engage our vendors and nurture those relationships. These relationships are essential given our asset-light model. Strong relationships with these vendors are central to our ability to win new clients, deploy the right solutions, and deliver a best-in-class customer experience. We've added new vendor relationships, reestablished older ones, and expanded others, which has elevated our level of visibility and value proposition with these vendors. We're finding that many vendors are once again proactively reaching out to Quest, asking for new business and looking to grow their relationships with us. Strong vendor relationships have a direct flow through to service levels for our customers, and today, we currently are experiencing the lowest service disruption rates and associated costs we've ever had. On the process side, we've taken steps to optimize our payment and collection process with the goal of improving our order to cash cycle and overall working capital management. We've been able to homogenize this process and are now paying the vast majority of our vendors on term. We have also shortened our invoicing time and will continue to optimize our cash collections process. We also continue to leverage our technology and data platform, which is enhancing the customer experience through its zero-touch nature. Customers can utilize the portal to access their data to see the benefits of the Quest program. They now see the various waste materials generated, their associated costs, and end destinations. We've amassed a tremendous amount of data which we believe carries incredible value. Ultimately, we envision a subscription-like model for access to this data, adding another margin-accretive revenue stream. Looking ahead, I am confident that the continued implementation and progress of our operational excellence initiatives will continue to drive improvements in the business in the fourth quarter and beyond. Our sales pipeline is moving slower than we would like, but the Quest value proposition continues to resonate with current and potential clients alike. Our relationships with our large industrial clients remain as strong as ever. We are growing our share of wallet with existing clients, and discussions with potential new clients leave us confident that we will win more than our fair share of new business when these companies ultimately elect to move forward. We do expect to continue to experience some margin pressure as we execute our land and expand strategy and volumes at our largest industrial customers are expected to remain challenged. However, we anticipate we will be able to help offset these pressures through optimizing service levels, growing our share of wallet with existing clients, and continuing to drive operational improvements across the business. To wrap up, our key priorities remain to grow the business with new and existing customers, drive margin improvements as we execute our operational excellence initiatives, continue the development of our operating platform, improve cash generation, and pay down debt. We remain confident in our ability to the Quest value proposition and implement these organic initiatives as macroeconomic conditions and industrial volumes normalize. With that, I'd like to turn the call over to Brett to review our third quarter financial results in greater detail. Brett Johnston: Thanks, Perry, and good afternoon, everyone. We are encouraged by the sequential improvements in the business as the internal initiatives we've enacted are delivering tangible results. Revenue for the third quarter was $63.3 million, which was a 13% decrease from one year ago, but a sequential increase of 6.4% compared to the second quarter. The decline compared to the prior year was driven by the divested mall-related business and by lower revenue from clients in our industrial end market, where market conditions remain challenged. Our relationships with these clients remain strong, but macroeconomic conditions are leading to lower overall volumes. We do ultimately expect conditions to normalize and return to growth and fully expect to continue to support these clients when they do. In the meantime, we have greatly elevated our focus on share of wallet opportunities with these new clients. Sequentially, our revenue growth was driven by new clients that we have added over the past eighteen months. Year to date, these new clients have added over $24 million in incremental revenue year over year. The onboarding and progression of these new clients is advancing as planned and is beginning to contribute meaningfully to our financial results. To speak further to that progress, gross margins with these new clients have made consecutive gains for multiple quarters in a row. As a reminder, while margins with these newer clients are initially lower and can create a drag on overall gross profit margins, we have a demonstrated land and expand strategy to both grow our share of wallet and add incremental value-add services over time, which enhances the profitability of these relationships. In the third quarter, gross profit dollars totaled $11.5 million, a decline of 2% compared to the prior year but a sequential increase of 3.9%. This sequential growth was better than our expectation of flat to slightly down, as our gross profit initiatives gained traction. Our gross margin was 18.1%, which was 200 basis points better than the prior year, and a sequential decline of 40 basis points. The year-over-year growth in gross profit margin was largely driven by the sale of our lower margin mall business earlier this year. While the sequential decline was mainly a function of the aforementioned margin dynamics of newer clients combined with margin pressure from renewals previously discussed last quarter. These were largely offset by optimization improvements and other efficiency measures. As we look to the fourth quarter, we would expect sequential comparisons for gross profit dollars to be flat to slightly down but mostly in line with our previous expectations. As a reminder, we tend to see seasonably low volumes across several of our clients in the fourth quarter. Additionally, there remains significant uncertainty related to client volumes in the end market. However, the return to sequential growth in the third quarter leaves us confident that our commercial and customer initiatives are helping to offset these pressures. Our confidence is based on our visibility into efforts continuing to take hold as we optimize the business. And with new clients and expansions with existing clients coming online in the fourth quarter. We will also continue to benefit from the reduction of temporary cost increases we discussed during the prior calls. Overall, we believe these positive trends position us to drive growth going into next year. Moving on to SG&A, which was $9.2 million during the third quarter. This was $1 million lower compared to the prior year, which equates to a 10% reduction year over year. And on a sequential basis, it was a slight decrease from the second quarter. SG&A was consistent with our outlook of mostly flat sequentially. The declines are primarily related to the reduction in work in the first half of the year, increased efficiencies, and the aggressive takeout costs across the organization. We expect SG&A in the fourth quarter to be down again compared to the third quarter as we continue to reduce costs. Moving on to a review of the cash flow and balance sheet. At the end of the third quarter, we had $1.1 million in cash, a sequential increase from $450,000 at the end of the second quarter. And approximately $20 million of available borrowing capacity on our $45 million operating borrowing line. For the third quarter, we generated approximately $5.7 million in cash from operations, a sequential improvement of roughly 46%. These results are driven by improved processes resulting from our initiatives aimed at billing faster, collecting from our clients sooner, and improving vendor management practices and payment terms. Our heightened focus on these activities is reducing our cash cycle. Further benefiting from these initiatives, our DSOs also decreased nicely from the second quarter to the third quarter. Building off a modest decrease from the first to the second quarter. The approximate nine-day decrease drove DSOs into the lower 70s. Additionally, as the overall business continues to improve, we believe our model supports consistent operating cash generation. We would expect these systems and process improvements to contribute continued cash generation and further DSO reduction in the coming quarters. As a result of the improved cash generation, we paid down $4.6 million of debt during the third quarter, bringing our year-to-date debt reduction to $11.2 million. As of the end of the third quarter, we had $65.4 million in net notes payable versus $76.3 million at the beginning of the year. We expect to continue to aggressively reduce debt as these cash initiatives continue to take hold. With that, I'll turn the call back over to Perry for some closing comments before we open up for Q&A. Perry Moss: Great. Thank you, Brett. Our third quarter was an important validation of the operational excellence initiatives we've been enacting across the business. There remains plenty of work to be done, and the operating landscape remains tough. But we are highly confident in the value of our asset-light model and our ability to deliver improved financial results. Our initiatives are working, and we're well-positioned to continue to drive improvements in the business. Going forward, our focus will remain on generating cash and paying down debt while continuing to advance our customer and other commercial initiatives. With that, I'd like to request the operator to provide instructions on how listeners can queue up for questions. Operator? Operator: Thank you so much, ladies and gentlemen. Should you have a question, please press star followed by one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to remove your hand from the queue, please press star followed by two. If you're using a speakerphone, please lift the handset before pressing any keys. Just a moment for your first question. Your first question comes from Gerry Sweeney with ROTH Capital. Please go ahead. Gerry Sweeney: Good afternoon, Dan, Brett, Perry. Thanks for taking my call. Perry Moss: Hey, Gerry. Gerry Sweeney: You'd spoken about end markets specifically maybe industrial remaining weak or challenging. Has that stabilized, or do you see some more headwinds in there outside of seasonality in the fourth quarter? And I'm just curious about your other end markets, how they are holding up altogether. Perry Moss: Yeah. Gerry, I'll take that. This is Perry. You know, the macroeconomic environment is still a bit uncertain. But you know, we believe the industrial markets and really all of our markets are stabilized. Of course, from the industrial sector, we'll see some seasonality effect Q4. Which is why you know, in my comments, we're trying to diversify our portfolio a bit to add customers that actually ramp up in Q4. But I think more importantly, you know, we're really focused on what we can control. Which is our share of wallet with these clients. And, you know, we've been very successful with adding incremental services with these customers, and we expect to continue to do so. You know, we talked last quarter about our strategy to renew a contract with a large client where we gave up some margin on the front end to gain an opportunity to equally share in the savings. We believe that's gonna work very well. It will take more than a quarter for us to see the gains from those shared savings. But we believe that that will benefit. So think everything is stabilized now. The sectors that I talked about earlier, retail, grocery, you know, logistics, we work in a lot of verticals. We think that they will ramp slightly in Q4. Industrials will remain a bit challenged just because of the seasonality. Gerry Sweeney: Got it. And then wallet share, that was something you just brought up now, but also in the prepared comments. You know, taking wallet share, expanding wallet share, however you wanna phrase it, it's always been, I think, part of what Quest did. Have you changed that strategy at all to accelerate it or any other details on that front? Perry Moss: Yeah. Yeah. So the answer is yes. So when I arrived a couple of years ago, you know, I brought a whole new discipline to the sales process, the new customer sales process. So we've taken that approach and used that now for share of wallet. So we have a very disciplined approach where we have a very well-defined share of wallet, which is something we didn't have before. But in addition, we're now collaborating with our between our relationship managers and our sales teams. Which is another new development. So we have people that own relationships with the customers. They may not have the same skill sets that our sales team do. So they kinda go in together and provide additional services. And we see that that's paying off, you know, with one of our largest new customers from 2024 we've added some significant share of wallet by gaining access to all of the cardboard generation and also all of the food waste, the plastic, just a number of different streams. Another customer in the retail sector, we've added a significant new number of store locations. So I would say it's an enhanced and refined approach from the way that we did this in the past. Gerry Sweeney: Gotcha. Would that include, I guess, some KPIs around it or incentives? Perry Moss: Absolutely. Yeah. We yes. So we have mapped every opportunity that we have with every customer. And we now know which ones we're pursuing. We know which stage in the sales cycle that opportunity is. And, you know, with any sales opportunity, it's always about advancing the sale from one stage to the next until, you know, closing. So, there are, there's discipline in KPIs around that whole approach. Gerry Sweeney: Got it. And then one more quick question. I'll jump back in line. Obviously, operational improvement big theme this quarter. Making some progress. How much what as we look at the fourth quarter and 2026, what opportunities are out there and what should we be thinking about in terms of how it flows through either to the balance sheet or the income statement? Perry Moss: Yeah. You know, we're on a path of continuous improvement and optimization. So one of the things that we intend to do so up to now, we have defined all of our major processes. So that's, you know, source to contract, procure to pay, order to contract, and sales to contract. And we've got those all mapped and optimized. We've got KPIs. The next step is actually putting KPIs on all of our team members. To make sure that we can get them fully optimized, ensuring that they're hitting excellence every day. So we think that's a future impact that will help us improve our financial performance. And again, with our land and expand, as we close on additional significant customers, yeah, there may be some margin pressure initially, but, you know, it's gonna be a good thing because, you know, we're significantly growing our revenue base. Gerry Sweeney: Got it. I will jump back in queue. Thanks for that detail. Operator: Your next question comes from Aaron Spychalla with Craig Hallum. Please go ahead. Aaron Spychalla: Yeah. Hi, Perry and Brett. Thanks for taking the questions. First, for me on the new food win, congrats on that. Can you maybe give any details on size and timing and, you know, maybe percentage of footprint for the customers who think about land and expand? And then just any is it competitive win? Any kind of more detail there is appreciated. Perry Moss: Yeah. Yeah. So it was absolutely a competitive win. And, you know, we generally don't talk about the size of our new wins, but I think I've mentioned on prior calls that all of our opportunities are 7 or 8 figures. So this one falls into one of those categories. We're starting out even though this one is a land to expand. We're starting out at slightly higher margins than we typically do. Of their total portfolio, this represents probably 20%. So there's a really nice share of wallet opportunity. There are a couple of operating plans that saw our value proposition and they jumped on it right away. So while we continue to pursue expansion with their corporate folks, these two plants have saw the value of our proposition and jumped right away. So I think there'll be more to come with that win, but it was competitive. And there to be a little more, I guess, granular, this is they're in the food processing business. Aaron Spychalla: Thanks. Good. I appreciate the color for that as you continue to build in that space. And then maybe just second on OpEx. Can you just kind of talk about that a little bit with all the operational initiatives you have going there in addition to the team and just working to optimize things there along with the technology investments? Just curious how you think about OpEx trending as we move forward into 2026. Perry Moss: Yeah. I mean, you know, this has been our plan all along. So we've got two full quarters now operational excellence. As I've said before, it's, you know, it's focused on standardizing and streamlining our processes and delivering, you know, continuous improvement. That's really kind of our foundational approach on everything right now continuous improvement. So, you know, the last thing we're looking for is making major improvements and then falling back the following quarter. But the results of those efforts have been, you know, improved financial results and cash generation. So, you know, we've got of those major processes, that I talk about a lot, the order to cash, procure to pay, etcetera, within those processes, we have 25 different KPIs where we're tracking very specific projects. And all 25 of those KPIs have been trending positive since April, which is when we began to implement. So I expect to see continued improvement. It's hard work. And I think, you know, as we continue to build out our operating platform and bring in some more automation, in addition to those operational improvements, we'll see some efficiencies come from, you know, our platform and our automation. Aaron Spychalla: Gotcha. Thanks for that. And then just maybe building on that real quick on the 25 different KPIs. You know, I know it's been since April and good results here, you know, progress for the first couple quarters. Just so, I mean, what inning do you think you're kind of in and implementing that, you know, across like, kind of across all the business? Perry Moss: Yeah. You know, last time, I think you asked me that same question. I think I said we're in the bottom of the fourth. It's been a long inning. And we're probably still in the bottom of the fourth or the top of the fifth. There just seems to be more and more things that we see that need to be done or that we want to do. These initiatives have really begun to gain traction in the business. So you can imagine, you know, our team has been focused on doing all of their daily work and then we bring in all of these operating initiatives and improvements. And these are projects and things that they're doing kind of at the moment on top of their day to day. And it takes a while to gain traction and see the results. And this is probably the first quarter that, you know, all of our employees are beginning to see the results of their work. And they're getting really excited about it. So one of the things that I'm very hopeful for is that this is we're gonna be carrying momentum into Q4 and then into next year. We've been, you know, we've been all working really hard. So it's nice to finally begin to see some, you know, tangible benefits. But, you know, it's well, it seems like it seems like we've been doing this for a couple of years. It's only been six months. Of or two full quarters of operational improvement. So, you know, with the continuous improvement mindset, I'm hopeful it will, you know, we'll continue this pattern as we move forward. Aaron Spychalla: Thanks. Best of luck as we move forward through the game. Thanks, Perry, Brett, and Dan. Perry Moss: Yep. Welcome. Operator: Your next question comes from Owen Rickert with Northland Capital Market. Please go ahead. Owen Rickert: Hey, guys. Thanks for taking my question here. Last quarter, you suggested we might see the sequential decline in gross profit dollars, but 3Q obviously came in a lot stronger. Can you walk us through more specifically what drove that outperformance and where results came in better than expected? And then just on top of that, was the slight sequential margin decline primarily just from ongoing maturation of newer clients. Brett Johnston: Yeah. This is Brett. I'll take that question. So I'll kinda start on the second piece of that, which is margin. Which was expected and largely was part of why we had directionally said maybe we'd be or that we would be flat to down in Q3 relative to Q2 and that's because of some of the margin pressure on some select renewals that we took in Q2 and had to flush through the P&L in Q3, and we've still got a little bit of that for Q4. So that's why we expect it down. But what we got was a lot earlier track on the initiatives. You know, we continue to get improvement on operational efficiencies that Perry's discussed. So it was great to see those come in a little bit ahead of plan and materialize in the P&L. Additionally, we got stabilized a little bit more on the industrials as well than what we would have expected. Owen Rickert: Got it. Thanks. And then secondly for me, can you guys just provide a quick update on the vendor management platform? How's that going? Brett Johnston: Yeah. It's going, you know, it's going fine. It's going as planned. And, you know, just as a reminder, our vendor management platform is just one aspect of our process improvement initiatives. Overall end-to-end workflow. So, you know, there will be ongoing opportunity just to further automate beyond just the vendor management system, but our procure to pay process and source to contract process are two processes that are heavily involved with our vendors. Our relationships have never been better. So in addition to, you know, automation that we have with our vendors and their invoices with our system, our relationships have improved. We have vendors asking for more business. We have our vendor team, you know, sourcing better rates than they have in the past. And, as a result, you know, the service disruptions that we've talked about in the past and the associated cost that come with those disruptions, they're at the lowest point really in the history of our company. They're very, very low now. So the system itself continues to progress well. But it's also the process combined with the system that's really reaping the benefits. Operator: Great. Thank you. Brett Johnston: Yeah. You're welcome. Operator: Your next question comes from Greg Kitt with Pinnacle Family. Please go ahead. Greg Kitt: Hi, Perry, Dan, and Brett. Congratulations on the good quarter that showed improvement. Perry Moss: Thanks, Greg. Brett Johnston: Thanks, Greg. Greg Kitt: The first question, kind of an open-ended question. For you, Perry. It says, we talked to I heard you on your baseball inning analogy. Maybe if I could approach it differently, how would you rank where you think the company was from a commercial execution and then operational execution standpoint when you came in? You clearly, were some opportunities to improve. And then where do you think it is? If you were to rate it out of 10, are you operational? Operationally, it seemed like there were more issues than on the commercial side because you were winning business. But we'd love to hear how you think the company is doing right now and how much more opportunity there is to improve. Perry Moss: Yeah. Greg, you always ask good questions. Appreciate that. You know, I don't really wanna comment too much on the past. I'd rather focus on, you know, the improvements. I mean, we got back to the blocking and tackling and the fundamentals of this business. My, you know, suspicion is we probably lost a little focus on those things we're going, you know, fairly well. And so we got back to blocking and tackling, clearly defining processes, putting KPIs in place. That is something that we didn't have before. So, you know, whenever you're running an operation, you should always know if you're operating within control parameters or not. Because it's so important to be able to be nimble and to flex and intervene when needed. And I don't think we had that visibility before. So, you know, I'm not gonna give us a rating of where we were before, but I think we are operating better than we ever have. On a scale of one to 10, I'd probably give us, you know, a score of six to seven. So there's still opportunity for us to do better. You know, this is a tough business. It never stops coming at you. You know, we've got vendors on one side. We've got customers on the other. And we've got, you know, incredible amounts of data flowing through this business. So, you know, I think once we start putting the individual KPIs on all of our team members, I expect that we'll see some efficiencies and performance improvements there. So I think six to seven is fair. For now. Greg Kitt: Thank you. And then I missed part of Brett's comment. What did you say about SG&A? Did you say it would be down sequentially from Q3 or down year over year? Brett Johnston: Yes, Greg. I was saying down sequentially from Q3. You know, we saw some pretty significant reductions in the first quarter from a year-over-year perspective. As we right-size the business. A lot of the focus has been on early on right-sizing and then, of course, we had the SG&A related to the divested mall business as well. Where we saw reductions. Saw a little bit of improvement in Q3, but I'd say mostly flat. But we do continue to see improvements, some additional cost reductions in Q4 as well. Greg Kitt: Okay. Thank you. That's helpful. On the data subscription opportunity that you talked about, for customers to access the portal, do you think that's something that can be a million dollars or more over time? Or is this maybe not necessarily that big? Perry Moss: Greg, I really don't know. I mean, that's why I said it's, you know, we envision. It's kind of a vision of ours. What we do know is we have a lot of data. And, you know, with the onset of AI, I mean, who knows what our data is really worth, but we think there's value there. And one methodology could be to, you know, charge a subscription for access to that data, but we're, you know, we're not there yet. And I couldn't begin to size that opportunity. It was just a little peek into what we're thinking about as we move forward. But we're not there yet. Greg Kitt: Okay. Thank you. And then on AR, you know, thank you for all your hard work to get DSOs down into it's the math I was looking at was like, seventy-five days. So really good improvement. How much of that was from maybe two-part question. In the I think on the last call, you talked about getting the percentage of customers that are billed current. To, like, 75%. That was sort of the first part. And then the second part, how do I think about that today? And then the second part of the question was, was this like, one-time why? Because maybe there are opportunities to bill customers more frequently. Or do you see this kind of from here being smaller continuous improvements, maybe a day or two every quarter getting back into the mid-sixties. Perry Moss: Yeah. Let me start. Brett, you jump in too. I think our calculators may be a couple of days better than yours, Greg. But, you know, I think that this is absolutely something that we believe will improve. So regarding the billing 75%, I don't really remember precisely what that comment was, but we are now billing the majority of our clients on time. However, there's always a billing tale. So we need to get the invoices in from our vendors in order to process it and then bill our customer. So we are working diligently to improve the timeline it takes to get some of those bills. So we can bill even faster. So we now know that we are billing current for all the invoices that come in on time. Which is an improvement from what we were doing before. Our focus now is to reduce the tail. So for those bills that aren't coming in in time for us to bill, we're focused on getting those in so we can bill on time. So we continue to make great progress there. Our exception processing continues to stabilize. We're paying our haulers to term, which is really important because, you know, I would tell you in the past, we were probably paying a little ahead. Just to ensure that we weren't receiving service disruptions. And, you know, that's another significant point of improvement is our service disruptions are at the lowest point in history. And each one of those disruptions comes with associated costs. You know, there are late fees and other fees that you can't bill the customer. And we don't really see much of those anymore. So that also flows right through to the business. And Brett, I don't know if you have anything to add to that. Brett Johnston: Yeah. I'll just, I mean, one, agree on the team's been working really hard. So we're really proud of the performance. It's something we've been seeing the improvement on our side for a while. It needed to come through. And show through the financials, I'm really excited that we finally that and, you know, have everybody's hard work pay off. To your question about, you know, the opportunity ahead, you know, this was obviously a pretty big jump. I wouldn't expect to make these types of leaps down, but we do expect to continue to make progress in Q4 and into the year. There's still some opportunities. This wasn't one of those quarters where all the things went right that we needed to go right to materialize. There was some meat left on the bone, still some opportunity there. So, you know, to Perry's point, we continue to try to build faster. We still got some opportunities on the collection side to get our clients tightened up a little bit more there. And then on the payment side, we're getting more efficient. So really pleased with the progress. This is a model that is built to generate cash and we've been more consistent with that. In the last two quarters and continue to have high expectations going forward. Greg Kitt: Thank you. If I can maybe sneak in two more. One was it looks like your Monroe debt is a little more than five points more expensive than the PNC line. Would you if you could I don't know if you can. Would you prepay some amount of that 5 or $10 million to use more of your PNC line because you could save, you know, if you prepaid $10 million, you could save half a million dollars a year in interest. Or do you like having the flexibility to draw on the revolver if you need it? Brett Johnston: Well, it's a balance. We've created a lot more room. With the recent cash generation. So that's certainly positive. Regardless of what we wanna do though, we are restricted right now through Q1 is the earliest we could pay down. We have to hit some metrics. That the banks have established to be able to make that switch that you talked about. But certainly, I'd like to pay down more expensive debt as much as possible. Greg Kitt: Okay. And then my last thing was, I think last year, when something that was unusual for this business is Quest never really lost any material customers, and some of that was RWS related and then some of it was acquisition related. But as I start to think about next year, how do you feel about the renewals that you know that are coming? And how are you positioning to make sure that you're in front of those customers, you know, ahead of time today? Perry Moss: Yeah. I think we're in a really good position, Greg. This is Perry. You know, we're back to, you know, attrition at historically low levels. We're really, you know, we started by vastly improving the relationships we had with our vendors because I would argue that it needed improving. We're gonna put a whole new refocus on relationship building and process improvement with our customers. Our customers are very happy with our program, with our execution. So, you know, we're developing a new plan to begin the renewal process for contracts earlier than we have in the past. You know, our intention is to get contracts renewed well before the contract expires. Which maintains leverage for us. So, yeah, I think we've leveled off and our attrition will be, you know, back to historical low levels. Greg Kitt: Thank you very much for your hard work. Perry Moss: You're welcome. Operator: Your next question comes from Andrew Heffer with Pinnacle Capital. Please go ahead. Andrew Heffer: Yeah. I was wondering if you could talk a little bit more about, you know, the debt reduction. You guys are generating some significant sequential cash flow and what your goals for 2026 are and like, you just said the quarter one. Brett Johnston: Hey. This is Brett. Yeah. Just same follow-up, kinda following up on what we discussed with Greg. You know, we continue to look to pay down debt. Preference would be to pay down the more expensive. We can't do that until after Q1 at the earliest because of some of the restrictions. Currently in place. But we're excited about the cash generation. That's one of our stated short-term goals. Medium-term goals is to continue to pay down debt aggressively. We want to be able to fund, continue to fund certain strategic initiatives to help grow the business and create operating leverage with the business, and we'll continue to do that. In conjunction with paying down debt aggressively. Andrew Heffer: Do you have any goals set for 2026? To where you want your operational leverage? Brett Johnston: No. We haven't talked about that externally. Operator: Alright. Thank you. Andrew Heffer: Yeah. Operator: Thank you so much. There are no further questions at this time. I'm pleased to turn the call back over to Perry Moss. Perry Moss: Great. Thank you, operator. We've made significant improvements in the past two quarters during a very challenging macroeconomic environment. But we still have work to do. As I said in my comments today, we're focusing on individual KPIs and performance goals to ensure our team members are operating at optimal levels. We plan to drive incremental efficiency in our business. Our mission is continuous improvement in everything we do. So with that, thank you all for joining this afternoon. We appreciate your continued support and interest in Quest. And we look forward to updating you all next quarter. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.
Stewart Joseph Grisante: Good afternoon, and welcome to Repay's Third Quarter 2025 Earnings Conference Call. With us today are John Morris, Co-Founder and Chief Executive Officer, and Robert Hauser, Chief Financial Officer. During this call, we will be making forward-looking statements about our beliefs and estimates regarding future events and results. Those forward-looking statements are subject to risks and uncertainties, including those set forth in the SEC filings related to today's results and in our most recent Form 10-K. Actual results may differ materially from any forward-looking statements that we make today. Forward-looking statements speak only as of today, and we do not assume any obligation or intent to update them, except as required by law. In an effort to provide additional information to investors, today's discussion will also reference certain non-GAAP financial measures. Reconciliations and other explanations of those non-GAAP financial measures can be found in today's press release and in the earnings supplement, each of which are available on the company's IR site. With that, I will now turn the call over to John. John Andrew Morris: Thanks, Stewart. Good afternoon, and thank you for joining us today. During the third quarter, Repay executed on our promise to sequentially improve growth in the second half of the year. Our core growth strategy is built on our drive to optimize digital payment flows across our consumer and business payment verticals. We embed our payment technology into software platforms for a seamless experience. And during 2025, we remain focused on the path of returning to sustainable growth as we exit the year. In Q3, we achieved 5% revenue growth and 1% gross profit growth on a normalized year-over-year basis, which excludes the political media contributions during 2024. Our adjusted EBITDA margins remain robust at 40%, and we continue to generate strong free cash flow conversion of 67% while reinvesting into organic growth initiatives. These financial results demonstrate the strategic improvements that are underway. Across Repay, we have been enhancing our go-to-market implementation pipelines and operations. We're automating processes, strengthening partnerships, enriching our capabilities, and fine-tuning our clients' experience. We are testing and deploying AI tools across the company to build Repay for a scalable future. Repay is using real-time API observability for our gateway monitoring, which is leading to some of the highest authorization and uptime across the industry. We have been utilizing assisted AI functionality during the client onboarding process for faster API connectivity with software partners, reducing manual documentation, and improving implementations. During the quarter, we developed Repay's Dynamic Wallet, allowing loan payments to be seamlessly integrated into iOS and Android's digital wallet. Dynamic Wallet provides instant access to loan details, reminders to make payments on time, and tap and pay directly within the consumer's digital wallet. Easier access leads to a better customer experience for our clients and increased digital payments for faster and secure transactions. Also, we have been adding new software partners during the quarter. We added five new software partners, bringing our partnership network to 291 across our consumer payments and business payment segments. Our investments in enterprise sales and customer support teams have built a healthy sales pipeline across the verticals we serve. This is reflected in sustained year-to-date bookings growth. Additionally, operational initiatives are leading to improved productivity, increased automation, and quicker implementation workflows. As these positive trends continue, our normalized growth is expected to sequentially improve further in the fourth quarter. Now moving on to our Q3 segment highlights. Within the Consumer Payments segment, reported gross profit increased 1% year over year. Our core growth algorithm is built on both the recurring and incremental contributions from existing clients and the ramp of recent client wins. As a reminder, Q3 gross profit growth was partially impacted by approximately 3% from the previously mentioned clients rolling off our platform. Without these impacts, gross profit increased single digits year over year. In Q3, we increased our consumer software partnerships to 188 while also enhancing many existing integrations to further improve client and customer experience. During September, we announced a partnership with Alpha Systems, a leading provider of SaaS software within the auto and equipment financing industry. The partnership combines AlphaSystem software with a complete solution of payment acceptance across modalities and channels. Financial institutions and lenders that use Alpha's loan management platform can utilize Repay's out-of-the-box seamless payment experience while also streamlining their internal accounting and reconciliation processes. This partnership is a great example that embodies Repay's embedded payment strategy while also presenting additional subvertical growth opportunities. We also announced a new integration with Fuze, an AI-powered LOS platform that serves banks, credit unions, and financing institutions. Fuze's software embraces automation capabilities while also now embedding Repay's secure payment processing technology directly into workflows to enhance financial institutions' operations. By combining our extensive software partners that span across our consumer verticals with our direct go-to-market approach, our sales teams are building on strong sales and booking pipelines by adding many new clients, including 11 new credit union wins in our financial institutions vertical. Year to date, core consumer bookings have continued to increase from this go-to-market strategy. Our teams are continuing to focus on client implementations and ramp processes. The momentum we see in software partners, sales bookings, and improving implementation workflows instills our confidence in our sustainable growth profile as we exit the year. Now turning to the Business Payments segment. In Q3, normalized gross profit increased 12% year over year, which excludes the political media contributions during 2024. Please keep in mind that we also lapped approximately 10% impact from last year's client loss. Without these impacts, our gross profit growth was over 20% year over year. Business payments growth was driven by our accounts payable platform and payment monetization initiatives of floating common and expanding our enhanced ACH offering. We continue to win and implement new clients in our healthcare and hospitality verticals, leading to double-digit growth in our core AP platform. Our strategic focus is on increasing total pay adoption, as we continue to prioritize our go-to-market and partnership resources towards AP opportunities. Our supplier network increased to over 540,000 suppliers, growing approximately 60% year over year. As we see great traction in our hospitality vertical, and we are building on existing software relationships such as Blackbaud in our education and nonprofit verticals. We also recently announced a new integration with Youse, a leading provider of AP automation software across multiple industries. Repay's directly embedded technology ensures timely vendor payments while improving productivity by reducing the need for manual processes organizations. We are pleased with the business payments momentum for our sales teams and expect to see sustained AP traction from our 103 strategic partnerships and embedded integrations. In Q3, Repay took positive steps in the right direction through execution. We returned to profitable normalized growth while generating significant free cash flow and maintaining a strong balance sheet for financial flexibility. We opportunistically deployed capital towards our organic growth initiatives, repurchased approximately 3% of our outstanding shares in August, bringing our total share repurchases to $38 million year to date, and reduced our debt outstanding by retiring $73.5 million of our 2026 convertible notes at a discount. Looking forward, we expect the momentum to continue, giving us confidence across both consumer payments and business payments into Q4 2025. And lastly, I would like to welcome Rob Hauser, Repay's Chief Financial Officer, who joined the company in September. Rob has already hit the ground running, bringing over a decade of payment experience and a proven operational track record. I look forward to working with Rob to build on Repay's success. With that, I will turn the call over to Rob to review our Q3 financials. Robert Hauser: Thank you, John, and good afternoon, everyone. First, I'm very excited to join Repay. My first couple of months have been incredible and busy. I've been learning about the company culture and technology, all of which have confirmed my belief in the opportunities ahead. Repay is a tremendous payment platform across our consumer and B2B verticals that is positioned to benefit from the secular digital payment trends. I look forward to digging deeper and getting to work and helping drive the company forward. Now let's go over our financial results for Q3 2025. Revenue was $77.7 million, and gross profit was $57.8 million. Normalized revenue growth and gross profit growth increased 51%, respectively, which excludes the political media contributions during last year's presidential election cycle. Our Q3 growth was impacted by approximately 4% as we continue to lap the previously discussed client losses from 2024. When excluding these impacts, Q3 gross profit increased mid-single digit year over year. During Q3, our gross profit margins compressed approximately 3.4% year over year. Our gross profit margins were impacted from lapping one-off client losses and contributions from political media, a larger mix of clients with volume discounts as our client base volumes continue to grow significantly, and we continue to ramp enterprise clients with volume pricing. An increased mix of revenue from ACH and check volumes. As our clients adopt more of our modalities and undergo provider consolidation, we are processing more of our clients' overall volumes. In addition, we have experienced an increase in average transaction value as we continue to move upmarket towards larger enterprise clients. Higher overall transaction values caused higher than expected assessment fees on capped interchange lines. Going forward, we expect these impacts to continue. Consumer payments gross profit increased 1% year over year. Our 3% impact from one-off client losses, gross profit increased single digits during the quarter. Business payments normalized growth profit increased approximately 12% in Q3 2025. In addition, business payments growth was impacted by an approximate 10% headwind related to the previously communicated client loss during 2024. Q3 adjusted EBITDA was $31.2 million, representing approximately 40% adjusted EBITDA margins. Throughout 2025, Repay has been able to manage OpEx while balancing resource allocation and making incremental investments towards the sales, implementation, and client service teams to support future growth. Third quarter adjusted net income was $18.2 million or $0.21 per share. Free cash flow was $20.8 million during the quarter, resulting in 67% free cash flow conversion and demonstrating our solid cash generation as we execute towards sustainable profitable growth. As of September 30, we had approximately $96 million of cash on the balance sheet with access to $250 million of undrawn revolver capacity for a total liquidity amount of $346 million. Repay's net leverage was approximately two and a half times. During the third quarter, we opportunistically reduced debt outstanding by retiring $74 million of our 2026 convertible notes at a discount to principal value. Total outstanding debt of $434 million is comprised of a $147 million convertible note due in February 2026 with a 0% coupon and a $288 million convertible note due in 2029 with a 2.875% coupon. In addition, as the company previously announced, Repay reduced outstanding shares by repurchasing approximately 3.1 million shares for $15.6 million in August. We repurchased a total of $38 million and 7.9 million shares year to date, reducing fully diluted shares outstanding by approximately 8%. As of September 30, we had approximately 92 million shares outstanding with $23 million remaining under our existing share repurchase program. As we move into the fourth quarter, we're refining our financial outlook. In Q4, we now expect 6% to 8% normalized gross profit growth and free cash flow conversion to be greater than 50%. Our updated outlook reflects the normalized growth that Repay can sustainably achieve as we benefit from secular digital payment tailwinds, growth from existing clients, and the ramp of new clients onto our platform. Our go-to-market and sales pipeline remains robust, which will continue to lead to solid volume and revenue growth opportunities. However, normalized gross profit growth is expected to be towards high single digits, which is at the low end of the previously issued growth due to ongoing margin pressures we saw during Q3. Going forward, we expect gross profit growth to be impacted from an increasing mix of larger clients with volume discounts and pricing, an increased mix of ACH and check volumes, and higher overall transaction values. Additionally, the Q4 growth outlook naturally benefits from fully lapping one-off client losses from 2024. The Q4 normalized growth would be closer to the lower end of the updated range if we didn't experience this benefit during Q4. And as a reminder, our reported financials will be lapping strong political media contributions causing an approximate 10% impact to Repay's Q4 reported growth. The updated Q4 free cash flow conversion outlook is expected to be above 50%, compared to the prior outlook of 60%, due to the timing of net working capital. For the remainder of 2025, our capital allocation priorities remain focused on organic growth investments, managing CapEx as a percentage of revenue, maintaining a strong balance sheet with liquidity, and incremental cash generation to address the remaining February 2026 convertible notes at maturity. We plan to use cash on hand to further reduce a portion of our outstanding debt while also using our revolving credit facility for the remaining balance at maturity. And under our current share buyback authorization, we are able to opportunistically repurchase shares. In addition, we continue to be open to M&A to further accelerate Repay's position and growth potential. Over the next few months, I look forward to building my first hundred days as we begin the budget process for next year. We plan to provide details related to our 2026 outlook and capital allocation strategy on our next earnings call in early 2026. Until then, I'm going to meet with all of our shareholders and analysts while continuing to execute towards our updated Q4 outlook. Thank you. I'll now turn the call over to the operator to take your questions. Operator? Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 2. For participants using speaker equipment, it may be necessary to pick up your before pressing the star key. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from the line of Peter Heckmann from D.A. Davidson. Please go ahead. Peter Heckmann: Hey. Good afternoon. Thanks for taking the question. In terms of the free cash flow outlook, I guess, do you see that trending into 2026? You know, we've seen, you know, fairly strong or fairly high free cash flow conversion in some years and kind of off in some years. But I think your updated guidance is now greater than 50% for 2025. I guess, you know, kind of best guess is for 2026. How are you positioning that? Robert Hauser: Hi, Pete. It's Rob. Thanks for the question. Yeah. So we're I can lay out how we're thinking about it for Q4, and we're gonna give 2026 guidance in the next earnings call. But we're rolling you know, we'd expect to be in the upper fifties in Q4, and it's really due to just working capital timing. We had a 67% free cash flow conversion in Q3, which was pretty strong. As we talk about working capital and some of the margin compression that we laid out on this call, we're holding around the upper fifties. And I would model it that as our exit rate going into 2026. Peter Heckmann: Okay. That's helpful. And then just can you remind us, it may be in the appendix of the slide deck, but just the specific political media spend headwind from the fourth quarter of last year. Robert Hauser: Yeah. So the headwind we had in the fourth quarter last year was $4.6 million of gross profit. For the fourth quarter of last year and on an annual basis, the political media was around $11.75 million for fall 2024. Peter Heckmann: Okay. On a gross profit basis. Got it. Alright. I'll get back in the queue. Appreciate it. Robert Hauser: Yeah. No problem. Operator: Thank you. Ladies and gentlemen, if you wish to ask a question, please press and one. The next question comes from the line of Tim Chiodo from UBS. Please go ahead. Timothy Chiodo: Great. Thank you for taking the question. I was hoping you could expand a little bit upon within the B2B business. The Visa commercial enhanced data program, the CEDT, that's been rolling out this year. Talk a little bit about the various data requirements, maybe how they differ from the prior level two, level three requirements, what you think this might mean for overall B2B interchange, what are some of the puts and takes there? And, of course, I believe there's a slightly higher network fee associated with it as well. We would appreciate any of the context on your business and for the industry overall. John Andrew Morris: Hi, Tim. So, good evening. How are you? This is John. And specifically, was your question on the B2B side? Was it associated with the AP side or the AR side? You may have not been specific. I'll talk a little bit about that. It's a very detailed question as well, so I won't go so deep. Timothy Chiodo: Okay. I guess on the AR side, it might mean slightly lower interchange. And on the AP side, I'm sorry. Hold on. So might be slightly lower as well. So I was just wondering I mean, I guess both is the short answer. But, really, I was hoping you could talk about what the requirement changes are, if there's anything you need to do differently on the AR side. And then what it might mean in terms of the interchange rates that you might earn on the AP side. And then, also, there's that little extra network fee, I believe, as well. John Andrew Morris: Yeah. So there's I'll start on the so level ultimately, it's level two, three, and level two itself is going to be going away. And that's really talking about the enriched data coming out of the invoices coming really from the mostly from the accounting ERP systems. And there's several different requirements there to go through that, and those have to be passed through with the transaction to qualify for the level three rates. The level three rates themselves are a little bit better. But the level two rates, you have to now add some additional incremental pieces of data to that to get to qualify for the level three rates. We obviously are very aware of that. Visa is really associated with Visa. And those requirements are actually, Visa is fine-tuning some of those things as you uniquely this will come out ultimately in the next spring. But they're doing testing with many of those things today. So we're working through that. Our ability to pull data, our embedded solutions is a positive thing for us. Meaning, like, we have the ability to be able to go and work with our ERP systems to achieve that. But it's a work in process for most everybody in the industry. As those are a few changes that have come about. And on the AP side, obviously, we have virtual cards that can be Visa or Mastercards. So we would look to optimize what's best in our favor on the AP side as in that case, we're receiving interchange on the AP side. So we would optimize what's the best rate for us there. Timothy Chiodo: Understood. Alright. Thank you so much. Operator: Thank you. Ladies and gentlemen, if you wish to ask a question, once again, a reminder, ladies and gentlemen, if you wish to ask a question, we take the next question from the line of James Faucette from Morgan Stanley. Please go ahead. Shefali M. Tamaskar: Hi. This is Shefali Tamaskar on for James. Thanks for taking my question. Just on consumer payments, in the presentation, you called out some pockets of consumer softness. Could you speak to what subverticals you're seeing this in most and what trends have looked like through early November, if possible? John Andrew Morris: Sure. So good evening, Shefali. So from an overall perspective, on the consumer side, we would consider a stable consumer on the marketplace. Obviously, we're not the actual those are not actually our end customers. Our customers are businesses. But we consider a stable consumer. And then softness wise, we've talked about previously that we saw some softness in the automotive to used car piece of that. We think that's still relatively in the same position there. And that would be consistent with what we've seen previously, and we see that consistently the same now. Shefali M. Tamaskar: Great. That's helpful. And then you mentioned also being open to M&A as you look ahead to '26. So I just wanted to hear about what potential targets look most interesting to you in terms of where you're seeing most like subvertical momentum across business payments and consumer payments? I know you've previously called out B2B being the more focused point for M&A, but curious how the pipeline looks today. John Andrew Morris: Sure. So a couple of things. So as we mentioned earlier on the call, we actually take we bought back stock up to 8% of the stock in the July, August time frames. And then we actually, as you've heard as well, we retired $73.5 million of our February convertible debt. That's still a priority for us from a capital allocation perspective is addressing our February maturity, which we expect to do. But from an M&A pipeline perspective, we do see a healthy pipeline of some activity in the marketplace. We are gonna obviously always pay attention to opportunistically where that is. We see that both in consumer and B2B. And just for clarification, we bought 3% in August, 8% year to date. Just wanted to get that clarification when we bought back stock. Shefali M. Tamaskar: Got it. Thank you. Operator: We take the next question from the line of Alex Newman from Stephens Inc. Please go ahead. Alex Newman: Hi. Thanks for taking the question. I just wanted to double click on the nature of the net working capital that's leading to the lower of the free cash flow conversion? Thank you. Robert Hauser: Yeah. I mean, it's hi. How are you doing, Alex? This is Rob. It's really just when we snapped the line on when working capital. And you know, like I said, when we've been generating pretty good free cash flow. Conversion at 67% in the quarter. And the guide slightly down from what we had in Q4 previously at 60% to above 50% is literally just timing of when we snap the chalk line on working capital. For the year as well as the compression that we talked about for going upmarket and some of the pay modality mix that we saw that fell through on the GP is probably the biggest driver to where the guide now is above 50%. But we continue to yeah. Go ahead. Go ahead. Alex Newman: No. Sorry. Robert Hauser: No. I was just gonna finish that. We continue to generate free cash flow, really good free cash flow conversion. Again, it was just really snapping the chalk line on when the working capital falls through. Alex Newman: Got it. And then a couple of quarters ago, you announced a partnership with the Gateway in Canada. I was just wondering if you could update us on that partnership and how that's ramping. John Andrew Morris: We're still working through our implementation integrations there, so no major real update associated with that currently. Alex Newman: Got it. Thank you. Operator: Thank you. Ladies and gentlemen, a reminder, ladies and gentlemen, if you wish to ask a question, please press star and 1. As there are no further questions, I would now hand the conference over to the Co-Founder and Chief Executive Officer John Morris, for his closing comments. John Andrew Morris: Thank you, everyone. I do have a slight correction on our supplier count that we mentioned earlier on the call. We're exiting Q3 with 524,000 suppliers. A very good number for us. We're excited about our growth rate there. As I close this out, thank you for your time today. Continue to make great progress in our strategic initiatives. Remaining focused on returning to profitable normalized growth, generating strong free cash flow, and maintaining a strong balance sheet for financial flexibility. Thanks again for joining us. Operator: Thank you. Ladies and gentlemen, the conference of Repay Holdings Corporation has now concluded. Thank you for your participation. You may now disconnect your lines.
Operator: Good day, and welcome to the Myomo Third Quarter 2025 Financial Results Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Tirth Patel, with Alliance Advisors IR. Please go ahead. Tirth Patel: Thank you, operator, and good afternoon, everyone. This is Tirth Patel with Alliance Advisors IR. Welcome to the Myomo Third Quarter 2025 Financial Results Conference Call. Joining me on today's call are Myomo's Chief Executive Officer, Paul Gudonis, and Chief Financial Officer, Dave Henry. Before we begin, I'd like to caution listeners that statements made during this call by management other than historical facts are forward-looking statements. The words anticipate, believe, estimate, expect, intend, guidance, outlook, confidence, target, project, and other similar expressions are typically used to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and may involve and are subject to risks, uncertainties, and other factors that may affect Myomo's business, financial condition, and operating results. These risks, uncertainties, and other factors are discussed in Myomo's filings with the Securities and Exchange Commission. Actual outcomes and results may differ materially from what's expressed in or implied by these forward-looking statements. Furthermore, except as required by law, Myomo undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call today, 11/10/2025. It's now my pleasure to turn the call over to Myomo's CEO, Paul Gudonis. Paul, please go ahead. Paul Gudonis: Thanks, Tirth. Good afternoon, and thank you all for joining us today. I'm pleased to announce that Myomo had another strong quarter with revenue of $10.1 million, coming in at the high end of our expectations. This was driven by record revenues in our international markets and a growing number of O&P providers. In addition, we saw our pipeline increase, and for the first time this year, our quarterly authorizations and orders increased sequentially. We are seeing more Medicare Advantage payer authorizations and orders from the new in-network contracts we signed earlier this year. Now before turning the call over to Dave to review the financial results in detail, I'd like to touch on the progress we made during the quarter on the key initiatives that we outlined on our last call. These were to: one, improve the identification and qualification of prospective patients; two, expand the MyoConnect program and O&P channel; three, expand insurance coverage; and four, reduce our overall operating costs. First, as mentioned, the core area of focus has been improving the identification and qualification of prospective patients. The number of new patient candidates who qualify for MyoPro is growing, and with the shift in our advertising media mix, the cost per pipeline add is beginning to decrease. In Q3, we shifted more of our advertising spend to TV from social media, which yielded a higher percentage of leads that met our clinical criteria to become a successful patient. These candidates were also more motivated to quickly complete the screening process. Thus, we enhanced the quality of our pipeline adds as well as generating a sequential increase in the number of candidates in the pipeline. We hired a new head of marketing with extensive experience in healthcare direct-to-consumer advertising as well as B2B marketing to support our efforts, particularly in reinforcing our message to physicians, therapists, and O&P practitioners. We will optimize the use of our various media to educate patients, family members, clinicians, and payers about the benefits of the MyoPro. Second, we believe the path to lowering customer acquisition cost is by developing recurring sources of patients that do not depend on a prospective candidate's self-initiating response to a paid advertisement. That is central to our new MyoConnect program and the growing O&P channel. Our MyoConnect clinical referral program is off to a good start, generating high-quality patient referrals by therapists and physicians at rehab clinics around the country. Importantly, there is no advertising expense incurred to educate these clinicians and these patients since we are already engaged with them. In mid-year, we launched MyoConnect, where our field clinical teams engage directly with therapists and physicians across the country to expand the network of clinicians who understand the benefits the MyoPro can produce. These clinical practitioners, who are responsible for the design and delivery of patients' treatment protocols, refer qualified patients to us through our local O&P channel partners. Over the years, we have trained numerous occupational therapists who have seen the improvement in patient functionality from the MyoPro. Their willingness to refer patients was facilitated by CMS's decision to cover the MyoPro for Medicare reimbursement and by the introduction of the new MyoPro 2X model this past spring. The result is we are beginning to see more OTs and physicians sending their patients our way to obtain a MyoPro. While still early in the rollout, we are encouraged by the initial traction and believe this program can develop into a scalable and cost-efficient source of high-quality referrals over time. Another source of recurring orders is the O&P channel. We are continuing to provide clinical and reimbursement education and certification to the O&P practitioners, which is the mechanism to expand adoption in this channel. In September, we attended the American Orthotics and Prosthetics Association National Assembly, which is the major trade show for the O&P industry. We had a productive set of meetings with existing and prospective channel partners, and I am confident that sales to these clinics will continue to grow as we diversify our revenue sources beyond our direct-to-consumer advertising and direct billing business. Revenue from this new O&P channel more than doubled year over year, and their patient pipelines are growing with the training and clinical support we are providing to these certified prosthetists and orthotists. In the past 45 days, I've had meetings with senior managers of the large and small O&P clinical groups in the industry as we work together to bring the MyoPro to their patients. We have good working relationships with these firms, and they are eager to work with MyoPro on programs to help improve the upper extremity impairments this important segment of their patient population has. They already treat stroke patients with various lower extremity assisted devices to enable their mobility. Meanwhile, our own chief channel partners in Germany placed a record number of orders in the quarter, leading to strong growth in revenues from our international operations and a greater number of patients in the pipeline for continued growth. Third, to expand insurance coverage, our Chief Medical Officer and reimbursement team have been following up with the major Medicare Advantage payers to obtain more MyoPro authorizations for their beneficiaries. We saw a sequential increase in authorizations for patients covered by some of these plans and from payers with whom we have contracts. These positive results led to the higher number of authorizations and orders this past quarter. During Q3, we signed an additional contract with a payer to become an in-network provider for our direct billing business, which now brings us to 35 million covered lives among private payers. We have other contracts pending as well to increase access to MyoPro for patients covered by these commercial health insurance plans. There's also a development in the payer industry that could be positive for Myomo. Insurance companies that offer Medicare Advantage plans are withdrawing Medicare Advantage coverage from certain geographic areas, thereby reducing their member count. For example, UnitedHealthcare projects a 1 million member drop, and other payers are making similar announcements. If these patients choose to enroll in standard fee-for-service Medicare, those that are medically qualified for MyoPro may be more likely to obtain our device for their paralyzed arms under Medicare Part B coverage. To support increased reimbursement, we continue to add to the published research on the MyoPro. During Q3, a highly respected Topics in Stroke Rehabilitation Journal published a systematic review of patient outcomes from the use of the myoelectric orthosis. Providing this information to payers, rehab physicians, and therapists, as well as O&P professionals, leads to greater insurance coverage and clinical adoption. Lastly, during the quarter, we implemented manufacturing changes to improve our gross margin and also managed headcount and other cost reductions to lower operating expenses. We are positioning ourselves for improved operating leverage as we grow future revenues based on the larger patient pipeline augmented by the increased number of authorizations and orders we expect from the MyoConnect program and the expanded O&P channel. Based on the backlog going into the fourth quarter and the number of patient cases progressing through reimbursement, we are able to reiterate our full 2025 annual guidance of $40 million to $42 million, which represents an increase of more than 23% over last year. With that overview of our performance and actions, I'll turn the call over to our CFO, Dave Henry, to provide more of the financials and details on our newly executed term loan facility, which is designed to provide us with growth capital to continue scaling the business to sustainable profitability and positive cash flow as our MyoPro volumes and revenue increase. Dave Henry: Thank you, Paul, and good afternoon, everyone. Let me start with a review of our third quarter financial results. Revenue for 2025 was $10.1 million. This represents a 10% increase versus the prior year and was driven by a higher number of revenue units offset by a lower average selling price or ASP. We delivered 186 MyoPro revenue units during the quarter, up 16%, with 57% of those units from authorizations and orders received in the third quarter. Our ASP decreased 5% versus the prior year to approximately $54,300 and was roughly flat sequentially. ASP in the prior year period was unusually high due to the change in revenue recognition for Medicare patients to be upon delivery instead of payment. In that period, we began recording Medicare and some supplemental revenues at delivery in addition to some at payment on deliveries prior to the accounting change. This had about a $4,300 favorable impact on ASP in 2024. Normalized for the accounting change, ASP increased 3% year over year. Medicare Part B patients represented 54% of revenue in the third quarter. Medicare Advantage revenue was 18% of third quarter revenue and in dollar terms was down 18% compared with the prior year. Medicare Advantage revenue remained constrained by the high number of pre-authorization denials, forcing us into an appeals process in order to serve these patients. This is not unique to Myomo. Unfortunately, insurance companies force patients into this process, hoping they will not appeal. And while successful appeal rates vary, we typically see about 45% to 50% overturned on appeal for those that stay engaged with us in the process of trying to receive a MyoPro. 73% of revenue in the third quarter came from the direct billing channel, compared with 81% in the prior year quarter. International revenue was a record $1.8 million in the quarter, up 63% and representing 18% of total revenue, primarily from Germany. Revenue in the O&P channel was also a quarterly record at $900,000, up 154% year over year and representing 9% of total revenue. As Paul mentioned, the O&P channel is emerging as a high-quality, lower-cost source of qualified patients, and we intend to continue to develop this channel. As of 09/30/2025, the pipeline stood at 1,669 patients, an increase of 32% year over year. In the third quarter, we added 826 patients to the pipeline, which is up 28% from the prior year quarter and up 1% sequentially. There were 266 Medicare patients in the pipeline, an increase of 21% year over year and 4% sequentially. We ended the quarter with a backlog of 208 patients, down 34% versus the prior year. As a reminder, backlog represents insurance authorizations and orders received but not yet converted to revenue. In the case of Medicare Part B patients, whom we have collected medical records and deemed qualified for delivery based on our inclusion criteria. The decrease represents reduced Medicare Advantage authorizations and the fact that intra-quarter fill units are making up an increasing percentage of our quarterly revenues. In other words, we were able to convert more of our backlog into revenue faster. Indeed, 57% of third quarter revenue units came from intra-quarter fill units, up from 24% a year ago. We received 229 authorizations and orders during the third quarter, an increase of 11% sequentially and 2% year over year. The higher authorizations and orders helped us to generate record revenue from intra-quarter fill units. Gross margin for 2025 was 63.8%, down from 75.4% for the prior year quarter. Prior year gross margin was favorably impacted by a change in accounting for revenues from Medicare patients that I mentioned earlier, which favorably impacted third quarter 2024 gross margin by approximately 200 basis points. In addition, with our growth, we opened a new facility and hired additional staff, leading to higher payroll and lease expense. Finally, an unfavorable change in the overhead absorbed in inventory in 2025 negatively impacted gross margin, as well as higher material costs. Higher labor and overhead spending and change in absorption impacted gross margin by approximately 800 basis points and represents an opportunity to improve gross margin as activity increases. Total operating expenses for 2025 were $10 million, up 26% over 2024 but down 6% sequentially. This increase was driven primarily by higher payroll and advertising spending and by higher R&D due to development efforts on a mobile app for our MyConfig software, the MyoPro 3, and funding for a pilot of a randomized control trial at the University of Utah. As Paul touched on, we are focused on more efficient customer acquisition, leading to a sequential reduction in cost per pipeline add. We are investing in our MyoConnect platform and expect to gain further leverage with our growth in patients. Operating loss for 2025 was $3.5 million, compared with an operating loss of $1 million in the prior year quarter. Net loss for 2025 was $3.7 million, or $0.09 per share. This compares with a net loss of $1 million, or $0.03 per share, for 2024. During 2025, approximately 600,000 pre-funded warrants were exercised. As of 09/30/2025, approximately 3.8 million pre-funded warrants remain outstanding from our offerings in 2023. These pre-funded warrants are considered common stock equivalents under GAAP accounting and are included in our weighted average shares outstanding. Adjusted EBITDA for 2025 was a negative $2.7 million, compared with a negative $600,000 for 2024. Turning now to our balance sheet and cash flow. As of 09/30/2025, cash, cash equivalents, and short-term investments were $12.6 million. Cash burn was $2.9 million in the third quarter, including $1.8 million from operating activities and $1 million from capital expenditures related to the setup of the additional manufacturing space we took over in the third quarter, along with capitalized software costs for one of our product development projects and demo unit builds. On 11/04/2025, we entered into a loan and security agreement with Avenue Capital, which provides for a committed term loan facility of $17.5 million, of which $12.5 million was funded at closing. The remaining $5 million is available to borrow at our discretion from November 2026 through May 2027, assuming certain conditions are met. We will make interest-only payments for the next eighteen months, after which we will repay principal in 24 equal monthly installments. Use of proceeds went to repay the borrowings of our $4 million under our credit facility with Silicon Valley Bank and fees and expenses, with the remaining $7.6 million to be used for general corporate purposes. Pro forma for the funding provided at closing, net of repayment to Silicon Valley Bank and fees and expenses, our cash balance as of 09/30/2025 is $20.1 million. For more details regarding the term loan facility, please refer to our current report on Form 8-K filed today. Let me close with our financial guidance. Given our backlog entering the fourth quarter and anticipated fill units, we continue to expect full-year 2025 revenue to be in the range of $40 million to $42 million. While we are not providing specific 2026 guidance at this time, we want to convey that we are focused on diversifying our revenue streams in 2026, relying less on advertising-driven revenues and generating growth through our MyoConnect platform and further penetration of our O&P channel in international markets. We plan to improve operating leverage and lower the cash burn in 2026. With that financial overview, I'll turn the call back to Paul. Paul Gudonis: Thanks, Dave. Operator, we're now ready to take our attendees' questions. Thank you. Operator: We will now begin the question and answer session. And while we're waiting for the first question, I'd like to mention that we will be attending the Craig Hallum Alpha Select Conference in person in New York City on November 18. Hope to see some of you there. Okay, operator, whenever you're ready, let's take the first question. Chase Knickerbocker: Yes. First question comes from Chase Knickerbocker with Craig Hallum. Please go ahead. Chase Knickerbocker: Good afternoon. Thanks for taking the question. So maybe just to start, could you help us quantify the scale of your U.S. O&P business at this point? So just from a domestic O&P perspective, how many units did you ship into that channel in the third quarter just to help us think about how that business is scaling? Dave Henry: It was about $900,000, and I must say it was roughly 30 units, but I'll get you the exact number. Chase Knickerbocker: No worries. That's helpful. And then maybe just as far as your new Head of Marketing goes, can you just cue us in on what kind of levers were identified as far as potential avenues for improvement in terms of reducing customer acquisition costs? I respect that you're becoming more focused on MyoConnect here, but just kind of within that direct billing channel, any levers that were initially identified as far as we need to be doing this, need to be doing this better, etcetera? Paul Gudonis: Yes. During the interview process, Chase, we were looking for people who had experience in various media: social media, television, YouTube, other channels. And so we're looking at that and doing a comprehensive review right now of, okay, how effective is our television advertising? Are we using social media the right way? What else should we be doing to again generate more leads at a lower cost per lead for qualified patients? So that's the review that's underway right now. And she started about two weeks ago. Chase Knickerbocker: Got it. Maybe just kind of turning to the pipeline, etcetera. There was a noticeable uptick as far as backlog drops are concerned. Can you just kind of walk us through what might be the driver there, kind of what you saw in the quarter as far as how the backlog progressed? Dave Henry: Yes. I think a lot of the backlog drops, I would say about 40% of them came from Germany as a result of what I think was, I don't think the backlog in terms of some of those trials that did not convert was updated, and I think there was some cleanup that went on in the third quarter. And so I think part of that higher number of backlog drops is due to that. So like I said, about 40% of those drops related to that, with the rest just normal activity. Chase Knickerbocker: Got it. Maybe just last one for me, Dave. Is this the right way to think about OpEx for the foreseeable future? I mean, how should we be thinking about OpEx kind of building off of Q3 levels? And then along those same lines, if you could just talk about how you guys are thinking about the time to return to positive adjusted EBITDA and kind of how you're managing the business with that in mind? Dave Henry: Yes. So I think in terms of the operating expenses, our plan is to, there is going to be some growth in the operating expenses. For example, we do intend to spend more on advertising, though not as much of an increase as in 2025. We are going to spend more on R&D, particularly for that randomized control trial that we're funding that I mentioned earlier. But other than that, our intention is to not grow the operating expenses as much as possible. And we want to be generating and showing that we can generate operating leverage and grow revenues faster than operating expenses. And in terms of when we get back to positive adjusted EBITDA, again, we'll provide more of an update when we give our 2026 guidance. Chase Knickerbocker: Understood. Thanks for the questions. Operator: Thank you. The next question comes from Scott Henry with AGP. Please go ahead. Scott Henry: Thank you and good afternoon. A couple of questions on the metrics. I guess first, reimbursement or not reimbursement, but pipeline adds, they were up slightly in Q3 to Q2. Do you think you could still see big gains there, or is it going to be harder at some point, there's a saturation level? Or is it maybe it's just flattening before jumping higher again? How do you think about that pipeline add or that top of the funnel? Paul Gudonis: Well, Scott, given the size of the market opportunity, of the prevalence and a quarter million new cases just in the U.S. every year, I don't think we're near saturation. I think we've got to find better innovative ways to reach those patients. But also, I think through the O&P channel referral program, I'm expecting we're going to see more of our patient pipeline adds coming through those channels. And so I expect that's what's going to drive more growth not only this quarter but into 2026 because there are so many people coming out of these rehab hospitals and stroke clinics with a paralyzed arm. We want to make sure that they know about the MyoPro because what we found is they are more medically qualified. They pass our screening criteria because they are more recent to their stroke. We also find that they're more motivated because they might have just lost their ability to use that arm a year ago versus twenty-five years ago. So you don't have that sort of patient inertia. That's why we want to capture more patients in the prep in incidence population. I think we'll grow the pipeline, but also improve the quality of the pipeline. Scott Henry: Okay. All right. That's helpful. Thank you. And then when we think about Q4, you're going to have a smaller backlog entering Q4 than you did entering Q3. And typically, the quarter before you use backlog is an indicator for what we should expect in the next quarter. So I know your guidance targets growth, but if you could just kind of walk through sequential growth from Q3 to Q4, if you could just talk about how you're going to do that with a smaller backlog? It may just be other levers that are pulling, but I just want to get a better understanding from your perspective. Thank you. Dave Henry: Yes. Well, it's obviously going to come from fill units and from authorizations and orders that we get inside of the quarter. You're correct that the backlog is lower. But we've also been demonstrating that as we get authorizations and orders, our operations are actually able to turn them into revenue faster. And so that's what we plan on seeing, that growth in the fourth quarter coming from. Scott Henry: Okay. So we should expect that to continue and even accelerate, that day trippers, if you will, people that come and go in the same quarter. Dave Henry: I think as the authorizations and orders go up, I think that we will probably, the number of fill units that we have just in whole numbers will probably also go up as we go through time. Scott Henry: Okay, great. And then I guess final question, and it's somewhat strategic. It's always a little higher risk profile to take on debt when you're losing money. The question is, is this a sign that you think, I mean, obviously, you have eighteen months runway before you have to start paying it back. But do you feel based on your ability to take this debt that eighteen months from now, you could be close to breakeven? Just trying to get a sense of the decision to take debt over equity, even though I know you're not probably happy with the share price, but certainly debt has a degree of risk that comes with it. Dave Henry: Sure. First off, I guess, we would not have done this transaction if we didn't feel like we could pay it back. That was really the first criteria. And so, I think that also sort of says that before in the eighteen months that we, before we started having to pay this back, we would expect that we're not burning cash by the time we get to that point. That's so we're managing the business that way through continuing to grow revenues. And by holding down the growth in operating expenses and generating more incremental operating income from those additional revenues. So we feel like that we could pay it back. Obviously, that was the first criteria. And then it was the best combination of capital that was provided to us with the minimum amount of dilution. And so we've been very consistent that if we were to look for additional, we wanted to do it in a way that was the least dilutive way possible. And we feel that we accomplished that. Scott Henry: Okay. Thank you for that insight into the decision-making. I appreciate that. That should do it for me. Thank you for taking the question. Operator: All right. Thanks, Scott. The next question comes from Anthony Vendetti with Maxim Group. Please go ahead. Anthony Vendetti: Hi, it's Anthony. So Paul and David, in terms of the O&P clinics, how many have been trained so far? Do you have a goal in terms of the number you'd like to have by the end of '25? Or by the end of '26? And then, I was wondering if you could discuss a little more of the details of MyoConnect. What's behind that initiative and what do you hope to accomplish there? Thanks. Paul Gudonis: Yes. Hi, Anthony. So we've been training a lot of O&P clinicians, but in various stages of their certification process. For example, a couple of hundred have taken the online training program on how to evaluate a patient. And then those that have moved forward to get that patient into an evaluation, we show up in person with our clinical team to do the evaluation with them. So there's that additional training. Then they have to fit up three units in order to become fully certified. That number is growing. The good news is we've got a lot of interest among Hanger clinicians around the country. We've got the other major firms like Ottobock has a number of clinicians, O&P has its four motion clinics, and Equal, there's like 90 clinics. So we continue to do seminars on reimbursement, on clinical training, on how to do the marketing as well. So our goal is to have a couple of dozen, I would say, that are actively placing orders this year, and our goal is to continue to expand that. I think what you'll see is, I've mentioned this in previous calls, someone will do one order, see how it works out for their patients, get good outcomes, make sure they get the reimbursement check, they'll do another one, and that starts to take off from there. As far as MyoConnect, one of the assets we have is we've got a dozen field clinicians, primarily occupational therapists, who are well-versed in the MyoPro. They're in these rehab hospitals all the time, training therapists on how to work with users who get a new MyoPro. We train some 80 to 100 therapists every month, and in the process of doing so, we conduct in-service presentations, and we're seeing a growing number of clinical referrals now. And we think that will be a real source because the strategic shift that I'm looking to execute here is from one-time sort of advertising-driven orders from a patient to recurring sources of patients. So that's O&P providers in the U.S. and Germany and rehab hospitals who will hopefully provide us with a steady flow of new patient candidates. So that's the outline of the MyoConnect program. Anthony Vendetti: Okay. And then just lastly, maybe more for David, but just in terms of getting to breakeven, any update on what that quarterly revenue run rate needs to be or timeline for getting there? Dave Henry: Well, when we did the headcount reduction earlier this year, prior to that, we kind of gave some guidance of about $17 million to $18 million of quarterly revenue was required to breakeven. I think after that headcount reduction in July, you probably shaved about $1 million a quarter off of that. So I would say around $16 million to $17 million. Anthony Vendetti: Okay, great. All right, thanks. I'll hop back in the queue. Appreciate it. Operator: The next question comes from Sean Lee with H.C. Wainwright. Please go ahead. Sean Lee: Hey, good afternoon, guys, and thanks for taking my questions. I just have two quick ones. First, I think you mentioned it's $1.8 million of revenue from Germany this quarter. It seems to be increasing quite well. So I was wondering if you can provide some color on that. What's behind the increase there? Paul Gudonis: Well, we've got a network of 100 O&P channel partners there that have been developed over the last several years, Sean. And in Germany, we've had very good success with the statutory health insurers so that virtually anyone in Germany who medically qualifies for the MyoPro can get access to it. We don't have to go through the same type of pre-authorization hassles that we sometimes face here by some payers. We have to appeal these and so on. So patients that are medically qualified can get a MyoPro, and that's helped drive the growth there in Germany. Sean Lee: I see. Thanks for that. And my last question is on the advertising spend. So do you think you've reached a new plateau now with the advertising spend following your switch to more focus on TV? Or do you expect that to go up more in Q4? And how does that impact your pipeline? How do you expect that to impact your cost per pipeline add? Dave Henry: Well, as I mentioned a little bit earlier, we are intending to spend more on advertising in 2026 but not at a rate of growth like we did in 2025. So the growth rate in advertising spending will be lower in 2026 versus 2025. But I think the bigger impact might be from MyoConnect and some of the efforts with the O&P channel in terms of growing the pipeline adds. And obviously, I think there's, for dollars that we invest in advertising, more pipeline adds come from that. But we're looking to increase the quality of the pipeline adds because, as Paul mentioned, people that are in the incidence population that the MyoConnect program is really targeting, those people are closer to their pre-stroke life in terms of what they remember what it was like before the stroke. And so we think that they're going to be more motivated. The quality of the pipeline should improve. And so a pipeline add overall, as the mix of patients that come from referrals and from the O&P channel increases, the conversion of those pipeline adds to revenue should increase over time. That's the intent of doing this. And we're doing MyoConnect with the people that we have today. So right now, we're not spending more for it. And so those are the reasons why we're doing it and why we think that the pipeline adds should grow, but not only that, but the quality of the adds should grow in 2026. Sean Lee: Okay. And that does make it a lot clearer. Thanks for that. That's all I have. Paul Gudonis: All right, Sean. Thank you. Operator: The next question comes from Edward Wu with Ascendiant Capital. Please go ahead. Edward Wu: Yes. Thanks for taking my question. It looks like International Germany continues to do very well. How is the rest of your international business? And any updates on your partnership in China? Paul Gudonis: Ed, you've always been a proponent and an early spotter that Germany is going to be a really good market for us. I think we validated your thesis on that. So again, Germany is growing with a growing pipeline. We expect continued record revenues next year. Other international markets, we've just decided we're not going to spend a lot of money at this point to try to get reimbursement, which is a couple of year process there. From our last call with the China JV, they're still conducting a clinical trial to get NMPA approval. So not much progress over there, but it doesn't really cost us anything at this point. We're just regularly engaging with management of the JV. Edward Wu: Great. Well, thanks for the update and congratulations on Germany. And I wish you guys good luck. Paul Gudonis: Thank you, Ed. Thank you. Operator, any more questions? Operator: No. There are no further questions. I would like to turn the conference back over to Paul Gudonis for closing remarks. Paul Gudonis: Well, thanks. Well, just to summarize our business plan going forward, we expect continued revenue growth through our direct-to-patient marketing as well as expanding O&P channels as we discussed here in the MyoConnect referral program. We're increasing market access for patients by signing additional payer contracts and engaging with the Medicare Advantage and commercial plans for coverage. We're managing our cost structure as Dave described and enhancing our manufacturing processes to demonstrate operating leverage as we scale, and we continue to innovate product development to maintain our market leadership position. Thank you all for your questions and for your interest in Myomo. We look forward to speaking to you again when we report our Q4 and full-year 2025 financial results in about four months. Have a nice evening, everyone. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, good afternoon. I'd like to welcome everyone to the Theravance Biopharma Third Quarter 2025 Conference Call. During the presentation, all participants session will follow the company's formal remarks. To ask a question, please mute audio on your webcast device before asking a question over the phone. I will repeat these instructions after management completes their prepared remarks. Also, today's conference call is being recorded. And now I'd like to turn the call over to Rick Winningham, Chief Executive Officer. Please go ahead, sir. Good afternoon, and welcome to Theravance Biopharma's Rick Winningham: Third Quarter 2025 Earnings Results Conference Call. On Slide two, you'll find our forward-looking statements disclaimer, which covers certain risk factors, which could cause actual results to differ materially from any forward-looking statements we might make in today's call and which are described further in our filings with the SEC. Moving to slide three, I'm joined today by Rhonda Farnum, Chief Business Officer, Aine Miller, Head of Development, and Aziz Sawaf, Chief Financial Officer. Turning to slide four, Theravance delivered strong results in the third quarter reflecting continued execution across the business and notable progress toward our strategic objectives. We achieved several key accomplishments including solid YUPELRI net sales growth, and record brand profitability, leading to the achievement of non-GAAP breakeven. Underscoring the strength of our business model and commitment to financial discipline. In parallel, we continue to advance the pivotal Phase III Cyprus trial of ampreloxetine towards a data readout in early 2026. A milestone we believe could represent a material value inflection point for the company. Starting with our commercial business, YUPELRI, our durable cash-generating asset continues to deliver strong results. Net sales and importantly, profitability for the quarter reached all-time highs. Driven by continued demand growth and favorable net pricing. This performance puts YUPELRI year-to-date sales on track to trigger a $25 million milestone from Viatris. With ampreloxetine, we are excited as we approach a critical moment for Theravance. We remain on track to deliver top-line results from the pivotal Phase III Cyprus study in 2026. We believe this readout has the potential to be transformational for both patients and the company. As we hope ampreloxetine will become the first precision therapy for symptomatic neurogenic orthostatic hypotension in patients with multiple system atrophy, a rare debilitating disease. In preparation for the data, we will host a KOL event for investors on December 8 to highlight the significant unmet medical need of these patients and how ampreloxetine aims to address it. We ended the quarter with approximately $333 million in cash and no debt. And importantly, we remain on track to achieve near-term milestones totaling $75 million in the fourth quarter. $50 million for Trelegy and $25 million for YUPELRI. In addition, the strong growth trends for Trelegy bode well for the achievement of the $100 million milestone in 2026. Lastly, in October, we launched a new disease education campaign for healthcare professionals to raise awareness and deepen scientific understanding of nOH associated with MSA. This initiative reflects our continued commitment to the MSA community and to advancing education on the complex mechanisms underlying nOH and MSA. Theravance today stands on a foundation of financial strength, with significant upside opportunity anchored by a robust balance sheet, continued cash generation from YUPELRI, and highly probable near-term milestone payments. We enter the final quarter of 2025 with confidence and growing excitement for the rapidly approaching transformational potential of the Cyprus data readout. With that, I'll turn the call over to Rhonda to provide additional detail on YUPELRI's performance. Rhonda? Rhonda Farnum: Thanks, Rick. If you turn to slide six, you'll see that the Theravance, Viatris commercial partnership delivered a record quarter for YUPELRI. Third quarter net sales increased 15% year over year to $71.4 million. This was driven by two main factors. First, strong demand growth, up 6% year over year versus 2024. And second, continued net price improvement due to a more favorable channel mix which is the result of the close collaboration with our partners at Viatris as exemplified by effective field sales execution with a focus on fulfillment optimization efforts. Importantly, following these results, only $54 million of net sales are required in the fourth quarter for us to achieve the $250 million calendar year sales threshold required to trigger a $25 million milestone payment from Viatris. Turning to Slide seven. In addition to our solid net sales growth, YUPELRI continued to experience expanding profit margins. Reaching record levels. And positive momentum across both hospital and community outpatient channels. The hospital channel continues to be a key driver of prescribing with hospital volume increasing 29% versus 2024. Illustrating our team's sustained success in securing formulary wins and implementing therapeutic interchange protocol. This quarter, YUPELRI share in the long-acting nebulized hospital market reached a new launch to date high of approximately 21%. Moving forward, our goal is to continue to secure institutional and further expand the hospital channel as a foundational component of our brand strategy, functioning as a critical entry point for transitioning patients to community outpatient maintenance therapy. Beyond the encouraging growth trends in Q3 with net sales demand, and hospital volume, YUPELRI is positioned for continued expansion with a sizable addressable population remaining in the US. Our aligned strategies with Viatris continue to deliver strong results specifically the adoption of concomitant use with LABA therapies and switches from handheld only regimens as well as further diversification of product fulfillment. We were also excited to share two analyses presented at the recent 2025 CHEST meeting. First, we presented new post hoc analyses from a phase three safety study showing that patients treated with YUPELRI experienced a lower incidence and severity of moderate to severe exacerbations compared to those taking tiotropium. The second presentation was a new retrospective cohort study of claims data which demonstrated that following hospital discharge, patients adherent to YUPELRI experienced significantly fewer and less severe exacerbations and lower health system costs than nonadherent patients. These findings reinforce YUPELRI's differentiated clinical profile and highlight its potential to improve both clinical and economic outcomes for appropriate COPD patients. Further reinforcing the scientific foundation of YUPELRI. In summary, YUPELRI's profit margin continues to expand supported by disciplined execution, and patent protection in the US until 2039. As a result, we are confident that YUPELRI will continue to deliver long-term sustainable value for Theravance and its shareholders. With that, I'll turn the call over to Aine to provide an update on the etine development program. Aine? Thanks, Rhonda. Turning to slide nine. Before providing an update on the Cyprus Aine Miller: study, I'd like to highlight some recent ampreloxetine publications and presentations. First, we submitted a manuscript detailing the results of the prior phase three REDWOOD study, in the MSA subgroup. Where ampreloxetine demonstrated durable improvement in symptoms of nOH. I will take the opportunity to provide a quick recap of this data shortly, as it reinforces our confidence in ampreloxetine's mechanism of action and its potential to deliver meaningful benefit to patients with MSA. A community that remains underserved by current treatment options. A preprint version of this manuscript has been posted online to MedArchive. Second, a publication establishing the minimally clinically important difference for the orthostatic hypertension questionnaire was published in a peer-reviewed journal Clinical Autonomic Research. An important tool to support interpretation of clinical benefit as we head into the phase three Cyprus readout. Additionally, we had a strong presence with the recent international support Symposium of Autonomic Nervous System, organized by the American Autonomic Society or AAS. Where we had one platform presentation and three posters. The platform presentation highlighted the results from the prior phase three REDWOOD study in the MSA subgroup analysis. Along with a poster reviewing the impact of ampreloxetine on two-point hypertension in the phase three SAQIAH study which showed no worsening of supine hypertension and important potential differentiator for the product. The two other poster presentations detail the rigorous recruitment and retention methodologies used to address challenges in conducting a trial in rare disease with severely ill patients. By applying these insights in the Cyprus study, we were well positioned to successfully address the executional challenges associated with clinical studies in rare and severe neurodegenerative diseases. As I mentioned earlier, I'd like to recap the results from the subgroup analysis of patients with MSA from the Wedgewood study shown here on slide 10. The top graph shows the standing systolic blood pressure throughout the REDWOOD trial where a pressure effect was observed in the open-label phase of the trial with blood pressure at three minutes of standing increasing compared to baseline. At the end of the randomized withdrawal, compared to the open-label, blood pressure at three minutes of standing dropped in the group withdrawn to placebo while remaining stable in patients that stayed on ampreloxetine. This increase in standing blood pressure observed with ampreloxetine translated to a meaningful impact on patient symptoms and daily activities. However, the benefits seen in symptoms and short-term daily living activities shown in the two bottom graphs were only maintained in patients who remained on ampreloxetine the randomized withdrawal portion. But worsened in those withdrawn to placebo. Moving to Slide 11. We continue to make strong progress towards our pivotal Phase III Cyprus readout. At this stage, the open-label portion of the study is now complete, and a small subset of patients are now completing the randomized withdrawal portion. An important step towards completion of the trial. The team continues to demonstrate excellent operational execution and we are highly encouraged by the level of engagement across our study sites, and the broader MSA community. We remain on track to deliver top-line results in 2026. And we view this as a significant milestone for Theravance. As we advance our efforts to bring ampreloxetine to patients with MSA-related nOH. We've also made substantial progress on NDA preparation particularly across the nonclinical, CMC and clinical pharmacology components of the application. Much of this work has already been completed, positioning us to incorporate the Cyprus data quickly once available and move efficiently towards an expedited NDA submission. Should the results be positive. We also intend to request priority review if the data are supportive. Lastly, in preparation for the upcoming readout, we will host a virtual KOL event for investors on December 8. Which will feature Dr. Horatio Kaufman, professor and director of the Dysautonomia Center at NYU. One of the world's leading experts in autonomic disorders. During this event, Dr. Kaufman will provide an overview of the unmet need for patients with MSA-related nOH. And we'll highlight why we believe ampreloxetine is uniquely positioned to address this rare and debilitating condition. In addition, we will review the ongoing Cyprus study, and outline the commercial opportunity for ampreloxetine as a potential new treatment option. We are excited and well prepared as we approach the Cyprus data readout in 2026. With that, I'll turn the call over to Aziz to walk through the financials. Aziz? Aziz Sawaf: Thanks, Aine. Turning to Slide 13, I'll start with an update on our Trelegy milestones. GSK reported $1 billion in sales for the quarter ahead of consensus and $2.9 billion year to date. Given the $3.4 billion threshold required to Rick Winningham: trigger the $50 million milestone in 2025, we need only $470 million in Q4 sales to hit this milestone. Which is roughly 50% below the current run rate. Looking ahead, the $100 million milestone in 2026 is also well within reach. With a $3.5 billion sales requirement. A level that both current run rate and consensus comfortably exceed. With Trelegy continuing to post strong above expectation performance, we have clear visibility into achieving these milestones. Which together represent $150 million in expected cash inflow over the next fifteen months. Further strengthening our financial position. Turning to Slide 17, I'll summarize our Q3 financial performance, where we delivered another strong quarter. Collaboration revenue increased to $20 million up 19% year over year. Reflecting YUPELRI's strong operating leverage, which drove record brand level profitability. Operating expenses, excluding share-based comp, were $22 million as R&D costs began to decline following completion of Cyprus enrollment, while we progress towards data readout in the first quarter of next year. Share-based comp decreased 8% year over year, reflecting continued cost discipline. Our GAAP net income was positive in the quarter. Aided by a nonrecurring benefit due to a favorable true-up related to taxes from the Trelegy royalty sale in Q2. However, driven by YUPELRI's profit contribution, and continued expense discipline, we also achieved non-GAAP profit breakeven in the quarter. Given that this metric excludes one-time items, such as the income tax benefit, and more accurately reflects the underlying performance of our operations. We ended the quarter with $333 million of cash and no debt. Lastly, turning to Slide 18, I'll cover our 2025 financial guidance. First, we are reiterating all expense guidance ranges. in Q3, Second, given that we achieved breakeven on a non-GAAP based again excluding one-time items, we now expect results to remain broadly consistent in Q4. So there can always be normal quarterly variability. This guidance reflects our continued focus on operating leverage and cost discipline. Importantly, this outlook excludes the $75 million of milestones expected to be earned in Q4. $25 million for YUPELRI, which will be recognized as revenue and $50 million for Trelegy, which will be recognized as other income, not revenue. Note that while we expect these milestones will be earned in Q4, we'll receive the cash in 2026. In summary, Q3 was another step forward for Theravance. We delivered record YUPELRI performance, achieved breakeven on a non-GAAP basis, and further strengthened our balance sheet. Setting the stage for a potentially transformational 2026 with continued financial discipline and a clear focus on value creation. With that, I'll turn it back to Rick to conclude. Rick? Rick Winningham: Thanks, Aziz. To summarize on slide 19, Theravance enters the final stretch of 2025 with strong momentum. Driven by a profitable commercial business, a robust balance sheet and clear visibility into near-term milestones that will further strengthen our financial profile. YUPELRI continues to be a key driver of that performance, with sustained growth and increased profitability highlighting the durability and long-term value of the franchise. We remain confident in the execution of the Cyprus study and in ampreloxetine's potential to become the first precision therapy for patients with MSA who suffer from nOH. With Cyprus results expected in 2026, we are now approaching a significant moment for the company. This readout represents a transformational catalyst with meaningful upside potential more profitable YUPELRI franchise and strong financial position provides downside protection. Creating a compelling risk-reward profile as we approach the data. As we move into 2026, we do so with focus financial strength, and confidence in the opportunities ahead. And with that, we'll open the line for questions. Operator: Operator? Rick Winningham: Thank you, sir. Operator: Our first question for today comes from the line of Douglas Tsao from H. C. Wainwright. Your question please. Hi, good afternoon. Thanks for taking the question. Douglas Tsao: I guess Rick, just, given, you know, sort of the continued outperformance we've seen in Trelegy and you know, the likelihood of some additional cash coming in. How are you thinking about right now? You know, you've talked about the special committee committed to returning capital to shareholders, but you know, how much do you potentially need to sort of keep in house for the potential launch of ampreloxetine? Rick Winningham: Yes. Good question, Doug. I think, the obviously, the financial strength of the company is one of the one of its key elements of value. We you know, continue to view the cash on the balance sheet and the strategic review committee looks at the timing and the optimum amount, of returning capital. And if we do return again, you know, how much and when. The obviously, ampreloxetine's launch will be a fairly efficient launch in a rare disease. Not creating you know, a substantial burden. On the P&L, but nonetheless, triggering up expenses. I think for the company, and the board, what we're focused on right now because we are so close is in fact the execution of the Cyprus study through the top-line results and getting those top-line results and then making future decisions, future decisions for the company you know, on capital and capital return, etcetera, because of the as was stressed in this call, the very important nature you know, of that data. But importantly, we're in a position of financial strength, giving us terrific opportunities going forward to you know, to return capital to shareholders if that's what the board desires to do. Douglas Tsao: And I guess as a follow-up, when we think about the company over the last several years, you've obviously sort of narrowed your focus. Obviously, you know, we're sort of almost, you know, sort of dual goals of maximizing the opportunity with YUPELRI as well as executing on the ampreloxetine study. I guess when we think about the company over the long term, you know, are there pipeline assets? I mean, there were several assets, which I think some people, you know, were interesting. But sort of were put on pause. And I guess, is that ever sort of come back into the equation just given you know, you noted the sort of operational as per sort of the efficiency in launching ampreloxetine. I mean, that could just bring significant capital into the company and sort of change your position. Rick Winningham: Yeah. I think that's know, I'm again, to kind of go back to my central theme, and I think the central theme for the management and the board which is the focus on, you know, the focus on Cyprus and the focus on ampreloxetine clinical success that sets up a successful launch of the product. At that point in time, know, once we get post ampreloxetine and post success, we'll evaluate, evaluate options. I think you know, we not only need ampreloxetine success clinically, but a pathway which we believe we have as long as we you know, hit a clinically meaningful result in the Cyprus study to approval. And I think as we're going through that, obviously look at the options and the alternatives to maximize shareholder value. But, again, I'd say right now, given relatively small organization that we've got, you know, a 110% of our focus as you rightly point out, is on growing YUPELRI growing YUPELRI in a you know, in an effective way to drive additional profitability and finishing ampreloxetine clinical study and setting it up for commercial success. I think once we achieve those objectives, then we have time or intellectual space to work on other things that may increase the value increase shareholder value because I do believe you're right and that ampreloxetine being a rare targeting a rare disease that has the opportunity for, you know, a significant value inflection for the company. Douglas Tsao: Okay. Great. Thank you. Operator: Thank you. And our next question comes from the line of Julian Harrison from BTIG. Your question please. Julian Harrison: Hi, congrats on the quarter and thank you for taking the questions. First, I'm curious to what extent that recently published manuscript detailing the MCID for the OHSA composite score informs your expectations for top-line Cyprus data first quarter of next year. Any other comments on what you think a win on data would be, would be helpful as well. And then the YUPELRI data at Chestnut fantastic. Thinking about that, Samar, I'm wondering if you could talk more about how these results are supportive of YUPELRI new patient starts at the hospital call point. Rick Winningham: Hey. Rhonda, do you wanna take the chess presentations and we'll come back to Aine? And myself for ampreloxetine. Rhonda Farnum: Absolutely. Thanks, Julian, for the question, and thanks for recognizing the data. That were recently presented. Certainly, having data of this nature relative to both highlighting clinical outcome which is quite meaningful, as well as reduction in healthcare and health system cost are crucial. Knowledge points for the brand. I would say the team is first focused on ensuring we get those new data into manuscript form. And then we'll be able to think about, you know, other communications and educational efforts around these data. They certainly help further substantiate what is already an element of how and why we sell into the hospital space so they are very nicely kind of putting a bow on top of the package we already use promotionally. So we'll see in the future if these are used in kind of more expanded fashion, if that makes sense. Rick Winningham: So that's the exacerbation, data. Yeah. Very important. And again, you know, versus, versus tiotropium to you know, add to really the medical education efforts that we've got ongoing. With YUPELRI in both the community and the hospital. And that was on ampreloxetine and minimally clinically important difference in, you know, this publication is important to us because you know, effectively, a one-point difference for us is will be in the composite score will be a this kind of the minimally important difference that we need to see, in Cyprus. We obviously saw that in one seventy And Aine can touch on the steps we've taken to make sure one seventy is replicated by Cyprus. So, Aine? Aine Miller: Yeah. So thanks, Julian. I would encourage you to take a look at the publication. It is available online. There's open access to article. The article was based on the data that we have previously seen in 01/1970 and 01/1969. Looking at changes in the OHSA questionnaire, which is central, obviously, also to the Cyprus study, And, really, it was based on an anchoring analysis between changes on the scale to how patients actually felt using other scales that we've included in the study, PGI G and PGIS. We've proactively built this analysis into the Cyprus study. And from what we have seen in our previous analysis and you'll see in this publication, as Rick said, a one-point change on the scale is considered clinically meaningful. You know? And our objective with the Cyprus study is obviously to replicate the previous benefit that we had seen in the one seventy study. Where we did see that level of change. And believe that's clinically significant. And, obviously, this information is important to the overall outcome of the study and will be part of the regulatory submission. We've also had FDA review our analysis plan around the study and this anchoring analysis and feel like we're in a really good position as we move into the Cyprus readout in the first quarter of next year. Julian Harrison: Very helpful. Thank you. Operator: Thank you. And our next question comes from the line of Ellen Horste from TD Cowen. Your question please. Ellen Horste: Hi guys. Thanks for taking the question and congrats on the exciting quarter and the progress in the Cyprus study. My question is about Cyprus. So with the open-label portion complete, can you share how many patients have ultimately enrolled in the randomized withdrawal portion? And if not, can you confirm that this number is sufficient for the powering according to the original trial design? Thank you. Aine Miller: So as I said in my remarks, you know, we're really encouraged with how the study has progressed and where we've landed in terms of overall enrollment numbers. While we're not sharing specific enrollment numbers today, will say that we remain very confident in the operational execution I'm pleased with where we have landed in terms of accrual, but most importantly, also progression into the randomized withdrawal portion of the study. We do believe that we have randomized a sufficient number of patients us to be able to detect a treatment difference between the two arms. Just as a reminder, the study design and the analysis plan for the Cyprus study has been aligned with FDA, and we believe that we had a have an adequately powered study and we'll be disclosing all the specific numbers in the context. Of our data readout, which is coming really soon, and we are excited about what's to come in quarter one 2026. Rick Winningham: And then, Ellen, just the schematics. You know, that we've outlined as a part of our ongoing investor presentation. You know, on the study. You know, remains you know, remains accurate relative to you know, what we need what we are what we needed to achieve and what we are achieving with the study design. And execution. Ellen Horste: Thank you. That's really helpful. Rick Winningham: Okay. Operator, do we have any further questions? Operator: It appears that we do not have any further questions coming in from the operator. So I will just take this opportunity to thank you for joining, on our call. Third quarter call. We're very pleased with the results this year. Today, we look forward to very good fourth quarter. And then the exciting, first quarter in 2026. Headline by, by the Cyprus data. So thank you again very much for joining, and please have a good day. Jonathan: Goodbye.
Operator: Thank you for everyone that has joined us so far. We are just going to give it about thirty seconds, and we will get started soon. Everyone for joining us today. We will get started momentarily. Okay. Hello, everyone, and welcome to Viant Technology Inc.'s third quarter 2025 earnings conference call. My name is Dave, and I will be your operator today. Before I hand the call off to the Viant leadership team, I would like to go over just a few housekeeping notes for the program. As a reminder, this call is being recorded. After the speaker remarks, there will be a question and answer session. If you plan to ask a question, please ensure that you have set your Zoom name to display your full name and firm you are with. And if you would like to ask a question during the call, please use the raise hand feature in Zoom, which is located in the controls at the bottom of your Zoom screen. You could raise your hand at any time and be queued. And thank you for your attendance today. I will now turn the call over to Nicholas Todd Zangler, VP of Investor Relations for Viant Technology Inc. Thank you. Good afternoon, and welcome to Viant Technology Inc.'s Third Quarter 2025 Earnings Conference Call. The call today are Tim Vanderhook, Co-Founder and Chief Executive Officer, Chris Vanderhook, Co-Founder and Chief Operating Officer, and Lawrence J. Madden, Chief Financial Officer. I would like to remind you that we will make forward-looking statements on our call today, including, but not limited to, statements regarding our guidance for Q4 2025 and other future financial results, our strategy, our platform development initiatives, including Viant AI, our pipeline, and potential partnership opportunities, and industry trends that are based on assumptions and subject to future events, risks, and uncertainties that could cause results to differ materially from those projected. These forward-looking statements speak only as of today, and we undertake no obligation to update or revise these statements except as required by law. More information about factors that may cause actual results to differ materially from forward-looking statements and our entire safe harbor statement, please refer to the news release issued today as well as the risks and uncertainties described in our quarterly report on Form 10-Q for the quarter ended September 30, 2025, under the heading Risk Factors and in our other filings with the SEC. During today's call, we will also present both GAAP and non-GAAP financial measures. Additional disclosures regarding these non-GAAP measures, including a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures, are included in the news release issued today and in our earnings presentation. Which have been posted on the Investor Relations page of the company's website and in our filings with the SEC. I would now like to turn the call over to Tim Vanderhook, Chief Executive Officer of Viant Technology Inc. Tim Vanderhook: Thanks, Nick, and thank you all for joining us today. We delivered a strong third quarter performance achieving new company records across all key metrics. Revenue increased 7% year over year and contribution ex TAC increased 12% year over year. Both well above the midpoint of our quarterly guidance range. When excluding temporary items like political advertising, revenue in contribution ex TAC increased 19-22%, respectively, and more accurately reflects the true strength of our business. Growth was driven by new customer wins accelerating CTV demand, a surge in streaming audio demand, greater adoption of Viant's addressability solutions, and the expanded use of the Viant AI product suite. Adjusted EBITDA increased 9% year over year to $16 million for the quarter and surpassed the high end of our guidance range. On our previous earnings call, we discussed an incremental $250 million in potential ad spend opportunities associated with ongoing discussions with major US advertisers. Representative of a new addressable market for Viant. We are thrilled with our recent progress. Which includes multiple client wins and is highlighted by a flagship multiyear partnership with Molson Coors. One of the world's largest beverage companies. Viant has been designated as the advertising platform for Molson Coors, and will power their programmatic ad campaigns deployed across the open Internet throughout The US beginning in 2026. Viant was selected because of our proprietary intelligence layer. Which combines our industry-leading addressability solutions with our autonomous advertising capabilities to uniquely activate first-party data. Reach targeted audiences, and achieve measurable outcomes at scale. Molson Coors manages a diverse product portfolio. Including core power brands, premium brands, and value brands. Each of which services a distinct customer demographic. Viant is uniquely capable of finding both existing and potential customers by leveraging our intelligence layer. By integrating their first-party data into our autonomous ad platform, we aim to empower Molson Coors to reach the appropriate legal drinking age audience for each brand while ensuring that every impression delivers measurable value. This is precision marketing at scale. Made possible through Viant's autonomous ad platform. Molson Coors joins one of many major US brand advertisers, who share our vision of achieving outcomes through autonomous advertising. With multiple wins in place, the broader market is increasingly recognizing Viant as the autonomous advertising platform for the open Internet. And for good reason. Our value proposition is unmatched. First and foremost, we are an independent and objective partner. Free of the conflicts of interest that exist with our competitors. Remember, many of our peers either sell owned and operated inventory or they monetize certain supply paths putting their interests at odds with their advertiser clients. Google direct spend to YouTube, Amazon direct spend to Prime Video, and The Trade Desk direct spend through OpenPath, all to extract more margin for themselves and ultimately to the detriment of the advertiser. At Viant, we pride ourselves in directing spend to ad inventory that drives the highest return on ad spend for the advertiser. We own no publisher content, and our incentives are directly aligned with those of our advertiser clients. Viant is also a leader in proliferating secular growth channels. CTV and streaming audio. Offering advertisers the ability to purchase ad inventory through our direct access premium publisher program. The industry's most efficient path to purchase premium CTV and streaming audio ad inventory. Through direct access, more ad spend is allocated to working media. Which means dollars deployed on Viant's platform go further. Generating more ad impressions for advertisers than on many competing platforms. And as referenced a moment ago, at the core of our autonomous ad platform, is an intelligence layer that is giving our customers the ability to drive higher returns in open Internet advertising. Viant is the only platform where advertisers can leverage AI to harness what we believe to be the industry's most powerful audience identifier Household ID. And the industry's most powerful content identifier, Iris ID. To cut through the noise and deploy precise hyper-targeted campaigns at scale through the most efficient supply paths. This value proposition is resonating with brand advertisers more so than ever before. And I am pleased to report that throughout the quarter, we made tremendous progress. Further enhancing this value proposition as part of our relentless focus on innovation. On that note, I will provide an update on performance and progress across our key strategic priorities. CTV, addressability, and Viant AI. CTV was the strongest driver of contribution TAC growth in the quarter. Exhibiting an accelerating year over year growth rate. Our results consistently demonstrate our leadership position in CTV and this quarter was no different. Total CTV ad spend on our platform reached a new all-time high. And represented 46% of total advertiser spend on our platform. Also an all-time high. Year to date, approximately half of all CTV ad spend on our platform has been directed by our customers to run through our direct access publisher program, which offers an efficient targetable, and measurable way to purchase CTV inventory. The vast majority of leading streaming services have joined the direct program, including Disney plus Paramount plus NBCU, Tubi, Samsung, and many more. Increasing adoption of our addressability solutions Household ID and Iris ID, both of which are purpose-built for CTV, further propel demand for CTV on our platform. Leading to outsized growth relative to our peers. Viant's household ID, our patented audience targeting and measurement solution, continues to see strong utilization amongst advertisers and was a meaningful contributor to top-line growth in the quarter. Household ID delivers superior addressability for advertisers looking to leverage their first-party data, to reach specific audiences and measure campaign performance. Household ID identifies approximately 95% US households. And is available across roughly 80% of all biddable ad inventory. Four times the coverage of key competing identifiers. Which reach only about 20% of biddable ad inventory. Our content targeting and measurement solution, Iris ID, continues to ramp across publishers. Enticing a growing number of advertisers to deploy contextually targeted campaigns, on our platform. We recently added Tubi, a leading fast streaming service with over 100 million monthly active users to our pool of Iris enabled publishers. Joining the likes of Paramount plus AMC Networks, Whirl, Lionsgate, CNN, LG, Vizio, and many more. In just one year since acquisition, we have more than tripled the presence of Iris ID across the CTV bid stream and we believe we have a clear path to achieve 50% of the CTV bid stream penetration in the next few months. Iris ID is a powerful performance solution enabling advertisers to achieve unprecedented levels of precision by targeting CTV ad inventory at the video level. Which includes scene level targeting. Consider for a moment the possibilities of scene level targeting where brands align with a seemingly infinite assortment of themes. Imagine brands like Tide laundry detergent targeting stains Bounty paper towels targeting spills, and Coca Cola targeting happiness. The possibilities are limitless. And most importantly, Iris ID works. When utilized on our platform, advertisers are seeing, on average, a 48% increase in conversion rates versus control groups. Given the effectiveness of contextual targeting strategies, deployed with Viant, advertisers are buying in. In fact, in Q3, revenue attached to the Iris ID more than doubled sequentially versus the prior quarter. Last quarter, we announced a partnership with IPG Acxiom where Iris ID is powering their content targeting offering. IPG is requiring all content owners with upfront commitments to carry Iris ID, and we believe this partnership will help further drive Iris ID into the CTV ecosystem. Moving on to Viant AI. Our autonomous ad platform is powered by the Viant AI product suite. We have successfully rolled out three of the four phases comprising the Viant AI product suite. Viant AI consists of AI bidding, AI planning, AI measurement and analysis, and AI decisioning. I will provide a brief update on all four phases. AI bidding continues to automate 85% of the ad spend on our platform. With AI bidding, advertisers enable Viant's algorithms to find and buy optimal ad placements across the open Internet. Aiming for the lowest cost while meeting their desired KPIs which often include reach, frequency, and other targeting requirements. With surging use, contribution x TAC generated from AI bidding more than doubled year over year in the quarter. And growth accelerated for the fourth straight quarter. We recently launched AI bidding 3.0 ahead of schedule. Which is expected to deliver even greater media cost reductions to our clients. AI planning most clearly showcases our intelligence layer at work. And represents the future of ad campaign creation and execution at Viant. AI planning enables any advertiser from an SMB to an enterprise marketer to create a brand or product-specific ad campaign in seconds. We replace the complex DSP UI with a single prompt that requires just four inputs. The advertiser, the budget, the time frame, and the goal. Within seconds of submission, an ad campaign designed to maximize return on ad spend is fully constructed and ready for deployment. Our intelligence layer identifies the ideal audience segment for any brand product, or service then utilizes advertiser first-party data together with our addressability solutions historical campaign performance data, and bidding algorithms to most efficiently allocate the budget across various digital channels, publishers, geographies, audiences, video level content, time of day, and more. To execute campaigns capable of delivering the most optimal outcomes. In preparation of our launch of AI decisioning, AI planning has been significantly enhanced. Now capable of building and executing campaigns for niche performance advertisers and even individual products or services. For example, AI planning can now build and execute a campaign for every single pair of shoes on Nike's website. Each uniquely tailored to address a specifically defined audience through calculated digital channel allocations and use of specific audience in contextual targeting segments. With this new enhanced level of precision, enterprises and mid-market advertisers can reconfigure marketing strategies for increased efficiency and performance advertisers. Including SMBs and direct to consumer ecommerce companies. They can readily engage the most highly effective digital channels like CTV. Of course, powering this enhanced level of precision are our proprietary addressability solutions. Household ID and Iris ID. Both of which are now fully incorporated into our intelligence layer. AI measurement and analysis launched earlier this year and replaces traditional reporting with on-demand insights. Historically, campaign performance data has been spread across multiple dashboards buried in spreadsheets, and has required the expertise of specialized data scientists to interpret results and identify actionable insights. AI measurement and analysis surfaces actionable insights and optimization opportunities in an instant. Via an intuitive chat-based interface. Think of AI measurement and analysis as a trusted copilot providing on-demand answers and recommendations to all campaign performance-related queries. An essential feature necessary to properly support performance advertisers. AI decisioning, set to launch at year-end will truly usher in the outcomes era of programmatic advertising at Viant, by combining AI bidding, AI planning, and AI measurement and analysis with the added capability of dynamic spend deployment. AI decisioning proactively reacts to fluid market conditions, and adjust campaigns in real-time. To deliver optimal campaign results. AI decisioning is expected to enable Viant to expand our addressable market to include performance advertisers. Who are in need of a do it for me solution. That can service them across the open Internet. Our autonomous advertising platform will compete with Google's Pmax, and demand gen solutions as well as Meta's advantage plus solution, but will direct spend to demand generation channels like CTV and streaming audio that drive incremental lift. As opposed to demand capture channels like search and social where ad spend is directed to audiences that often would have converted anyway. To summarize, we delivered impressive results attributable to strong underlying performance particularly in CTV. Where we are continuously expanding our leadership position. We believe our partnership with Molson Coors underscores our platform's unique advantages over our much larger competitors. And we strengthened our value proposition through improvements in our CTV offering. Addressability solutions and the Viant AI product suite. With headwinds easing, underlying performance strengthening and a marquee client win established we are poised to meaningfully accelerate growth going forward. With that, I will pass it over to Chris. Chris Vanderhook: Thanks, Tim. I will provide an update on our customer go-to-market strategy. We intend to maintain our dominant position within the mid-market. With the success of Viant AI, we will opportunistically expand upmarket with major US advertisers like Molson Coors, who share in our vision of achieving measurable outcomes through the use of autonomous advertising, and expand down market to enable the millions of performance advertisers including SMBs and direct to consumer e-commerce companies, participate in the open Internet just like they currently do in search and social. Touching first on the mid-market. We continue to execute across our core customer cohort as demonstrated by the acceleration in demand we generated in the quarter. Which can be seen in our underlying performance. After accounting for political ad spend in the prior year, and the departure of a seasonal advertiser due to a corporate merger, contribution ex TAC increased by 22% in the quarter. Mid-market advertisers are increasingly relying on our intelligence layer and embedded solutions like Household ID, Iris ID, and AI bidding to successfully navigate today's complex digital landscape. As a result, Viant is becoming more deeply integrated into the fabric of our clients' marketing efforts, opening up more opportunities for collaboration. For example, we recently expanded upon an existing partnership with a leading grocery chain to power their retail media network. By leveraging their extensive first-party dataset along with our industry-leading addressability solutions, we are enabling this grocer's numerous vendors to target relevant audiences with highly effective off-site ads. Beyond this existing partnership, we are in active dialogue with a number of additional major retailers exploring opportunities to utilize their first-party dataset in combination with our addressability solutions to better enable their vendors to market products more effectively across the open Internet and ultimately drive sales growth across these retailers. Across major US advertising, advertisers, we have been actively pursuing over $250 million in potential ad spend, all of which would be incremental to our mid-market growth opportunity. As Tim mentioned earlier, major US brands are increasingly looking to partner with Viant due to our independence, our leadership in CTV, and to leverage our intelligence layer that is core to our autonomous advertising platform in Viant AI. Our multiyear partnership with Molson Coors not only demonstrates our ability to win amongst major US advertisers, but we believe this win is indicative of a growing preference amongst large brands to deploy data-driven campaigns at scale. Historically, the world's largest advertisers have executed ad campaigns built for reach and frequency with minimal emphasis on addressability, and the need to tie all media to outcomes. We see a changing landscape. Where even the largest brands in the world seek to advertise with precision. Measure and drive return on ad spend, and improve the overall effectiveness of their marketing budget. This is exactly what Molson Coors is striving to achieve. And we expect they will rely on our intelligence layer within our autonomous advertising platform to build and execute sophisticated campaigns designed to achieve maximum efficiency. Together, we can connect their brands to the right audiences and the right moments to deliver measurable outcomes while reinforcing Molson Coors' legacy of brand building. At the end of the year, we plan to launch the fourth phase of our Viant AI product suite, AI decisioning. Enabling Viant to better serve performance-based advertisers via a self-service do it for me solution. The opportunity across performance advertisers including SMBs and direct to consumer e-commerce companies, is substantial. Representing 10 million advertisers and over half of the $240 billion currently allocated to search and social digital channels. Performance advertisers prioritize targeting and measurement. A capability that has emerged within CTV through the use of our addressability solutions. Performance advertisers tend to be overinvested in search and social platforms. And stand to benefit from shifting spend to CTV, where they can drive and measure incremental sales and improve their return on ad spend. Today, we believe there is no true self-service solution in the marketplace capable of addressing this customer segment for the open Internet. DSPs as they currently exist are far too complex to attract the performance advertisers in mass, until now. AI decisioning is the component of our autonomous advertising platform designed to enable any size advertiser to deploy ad spend across highly effective digital channels including CTV, streaming audio, and more. The team is hard at work preparing for the launch of AI decisioning by the end of the year. And because we have embraced a product-led go-to-market strategy, we see an opportunity to deliver faster growth and higher margins than that exhibited by early entrants currently targeting the space through their numerous sales reps, and rented technology. We believe our in-house, do it for me autonomous advertising platform limits the need for extensive personnel investment to support new client acquisition and expansion. Clearly, Viant is executing across a wide range of market opportunities. In the mid-market, where we have traditionally dominated, we continue to exhibit strong growth as demonstrated by our results. Amongst major US advertisers, a new addressable market for us we have been in active pursuit of over $250 million in incremental ad spend, with multiple wins in place. And to address the emerging opportunity amongst performance advertisers, we are launching the industry's first autonomous advertising platform built for the open Internet. With that, I will turn it over to Larry to provide more detail on our financial performance. Larry? Lawrence J. Madden: Thanks, Chris. Before I begin, I would like to remind everyone that we have posted a presentation on our Investor Relations website that includes supplemental financial information to accompany today's call. In terms of our results for the third quarter, revenue for the quarter was $85.6 million representing a 7% increase year over year and 10% increase quarter over quarter and was above the midpoint of our guidance range. Contribution ex TAC totaled $53 million in Q3, up 12% compared to the prior year period and up 10% sequentially reaching the high end of our guidance range. Both revenue and contribution ex TAC represent record results for the 3Q period. It is important to note our underlying business is performing far stronger than our reported results indicate. When excluding political ad spend contribution from the prior year election cycle, which weighed on revenue growth by approximately 600 basis points and contribution ex TAC growth by approximately 400 basis points as well as the departure of a seasonal advertiser due to a corporate merger which weighed on revenue and contribution ex TAC growth by approximately 600 basis points, Q3 revenue increased 19% year over year and contribution ex TAC increased 22% year over year on a pro forma basis. We believe this underlying performance more accurately reflects the true health of our business and adjusts for material factors outside of our control. During the quarter, we also continued to see meaningful expansion in the number of customers generating significant levels of contribution ex TAC. On a trailing twelve-month basis through Q3, saw a 39% increase in the number of percent of spend customers generating over $1 million in contribution ex TAC. Additionally, contribution ex TAC across our top 100 customers grew by 18% year over year on a TTM basis. New customer momentum also remained strong, as evidenced by the recent announcement of a newly formed multiyear partnership with Molson Coors, one of the largest beverage companies in The US. We are encouraged by our performance demonstrated ability to bring major US brand spend onto the Viant ad platform. We believe these trends fueled by growth from both existing and new customers, reinforce our strong competitive positioning and support our ability to continue outperforming the broader programmatic market over the long term. We delivered strong performance across most customer verticals in Q3, with ad spend across our top six verticals which include health care, retail, consumer goods, public services, business services, and automotive, leading the way. CTV remained a core growth driver in Q3 accounting for a record high of 46% of total platform spend with nearly half running through direct access premium publishers. In addition, CTV spend reached an all-time high in the quarter reflecting continued momentum as advertisers increasingly prioritize premium addressable video to drive performance. Spend across all emerging digital channels which includes CTV streaming audio and digital out of home, collectively represented approximately 56% of total platform spend in Q3 also a new record, and up from 50% in 2024, 43% in 2023. Highlighting the accelerating adoption of next-generation media formats and underscoring our position as a leading partner for advertisers moving beyond traditional display. Video inclusive of CTV reached a record high 62% of total platform spend in the quarter. Reflecting the continued shift towards high impact measurable formats. Non-GAAP operating expenses totaled $37 million in the third quarter. Representing a slight sequential decline and a 13% year over year increase. Notably, operating expenses include strategic investments related to the acquisition of Iris TV, closed in November 2024, and Locker, which closed in February 2025, both of which expand our long-term product capabilities and then are intended to support long-term growth. Excluding these acquisitions, organic non-GAAP operating expenses increased a modest 7% year over year and decreased 1% sequentially reflecting continued operating leverage and disciplined expense management. Importantly, we remain focused on scaling efficiently. Even as we continue to invest in innovation across Viant AI and our broader technology stack you are delivering measurable gains in productivity. Increasing contribution ex TAC per employee by over 7% year over year a clear signal of improved operational efficiency. Adjusted EBITDA for Q3 was $16 million exceeding the high point of our guidance by 7% and growing 9% year over year and 42% sequentially. Adjusted EBITDA as a percentage of contribution ex TAC was 30% for the quarter well above our prior guidance, which called for 28% adjusted EBITDA margin at the midpoint. We were able to deliver strong margins despite temporary pressures impacting our top line, and while absorbing elevated year over year operating expense growth stemming from the integration of the recent acquisitions. Both of which represent critical investments that have materially strengthened our competitive positioning. Non-GAAP net income, which excludes stock-based comp and other adjustments, totaled $11.2 million for the quarter, down 9% from $12.3 million in the prior year, Non-GAAP basic earnings per Class A share outstanding was $0.12 in the third quarter, compared to $0.15 in the prior year. The year over year declines of both non-GAAP net income and earnings per share are primarily attributable to lower interest income and higher income tax expense in the current period. Non-GAAP net income before interest and taxes increased 4% year over year in Q3. In terms of share count, we ended the quarter with 62.4 million shares, outstanding, consisting of 16.6 million Class A shares, and 45.8 million Class B shares. We ended the quarter with a strong balance sheet including $161 million in cash and cash equivalents $194 million of positive working capital, no debt, and full access to our $75 million credit facility. We also remain disciplined in our capital allocation. Since launching our share repurchase program in May 2024, we have returned $59.6 million to shareholders. Including $10 million in Q3 and $37.9 million year to date through November 7. In total, since inception, we have repurchased 4.8 million shares at an average price of $12.42 signaling our confidence in our long-term value. As of November 7, approximately $40.4 million remains available under our current authorization. We intend to continue executing this program opportunistically with a focus on maximizing value for long-term shareholders particularly during periods when our stock is undervalued. We believe our strong financial foundation combined with consistent execution and a balanced capital allocation strategy, positions us well to capture growth opportunities and drive shareholder value in the quarters ahead. Turning now to our Q4 outlook. As a reminder, our Q4 performance is being measured against a difficult comparison largely due to last year's high political ad spend contribution. This headwind is expected to pressure revenue growth by 600 basis points and contribution ex TAC growth by 500 basis points in Q4. This is fully reflected in our guidance for the 2025. Which is as follows. Revenue of $101.5 million to $104.5 million a 14% year over year and 20% sequentially at the midpoint. Excluding the impact from political, revenue is expected to be up 20% year over year at the midpoint on a pro forma basis. Contribution ex TAC of $62 million to $64 million reflecting 16% year over year growth and 90% sequentially at the midpoint. Excluding the impact for political, contribution at Stack is expected to be up 21% year over year at the midpoint on a pro forma basis. Non-GAAP operating expenses of $39.5 million to $40.5 million up 7% year over year and 8% sequentially at the midpoint. Excluding the impact from the Iris and Locker acquisitions, organic non-GAAP operating expenses are expected to increase a modest 5% year over year, and 9% sequentially at the midpoint, reflecting continued operating leverage and disciplined expense management. Adjusted EBITDA of $22.5 million to $23.5 million representing a 35% year over year increase and a 44% increase sequentially at the midpoint. And finally, we expect an adjusted EBITDA margin as a percentage of contribution ex TAC of 37% at the midpoint. Representing over 500 basis points of improvement over the prior year period. Despite these temporary political headwinds, the midpoint of our guide assumes record Q4 performance across revenue, contribution ex TAC and adjusted EBITDA. Based on the midpoint of our guide, we now expect full year 2025 revenue and contribution ex stack growth of 17% adjusted EBITDA growth of 25%, and adjusted EBITDA margins of 27% an improvement of nearly 200 basis points year over year. Notably, excluding the temporary headwinds we discussed, our Q4 guide at the midpoint implies full year 2025 revenue and contribution ex TAC growth of 22% on a pro forma basis. Indicative of strong underlying performance. As a reminder, the political ads spend headwind will no longer be a factor starting in 2026. A few other considerations worth noting for 2026 modeling. We anticipate accelerating year over year growth in revenue and contribution ex TAC throughout 2026 driven by new client onboarding. Additionally, while we expect to start servicing Molson Coors in Q1, more significant spending is expected to commence into Q2 and beyond. In terms of non-GAAP operating expenses, beginning in 2026, we will have lapped nearly all of the OpEx contributions associated with the recent acquisitions and therefore we expect to grow non-GAAP operating expenses at a lower rate in 2026 than in 2025. Given these assumptions, we expect to deliver significant EBITDA margin expansion in 2026. In closing, we delivered another record quarter executing against our strategic priorities advancing innovation across our platform, and returning capital to shareholders through opportunistic share repurchases compelling valuations. Our growth pipeline has never been stronger is supported by over $250 million in potential annualized ad spend opportunities associated with major US advertisers. A new addressable market for Viant. We are clearly executed against this opportunity as evidenced by the flagship partnership with Molson Coors. Among other sizable wins. We believe we are well positioned for sustainable long-term growth our strategic alignment with secular growth trends including CTV, addressability and Viant AI. And with that, I will turn the call back over to the operator for questions. Operator? Operator: Thank you, Larry. We will now proceed to the Q&A session. As a reminder, if you have a question, please use the raise hand feature in the controls located at the bottom of your Zoom window. And with that, our first question comes from Laura Anne Martin with Needham. Laura? Laura Anne Martin: Hey. Great numbers, guys. I have two. One is, you guys always had a self-serve platform and you have had two, like, products out of the three AIs. So what is it about the third AI product that you are delivering in the fourth quarter? That opens a new SMB TAM Is it content creation, or why would not that you know, what was why is it different? From what has been possible to date? And then, Larry, just on your guidance, your same store guidance has a 600 basis point headwind for a merger client that took spending. That is not one time. Right? That is going to be a 600 basis point headwind for four quarters in a row. Do I have that right? Or if not, tell me. Lawrence J. Madden: Larry, you want to take the first one? I will go first. So no. This was particular client was a very seasonal client. Spent the majority of their budget in Q3. And and relatively modest amounts in other quarters. So that it will be it will be very modest in terms of the headwind on that one. We are not even calling it out. But it is really the Q3 quarter that was the big hit for that for that particular Okay. Super helpful. Laura Anne Martin: Great. Tim Vanderhook: Laura, and on the first one, when we launch AI will complete the cycle of the four phases of Viant AI, and that will do is effectively make it full self-driving. Right now, we would classify Viant AI as human in the loop, approving everything, needing to add extra information, or optimizing the campaign. Based off the results, but with AI decisioning, they it will take over the complete campaign from start to completion, hopefully hitting the customer goals that the advertiser is looking for. And, Laura, just to remind everybody, know, DSPs traditionally are very complex. We liken them to, like, a Bloomberg terminal in finance. And with these smaller direct to consumer ecommerce companies or SMBs, they need a more simplified, user experience. And they really want the platforms. They they want to give you limited information than what the platform to hit their goals. And we liken it also to it is like the self-driving car. That is kind of what we are doing with AI decisioning that it is they are going to give us you know, some basic information their goals, and then the platform is going to just deliver them the results. Laura Anne Martin: Okay. Thanks, guys. Appreciate it. Tim Vanderhook: Thanks a lot. Lawrence J. Madden: Thank you, Laura. Operator: Next question comes from Matthew Dorrian Condon with JMP. Matthew Dorrian Condon: Thank you guys for taking my question. My first one is just on the Amazon DSP. It seems like they are offering 0% DSP fees that been out there in some of the articles. Just have you guys seen any increased competitive intensity here over the past quarter or so? Tim Vanderhook: I would say no on increased competition. Certainly, the Amazon DSP marketing team deserves a trophy for how much coverage they have been able to get over the past couple of months. But I would say no. The competitive, side of Amazon's ads business has been pretty consistently there. Most of their revenue is sponsored listings. The DSP, I would guess, is a very small portion. And we do not see them, you know, in the competitive bake-off processes at the finish line. Matthew Dorrian Condon: Got it. And then my second one is just on, you know, as you launch the AI decisioning product and expand into the SMB performance market, Just how do you grow awareness with that type of advertiser? Is there different investments in sales and marketing that you need to make, or how do you think about that go-to-market strategy? Tim Vanderhook: Yeah. You know, there is a lot of, channel partnerships that you end up doing. There is a whole, you know, ecosystem of direct consumer agencies, also measurement firms, that we may look to partner with as well. But that SMB and direct consumer ecommerce market is really dominated by Meta and Google. And there is a lot of interest out of those marketers to get the open Internet, to get into CTV. But I would say that the thing that you have to produce is true performance. And I think that is really what we are showing with a lot of our current customers today, whether mid-market, or the larger advertiser segment. And we know that we are we are able to show the results there, and we are really confident. Once we launch AI decisioning, we are going to be able to attack that the, the lower end of the market as well. But, Matt, just to put, I guess, a a finer answer on that, we view e you know, electric reaching, advertisers that are out there in this segment, direct to consumer e com. So we see a self-service sign-up flow, and hopefully, no humans having to interact with them to use the platform. That is the goal. Matthew Dorrian Condon: I appreciate it, guys. Thank you. Operator: Alright. Our next question comes from Wyatt Swanson with D. A. Davidson. Wyatt? Wyatt Swanson: Hey, guys. Thanks for the question. I am on for Tom White. I got a question on the client win you announced last week with Molson Coors. Can you talk about the incremental spend you expect to see from that? And maybe how that impacts the pipeline of $250 million incremental spend that you talked about last quarter there is still a lot of remaining incremental spend you believe you could capture for 2026. Tim Vanderhook: Yeah. I would say there there definitely is a lot of incremental spend. I cannot talk about any client-specific spend, given the pro nature of that information. But Molson Coors is a huge win. Obviously, we are very proud of it. We have got Coors Lights on our desk right now for the earnings call, so we are pretty excited about that partnership. But I will say that, that should continue to scale. You know, look for that to start coming on board. In the second quarter, as that client onboards, and that should continue to scale for many years. It is a multiyear partnership, so that should get bigger and bigger each year. I I will point out, though, that Molson Coors was not the largest advertiser in that spend amount that we talked about last quarter. We have won some other customers in there They we were not allowed to announce their names, so some of those are rolling forward. Into 2026, but there is still even bigger companies that that are in there that we can win for next year. So we are excited about what is ahead, and we are excited about the partnerships that we have struck heading into the future. Wyatt Swanson: Got it. That is really helpful. And then kind of a follow-up to the elevated competition recently in the DSP space. From your guys' perspective, how do you see the competitive environment evolving as companies like Google and Amazon, you know, sort of try to evolve their DSPs? Tim Vanderhook: Yeah. Why do not I start, and then you are yeah. I mean, I I view the competitive space as getting smaller and smaller. Trade Desk has made specific moves around OpenPath and charging for what used to be SSP territory. So we made in our prepared comments Google wants to sell you YouTube. Amazon wants to sell you Prime Video. And Trade Desk wants to redirect your spends through OpenPath, their their own SSP where they are making incremental margins. Viant takes a different approach from that, and so we see less competition. You look at truly objective buy-side only platforms. Historically, there was The Trade Desk and ourselves. I think with some of The Trade Desk's recent moves, that puts them more in the, I guess, no longer independent or objective when it comes to the pathways. What would you add? Yeah. And I just add on to objectivity know, we see a real opening in the market and as evidenced by the Molson Coors win in. Of these other wins, that we have already we have already achieved, objectivity is a big piece. We think that we can be kind of the inside man for marketers. That this industry is so complex, and programmatic advertising and digital overall. We talked a lot about our intelligence layer. This is really required Marketers need someone. Who is going to go out and defend their interest in market and get them their returns. And on most historically, most of the largest players in advertising are on both sides of the transaction. They are looking to sell you their own inventory. They consistently and this has been proven. They rig the results to show that their content their own inventory is driving the best results. Marketers regularly figure that out, but in the end, that ended up not being true. And I think just as a lot of these, especially with the larger brands, as now most of the money is in digital, now realizing that even though their KPIs in digital may have gotten better, total sales and total market share do not they do not tell the same story. So we are really looking to connect senior marketing leadership with the CEO and the CFO's expectations of revenue growth, market share growth, That is what is unique about Viant. We think from a competitive standpoint, we are really the only one left on the buy side that has true to actually serve that role. Wyatt Swanson: Got it. Thanks, guys. Chris Vanderhook: Thanks, Wyatt. Operator: Our next question comes from Jason Michael Kreyer with Craig Hallum. Jason? Jason Michael Kreyer: Great. Thank you, guys. So, obviously, that $250 million pipeline delivered some nice wins this quarter. Just curious if you can talk about how the sales teams are backfilling additional opportunities behind that. Tim Vanderhook: Well, really, the the larger the larger advertiser opportunity has really been product-led. We did not go out and make a huge push, and this is what has really been so exciting for the team. We are getting pulled into that, and it started about a year ago with the launch of Viant AI. A lot of these large marketers are looking to get more efficient. Better results. Like I said, they got to tie out what the CEO and the CFO are saying in terms of you know, tying outcomes true outcomes to their actual ad spend. So we are this is a product-led initiative. We are being pulled into this. And so, really, for the sales team, it has not been a massive sales effort today to go after this market. And I think we are going to continue with being pulled in from a product standpoint. When we launch AI decisioning, as well, that is going to be product-led as well. So we are really excited about that. This has not been a heavy drain on our current core sales team. But we think that we are we are good with the investments that we have that we have made throughout this year to be able to serve this end of the market. Jason Michael Kreyer: Just a follow-up for Larry. You talked about greater margin, EBITDA margin expansion in Q4, and I think you alluded to kind of similar trends as we get into '26. Are there AI efficiencies driving that, or are there some other elements driving that that you can call out? Lawrence J. Madden: I think, a lot of it is just the operating leverage in the model. As we grow spend, it is not linear to growing our overhead. So as we get bigger, we we can grow our overhead quite a bit lower than the the rate at which contribution of SAC grows. Certainly, AI has plays a role in that. We have a lot of we we have a lot of use cases where we are using it internally. That is making things more efficient. Making making people just easier to research and get tasks done. But it is really the it is the leverage the natural leverage in the model more so than than pure AI. Operator: Okay. Thank you, Jason. Our next question comes from Andrew Jordan Marok with Raymond James. Andrew? Andrew Jordan Marok: Hi. Thanks for taking my questions. Maybe again on the large advertisers. Within that incremental cohort, that you have kind of spoken about and maybe some of the unannounced, companies there, what are the characteristics of the clients that have seen that have been more promising either as unannounced deals or or as prospects? Whether that is by vertical or maybe some aspect of the advertiser that makes them a uniquely good fit for you. Tim Vanderhook: You know, when I think of the type of that is ideal for Viant, it is someone that is going through a shrinking market know, if you think of the beer market in general, it is shrinking in size, younger, generations of Americans are drinking a lot less, and so they need to get more efficient really fast. For businesses that are, you know, crushing it, I I do not think NVIDIA is for new ad partners. Their business is off and running. And so for us, we are always looking for the challenging environment where the marketer really is looking for the truth on what is driving growth in their business, and they are very open and to the data that we can point to and the the case studies that that we have been able to show. That drive market share growth even in declining markets, or grow the overall category as well. So I would say we are looking for advertisers that are somewhat feeling pain that know that what their current setup is not working, and they are looking for a new way forward. And, Andrew, the reason for that is is that oftentimes when businesses are challenged, this is when most of the innovation takes place. Almost out of necessity. You know, we are not looking you know, we have a very specific point of view in the market when we when we go out and talk to customers. We understand that what the way that we talk there some marketers do not want to hear it, and they may not like to face music. That the partners that they have chosen and the measurement systems that they use are flawed. Many of these companies it is not that they are they do not want to do the right thing. You know, for the end customer or for the brand. But a lot of times, people's incentives are at play. And they they themselves may have made that decision in a year or two previously. But when we see the customers, it is really the customers that want to know more. That they want to see that someone can save them money in the supply chain. They want customers they want a platform to show them what is truly driving incremental sales and new not just the same customers to them. So we we really attract customers who think that way. Those are the ones that we want to help service. And we think that it the whole market gets here eventually. It will just take some time. Yep. Andrew Jordan Marok: Thank you for that. That is that is really interesting. And maybe one for Larry. We have heard kind of some mixed reviews on October trends from some of the companies that we have talked to to date. I guess, what are you seeing right now? How are you incorporating the holiday season playing out in in your guidance? Thank you. Lawrence J. Madden: I mean, you are seeing our guide, for CXT was 16% before the performance, I believe. So we are seeing strength. We are not not experiencing weakness. I mean, there are some pockets where you you do see certain sectors with our customer verticals a little bit weaker than others? But we are seeing strength across the board. Alright. Thank you. Operator: Okay. Our next question comes from Barton Evans Crockett with Rosenblatt. Tim Vanderhook: Hi, Barton. You are on mute. Go ahead. Barton Evans Crockett: Hi there. I thought I pressed on mute. Can you hear me now? Tim Vanderhook: Yeah. I can hear you. Operator: Okay. Sorry about that. So, yeah, so Barton Evans Crockett: was curious when you first, not just the numbers, just a basic thing. You talked about an acceleration of the revenue growth rate next year over the quarters, Is that inclusive of political or is that exclusive of political? Lawrence J. Madden: Inclusive. That would be inclusive. Barton Evans Crockett: Okay. So ex-political, is it more kind of a steady trajectory? Lawrence J. Madden: No. We we think, certainly, we are going to from political. It will not be as big Probably not as big as it was two years ago. Or what last year. But, really, the the uptick in where we think we feel great about growing the growth rate really comes from a lot of these new new business wins. We think we can pro we we can from that, we can we believe we can increase growth rates in the couple of 100 basis points next year. From from 2025. So a lot of that is coming from the new business wins. Barton Evans Crockett: Okay. Alright. That is great. And on on the new business wins, I was curious if you could give us a sense of how much of this has already played out and how much is to come. So I think you have said Coors is one win and you have gotten some others. There is still some other deals that could be decided. Of the $250 million, I mean, what portion has been decided? And can you also give us a sense of your win rate on these bids? I am also curious just to to probe deeper who who are you competing against when you are winning these things? Yeah. Tim Vanderhook: So our win rate is actually been really good. On the ones we have already won here. There is still there is still a good amount, left I would say the minority of the two fifty has been decided with the majority still up for grabs. Is how I would describe it. But the win rate the win rate is been good. And like I just said in the earlier, one of my earlier responses, I think that it is really good because we actually choose on which customers we pursue. There is another very, very large CPG company that, you know, we have talked to in years past. We actually have not pursued an opportunity with them. Mainly because we do not actually believe that that that their headspace on where they are at, that their they are going to be right for us. We want customers who want out of necessity, feel like they need to do something different. That they cannot just run the same playbooks that everyone else runs. They cannot just rely on last touch attribution. These these companies sell you know, billions and billions worth of consumer goods. And you cannot we need customers understand that you cannot treat CTV as a last touch vehicle. We also want them to understand that everything just because you know, seven or eight years ago, certain companies in the space will deem that ad fraud is no longer an issue. Or, you know, that you know, direct direct path, inventory is not important. We need customers to actually assign value here. For us to pursue them. And, when you get a customer who who thinks the way that we do, this is typically where we are going to drive the most value for them. Barton Evans Crockett: Okay. But just in terms of who are who are you competing against who are you winning against, can you go to any target? All all the players that Tim Vanderhook: yeah. With Molson Coors, Trade Desk, Google, Nexen, I believe, was in there. It was Yahoo. I am not sure. I believe they were in there. All the majors that you would expect. Yeah. I mean, there is call it, five what you would consider that have an enterprise-grade DSP. There is about five companies that exist. You know? And, again, we think that we are really the only objective player that is specifically on the buy side. No allegiance to any sell side or supply path. Out there, and we think that it gives us a very unique position And just one last comment. It was cited in the press release this concept of findability, and it is a testament to how advanced Molson Coors is in in the space that it is not just about, hey. We have first-party data. We would like to match to you. Matching is one thing, but actually deploying and getting ads and messages in front of that audience in a real-life environment is a whole another thing. And most DSPs fall down when it goes to actually find those households that are in that customer's first-party dataset. So where it came to Molson Coors, it was not just the scalability of our household ID that it is four times greater than the next the next best partner. It is also the ability once your data is active in the DSP to actually reach them and deploy real dollars against them. That is where Viant's DSP far outshines all those enterprise-grade DSPs that we were up against. Barton Evans Crockett: Okay. Thank you. Operator: Okay. Our final question will come from Zach Cummins with B. Riley Securities. Zach? Zach Cummins: Hi. Good afternoon. Thanks for taking my questions, and and congrats on on the strong results here. Tim, I I was curious just in terms of the CTV growth rate. Nice to see that become record amounts and and as a percentage of ad spend as well in the quarter. Can you give us a sense of the durability of that growth rate, especially now that your identifiers are are largely integrated into that, moving forward from here? Tim Vanderhook: Mhmm. Oh, I think that growth rate is going to stay very high for many years. I think one most of us look at a TV becoming a computer, we are just thinking linear TV you know, translating into streaming. But I like in it more to the mobile app ecosystem. When smartphones came out, it was hard to imagine that mobile phones would be such a big opportunity from gaming to health to all types of different apps. That are now created on there. And I think you will see the same thing with smart TVs, It is going to be, yes, one leg of growth from linear TV moving into streaming. But it will be new growth that is created from new apps and gaming and time spent there as well. And also remember that smart TVs are Internet connected, so you have interactive capabilities that are still coming down the pipe in the future. Of it is two way. You are allowed to vote during games and things like that. There is going to be all types of fantastic content that comes online. That is going to grow time spent with our connected TVs pretty tremendously. So I see no risk in the growth rate for CTV. I think that thing stays very high for many years. There is also, Zach, some basics. Every time you see us make an announcement, of another large content owner, moving into direct access for us, you can expect you know, that growth to grow. Even faster. Iris ID, again, we want to have differentiation within CTV. And a lot and a lot of our customers recognize that. It is not just the direct supply path that saves them you know, 20 plus percent just straight off the top. It is also our AI bidding capabilities. They they love that. That is the probably the most loved thing we have by our customers is AI bidding. And then also the penetration of Iris ID. Competing platforms, when marketers log in to those and they go to buy CTV, they only can buy at the app level. Log in to Disney, you can only buy Disney. You do not know what show you are buying. If you log in to, you know, Paramount plus if you log in, it is like Paramount plus. You you do not know what the content is. Iris ID actually unearths what that content is about so the marketer can show up as being relevant. As Tim stated in his prepared remarks, we are seeing the performance increases. They are they are huge. So, again, these are just basic things that we want to do around differentiation that drives value for the advertiser. Understood. And my my one follow-up question is, I I know Is there a chance that client could be won back at some point in the future? You had a 600 basis point headwind from a lost advertiser in Q3. Tim Vanderhook: Yeah. I think there is. Obviously, that was a little bit different The customer was acquired, and it was part of a cost synergy that was realized. I did listen to the earnings call, and I will say their revenue was down in the most recent earnings. And the CEO cited that it was due to advertising changes that they made. So hopefully, there is an opportunity there. But with cost being realized via M&A, it is a little bit different path. That we would have to go down. But, I think with the way that this year turned out, I think there likely is an opportunity for next year. Zach Cummins: Great. Well, thanks for taking my questions, and congrats again on the strong results. Tim Vanderhook: Thanks, Zach. Operator: At this time, there are no further questions. Tim Vanderhook: Thank you, everyone. We will see you next quarter.
Operator: Afternoon, ladies and gentlemen, and welcome to the Cannae Holdings, Inc. Third Quarter 2025 Financial Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the company's prepared remarks, the conference will be open for questions, with instructions to follow at that time. As a reminder, this conference call is being recorded, and a replay is available through 11:59 PM Eastern Time on November 24, 2025. With that, I would like to turn the call over to Jamie Lillis of Solbury Strategic Communications. Please go ahead. Jamie Lillis: Thank you, operator. Thank you all for joining us. On the call today, we have Cannae's CEO, Ryan Richard Caswell, and Bryan D. Coy, our Chief Financial Officer. But before we begin, I would like to remind listeners that this conference call and the Q&A following our remarks may contain forward-looking statements that involve a number of risks and uncertainties. Statements that are not historical facts, including statements about Cannae's expectations, hopes, intentions, or strategies regarding the future, are forward-looking statements. Forward-looking statements are based on management's beliefs as well as assumptions made by and information currently available to management. Because such statements are based on expectations as to future financial and operating results and are not statements of fact, actual results may differ materially from those projected. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. The risks and uncertainties which forward-looking statements are subject to include, but are not limited to, the risks and other factors detailed in our quarterly shareholder letter, which was released this afternoon, and in our other filings with the SEC. Today's remarks will also include references to non-GAAP financial measures. Additional information, including a reconciliation between non-GAAP financial information to the GAAP financial information, is provided in our shareholder letter. I would now like to turn the call over to Ryan Richard Caswell. Ryan Richard Caswell: Thank you, Jamie. The Cannae board and management team remain focused on continuing to execute our strategic plan outlined in February 2024 to generate long-term shareholder value. This plan is focused on optimizing our investment strategy, capital allocation, and the management of our portfolio as the foundation for long-term value creation. We continue to make significant progress on each aspect of the plan, including one, rebalancing our portfolio away from our historical public company investments and redeploying capital in proprietary opportunities with positive cash flows that can deliver outsized returns; two, returning capital to our shareholders through share buybacks and dividends; and three, improving the operational performance of Cannae's portfolio companies to increase their underlying values. This was particularly evident and successful in the third quarter. In the third quarter, we continued to rebalance our portfolio away from public company securities, highlighted by the closing of the previously announced acquisition of Dun & Bradstreet to Clearlake Capital, which generated $630 million in proceeds to Cannae. Thus far, $424 million of the proceeds have been used to repurchase $275 million of Cannae shares, repay the $141 million outstanding under our existing margin loan, and distribute $8 million in dividends to our shareholders. Since our announcement of our strategic plan, we have now sold $1.1 billion in public company securities and transitioned our portfolio from 70% public investments when we announced our plan to 20% public investments today. We believe this change is important for our shareholders as our portfolio now consists primarily of proprietary private investments that we believe will generate outsized returns and which our shareholders would not otherwise be able to access but through Cannae. We will continue to transition our portfolio, and over the next few months, specifically, we will look to sell certain non-core assets, both public and private, to take advantage of expiring tax benefits that could generate up to $55 million in cash tax refunds for Cannae while further simplifying our portfolio. From a capital redeployment perspective, in the third quarter, we closed on the previously announced acquisition of an additional 30% stake in JANA Partners for $67.5 million, which takes our ownership position to 50%. We also invested the remaining $30 million commitment in JANA Funds as was agreed in our initial transaction. We remain excited about our partnership with JANA and their ability to grow AUM as well as management and performance fees, which will result in cash distributions to shareholders in which Cannae will participate. We believe JANA will continue to generate attractive investment returns as they have done over their 24-year history as a leader in engaged investing. Cannae also invested $25 million in Black Knight Football after closing the DNB sale, completing our earlier commitment to BKFC's capital raise. The uses of this new capital include funding operating expenses across the group, the Boardman's Stadium acquisition and renovation, and the acquisition of Moreirense FC, as well as other potential strategic team investments. In terms of future capital allocation, the Board has directed management to continue concentrating our efforts in sports and sports-related assets, where we have demonstrated a proven and durable competitive advantage. We will leverage our networks to look for opportunities in teams and related in the sports ecosystem where we can exert influence, focus on improving cash flows, and generate investor returns. We believe sports is evolving into an institutional asset class as it has demonstrated an ability to generate long-term outsized returns. Cannae is well-positioned in the sector with long-term capital and proven experience as evidenced by the value creation of both Black Knight Football and the Vegas Golden Knights, where our vice chairman is the majority owner. We will also continue to opportunistically take advantage of our long-standing strengths and network in consumer and financial services and technology. Since the start of the third quarter, Cannae has continued its strong capital returns to our shareholders through repurchasing $163 million of stock at an average discount to NAV of 31%. Year to date, we have now purchased $275 million of our stock or 23% of our shares outstanding at the start of the year. Furthermore, Cannae has returned $424 million of our $500 million commitment to repurchase shares, repay our margin loan debt, and distribute dividends in conjunction with the sale of DNB. As a result, we have $25 million remaining of the $300 million of committed share repurchases and have $52 million earmarked for future quarterly dividends. Since announcing our strategic plan in 2024, we have now returned over $500 million to our shareholders, representing 35% of our shares outstanding at the plan's announcement. This implies that roughly half of the total $1.1 billion in company public company monetizations have gone to share buybacks. During the same time, our share price discount to NAV has narrowed by approximately 20%, and we are confident that this is just the beginning. In the third quarter, we also continued to work with our management teams to create value at our portfolio companies. As an example, at Black Knight Football, we continue to see strong results both on and off the field. At AFC Bournemouth, we closed the fiscal year with double-digit increases in revenue driven by continued growth in commercial coupled with additional revenue associated from our ninth-place finish in the Premier League. Bournemouth also had one of the most successful summer transfer seasons in European football and was ranked by Tifosi Capital and Advisory as generating the second-highest net transfer proceeds across all European football. We also continue to make progress on our stadium renovation. As discussed before, we acquired Vitality Stadium earlier this year and have started on a two-phase expansion, which will increase capacity from 11,300 seats to over 20,000 seats, add additional hospitality experiences, and further enhance the revenue growth potential of the club. The first phase is expected to be completed by the start of the 2026-2027 season and will increase the stadium seating capacity to 17,000 seats. This improvement in infrastructure follows the opening of AFCB's new performance center earlier this year. Lastly, despite the significant player sales, Bournemouth has continued strong on-field performance as the team now sits in ninth place in the Premier League after 12 matches. At FC Lorient, the team currently sits in seventeenth place in Ligue 1. We have continued to work with management to better connect FC Lorient with Black Knight to enhance player development and player pathways. We are focused on working to keep the team in Ligue 1. We remain excited about the opportunity of FC Lorient within the multi-club, with the most recent example being the success of Eli Junior Krupi at AFC Bournemouth. He was acquired from FC Lorient and has already seen significant opportunity in playing in nine matches with four goals. Lastly, our newest majority ownership interest in Moreirense SC of the Primeira Liga in Portugal has started off well. We quickly implemented a strategic plan of evaluating new leadership and hiring a new head coach. We worked closely with their recruiting team over the summer to improve the roster and also invest in players that could move up the Black Knight pyramid. After 11 matches, Moreirense is in sixth position in the table. Alight, our largest remaining public investment, reported total revenue of $533 million in the third quarter, down 4% year over year. Despite the modest top-line decline, adjusted EBITDA, adjusted EBITDA margin, and free cash flow all improved significantly in 2025 compared to the prior year third quarter. However, management reduced their 2025 forecast ranges for revenue, adjusted EBITDA, and free cash flow to the lower end of prior forecasts. Alight continued to return cash to shareholders, repurchasing $25 million of its common stock during the quarter and also paid $22 million in dividends to shareholders. The Watkins Company continues to see strong demand for its products. The third quarter was slightly softer than anticipated, but the fourth quarter has started off strong and, given the seasonality of the business, will be critical for full-year results. We hired a new head of sales and remain excited about the business and the initiatives to drive growth and margin. I will now turn the call over to Bryan D. Coy to touch on our financial position. Bryan D. Coy: Thank you, Ryan. Cannae's operating revenue was $107 million for 2025, down $7 million from $114 million in the third quarter of the prior year. This was driven by reduced guest counts on a same-store basis and 10 fewer restaurant locations, partially offset by higher average checks per guest at both brands. Nearly all the location brand as the '99 continues to generate same-store revenues at flat or slightly down levels year over year, which is in line with the Baird real-time restaurant survey results for the casual dining segment. Cannae's total operating expenses decreased by $12 million in 2025 to $120 million. Approximately $5 million of the decrease is directly related to the Restaurant Group location and operating cost reductions. $3 million is from the ICE fees in the prior year's totals as Cannae monetized its remaining Dayforce shares and terminated the ISIP plan. And $2 million of the reduction is from the termination of the external management agreement earlier this year. Cannae's net recognized gains were $8 million in the current year third quarter, down $15 million from the prior year comparable period. This reflects lower mark-to-market gains on PaySafe offset in part by a pickup on JANA Funds and other items. Cannae's equity and losses of unconsolidated affiliates was $57 million in 2025, compared to $25 million in the third quarter of the prior year. The change was driven by our share of Alight's goodwill impairment, and partially offset by record player trading profits at Black Knight Football. As Ryan discussed above, our margin loan was fully repaid in conjunction with the DNB sale. Concurrently, we amended the margin loan to reflect Alight as the sole collateral, lowered the interest rate spread by 35 basis points, and extended the maturity to 2028. Now Cannae's only corporate debt outstanding is the fixed-rate term loan that matures in 2030, which has $47.5 million outstanding after our $12 million paydown earlier this year. That concludes our prepared remarks, and we will be happy to take questions. Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. And your first question today will come from Kenneth S. Lee with RBC Capital Markets. Please go ahead. Kenneth S. Lee: Hey, good afternoon, and thanks for taking my question. First one, about the potential tax benefits. I assume they are probably from NOLs. And in terms of the potential investment monetizations that you could look at over the next few months, would you be driven mainly on unrealized gains? Or are there any other criteria that you could talk about there? Ryan Richard Caswell: Yeah, of course. Yeah. So the tax assets that we are referring to are some historical gains that we have where we could utilize losses to get a refund from those taxes. So part of that, we will be looking to monetize assets where we have losses to realize the loss to generate the tax refund. Does that make sense, Ken? Kenneth S. Lee: Yep. That makes sense. That makes sense. And then any criteria you would look at when potentially it sounds like you would then look at mainly unrealized losses more than I'd say. Ryan Richard Caswell: Yeah. Correct. I think in the near term, we would be most focused on realizing some unrealized losses to take advantage of it. And then I think we will continue to monitor our broader portfolio to, you know, to monetize assets that we think are less strategic today. Kenneth S. Lee: Gotcha. Helpful there. One follow-up, if I may. Noticed within the latest, some of the parts within the other investments you also list some additional new investments, I think, in SpaceX and in Brasada Resorts. Wondering if you could talk a little bit more about some of these investments, the relative size of the holdings. I assume it's probably somewhere around $30 million in total. Where were they sourced? What are the expected returns and opportunities here? Ryan Richard Caswell: Yeah. I think so with the investments that you are referring to, all of those have been in there for a while. Maybe we have updated the foot recently, but none of those are new investments. And I think going back to your other question, as we look at kind of what's more strategic and less strategic, I would think some of those smaller assets would be ones that we would look to monetize. But I do not think there's been a change. It might have just been a footnote that changed at some point. Kenneth S. Lee: Gotcha. Very helpful there. One last question for me. More broadly, how do you view the risk of AI on the fintech and software space? Obviously, you have a lot of investments within that space, and a lot of them were made a while back before AI started really growing. So how do you assess that risk? And how do you think about that, the potential impact on the portfolio companies there? Thanks. Ryan Richard Caswell: You know, we look at AI more broadly like everyone is doing across their portfolio. You are right in saying that some of the businesses are we made the investments before I think that AI was as popular, as big of a thing as it is today. Look, we tried to make investments in businesses with good kind of market share and what we thought were defensible moats. I think for most of those businesses, they are trying to deploy AI in their processes and leverage AI as best they can. So we do not see in any business in our portfolio, we do not see that AI is going to make it obsolete. But I do think that like all businesses, and like that we do at Cannae, we are to think of ways to more efficiently or for the business to more efficiently leverage AI in its workflow processes. You know, relationships with consumers, could that improve revenue, could it improve margins? So hopefully, that helps. Kenneth S. Lee: That's very helpful. Thanks again. Operator: And your next question today will come from Ian Zaffino with Oppenheimer. Please go ahead. Isaac Arthur Sellhausen: This is Isaac Arthur Sellhausen on for Ian Zaffino. Thanks for taking the questions. I guess just a follow-up to the previous one on divesting non-core assets and, you know, as you continue to monitor those, I guess the question would be how do you view returning that capital or proceeds via the buyback or dividend? You know, versus continuing to invest behind Black Knight Football and the sports assets. Thanks. Ryan Richard Caswell: You know, look, since we initiated our strategic plan in February 2024, we returned about $500 million of capital to shareholders. So clearly, we have and will continue to be very focused on capital returns. I think we have about $25 million of the $300 million that we initially set out with the sale of DNB. And, you know, as we look to monetize assets in the future, I think each time, we will evaluate kind of the merits of investing, you know, buying back more stock. Or, you know, does it make sense to look at, you know, new investments? And so that's kind of the process that we will do. But, again, I think if you look historically, we've obviously been very focused on capital returns to shareholders, and that's clearly something we'll think about. And we obviously have the dividend in place today, which generates a consistent capital return to our shareholders. Isaac Arthur Sellhausen: Okay. Great. And then just as a quick follow-up on AFC Bournemouth and the stadium, maybe if you could provide just a quick update as far as the renovation expansion activity. And, I guess, a timeline for completion there. Thank you. Ryan Richard Caswell: Yeah. So we've started the first phase of the renovation. That will take the stadium up to about from a little over 11,000 to 17,000. More importantly, though, it will take hospitality above 1,300, and it will take with kind of premium GA above 2,000, which we really have very limited of today. So we're very excited about the first stage. And, again, I think we've said before, but that's kind of a we believe that's going to be kind of a mid-teens type return on invested capital. So we think it's we try to be very conservative and thoughtful around the renovation. The first phase of that is supposed to open at the beginning of next season. And then the second phase will open at the beginning of the following season. And that will take it up to 20,000. We've started on improving a bunch of the hospitality areas. And we're doing a modular build, we've started to deal with all of the contractors who will be doing that. So it's all moving along. I think the big push will be kind of at the start of next year through the summer when the season ends, and then you can start installing all of this. But thus far, we generally seem to be on track. There is some approval and planning process that we are continuing to go through. But overall, we're very excited and optimistic as it goes forward. Isaac Arthur Sellhausen: Great. Thanks very much. Operator: This concludes our question and answer session. I would like to turn the conference back over to Ryan Richard Caswell for any closing remarks. Ryan Richard Caswell: To conclude, we have maintained our focus on executing the strategic plan we initiated in February 2024, and we are pleased with the progress we've made and the results that have followed. We are excited about the direction our board has set and the foundation we have built for long-term value creation. Thank you for your support. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Tamiya: Thank you for attending today's Informa TechTarget Third Quarter 2025 Financial Results Conference Call. My name is Tamiya, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Charles Rennick, General Counsel. You may proceed. Charles Rennick: Thank you, and good afternoon, everyone. The speakers joining us here today are Gary Nugent, our CEO, and Daniel T. Noreck, our CFO. Before turning the call over to Gary, we would like to remind everyone on the call of our earnings release process. As previously announced, in order to provide you with an update on our business in advance of the call, we posted a press release to the Investor Relations section of our website and furnished it on an 8-K. You can also find these materials at the SEC free of charge at the SEC's website, www.sec.gov. A corresponding webcast as well as a replay of this conference call will be made available on the Investor Relations section of our website. Following Gary's remarks, the management team will be available to answer questions. Any statements made today by Informa TechTarget that are not factual, including during the Q&A, may be considered forward-looking statements. These forward-looking statements, which are subject to risks and uncertainties, are based on assumptions and are not guarantees of our future performance. Actual results may differ materially from our forecast and from these forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, including those discussed in the Risk Factors section of our SEC filings. These statements speak only as of the date of this call, and Informa TechTarget undertakes no obligation to revise or update any forward-looking statements in order to reflect events that may arise after the conference call, except as required by law. Finally, we may also refer to certain financial measures not prepared in accordance with GAAP. A reconciliation of certain of these non-GAAP financial measures to the most comparable GAAP measure, to the extent available without unreasonable effort, accompanies our press release. And with that, I'll turn the call over to Gary. Gary Nugent: Thank you, Charles, and thank you all for joining our call today. As always, we greatly appreciate you investing the time. I am pleased to report that 2025 demonstrated the momentum that we had anticipated following our Q2 results and that we made good progress in unlocking the benefits of the scale, breadth, and diversity of our combined business. We have said many times that we view 2025 as the foundation year for our combined company as Informa TechTarget. Executing upon our plan to align and integrate our ease and seize the benefits with the combination of forces, I am convinced we will be a key point of differentiation in the market as we move forward. Our early strategic initiatives are gaining traction and beginning to bear fruit, and we're seeing improving performance from our business. The B2B technology market is a dynamic one, with artificial intelligence, cybersecurity, and generally digital transformation as key drivers. With a $5 trillion end market today, our own Omnia analyst forecasts this end market to double by 2034. Our ability to inform, educate, and shape the market and connect technology vendors with engaged, purchase-ready IT decision-makers has never been more valuable. Our clients are, in the main, performing well. However, they are currently engaged in a strategic AI investment cycle, with the majority of resources being redirected towards R&D in this arena. While this may be temporarily impacting go-to-market and marketing budgets, these investments will ultimately need to demonstrate an ROI, which will drive increased demand for our products and services in the midterm. Regardless, it is a large addressable market out there. We signed at around $20 billion for our business, of which we have only penetrated 2.5% market share. Thus, there is plenty of runway for growth to leverage the breadth and scale of our client proposition to compete and win, increase our share of wallet with our customers, and take market share. Our strategic focus remains on four key areas: The first is a revamped go-to-market strategy, focusing our resources and efforts on the largest clients and the hottest market, largely artificial intelligence, cybersecurity, and the channel market. Second, our product innovation. We are aligning and integrating the portfolio of products and services, leveraging the breadth and scale to offer and deliver solutions that align to the needs of our clients across their product life cycle, and by extension, positioning ourselves as a strategic partner and improving our average order value. The third point is improving our operational efficiency and effectiveness, unlocking the cost savings and the synergies that the combination affords us. And then fourth, is a focus towards diversifying our audience development and engagement strategies, including establishing our discoverability through AI answer engine in Leli. In terms of our financial performance, from a revenue and an adjusted EBITDA perspective, we are delivering in line with what we had previously indicated. Today, we are reaffirming our full-year 2025 guidance. We continue to expect broadly flat revenues on a combined company basis compared to the prior year, and an increase in adjusted EBITDA from last year to over $85 million this year. What is particularly encouraging is the sequential momentum that we've built throughout the year, moving from a negative 5.8% in year-on-year growth in Q1 to negative 1.6% in Q2 and now achieving positive year-on-year growth in Q3. Q4 is seasonally our strongest quarter of the year, and this trajectory demonstrates the underlying strength of our combined platform and the effectiveness of our strategic initiatives. Third-quarter revenues were $122 million as compared to the prior year $121 million on a combined company basis, a growth of around 1% year-on-year. However, it also represents sequential growth of 2% on Q2, which was versus a modest seasonal sequential decline last year. So revenue momentum is building. I think in particular, there's a bit of catch-up here as we work through the aligning and integrating combination in the first two quarters of the year. The business generally exhibits attractive profit drop-through on revenue expansion, which together with the cost savings that we were delivering resulted in our adjusted EBITDA growth in Q3 being ahead of our revenue growth, both on a year-on-year basis and on a sequential basis, delivering healthy margin expansion. In Q3, the adjusted EBITDA grew by 9% year-on-year. The company posted a net loss of $77 million largely as a result of an $80 million non-cash impairment, given the reduction in our market capitalization during the quarter. Our Q3 wind wall, as we would describe it, which is a device we use internally to keep track of and celebrate our successes, is covered in interesting anecdotes and postage. We have consolidated our Intelligence and Advisory brands under the unified Omnia banner, bringing together the expertise of Canalys, Ward's, and ESG into a single powerful market intelligence platform. This consolidation is already showing results in terms of client clarity and cross-selling opportunities. We launched in September the Informa TechTarget portal, which is the first product leveraging our combined audience data set. We are now able to provide our clients with unified access to intelligence, intent, and demand via an improved common interface. It represents a significant increase in the intent data signals, over 40% increase, and greater audience reach, improved performance in ROI reporting, and the ability to seamlessly integrate with the majority, if not all, of our customers' preferred marketing and sales platforms. On that note, we were delighted to receive in October the Demand Based Technology Partner of the Year Award. Our editorial teams have won 47 awards for their original, authoritative, and impartial B2B journalism year to date. It is such an asset in a world where trust and trusted sources of information command a premium. In addition, the editorial team has recently launched a new publication, a channel guide, targeting the North American technology channel partners. We collaborate with major tech companies on marketing, sales, and distribution. An important point to note is that in this industry, over 70% of all value goes to market via the channel, and therefore, it is a critical market for us to compete in. Our Allstar editorial team for this combines talents from TechTarget, channel futures, light reading, and CIODAI. Our go-to-market focus on the largest players and the hottest markets is beginning to bear fruit, with bookings up year-on-year, longer-term contracts, and increased average deal sizes as we present more comprehensive integrated solutions to our clients. We continue to successfully reposition Netline to target the volume end of the demand market, which is delivering significant growth in revenues and bookings year-on-year. But to us, most pleasing of all, I'm proud of the way our team has embraced the combined company culture that we are building, and we're seeing excellent collaboration efforts across the business. We continue to view AI as a significant opportunity for our business, as a technology market to serve in its own right, as a tool to improve productivity and quality, and as a catalyst for enhancing existing and inspiring new products and services. The focus of our efforts today lies in four key areas: to provide conversational AI interfaces into our proprietary market and our permissioned audience data, enhancing the efficacy and the speed of building and executing on their go-to-market programs for our clients. The second area is on providing conversational AI interfaces into audience experience across the network, enhancing our audience's ability to discover and engage with the original, authoritative, and unbiased information that better informs and shapes their buying journey. Finally, it's about enhancing the productivity of our market experts as they create original data and insights that inform, educate, and shape the market, and the productivity of our marketing and sales teams as they seek to scale our presence in what is that $20 billion addressable market. While AI is evolving the way audiences discover and consume information, Informa TechTarget is well-positioned for this shift given our wealth of market expertise, our trusted original content, and the diversity of audience development techniques that we have. We are being proactive and agile in adjusting to the fundamental change in how technology buyers discover and consume information. With the rise of answer engines and AI-driven search, there's an accompanying skepticism towards generic content. According to our own search, over four out of five technology buyers do not fully trust AI today. Our focus on high-value, expert-driven editorial content and specialized audience communities is proving prescient as audiences seek to verify with trusted sources. To that, we're seeing a two to three times higher membership conversion rate from answer engines and LLM citations compared to traditional organic search. We believe this is validating our strategy of prioritizing quality, expertise, and our diversified capabilities in attracting membership, such as growth in direct traffic and newsletter engagement, which has meant that our active audience membership grew modestly over the period. Looking forward, we remain focused on capitalizing on the breadth and scale the combination affords us to become an indispensable partner to the technology industry, informing, educating, and shaping the market, connecting buyers with sellers, accelerating their growth via an expert-led, data-driven, and AI-enabled B2B marketing leader. We aim to further build our momentum in Q4 and into 2026 as we leverage the benefits of combination. We believe that we are well-positioned to capitalize on the opportunities ahead and deliver consistent profitable growth and increased value for our stakeholders. I want to thank our entire team for their dedication and continued execution of our strategy. I have spent the large part of the last eight weeks or so with our customers in Massachusetts, California, New York, Washington, both DC and state, Texas, France, the UK, Dubai, and Tel Aviv. Without exception, our customers have gone out of their way to highlight the quality of our people, and the relationships that they have built. Their expertise and commitment are the foundation of our success. With that, we're now happy to answer your questions. I'll ask the operator to open up the line for Q&A. Tamiya: Absolutely. We will now begin the question and answer session. The first question comes from Joshua Christopher Reilly with Needham. You may proceed. Joshua Christopher Reilly: All right, great. Thanks for taking my questions here. Maybe just starting off on one of the last topics you were just talking about there and the whole concept of driving traffic via search engine optimization related to the AI, LLMs. What are you seeing and what have you done? Maybe you can just expand on this a bit more. As a company, as you obviously have to pivot from traditional SEO to the answer engine optimization concept. How are you progressing in that? How much more work do you have to do? What are you seeing in terms of the readership trends as customers and users ultimately find more answers via the answer engine optimization versus traditional web search? Gary Nugent: Yes, Joshua. Wanted to hear your voice. Thank you for the question. Well, I think the first thing I would say about that is that as a combined company, our strategy and tactics for attracting audiences and converting them to members are quite diverse. Very diverse. Less than 50% of the kind of top of the funnel comes from search engine within the business. We have an array of tactics that we use to drive audiences. Like I mentioned in my note, we've actually seen although there is a dynamic in the marketplace at the moment, we're actually seeing our active membership increase modestly through the period, which obviously gives us comfort. In terms of we're also seeing that the traffic from the answer engine is growing. I think we had over 77,000 citations through the period that we talked about. Interestingly enough, it's not just that we're seeing increased traffic coming from these sources. The conversion rate of that traffic to members, and remember, it is the member that is the valuable asset for our business, not the traffic. The conversion to members is two to three times what it was from or what it is from search. What we're really seeing is we're just seeing a slightly more qualified audience member coming to us. What we really also think we're seeing is just that the AI answer engines are filtering out some of the traffic that actually was not buyers that would have been valued to our membership. Does that make sense, Joshua? Joshua Christopher Reilly: That's super helpful and interesting. All right. So moving on, maybe we could dive in on the quarterly progression of revenue that we've seen this year so far. We know Q1 was depressed due to the integration process. Would you say that Q2 revenues and now Q3 are back to a normalized run rate for the combined business? Or were they also depressed somewhat? The reason I'm the angle I'm trying to get at here is if we look at the sequential implied increase from Q3 to Q4 for total revenue, I believe it's roughly a 15% sequential increase. If I remember correctly, in the old days, the normal TechTarget business would have about a 10% sequential increase from Q3 to Q4. Maybe you could just kind of help us understand what's gone on with the revenue trends here year to date? Gary Nugent: I think we're, as I said, I would use it in our progressive momentum in the year first and foremost. I think we are, I mean, you asked if it's the run rate, I mean, I would say that we are aiming to improve that constantly over time. The other thing you need to remember, of course, is that within the combined company in Q4, there is revenue from our Canalys business, the Canalys Forums, which is a series of events that run in the fourth quarter in October and in December. That is also effectively explaining the delta between your traditional 10% and the 15% that you're seeing. Joshua Christopher Reilly: Got it. So you recognize the full amount of that revenue maybe for a year subscription in Q4. Is that kind of the right way to think about it? Or is there one-time, is that event-based revenue? Gary Nugent: It's event-based revenue that is one-time and recognizes when the flow when the event flows. Joshua Christopher Reilly: Got you. Understood. Last question for me is you obviously were talking about AI as an opportunity for your business. Maybe you can speak to what specifically from a product perspective you're doing that could drive some tangible revenue over the next couple of years? Really help us understand better what are you doing to productize ultimately the AI opportunity for the new TechTarget? Gary Nugent: Yes. I touched upon this in my opening comments. I described it as conversational interfaces into our market data and our proprietary audience data, sorry, our permissioned audience data. You think about this, it's really a way we're offering our customers the opportunity to interrogate our data in a way that's a natural language way. What that does is it makes it more actionable, it makes it more accessible, especially when you're then transitioning from the marketing persona to the sales persona. What you will see increasingly from us, and we actually have demonstrations of this, is how you can actually do a natural language interface through a conversational AI interface, interrogate, for example, our intent data. In interrogating that intent data, it then gives you a greater sense of the context behind why that particular company or that particular prospect is somebody you should be focusing your attention on in actioning. That we see as being a major way to make the ability to extract value from our data and lower the barrier to the ability to extract value from the data. Joshua Christopher Reilly: Understood. Thanks, Gary. Tamiya: Next question comes from Jason Michael Kreyer with Craig Hallum Capital Group. Proceed. Cal Bartyzal: Thank you. This is Cal Bartyzal on for Jason Michael Kreyer tonight. So, you know, maybe you kind of touched on the call a little bit about seeing some longer and some larger deals, but just curious broadly how you'd characterize the backlog in the pipeline and that kind of plays into your confidence for some accelerating growth trends here in Q4? Gary Nugent: Well, I mean, given that we've reaffirmed the guidance for the year, both pipeline and the backlog support that outlook for the year. Generally speaking, we feel confident that we will roll into 2026 with a healthier backlog given the profile of bookings and revenue through the fourth quarter. I would say both of those are true. Cal Bartyzal: Great. And then just as a follow-up, can you just kind of provide an update on the unified go-to-market strategy you've had and the success that you're seeing tapping into more spend with your existing large customer base? Gary Nugent: Yes, of course. I mean, this is effectively organizing ourselves around the largest customers in the industry. I think I've mentioned in the past that about 150 to 200 end represent about half of the addressable market in the marketplace. Now we're focusing on all 150 to 200 at present. We've taken a cross-section of that to prove out this concept. We build effectively intact teams across the organization. So not just sales, not just SDR, not just customer success, but all of the capabilities within the business that service customers. In an intact team basis to wrap our arms around these customers and ensure the quality of offering service to them. What it also means is that we're seeing our ability to then land within those customers and expand our presence within them. I talked earlier on about these strong relationships that we have and the strong sponsorship that we have. The key thing that we're looking at constantly is are we penetrating new product business units? Are we penetrating new field marketing and sales units? Are we penetrating different dimensions like industry vertical marketing or channel marketing or corporate strategy, where there are new budget pools for us to address? That's really kind of a measure of our progress is where we are expanding our presence inside these larger accounts. It's obviously nice to grow an existing relationship, but actually what we want to do is expand those relationships within these very large customers. Cal Bartyzal: Great. Thanks for the time and congrats on the progress. Gary Nugent: Thank you, Cal. Tamiya: As a quick reminder, if you'd like to ask a question, please press the star key followed by the number one on your telephone keypad. Next question comes from Bruce Goldfarb with Lake Street Capital Markets. You may proceed. Bruce Goldfarb: Hey, congratulations on the results. Just a couple of questions from me. Are you seeing any changes in sales cycle duration or deal size within Priority Engine or your subscription offering as we move into year-end budgets? Gary Nugent: Thanks, Bruce. It's good to hear your voice. I would say no, nothing material changing either in terms of the cycle time on deals or on the average values at a transactional level. No material change. Bruce Goldfarb: Thank you. And then can you comment on the pipeline for potential tuck-in acquisitions? Are there adjacencies either in data or workflow tools that could accelerate growth in 2026? Gary Nugent: At this stage, we are very focused on aligning and integrating the existing assets within the business and bringing that to bear in the marketplace. That's really our focus is to ensure that we do that well, we do it quickly, we do it well. We build a platform for the future. I think it won't be until we roll into the second half of next year that we'll give consideration to that. Bruce Goldfarb: Great. Thank you. Gary Nugent: Thank you. Tamiya: There are no more questions waiting at this time. This concludes today's conference call. Thank you for your participation. You may now disconnect your line.
Operator: Good afternoon. Thank you for attending today's The Beachbody Company, Inc. Third Quarter 2025 earnings conference call. My name is Jayla, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I'll now like to pass the conference over to our host, Bruce Williams, the Managing Director of ICR. You may proceed, Bruce. Welcome, everyone, and thank you for joining us for the third quarter earnings call. Bruce Williams: With me on the call today are Mark Goldston, Executive Chairman of The Beachbody Company, Carl Daikeler, Co-Founder and Chief Executive Officer, and Brad Ramberg, Interim Chief Financial Officer. Following the prepared remarks, we'll open the call up for questions. Before we get started, I would like to remind you of the company's Safe Harbor Statements contained in this conference call, which are not historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of '24. Actual future results may differ materially from those suggested by such statements due to a number of risks and uncertainties, all of which are described in the company's filings with the SEC, which includes today's press release. Today's call will include references to non-GAAP financial measures such as adjusted EBITDA, net cash, and free cash flow. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures is available within the earnings release, which can be found on our website. Now I would like to turn the call over to Mark. Mark Goldston: Thank you, and good afternoon, everyone. I'd like to welcome you to The Beachbody Company, Inc.'s Third Quarter 2025 Earnings Call. We're pleased with our outstanding third quarter results and the progress and speed of our turnaround that's far exceeded our expectations. Let me put this achievement in perspective. We've now delivered eight consecutive quarters of positive adjusted EBITDA. Our free cash flow performance has been equally strong. We've generated $13.1 million in free cash flow through nine months, with Q3 alone contributing $9 million of free cash flow. Perhaps most significantly, we generated net income this quarter, a seminal milestone that we identified years ago as the ultimate marker of our turnaround effort. Our cash position of $33.9 million substantially exceeds our outstanding debt principal of $25 million, providing us with financial flexibility. Our operational metrics continue to demonstrate the structural improvements we've made. We've maintained strong gross margins while significantly reducing our revenue breakeven point from approximately $900 million in 2022 down to $180 million today. A $720 million lowering of the breakeven that positions us to generate operating leverage at a much lower revenue level. Looking ahead, we're focused on our growth strategy in 2026. This upcoming year will mark our transition from a financial restructuring to capitalizing on new revenue opportunities from our innovation pipeline and from market expansion. We're launching a comprehensive retail initiative that will leverage our portfolio of billion-dollar brands entirely new channels. In 2026, we'll introduce Shakeology to retail for the first time in our company's history. That will be followed by our brand new P90X nutritional supplements line and Insanity branded supplements later in 2026. These products will be distributed in different form factors and different price points made possible by our new business model. Complementing our retail expansion, we will be launching a brand new P90X fitness program, the first in over a decade, which will create powerful cross-marketing opportunities between our digital content and our retail nutrition products. So going forward, we see a substantial opportunity to expand our TAM by developing innovative approaches, including a focus on health span, and a shorter, easier-to-perform workout program to reach underserved segments, including the 185 million overweight Americans who don't currently engage in regular fitness routines. In our current business model, our revenues are generated via multiple channels, what we like to call the omnichannel opportunity. One of the smaller elements within the omnichannel opportunity is our affiliate program. Why do I say that? Because on a go-forward basis, the affiliate program will be a smaller portion of our total revenue mix given our heavy focus on the maximization of both our direct-to-consumer channels and our upcoming brick-and-mortar retail initiative. This strategic shift reflects our evolution from what was previously an MLM-dependent model in 2024 to a now diversified omnichannel approach from 2025 and beyond. The transformation we've achieved positions The Beachbody Company, Inc. as a fundamentally different company than it was just two years ago. We've proven our ability to generate consistent positive adjusted EBITDA over the last eight quarters. We've generated positive cash flow through 2025 year-to-date, and we finally achieved a positive net income quarter in 2025. During the two-year turnaround effort, which began when I joined back in June 2023, we've eliminated the huge structural inefficiencies that previously required a massive $900 million revenue level just to breakeven on a cash basis. We've reduced that cash breakeven by 80% and brought it down to an incredibly low $180 million breakeven through a complete rearchitecture of the company and the way we operate. The efficiencies we've built into the company have allowed us to construct a powerful and nimble operating model that will allow future revenue growth to drive significant operating leverage and increase EBITDA. The headline for Q3 2025 is that The Beachbody Company, Inc. has completely reinvented itself over the last two-plus years, and with the benefits of the financial restructuring, the elimination of the MLM model, massive improvement in profitability, and increase in direct-to-consumer focus, a significant improvement in gross margin, and a more efficient sales and marketing spend. As a result of accomplishing all of the financial turnaround goals, The Beachbody Company, Inc. is now poised to open the hatch of the innovation pipeline for 2026 and roll out a slew of new innovations in both digital fitness and nutrition that will not only fortify our DTC business but will also open up a whole new arm of our omnichannel strategy with brick-and-mortar retail and an expanded Amazon presence, featuring popularly priced P90X and Insanity nutritional supplements and a new lower-priced smaller serving size Shakeology lineup. We've revolutionized and significantly improved our financial foundation. We filled the innovation pipeline, and those initiatives are set to be in motion in 2026. The market opportunities and huge increase in TAM are substantial. We could not be happier with the progress that we've made, the speed with which the turnaround has been performed, and the exciting and modernized future we see for The Beachbody Company, Inc. With that, I'll turn the call over to our CEO, Carl Daikeler, to discuss the operational details. Carl Daikeler: Thanks, Mark, and thanks to everyone for joining us today. I'm excited to share our Q3 results, which I believe demonstrate the meaningful progress we're making in executing our long-term strategy. The results that Mark described and that Brad will outline in detail in a moment really tell the story of a company hitting its stride. The vision we've had for over two decades is finally getting a chance to come to fruition. We're executing with more efficiency, thanks to our expanded sales channels, and an aggressive approach to tailoring our marketing for an environment that is definitely showing signs of improved demand. As longevity and health span have entered the mainstream, we've got the library of proven content that's getting deeper every quarter and new content coming online by the end of the year, that's gonna open up the TAM to the real holy grail of helping the more than 185 million non-exercisers in the US who are just looking for an easy way to get the benefits of lifestyle change without devoting thousands of dollars to equipment or hours in the gym. In the near term, there's some very exciting launches going into Black Friday and Cyber Monday, the holidays, and the first quarter. We launched a compelling $19 per month offer in Q3, which we're starting to build momentum around, especially in conjunction with the launch of two brand new alternative subscriptions. What we call a super trainer subscription, where people can subscribe to just the content from one super trainer for just $9.99 a month. These are essentially curated capsules from our world-class trainers. We launched this test with both the Autumn Calabrese collection and the Shaun T collection and are encouraged by the initial response. As you might recall, we said we'd be launching new content in Q3 that included a line extension to Body Lava called Slow Burn Yoga. We also launched Autumn Calabrese's Track Pilates, an innovative at-home Pilates program that drove strong demand in the third quarter, thanks to the overall strength in the Pilates category right now. So far in the fourth quarter, we've added the appropriately named Power of Four, a program from the original P90X Super Trainer Tony Horton. And we've just started to promote the Black Friday launch of a new program from Shaun T, a hybrid of his popular weightlifting program, Dig Deeper, with low-impact Insanity Cardio, which our subscribers are lining up to start on December 1 in what's going to be the largest test group in our company's history. As Mark mentioned, we started teasing the launch of P90X Generation Next, a new addition to the P90X portfolio for the first time in over ten years, leveraging the most recognizable brand in extreme home fitness. Last week, we announced that renowned British trainer Waz Asher is leading that program, and the response to the first peek at the teasers for the program was more enthusiastic and productive at attracting subscribers than we could have imagined. This new trainer is going to be a superstar. He's the new James Bond of the P90X franchise, if you will. And the user results we've seen in our initial testing of the program confirm that his new P90X format is going to introduce the greatest extreme home fitness program of all time to a new generation of users with stunning transformations. The retail opportunity will be particularly meaningful both for leveraging the existing awareness of P90X plus Insanity and Shakeology on store shelves, but using that visibility to achieve massive exposure of The Beachbody Company, Inc. brand by giving retail buyers a first-of-its-kind value add of rewarding them with access to our digital content, which will support our digital subscriber growth objectives. I'm really excited for the new supplements coming under the P90X, and in 2026, we're gonna be adding more new supplements to the catalog at more affordable prices than we ever have in our twenty-six years. A significant opportunity for us to increase LTV and to acquire new nutrition customers. 2026 marks our commitment to expand into nutrition in a very significant way, both at retail and direct-to-consumer. All of this is the innovation pipeline Mark and I have been talking about for two years. The opportunity to reach this massive TAM of over 185 million adults in the U.S. alone who are overweight or obese. And now with the progress and speed of our financial turnaround exceeding projections, this vision can start to materialize in 2026 and really hit full stride in 2027. As I mentioned last quarter, all of this will be supported by our transition to Shopify Plus, and its robust set of AI features in March 2026, which we believe will benefit order conversion and average order value at checkout. Speaking of AI, I'm also excited to add that following ChatGPT's announcement of their app development toolkit and the upcoming ChatGPT App Store, our team is quickly developing the tech to be among the first fitness apps on ChatGPT in Q1 2026, making our programs discoverable and actionable within ChatGPT. We're initially focused on personalized fitness recommendations with the goal of driving acquisition, leveraging our most recognizable brand. But we view this most as an evolving opportunity to learn how conversational AI can enhance discovery with a more personalized recommendation engine to ultimately create a more intelligent, connected experience for our members at mass scale. We've been the one company focused on the mass market of health and fitness for over twenty-six years. And now with eight quarters of positive adjusted EBITDA, and our first quarter of positive net income since we went public in 2021, we can see that the never-quit attitude of this team is really paying off. And it's incredibly impressive how our staff, trainers, affiliates, and even our subscribers believe so passionately in what we do. I'm excited for the fourth quarter, especially as we head into Black Friday and Cyber Monday, and our aggressive marketing initiatives heading into Q1. Now let me turn the call over to our Interim CFO, Brad Ramberg, to walk through the specifics of our Q3 results. Brad Ramberg: Thank you, Carl. Thank you, everyone, for joining the call today. I will review our Q3 results and provide our outlook for the fourth quarter. We produced major milestones this quarter. We exceeded our guidance for revenue, adjusted EBITDA, and net income. We generated our eighth consecutive quarter of positive adjusted EBITDA and had net income for the first time since going public in 2021. We are on track for positive free cash flow for the full year. I'd like to provide more details about the quarter. Total revenues of $59.9 million declined 6.3% sequentially and declined 41.4% year over year, in line with our expectations as we continue our strategic transition. Revenues continue to be impacted in the near term by the shift away from a multi-level marketing platform to an omnichannel model. Consolidated Q3 gross margins were 74.6%, representing an increase of 230 basis points over the prior quarter and an increase of 730 basis points compared to the prior year. We're pleased to report the consolidated gross margin was at the high end of our long-term target of 70% to 75%, underscoring the strength of our operational execution. Moving to digital and nutrition and other revenues. Digital revenue decreased 8.3% from the prior quarter to $36.4 million and decreased 32.2% year over year. Revenues were impacted by continued pressure on our digital subscription count, which decreased 4.3% sequentially to approximately 900,000 and declined 18.9% compared to the same period a year ago. We continue to experience the impact from our transition away from the MLM, which has had an outsized impact on nutrition subscriptions, as our nutrition products were almost sold exclusively through our MLM network. Nutrition and other revenue decreased 2.8% from the prior quarter to $23.5 million and decreased 50.4% year over year. Nutrition subscriptions stayed essentially flat sequentially at approximately 70,000 and fell 46.2% year over year. Digital gross margin was 88.1% for the quarter, increasing 40 basis points from the prior quarter and representing an 810 basis point improvement from the prior year. Our digital gross margin was in line with our previous long-term target of 86% to 89%. The continued strength in year-over-year gross margin was primarily due to a decrease in digital content amortization and depreciation, as a result of a more disciplined production and fixed asset spend. Nutrition and other gross margin was 53.7%, representing a 230 basis point increase from the prior quarter and a 490 basis point decline year over year. Nutrition gross margins exceeded our long-term target of 46% to 52%. The increase from the prior quarter was primarily due to one-time lower shipping and fulfillment costs, while the decline from the prior year quarter was primarily due to the discontinuation of preferred customer fees on November 1, 2024, which were part of our old business model where customers paid a monthly fee to purchase products at a discount, as well as some higher level of promotional activities in the current period. Operating expenses for the quarter declined 21% sequentially and declined 51.5% year over year to $39.7 million. Selling and marketing expense as a percent of revenue decreased 800 basis points in the prior quarter and declined 1270 basis points over the prior year to 31.9%. This significant improvement over the prior periods was primarily driven by the pivot away from the multilevel marketing channel. We no longer have partner compensation on our new sales after November 1, 2024. Enterprise technology and development expense as a percent of revenue increased 80 basis points from the prior quarter and decreased 160 basis points year over year to 17% of revenue. The improvement as compared to the prior year was primarily due to a decrease in depreciation expense due to lower technology spend. The increase as a percent of revenue compared to the prior quarter was due to revenue deleverage. G&A was 16.9% of revenue, a decrease of 120 basis points sequentially and an increase of 540 basis points from the prior year. The improvement as compared to the prior quarter was primarily due to a decrease in equity-based compensation from the headcount reduction over the past year due to the restructurings and a decrease in outside professional fees. The increase as a percent of revenue as compared to the prior year was due to revenue deleverage. The Q3 2025 net income of $3.6 million, our first net income since we went public in 2021, compared to a net loss of $12 million from the prior year. Adjusted EBITDA was $9.5 million compared to $4.6 million in the prior quarter and $10.1 million in the prior year. Notably, this quarter marks our eighth consecutive quarter of positive adjusted EBITDA. Now I'd like to move on to the balance sheet and cash flows. As we discussed on our last call, in May, we entered into a new lending agreement with Tiger Finance and SP Capital Partners for a $25 million three-year loan facility that allowed us to retire the $17.3 million of outstanding debt ahead of its February 2026 maturity date. This refinancing provided us with approximately $5 million of additional capital on the balance sheet. The effective interest rate on this new facility is approximately 15.2% compared to the approximately 28% in the prior facility. Our cash balance is $33.9 million compared to $25.6 million in the prior quarter. Our cash generated from operations for the quarter was $10.2 million. Our year-to-date free cash flow is $13.1 million, of which $9 million was generated this quarter. Q3 had a $2 million benefit from the timing of payroll, which was acute in Q3 but paid in Q4. Turning to our fourth quarter guidance. While we are pleased with the execution of our transformation, I want to reiterate that we're still in the first year of the company's new business model. As discussed, we significantly lowered expenses in our revenue breakeven point when we strategically pivoted away from the MLM model to our omnichannel marketing and distribution model. This shift has opened new growth channels that we could not previously access. We're very excited about the opportunities ahead. We now have a stronger balance sheet and a more viable long-term business model. But as with companies that are undergoing the transformation, it will take time to develop traction in these new lines of business. We expect fourth-quarter revenues to be in the range of $50 million to $57 million, net income in the range of negative $1 million to positive $3 million, and adjusted EBITDA to be in the range of $5 million to $9 million. As we continue the transition to our new business model, we want to provide additional updates to help you contextualize changes in our new financial model. As of today, we anticipate revenues to approximate 61% digital and 39% nutrition. Our long-term digital gross margin target is 87% to 89%. Our long-term nutrition and other gross margin is in the range of 46% to 52%, which is in line with our volume expectations and certain promotional activities planned. Our long-term total gross margin target is from 70% to 75%. Over the last two years, we've made considerable progress against our business transformation. We've significantly lowered our breakeven point, strengthened our financial position, putting us on a solid foundation to execute against our growth initiatives that will drive long-term shareholder value. I look forward to updating you on our progress on our next earnings call. I'll now turn it back over to Mark for closing remarks. Mark Goldston: Thank you, Brad. Operator, Jayla, could you please open it up to questions? Operator: Absolutely. At this time, if you would like to ask a question, the first question comes from Suzanne Anderson with the company Canaccord Genuity. Suzanne, your line is now open. Suzanne Anderson: Hi, good evening. Thanks for taking my questions. Nice job on the quarter. I guess maybe if you could talk about I'm curious just the customer base, if you're seeing any big change with the new business model, and then maybe if you could share any details on what type of customers are signing for the unbundled super trainer subscription. Are these new customers that The Beachbody Company, Inc. that maybe, you know, will kind of tack on more subscriptions down the road or were they existing customers? Carl Daikeler: Thanks. Well, thanks, Susan. Nice to hear from you. We're really dealing with the same type of customer that we've had for twenty-six years, quite honestly. The people who are too busy to go for a gym membership. They want the convenience of doing things at home, and they want it somewhere between twenty to forty-five minutes per workout. So in general, we're seeing the demographic be similar. In terms of the specific subscriptions, the Autumn Calabrese collection and the Shaun T collection, those are doing both a great job of winning back customers who are really just interested in the affinity with their particular trainer, but we are seeing a nice percentage of those people upgrade to the full subscription. So it's doing the job of what you might see from a high volume, low price gym, where people are attracted to the $9.99 per month but then seeing the value of the overall subscription and upgrading to the full, full monthly or annual price. So, in terms of new customer acquisition, we're seeing that come from really the more broad advertising of, you know, helping people get healthy, helping people improve their overall well-being, and that is sort of business as usual as we go into the fourth quarter. And we're very excited by the prospect of bringing in new customers with the launch of Shaun T's Dig In program, the promise of the largest test group that we've ever run as a company. Suzanne Anderson: Okay. Great. And then maybe if you can give some more color just on your new product pipeline. It sounds like you have a number of things lined up through the holiday and then maybe into next year. Maybe if you could just talk about the timing of the rollouts and any color you could give maybe around the new P90X product. Then also other products that are gonna roll out whether they're in the digital or nutrition segment. Oh, and then also I was wondering sorry. Go ahead. And then I have my follow-up. Carl Daikeler: Okay. So, just real quick, as we mentioned, we're very excited by the number of products that we're launching into the catalog nutrition products in 2026. We haven't launched this many new products, particularly at a price point that's much more affordable to our database, to our current subscribers, and to new prospective customers, since we launched the MLM. Obviously, we had to support the compensation plan for the MLM when that was such a big part of the business model. Now that we don't have the MLM, we can be far more competitive in the nutrition segment with our pricing and with our unit economics, both the form factor in the seven to fourteen servings versus everything being in a monthly unit. So we've got the P90X line of supplements, and we have the Insanity line of supplements, and we have the expansion of Shakeology as we take that out into retail. So nutrition is largely expanding in 2026. For the balance of 2025, we have the, as I mentioned on the call, we just launched Tony Horton's Power of Four program, which we licensed from him. We just launched a series of new bike programs called Chasing the West, which has gotten a great response from our subscribers. We're launching Shaun T's Dig In program, which is a hybrid between a low-impact Insanity program plus a very popular Dig Deeper weightlifting program. I'll also say we're launching something at the end of the year. I can't go into too much detail right now. But I happen to want to say to you particularly, it was inspired by a conversation that you and I had because you love running so much, but I know you want to keep doing your resistance training to help your bone density and your overall muscle tone, and I think you're gonna love what we're coming out with at the end of December. P90X Generation Next just started to get teased last week, and the response to that just blew us away, both in terms of attracting new subscribers and in terms of the current subscribers being excited for that program. And that launches on February 3. That's the extent of what we've announced so far, and I think it's frankly '25 was such a transition year for us. We didn't put that much new content into the pipeline. I think between now and 2026, our subscribers and subscribers are gonna be very impressed with what the platform offers. Suzanne Anderson: Okay. Great. That sounds exciting. I'm excited to see the new product. Maybe if you could talk about oh, I was just curious. Too. Should we think about any increase, the increase in investment in the new products should that impact the P&L at all in the op expense or have you guys already kind of planned for that? Thanks. And that's all. Carl Daikeler: It's all in line with the economics that we've been running for the business. I'll let Brad speak to any specifics, but we're really running the business in a responsible way that takes advantage and maintains the advantage of the operational leverage that we built into the business over the last two years. The company is just such an incredible job of being both disciplined but maintaining our product quality, and the innovation pipeline, which resulted in, you know, we're so excited by having an in-home Pilates program. You know, the whole fitness industry is aware of how big Pilates has gotten, and the fact that we have a Track Pilates program that people can do for $100 of equipment is just an exciting asset for us to take into 2026. So bottom line is we're gonna maintain our economics, and we feel very good about the base of assets that we have to work with. Brad Ramberg: Hi, Susan. This is Brad. Nice to hear from you. No. We are very disciplined with our spend. We are excited about our spend, and the numbers are baked into our guidance for the fourth quarter. Suzanne Anderson: Great. Thanks so much. Good luck for the rest of the year. Brad Ramberg: Thank you. Thank you, Susan. Operator: Our next question comes from JP Wollam with the company Roth Capital Partners. JP, your line is now open. JP Wollam: Great. Good afternoon, guys. Appreciate you taking my questions. If we could just maybe start on the nutrition side. So it looks like, you know, that kind of sequential decline there was actually pretty minimal maybe given some expectations out there. But just wondering if there's any more detail you can share on kind of what drove that? I think there might have been some mention of promotional activity. So if there's anything specific to call out in terms of promotions that worked well, that'd be helpful. Brad Ramberg: Hi, JP. This is Brad. Nice to talk to you. Thanks for asking the question. You know, our previous before the strategic transition, we were selling an MLM-based product. Our hero product was Shakeology at $130 a month. Carl Daikeler: So as we've moved away from that, we are doing more price testing. Brad Ramberg: We are coming up with lower price SKUs, as Carl and Mark said. We'll be introducing a new Shakeology at a smaller form factor, lower servings, lower price. We've been doing more bundle activities and more price testing, and we are seeing good demand at these new price points. We're able to maintain the number of subs, and we're able to do that at a lower price point, which makes sense given the transition away from the MLM to the new omnichannel model. JP Wollam: Perfect. And then maybe just as we kind of oh, go ahead. Mark Goldston: No. I think, JP, and this is Mark. And just on a go-forward basis, because remember we started basically a new company on January 1. So there's really no year-over-year comparisons because we dismantled the MLM, as you know, in the last year. But going forward, these new nutrition products we're bringing out under the P90X brand name, which will range in price from, you know, probably $15 to $39. And the new smaller form factor lower price Shakeology and then Insanity. These are price points that the company has, like, never offered before and certainly never offered in the retail market. So not only excited about the potential in a brick-and-mortar store, but from a direct-to-consumer standpoint, between our Amazon channel and our body website and our affiliates, you've now got something in the arsenal that we just haven't had before is these monster brand name products under P90X and Insanity and Shakeology. At much more affordable price points because we were hamstrung in the previous model by the costs and the compensation costs related to the MLM, which no longer exists. So going forward into '26, and into '27, I think you're gonna see, you know, nutritional business with much different character in terms of its composition because of our ability to sell a lower price, broader appealing product line. JP Wollam: Perfect. And then, you know, I think on the last call, we were talking about you guys being sort of in the early stages still of working with a broker in terms of getting some wins in terms of retail. And I'm just wondering if there's anything you can update us on in terms of visibility for that retail launch coming up next year. Mark Goldston: Yeah. Great question. So as you know or maybe you don't, the retail marketplace, most of the major retailers work on something called a planogram, which is the shelf set that you see when you walk in the store. And they usually have planogram revision dates that are either one time or two times a year. So our broker partner is coordinating our sell-in meetings based on the calendars of these new planogram reset dates. And typically, when you go to an account, a major retailer, and they say, yes, I'd love to add this product, going to put it into my new planogram shelf set, it's usually about five to six months from that day when you're accepted until you actually physically appear on the retail shelf. So our teams are out there right now selling in the product, making presentations. We're expecting to get answers on how that's going in the next four to six weeks. And assuming it goes the way we all expect and hope it will, we should start appearing on the shelf in some of these places, Q1, most of them into Q2. So the majority of that revenue will start to materialize Q2 and then into Q3 and four. But as you know, it's a rollout. And so, essentially, first, you gotta get it sold in. Then they have to reset the section. Then you launch and then you grow after that. So all according to how our plan was expected to go. Now that does not apply to the DTC business. So when we launch these brand new products, starting in January, we'll be able to immediately start making them available on a DTC basis and on an Amazon basis. But for brick-and-mortar, we have to run the offense, which is the planogram date, acceptance, reset of the shelf, and you show up probably five to six months later. JP Wollam: Understood. Appreciate that color. If I could just slide one more in quickly here. As we look at the selling and marketing line, obviously, great sequential step down there in terms of managing costs. But wondering if you could, one, just kind of provide a bridge from 2Q to 3Q. I think there's a little bit of an advertising reduction and maybe a reduction in some deferred commissions. But one, if you could provide that bridge at all, and two, just you know, now being sort of 32% of sales, like, how are you feeling about that line item and whether there's more cost to come out there? Brad Ramberg: Sure, JP. This is Brad. I'll take that question. One, if you look back at the end of last year while we were still in the MLM model, we had upwards of $2,526,000,000 of deferred partner costs on the books. We've been expensing that over the course of the year, and we're now down to about $3.5 million of deferred partner costs. So that's all costs related to the legacy business. As that has declined over time, we're really looking at the advertising and marketing rates on the new business. And so we're at about 31.9% for Q3. I would expect going forward it to be in the mid-thirties-ish with some variation of seasonality. But the sequential decline really is driven by the transition away from the MLM business. And, JP, just to provide additional color on that. So there are seasonal fluctuations, you know, between the quarters because Q1 is always your highest marketing spend quarter. But what's important is that that sales and marketing line, which was reduced from the $25.5 million in Q2 down to $19.1 million in Q3, really was not a result of spending less money on actual advertising and marketing. A lot of that was the cost that Brad just alluded to, which were associated with the former MLM, which are now sort of burning off. So we've not reduced our spend to the consumer. We did not cut the media budget. We just shed all those legacy marketing costs that were affiliated with the MLM. You will not see that similar type of decline obviously in Q1, because Q1 will be your higher spending quarter. But I just want to put color around that because when you look at the sales and marketing line, your first inclination is to say, the company cut its marketing spend level to the consumer. The answer to that is an emphatic no, we did not. JP Wollam: Perfect. Appreciate the detail, and best of luck going forward, guys. Mark Goldston: Thank you, JP. Operator: Our next question comes from Michael Lipinski with the company Noble Capital Markets. Michael, your line is now open. Michael Lipinski: Thank you and thanks for taking my questions and congratulations on a stellar quarter and reaching your profit milestones. Mark Goldston: Thank you. Michael Lipinski: I believe that in Q3 you kind of indicated that you felt like most of your restructuring of your Salesforce was gonna be complete. I was just wondering, is that now all been completed? Brad Ramberg: Yeah. Generally, the reorganization has taken place, and we're now multichannel with, as Mark mentioned, the performance marketing or direct-to-consumer business. We've got the Amazon business. We've got a small contribution from affiliates and obviously CRM, and we're excited to launch into retail next year. And, Mike, this is Brad. I'll say we're always looking for cost efficiencies, and we'll continue to do so. But the financial restructuring, it's, for the most part, complete. Now we're really looking at growth mode beginning now and in '26. Michael Lipinski: Okay. Perfect. I was wondering in terms of margins, with all these distribution retail distribution rollouts and also with the new products that you're talking about. I was just wondering if you can just talk a little bit about margin. Are you anticipating giving up any margin? You know, if you obviously, with some of the lower price points that you're talking about with some of your products, if you could just add a little color on that. Brad Ramberg: Sure. I'll take the case on that. So I'll tell you. So in Q3, we hit a nutrition margin of about 53%. And right now, with a lower price point and more promotional activities, we are guiding to a lower nutrition margin. We're guiding to a steady state between 46-52%. So retail in '26 is not a significant driver of revenue, at least in Q1, like in Q3, certainly not in Q4. We'll continue to adjust our margin as we gain more experience in retail. Right now, we are looking to a little bit of a decline in the nutrition margin. As we're looking to a pickup in the number of units and subscribers. At the end of the day, it really is about generating dollars. It's about generating the most number of subscribers. Michael Lipinski: Gotcha. And we're also, you know, the margin is also reflective of our increased focus on selling one-time purchases versus just selling subscriptions. So because we're actually expanding the audience, those people will ultimately end up subscribing. Michael Lipinski: And I was just wondering, do you guys frame for us like the anticipated marketing spend around the retail rollout of P90X release? Brad Ramberg: I'm sorry. Say that again. Michael Lipinski: Can you just kind of frame maybe the anticipated marketing spend around the retail rollout for your P90X release? Maybe just give us the timeline for the new P90X exercise program? Brad Ramberg: Yeah. Well, the new P90X exercise program is a Q1 program. And that will certainly be part of our overall marketing spend because of its high profile and ability to attract people into the franchise. In terms of the actual retail products, the marketing spend will be in line with what we end up getting in terms of wholesale orders. And what that revenue line will look like. So we do not have that number right now. But it will be on a normalized advertising to sales ratio based on the wholesale volume that we generate, and that's all gonna be baked into our numbers. Michael Lipinski: Gotcha. That's all I have. Congratulations again. Brad Ramberg: Great. Thank you very much. Appreciate it. Mark Goldston: Thanks, Michael. Operator: At this time, there are no more questions registered. There are no more questions registered in queue at this time. I would like to pass the conference back over to our hosting team for closing remarks. Mark Goldston: Thank you, Jayla, and thanks, everybody, for attending today. I just want to say in closing, again, this was not only an outstanding and seminal milestone quarter for us, achieving net income positivity, but the fact that in our opinion, the financial turnaround has largely been completed. Well ahead of schedule, almost I would say almost twelve months ahead of schedule. So the headline is, you know, great new operating structure, much reduced breakeven level down to the $180 million level. And now we're at the point where instead of waiting till 2026, we can actually open up this innovation pipeline starting in '26. You'll see a lot of new exciting programs, which will expand this franchise, take advantage of the operating leverage that's now been built into this P&L, and give us the opportunity to achieve all of the goals that Carl has been articulating for years. But not trying to reach just the serious exerciser, the serious nutrition consumer, but to go out to the broader audience and that huge TAM, the 185 million Americans who do not currently exercise on a regular basis and who are taking nutritional supplement products, and we want to drive them to our franchise. So thanks, everybody. We look forward to talking to you on the next quarter's earnings call. Operator: That concludes today's call. Thank you for your participation, and enjoy the rest of your day. Chris Sakai: Thank you.