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Operator: Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vasta Platform Third Quarter 2025 Financial Results. [Operator Instructions] Before we begin, I would like to read a forward-looking statement. During today's presentation, our executives will make forward-looking statements. Forward-looking statements generally relate to future events or future financial or operating performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from those contemplated by these forward-looking statements. Forward-looking statements in this presentation include, but are not limited to statements related to our business and financial performance, expectations for future periods, our expectations regarding our strategic product initiatives and the related benefit and our expectations regarding the market. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. These risks include those set forth in the press release that we are issuing today as well as those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on the information available to us as of today. You should not rely on them as predictions of the future events, and we disclaim any obligation to update any forward-looking statements, except as required by law. In addition, the management may reference non-IFRS financial measures on this call. The non-IFRS financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with IFRS. And now I would like to turn the call over to Cesar Silva, the CFO; and Guilherme Melega, the CEO. Please go ahead. Cesar Silva: Good evening, everyone, and thank you for joining us in this conference call to discuss Vasta Platform's third quarter of 2025 results. I'm Cesar Silva, Vasta's CFO. And today, we have the presence of Guilherme Melega, Vasta's CEO, who will be joining me on the call. Let me now hand over the floor to Guilherme Melega, our CEO, to make his opening statement. Guilherme Melega: Thank you, Cesar. Thank you all for participating in our earnings release call. Let's move to Slide #3, which summarizes the key highlights of the 2025 sales cycle. We are closing the final quarter of this commercial cycle, and we are pleased with the results achieved. Once again, we delivered consistent growth in revenue and profitability while maintaining strong operational discipline, cash flow performance and advancing our strategic priorities. Starting with subscription revenue, we grew 14.3% comparing to the previous cycle, supported by ACV bookings of BRL 1.552 billion and net revenue up 13.6%. This performance reflects the resilience of our core business and the successful execution of our commercial strategy, and we have demonstrated the ability to sustain double-digit growth in our core business for the fourth consecutive year. Our complementary solutions continued to expand at an accelerated pace, growing 25.3% year-over-year, reinforcing the strength of our ecosystem and the value we bring to schools with our complete portfolio -- product portfolio. In the B2G segment, during this quarter alone, we recorded revenues of BRL 17 million from several new customers and from the State of Pará contract, totaling BRL 67 million in the 2025 sales cycle. This demonstrates stability in this revenue stream comparing to 2024. As a result, net revenue in 2025 sales cycle reached BRL 1.737 billion, a 14% increase compared to the same period in 2024. This growth was driven by the successful conversion of ACV bookings into revenue, along with a strong performance of our complementary solutions, as mentioned before. In profitability, adjusted EBITDA reached BRL 494 million, a 10% increase compared to 2024. The margin was 28.4%, slightly below last year's 29.4%, mainly due to a different product mix and increased investments in marketing and growth initiatives. Despite these factors, we maintained healthy profitability levels, demonstrating our ability to balance expansion with operational efficiency. A major highlight of this cycle was free cash flow, which totaled BRL 316 million, 117% higher than last cycle. Our last 12 months free cash flow to EBITDA conversion rate improved significantly to 64%, up 31.5 percentage points from 2024. This improvement was driven by efficiency measures and disciplined cash management, including early collections and automation in financial process. We also continue to make progress in deleveraging with net debt to last 12 months EBITDA at 1.75x, down from 2.32x in the Q3 2024. Beyond these financial metrics, we continue to make progress in strategic areas. In the B2G segment, we advanced our diversification strategy, adding new municipalities to our portfolio. This reinforced our commitment to expand access to quality education through partnerships with public institutions. In Bilingual Education, our Start Angle franchise remains a key growth avenue. We now operate 6 units, which includes 4 schools implemented this year and have signed over 50 contracts besides a robust pipeline with more than 300 prospects. This positions us well to capture demand from premium bilingual education in the coming cycles. It is worth mentioning, we expect to launch 8 new operational units for the coming year. Finally, as we look ahead to 2026, innovation remains the center of our strategy. Throughout AI, we will introduce new tools focused on equity and personalized learning, including the individualized educational plan, EEP, which will empower educators with tailored pedagogical recommendation and foster inclusive practice. In summary, these results confirm the resilience of our business model and the successful execution of our strategy. We are confident in our ability to sustain growth, enhance profitability and deliver value to all our shareholders. I will now turn back to Cesar Silva to walk us through the financial results. Cesar Silva: Thank you, Melega. Let's move on to Slide #5. In this slide, we present the composition of Vasta's net revenue. On the left side, you can observe the organic growth for the third quarter in total net revenue, which increased by 13.4%, reaching BRL 250 million. Vasta subscription revenue achieved in the third quarter of 2025, BRL 212 million, a 3% increase compared to the same quarter of 2024. Non-subscription revenue increased 45% to BRL 21 million, supported by higher enrollment in the Start Angle flagship schools and Anglo pre-university course. Moving to the right side, you have the numbers of the net revenue for the 2025 sales cycle. We achieved an organic net revenue growth of 13.6% in the 2025 sales cycle, amounting to BRL 1.737 billion. The main factors for this performance were: firstly, the subscription revenue has increased 14.3%, reaching BRL 1.552 billion and continues to be the major contributor to our total revenue, representing 89.3% of the net of the revenue share as detailed on Slide #4 of this presentation. Non-subscription revenue increased 16% to BRL 119 million. This growth is mainly driven by 2 effects: the new revenue from our flagship Start Angle ESL in Sao Paulo that did not exist in 2024 and the growth in the number of students in the Anglo pre-university course, which enrolled 21% more students than last cycle. Moving to Slide #6. You can see that in this sales cycle, our adjusted EBITDA amounted to BRL 494 million with a margin of 28.4%, an increase of 9.9% from BRL 449 million and which we will break down in the next slide. So in this Slide #7, we can observe that the adjusted EBITDA margin achieved 28.4% in this 2025 sales cycle, 1 percentage point lower than the same period of 2024. Our gross margin reached 62.8%, a decrease of 1.4 percentage points from 64.2% in 2024 sales cycle, mainly due to a different product mix. It is worth mentioning complementary solutions has grown at a faster pace despite high payments to product owners of certain products. Provisions for doubtful accounts PDA achieved 3.1% in relation to the net revenue and have an improvement of 0.8 percentage points when compared to 2024. This indicator has been showing improvement during the year despite the very challenging and extensive credit environment for non-premium, and we still foresee challenges in the credit scenario for the next month. As a percentage of net revenue, our commercial expenses increased by 0.8 percentage points, driven by higher expense related to business expansion of the commercial cycle for 2026 and remain stable at near 19% of the revenue. And finally, adjusted G&A expense improved by 0.3 percentage points, mainly driven by workforce optimization and budgetary discipline measures. Moving to Slide #8, we show the adjusted net profit that you can see in the right side of the slide in the sales cycle that the adjusted net profit reached BRL 82 million, and there has been an increase of 32% from adjusted net profit of BRL 62 million in 2024 because of the topics already mentioned. Moving to Slide #9, we show the free cash flow evolution. In the sales cycle, our free cash flow reached BRL 316 million, an increase of 117% from 2024. The cash flow generation in this cycle has an outstanding performance and achieved the highest level of conversion in relation to the adjusted EBITDA in the last years, achieving 64%. This is 31.5 percentage points better than the same indicator as last year. This improvement is explained by certain measures that the company has been implementing, which are already yielding positive results. We have mentioned some of these measures in our collection process. We developed automatized process like remargins, reminders and past due notifications. We implemented customer segmentation and management to make faster renegotiation on overdue receivables. On the payment side, we implemented several initiatives to enhance discipline in payments, such as rigorous financial planning, centralized payment scheduling and negotiating longer payment terms with suppliers. Additionally, the first semester of 2025 benefited from early collections of the 2025 sales cycle, which are expected to normalize in the next quarter. Is it worth mentioning that for the fiscal year, we expected to achieve a conversion rate of about 50% of the EBITDA. This will represent a relevant increase from 41.8% compared to the 2024 fiscal year. Moving to Slide #12. Let's take a closer look at the net debt movement. The net debt position decreased by BRL 177 million in the 2025 sales cycle. This decrease was driven mainly by the free cash flow generated in 2025, which was partially offset by financial interest costs. Our net debt amounted to BRL 863 million at the end of the sales cycle, and we managed to reduce the leverage ratio of the net debt to last 12 months adjusted EBITDA, which achieved 1.75x, a decrease of 0.57x of this indicator comparing to the same quarter of 2024. We would like to reinforce our commitment to continuing to generate free cash flow and deleverage the company. Having said that, I finish our presentation and invite you all to the Q&A session. Operator: [Operator Instructions] And your first question comes from the line of Camily Assunção of Morgan Stanley. Camily Assunção: We only have one question. Could you provide please some color on the ACV buildup for 2026? And also, if you could comment on your outlook for growth and the balance between volume and pricing? Guilherme Melega: Thank you, Cam, for your question. We just ended the quarter of the cycle of 2025, recording a 14.3% subscription revenue growth. That's definitely the trend that we expect to continue for 2026. So I would say it's mid double-digit growth in terms of revenues. In terms of outlook of our performance, we are growing in learning systems, gaining market share in premium learning systems and complementary products keeps the pace growing with more than 20% and that's -- the trend should be continued to 2026. In terms of pricing, we are -- for the last 5 cycles, we were able to price EPCA plus, and we definitely are targeting the same level. I would say EPCA plus between 1% and 2% for the next cycle should be a good guess for what we are seeing right now. Operator: [Operator Instructions] And there are no further questions. I will now turn the conference back over to Guilherme Melega for closing remarks. Guilherme Melega: Thank you all for participating in our Q3 conference. The sales cycle of 2025 continues to reflect Vasta's solid execution and strategic focus. Our consistent revenue growth, strong cash flow generation and expansion of core business reinforce our commitment to deliver long-term value. We are particularly proud of the progress made in our Start Angle Bilingual School and the evolution in our Plurall platform and our disciplined approach to operational efficiency and financial management. Thank you all for continued trust and support. We look forward to see you in the earnings release call of the end of 2025 fiscal year. Thank you all. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Greetings, and welcome to the Codexis Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to your host, Georgia Erbez, Chief Financial Officer. Thank you. You may begin. Georgia Erbez: Thank you, operator. With me today are Dr. Stephen Dilly, CEO and Chairman; Dr. Alison Moore, Chief Technical Officer; and Britton Jimenez, Senior Vice President, Sales and Marketing, who will be available for Q&A to follow. During this call, we will be making a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including our guidance for 2025 revenue, anticipated milestones, including product launches, pilot scale manufacturing and paths to scale up technical milestones and public announcements related thereto as well as our strategies and prospects for revenue growth, path to profitability and successful execution of current and future programs and partnerships. To the extent that statements contained in this call are not descriptions of historical facts regarding Codexis, they are forward-looking statements reflecting our beliefs and expectations as of the statement date, November 6, 2025. You should not place undue reliance on these forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond Codexis' control and that could materially affect actual results. Additional information about factors that could materially affect actual results can be found in Codexis' filings with the Securities and Exchange Commission. Codexis expressly disclaims any intent or obligation to update these forward-looking statements, except as required by law. And now I'll turn the call over to Stephen. Stephen Dilly: Thank you, Georgia, and thanks, everyone, for joining. We've had a very exciting and important few months that have set us up extremely well for the changes we're announcing today. First, we were very pleased to sign the supply assurance agreement with Merck. We've been working on this for months, and it was a key reason why we had the confidence in our revenue projections for the year. More importantly, it was one of the final pieces of the jigsaw we needed to fall into place for us to be ready to commit to the transformation of Codexis into a full-service manufacturing innovator in the field of oligonucleotide manufacturing. We also expect to sign the lease for our new facility in the next week or 2, which will give us the capability to manufacture GMP-grade siRNA in kilogram quantities using our ECO Synthesis technologies. We are really excited by the commercial trajectory of the ECO platform. This time last year, we were closing in on our first revenue-bearing contract. Today, we have 11 with 40 more in the pipeline. Finally, the technical team has continued to make spectacular progress on perfecting and scaling the ECO platform, and we will be presenting new data at TIDES EU next week. So in summary, we have the financial resources, the real estate, the expertise and the demand lined up to move Codexis into the next phase of our transition. On a personal note, this completes the task I came here to do as CEO. Over the past 3 years, in an effort expertly led by Kevin Norrett, we've conducted a thorough assessment of the most attractive markets that can be accessed using our CodeEvolver technology. About 2 years ago, we got very excited about the enzymatic synthesis of siRNA, an endeavor that led to the ECO Synthesis platform you see today. Now that we are confident in the market and the potential of the platform, the time is right to optimize and streamline the organization to maximize our ability to succeed. Evolving from an enzyme supplier to an innovative manufacturing solutions provider allows us to streamline our existing organization. This will significantly reduce our cost base while improving our responsiveness and nimbleness and allowing us to build further for the future. We've looked to optimize every level of the organization. With that in mind, I'm extremely excited that Alison Moore, our Chief Technical Officer, will succeed me as CEO. I intend to remain with Codexis as Executive Chair. There's a saying that successful CDMOs are run by leaders with deep technical expertise. Alison is a great leader and has deep experience and expertise in perfecting and scaling novel manufacturing platforms. Similarly, Kevin has handed over the commercial reins to Britton Jimenez, a domain expert in commercial leadership of CDMOs. Britton is here on the call to answer your commercial questions. With that, I'm going to hand over to Alison. Alison Moore: Thank you, Stephen. I've been part of Codexis for the last 5 years, first as Board member and then as member of executive leadership. I've had the pleasure of seeing Codexis evolve into an innovation leader in oligonucleotide manufacturing. Our technology has the potential to truly enable the delivery of a breadth of siRNA therapeutic opportunities to all patient populations. And I'm excited to have the opportunity to lead the company in executing on this important goal. I spent 20 years at Amgen in different operations roles, including process development, manufacturing and supply chain management. I'm very familiar with the complexities and challenges of deploying new technologies to the manufacturing space. In addition, I also have experienced the challenges of developing and scaling genomic medicines from my time at Allogene, where I spent 5 years leading their efforts to industrialize and scale CAR-T cells. Across modalities and in various therapeutic areas, I have been fortunate enough to have been part of bringing several advanced medicines, some of which are billion-dollar drugs to hundreds of thousands or even millions of patients. We know we're in the right area with the right technology that has the potential to expand the use of siRNA, a really important emerging class of drugs. We have streamlined our organization to focus on what we excel at, ECO Synthesis, both manufacturing and providing production technologies to our customers. It's exciting to see Codexis evolve from an enzyme supplier to a production solutions partner. For example, recently, one of our customers has used our ligase to produce a 3-kilogram batch of siRNA. Our organization is now aligned to deliver services and products to all our customers. I want to emphasize that our heritage small molecule biocatalysis business remains a crucial part of Codexis. We have a long history of delivering enzymes on time and in full to our customers, and we intend to continue this performance. As important as execution will be in the next few years, continuing to fill our pipeline is equally as important. Our sales force has been reconfigured under Britton's leadership to expand our customer base further into the oligonucleotide therapeutics market. We have the resources, both operationally and financially to execute on this plan. With that, I'll turn the call over to Georgia, who can describe our current financial performance and give you a glimpse of what to expect going forward. Georgia? Georgia Erbez: Thanks, Alison. Good afternoon, everyone. We announced many important events at the company today, but they are all connected to give Codexis the best chance to succeed. We've been working on the Merck agreement for months. And while the timing was uncertain, we were confident it would happen this year. The agreement gives us a vital infusion of nondilutive cash that allows us to execute on our business plans that also include building out the GMP facility. We will recognize a significant portion of the revenue from the Merck contract in the fourth quarter with the rest recognized in the first quarter of 2026. While finalizing the division between the 2 quarters is still in process, we can confirm that we will make or slightly exceed the top end of our guidance range for 2025. Part of repositioning Codexis envisions altering our priorities. We are moving away from promoting our historical small molecule biocatalysis business. The market dynamics in this business segment have changed over the last 3 years. We see pricing pressure on new prospective enzyme development contracts. A dollar spent in winning new business and developing the enzyme does not produce the same return as it did 5 years ago. We have made the decision to reduce our sales and marketing efforts in this segment and refocus our efforts on new business in the ligase and ECO Synthesis business lines. However, we have a long and successful history of supplying our customers, and this remains of vital importance to Codexis going forward. We may experience a drop in service revenue next year from our historical business, but this will be replaced by development services in the ligase and ECO areas. We still expect our historical business to grow for the next 5 to 10 years. Because of the work we've done in the past, there are 14 drugs using our enzymes in Phase III clinical trials, many of which will have data readouts in the next 12 months. With a modest success rate, we expect to fuel growth in our existing pipeline of products that will require little to no additional investment from us, which should allow us to maintain favorable margins. Revenue is half the equation. And during the last few months, we've examined our spend across all areas of the company. We made the hard decision to reduce our headcount across every group, including reducing the size of our research and commercial groups to reflect the shift in strategy away from building the heritage enzyme business. We are still working through our financials for 2026, and we'll give more specific guidance after the first of the year, but we expect this restructuring will reduce our burn by approximately 25%. Together with the cash received from Merck agreement, we are able to extend our runway through 2027. We have a number of projects similar to the Merck agreement in our line of sight, and we'll keep you informed as those discussions mature, and we understand the nature of those transactions and their size and timing. Starting on Slide 6, I will provide a brief overview of our financial results here on the call and invite you to review our 10-Q filed today for a more detailed discussion. Total revenues were $8.6 million for the third quarter of 2025 compared to $12.8 million in the third quarter of 2024. The decrease was primarily due to variability in customers' manufacturing schedules and clinical trial progression. Product gross margin was 64% for the third quarter of 2025 compared to 61% in the third quarter of 2024. The increase in gross margin was largely due to a shift in sales towards more profitable products and declines in less profitable legacy products. Research and development expenses for the third quarter of 2025 were $13.9 million compared to $11.5 million in the third quarter of 2024. The increase was primarily driven by higher headcount, higher lab supply expense and internal reclassification of certain employees to the research and development function. Selling, general and administrative expenses for the third quarter of 2025 were $11.2 million compared to $13.6 million in the third quarter of 2024. The decrease was primarily due to lower employee-related costs and legal expenses and reduced use of outside services. The net loss for the third quarter of 2025 was $19.6 million or $0.22 per share compared to a net loss of $20.6 million or $0.29 per share for the third quarter of 2024. We ended the third quarter in a strong cash position with $58.7 million in cash, cash equivalents and investments. As a reminder, this number does not include any funds from the Merck agreement. As I mentioned earlier, together with the new infusion of cash, which we expect to receive in the fourth quarter, our cash will be sufficient to fund our planned operations through the end of 2027. With that, we'd be happy to take your questions. Operator? Operator: [Operator Instructions] And our first question comes from Kristen Kluska with Cantor Fitzgerald. Kristen Kluska: I just want to wish everybody on the management team all the best during this transition. Those of you that are stepping down or leaving, you were a very instrumental part of this transition. So congratulations on that. First question for me is just if you could speak about this transition and if it's going to impact some of the plans you laid out on the last call, namely the partnership strategy you might like to take for potential partners starting with as many early programs as possible to create more shots on goal as well as plans to have a GMP scale-up partner signed? Stephen Dilly: So thanks, Kristen, and I'm still here. It doesn't change our plan one jot. And we're really very, very encouraged with what we've done. You've seen Nitto coming across the line with the start of a scaling partnership there. We've talked before about others who are still in the hopper. We are continuing to land those early phase contracts. And I mentioned that we've moved from 1 to 11. Many of those are sort of what we consider having big fish in waiting where we are starting small, proving that the technology can support the molecule and then growing with the product. And the other thing I'd like you to note from the prepared remarks is -- the comment that our ligase has now been used in a production run of a 3-kilo batch. So we think things are developing in a very, very promising way. Kristen Kluska: And as we think about some of these early partners, including this ligase example you ran, I guess, how much are you able to talk or utilize some of these initial findings to think about future partner conversations? Obviously, I can respect there's confidentiality agreements between these companies, but a lot of these early partners are going to be instrumental in some of the discoveries and seeing what this engine can do that can potentially influence more discussions in the future. Alison Moore: This is Alison. I'll take a shot at that one. I think that, yes, our platform is proving itself as we speak with larger numbers of customers. Those customers seem to be so far, very pleased with the product that we're making with every customer, since customers come to us with unique requests and unique sequences, we are understanding better and better how our platform performs at baseline and how it can flex and be adaptable to what our customers need. So we're really, really happy with the trajectory right now, very excited to progress in 2026, hopefully, into larger co-development development type relationships. Stephen Dilly: And one of the things that we're doing is maintaining our optionality in terms of what we can provide to the customer out of our own facilities. So there are essentially 3 things. There's -- the scaling the ligase at ISO quality standards, so we can be in clinical and even commercial products. Then making the core enzymes and reagents for customers that are going to end up doing this themselves and essentially giving us a royalty of the final product. And then there's the capability of making siRNA in our own facility. And the beautiful thing about the place we're just about to sign Alison, can do all of those things in a very modular way. So we're well set whichever way the market moves. Operator: Your next question comes from Matt Hewitt with Craig-Hallum Capital Group. Tollef Kohrman: This is Tollef Kohrman for Matt Hewitt. Can you please describe the unique capabilities or advantages Nitto brings to its evaluation agreement that Proton doesn't currently offer, particularly in terms of scalability, manufacturing expertise or technology integration? Britton Jimenez: Yes. No problem. This is Britton here. Yes, Nitto is a great partner, and we're very excited about the agreement that we have in place with them. And as you know, if you look at back at Nitto Avecia, they're one of the market leaders in the CDMO marketplace. And they're going to be able to help us scale our technology into the larger batch sizes that are going to be needed in the Phase II, Phase III and commercial production. So it's one of the pieces in our strategy that we've been working on that we've been discussing over the past year, and we're going to continue to push forward with Nitto Avecia and others in the marketplace that can continue to support our strategy. Operator: [Operator Instructions] Your next question comes from Chad Wiatrowski with TD Cowen. Chad Wiatrowski: Just want to dig on -- you mentioned 11 revenue-generating contracts in hand today. Could you speak a little bit about the contribution of that siRNA revenue in the product revenue segment? And I know you haven't guided to 2026, but can we expect that to help offset some of the decline in maybe the legacy small molecule biocatalyst sales? Or will it not quite offset fully the strategic refocus? Georgia Erbez: Yes. So the contracts that we have right now are all in the service area. They're not in the product area. So that's where you'll see these new contracts come into the financials. And it is -- we do expect the service revenue to be relatively consistent from year-to-year. It's just the -- where we're getting it is shifting. And we have expected this shift for quite some time. Chad Wiatrowski: Got it. And then anything you want to highlight just with TIDES EU coming up next week. What can we expect to see out of those presentations? And how impactful could that be for the commercial progress? Alison Moore: Yes. So we're really excited about TIDES next week. What we promised we would talk about was how is our technology scaling -- and we've been basically working all year on that, and we're really proud to show our data around the performance of our platform at scale. In addition, when we talked with the FDA earlier this year about our platform, they were particularly interested in our ability to be able to analyze product during the production process, so having an in-process control. And we will also have a presentation about the opportunity of in-process analytics using the ECO Synthesis platform. So we think that both of these presentations are first-in-class presentations for the siRNA therapeutic developers and that particular market in general. Operator: And ladies and gentlemen, there are no further questions at this time. So I'll hand the floor back to Alison Moore for closing remarks. Alison Moore: Thank you, everybody. Thanks for calling in today. We have a lot more to talk about with respect to our excitement related to ECO Synthesis. I will have a lot more to say going forward. I am so excited to have the privilege of my new role. And thank you for listening in today. Operator: Thank you. And with that, we conclude today's conference call. All parties may now disconnect. Have a good day.
Operator: Greetings, and welcome to the TaskUs Third Quarter 2025 Investor Call. My name is Donna, and I will be your conference facilitator today. [Operator Instructions] I would like to introduce Trent Thrash, Vice President of Corporate Development and Investor Relations. Trent, you may begin. Trent Thrash: Good morning, and thank you for joining us for today's TaskUs earnings call. Joining me are Bryce Maddock, our Co-Founder and Chief Executive Officer; and Balaji Sekar, our Chief Financial Officer. Full details of our results and additional management commentary are available in our earnings release, which can be found on the Investor Relations section of our website at ir.taskus.com. We have also posted supplemental information on our website, including an investor presentation and an Excel-based financial metrics file. Please note that this call is being simultaneously webcast on the Investor Relations section of our website. Before we start, I'd like to remind you that the following discussions contain forward-looking statements within the meaning of the federal securities laws, including, but not limited to, statements regarding our future financial results and management's expectations and plans for the business. These statements are neither promises nor guarantees and involve risks and uncertainties that may cause actual results to differ materially from those discussed here. You should not place undue reliance on any forward-looking statements. Factors that could cause actual results to differ from these forward-looking statements can be found in our annual report on Form 10-K. This filing, which may be supplemented with subsequent periodic reports is accessible on the SEC's website and our Investor Relations website. Any forward-looking statements made on today's conference call, including responses to questions, are based on current expectations as of today, and TaskUs assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. The discussions throughout today's call contain non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP metric, please see our earnings press release, which is available in the IR section of our website. Now I will turn the call over to Bryce Maddock, our Co-Founder and Chief Executive Officer. Bryce? Bryce Maddock: Thank you, Trent. To begin, I want to briefly discuss the termination of the proposed take-private transaction we first announced in May. Please note that outside of these prepared remarks, we will not be responding to questions regarding the transaction during our Q&A session. During our October 8th Special Meeting with Shareholders, the requisite company shareholders did not approve the adoption of the merger agreement. As a result, on October 9th, upon the recommendation of the special committee and the approval of the company's full Board of Directors, the company and the buyer group entered into a mutual agreement to terminate the merger agreement. This mutual decision to terminate was not entered into lightly and followed true adjournments of our Special Meeting of Shareholders. The buyer group used this time to have multiple discussions regarding the level of price increase required to obtain the approval of certain shareholders, who believe that the $16.50 offer price undervalued the company. Ultimately, we did not obtain the necessary shareholder vote, because the valuation gap persisted despite this engagement. While we recognize the uncertainty the take-private attempt created, we're encouraged by the high valuation expectations of our shareholders and see it as a testament of their belief in TaskUs and the opportunities ahead. Throughout this process, I challenged our leaders and teammates to remain laser-focused on delivering the best-in-class specialized services that our customers have come to expect from TaskUs. I believe our Q3 financial results and Q4 guidance are a direct reflection of this focus. I want to thank all of our shareholders, our Board Members and most importantly, all TaskUs teammates for their focus, effort and support during this process. With that, let me turn briefly to our strong Q3 performance before outlining our plan for the future. In the third quarter, we once again set a record for the highest quarterly revenue in TaskUs' history and generated solid adjusted EBITDA. We delivered $298.7 million in revenue, reflecting a 17% year-over-year growth rate and $63.5 million in adjusted EBITDA or an adjusted EBITDA margin of 21.2%. We generated $0.42 in adjusted earnings per share, reflecting approximately 14% year-over-year growth. We ended the quarter with a very strong balance sheet. We have $210 million in cash and the net debt to adjusted EBITDA ratio of less than 0.2x. I'm very proud of the strength of our performance in this current environment. Growth across the BPO industry has slowed as clients aim to reduce their costs by leveraging Generative AI to automate workflows previously done by employees and outsourced vendors. In 2025, TaskUs has performed significantly better than many of our competitors because of our relentless focus on operational excellence and strong client relationships. But going forward, this will not be enough. To thrive in the AI era, we must shift from selling time-based services to selling solutions delivered by a combination of technology and talent. Our strong balance sheet and cash flow generation position us well to make the investments required for this transformation. We will begin this journey by significantly increasing our spending on our Agentic AI consulting organization. We've already signed multiple clients leveraging these capabilities. Here, we support the development, training and maintenance of AI agents from our partners, Regal and Decagon. These AI agents are able to automate a portion of our client support volumes, but TaskUs human teammates continue to deliver premium support services where the AI agents are unable to solve customer challenges. Unlike pure technical solutions, our combined human and AI offering can address the 100% of customer issues at launch, while dramatically reducing the cost to serve. In the next few years, the quality of customer support will meaningfully improve, not only as a result of AI agents being able to quickly solve simple customer issues, but also because human support agents will be free to provide hyper-personalized support in the most critical moments. As evidenced in this, our customers are reinvesting a portion of their cost savings to deliver better human-led support in the moments that matter or to their most valuable customers. The best customer support offering today is a combination of AI agents and human talent. By perfecting this combined offering, we aim to continue to take share and grow our business. In addition to expanding our Agentic AI consulting practice, we will also increase our investments in AI services like AI safety and autonomous vehicle and robotics support and continue our investments in our own Generative AI development to automate internal processes. These are the first steps in a transformation from a company that sells human-centric services to a company that combines Agentic technology, consulting and talent to deliver solutions. This journey will not be a straight line. Our increased investment will reduce our margins in the near term. We may face short-term revenue headwinds as we increase the use of AI agents to support our clients and in some cases, automate services that our teammates previously provided. Throughout all of this, we remain laser-focused on long-term results. Our goal is to increase revenue, EBITDA and earnings per share over a multiyear horizon at a rate that is higher than the rest of the industry. While our primary focus will be on reinvesting our free cash flow into the business to drive transformation, our strong balance sheet and cash flow will also allow us to pursue a capital allocation strategy that enhances shareholder returns. I look forward to sharing more details on our annual earnings call early next year. Next, I'll go through some of the highlights of our Q3 performance and 2025 outlook, then hand it over to Balaji to walk through our financials in more detail. Q3 revenue was $298.7 million, an increase of 17% on a year-over-year basis. Diving into service line growth for the quarter, our digital customer experience service line saw single digit year-over-year growth of approximately 6%, consistent with the year-over-year increase we saw in Q3 of the prior year. Given our year-to-date revenue and signings performance, we expect to report full year 2025 DCX growth in the high single digits. In terms of DCX signings in Q3, we saw broad-based strength in bookings across most of our vertical markets, including retail and e-commerce, travel and transportation, technology, financial services and health care. Turning to Trust and Safety, we had another great quarter with revenue increasing 19.1% year-over-year, largely driven by the performance of our social media vertical. Earlier this year, we were pleased that our investment in our Trust and Safety specialized service line continued to garner industry accolades. For the third year in a row, we were recognized as a leader in Everest Group's Trust and Safety Services PEAK Matrix Assessment. This recognition spotlights TaskUs' full spectrum of services across the Trust and Safety value chain, including AI safety, proprietary technology and our wellness as a service offering. Moving on to AI services, as expected at the end of 2024, AI services has remained our fastest-growing service line throughout 2025. In Q3, AIS delivered 60.8% year-over-year revenue growth compared to just 17.8% in Q3 of 2024. Here, this strong growth was partially attributable to the ongoing ramp of the new social media client we discussed on our Q4 call and the demand for AI services across multiple other client verticals, including travel and transportation. We continue to be pleased with the results of the investments we've made in the service line and the resulting demand for AI services we're seeing with industry-leading clients in the Generative AI and autonomous vehicle and robotics industries. The nature of our AI service line is more project-driven than the rest of our business. But given our expectation of well over 50% year-over-year revenue growth from the service line in 2025, it is clear that our investments are paying off. Before handing it over to Balaji to provide more details on our Q3 results, I want to touch briefly on our 2025 outlook. As mentioned earlier, in light of our strong year-to-date operational execution and sales momentum, we now expect full year revenue of between $1.173 billion and $1.175 billion. At the midpoint, this is $64 million or approximately 6% higher than the $1.11 billion midpoint of guidance we provided at the start of the year, which was subsequently withdrawn in connection with the proposed take-private transaction. It also represents approximately 18% year-over-year growth at the midpoint, which compares favorably with the 7.6% growth we saw in 2024. For Q4, we expect to set a new TaskUs record for revenue at $302 million to $304 million, resulting in approximately 11% year-over-year revenue growth at the midpoint. This deceleration to low double digit growth was expected due to the significant increase in revenue we saw from our largest client during the back half of 2024. I'll note here that in Q3, our revenue growth, excluding our largest client was approximately 11% year-over-year and our forecast for Q4 revenue growth when we exclude our largest client is approximately 9% year-over-year. Given the overall macro backdrop in the BPO industry, we're very pleased with the enduring strength of our performance. From a margin perspective, we expect Q4 to be impacted by seasonal expenses related to holiday pay and employee benefits and by a minimum wage increase in the Philippines. Our strong sales and top line revenue performance have also required us to continue investing in new facilities, hiring and training initiatives. We're also beginning to see some margin impact from our strategic growth investments in AI and other areas. As a result of these factors, we expect adjusted EBITDA margins in Q4 to decline to approximately 19.8%. This drop is consistent with the size of the sequential Q3 to Q4 decline we saw in 2024, leading us to forecast Q4 EBITDA margins that are slightly better than those earned in 2024. For the full year, we expect to deliver approximately 21.1% adjusted EBITDA margins. This is consistent with our expectations at the beginning of the year despite some of the factors mentioned earlier as our efficiency initiatives and G&A leverage continue to pay dividends and bring stability to our margins. With this margin outlook, we now expect to deliver full year adjusted EBITDA of approximately $248 million, representing an increase of more than 18% when compared to 2024. We also expect to generate adjusted free cash flow of approximately $100 million in 2025. As we look to the last quarter of 2025, we are pleased that the tireless work of our team has set the company up for a record-setting year of top line revenue and profitability, a performance that we believe to be among the best in our industry. I look forward to updating you on our Q4 results and providing our initial 2026 guidance during our call early next year. With that, I'll hand it over to Balaji to go through the Q3 financials and our 2025 outlook in more detail. Balaji Sekar: Thank you, Bryce, and good morning, everyone. In the third quarter, we earned total revenues of $298.7 million, reflecting an increase of 17% compared to the previous year, well ahead of our expectations entering the year. This was primarily the result of strong volume performance with existing clients and new client ramps exceeding expectations across a broad range of verticals during the quarter. While our DCX growth moderated to the mid-single digits for the quarter, growth in Trust and Safety and AI services delivered strong year-over-year growth of approximately 20% and 60%, respectively in Q3 of 2025. This marks the eighth consecutive quarter of approximately 20% or higher growth in our Trust and Safety service line. It was also the fourth consecutive quarter in excess of 30% revenue growth for AI services. We continue to grow across all our client cohorts, including growth in excess of 20% across our top 10 and top 20 cohorts. Our top 10 and top 20 clients represented 60% and 71% of total revenue in Q3, respectively, compared to 56% and 68% in Q3 of the previous year. Our largest client accounted for 27% of total Q3 revenue, up from 26% in the previous quarter and 23% in the prior year. We also saw growth from clients outside of our top 20, which grew approximately 6% year-over-year. Excluding our largest client, revenue from the rest of our business grew approximately 11%, accelerating from approximately 8% growth in Q3 of 2024. We are pleased with the strong broad-based growth across the business. In Q3, we saw approximately 20% year-over-year growth in the number of clients engaging with multiple service lines. Revenue from these multiple service clients increased in excess of 20% compared to the prior year period, highlighting the effectiveness of our cross-sell strategy and the growing demand for our integrated suite of specialized offerings. In the third quarter, we generated 54% of our revenues in the Philippines, 13% in India, 11% in the United States and 22% from the rest of the world, primarily in Latin America and Europe. In Q3, we saw particularly strong revenue growth in Colombia, India and Greece. We ended the quarter with approximately 63,800 global teammates, an increase of approximately 3,400 teammates from the end of Q2. Now moving on to our service line performance. In the third quarter, our DCX offering delivered single digit growth, generating $164.2 million for a year-over-year growth of 5.8%, of which more than 30% was attributable to clients they ramped within the last year. Overall, DCX growth was primarily attributable to strong performance from clients in our technology and health care verticals. Our Trust and Safety offering, which includes our content moderation and financial crime and compliance services grew by 19.1% compared to Q3 of 2024, resulting in $75.8 million of revenue. As discussed earlier, we are excited about the progress in this service line, which continues to be driven by the strength in our social media vertical. Our AI services service line topped 50% growth for the third quarter in a row at 60.8% year-over-year, resulting in $58.7 million in revenues. This was primarily as a result of expansion in services we provide to clients in our social media vertical, led by a client signed in late Q3 of 2024, supporting their Generative AI and process automation initiatives as well as from increasing demand from developers of large language model-based technologies in our technology vertical. Now moving on to the income statement. In the third quarter of 2025, we earned adjusted EBITDA of $63.5 million, a 21.2% margin, beating our expectations primarily due to strong 17% year-over-year revenue growth and our disciplined cost management. Our cost of service as a percentage of revenue was 62.1% in the third quarter compared to 60.2% in Q3 of the prior year. The increase was primarily driven by the impact of merit increases, investments in physical and information security and ramp costs associated with our year-over-year revenue growth. In the third quarter, our SG&A expenses were $59.7 million or 20% of revenue. This compares to SG&A in Q3 of 2024 of $62.7 million or 24.5% of revenue. The decline as a percentage of revenue was reflective of our continuous efforts to optimize overhead costs across our business, a reduction in stock-based compensation expense and lower litigation costs. These declines were partially offset by higher personnel costs, including merit increases as well as transaction costs and costs related to our operational efficiency initiative. Adjusted net income for the quarter was $39 million and adjusted earnings per share was $0.42. By comparison, in the year ago period, we earned adjusted net income of $34.3 million and adjusted EPS of $0.37. Our adjusted EPS included the impact of our higher share count resulting from equity issued under our equity incentive plan, which were partially offset by a reduction in shares from our stock repurchase program earlier in the year. Now moving on to the balance sheet. Cash and cash equivalents were $210 million as of September 30, 2025, compared with the June 30, 2025, balance of $181.9 million. Our net leverage ratio continues to be healthy at less than 0.2x at the end of Q3. As a reminder, we calculate this ratio as total debt less cash divided by adjusted EBITDA for the trailing 12-month period. Cash generated from operations on a year-to-date basis was $107.5 million through Q3 of 2025 as compared to $98.2 million through Q3 of 2024. The increase was primarily due to the flow-through of higher margin dollars in 2025, partially offset by changes in working capital. Year-to-date adjusted free cash flow was $76.9 million or 41% of adjusted EBITDA. Our Q3 year-to-date capital expenditures increased to $43.8 million compared to $18.8 million through Q3 of 2024, primarily due to increasing revenues. As a result, we now expect CapEx to be approximately $65 million for the year. In terms of our financial outlook for the remainder of the year, we now anticipate full year 2025 revenues to be in the range of $1.173 billion to $1.175 billion, resulting in a midpoint of $1.174 billion. We expect to earn full year 2025 adjusted EBITDA margins of approximately 21.1%. We expect to generate adjusted free cash flow of approximately $100 million for the year. Our adjusted free cash flow guidance includes the impact of incremental capital expenditures related to our strong growth in certain new and existing geographies. As a reminder, adjusted free cash flow excludes the impact of certain costs that are nonrecurring and outside the ordinary course of business. For the fourth quarter, we expect revenues to be in the range of $302 million to $304 million, reflecting growth of 10.6% at the midpoint. We expect our adjusted EBITDA margin to be approximately 19.8%, which includes the impact of seasonal expenses that we typically see in Q4, minimum wage increases and continued investments to support our revenue growth and AI transformation. Our margin guidance is based on current foreign exchange rates. Further deterioration in the value of the U.S. dollar would put downward pressure on our margin guidance. I will now hand it back to Bryce. Bryce Maddock: Thank you, Balaji. Before we open for questions, I'd like to share another TaskUs teammate story. At TaskUs, we often talk about people and performance in the same sense and for good reason. The work our frontline teams do every day, especially in Trust and Safety is both operationally complex and emotionally demanding. As part of our video series highlighting our teammates, [ Ayana ], one of our content moderators in Greece, recently shared her perspective. AI-supported tools and structured workflows enable high-volume moderation decisions to be made quickly and accurately. But when it comes to edge cases where nuance, cultural context or intent matter, human judgment is critical for accurate and effective moderation. In her own words, AI can't feel what people feel. Only a person can make that type of call. Ayana also takes pride as a parent knowing her decisions help protect children like her own. Since our last call, I'm now the father of 3 young children and nothing makes me prouder of working at TaskUs than the trust and safety and AI safety work that we do. TaskUs teammates are protecting all of our children from the internet's most harmful content. This sense of purpose is powerful, but it also underscores the toll that this type of work can take. That's why we've invested in programs that build resilience and support our teammates' wellbeing. Our in-house team of Ph.D. researchers and wellness and resiliency clinicians provides teammates with research-based wellness services, including confidential counseling, peer support groups and software-based tools that help them stay clear, focused and grounded. Last year, our experts at sites around the world conducted 79,000 individual employee sessions and more than 22,000 group sessions supporting the wellbeing of the people who protect all of us online. These programs also support our operational performance. They help us reduce burnout, improve retention and sustain high levels of quality in the most sensitive areas of our digital operations. With that, I'll ask the operator to open the line for our question-and-answer session. Operator? Operator: [Operator Instructions] Our first question is coming from Jim Schneider of Goldman Sachs. James Schneider: Bryce, as you think about maybe the plans operationally you were -- you had contemplated as a potential private company, maybe talk about some of the operational things you had considered? And which of those you may bring to an ongoing operation as a public company that you considered having gone private? Bryce Maddock: Yes. I think given the outcome of the take-private transaction, I feel confident in following a strategy that will largely mirror what we would have done as a private company. As I shared on the call, we're planning to ramp up our investments and accelerate our transformation for the AI era. So that starts with our investments in our Agentic AI consulting practice, where we're deploying AI agents on behalf of our clients to automate aspects of their customer support. We've announced partnerships with Decagon and Regal and we've signed multiple clients to this service. In '26, we plan to make some key hires to lead this organization for us as an independent entity that will transform a large portion of the work that we're doing in the customer service space. We're also going to accelerate our investments in our AI services business line, which is where we're working with foundational model developers, doing AI safety work for social media companies and supporting companies across the autonomous vehicle and robotics space. The success there has driven growth of over 50% year-over-year for this service line. And so we're really excited about what we're going to be able to do next year there. And finally, we're using AI to drive efficiency internally. We're developing both proprietary technology and partnering with AI providers to automate everything from recruitment to training to quality. And as a result of these investments, we're enabling the members of our support organizations to do more, so we can stretch the ratios, the number of teammates per quality analyst or the number of hires per recruiter. And we've seen some encouraging early signs and look forward to reporting more on that next year. James Schneider: And then as a follow-up, maybe you could talk a little bit about the broad scope of your business pipeline right now and specifically talk about what the pipeline looks at within your largest customer? Bryce Maddock: The pipeline is strong. We're seeing strong demand for both new and existing clients. And as we head into Q4, we're seeing strong demand in the autonomous vehicle and robotics space. We have 2 large deals with new clients in the robotics space as well as a very large scale-up with the leader in the autonomous vehicle industry. We've also seen significant growth at our large enterprise health care client, which is a testament to the success of our strategy to diversify into the health care space. The relationship with our largest client remains very strong. As everyone knows, we went through a large ramp with them in the back of 2024 and into 2025. And so I think like all clients, there's a budgeting process that's going on as they're looking ahead to 2026 and we're deeply engaged in that process with them. Operator: The next question is coming from Jonathan Lee of Guggenheim Partners. Yu Lee: Can you talk us through what's contemplated in your outlook, particularly around sequential growth contemplated in 4Q? Particularly are you just seeing a seasonally better 4Q driven by DCX? I wanted to better understand the modest implied sequential growth there. Bryce Maddock: Yes. So as always, our goal is to meet or exceed the guidance we provide. And coming back into being a company that's doing earnings calls on a quarterly basis, we wanted to make sure we set the bar at a level that we felt like we could deliver and exceed. So in the back half of last year, we started a very large ramp with our largest client, which creates some challenging comps in Q4. Despite that, we're forecasting 11% year-over-year growth in Q4. And when we exclude our largest client, we're forecasting 9% year-over-year growth, which we think is amongst the best in the industry. There are about $5 million worth of seasonal revenues that are contemplated in the forecast. Most of that is driven, as you said, from the DCX portion of our business from retail and health care. And so at this point, we're going through the budgeting processes with our clients and just looking to ensure that we're providing guidance that we feel very confident we can deliver. Yu Lee: Great. And just as a follow-up, how should we think about your philosophy around the appropriate margins, as we think about the level of investment needed to advance your AI initiatives versus what the industry sees as potential deflationary pressure from AI? Bryce Maddock: Yes. I think ultimately, there's going to be a significant investment needed to transform our business. And we plan to be bold in that investment. We're very lucky in that we're starting from a place of EBITDA margins that are well north of 20% or adjusted EBITDA margins that are well north of 20%. And so we want to continue to be one of the more profitable players in our industry, but also have the courage to trade short-term margins for long-term growth and margin expansion. And so I think you'll see things like us beginning to break out those AI investments, which in 2024, the amount of money we're spending on these AI initiatives -- sorry, in 2025, the amount of money we're spending on these AI initiatives runs into the -- well into the multiple millions of dollars and will continue to increase into 2026. And so we'll do our best to call out those investments independent of the core of the business. Operator: The next question is coming from Dave Koning of Baird. David Koning: Good job. And I guess kind of going back to that margin question a little bit. This year was a lower gross margin year, but a better SG&A year and it netted to margins being reasonably flat. I guess we just saw 6% employee growth. So you're definitely investing. I would imagine that reflects a good pipeline, but that comes with some cost of employees, which hits the gross margin line. But kind of getting back to how does this balance out over time? Does gross margin keep falling, but you offset it with SG&A? And I guess, secondly, could margins actually go down somewhat? Or do they stay around the same? Bryce Maddock: Yes. I'll have Balji comment more on this. But let me just sort of say what we've seen. Certainly, there has been a decline in the gross margin over the last few years. It's a combination of diversification of geographic delivery and just a more dynamic pricing environment that we've seen as the industry itself has slowed in terms of growth. I'm very proud of the disciplined approach our team has taken to optimizing our G&A spending in particular and being able to more than offset any gross margin decline to defend the adjusted EBITDA line. Certainly, that is something we're going to continue to do. As I discussed in a previous question, we have a huge initiative to use AI to automate internal support functions and we've seen some very encouraging signs. As an example, in this last month, the number of hires per recruiter at TaskUs was the highest it's been in our company's history and that's because we've automated the entire candidate pipeline up until a face-to-face interview. So everything from getting candidates' information to putting them through testing to doing background screening, ID verification, that process has been entirely automated. And that's a large administrative lift that allows us to further optimize our recruitment team and push the number of hires that we're making per recruiter. That's the type of initiative that we'll see as we go into 2026, which will give us better G&A as a percentage of revenue. And then the investments we're making in terms of actually deploying AI for our clients and moving up the value chain in the service offerings into things like the AI services business, where we're seeing pretty significant growth this year should defend the gross margin and potentially expand the gross margin of the business over time. Balaji, do you want to add anything to that? Balaji Sekar: Yes. Yes. There's a couple of factors that I'll add to the gross margin trend. One is we do see the impact of annual merit inflation, including some certain statutory changes. As an example, one of the things that Bryce called out earlier in the call was the minimum wage increase in the Philippines. Items like that are captured in the forecast. Second, we did have a significant ramp this year from a revenue growth perspective, which includes ramp costs, building out new facilities, which also is reflected in our CapEx number. So that does impact gross margins. And the last is what Bryce mentioned in terms of the geography mix. As we continue to also see growth in geographies like Colombia and Greece, we do see some impact from a gross margin perspective. And we did see an offset. We did kick off a efficiency project, which -- in the early part of 2025, which Bryce spoke about that, but that impacted both the gross margin line item and also G&A line item. And this program delivered millions of dollars in savings. And that's kind of reflective in our adjusted EBITDA dollars, which grew year-on-year compared to 2024. David Koning: Got you. And maybe just a quick follow-up. Your balance sheet has become very clean. You're roughly neutral cash debt position now. You can kind of take next year's cash flow, put it all into buybacks and buy back almost 10% of the shares at the current price. Like does that start entering your mind? Or are there other uses of cash you're thinking about? Bryce Maddock: Yes. I think right now, the primary use of cash is going to be on this AI transformation. We're very fortunate to have a very clean balance sheet and a net debt position that on the current trajectory, we think will basically be net debt free at some point in Q1. So I think the first thing we're going to do is take the healthy cash flow the business generates and invest a significant portion of that into our Agentic AI consulting practice, into growing our AI services business, into continuing to transform the core of our business and really be as aggressive as we can in those investments. As I said on the prepared remarks, we are fortunate enough to have enough cash to be able to do that and look for other ways to utilize our cash flow in a way that is the most constructive in terms of creating long-term returns for our shareholders. Operator: The next question is coming from Maggie Nolan of William Blair. Margaret Nolan: Bryce, congrats on your growing family. It's fun to hear that kind of stuff. I wanted to ask about the sustainability of the AI services growth into 2026. There's a decel implied in the fourth quarter. So maybe just talk about the pipeline and whether or not that can sustain double digit growth over a slightly longer time frame? Bryce Maddock: Yes. We're very confident that AI services is going to be a double digit grower over the long term. The challenge we have in this service line that's different from the core DCX and some of the Trust and Safety business is that work. And so the work we're doing here supporting the foundational model developers and the social media companies on projects around AI safety tends to be more project-based and sprint-based in nature. And so some projects can spin up and then spin down and there can be the sort of lumpiness of revenues. So this is pretty common across the entire AI services industry. We've got a lot of competitors that are more like privately held businesses, but consistent with the information that we've been able to gather on how the industry is performing, it's just more project-based in nature. With that being said, at this stage, we do anticipate that AI services will be a strong growth for us over the course of 2026. But as you point out, there's a deceleration as we head into Q4. Margaret Nolan: Understood. And then maybe still thinking a little bit more kind of medium term, some of the expectations you have for how year-over-year comps will be impacted by some of your larger customer sets, ones that were ramping up last year. How difficult is it to lap that this year? Help us think through those dynamics. Bryce Maddock: Yes. Ultimately, we're going to provide the full 2026 guidance on the next earnings call. But I'd say that we're really proud of the results that we've put up in 2025 and our goal is certainly to continue to grow well above the industry average, while also embarking on a transformation that's going to require us to make some short-term trade-offs for long-term growth and margin expansion. Operator: The next question is coming from James Faucette of Morgan Stanley. Unknown Analyst: It's [ Antonio ] on for James. I wanted to focus on your largest customer. Could you just give us a sense on the durability of that spend as we head into next year? And then as far as their spend goes, like how that's trending within AI services and within Trust and Safety? Bryce Maddock: Yes. So as I said, we've seen massive growth at our largest customer over the course of the last 18 months and we continue to have a very strong relationship with them. I was with them just yesterday down in our site here in New Braunfels and we'll be with them again in December in Dublin. So right now, I think we're very well positioned in their vendor network. Clearly, like all of our clients, there's big investments that are going into AI. A lot of those investments we're benefiting from, as we're helping to support the development of their AI models. And then there's also trade-offs that will happen as a result of some of the work that we're doing, automating other parts of our business. So as we head into 2026, we feel very confident in the enduring relationship that we have with our largest customer. Clearly, the growth that we've seen in '25 is unlikely to happen again, but we don't have a significant amount of concern that we would see the opposite in 2026. Unknown Analyst: That's helpful. And then as a follow-up, I wanted to ask on your investment strategy that you outlined. How far along are you guys in that investment cycle? And based off of the investments that you've already made, like where have you like really seen that like really shine within the P&L? Bryce Maddock: Sorry, Antonio, I lost you there. Do you mind restating the question? Unknown Analyst: Yes. No, I was just asking on the investment strategy and like how far you are in your like investment cycle? And then where like you've seen that shine within the P&L? Bryce Maddock: Great. Yes. So ultimately, when it comes to the AI transformation strategy, I feel like we're still very much in the first inning. We've made some serious success in 2025 as we look to transform internal aspects of our business. As I mentioned, improving recruiter productivity significantly with the use of AI and scaling our use of AI across things like quality, workforce management and other elements of the business. The -- when it comes to our implementations with customers, we're really encouraged that our partnerships with Decagon and Regal are beginning to pay off and we're seeing clients begin to adopt this technology and be open to contracting in a way where we're able to deliver meaningful cost savings upfront in exchange for a longer-term transformation program. And so we think we'll see the impact of that beginning in 2026. Again, it's not a straight line. There is going to be the cannibalization of some of our own revenues in order to position ourselves to be a long-term beneficiary of that AI transformation. But we're in a position now where we feel very confident and courageous in being able to go out and make those bold decisions to trade off some short-term growth for long-term results. Operator: The next question is coming from Puneet Jain of JPMorgan. Puneet Jain: And good to be back on these calls. So Bryce, perhaps talk to us about like as clients embrace AI in automating some of the processes you service for them in digital customer care, talk to us like why they need your Agentic AI solution? Especially I'm thinking about like the large technology customers. Many of them have their own significant AI capabilities. Why do they need like TaskUs' Agentic AI solutions to automate some of their customer care processes? Bryce Maddock: Yes. I think there certainly is going to be different classes of customers. The big technology companies, the big tech, the Mag 7 are probably going to develop a lot of this technology in-house. Certainly, we've been helping a number of our customers in that category with their own AI transformation. But we've got lots of customers who are medium- to large-sized technology companies that have shown a real appetite for working with partners and consultants to drive their own AI transformation. At this stage, more than 3 years on from the launch of ChatGPT, I think leaders are getting frustrated with the slow speed at which AI is being adopted and truly completely transforming their operations. And so we've seen our clients announce partnerships with Agentic AI firms even in the last few weeks, where maybe previously, they would have tried to develop that technology themselves. The unique offering that TaskUs has is an ability to manage both AI agents and human agents. And so unlike pure technology solutions, we can come in and solve 100% of our customers' issues from day 1. For existing clients, we have spent the last 17 years training and managing human agents. And so we're taking our expertise -- in doing that, taking our expertise in our clients' processes and policies and applying that to training agents on their behalf. And we've seen a real appetite amongst our clients for help with these types of transformations. So Puneet, to answer your question directly, like the largest of the large technology companies are not going to turn to TaskUs or any of the AI agent companies to do this work for them. But most of the other companies have shown a willingness and eagerness and an appetite to work with partners on their AI transformation. Puneet Jain: That's great. And then on your Trust and Safety, like from a year ago, there was like a big focus on diversifying some of that revenue like across multiple clients. Can you talk to us like of that segment, like how much of that revenue stems from your largest customer? And you did announce like a few wins in that space this quarter. Maybe talk to us about that efforts to diversify revenue in that segment? Bryce Maddock: Yes. We've been very focused on that. And in the Trust and Safety space, there's a high concentration of spend amongst the largest buyers, which are the largest entertainment and social media platforms. We've done a good job of diversifying. We've gone from working with our largest client to working with the 2 other largest players in the space. One of those clients has become a very significant client for TaskUs in the tens of millions of dollars and driven significant growth over the last year. And in all of these initiatives now we're helping clients with both Trust and Safety and with AI safety workflows. And so I'm encouraged by the enduring relationship, the enduring nature of those relationships. Operator: Thank you. Ladies and gentlemen, this brings us to the end of the question-and-answer session and today's conference. We would like to thank you for your participation and interest in TaskUs. This concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.
Operator: Good morning, everyone, and welcome to today's ANI Pharmaceuticals Third Quarter 2025 Earnings Results Call. Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Ms. Courtney Mogerley, Investor Relations. Please go ahead, ma'am. Unknown Executive: Thank you, operator. Welcome to ANI Pharmaceuticals Q3 2025 Earnings Results Call. This is Courtney Mogerley, Investor Relations for ANI. With me on today's call are Nikhil Lalwani, President and Chief Executive Officer; Stephen Carey, Chief Financial Officer; and Chris Mutz, Senior Vice President and Head of ANI's Rare Disease Business. You can also access the webcast of this call through the Investors section of the ANI website at anipharmaceuticals.com. Before we get started, I would like to remind everyone that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation or intent regarding future events and the company's future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to ANI Pharmaceuticals management as of today and involve risks and uncertainties, including those noted in our press release issued this morning and our filings with the SEC. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. ANI specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law. The archived webcast will be available for 30 days on our website, anipharmaceuticals.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on November 7, 2025. Since then, ANI may have made announcements related to the topics discussed, so please reference the company's most recent press releases and SEC filings. And with that, I will turn the call over to Nikhil Lalwani. Nikhil Lalwani: Thank you, Courtney. Good morning, everyone, and thank you for joining us. The third quarter was another remarkable quarter for ANI Pharmaceuticals, marked by record revenue, adjusted EBITDA and adjusted EPS, all driven by continued momentum across our Rare Disease and Generics business units. We grew total company revenues by 54% year-over-year and 46% on an organic basis. In addition, we nearly doubled Cortrophin Gel net revenue compared to the third quarter of 2024 and generated adjusted EBITDA growth of 70% year-over-year. Based on our very strong third quarter performance and future outlook, we are pleased to raise our top and bottom line 2025 financial guidance. Compared to 2024, we now expect to grow 2025 net revenues 39% to 42% and 34% to 37% on an organic basis, with Rare Disease becoming essentially half of our total revenues for the year. We expect our lead Rare Disease asset, Cortrophin Gel, to grow 75% to 78% year-over-year to generate revenues of $347 million to $352 million. We expect to grow adjusted EBITDA between 42% and 46% compared to 2024. Later in the call, Steve will provide more detail on our increased guidance. Growing our Rare Disease business is a top strategic priority for us, creating long-term value for our stakeholders and advancing our purpose of serving patients, improving lives. Turning to our lead Rare Disease asset, Cortrophin Gel. To drive strong multiyear growth, we are focused on clinical evidence generation to support physician decision-making, investments to enhance patient convenience and high ROI commercial efforts to drive growth. Our team has made significant progress on these initiatives to grow Cortrophin Gel across our target specialties. In the first quarter, we expanded our portfolio of sales team, and we're seeing very positive results, highlighted by our strong momentum in new cases initiated and growth in new patient starts. We also launched the prefilled syringe in the second quarter, reducing administration steps for patients. We're seeing sizable increased demand for the prefilled syringe and expect it to be an important growth driver. Importantly, to support our commercial team's efforts to drive awareness for Cortrophin Gel, we are committed to generating data to help clinicians, patients and payers make informed treatment decisions, including a Phase IV clinical trial in acute gouty arthritis flares preclinical data on Cortrophin Gel's mechanism of action across multiple disease states and presentations and publications at prominent medical meetings. We remain confident in the strong multiyear growth trajectory of Cortrophin based on ACTH market has returned to growth following the launch of Cortrophin in 2022 and is expected to increase approximately 40% to [indiscernible] with Cortrophin growing by 75% to 78%. Despite this growth, we believe that the addressable patient populations across key indications are significantly underpenetrated. For example, the addressable patient population for acute gouty arthritis alone is 285,000 patients, an indication that is unique to Cortrophin Gel's label. Importantly, the number of Cortrophin Gel prescribers who were previously naive to ACTH represent approximately half of our total prescriber base, and this group continues to grow. Turning now to our Retina portfolio. ILUVIEN sales in the third quarter were lower due to the further impact from the continued reduced access for Medicare patients and the utilization of the remaining YUTIQ units at physician offices. In addition, adoption of ILUVIEN for NIU-PS began in the third quarter, and the company continued to make tangible progress towards full adoption of the label transition. We see 2025 as a reset year for ILUVIEN and believe that we can grow in 2026 and beyond for several reasons. First, we believe the addressable patient populations for ILUVIEN in both DME and NIU-PS are at least 10x the current number of patients treated with ILUVIEN. Second, we expect to see the ensuing results of our strengthened and more experienced ophthalmology organization that is coalescing and deploying an expanded peer-to-peer education program, speaker education program and new marketing initiatives. In addition, we continue to disseminate and contextualize findings of the NEW DAY clinical study and create greater awareness on the potential use of ILUVIEN. Lastly, we are seeing signs that there is a growing number of physician offices exploring alternative access pathways, including Medicare Part D through specialty pharmacy. This is the path we use for Cortrophin. Moving now to our Generics business. We had a very strong third quarter performance due to an opportunistic partner generic launch that occurred in the second half of the third quarter. This launch once again highlights our strength in creativity, R&D, business development, operations and execution intrinsic to ANI's Generics business, and we will continue to leverage these strengths to unlock future opportunities. Based upon upside from this launch, we expect Generics growth for the full year in the low 20% range. We're proud of the continued execution of our Generics business and how it provides ongoing foundational support that enables us to invest in our initiatives to grow our Rare Disease business. In summary, we delivered another record quarter, driven by strong performance across our Rare Disease and Generics business. As we head into 2026, we expect our virtuous cycle of growth to persist. Rare Disease is our primary focus area and largest driver of growth. We expect continued strong momentum in Cortrophin and positive impact from multiple initiatives outlined to grow ILUVIEN in 2026. In addition, we will continue to explore inorganic opportunities to expand the scope and scale of our Rare Disease business. These efforts will be supported by continued performance in our Generics and Brands business. I'll now turn the call over to Chris Mutz to discuss our Rare Disease business in more detail. Chris? Christopher Mutz: Thank you, Nikhil, and good morning, everyone. Echoing Nikhil, our Rare Disease team delivered another excellent quarter marked by continuing record demand for Cortrophin Gel. The number of cases initiated and new patient starts reached another record high, and we saw broad-based growth across all of our targeted specialties, rheumatology, nephrology, neurology, pulmonology and ophthalmology. To capture the multiyear growth opportunity for Cortrophin Gel, we are focused on 3 key priorities. First, we are investing in high ROI commercial initiatives to fuel growth. In the first quarter of 2025, we expanded our portfolio of sales force by approximately 1/3, further optimizing their territories. Our expanded portfolio sales team added new prescribers and drove meaningful increases in new patient starts across our core specialties during the third quarter. In addition, our specialty-focused teams produced sizable growth in our newer areas of pulmonology and ophthalmology, and we believe we are still in the early stages of penetrating these therapeutic areas. Cortrophin Gel prescribing for acute gouty arthritis flares remained a key driver in the third quarter. Notably, the acute gouty arthritis indication is unique to Cortrophin Gel's label among ACTH therapies and accounts for over 15% of Cortrophin Gel use. Further, the gout indication has contributed significantly to the growth of new prescribers, many of whom are historically unfamiliar with ACTH. Turning to ophthalmology. We continue to realize meaningful revenue synergies and saw a record number of new patient starts and a 42% sequential quarterly increase in Cortrophin volumes. We believe there is further growth potential to expand awareness of Cortrophin for patients with severe allergic and inflammatory eye conditions. Additionally, we continue to strive to enhance patient convenience. Our new Cortrophin prefilled syringe offering, which we launched in April, provides a simplified administration that we believe has been well received by patients and prescribers. The prefilled syringe continues to be an important growth driver for Cortrophin Gel. And finally, we are investing in clinical evidence generation to support physician decision-making. As previously announced, we're conducting a Phase IV trial in acute gouty arthritis flares. We believe the 150-patient study will provide physicians with valuable insight on the treatment of acute gouty arthritis flares with Cortrophin Gel and could support positioning and treatment guidelines. We continue to generate robust preclinical data for our key stakeholders on Cortrophin's differentiated mechanism of action across multiple disease states. This is an important growth initiative as we believe increasing the body of evidence supporting Cortrophin Gel's use across indications will help physicians make further informed treatment decisions. Our preclinical study of Cortrophin Gel in uveitis that was presented earlier this year has been published in ocular immunology and inflammation. We also had a poster at the American College of Rheumatology 2025 Annual Meeting that highlighted preclinical data supporting the use of Cortrophin Gel for the treatment of inflammatory arthritis and its anti-inflammatory mechanism of action. Additionally, a manuscript for a preclinical study of Cortrophin Gel in membranous nephropathy was accepted for publication in molecular therapy. The study demonstrates the steroid-independent mechanism of action of Cortrophin Gel in an animal model of membranous nephropathy, specifically its effect on the complement system, areas of significant interest in ongoing membranous nephropathy drug development. Subsequently, this publication was highlighted in a commentary paper in molecular therapy and presented at the American Society of Nephrology meeting. Turning to our Retina franchise. We are making progress on multiple initiatives to improve ILUVIEN sales. Our commercial team is fully hired, onboarded and dedicated to educating and supporting the Retina community. We are strengthening our promotional efforts, including a ramp-up of new peer-to-peer educational speaker programs and the continued execution in the field with new marketing materials to increase the understanding of Retina physicians of ILUVIEN and its 2 indications. In mid-June, we began promoting ILUVIEN under the combined label for chronic NIU-PS and DME. Our sales teams are educating customers across the country, and our market access team has worked with payers to establish coverage for ILUVIENs new chronic NIU-PS indication. 6 of the 7 Medicare administrative contractors, or MACs, have updated their policy to cover ILUVIEN for NIUPS, and we are working with the other contractors they update their policy. Among the top 20 commercial payers, all payers who have a policy specific to ILUVIEN have updated to reflect both DME and NIU-PS indications. We continue to receive positive clinician feedback on the convenience of a single product covering both indications. Next, we have initiatives in place to help physician practices navigate the market access challenges for Medicare patients that have persisted since January 2025. As a reminder, patient support foundations such as Good Days did not receive sufficient funding for 2025, which affected their ability to assist Medicare patients with co-pay support across Retina products broadly. Our team has been gaining traction with HCPs with leading Retina practices exploring the pathway to get ILUVIEN accepted for appropriate eligible patients through Medicare Part D benefit using a specialty pharmacy. This is the same approach used for access to Cortrophin. In addition, -- we continue to present the results of our NEW DAY study of ILUVIEN in patients with DME at numerous prominent medical meetings. This includes a late-breaking oral presentation at the American Academy of Ophthalmology 2025 meeting, a presentation at the American Society of Retina Specialists Annual Meeting and an oral presentation at the EU Retina Innovation Spotlight 2025 meeting. Looking forward, we are preparing to present these data at additional upcoming conferences to further disseminate and contextualize these findings. With that, I'll turn the call over to Steve for the financial update. Steve? Stephen Carey: Thanks, Chris, and good morning to everyone on the call. Today, I'll review our third quarter results and our revised guidance in more detail. We delivered strong top and bottom line growth, generated significant cash flows and are raising our 2025 financial guidance based on our exceptional performance this quarter. ANI generated revenues of $227.8 million in the third quarter, up 53.6% over the prior year period. Revenues from Rare Disease and Brands were $129.1 million in the third quarter, nearly double the prior year period on an as-reported basis and up 82.2% on an organic basis, driven by growth in our Rare Disease franchise. Rare Disease revenues were $118.5 million, up 109.9% from the prior year. Revenues from Cortrophin Gel were $101.9 million, up 93.8% from the prior year period, driven by increased volume on a record number of new patient starts. ILUVIEN net revenues were $16.6 million. Revenues for Brands were $10.7 million in the third quarter, up 16.1% versus the prior year period due to an increase in demand for certain products. On a sequential basis, revenues were down $2.5 million as we saw the expected trend towards normalization in demand during the quarter. We expect that the normalization trend will continue and therefore, expect modestly lower demand in the fourth quarter. Revenues for our Generics and Other segment were $98.7 million, an increase of 19.3% over the prior year period. Revenues for Generics were $94.4 million over the prior year period, driven by the successful launch of a partnered generic product in the second half of the third quarter that overcame our previous expectation for a sequential dip in Generics. Generics were up $4.1 million as compared to second quarter of 2025 due to the strength of this launch. Note that the gross margin for this partner generic product is lower than typical gross margin for our Generics portfolio given the profit share element with our partner. Now moving down the P&L. As a reminder, when I speak to operating expenses, I will be referring to our non-GAAP expenses, which are detailed in Table 3 of our press release. Generally, our non-GAAP operating expenses exclude depreciation and amortization, stock-based compensation, certain costs related to litigation and M&A activity as well as certain noncash charges. Please refer to Table 3 for a reconciliation to our GAAP expenditures. Non-GAAP cost of sales increased 56% to $92.9 million in the third quarter of 2025 compared to the prior year period, primarily due to net growth in sales volumes and significant growth of royalty-bearing products. Non-GAAP gross margin was 59.2%, a decrease of 63 basis points from the prior year period, principally due to product mix, including the lower gross margins on our partnered generic product. Non-GAAP research and development expenses were $11.8 million in the third quarter, an increase of 36% from the prior year period, driven by higher investment to support future growth of our Rare Disease and Generics businesses. Non-GAAP selling, general and administrative expenses increased 41.1% to $63.6 million in the third quarter, driven by spend for our new larger ophthalmology sales team promoting Cortrophin Gel and ILUVIEN and continued investment in Rare Disease sales and marketing activities, including the expansion of the Rare Disease team in the first quarter. Adjusted non-GAAP diluted earnings per share was $2.04 for the third quarter compared to $1.34 per share in the prior year period. Adjusted non-GAAP EBITDA for the third quarter was $59.6 million, up 69.8% compared to the prior year period. We ended the third quarter with $262.6 million in unrestricted cash, up from $217.8 million at the end of the second quarter and $144.9 million as of December 31 of the prior year. Cash flow from operations was $44.1 million in the third quarter of this year and $154.9 million on a 9-month year-to-date basis. As of September 30, we had $633.1 million in principal value of outstanding debt, inclusive of our senior convertible notes and term loan. At the end of the third quarter, our gross leverage was 3x, and our net leverage was 1.7x our trailing 12-month adjusted non-GAAP EBITDA of $214.5 million. During the third quarter, we concluded our 2021 PIPE financing transaction with Ampersand by converting all previously issued 25,000 shares of Series A convertible preferred stock to 602,900 shares of common stock. As of September 30, 2025, balance sheet, there were no further shares of Series A convertible preferred outstanding and all mandatory dividends were paid in full. Now turning to our updated 2025 financial guidance. We are raising our guidance for total revenue, adjusted non-GAAP EBITDA and adjusted non-GAAP EPS based upon higher estimates for Cortrophin Gel net revenue and the continued outperformance of our Generics business, while tempering our ILUVIEN estimates. Our updated guidance is as follows: Full year 2025 net revenue of $854 million to $873 million, up from our prior guidance of $818 million to $843 million, representing year-over-year growth of approximately 39% to 42%. Cortrophin Gel net revenue of $347 million to $352 million, up from our prior guidance of $322 million to $329 million, representing year-over-year growth of 75% to 78%, driven by continued volume gains. We continue to expect sequential growth of Cortrophin revenues in the fourth quarter. Combined ILUVIEN and YUTIQ net revenue of $73 million to $77 million versus our prior guidance of $87 million to $93 million. This guidance assumes no meaningful change in the co-pay funding gaps facing Medicare patients in Retina for the remainder of the year. Generics revenue growth in the low 20% range, driven by strong contribution from new product launches. We expect Generics revenue in the fourth quarter to be down on a sequential basis due to competitive entrants into the market in which our third quarter partnered product competes in. Adjusted non-GAAP EBITDA of $221 million to $228 million, up from our prior guidance of $213 million to $223 million, representing year-over-year growth of approximately 42% to 46%. Adjusted non-GAAP earnings per share between $7.37 and $7.64, up from our prior guidance of $6.98 and $7.35. We are revising our full fiscal year guidance for adjusted gross margin to 61% to 62% compared to our previous guidance of 63% to 64%, driven by the revised revenue mix in this morning's guidance with lower ILUVIEN and higher Generics forecast as compared to our previously issued guidance. We currently anticipate a full year U.S. GAAP effective tax rate of approximately 21% to 22%. And consistent with prior quarters, we will tax effect non-GAAP adjustments for computation of adjusted non-GAAP diluted earnings per share using our estimated statutory rate of 26%. We now anticipate between 20.5 million and 20.7 million shares outstanding for the purpose of calculating full year non-GAAP diluted EPS. Please note that in periods in which ANI common share price is greater than the conversion price of our underlying convertible debt of $74.11 and lower than the conversion price of our corresponding capped call transaction of $114.02 per share, we will exclude from our adjusted non-GAAP diluted EPS calculation, the dilutive shares included in the GAAP diluted EPS calculation, which are expected to be offset in full by the capped call transaction. The third quarter was the first reporting period in which this condition exists. With that, I'll turn the call back to Nikhil. Nikhil Lalwani: Thank you, Steve. In closing, we made exceptional progress as we continue to execute on our strategic priorities. Rare Disease remains our top strategic area and primary driver of growth, and we'll focus our efforts on driving further growth in Cortrophin and improving ILUIVEN performance. We are encouraged by our performance this quarter, having reached more patients with our portfolio of high-quality medicines, nearly doubling Cortrophin Gel net revenues compared to the third quarter of '24 and significantly growing both the top and bottom line, made possible by the efforts of our employees, customers, suppliers and investors and their dedication to our mission of serving patients, improving lives. Operator, please open the line for questions. Operator: [Operator Instructions] We'll go first this morning to Dennis ding of Jefferies. Yuchen Ding: One on Cortrophin. So Medicare Part D redesign lowered the catastrophic coverage limit this year, and that's been a big tailwind. But that also makes for a really tough comp next year where growth should be driven more organically and through expanding the breadth of prescribers. Do you agree with that take? And I guess, how much confidence do you have that you're able to do that with the sales force you have currently? Nikhil Lalwani: Thank you, Dennis. So I think I'll take your questions in 2 parts. First is what's the impact of IRA on 2025 and then how do we see this going forward? So I think, as you pointed out, IRA improves affordability and access for appropriate patients to needed medicines by capping the co-pays at $2,000 as well as introducing the ability to evenly spread the payments throughout the year. Now we did see a modest tailwind from that. This is consistent with what we've said in the prior quarter. And the reason it's modest is while this did get additional patients on therapy, it was tempered by the mandatory Medicare manufacturer payments that we need to make. And so overall, Cortrophin saw a modest net positive impact from the Part D redesign through IRA. And then as far as your second question on next year and going forward, look, it's we believe that there is significant multiyear growth opportunity for Cortrophin in 2026 and beyond. And that's driven by the -- really the strong underlying demand and the demand sort of is centered in the addressable populations, right? Addressable patient populations across key indications are significantly underpenetrated. For acute gaty arthritis alone, it's about 285,000 patients. And our ability to expand the market is highlighted by the fact that approximately half of our prescriber base had never used ACTH therapy before. And as Chris had mentioned in his remarks, we continue to see growth from both the existing prescribers as well as new prescribers. So we remain confident of being able to reach the appropriate patients in need by working with the HCPs. Thank you, Dennis. Operator: We'll go next now to Faisal Khurshid at Leerink Partners. Faisal Khurshid: Could you speak a little bit more to what this kind of new partner generic product is? And then also what you expect for that in the fourth quarter and kind of going into 2026 as well? And then [indiscernible]. Nikhil Lalwani: Thank you, Faisal. So for competitive reasons, we're not specifying the name of the partner generic. It's a product that we launched, obviously, as it's intended with another manufacturer. And we're able to capture -- be the sole generic for a period of time, a majority of which was in Q3. In Q4, we have seen some competition enter on that product. So that's why our guidance for Q4 for Generics is showing a sequential drop versus the much higher Q3 that we had. And because it's a partnered generic, it also has profit share in it, and therefore, the gross margins on that product are lower. Going into 2026, we will see at least the existing competition continue, and we look forward to updating you more on the guidance for 2026 in early next year. Faisal Khurshid: Got it. Okay. And then on Cortrophin, are there any inventory or gross to net situations that we should be aware about just because it seems like the volume growth kind of outpaced the actual dollars growth in this quarter? Nikhil Lalwani: The Cortrophin Gel growth is driven by strong underlying demand, highest number of new patient starts and new cases initiated since launch, growth across all targeted specialties, the expanded portfolio of sales force that we did in the first quarter drove growth in nephrology, neurology and rheumatology gout, which is one of the newer target specialties now represents 15% of Cortrophin Gel use. That contributed significantly to the growth. In fact, to the growth, not just in Cortrophin volume, but also to the growth of ACTH naive prescribers. And then the combined ophthalmology sales force continued to build momentum with a 42% increase in volume versus the second quarter of '25. And then underlying just from a presentation perspective, there's strong demand for the prefilled syringe with accounting for almost 70% of the new cases initiated. So it's strong underlying demand that's driving the growth in Cortrophin. Operator: We'll go next now to David Amsellem at Piper Sandler. David Amsellem: So just a couple of quick ones for me. And I'm sorry if I missed this earlier in the prepared remarks. Can you talk about regarding Cortrophin, the growth trajectory in pulmonology and what portion of the mix that is? I think you talked about the other therapeutic areas. And then secondly, just given just the wide label and all the different indications, where do you envision untapped opportunities that aren't really a big part of the current mix for the product? And then lastly, I know this is a priority, but just wanted to get your latest thoughts on business development and M&A and how large of a transaction you'd contemplate given the current capital structure? Nikhil Lalwani: Yes. Thank you, David. So pulmonology and sarcoidosis is an important therapeutic area for us. We have a dedicated -- a smaller team but dedicated for pulmonology, and we are seeing growth in that area, too. Again, it's a smaller part of the overall Cortrophin picture at this time, but there is a significant growth opportunity there. And in pulmonology, we see a larger number of vials per patient. So I think that's another factor that makes pulmonology an important area for us. So that's on pulmonology. Regarding the wide label, look, I think currently, as you have seen the addressable patient populations in the indications that we're addressing today is much larger than anything that we're penetrating today. And so our immediate focus is -- our near-term focus is on tapping these different opportunities. And it's across the board, right? It's in neurology, nephrology, rheumatology, we talked about gout, we talked about ophthalmology, the quarter-on-quarter growth. So there's multiple areas. And part of -- as we think, as Chris thinks about where to drive the growth is where to make the high ROI commercial investments to achieve that growth because there's really -- we're fortunate that there's opportunities across specialties and that we're able to drive growth through existing prescribers as well as have new prescribers who've never -- some that are naive to ACTH and some that were never not even familiar with ACTH adopt Cortrophin or use them in their treatment paradigm for appropriate patients. And then lastly, to your question on BD, we continue to explore opportunities to expand scope and scale our Rare Disease business. I think that our filters are similar to what they were last time, which is at this time, which is late stage or close to commercial or commercial. and synergistic with either our sales force, right? So call point synergy as was in the case of Alimera or leveraging the rest of our Rare Disease infrastructure, right, which is the market access, patient support, specialty pharmacy distribution and across the board there. So that's how we think about BD efforts, and we're continuing to explore opportunities. But as I said, as I highlighted, if you look at even the growth this year, we had 34% to 37% growth based on our guidance organically, right? So -- and there's significant growth opportunity, both in Cortrophin and ILUVIEN. So we're not in a hurry to do a deal. We're wanting to make sure that we do the right deal as we expand the scope and scale of our Rare Disease business. Thank you, David. Operator: We'll go next now to Vamil Divan at Guggenheim. Daniel Krizay: This is Daniel on for Vamil. Congrats on the quarter. So maybe just one question on Cortrophin. Maybe if you could expand a little bit on like what exactly currently is driving doctors to use this drug across these various indications. I know you mentioned that you're focused on generating more evidence around this mechanism now. But maybe currently with what you have, like who are the patients that doctors think are the right ones for Cortrophin versus other alternatives that are available for each of these different conditions? Nikhil Lalwani: Sure. And thank you, Daniel. So I'll start and then Chris can jump in. So Cortrophin is a late-line treatment for appropriate patients for which other therapies have been sort of less effective and the real sort of the standard of care and the treatment options that are varying by I guess, by specialty and by indication. So when it fits into the treatment algorithm, it sort of varies. But essentially, it's a late-line treatment option. It's used for -- also for patients that have with this nonsteroidal mechanism of action used for patients that are refractory to steroids or have a high side effect profile. Chris, would you like to add anything? Christopher Mutz: Yes. No, I'd just say taking care of patients with autoimmune disorders is challenging. And thank goodness, there are a lot of great options across -- for physicians to use, right, disease-modifying therapies, new innovations across the spectrum and the patients we serve. But there are still patients -- select patients that are really tough to take care of. And physicians are coming to the kind of end of the road in terms of good options for those patients that they can rely on. And there's a significant number of those patients, as we've outlined, who need something different and a new choice of treatment. And I think that's where we focus on those we think there's -- that's a large patient population. It's a difficult-to-treat patient population, and we are just getting started. Operator: We'll go next now to Gary Nachman with Raymond James. Gary Nachman: Congrats on another strong quarter. So back on Cortrophin, you just added reps and saw a good ROI on that immediately. Is this market really that promotion sensitive? Maybe just characterize that a bit more? And are there still some pockets where you could add more reps? And would you do that in the near term given the great returns there? And then the prefilled syringe seems to be having a big impact on the acceleration. Was administration really that much of a factor that previously held back use? So just explain more why you're seeing such a benefit from the prefilled syringe helping growth. Nikhil Lalwani: Yes. I think, Gary, thank you for your questions. That first question on the impact of and impact of sales reps, I would say that the way we think about it is we expanded our -- the underlying patient demand is very high, right, versus anything that we're capturing. So there are opportunities to reach prescribers, right, that with our sales force, there's opportunities to get in front of more prescribers and spend more time with them that we can keep building on where we are. So if you look at -- if you think about where we expanded the sales force, we had a combined sales force detailing into neurology, nephrology and rheumatology. And as you can imagine that even within a territory, it's tough to cover all 3 indications. So we expanded the number of sales reps in that area. And what that did is it reduced what's called windshield time and allowing the reps to spend more time speaking with docs about Cortrophin. And yes, there is opportunity to -- across specialties, across indications as we think about increasing awareness for the appropriate patients of Cortrophin, there's certainly opportunity to do that across multiple areas, right, across the portfolio area, across gout, across ophthalmology. So ophthalmology, I think we're set with the combined sales force we have right now. But there's opportunities sort of across multiple specialties and something that we'll continue evaluating high ROI commercial efforts there. And then your second question on prefilled syringe. Look, when we launched the prefilled syringe, we had expected that the prefilled syringe would be used for patients that had dexterity issues or issues with their eyesight. But as we're seeing this much greater adoption and it's across specialties, I think when given an option, I think prescribers are just prescribers and patients are choosing the reduced administration step because in the original or in the 5 ml vial, there are 2 steps to the administration. You have to obviously draw the drug from the vial and then administer it and have to use 2 different needles for doing so. So a prefilled syringe is -- it reduces that step in administration and has therefore driven more widespread adoption. What it has done is there are prescribers that are sort of willing to try a prefilled syringe, probably a bit more than going to a 5 ml vial that requires -- which is a larger use. But I mean, essentially, the growth is coming from the strong underlying demand which would have been there also with the 5 ml vial and the 1 ml vial, the other presentations that are there, the adoption of the prefilled syringe has driven -- has been driven by just the reduced steps of administration. Operator: We'll go next now to Ekaterina Knyazkova at JPMorgan. Ekaterina Knyazkova: Congrats on the quarter. So just a quick one for me. Just remind us how you're thinking about the durability of Cortrophin Gel over time. Just latest thoughts on the possibility of potential generic competition eventually emerging. And I'm not talking like next year, 5, 10, 15 years from now. I think there's obviously a lot of barriers to entry there. But just, I guess, as this class is becoming bigger and probably garnering more attention from potential generic manufacturers. Nikhil Lalwani: Sure. Thank you, Katrina. Yes, having a capability in Generics ourselves is we're able to sort of pretty -- we have expertise and capability in assessing the pathway to developing a generic. And our position sort of stays that given this is porcine derived and the mix of -- and the formulation that it is, what it will take to actually develop a generic, it's a very tough pathway. And that's why while many folks have tried it and have not succeeded. It's a very complex development, and there are examples of products like this that are that are tough to genericize. So we continue to believe in the long-term durability of either ACTH product being tough to genericize. Yes. Sorry, one other thing I would highlight is both us and the competitor have also added patents, strengthened our IP around the products that go into the 2040s. So that's another point on durability. Thank you. Operator: We'll go next now to Brandon Folkes with H.C. Wainwright. Brandon Folkes: Congrats on another good quarter. Nikhil, just following on from the prior question. Can you just remind us of the challenges of label expansion in the ACTH category for these products? Just sort of in the past, is this label expansion been a cost-benefit decision or practicality decision? And then just sort of any color in terms of if this market does double, the confidence around maintaining exclusivity on gout as a label claim? And then does that Phase IV data give you any potential additional IP around that? Nikhil Lalwani: Thank you, Brandon. I think that the -- our interaction -- on your question on label expansion, our interaction with the FDA suggests that any label expansion will need to follow the current rules of the FDA, which requires a Phase IV -- sorry, Phase III clinical trial and all the associated rules that are in place today. So that's what we'll need to do, and that's what our competitor will need to do, whether that's us trying to -- that's our understanding, whether that's us exploring infantile spasms or which is an indication they have that we don't or us exploring or them exploring acute gouty arthritis flares. And then on the Phase IV data, look, that study was designed and is being executed more to inform and assist physicians in their treatment and hopefully, in their treatment decisions and hopefully could be included in the treatment guidelines, which can drive sort of further adoption. Operator: We'll go next now to Leszek Sulewski at Truist Securities. Leszek Sulewski: Three for me. So just to touch on the sales force again. What are some of the KPIs that you're tracking to back the rightsizing of this team? And what trends have you seen in the sales per rep from the sales force expansion? And any of these metrics would drive your reasoning to potentially increase the sales force? And then second, can you provide any more color around that partner generic program? Are there additional opportunities in similar scope? Or is this a one-off situation? And then third, maybe for Steve. As you close out the year, could we potentially anticipate an intangible asset impairment charge tied to the revaluation of the Alimera acquisition? Nikhil Lalwani: All right. Thank you for your questions, Les. So I think first is on the sales force. As we believe -- well, on the KPIs, we're going to -- we try to share information that's helpful to investors and competitively sensitive. So I'll steer away from the KPIs. But on the trends, I mean, there's clearly expansion of the sales force in the appropriate areas is a high ROI commercial effort as evidenced by the expansion that we did earlier this year for our portfolio sales team. So that's something that we will continue to evaluate and explore as we move forward. On the partner generic -- yes, on the partner generic, there are definitely opportunities like that, ones that have been in the hopper that ones that we continue to work on. And it really just highlights our end-to-end capability, right, in BD, in R&D, in commercialization and obviously, in operational excellence. So across the board, I think we're uniquely positioned with our U.S. manufacturing footprint, right, with more than 90% of our revenues coming from products that are made in the U.S. with our 3 manufacturing facilities that are in the U.S. So we're uniquely positioned from that standpoint. And we absolutely plan to and are already working on such opportunities to capture and to bring to market. And then on the -- I think the ILUVIEN long-term question, I think that there is -- so beyond Q4 and 2026, we believe the addressable patient populations for ILUVIEN in both DME and NIU-PS are at least 10x the current number of patients currently being treated with ILUVIEN. We expect to see the results of our strengthened ophthalmology organization deploying the expanded peer-to-peer speaker education program and new marketing initiatives. And then in addition, we continue to disseminate and contextualize the findings of the NEW DAY clinical study and create greater awareness on the potential use of ILUVIEN. So while we see 2025 as a reset year, we are confident in being able to drive growth in 2026 and beyond for ILUVIEN. And Steve, I don't know if you want to add anything to Les' question with that backdrop. Stephen Carey: Yes, I would only add that we evaluate all of our intangible assets on a quarterly basis. And the third quarter for ILUVIEN was no different and obviously, passed that testing in the third quarter. And as Nikhil just outlined, right, when we think about the mid- to long-term forecast for the product, we remain confident in the mid- to long-term opportunities as Nikhil just laid out. Operator: And Mr. Lawani, it appears we have no further questions this morning. So I'd like to turn the conference back to you for any closing comments. Nikhil Lalwani: Thanks, everybody, for joining, and we look forward to updating you on our progress in the future. Thanks, everybody. Operator: Thank you very much, Mr. Lawani. Again, ladies and gentlemen, that will conclude today's ANI Pharmaceuticals third quarter earnings call. Again, thanks so much for joining us, everyone, and we wish you all a great day. Goodbye.
Operator: Good day, and thank you for standing by. Welcome to the Coherus Oncology Q3 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Carrie Graham. Please go ahead. Unknown Executive: Thank you, Heidi. Good afternoon, and welcome to Coherus Oncology's Third Quarter 2025 Earnings Conference Call. Joining me today to discuss our results are Denny Lanfear, Chief Executive Officer of Coherus; Bryan McMichael, Chief Financial Officer; Dr. Rosh Dias, Chief Medical Officer; Dr. Theresa Lavallee, Chief Scientific and Development Officer; and Sameer Goregaoker, Chief Commercial Officer. Before we get started, I would like to remind you that today's call includes forward-looking statements regarding Coherus' current expectations about future events. Actual results may vary significantly, and we undertake no duty to update or revise any forward-looking statements. Please see the press release that we issued today and our quarterly report on Form 10-Q for more information on risks and uncertainties. And now I'd like to turn the call over to Denny. Dennis Lanfear: Thank you, Carrie, and good afternoon, everyone, and welcome to our Q3 2025 earnings call. As we get started, let me first welcome Arvind Sood to Coherus Oncology, our newly appointed Chief Strategy and Corporate Affairs Officer. Arvind is responsible for Investor Relations, Corporate Development and government affairs. Welcome, Arvind. Unknown Executive: Thank you. Dennis Lanfear: Things are going very well and today, I'm very excited to tell you about the progress we have made on our strategic plan in the last quarter, as well as generally recap our progress for you over the past year as we approach the end of 2025. As you know, we take great pride in our ability to execute, and execution has been strong across the board. For example, you may recall last year me telling you that our objectives included driving the top line, reducing expenses and strengthening the balance sheet. I'm happy to report that we've made great progress across all 3. We are particularly pleased with our progress on the balance sheet and expenses, which shows a substantial improvement over the past year. My Chief Financial Officer, Bryan McMichael, will discuss these results with you directly. Now the Coherus Oncology value proposition for investors is all about our drugs, our evolving data and the opportunity for deals. We have set ourselves up for success with a sound strategy and have gained significant momentum and hit our stride. Regarding our drugs, LOQTORZI is a next-generation PD-1, active in low PD-L1 cancers and approved in nasopharyngeal cancer, where it is a revenue generator for us, providing growing sales and margin contribution. Our Chief Commercial Officer, Sameer Goregaoker, will give you the color and detail on that shortly and reiterate our confidence that we will achieve our revenue targets. Our focus as a cancer company is achieving a step change in patient survival. That is our goal. We believe the future of extending patient survival lies in combinations, and we are combining LOQTORZI with both our own proprietary pipeline assets across indications. LOQTORZI is also being used in combination with other companies' therapeutic assets. And upon approval of any of these drugs, will be a revenue multiplier, its second key role in our strategy. We are currently pursuing liver and lung cancer with casdozokitug. And with CHS-114, our CCR8 Treg depleter, we are pursuing head and neck cancer, gastric cancer, esophageal and now colorectal cancer, an area of expanded focus for us, all in combination with LOQTORZI, which brings me to the second thing for investors to keep in mind, our data. In just a moment, Dr. Rosh Dias, our Chief Medical Officer, will update you on our enrollment and clinical trial progress in more detail. But I will note here that enrollment across all of the initiated studies is in full swing and on a global basis, with the vast majority of our sites open as we drive to deliver data for you next year in these promising indications. With clinical development, we have hit our stride and with highly engaged clinical investigators enthusiastic about these highly promising mechanisms of action and enrolling their patients suffering from their unmet need to stop their cancers. Dr. Theresa Lavallee, our Chief Scientific and Development Officer, will spend a few minutes with you today discussing the mechanism of action of our drugs with particular focus on the therapeutic promise of T regulatory cells as a target. As you know, this field was the subject of a recent Nobel Prize in Physiology or Medicine, thrusting it to the fore and underscoring its therapeutic potential. As a leader in this rapidly advancing field, Coherus Oncology is proud to be the first company to demonstrate Treg depletion and subsequent CD8-positive T cell infiltration in a patient. The organizers of the 2025 SITC meeting invited us to present our data at a webinar recently, which was the highest attended of the year. CHS-114, our highly selective CCR8 Treg depleter, is potentially best-in-class. And given the broad distribution and role of Tregs in the body, selectivity takes out a dominant role. With our broad yet focused clinical program reading out over 2026, we are well positioned to continue the scientific leadership that we demonstrated in 2025. We have global rights to CHS-114, as well as casdozokitug. So let me make a few comments about potential deals, the third part of our value proposition investors should keep in mind. Treg depletion is potentially complementary, mechanistically with a wide variety of existing therapeutics where the proportion and density of T regulatory cells is correlated to poor outcomes. Recall my earlier comments about combinations. This means that adding something like CHS-114 to ADCs, bispecifics or radiation treatment or other therapeutic approaches may improve outcomes and extend survival. We are pursuing such partnering opportunities both in the U.S. where we are commercially focused, but also globally ex U.S., where we are not focused yet have full rights. Such arrangements will provide us with income from upfronts to offset ongoing clinical development costs, but more importantly, cost contribution to pivotal or registrational trials, which need to be conducted globally. Over the next 6, 12 and 18 months, we can expect our emerging clinical data to drive such deals, and we'll keep you updated on our calls. And with that, let me hand it over to Theresa. Dr. Lavallee? Theresa Lavallee: Thank you, Denny, and good afternoon. I'm excited to update you on Coherus Oncology's innovative pipeline aimed to advance cancer treatment. Let me start with this year's Nobel Prize for physiology or medicine, recognizing the importance of T regulatory cells and immune homeostasis. If Tregs are defective or missing, this results in severe autoimmune disease, providing strong evidence for the critical role these cells play in peripheral immune tolerance. Tumors exploit these cells as a key mechanism to evade the immune system. This is a problem because it results in cancer growth and progression. The presence of Tregs in tumors is known to be associated with poor outcomes to any cancer therapy, including chemotherapy, radiation and of course, PD-1 inhibitors. While this is well known, what has been a problem in the field is a way to selectively target Tregs in the tumor and not in peripheral tissue. CCR8 is a protein preferentially expressed on tumor-resident Tregs, enabling a targeted therapy approach to selectively remove these immune suppressive in the tumor. We have been focused on CCR8 as a drug target for several years and believe our program is set apart from the field. CHS-114 is a cytolytic antibody with ADCC enhancement designed to find and kill CCR8-positive Tregs. This mechanism is akin to an ADC molecule. And in this case, the payload is enhanced effector function leading to Treg killing. Our preclinical and clinical data have shown differentiation, potency and tumor response. CHS-114 was evaluated for binding to over 5,000 human proteins, the entire proteome available on the outside of the cell. Importantly, CHS-114 only binds to one protein, its target, CCR8. Eliminating off-target binding has the potential to have a differentiated safety profile. CHS-114 is the only known selective CCR8 antibody. Additionally, it has shown an acceptable safety profile, selective CCR8 Treg depletion in tumors and also a remarkable ability to lead to the increase of CD8 T cells in tumors, thus characterizing the tumors as hot or immunologically responsive. In the initial safety cohort of 7 U.S. patients evaluating CHS-114 with toripalimab, response was observed in a fourth-line head and neck cancer patient. All of these data not only show the idea works, targeting CCR8 will mainly remove tumor Tregs, but also show CHS-114 treatment remodels the tumor to be more immune active. This weekend at the Annual SITC conference, we will present additional biomarker data showing significantly enhanced immune activations in head and neck cancer patients following CHS-114 treatment with toripalimab. This is important as we are testing whether the combinations of CHS-114 with toripalimab can overcome PD-1 resistance in refractory patients. CHS-114's pharmacological and clinical attributes establish it as having good drug-like properties. And this, coupled with our program's focus on generating data to address 2 areas of increased scrutiny by the U.S. FDA. First, data in a Western population; and second, dose optimization, establish our scientific leadership in the space. The last point I want to make on CHS-114 is that it is a targeted therapy. So, we know who to treat, essentially tumors with a high prevalence of CCR8, its target. Tumor types that have a high degree of CCR8 include lung, colon, head and neck and gastric to name a few. Coherus Oncology is prioritizing some of these tumor types and is now enrolling in a new cohort evaluating CHS-114 and toripalimab in a patient population without any approved immunotherapy yet, microsatellite stable colorectal cancer. The clinical program is designed to generate data on a variety of solid tumors and further inform where CHS-114 and toripalimab treatment results in meaningful clinical benefit alone or in combination with chemotherapy. Now switching gears to discuss our other promising clinical program, casdozokitug. Another approach to overcoming immune evasion is activating NK cells. T cells and NK cells are the body's immune killer cells. Casdozokitug, Coherus Oncology's first-in-class IL-27 antagonist results in immune activation of both T and NK cells. At this week's International Cytokine and Interferon Society meeting, we presented preclinical and clinical biomarker data showing an important role for NK cell activation and casdozokitug's efficacy, particularly in first-line HCC, a tumor type rich with NK cells. The updated biomarker data continue to support that casdozokitug treatment leads to inhibition of IL-27 signaling and enhanced cytolytic immune activity by NK and T cells. Why is this important? Two reasons. One, casdozokitug treatment results in strong NK cell activation may give a mechanistic explanation for why the results showed a more than doubling of the complete response rate, activating both NK and T cells could optimize tumor cell killing and lead to its disappearance. The second reason I highlight this is that when a new drug is added to standard of care, we need to show the contribution of components or said plainly, is casdozokitug adding anything to standard of care. These data give further confidence the deepening of response is associated with casdozokitug treatment since patients who respond show IL-27 inhibition and significant NK cell activation. Also, I want to reiterate Dennis comments that identifying partnerships that accelerate the development of the pipeline is a priority. We own global rights for both casdozokitug and CHS-114, and these compelling clinical data across the 2 pipeline assets are supporting discussions with potential partners. Before I turn it over to Dosh, let me just summarize why we are excited about recent developments with our key pipeline molecules. We were thrilled the Nobel Prize for Physiology or Medicine recognizes the importance of T regulatory cells in immune homeostasis. We will present biomarker data at SITC meeting this week, showing enhanced immune activation in head and neck cancer patients following treatment with CHS-114 in combination with toripalimab. Also, our presentation of biomarker data earlier this week at the International Cytokine Meeting provides further support of casdozokitug's contribution on top of standard of care in liver cancer patients. With that, I'll turn it over to Dr. Dias, who will further describe the clinical development. Rosh Dias: Thank you, Theresa, and good afternoon, everyone. Given the clear unmet medical need and the potential for improvement over available therapies, we are aggressively advancing our programs for both casdozokitug and CHS-114 in our focused indications. For both molecules, investigators globally maintain strong engagement and enthusiasm for our programs with very active participation in our trials. Starting first with casdozo in first-line hepatocellular carcinoma. Our ongoing study is a 3-arm multinational study, randomizing patients to 2 doses of casdozo in combination with toripalimab and bevacizumab versus tori/beva and is designed to achieve 3 objectives: firstly, efficacy and safety data; secondly, address the FDA's Project Optimus and thirdly, address contribution of components as we move through the development pathway. As a reminder, this trial builds upon the very encouraging data we presented at ASCO GI in January of this year. In Study 201, we showed that casdozo in combination with atezo and bev achieved an overall response rate of 38% and importantly, a complete response rate of 17%, which was both an improvement in ORR, as well as a deepening of the responses compared with the initial data from this same trial and which compares favorably to historical benchmarks with atezolizumab of 30% and 8%, respectively, for ORR and CR. With these exciting results in hand, global investigator sentiment has been very enthusiastic about the potential of the casdozo, tori/bev combination. This trial is recruited to plan, and we remain on track to deliver early efficacy and safety data in the first half of 2026. Let's move now to CHS-114, our CCR8 targeting cytolytic antibody. Given the biology of CCR8, CHS-114 has potential utility across a multitude of tumor types, and we have a very targeted approach in 4 specific tumors where there's strong biological and clinical rationale for evaluation. First, in second-line head and neck squamous cell carcinoma. Earlier this year at AACR, we reported a partial response with significant tumor shrinkage in a fourth-line patient. Importantly, this patient was refractory to multiple prior therapies, including a PD-1, a TKI and a taxane. We were invited to highlight this data again during the SITC seminar a couple of weeks ago, which, as Denny mentioned, was most highly attended of the SITC webinar series. We're recruiting to plan in our ongoing study investigating 2 doses of CHS-114 in combination with tori in the second-line head and neck squamous cell population refractory to prior PD-1 therapy and are on track to report efficacy and safety data in the first half of '26. This data will inform us of the importance of CCR8 as a resistance mechanism in second-line head and neck squamous cells specifically. Second, in second-line upper GI adenocarcinoma, including a population of second-line gastric, GEJ and esophageal adenocarcinoma refractory to one prior line of therapy, we're also exploring 2 doses of CHS-114 in combination with tori. As a reminder, second-line gastric cancer is an indication where proof of mechanism has already been established with the CCR8 class in combination with tori. We're recruiting to plan and are on track to report efficacy data in the second half of '26. Third, we're pursuing esophageal squamous cell carcinoma. This takes advantage of the activity of tori irrespective of PD-L1 levels, and we're looking at both first line and second line where the medical need remains strong. In the second-line population, we're looking at limited dose expansion of CHS-114 in combination with tori, and our first-line cohort is a safety cohort aiming to gather data for CHS-114 in combination with tori and standard chemotherapy. Here, too, we're tracking -- we're on track to report efficacy data in the second half of '26. Fourth, as Denny alluded to earlier, we have expanded the CHS-114 program to include a colorectal carcinoma arm. In addition to a large unmet medical need, this tumor type also have strong supportive biological rationale given the elevated prevalence and density of CCR8-positive Tregs in CRC. Our approach in CRC aims to explore the combination of CHS-114 and tori initially in a fourth-line plus MSS population where the current standard of care in late line provides a mid-single-digit ORR and patients are in real need of additional therapeutic options. Our trial looks first at the combination in the non-liver mets population and will move quickly into the liver mets population, which historically has been more resistant to existing therapies. We're excited about the progress we're making with our clinical programs as we work towards getting superior alternatives to market for cancer patients in need and look forward to turning over multiple data cards in 2026. With that, I'll hand it over to Sameer. Sameer? Sameer Goregaoker: Thank you, Rosh. Today, I will focus my discussion on 3 areas. First, I'll cover LOQTROZI Q3 business performance. I will then discuss the evolving market dynamics, specifically in the community versus the academic setting. And third, I'll outline our plans for driving continued growth in the coming quarter. Q3 LOQTORZI net revenue grew to $11.2 million, a 12% increase quarter-over-quarter and 92% increase year-over-year. However, this is down from the 35% growth that we saw in Q2. So, I'll offer some perspective and context. Growth in Q2 included inventory accumulation as a result of previously depleted inventory levels. So, demand growth was actually about 20% in that quarter. In contrast, inventory levels remained flat in Q3, so almost all of our growth came from end customer demand. I'll point out that our sales team has 4 regions across the country. For this quarter, the average growth for 3 out of the 4 regions was 21%, close to the Q2 results. However, demand in the fourth region was flat, driven by post-restructure vacancies, which resulted in a lower share of voice impacting the overall national average. This issue has now been addressed, and I'll explain in a moment why consistent message reinforcement is critical across our customer base and how we're addressing it. Growth this quarter was driven by new patient starts in both new and existing accounts and increasing duration of treatment. The total number of accounts purchasing LOQTORZI grew over 15%, indicating increasing breadth of use. Additionally, 30% of existing accounts are now using LOQTORZI in a subsequent patient, indicating strong physician satisfaction. Longer-term, we expect to achieve a dominant share in the NPC market, which is estimated to be in the range of $150 million to $200 million. This translates into an expected average 10% to 15% demand growth over the next 3 years, which puts us on track to achieving our long-term goals. Transitioning now to market dynamics. As you know, there are approximately 2,000 LOQTORZI eligible patients each year. These patients are seen by both hospital-based head and neck specialists as well as community physicians. However, there are key differences in these 2 segments that we have to keep in mind to achieve a dominant share in both. First, hospital-based head and neck specialists see several NPC patients each year and are well informed on the NCCN guidelines and our clinical data. In this setting, we are seeing strong LOQTORZI growth, both in NCCN institutions and other large hospital systems. Accordingly, we are now shifting our focus from brand awareness to new patient identification and generating advocacy from academic KOLs. However, in our second segment, the community, the dynamics are very different. This is primarily because community physicians manage multiple tumor types constantly and NPC being rare is not always top of mind. The addressable opportunity in the community is very widely spread and physicians typically only see 1 to 2 new NPC patients each year. As a result, awareness of our preferred position in the NCCN guidelines and our clinical superiority data is relatively low. So, chemo alone or off-label IO continue to persist. So, the task in front of us is very clear. We have to consistently reinforce our clinical story in the community. But with a smaller sales force post divestiture, our reach and share of voice has been limited, particularly as we saw in this quarter's lagging region. With that background, let me now describe to you our 3-point plan to drive growth in the community. First, we're expanding our sales force by approximately 15% to increase our reach in select geographies. This is a very targeted expansion that we believe is financially responsible and will drive a positive ROI. Second, we're onboarding a remote sales team to drive engagement with oncologists that are not being reached by a sales representative. Covering these physicians in a cost-effective manner will expand our reach deeper into the community. And thirdly, we're significantly expanding our multichannel capabilities to educate community physicians. Specifically, we're developing a campaign of highly engaging KOL-driven digital programs. These will be distributed by our field team, our website and third-party distributors. In summary, we see significant growth opportunities for LOQTORZI in the coming quarters. In recently conducted promotional effectiveness research, physicians stated strong resonance with our overall survival messaging and the NCCN guidelines. We remain confident that our focused execution will drive strong demand growth, and we are on track to achieving our long-term commercial objectives. With that, I'll now pass the call to Bryan McMichael, our Chief Financial Officer. Bryan McMichael: Thank you, Sameer, and good afternoon, everyone. After more than a year of deal activity, Q3 2025 was the first full quarter following our exit from the biosimilar business. We used divestiture proceeds to pay off all near-term maturity debt and are now transitioned into an innovative company solely focused on novel oncology. Today, I will share key observations about the company's position at the end of Q3 as we head into year-end and next year's data readouts. First, we have significantly improved our balance sheet compared to the end of last year. The total of cash and investments at the end of Q3 was $192 million. Of the $429 million in total liabilities on the balance sheet at the end of the quarter, more than half or $254 million related to transition service agreements. These liabilities will be settled using reimbursements from buyers in the divestitures or cash collected directly from their customers. The remaining non-TSA portion of liabilities decreased 69% since the end of last year. By the end of Q3, we have successfully transferred or wound down a majority of the UDENYCA-related operations, freeing up Coherus to focus more on the priorities outlined by Denny, namely growing LOQTORZI sales and developing our pipeline. We are tracking towards a headcount of less than 140 FTEs by the -- around year-end. That's an update from the target of 150 FTEs communicated previously. Today, I will limit my discussion of the results to key updates. You can find detailed quarterly results and figures in our earnings press release. As Sameer covered in detail, growth in LOQTORZI volumes drove increases in net revenues from continuing operations in both the quarterly and year-to-date periods. Our continuing operations demonstrate strong execution on our strategy, starting with OpEx. R&D expenses were $27.3 million for the quarter, up 24% from Q3 last year. The increase was due to investments in our pipeline and were partially offset by savings from programs we deprioritized last year. SG&A expenses were $24.9 million for the quarter, which is down 11% compared to last year, primarily due to decreased headcount. As a reminder, these figures are for continuing operations. Total OpEx related to discontinued operations, which captures the biosimilar business, dwindled to less than $1 million in Q3 2025. To put the savings from the divestitures into context, OpEx for discontinued operations for FY 2024 totaled more than $40 million. For the full year 2025, we are reiterating our projection that SG&A expense from continuing operations will be between $90 million and $100 million. This range reflects costs incurred solely for Coherus programs and excludes non-reimbursed TSA costs and asset impairment charges. Before I hand the call back over to Denny, let me recap the progress we've made since transforming Coherus into the innovative oncology company it is today. There are 3 things to remember. First, we've bolstered our balance sheet by significantly decreasing our liabilities, while retaining sufficient cash, which we expect will be -- will fund operations through 2026 beyond key data readouts next year. Second, we are driving LOQTORZI sales -- by making targeted investments in the commercial infrastructure to enable growth in the coming quarters and years. Third, we've demonstrated spending discipline, streamlining our operations, including lower SG&A expenses and focused investments in R&D that target our pipeline molecule, CHS-114 and casdozokitug. With that, I'll hand the call back over to Denny. Dennis Lanfear: Thank you, Bryan. So let me summarize our progress this quarter for you and the momentum we are carrying into Q4 and why we're so excited. First, strong execution across the board in all critical dimensions of the business and disciplines. On the financial front, we drove the top line with higher sales of LOQTORZI while reducing the overall expenses and strengthening the balance sheet, as Bryan just talked about. We advanced the pipeline, as Raj talked about. As clinical trials combining LOQTORZI with our own proprietary assets continue to progress, we prepare to turn over key data cards next year on more than a half dozen studies. Importantly, having full global rights to our pipeline products at this point in the company's evolution enables partnering opportunities outside the U.S., which will serve as currency to offset ongoing clinical development costs all the way through approval. Lastly, let me just take a moment to thank all of our dedicated team members here at Coherus Oncology for their extraordinary commitment to the company and their high performance, as we work to create value for patients and for shareholders. Heidi, we're ready for the questions. Operator: [Operator Instructions] We will take our first question, the first question comes from the line of Mike Nedelcovych from TD Cowen. Michael Nedelcovych: I have one, and it's more of an R&D type question. It seems like the CCR8 mechanism would be complemented not just by anti-PD-1, but potentially both targets on the same molecule in a bispecific format. I'm curious if that makes biologic sense. And if so, if you've explored that option at all? Dennis Lanfear: Mike, thanks for the question. Dr. Lavallee would be happy to give you a little further insight on that. Theresa? Theresa Lavallee: Just to clarify, do you mean to make a molecule that targets CCR8 plus something else? Michael Nedelcovych: That's right. Yes, and potentially anti-PD-1 or the older. Theresa Lavallee: Yes. So, the challenge with that, I mean, people are looking at bispecifics. But I think that given the mechanism is a bind and kill mechanism to try to kill the Treg cell and then inhibit PD-1 on a cytotoxic T cell would be challenging. There are people making bispecifics for CTRE, but what I think looks really promising from treating with CHS-114 is not only the marked depletion of the Tregs, the immunosuppressive Tregs in the tumor, but bringing the CD8s in. So, I think a more traditional combination therapy approach to look at other ways of immune activating would probably give -- I mean, based on scientific hypothesis would give a stronger clinical response. But there are folks looking at CCR8 bispecifics. So, we'll have to watch those data. Operator: We will take our next question, and the question comes from the line of Brian Cheng from JPMorgan. Lut Ming Cheng: Maybe just first on LAQTORZI. How do we think about the trajectory today? And when do you think the next inflection point when you draw the line from today to -- I think you had a sales goal of $150 million to $200 million peak sales by mid-2028. How do you think that trajectory was going to look like? Where do you see the biggest gating factor is today? And I have a quick follow-up Dennis Lanfear: Yes, thanks for the question, Brian. Let me handle that one first, and then we'll go to the follow-up. I'll keep it, if I can get this right or I'll hand it over to Sameer. So, first of all, Sameer outlined, if we just take where we are today and you straight line 10% to 15% per quarter, you land in the target region of about $150 million to $200 million out in mid-2028-ish. So that's sort of the benchmark. Although I would point out 2 key things that were part of Sameer's recitation. First of all, we did an actual demand growth in Q2 of around 20%, even though the Q1 to Q2 growth was something like 36%, the rest of that was inventory. In Q3 over Q2, 3 out of 4 regions grew an average of 21%. So that's pretty good. That's 2 quarters in a row clipping along at 20%. Now there is one region that lagged because of some staffing issues and turnover issues that happened in Q3. But as Sameer recited, we think we've got a pretty good handle on that. If we are -- clearly, if we were to proceed at 20% per quarter at this rate, we would reach the target range, $150 million to $200 million much earlier than mid-2028. So, I think we're actually overachieving right now. But just where that sort of curve kicks in is difficult to say. I would also add, though, that Sameer gave us some very clear guidance on his plans to get us there and why the conversion of the community is dependent upon the education of the community. And this is really where we're focused. We have found that once these physicians are exposed to the clinical data that they see the significant benefit of LOQTORZI in terms of survival for these patients, they're easily converted. So really, it's just a matter of reach and the converts. And again, this is why we see that once these physicians use LOQTORZI, they use it again as a follow-up patient. Happy to take your follow-up question. Lut Ming Cheng: Yes. And then just on the colorectal front, just curious how you think about the benchmarks as we think about the data in colorectal later next year, fourth-line setting is fairly late line. How should we think about the benchmark for win there? And then I think just kind of stepping back as you think about 114 as holistically, there are multiple data reads coming across a number of indications. Do you have a sense of how you will ultimately prioritize indications since you do have a number of multiple -- a number of data readouts coming up? Dennis Lanfear: All right. So let me take the first one first here and hand that off to Dr. Dias. So, first of all, we think that -- as we said in our prepared remarks, we think that the Nobel Prize for physiology medicine, recognizing the importance of T regulatory cells is really, really something to know. We intend to show scientific leadership and be at the forefront of this, and we've done that. I'll just remind you of our remarks compared to -- relative to the SITC webinar and so on that Dr. Dias was on. And we felt compelled to move into colorectal where first-line colorectal is chemotherapy, same treatment for 20 years. So, this is a disease that is striking ever younger patients and is really, really critical. So, we're -- I think that we believe it's really worthy of thorough investigation. Regarding your specific questions to colorectal, Rosh, do you want to make some observations? Rosh Dias: Yes, sure. Thanks, Brian, for the question. So, on your first question on how should we think about the benchmarks for colorectal, I'll make a few points. First of all, colorectal, as Denny mentioned, it's a large indication and it's growing, particularly the younger population. And currently, it is an area where there are -- there's real room for improvement for patients in terms of potential improvements in the standard of care. The fourth line plus population has an overall response rate currently in the mid-single digits. The typical standard of care is chemotherapy. And again, it's around 5%, 6% in terms of the overall response rate. We tend to look at the totality of evidence, so we would want to beat that in terms of overall response rate, of course. but also durability is important, disease stability is important. There are multiple different factors that are important as you look at the whole totality of evidence. So, really excited about the potential for the Tori-CCR8 combination in late line. And obviously, the plan is to move into earlier lines subsequent to that. Dennis Lanfear: And Brian, let me take your question with respect to how we would prioritize these indications, and I'll let my team members chime in. First of all, we think there's strong clinical justification and mechanism of action justification for all of these. You can identify where Tregs are an issue, and those are the cancers we're going after. Regarding gastric cancer, there's always been strong efficacy shown, I will remind you, on a background of toripalimab in others' hands. So, we think that is -- has a very strong probability of success, and that's a very substantial indication. With esophageal cancer, that's an area where toripalimab has actually shown efficacy in low PD-L1 states, where it's approved in Europe, for example. So that's some place while it's not a huge indication, it's some place where we are very interested in investigating further. Regarding head and neck cancer, I think you're already familiar with the data that we've shown, the partial response and so on. And so, we think they're strong there. Frankly, we would probably investigate further indications with our CHS-114, but we think we have these very promising ones now. And I was just wondering, Theresa, any further comment on indication selection or the sort of things we would go after next? Theresa Lavallee: Yes, I mean I think that we've characterized a large number of solid tumors that have a high density and prevalence of CCR8-positive Tregs. I mean, so tumor types that we're currently not seeing that would be of interest, and there's been some hints of efficacy in competitor programs or lung cancer, breast cancer, we saw data at ASCO this year in pancreatic cancer. Our program is really designed to inform us of the best setting where we see the largest effect. So, is it the density of CCR8-positive Tregs, is it the percent of CCR8 positive Tregs? Or is it the ratio with the T cells? So, our program is really designed next year to read out some important information on how best to look at ways to do quick development and then development to get in combination with other agents to get broader efficacy across multiple tumor types. Dennis Lanfear: I would just add that our program, we believe, is both broad sufficiently across many of these indications, but also highly targeted, right? And so, I think that's really, in the end, going to be very beneficial for us. Lut Ming Cheng: Looking forward to the data next year. Operator: Your next question comes from the line of Jason McCarthy from Maxim Group. Jason Mccarthy: Yes. So for casdozokitug, what would we need to see from the Phase II to justify moving straight into a pivotal study? Dennis Lanfear: Thanks for the question, Jason. Dr. Dias, would you like to talk about that? Rosh Dias: Yes, absolutely. Thanks, Jason, for the question. So, one thing that's really important to realize, and I referenced this earlier, is that we really look at the totality of evidence, not any one single measure. We are hugely encouraged by the atezo-bev/casdozo data that we presented earlier this year. I'll remind you again that what we saw was initial results and then an increase in response rate and a deepening of the response over time. So, what we would like to see next year when we report our data in the first half of the year in this initial data at least is we'd like to see a very solid overall response rate. We'd like to see some durability there. We'd like to see some really nice durability in terms of how long some of those last and then an increase over time in response rate itself and then also a complete deepening of the responses as well. So, I think those are some of the key measures. But really, I would like to really emphasize that it's really totality of evidence rather than a single measure or 2. Operator: We will take our next question, the next question comes from the line of Nick Quartapella from Baird. Nick Quartapella: This is Nick on for Colleen. Can you help quantify the increase in duration on LOQTORZI that you're seeing? And can you speak of to what you think might be driving that increase and whether you think there's room for that to grow further? And I have a follow-up question after that. Dennis Lanfear: I'm sorry, Nick, what particular indication did you have in mind? Nick Quartapella: Sorry, this is on commercial for NPC. Dennis Lanfear: Great. Do you want to talk about that, Sameer? Sameer Goregaoker: Yes, sure. Thank you so much for your question, Nick. So, duration of therapy is -- continues to increase. So, every quarter, we're seeing an increase in the duration of therapy. We still haven't approached the average duration of therapy that we saw in the clinical trials, but that's simply because we haven't had enough time on the market to achieve that average duration of therapy. So, we're a little too early in the launch to give you an exact number on the duration of therapy, but both in a monotherapy indication as well as a combination therapy indication, each quarter, we're seeing an encouraging increase in the average duration. And when we have numbers where we can confidently say what the average on-market duration is, we'll communicate that on a future call. Dennis Lanfear: Did you have a follow-up, Nick? Nick Quartapella: I did, yes. And then for the CHS-114 tori study in second-line head and neck, can you speak to some of the expectations around the dose optimization data coming first half of '26, what you're hoping to show and then what would be the next steps -- what the next steps for that program would look like? Dennis Lanfear: Great. Head and neck, Rosh? Rosh Dias: Yes, absolutely. So, the study that we're doing is in second-line head and neck. We're looking at 40 subjects, a couple of biologically active doses of casdozo in combination with toripalimab. I'll say again, the trials are -- the trial is recruiting well and to plan, and we anticipate efficacy and safety data in the first half of the year. So again, the totality of evidence is important. The currently, at least in terms of the current standard of care in second line, with cetuximab, you're seeing roughly around 13% in terms of overall response rate, which is against the current standard of care. So, we'd like to substantially beat that. But again, we also want to see durability, right? We want to see durability, disease stability, et cetera. And I think seeing some of the results we communicated at AACR really kind of encourages us as we look at what we -- as we move forward in this ongoing trial. Theresa Lavallee: An important output of that study, too, is the biopsy data as well as the dose to get to a recommended Phase II dose. And we did have a very productive Type B meeting with FDA, getting alignment on the data package we'll bring to them next year to declare a recommended Phase II dose, which will enable us to move more nimbly to have a single dose to look at in multiple indications. Operator: [Operator Instructions] Your next question comes from the line of Douglas Tsao from H.C. Wainwright. Douglas Tsao: Denny, I guess sort of sticking to the colorectal study, I guess just trying to sort of understand sort of the rationale. I mean, I think, Dosh, you mentioned that you're looking in the fourth-line setting sort of single-digit survival levels. And so just from your perspective, your expectation in terms of finding a really compelling signal in a population that is already quite sick. Dennis Lanfear: Thanks for your question, Doug. So let me make this remark for you. First of all, going to the fourth-line setting is part of an overall development plan that moves us much further up the treatment paradigm over time. And I think that we have a very efficient and well-conceived strategy, and we can talk about at a future time to do that. With regard to your question in particular, I'll let Dr. Lavallee talk about 2 things. First of all, the mechanism of action and the rationale, particularly for CRC for CHS-114 or Treg depleters. And then secondarily, how results -- positive results from that study will set us up for future studies. Theresa? Theresa Lavallee: Yes. So, the importance of the clinical program with 114 goes to what I started with, that it's really designed to inform us. So, the colorectal is an important tumor type for several reasons that it has a good density and prevalence of CCR8-positive Tregs. Alexander Rudensky, one of the real pioneers in Tregs and CCR8 biology has published several papers on the diversity and differentiation of Tregs, particularly in the colon, showing that the CCR8 positive Tregs are really the pathogenic ones. So, gives it a stronger sense in that tissue that, that tumor should be particularly sensitive. Colorectal has not MSS colorectal. So, we know from the microsatellite instable population that a PD-1 inhibitor can work in the disease in the right context. But 85% to 90% of colon cancer is MSS microsatellite stable CRC, which PD-1 inhibitors have failed. And a large component of that is the high density and prevalence of Tregs. So, colorectal is particularly exciting given the biology. Shionogi with a CCR8 antibody that is not ADCC enhanced showed a complete response and partial response with single-agent treatment at ASCO this year. We've seen some long-term stable disease in our early clinical program. So, that signed together with toripalimab really sets as an exciting opportunity to bring immunotherapy to a tumor type that hasn't had any. So, the totality of data, the preclinical, the clinical and the biology of the target give it a very important attribute. As Denny said, the other things we're testing are the highest density of CCR8 positive in gastric cancer and head and neck cancer. And then esophageal, which is a little different in that toripalimab has differentiated activity and an approval in Europe. So, I think strategically, the whole program gives us a lot of levers to look at how we can do the fastest development with the highest impact to advance the program. Dennis Lanfear: Thank you, Theresa. Doug, I would just anecdotally add that we are very honored to have Dr. Alexander Rudensky as a key member of our Scientific Advisory Board because he is really one of the seminal leaders in this entire field of Tregs, which has now come to the fore. And I think he's responsible really for a large part of our scientific leadership in this field, which, as I said in my prepared remarks, we look forward to continuing into 2026. Operator: This concludes today's question-and-answer session. I'll now hand the call back to Dennis Lanfear for closing remarks. Dennis Lanfear: Thank you, Heidi, and thank you all for joining us on the Coherus Oncology Q3 call this afternoon. I would just add that we will be at the UBS Conference in sunny with Palm Beach, Florida, and we will also be attending Jefferies in London, and we hope to see you there. Thank you. Bye-bye. Theresa Lavallee: Good bye. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Welcome to the Third Quarter 2025 WillScot Earnings Conference Call. My name is Gary, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Charlie Wohlhuter. Charlie, you may begin. Charles Wohlhuter: All right. Thank you, Gary. Good afternoon, everyone, and welcome to the WillScot Third Quarter 2025 Earnings Call. Participants on today's call include Brad, Chief Executive Officer; Tim Boswell, President and Chief Operating Officer; Matt Jacobsen, Chief Financial Officer; and Worthing Jackman, Executive Chairman. Today's presentation material may be found on our Investor Relations website at investors.willscot.com. Before we begin, I'd like to direct your attention to Slide 2 containing our safe harbor statements. We will be making forward-looking statements during the presentation and our Q&A session. Our business and operations are subject to a variety of risks and uncertainties, many of which are beyond our control. As a result, our actual results may differ materially from comments made on today's call. For a more complete description of the factors that could cause actual results to differ and other possible risks, please refer to the safe harbor statements in our presentation and our filings with the SEC. With that, it's my pleasure to turn the call over to our Executive Chairman, Worthing Jackman. Worthing Jackman: Thank you, Charlie. Good afternoon. We appreciate you joining us for today's call, where we will discuss the current operating environment and strategic priorities, third quarter results and our updated outlook for 2025. As many of you know, I joined the WillScot Board about a year ago, became Chairman this past June and was named Executive Chairman in early September upon our announcement that Tim will be succeeding Brad as CEO, effective January 1. My expanded role has been designed both to assist Tim and the senior leadership team in achieving our strategic plan, returning to growth and driving shareholder value creation. With ongoing cyclical headwinds and an intense competitive environment, we must compete differently and execute better to drive growth. With a focus on returning to growth, we expect that a mix shift in revenue to more differentiated, higher-value offerings should create more consistent and predictable results while also reducing variability from more commoditized or transactional lines of business such as dry storage. When revenue inflects back to positive growth, adjusted EBITDA growth should outpace top line growth. We see the ability to drive adjusted EBITDA margins above 45% as units on rent trends begin to improve given the associated high incremental flow-through. That is in addition to initiatives underway to optimize our platform outlined at our Investor Day in March. There are multiple aspects of our optimization plan, a new component of which is evaluating our branch network and fleet storage acreage needs following the integration last year of WillScot and Mobile Mini's field sales and operations teams. We see opportunity to reduce our real estate footprint and related expenses, along with eliminating excess fleet, which Matt will review in his remarks. Together with continuing efforts to streamline corporate support functions and drive a more decentralized operating model, we see a pathway to help accelerate margin improvement. We believe we have the right strategy and team in place. But to earn credibility and build momentum, we must increase accountability across the organization and deliver on our commitments. The company has fallen short over the last 2 years to deliver against expectations that it set and takes full responsibility. Guidance is a key focus for me. Management's previous approach relative to expectations exposed the company if activations did materialize when expected, end market demand was less than anticipated, competition increased on more transactional lines of business or sales effectiveness and execution issues arose. I believe that expectations should be set against outcomes under our control, providing cushion to either exceed guidance or absorb the unknowns and more importantly, to minimize the risk of surprising investors. Going forward, we'll be taking a more conservative approach to guidance to minimize the risk of negative surprises versus communicated expectations. It's important to emphasize, however, that our internal plan and incentive comp targets will always hold us accountable to deliver results above this more conservative guidance approach. With that, I'd like to pass the call over to Brad for some brief remarks on this, his final earnings call. Matt and Tim will then review our current operating environment, third quarter results, our updated outlook and strategic priorities before heading into Q&A. Brad? Bradley Soultz: Great. Thanks, Worthing. I'd like to underscore Worthing's comments and emphasize that we are fully aligned to deliver on our commitments and to drive profitability and returns higher. Accountability is paramount, and I firmly believe we've have aligned the organization and the team is well prepared to execute on our strategy. Tim has been by my side throughout the evolution of the company, and he knows this company and this industry through and through. I have immense trust in his leadership and excited for what is to come. With the leadership we have in place and a well-defined strategic plan, I'm more confident than ever in our ability to achieve our top line growth, operational excellence and profitability goals. With that, I'll turn it over to Matt for a review of our third quarter financial performance. Matthew Jacobsen: Thanks, Brad. Before I jump in, I just wanted to thank you for your leadership over the last 10 years and for all you've done for the company and for me, both professionally and personally. On behalf of the finance team, we wish you the best in your future endeavors. As noted in our earnings release, third quarter 2025 financial results were mixed. We delivered strong cash flow and leasing revenues were stable sequentially from Q2 to Q3 across both our modular and storage portfolio with favorable rate and mix offsetting volume headwinds. Looking at the results. Revenue for the quarter was $567 million, down $34 million year-over-year, driven primarily by increased accounts receivable cleanup of approximately $20 million in the quarter as we continue to accelerate improvements in our order-to-cash process and lower delivery and installation revenues related to our large project with the LA Rams in the prior year that we discussed in the Q2 call. This accounts receivable cleanup overshadowed what would otherwise have been a sequential quarter stability in our leasing revenues, which I'll jump into here shortly. Sales in new and rental units increased 10% year-over-year. Our ability to take out variable costs in the business supported a 42.9% margin on adjusted EBITDA of $243 million for the quarter, which was up 60 basis points sequentially from the second quarter. Slide 5 is a new slide that takes a deeper look at leasing revenue trends with and without the impact of write-offs related to our order-to-cash improvement initiatives. In total, leasing revenues were $434 million in the quarter, a 5% year-over-year decline. However, Q3 year-over-year leasing revenues, excluding write-offs, were only down 1.3% year-over-year. So this cleanup is driving a bit of noise in the top line results. The key takeaway here, however, is the underlying product leasing revenue across each of our modular, portable storage and VAPS portfolios were stable sequentially. On a year-over-year basis, the 1.3% decline, excluding write-offs is a result of favorable rate and mix, largely offsetting volume declines. VAPS revenues were flat year-over-year despite volume headwinds. Within the storage portfolio, rate and mix improvements of 10% partially mitigated a 14% volume headwind. And within the modular portfolio, average monthly rates improved 5%, largely offsetting a 6% decline in volume. As you know, the sequential stability in leasing revenues is important since our revenue growth in this business is a factor of sequential trends that compound over time. We expect the year-over-year impact of the cleanup efforts around accounts receivable to decrease as we get into 2026. Importantly, the cleanup work we've completed this year of aged receivables has largely already been reserved through the provision for credit losses and SG&A in prior years, and we're beginning to see real improvements in our collections experience, such as the net impact to EBITDA of write-offs and our bad debt within SG&A is a $4.3 million positive impact to adjusted EBITDA year-over-year. Adjusted free cash flow in the quarter was $122 million, representing a 22% margin or $0.67 per share. Year-to-date, adjusted free cash flow was $397 million at a 23% margin. Free cash flow has remained stable through the recent revenue contraction, providing continued flexibility to reinvest in our business, further strengthen our balance sheet and pursue M&A opportunities as they present themselves. We have invested about $206 million in net CapEx year-to-date or about a 16% increase over the prior year. This mainly reflects investments in high-demand categories such as FLEX, complexes and continued fleet refurbishment, along with investment in our newer product categories. During the quarter, we paid down $84 million in borrowings and returned $21 million to shareholders through both repurchases and our dividend distribution program. On October 16, we amended and extended our ABL credit facility, reducing our estimated annual cash borrowing costs by approximately $5 million based on current debt levels and extending the maturity through October 16, 2030. The new agreement reflects the quality of our borrowing base, enhances our financial flexibility, locks in more favorable rates and terms and positions us to continue funding organic investments and targeted M&A opportunities. Once again, I'd like to thank our lending group for their long-standing commitment, support and outsized commitments, which facilitated a successful process. After the amendment, we have no debt maturities until 2028 and ample optionality to fund our capital allocation priorities. Before I move on to our updated outlook, as Worthing mentioned, earlier this year, we began reviewing several of our real estate positions on a property-by-property basis as leases have expired with the intention of reducing our real estate footprint while maintaining market coverage. Over the past several years, our real estate costs have increased by 10% or more per year as long-term leases renewed at current market rates and as we've added additional properties through M&A and through store idle fleet. To facilitate these exits, we've identified certain surplus fleet for disposal. For the 9 months ended September 30, 2025, we had identified fleet with a net book value of $27 million for disposal and accelerated the depreciation on these units, essentially reducing that book value to 0 or to a nominal scrap value. You would have seen this in our increased depreciation in the second and third quarter primarily. Over the past few months, we've expanded these efforts into a multiyear network optimization plan, aimed at enhancing operational efficiency and reducing structural costs. This effort builds on the integration of our field sales and operations teams last year and includes a strategic review of our network, including our total real estate footprint. As part of this initiative, we expect to continue to identify fleet for disposal to facilitate real estate exits while ensuring we maintain sufficient supply to meet future demand. And we estimate the net book value of rental fleet units that could be disposed as part of this optimization plan to be in the range of $250 million to $350 million. This plan could reduce leased acreage by more than 20% and avoid between $20 million to $30 million of annual real estate and facility cost increases over the next 3 to 5 years, reducing our annual real estate cost increases from over 10% per year to mid-single digits. To the extent we finalize a multiyear network optimization plan by the end of 2025 and that plan is approved by our Board of Directors, we may accelerate the recognition of the $250 million to $350 million of incremental depreciation expense into 2025 as a noncash restructuring charge. Now turning to our updated outlook for 2025. We have revised full year guidance to reflect the current operating environment and our updated more conservative approach as Worthing laid out in his opening comments. This outlook includes expectations on near-term demand and unit on rent levels, factoring in the absence of a typical seasonal uplift as well as further progress on order-to-cash improvement initiatives and a slower-than-expected ramp within clearspan and perimeter solutions. For Q4 2025, we expect revenue of approximately $545 million and adjusted EBITDA of approximately $250 million. We believe this outlook is conservative and provides sufficient cushion to meet or exceed those levels while establishing an initial baseline for 2026. For the full year 2025, this results in revenue of approximately $2.26 billion, adjusted EBITDA of roughly $970 million and adjusted free cash flow of approximately $475 million, inclusive of about $275 million of net CapEx. With that, I'd like to pass it over to Tim to discuss our areas of focus looking ahead. Timothy Boswell: Thanks, Matt, and good afternoon, everyone. Before opening the call for Q&A, I would like to elaborate more on WillScot's strategic priorities to better position us for growth, increase margins and returns and ultimately drive shareholder value as we transition into 2026. First is reestablishing organic growth in the business through our local market initiatives, enterprise accounts and our adjacency offerings. Historically, approximately 80% of our revenue is derived locally and improving performance starts with ensuring consistent sales coverage across the network, then driving productivity. Following last year's sales reorganization, we have implemented best-in-class sales enablement tools and consistent sales coverage and sales leadership such that we have a simplified structure with clear accountability for performance heading into 2026. Our focus on enterprise accounts and new industry verticals continues to show great traction. We rebuilt and strengthened this team in Q2 and expect that enterprise accounts revenue in the second half will be up approximately 5% year-over-year despite the seasonal storage headwind that Matt described. Data center and power generation infrastructure are very active subsectors for us right now across the United States. With expansion of existing relationships and more intentional focus on our nonconstruction verticals, we expect that our enterprise portfolio will carry a mid- to high single-digit growth rate into 2026. Value-added products and our newer product line additions remain compelling organic growth levers for us. VAPS revenues are up 5% year-over-year on a per unit basis on modular units and approximately 22% on storage units. Climate-controlled storage units on rent were up 44% year-over-year at the end of October. FLEX units were up 30% year-over-year, and we expect our perimeter and clearspan offerings will continue ramping into 2026. So as Worthing mentioned, there are some positive signs in a favorable mix shift within the portfolio and a significant amount of operating leverage in our traditional offerings and local markets when those stabilize and recover. This leads to our second area of focus, which is operational excellence and improving the customer experience. Continuous improvement is central to our culture, and we collect extensive customer feedback that tells us where we can improve service levels. Billing and collections have been great examples that we introduced at the March Investor Day. Through the course of the year, our shared services team has made meaningful gains through enhanced quality control and faster response times. These efforts have resulted in a roughly 10% year-over-year decline in days sales outstanding to the low 70s, very strong cash flow performance and meaningfully improved customer satisfaction scores. We expect further improvements in the order-to-cash process, resulting in continued working capital reductions and reduced bad debt and write-off expenses heading into 2026. Our network optimization initiative that Matt described is another example where we see an opportunity to reduce operating costs and increase efficiency in our network and fleet and move towards our 45% to 50% EBITDA margin range. Importantly, both of these opportunities were contingent on completing our integration of field operations last year. Combined with our ongoing focus on improvements to our transportation and logistics function, I expect that we will continue to find these types of synergies as we work to optimize the platform and focus on the customer experience. Developing human capital is a third pillar, which transcends every part of our operations. I've spent a significant portion of my time this year getting to know our talent at all levels in the organization. I am incredibly humbled and impressed by the quality of our team. But we need more depth and stronger development pathways for our people, and we have been inserting external talent strategically in the areas where we need to operate differently. The structure to scale is in place and driving this talent evolution over the next several years is a personal passion of mine and a critical ingredient for sustainable growth as well as our employee experience and culture. And as we all know, sustainable growth and returns correlate with shareholder value creation. We're strengthening our ROIC focus across the organization and see multiple balance sheet and asset optimization opportunities across working capital, our fleet and our real estate footprint to name a few. And we will continue to focus on reducing leverage into our updated leverage range over time. As Matt mentioned, that will include an increased allocation of capital to absolute debt reduction as we reinflect towards growth, but we do not feel constrained from pursuing high-return investments in the business given the strength of our cash flows. Together, these initiatives represent our path to strengthen our financial position and deliver sustainable higher returns. The platform that we have built under Brad's leadership is stronger and better positioned to compete in the market today than at any point in our history. We intend to execute with a high degree of urgency and accountability, and I believe we have the team to deliver on our growth ambitions and drive shareholder value. Lastly, I'd like to take a moment to thank Brad for his partnership over the nearly 12 years that we have worked together. It has truly been a pleasure working alongside you and learning from your leadership. Your guidance, your integrity, your collaborative spirit and your unwavering commitment to excellence have made a lasting impact on me, the broader team and the company. I'm honored and humbled to lead our team in pursuit of the highest standards that you've set and that inspire us all to be better every day. And I know that I and so many others in the company will continue to draw upon your leadership lessons as we chart the path forward for WillScot. Thank you, Brad. And on behalf of the company, the best wishes to you and your family. This concludes our prepared remarks. Operator, would you please open the line for questions? Operator: [Operator Instructions] Our first question today comes from Tim Mulrooney with William Blair. Timothy Mulrooney: First, I just want to say farewell to Brad. It's been a pleasure working with you these last few years, Brad [indiscernible] on your next chapter. Bradley Soultz: Thank you. Timothy Mulrooney: So on the revenue outlook, I just wanted to ask about the lowered top line outlook this year. If we set aside the seasonal retail headwind that you telegraphed earlier in the quarter, what other parts of the business underperformed relative to your revised guidance that you gave on the second quarter call? Were there any other end markets or regions that you'd characterize as being a bit surprising on the softer side relative to where you were sitting a few months ago? Timothy Boswell: Tim, this is Tim Boswell. I'll take that one. Certainly, the seasonal storage component is one of the biggest contributors, circa $20 million or so of revenue relative to our original expectations. There's about another $20 million across the write-off activity that Matt talked about. And that's important because those are all out-of-period adjustments to kind of aged accounts. And on that Page 5 in the presentation, which we can go back to, when you strip that impact out, you actually see very solid sequential stability of those lease revenue streams. So those are the 2 biggest components. The only other pieces I'd call out relative to the guidance coming out of Q2 would be the Canadian market. That's roughly $130 million of total revenue for us. That economy has been hit hard since Q2, I think, for obvious reasons related to the trade posture here in the U.S. So we have seen a slowing in our Canadian market. And then the ramping of our clearspan and perimeter businesses are still quite attractive in terms of the market opportunities that we see but ramping slower into Q4 than we anticipated. And as Worthing mentioned, we have built in some conservatism into this outlook so that we're exceeding these expectations going forward. So that's not an insignificant part of the overall message here. But certainly, the write-off activity accelerated. I'm really happy with where the portfolio is from a cleanup standpoint. And while it does create some noise in the top line, the customer experience side of that is really important for us. That's the area where we've probably gotten the most negative feedback in terms of NPS and customer satisfaction historically. And we definitely see that temperature coming down as we go into 2026, which is an important part of our strategy going forward to drive the customer experience positively. Timothy Mulrooney: Okay. That's a lot of helpful additional color with the write-offs. And I hadn't given enough consideration to the Canada dynamic as well that I probably should have. So that's good color. Maybe sticking on this policy point. I wanted to ask about any potential impacts that you're seeing on your business from the federal government shutdowns. I know it's a smaller piece of your overall revenue stream, but I thought I'd ask because I know you've talked about government and other verticals tied to government like military, maybe education as being a growth vertical for your business moving forward. Timothy Boswell: Yes. Good news, bad news. They are growth verticals going forward, I guess, is the positive piece. And as part of our enterprise portfolio, we have added dedicated resources to go after government opportunities at the federal state and local levels, both in the U.S. and Canada. Good news is that's not a huge part of our business today. So we've seen negligible disruption across the -- either unit on rent portfolio today or the payment side of things, which is also important. So no material impact sitting here today and still enthusiastic about the ability to penetrate those sectors better going forward. Operator: The next question is from Andy Wittmann with Baird. Andrew J. Wittmann: I wanted to ask about the fleet review that is ongoing here and sounds at least possible, if not likely to be more explicitly defined by the end of the fourth quarter. But this $250 million to $350 million of fleet basically write-down or impairment or scrap here, do you think that this is actual scrap like it's going to the junkyard because you mentioned in the press release kind of tired old, been sitting? Or do these get sold off and maybe wind up in your same markets as discounted units? I'm just kind of curious as to what the final disposition of this is going to be. And you talked about the book value here. I did some quick math. It looks like that's about 4% of your net book value. Is it fair to think that this would be then probably less than 4% of your fleet because these are kind of below average unit price. Maybe you could just comment on some of that, please. Matthew Jacobsen: Yes. Sure, Andy. This is Matt, and I'll hit your questions. We do sell our fleet in the normal course of business as rental unit sales, as you know. But we kind of view this as excess fleet that we've got and the intent there is to dispose and scrap of it. As we look at the percentages, though, that's -- it's more than the 4% that you're talking about, kind of at the middle of that range, you're getting closer to probably 10% of kind of total, but it's excess fleet, right? The whole point here is we've got adequate fleet to service our customers in the market and to grow in the future. And this is fleet that today we're paying to store on some excess acreage and there's other indirect costs and things around that, that we can optimize. And so we're taking action now to review this with the Board, obviously. And as you said, we'll give more of an update once that continues a bit more, but it is probably more about 10% kind of around that midpoint. So it's a big thing, but I think it's something that we should do, and we know that there's cost savings associated to this in the future. Timothy Boswell: Andy, this is Tim. The only thing I'd add is if you look at that chart in the deck that looks at non-res starts and the cycle that we've been through here, we're sitting here today in a position where non-res square footage starts are off about 30% from the peak and appear to be stabilizing in line with 2017 or 2018 levels. So if you can think about the ramp of the company up through 2022 and 2023, we've got enough idle fleet in the business to support growth prospectively over the next couple of years. And we can do that, we can eliminate some of this excess, reduce the related real estate, still have adequate market coverage, still have adequate idle inventory to drive the business more efficiently. So this is about tightening things up, moving back towards the 45% to 50% EBITDA margin range and allowing our team in the field to operate more efficiently. Andrew J. Wittmann: Yes, that's clear. And I remember, obviously, Mobile Mini had a similar type of scale write-down when they did a kind of a cleanup like this, and that was a very good thing probably a decade ago. So okay. Just for my follow-up question, I wanted to kind of ask about the fundamental trends in the business. And it's often asked how your order book and your activations have evolved during the course of the quarter. Maybe, Tim or Matt, you could talk about that, just to maybe give us a flavor of where we are in this kind of bottoming process. It's been elusive. And so I thought just getting kind of your latest thoughts on it would be helpful. Timothy Boswell: Yes, Andy, this is Tim. It has been elusive. I won't deny that. If you look at the modular order book sitting here today, it's actually now down about 1% year-over-year relative to the pending order book in early November last year. We actually converted a fair amount of it over the last 1.5 months or 2 months such that activations in modular have been up low single digits over the last month, and I'm optimistic that we'll see growth of similar magnitude in November. So I view that as stable. It's good to see the order book converting, but I certainly wouldn't call that a victory or overall change in the trajectory of the business. I think that's the conversion of the order book that we've been hoping to see through the course of the year. Storage is still quite weak, right? So no real change in the trajectory of the traditional storage business. On the climate controlled storage business, all signs are flashing green with orders and activations up circa 60% year-over-year. So that initiative continues to show great traction. Modular is stable and consistent with what we've been seeing all year and continued weakness across the traditional storage business. Operator: The next question is from Angel Castillo with Morgan Stanley. Angel Castillo Malpica: Brad, I guess, first, just to start out, it's been a pleasure working with you and wish you all the best in a new chapter. And Worthing, welcome and looking forward to working with you in your new role. I actually had a question for you. I guess I wanted to go back to your opening remarks. It just wasn't entirely clear to me, I guess, as you commented on the operational strategy or some of the changes that you're talking about here, whether this was indicative of kind of continuation of the initiatives the company laid out at Investor Day or whether based on what you've seen so far since taking over as Chairman, understanding that it's only been a couple of months. But just whether you believe that there's anything kind of incremental or more meaningful changes required, whether it's at a portfolio level or operational strategy than what's maybe already been laid out at Investor Day. Worthing Jackman: Sure. Well, again, my remarks endorsed the initiatives that the company laid out at the Investor Day, but then went on to expand that portfolio of initiatives to include the asset optimization and network optimization that Matt and Tim referred to, and that's laid out in the press release. The company has also, since that Investor Day, made structural changes within the sales organization, within the field to help bring more decentralization and accountability to the field. I'd tell you the energy level I've seen throughout the organization has been fantastic. We've talked about green shoots in the past. I know people hate to hear green shoots. But I think today, you heard a lot about all the good things happening with regard to activations and rate, et cetera. But what I also found when I came here was just kind of a dark cloud of the impact that declines in traditional storage has over the business because it's basically masking all the good things that have been happening. I look back over about a 3-year period and the company has probably taken a $150 million hit, EBITDA hit from that more commoditized or transactional side of the business, but obviously has not fallen that much. They've clawed back about half of that through growth in other areas. And when we talk about this mix shift in the portfolio to more differentiated, higher value-added products and the success around enterprise accounts, et cetera. I mean, it's truly a shift in the book that will insulate us going forward once this whole runout, finishes on traditional storage to have a different higher margin, more predictable business, more defensible business. We're probably in the sixth or seventh inning of the decline in traditional storage that has -- we're 70% or 80% of the way through that. Once we get that behind us, obviously, what's happening beneath the surface, so to speak, will come to the [ time ]. Angel Castillo Malpica: That's very helpful. And maybe just related to the disposals. Tim, you talked about, I think, 10% of the fleet essentially being reviewed here for potential disposal. At the Investor Day, I think you had identified $600 million of kind of potential revenue growth that you could achieve, I think, at 20% of kind of new fleet cost, thanks to kind of your refurbishment capabilities overall. Is that still the right number? Or do these disposals imply a smaller opportunity kind of at that lower 20% of cost and kind of future growth? Just kind of any implications of that to CapEx? Is there a requirement then if we grow? How does that change, I guess, the algorithm around the required CapEx to grow beyond this point? If you could touch on that, that would be helpful. Timothy Boswell: Good question, Angel. And no, we would not dispose of any fleet that we thought would constrain us and constrain our ability to grow in the future. So we view this disposal as purely targeting surplus that we do not need over the next several years, that allows us to tighten up both the branch network and the fleet without compromising ability to service customers either with product or with proximity to customer in our real estate footprint. No, I don't think this materially changes that concept at all. We still absolutely have the lowest marginal cost in the industry. If we want to activate older fleet through our refurbishment process, we've got the capability to do so. I think that capability is differentiated. To the extent we're adding new fleet, which we are in certain pockets today, tends to be allocated more towards our complexes and FLEX, which are performing great. We obviously did a small regional acquisition in climate-controlled storage this year and got some excess capacity through that acquisition, which we are deploying. So that's how we're thinking about fleet investments going forward, and I don't see the disposal here as changing that narrative whatsoever. Operator: The next question is from Kyle Menges with Citigroup. Kyle Menges: It'd be helpful to hear just trends you're seeing with local and regional customers, especially as you're looking into 2026. And in your view, what do you think you need to see really in the markets to see some recovery within those local and regional accounts? Timothy Boswell: Kyle, this is Tim. I'll start and anybody else can jump here and -- jump in. Nice to meet you. We really haven't seen any change in market trends at the local level. As I mentioned in my remarks, our enterprise portfolio is going to be up approximately 5% year-over-year total revenue in the second half of the year. That implies that the rest of that local market and regional exposure continues to be down. And I don't have any indicators right now, whether you look at the Architectural Billings Index or other third-party indicators that says that, that underlying market trend is changing at the local level. I think what is changing, if you think about our structure is the stability of our field-based sales organization. Worthing just alluded to some structural changes we've made there in terms of how the sales leadership function is organized. We've also added over 10% to the field sales organization through the course of this year, and there is a natural ramp time in those resources. So I've got some optimism that we'll see greater productivity out of those resources as we go into 2026. We've got our team in town in Scottsdale this week for budget meetings. And the message is irrespective of changes in those local market conditions. We know we weren't performing optimally over the last 18 months and there's an opportunity here to outperform ourselves at the local level. And that's the challenge that we're pushing down to our local market teams as we go into 2026, and we're not sitting here holding our breath waiting for the market to rebound. Kyle Menges: Got it. That's helpful. And then on the enterprise customer side, good to hear that you're expecting those customers to grow mid- to high single digits next year. I'm curious what your sense is. Is that growth in line with the market, maybe a little bit below or above? Would love to hear that. And then my understanding is enterprise customers would have greater VAPS penetration. I am curious, though, it seems like maybe competition is heating up with others coming out with offerings that are comparable to your VAPS offerings. in this space, just your confidence in maintaining market share with VAPS as well with the enterprise customers? Timothy Boswell: This is another area where I think outperforming ourselves is step number one. This is a function that looking back over the last 5 years, just given the relative size of our company had been relatively immature. And going into really Q2 of this year, we took a step back, put some of our best field-based leadership into this function, reorganized the team by industry vertical across 5 or 6 high potential verticals, construction being the largest today. But historically, we've never intentionally gone into federal government, which I talked about earlier. Retail, we've had some presence but not with a lot of intentionality. Professional services, energy and industrial or other sectors where we see opportunities to grow our penetration in those markets. So step one is let's outperform our historical baseline, and we're absolutely doing that. Your comment around value-added products and propensity to consume those at the enterprise level, I would just broaden and make a more general statement that when we're having enterprise-level RFPs, the ability to bundle not just value-added products, but climate controlled clearspan, parameters and all aspects of this broader space solution offering that we're putting together is pretty attractive, right? So I think it's cross-selling those products within the enterprise, not just value-added products is a big part of the opportunity that we see going forward. Operator: The next question is from Phil Ng with Jefferies. Philip Ng: Well, Brad, thank you. I appreciate your partnership over the years. Tim, congratulations to the new role. Looking forward to working with you. I guess from a high level, you guys talked about how you want to shift your portfolio away from more commodity products to differentiated offerings, driving more of a decentralized model. Does that require a meaningful step-up in CapEx and SG&A? There was an element of holding management more accountable and you're kind of rebuilding the field-based structural changes. Are you realigned the KPI and incentive comp and having a higher portion of your comp tied to variable, especially on the sales side of things? Timothy Boswell: Okay. I'll start and anybody else who would like to jump in, please do so. So we had a question a minute ago about, hey, does this fleet disposal change -- fundamentally change the capital requirements in the business going forward? No, I don't think it does. I think the mix of that CapEx has absolutely changed. And that process started probably a year, 1.5 years ago. So I don't see a significant change in the overall magnitude of CapEx requirements in the business. I think the mix of where that capital is going is likely to be very different than it would have been over the last 5 years in some of the categories that I mentioned. Actually, see an SG&A opportunity in the business, not an incremental add, especially as we look across our corporate functions. And some of that efficiency, I think, is supported by the fact that we've completed a lot of the integration activities that were related to the Mobile Mini acquisition now almost 5 years ago. So I don't really see any fundamental changes to the cost structure or the CapEx requirements in the business based on those comments. Philip Ng: Incentive comp and variable comp? Timothy Boswell: So we have always had a significant portion of our annual bonus plan that is tied to forward-looking revenue metrics in our business. As you're well aware, this is a sequentially compounding business. every period, we should be incentivized to put more units on rent at higher prices with more value-added products and services to drive that forward-looking lease revenue stream. And that's roughly about 30% of our annual short-term incentive bonus plan. We will tweak that calculation methodology a little bit to be more closely aligned with the metrics that our sales force is compensated based on. And I think that's extremely healthy. But that's really a refinement rather than a significant change, Phil. Philip Ng: Okay. Super. And then in your prepared remarks, you mentioned reestablishing organic growth. What are like the one or two things you want to call out that will help accelerate that? Is there a big shift in terms of your go-to-market strategy? And I did -- if I heard you correctly, a pivot to some of these different end markets. How are you going to tackle that? -- historically, there's been a big focus on M&A and AMR growth. Is there more of a pivot now towards organic growth on the volume side and just a big shift in terms of what markets you're going to really go after now? Timothy Boswell: Absolutely more of an emphasis on the organic volume side across all product lines. And in some cases, as Worthing alluded to, I think we need to compete a little bit differently, leveraging our service infrastructure and customer service capabilities in some of those more commoditized product lines where maybe the product itself isn't as differentiated. But through our scale and capabilities, we can actually offer a differentiated experience to the customer. So that's absolutely a big focus within the company right now in terms of ease of doing business, speed of delivery and consistency of execution across all our product lines. But I think it becomes even more important in some of those legacy more commoditized lines. Meanwhile, we are allocating capital and resources to grow in some of those more differentiated product lines like complexes, FLEX, climate controlled, et cetera, all the stuff that we've been talking about. So that's one of the 3 kind of commercial go-to-market pillars. A second would be everything that we've done in the field-based sales organization. I mentioned we've added over 10% to that population through the course of this year. That population is ramping up from a productivity standpoint in many cases, and we would expect to see benefits from that going into 2026. And then the enterprise portfolio is the place where I'd say, we are tapping into new verticals with more intentionality than we have in the past and also being more strategic with existing relationships and growing wallet share and deepening partnerships with existing contractors, especially in the construction vertical. So we've got 3 pillars to that go-to-market strategy across adjacencies, the field sales force and enterprise, and we're pushing hard across all 3. Operator: The next question is from Manav Patnaik with Barclays. Ronan Kennedy: This is Ronan Kennedy on for Manav. As far as the rental footprint and fleet optimization and the ongoing evaluation as to whether you will do the further acceleration of the recognition of depreciation expense. I know we've talked about potential impacts on CapEx structure requirements and mix. But is there any potential change and lessons learned around capacity and utilization management into this initiative and out of it going forward? Matthew Jacobsen: Ronan, thanks this is Matt. Thanks for the question here. I think for us, it's kind of a kind of where we're at right now with the acreage that we've got and the fleet that we have. I mean, I think, we're always trying to manage the fleet, and we spend a lot of time planning the amount of CapEx and maintenance that needs to go into the fleet. And none of that has changed because of this. As we're just at a point where, as Tim spoke about, we're off about 30% from peak levels, and we have excess fleet that we need to get cleaned up right now, and now it's time to do it. So I think markets are going to ebb and flow over time. You always have to keep an eye on these things, but just kind of a point of where we are right now. Ronan Kennedy: Okay. And then just if you could shed some further light with regards to the changed approach and guiding. Obviously, there's an element if you are going to have that less transactional subject to the volatility around activations, et cetera. But was there anything else from philosophy or process or perhaps even anchoring to leading indicators that had good historical correlation, but has changed given the length and severity of the decline in non-resi or intensifying competition? How should we think about that? Matthew Jacobsen: No, I think it's just -- this is Matt again. It's just a change in approach, right? We want to make sure that we're setting guidance out there that's got a little bit of cushion to it so that we can beat it. That's really what it is. We've had some times where we haven't met those expectations, pretty quite a few here in the last couple of years, and we want to turn that around. That's it. Worthing Jackman: Yes. I'd also add, it's Worthing. You mentioned a protracted decline. I think the historical approach basically set a range of expectations that could materialize based on whether it be execution, the competitive environment or recovery in the markets, in the end markets. And I think the decision now is just to make sure we're not making bets on things we don't control. And so let's let a lot of things be upside. Let's make sure we're guiding conservatively. But I think also going into it, look, the company has spent the last couple of months tightening up how they forecast the business. And I think you look at -- Matt, you didn't cover it, but I think you look at the October results and activations and units on rent. I mean every metric that we forecasted for the month, we met or exceeded. And so it's just nice to see the effort the team has made throughout the organization to try to tighten down the forecasting, to not try to call a turn and to keep a lot of things that are out of our control as upside. Operator: [Operator Instructions] The next question is from Scott Schneeberger with Oppenheimer. Scott Schneeberger: Brad, I really enjoyed working with you, best wishes. I guess for the first question, it's going to play off of Ronan's discussion there on guidance. I know you're not going to provide 2026 guidance right now. We're not going to get that until probably February. However, with the trends you're seeing here into the end of the year across the primary asset classes, how should we think about volume and price on modulars and storage as we enter next year? And what type of influence would that have just kind of starting out next year as an endpoint of '25 into '26? Timothy Boswell: Scott, it's Tim. I'll give you my current view of the playing field here. And as I said a minute ago, I don't see anything sitting here right now in the third-party leading indicators that says that we found stability. I mean, you track the ABI as closely as anyone and most recent reading was around 43%, which is pretty soft, and it's been that way for 3 years, right? You have seen some slowing in the rate of decline of non-res square footage starts, which is encouraging. And that's definitely a precursor to a bottom, but there's nothing that says that, that has actually occurred yet. As I look across the portfolio right now, spot rates across most of our product -- modular product line are really solid. Ground level offices are really the only category where we've made some strategic decisions to soften our pricing stance. But I see stability or opportunity across much of our modular portfolio going into 2026. Storage, I mentioned earlier, order book, if I exclude -- seasonal orders right now is down about 6%. So you've still got that mid- to high single-digit volume decline implicit in the current storage order book as we're going into 2026. And I've seen continued softening in the rate environment for traditional storage. And that's not just us. I think that's fairly well documented across the industry at this point. So definitely some mixed trends as I look at the leasing KPIs across the legacy kind of product line. Climate-controlled storage, I mentioned, volumes, rates, value-added products associated with them are all trending very strongly. So that's a place where I think we can make some luck going into 2026. And overall, if you just think about the volume trajectory in the business, we're trending down year-over-year across traditional modular and storage. If we were to see an inflection there, you're probably looking at the second half of the year sometime, but we don't have any crystal ball, and some of that's going to be dependent on the market environment. So as you well know, we typically give our full year guidance on the Q4 call. The reason for that is, at that point, you typically have better leading indicators and visibility for the U.S. construction cycle, which tends to ramp up as you go from March and April into Q2. And we'll stick to that practice in terms of providing the formal guidance. Scott Schneeberger: Tim. I appreciate all that color. It's helpful. And prompts a few follow-ups, but I'll ask them later in a follow-up. I wanted to ask another question just on the optimization of the footprint and the assets. I guess on the assets portion of it, what -- are we going to see it more in modular? Are we going to see it more in traditional storage? I know it's a little bit of everything, but can you give us a sense of where you're really going to focus in on? And this feels like it could potentially be a first step. Is this a tip of the iceberg, the $250 million, $350 million or -- and it could be more as you go because you do have a few years of utilization potential to grow into and you'll be coming at it from one angle. It just feels like there could be a little bit more. So what assets and what made you decide upon this size right now? Timothy Boswell: Scott, I'd say -- this is Tim, and then Matt jump in. We've actually approached this more from the real estate side of things, right? And the priority #1 here is reduce operating costs and inefficiency in the system. And as you accumulate surplus fleet, you get drop lots and things like that and industrial real estate is expensive. So what we've looked at are actionable real estate opportunities over the next couple of years where you actually have an actionable ability to reduce those costs. And where we see those cost reduction opportunities if we see surplus fleet associated with those locations that we can dispose of in order to take advantage of that savings, that's kind of the lens that we've used to approach this. Absolutely, yes, we'll keep an eye on changes in overall market activity. If markets ramped up, maybe you want to dispose less, although we're at pretty low utilization levels right now. If markets continue to decline, you might take a different approach. But we're using actionable real estate cost reduction as the guiding light in this initiative. Matthew Jacobsen: Yes, Scott, this is Matt. The only thing I would add is that we started this really kind of beginning of the year and did some property-by-property analysis, and you've seen us do some of these throughout the year. Given where we're -- what we've seen, we saw the opportunity to kind of look at all of this at once, everything we kind of see in the next 3 or 4 years to really try and pull it all together and have a multiyear plan. So that's what you're seeing right now. From an asset perspective, I mean, think of this, it's very tied to forward-looking demand. Complexes and FLEX and these newer products are high-demand products, the differentiated products. It's not those, right? It's more going to be around the transactional type things where we've seen a real reduction in demand over the last few years as non-res has come down and the local smaller local projects have done. So it's some storage containers. It's going to be some single units, those single, smaller units typically, but any single. So it's not these differentiated products. It's stuff that we have ample supply of, and we know we can still meet the demand that we need to meet with remaining fleet. Scott Schneeberger: Got it. And so it's real estate first that you're going. And then when you're at a selective location, you're then assessing the assets at that location. That's the order process. Matthew Jacobsen: That's correct. Operator: We have now reached the end of today's call. I'll now turn the call back over to Charlie. Bradley Soultz: This is Brad. I'll take the closing here. First, I'd just like to say I'm proud of and humbled to have been part of this fantastic team as we've navigated the initial chapters of this young and great company. In closing, I'd like to thank my family, our customers, shareholders, all of you on this phone and most importantly, this team for the support over the years. And I'll remain an invested and exciting supporter of this company for the long future. Thanks. Operator: Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen and welcome to the AirSculpt Technologies, Inc. Third Quarter 2025 Earnings Call. [Operator Instructions] Please note that this event is being recorded. I will now hand the call over to Allison Malkin of ICR. Please go ahead. Allison Malkin: Good morning, everyone. Thank you for joining us to discuss AirSculpt Technologies results for the third quarter of fiscal 2025. Joining me on the call today are Yogi Jashnani, Chief Executive Officer; and Dennis Dean, Chief Financial Officer. Before we begin, I would like to remind you that this conference call may include forward-looking statements. These statements may include our future expectations regarding financial results and guidance, market opportunities and our growth. Risks and uncertainties that may impact these statements and could cause actual future results to differ materially from currently projected results are described in this morning's press release and the reports we will file with the SEC, all of which can be found on our website at investors.airsculpt.com. We undertake no obligation to revise or update any forward-looking statements or information except as required by law. During our call today, we will also reference certain non-GAAP financial measures. We use non-GAAP measures in some of our financial discussions as we believe they more accurately represent the true operational performance and underlying results of our business. A reconciliation of these measures can be found in our earnings release as filed this morning and in our most recent 10-Q, which will also be available on our website. For today's call, Yogi will begin with an overview of our third quarter and share an update on our strategic priorities. Then Dennis will review our financial results in more detail and provide our outlook. With that, I'll turn the call over to Yogi. Yogesh Jashnani: Thank you, Allison and good morning, everyone. During the quarter, we made strong progress on our key initiatives that focused on new growth opportunities, margin improvement and debt reduction. While third quarter revenue was lower than anticipated, this is reflective of timing instead of trajectory of our business. Most significantly, we are setting the stage to realize a broader market opportunity to provide body contouring solutions that address the unwanted side effects related to GLP-1 use. This represents a long-term growth engine for AirSculpt. Our capabilities, scale and brand uniquely position us to capture this major opportunity in aesthetic surgery, which we are calling the GLP-1 transformation. To that end, we have expanded and refined our strategy to focus on 3 key areas: introducing new services to capture the GLP-1 opportunity, enhancing our sales and marketing strategy and financial discipline in the areas of margin improvement and capital allocation. First, we are introducing new services to capture our GLP-1 market opportunity, which is broader and more durable than I initially expected. We see our skin tightening pilot programs as part of a long-term opportunity that is highly complementary with our core body contouring business. GLP-1 medications have fundamentally reshaped how consumers approach weight loss and wellness and we are seeing this change is beginning to create demand for aesthetic procedures that align to our existing brand and capabilities. In the long term, we believe these procedures can account for a significant portion of AirSculpt's revenue and drive meaningful growth. For context, global GLP-1 prescriptions have grown at roughly 38% annually between 2022 and 2024, with total sales expected to reach $100 billion by 2030, according to a study from McKinsey & Company. GLP-1 therapies are reshaping the aesthetics landscape with 63% of GLP-1 patients seeking aesthetic treatments post use, representing new consumers to the market. Equally encouraging is that nearly 2/3 of patients that have lost 11% to 30% of their body weight have multiple concerns with GLP-1 medication side effects, driving growth in patient needs for skin tightening and overall reshaping after significant weight loss. At AirSculpt, we have begun to serve this patient base as our protocols, scale and brand trust give us a meaningful head start to further capitalize on this opportunity. While it's still early, in our pilots, we are seeing higher conversion rates amongst GLP-1 patients. The first step towards realizing this potential was our successful pilot of skin tightening that began in Q2 and has recently been expanded to multiple centers. While we saw a lift in tightening services in the third quarter, we found that many clients coming in for this procedure have lose skin beyond what skin tightening can address. As a result, we have begun to add new procedures to address loose skin when skin tightening alone is not sufficient, thus expanding our total addressable market. This represents a natural extension for us as the scale player in this space. Looking ahead, we will continue to invest to capture this meaningful opportunity. Our second area of focus is enhancing our sales and marketing strategy. In Q3, we adapted our marketing spend to align with the moderation in our revenue trend and prioritized initiatives that drive higher conversion. As we move forward, our marketing approach will balance near-term lead generation with longer-term brand building with a more diversified media mix, including targeted influencer campaigns and television advertising. This is designed to strengthen lead quality, improve conversion and deepen our focus on the affluent consumer base. With our sales team, we are implementing new training modules and tools as we remain focused on improving conversion. Finally, we have also improved financing options for our patients. Our third area of focus is maintaining strong financial discipline, both in our margins and capital allocation. Year-to-date, we have generated more than $3 million in annualized cost savings, net of investments in new growth initiatives. We expect to continue unlocking incremental value from our current operations, which we anticipate will expand our operating margin going forward. Turning to capital allocation. We have repaid nearly $18 million of our debt year-to-date. Debt repayment continues to be the primary focus of our capital allocation strategy in the near term. Beyond that, we will continue to invest in growth initiatives, including new procedures. In Q3, we made the decision to close our center in London. As part of a strategic review of all our centers, we saw this was the only unprofitable center and would have required significant investment to turn around. Instead, we have chosen to focus our resources on delivering growth to our North America locations where we continue to see considerable opportunity. We are updating our annual outlook and expect 2025 revenue of approximately $153 million as compared to our previous guidance in the range of $160 million to $170 million. We expect 2025 EBITDA of approximately $16 million, the bottom end of our guidance of $16 million to $18 million. For the fourth quarter, we are seeing improving same-store sales performance compared to a year-to-date trend. Additionally, our implied fourth quarter EBITDA guidance highlights stronger margins, both sequentially and year-over-year. Turning to personnel news. This morning, we announced Michael Arthur will be joining AirSculpt as Chief Financial Officer starting January 2026. He assumes the CFO position from Dennis Dean, who will retire, as we had previously announced following a transition period. Michael is a seasoned executive who brings public market experience and has led financial organizations through growth, complexity and change. I am confident he will add meaningful strength to our leadership team. Over the next few weeks, Dennis will work closely with Michael to ensure a seamless transition and I'm looking forward to working with him as we position AirSculpt to realize its true growth potential. Secondly, on Wednesday, we filed an 8-K announcing that Dr. Aaron Rollins has resigned from the Board citing personal reasons. He confirmed this was not due to any disagreements between him and the company, its management or the Board on any matter related to the company's operations, policies or practices. We thank Aaron for all his contributions to AirSculpt and wish him all the best. In summary, we have expanded and refined our strategy to focus on 3 key areas: introducing new services to capture the GLP-1 opportunity, enhancing our sales and marketing strategy and financial discipline in the area of margin improvement and capital allocation. While near-term revenue reflects a period of transition, our growing suite of procedures, balanced marketing strategy and disciplined execution give us the confidence in our long-term trajectory. And with that, I will now pass it over to Dennis. Dennis Dean: Thank you, Yogi and good morning, everyone. As I mentioned in my remarks last quarter, I'd like to thank the team at AirSculpt for the opportunity to lead this organization as Chief Financial Officer for the past 4 years. It has been an exciting journey and I'm certain that Michael is the right choice for CFO. I'm committed to ensuring a smooth transition of my responsibilities and look forward to watching AirSculpt reach greater heights after I exit the business. Now turning to our financial performance. As mentioned, revenue for the quarter was $35 million, a 17.8% decline versus the prior year quarter, with same-store revenue down approximately 22%. Cases declined 15.2% to 2,780 with same-store cases down approximately 20% and average revenue per case for the quarter was $12,587, a decline of approximately 3% from the prior year quarter but above the midpoint of our historical range of $12,000 to $13,000. The percentage of patients using financing to pay for procedures was 52%, which is comparable to what we experienced in the second quarter. As a reminder, we receive full payment of all procedures upfront and we have no recourse related to patients who finance their procedures with third-party vendors. Cost of services decreased by $2.9 million compared to the prior year period and as a percentage of revenue increased to 42.5% versus 41.8%. Selling, general and administrative expenses decreased $6 million in the quarter compared to the same period in fiscal 2024, which reflects the impact of our cost management activities and reductions in our equity-based compensation. Our customer acquisition cost for the quarter was approximately $3,100 per case as compared to $2,900 in the prior year quarter. Adjusted EBITDA was $3 million compared to $4.7 million for the fiscal 2024 second quarter. Adjusted EBITDA margin was 8.7% compared to 11% in the prior year quarter. The declines in adjusted EBITDA and adjusted EBITDA margin is the result of our revenue declines. Net loss for the quarter was $9.5 million and adjusted net loss for the quarter up $2.4 million or $0.04 per diluted share. Our net loss included 2 noncash charges recorded during the quarter. The first relates to our Salesforce technology project. When we initially started the Salesforce project in Q4 of 2022, we planned for it to cover everything from marketing and sales to operations and clinical processes but we realized that the strength of the platform lies in marketing and sales. So that is where we are focusing our energy. As a result, we recorded a noncash impairment charge of $4.6 million during the quarter related to those components we do not expect to be used. For operations and clinical needs, we are pursuing alternative solutions that are better tailored to those workflows and for our business. We continue to be pleased with the portion of this project that we have implemented related to marketing activities and expect to complete the rest of the Salesforce implementation related to the sales function in the first quarter of 2026. We also recorded a loss of approximately $2.3 million related to the closure of our facility in London. This charge primarily relates to an impairment to the long-term assets we have recorded at the center. Additionally, we recorded approximately $1 million to selling, general and administrative expense during the quarter related to accelerating the amortization of the right-of-use asset at this facility. This increase in lease expense had no impact to cash. During the quarter, we generated $400,000 of revenue at the London center and our adjusted EBITDA was a negative $150,000. For the 9 months ended September 30, 2025, we recorded revenue at our London center of $1.4 million and our adjusted EBITDA was a negative $600,000. Turning to our balance sheet. As of September 30, 2025, cash was $5.4 million and gross debt outstanding was $57.9 million and our $5 million revolver remains undrawn. Our leverage ratio as calculated according to our credit agreement was 3.04x on September 30, 2025 and we are in compliance with all covenants under the terms of our credit agreement. As a reminder, during the second quarter, we repaid $16 million of debt, including $5 million on our revolver and a $10 million prepayment as a result of using proceeds from our capital raise and cash from operations. These activities reflect our ongoing commitment to strengthening the balance sheet, which allows us to move forward with an improved capital structure and enhanced flexibility. Cash flow from operations for the quarter was a use of cash of $225,000 compared to an increase of cash of $1.8 million in the third quarter of 2024. Turning to our outlook. For 2025, we are updating our revenue outlook to approximately $153 million versus our previous revenue guidance in the range of $160 million to $170 million. We are reiterating the low end of our adjusted EBITDA guidance of approximately $16 million within our range of $16 million to $18 million. For the fourth quarter, our revenue guidance implies a smaller year-over-year decline and we are seeing improving same-store sales performance compared to our year-to-date trend. At the same time, our implied Q4 EBITDA guidance highlights stronger margins, both sequentially and year-over-year. I will now turn the call over to the operator to begin the question-and-answer portion of the call. Operator: [Operator Instructions] Our first question comes from Joshua Raskin of Nephron Research. Marco Criscuolo: This is actually Marco on for Josh. So cost controls actually looked pretty strong relative to our estimates for the quarter. So I was just wondering if you could go a little deeper on the cost-cutting measures you have taken by line, whether it be G&A or cost of service. And then looking forward, how should we think about the sustainability of the savings you're generating? Should we expect those to continue into the fourth quarter and into next year as well? Dennis Dean: Marco, it's Dennis. Thanks for the question. Yes, a lot of our cost controls, as we had kind of communicated over the past couple of quarters, has focused primarily in the SG&A realm. There are some things that we've done within the cost of services. But primarily, it's been in our SG&A and our support that we've had at regional positions and things of that nature. So that's been primarily the focus on it. We're continuing to heavily focus on that. Clearly, as we kind of guided our number into the fourth quarter, even though we are experiencing some -- the revenue softness, the cost controls are really kind of helping bridge some of that gap for us. So really pleased with that. We keep uncovering things as we kind of push on various vendors and those sorts of things and are identifying additional opportunities. So we expect to continue on this approach being diligent but most of that was in the SG&A line. Marco Criscuolo: Great. That's helpful. And if I could just squeeze one more in. It was good to hear about the progress you're seeing with the stand-alone skin tightening service. But could you just go into a little more detail on what you're seeing there in terms of uptake and how you envision the pace at which that's expanded across the rest of the centers? And then also, if you could just go a little deeper on what new services you're looking to add to address that GLP-1 population. Yogesh Jashnani: Marco, this is Yogi. Thanks for the question. As it relates to skin tightening, our thesis is proving out in that we are seeing there's demand for solutions that address loose skin. Now what we are also seeing is that the pool of qualified candidates for stand-alone skin tightening was smaller than we anticipated, mainly because the loose skin was beyond what skin tightening could address. So while that meant Q3 revenue was muted, we see this as a broader and more enduring opportunity for a suite of procedures to further address additional loose skin. That comes in the form of skin excisions or skin removals, for example. And many of those can be done in our clinics under local. It fits within our model pretty perfectly. So we have started to pilot some of that already. Skin tightening has been expanded to multiple centers. Skin excisions is in pilot right now. And even without marketing it, we are starting to see good demand for that. So we will continue to expand on that. Just as a quick reminder, for all of these procedures, it takes 3 to 6 months for patients to see full results. And so while we are starting off on these, it will take us a few months to get the before and afters and then turn those around into marketing and expand it from there. Operator: [Operator Instructions] Our next question comes from Sam Eiber of BTIG. Sam Eiber: Maybe I can start on a Q3 question and then I definitely want to come back to the GLP-1 opportunity. But Yogi, you talked about a timing issue this quarter. Would love, I guess, your thoughts on exactly maybe what happened here. I know last quarter, leads and consultations were stepping up a bit. So I would just love to better understand the timing issue in Q3. Yogesh Jashnani: Yes. All right. Sam, thank you for the question. So for Q3, we continue to operate in a challenging consumer environment, especially for considered purchases. That hasn't changed since Q2. While we saw leads and consults continue to remain strong, they were strong in Q2 and they continue to remain strong in Q3. We continue to see that consumers are hesitant to go from, I'm interested, I want to talk to you guys, I want to get a quote, to purchasing. However, we are seeing Q4 same-store sales trends are better than year-to-date. And as we are transforming the business, we realized there is a bigger opportunity with GLP-1 users than we initially thought. We initially thought skin tightening would be able to address a broader sliver but we are seeing that the demand is bigger and the needs are broader, which we can address. And we are already starting to see that GLP-1 users are converting better than non-GLP-1 users. So the strategic play is with introducing the new procedures, adapting our marketing and sales to capitalize on that. So in summary, while short-term revenue is lower than expected, we are excited about the broader GLP opportunity in front of us. Sam Eiber: Okay. That makes sense. Very helpful, Yogi. All right. Maybe coming to the GLP-1 opportunity. I would love to, I guess, better understand surgeon interest in the skin excision opportunity within AirSculpt centers, right, their ability to capture maybe some of the economics for these procedures among these patients. And then maybe as a follow-up to that, how you're thinking about any shifts in marketing or brand awareness for AirSculpt to go after this opportunity? Does that need to change at all as you kind of go after this new subsegment of patients? Yogesh Jashnani: Sam, I'll address both parts of that question. As it relates to surgeon interest and expertise, I think you were asking about both, if I understood your question correctly. Look, there is -- both are actually a pretty strong positive for us. I had to -- at a couple of points, slow things down and make sure that we are doing a pilot in fewer locations than where I had surgeon interest. So surgeon base is definitely interested in doing skin excisions and that is evident in our pilot as well. And surgeons are more than capable -- we have an elite network of over 80 surgeons, plastic and cosmetic, who provide excellent care. And many of them have the abilities and have been doing this in their -- whether it's in their private practice or in their past lives as well. So no concerns from that perspective. Now there will be -- to your other question, there will be changes in marketing and sales. It is much more about making sure that we get the messaging right to people who are GLP-1 users or who have loose skin. So that's where we are testing into what is the right messaging, what is the right targeting and what is the right place in the cycle of GLP-1 use that people are looking for loose skin as a problem. Remember, we've been talking about loose skin and also fat removal is another big idea here because with GLP-1, there is uneven weight loss and uneven volume loss. So we continue to see people coming in for removing those stubborn fat deposits that GLP-1 was unable to address as well. Operator: Thank you. Ladies and gentlemen, we have reached the end of the Q&A session. I will now hand back to Yogi Jashnani for closing remarks. Yogesh Jashnani: Thank you again for joining us. I also want to thank the AirSculpt team and our network of over 80 surgeons that provide excellent care and results to our patients. Together, we are powering the next chapter in AirSculpt's growth. We look forward to share our progress when we report Q4 results and wish you a happy and healthy holiday season. Operator: Thank you, sir. Ladies and gentlemen, that concludes today's event. Thank you for attending and you may now disconnect your line.
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the American Healthcare REIT Q3 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Alan Peterson, Vice President of Investor Relations and Finance. Please go ahead. Alan Peterson: Good morning. Thank you for joining us for American Healthcare REIT's Third Quarter 2025 Earnings Conference Call. With me today are Danny Prosky, President and CEO; Gabe Willhite, Chief Operating Officer; Stefan Oh, Chief Investment Officer; and Brian Peay, Chief Financial Officer. On today's call, Danny, Gabe, Stefan, and Brian will provide high-level commentary discussing our operational results, financial position, changes related to our increased 2025 guidance and other recent news relating to American Healthcare REIT. Following these remarks, we will conduct a question-and-answer session. Please be advised that this call will include forward-looking statements. All statements made during this call other than statements of historical fact are forward-looking statements that are subject to numerous risks and uncertainties that could cause actual results to differ materially from those projected in these statements. Therefore, you should exercise caution in interpreting and relying on them. I refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results, financial condition and prospects. All forward-looking statements speak only as of today, November 7, 2025, or such other date as may otherwise be specified. 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. During the call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. Reconciliations of non-GAAP financial measures discussed on this call to the most directly comparable measures calculated in accordance with GAAP are included in our earnings release, supplemental information package and our filings with the SEC. You can find these documents as well as an audio webcast replay of this conference call on the Investor Relations section of our website at www.americanhealthcarereit.com. With that, I'll turn the call over to President and CEO, Danny Prosky. Danny Prosky: Thank you, Alan. Good morning or good afternoon, everyone, and thank you for joining us on today's call. I am very pleased to report that the third quarter was another very strong quarter for AHR. We continue to build upon our strong first half momentum, generating same-store NOI growth of 16.4% across the total portfolio, marking our seventh consecutive quarter of double-digit same-store NOI growth portfolio-wide. This performance once again reflects the depth and quality of our portfolio, our strategic initiatives, which include leveraging our platform across our operating portfolio, the strength of our regional operating partners and the enduring demand tailwinds that support health care real estate. Within our operating portfolio, our RIDEA structured segments, which include our integrated senior health campuses, also known as Trilogy, and our SHOP segment continue to drive outsized growth, which is the result of our team's proactive and hands-on asset management approach. As I look across our industry, I maintain my conviction that this is the best operating environment for long-term care that I've seen in my entire 33-year career. This is most evident to me when reviewing our strong RevPOR growth and the fact that Trilogy and SHOP same-store occupancies are currently above 90% and continue to trend in a positive direction. Shifting to our external growth activity, we're executing diligently on scaling our operating portfolio with our regional operating partners. In aggregate, we have closed on over $575 million of acquisitions year-to-date, all of which is within our RIDEA segments. Among these new acquisitions, I'm happy to announce that we're expanding our highly curated stable of operators. We introduced 2 new relationships to our group of operators this year, which will broaden our geographic diversification while reinforcing our focus on operators that share our values, including a strong employee culture, ability to deliver ongoing outsized financial performance and most importantly, a keen focus on delivering high-quality care and results for our residents. I'd like to congratulate Stefan and the entire investments team, along with Ray Oborn and his senior housing asset management team again as they have continued to identify and acquire a tremendous volume of very high-quality managed senior housing assets. These acquisitions not only provide immediate earnings accretion to AHR, these assets should also provide strong ongoing organic earnings growth for years to come. Along with the acquisitions I just noted, the team has continued to backfill our pipeline of awarded deals, which now stands at well over $450 million. These transactions are expected to close in the fourth quarter and early 2026. As we execute on our external growth plans, we continue to demonstrate discipline and remain opportunistic in our capital markets and capital deployment activity, which should drive further earnings accretion in 2026 and future years. We're now on track to grow normalized FFO per fully diluted share by 20% over last year, while also continuing to improve our balance sheet metrics and leverage profile. As Brian will note during his remarks, our net debt to EBITDA at the end of the third quarter is now down to 3.5x. Our strategy remains consistent. We're not simply chasing near-term accretion. We are building durable long-term growth through operating alignment with best-in-class regional operators, disciplined capital allocation and capital markets activity while always putting resident care and outcomes first. Finally, I'm proud to note that in September, we published our inaugural corporate responsibility report, publicly disclosing the governance, social and sustainability priorities that have long been embedded in AHR's culture. This milestone reflects our belief that responsible stewardship and performance are inseparable. Before turning the call over to Gabe, I want to thank the entire AHR team and our operator partners for their exceptional work. Together, we are executing with precision and purpose for all AHR stakeholders, providing high-quality care and outcomes for residents, which is leading to strong financial performance for our shareholders. And now, Gabe, over to you. Gabriel Willhite: Thanks, Danny. Operationally, the third quarter of 2025 was another strong quarter for us with outstanding results across the business. Once again, we delivered sector-leading same-store NOI growth compared to the third quarter of 2024. Not only did we sustain the momentum from the first half of the year, but we also built a solid foundation for continued success with strong occupancy gains in the third quarter prior to entering what's historically a slower winter season. That being said, occupancy trends into the fourth quarter suggest that seasonality could be muted due to the accelerating demand growth from the baby boomer population. Now let's dive into our results in more detail, starting with Trilogy. Same-store NOI grew 21.7% year-over-year. Occupancy averaged 90.2% in Q3, up more than 270 basis points from last year, while average daily rate increased roughly 7%. That performance reflects not only continued pricing power, but also ongoing improvement in quality mix. Within Trilogy, its high quality of care and outcome standards continue to drive outsized demand as residents, families and now to an increasing degree, Medicare Advantage plans seek out the highest quality of care providers. Trilogy is continuously working to add to and also to optimize its Medicare Advantage partnerships with the plans most aligned on quality, which is in turn increasing access for residents to Trilogy and driving more Medicare Advantage census growth across the Trilogy portfolio. We expect this mix shift to drive robust revenue growth that reflects the strength of the platform for 2 primary reasons. One, Medicare Advantage reimbursement rates are significantly higher than other reimbursement sources and growing faster than other sources; and two, increasing accessibility for Medicare Advantage plans provides a tailwind for continued census growth. So for example, Medicare Advantage accounted for 7.2% of total resident days at Trilogy during the third quarter, an increase from 5.8% a year ago. It's a great example of how Trilogy has proactively leveraged high-quality care and outcomes to identify the best partners and ultimately create economic value and yet again demonstrates Trilogy's remarkable ability to utilize many different operational and strategic levers in order to drive continuously strong growth. Turning to SHOP. Same-store NOI increased 25.3% with RevPOR up 5.6% year-over-year and NOI margins expanding nearly 300 basis points to 21.5%. We also achieved record move-in activity during the spring and summer seasons. And for the first time, like Danny mentioned, our SHOP same-store spot occupancy is currently above 90%. Those gains were achieved without significantly sacrificing pricing discipline, reinforcing our view that the secular demand for long-term care remains durable, especially for the highest quality operators as residents and families continue to invest in superior care and service. As demonstrated by our operating portfolio results, fundamentals remain extremely favorable. Construction starts across senior housing remain near historic lows, while demographic growth in the 80-plus cohort accelerates. These structural supply-demand imbalances should support a multiyear runway for further occupancy gains, rate growth and NOI growth. As we move into the winter months, we're confident and we're well positioned to maintain the occupancy gains achieved through the busier spring and summer selling season. Overall, we continue to view this as the early innings for long-term care demand growth that's being captured most effectively by operators with scale, quality outcomes and a strong regional presence. Trilogy and our SHOP partners certainly exemplify that. I'd like to thank each of our operator partners for their enduring commitment to their residents and their employees and their contributions to another very successful quarter for AHR. We know we could not deliver these results without them. Finally, our team is actively executing on our strategic initiatives designed to enhance our operating platform. Our strategic alignment with Trilogy unlocks unique opportunities for outperformance and value creation. For example, we're leveraging Trilogy's centralized revenue management system across other operating partners. The analytics and also the operational strategies and functionality from that program, which combines a multitude of factors, including market rates, occupancy, unit-specific attributes and discount control features have already contributed to our growth at Trilogy by optimizing revenue, especially with respect to highly occupied facilities, which we know is a category that's rapidly expanding. We're in various pilot phases with our regional operators to extend this tool among other initiatives we've identified across our operating portfolio. We continue to view this as a differentiator and a key component of our strategy as we plan for rapid expansion and look to support our regional operators as they scale to meet this transformative growth opportunity. I'll now pass it to Stefan to discuss our external growth activity. Stefan K. Oh: Thanks, Gabe. Since our last call, we have been very active, closing a number of transactions while continuing to backfill the pipeline with equally strong and high-quality investments. In doing so, our investment strategy remains unchanged as we continue to focus on accretive relationship-driven growth. We're emphasizing opportunities where we have long-term conviction in the operators and markets and where our capital can directly improve care outcomes and long-term asset performance. During the quarter, we completed approximately $211 million of acquisitions and closed approximately $286 million of new investments subsequent to quarter end, bringing our year-to-date closed acquisitions to over $575 million within our operating portfolio. These transactions expand our exposure to high-quality assets in strong regional markets and deepen existing relationships with trusted operators. A key highlight of our recent activity is our new partnership with WellQuest Living, who now manages 4 communities we acquired in California and Utah. WellQuest aligns closely with our mission to deliver best-in-class resident care through integrated wellness-focused environments. WellQuest will complement our current SHOP exposure on the West Coast, allowing us to access new submarkets that screen attractively within our investment framework and offering us the ability to underwrite potential acquisitions that will leverage WellQuest's core care competencies as a high-quality needs-based senior living operator. WellQuest rounds out the new operator relationships we previewed earlier this year. And between WellQuest and Great Lakes management, it has already allowed our team to evaluate even more potential off-market opportunities, which is something we strive to do with all our trusted regional operating partners. Beyond acquisitions, we continue to optimize our portfolio mix. During the quarter, we executed $13 million of non-core dispositions, further concentrating our capital on assets within our operating portfolio that can deliver superior risk-adjusted returns. Our team has not slowed in identifying new opportunities to complement our existing investments year-to-date as we maintain a pipeline of over $450 million in awarded deals that are still in the due diligence process or that we have added since we provided an update in early September. We expect to close this awarded deal pipeline by the end of 2025 or early 2026. On the development front, we started several new development and expansion projects this quarter. Our in-process development pipeline now consists of projects with a total expected cost of roughly $177 million, of which we have spent approximately $52 million to date. We believe that these projects should extend our multiyear growth runway at attractive yields and the mix of new campuses, independent living villas and wing expansions should provide solid income at various points over the next few years, allowing for predictable cash flow that will translate to retained earnings for future new development starts to help mitigate future funding risks. To summarize our executed investment strategy thus far and our future plans, we are deploying capital deliberately, favoring operating partnerships where we see the best risk-adjusted returns, prioritizing newer assets and maintaining discipline on underwriting. We believe this strategy will prove resilient as we scale across our operating portfolio with our various partners, and we expect it will generate strong, sustainable returns next year and in the future years to come. With that, I'll turn it over to Brian. Brian Peay: Thanks, Stefan. The third quarter of 2025 was another very solid quarter of organic earnings growth, disciplined execution of external growth by acquiring assets that we expect will provide sustainable earnings for years to come as well as select capital markets execution. We achieved normalized funds from operations of $0.44 per fully diluted share in Q3, reflecting a 22% increase year-over-year. This increase was made possible by greater than 20% same-store NOI growth from our operating portfolio segments, which continues to propel our earnings, additionally buoyed by the strong initial performance from the assets we've added to the portfolio over the last 3 quarters. Given our visibility into Q4 and the solid results achieved year-to-date, we are increasing and narrowing our full year 2025 NFFO guidance to a range of $1.69 to $1.72 from $1.64 to $1.68 per fully diluted share, implying growth in excess of 20% year-over-year at the midpoint. This increase is driven by increased organic growth expectations and as we enter the remainder of the year with RIDEA spot occupancy north of 90% across our operating portfolio. As such, we are increasing our total portfolio same-store NOI growth guidance to a range of 13% to 15% from 11% to 14%. This increase is comprised of the following changes to segment level same-store NOI growth guidance. Integrated Senior Health campuses increased to a range of 17% to 20%, reflecting continued strength at Trilogy. SHOP increased to 24% to 26% as a result of the solid occupancy momentum through the summer selling season. Outpatient medical increased to 2% to 2.4% from the prior range of 1% to 1.5%, given positive renewal activity. Triple-net leased properties increased to negative 25 basis points to positive 25 basis points. During the quarter, we sold approximately 2.9 million shares through our ATM program for $116 million in gross proceeds, and we settled 3.6 million shares under a previously announced forward sale for another $128 million. We also entered into new forward agreements totaling 6.5 million shares for $275 million in gross proceeds, providing additional funding flexibility as we pursue external growth opportunities. Our disciplined capital markets approach allows us to match equity inflows with investment timing, minimizing dilution, preserving optionality and building further capacity to continue adding high-quality assets to our portfolio. That discipline has also allowed us to continue to improve our balance sheet even as we've executed more than $0.5 billion of accretive acquisitions this year. Our net debt-to-EBITDA ended the quarter at 3.5x, representing a 0.2x improvement from the end of the prior quarter and a 1.6x improvement from the third quarter of 2024. Stepping back, 2025 is shaping up as another milestone year for AHR, defined by significant organic earnings growth, continued deleveraging to provide capacity to scale our portfolio with our regional operating partners. As we enter the final quarter, our focus remains on maintaining this momentum and positioning the company for another strong year in 2026. With that, operator, we'd like to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Ronald Kamdem with Morgan Stanley. Ronald Kamdem: Great. Congrats on a great quarter. Just one quick one and a follow-up. I think the 90% spot occupancy, I think, was a sort of a key marking point for investors and the thesis was always that there would be operating leverage at this point to continue the growth going. So I just wonder if you could talk about just how much more occupancy upside do you see from here realistically in the portfolio and the pricing strategy as you sort of hit this point to continue to maximize growth. Danny Prosky: All right. Well, I'll go ahead and start with that one. So I would say the maximum upside from 90% to 100% is 10%. So that's our max. I get asked all the time, where do you think you're going to be at the end of next year? What is the maximum? The truth is I don't know. What I've been saying all along is I expect over the next few years and over the past couple of years, which we've already seen, that we're going to see all of the metrics continue to move in our favor just because of the supply-demand fundamentals, right? We've seen occupancy go up, we've seen RevPOR go up, we've seen margins, NOI, et cetera. I expect over time, that will continue. I don't necessarily think that every single quarter is going to have higher occupancy than the prior quarter. We've seen a lot of that. We did see a little bit of a downtick at the beginning of this year because of flu at our SHOP portfolio. Obviously, Trilogy did very well in Q1 because of the skilled side of the business. It's now early November. It's only been a little over a month since we ended the quarter. So far, I can't say that anything has made me feel differently with what we've seen. That being said, we've got the holidays coming up. And we oftentimes see a little bit of a downturn right before the holidays. I can tell you that we consistently see Trilogy's skilled occupancy drop a little bit right before Christmas, and then it picks up during the first 10 days of January, that seems to happen every year. I expect the trend will continue. I expect us to continue to be able to price at a rate higher than inflation. I've been -- I think it's going to be around 200 basis points, sometimes a little more, sometimes a little bit less. But I think if you're seeing 3% inflation, I think we should be able to price at a 5% increase or better. Clearly, as occupancy goes up, it gets a little bit easier to do that. And I expect that the positive trend will continue. As far as the maximum and the amount, it's really hard to say. Ronald Kamdem: Great. And then if I could just get a quick follow-up in there. Clearly, you guys have been busy on the external growth front in terms of starts, acquisitions, the pipeline. But I guess my question is just there was a Wall Street Journal article about a large PE player maybe even selling some senior housing. Just can you talk about the competitive environment? Why hasn't it gotten more competitive given some of the unlevered returns that you guys are getting in the space? Danny Prosky: Yes. So I saw that article as well. I know that at least one of the acquisitions we did was from that seller, and maybe more, but I know one for sure. I think that you've seen maybe a little bit more people buying, but I also think -- I'll let Stefan comment because he's closer to it than I am. I also think you've seen more opportunities as results improve across the industry, I think you've seen more people come to market as the buildings that they've developed, let's say, in the last 5 or 10 years, start performing better and better. I think you've seen more assets come to market. So demand may have ticked up a little bit, but I think supply has as well. I don't know, Stefan, what do you think? Stefan K. Oh: I think that's exactly right. I think what you've been seeing is a lot of folks have been holding out on selling and kind of waiting for the performance to improve before they make a move. And now that's happening, some of these private equity groups that have maybe even gone beyond the end of their expected fund life are now making moves to take these assets out to market. So it's -- I think you are seeing a bigger number of assets or a larger group of assets that are being put out in the market. But I also think that this is RIDEA, and it's a difficult business. And so groups are -- it's a hard market to enter into, and it takes a long time for you to learn this business. And I don't think they're just going to jump in without being diligent about how they're approaching this market or this industry. Operator: Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: So I want to go back to a topic from last quarter and something, Gabe, that you hit on a little bit in your prepared remarks. And just kind of help me understand the step down a little bit in ADR growth this quarter versus last quarter, specifically within that skilled segment of Trilogy. And would you just expect over time Medicare Advantage to continue to improve on a sequential basis given that partnership that you had previously put in place? Gabriel Willhite: Yes. Austin, thanks for the question. It's a good one. Trilogy has got a lot of levers to pull within the average daily rate in their skilled business. And part of that is like what we've talked about, optimizing quality mix to prioritize Medicare and Medicare Advantage plans and deemphasize lower reimbursement sources because Trilogy provides a high quality of care that comes with a high expense. And so they're trying to optimize from those payer sources. So obviously, they're prioritizing Medicare and Medicare Advantage plans. As you get to higher and higher occupancy, it's easier to have for that prioritization process to take place. And even within those 2 different Medicare-driven payer sources, with Medicare Advantage plans, you have pricing that varies considerably among the different plans that you partner with. What Trilogy is doing now is trying to find the Medicare Advantage plans that align with them on quality and are willing to provide a reimbursement that matches up with the quality that they're providing. So I do think that they'll have more flexibility, and they are constantly reevaluating which plans they're partnered with and whether the rate makes sense. And I do think they'll have a sustained ability to optimize those partnerships and in turn, really drive rate with Medicare Advantage. On the negative -- more negative side, Medicare is not growing as fast as it was last year because it's always retroactive to inflation and inflation has just come in. So last year's rate increase for Medicare was over 6%. This year, the national rate is going to be 3.2%, I think Trilogy is going to be a little bit above that, not materially. And so that would be a little bit of a growth headwind for Q4, but we do expect it to be at least partially offset by gains in Medicare Advantage. Austin Wurschmidt: That's very helpful. And then maybe sticking with Q mix, should the improvement in Q mix within Trilogy be a driver of both NOI growth and margin expansion as that continues to improve? Or is the trade-off and higher rate, an offset to the higher senior housing margin portion of it? Danny Prosky: Yes. So it doesn't take away from senior housing, right? The senior housing beds are separate from the skilled beds. But I think what you'll see is you'll see more Medicare and Medicare Advantage and less private and Medicaid. And certainly, you're going to see higher NOI and higher margin with Medicare and Medicare Advantage than you will with private pay and Medicaid. On the AL beds, the AL and IL -- unless Trilogy makes a decision to convert a wing from AL to skilled, those are separate lines of business. Does that make sense? Austin Wurschmidt: Yes. No, that's helpful. I mean I was talking about the entire component because the margin stepped down sequentially within Trilogy same-store pool. I recognize there's some short-term expense maybe headwinds in there, but just talking kind of bigger picture and over time, given the fact that I think the resident days component of senior was up over 200 basis points sequentially and yet that margin stepped down. And I'm just trying to get a sense of how that trends over time because obviously, the rate you're getting on the senior housing piece within Trilogy is much lower than the rates within the skilled component. So just trying to balance those 2, but understand how that flows to the bottom line as well. Danny Prosky: Yes. So as I kind of start off by saying earlier, I expect margins will continue to improve. It doesn't mean they're going to go up every single quarter over the prior quarter. I mean, clearly, the margins, it was better this year than the same quarter last year. You're right, it did tick down a little bit for Trilogy over Q3 -- I'm sorry, versus Q2, excuse me. I think we saw something pretty similar last year. Several things happened in Q3 that affect the margin. And it's not one item. They purchased a lot of flu vaccines, for example, in Q3, which is constrained the number of beds they have. It's a big dollar number, but they don't get the revenue until they administer those shots later on in the year. I think there's a component also related to employee health insurance where employees -- Trilogy self-insured, so employees go through the deductible and there's a little bit more cost to Trilogy. It's really a bunch of things of that nature. The Q2 margin was jumped up considerably versus Q1. So I think it's a combination of those things. Over time, I would expect the margin to continue to improve. It doesn't mean we're not going to have one quarter where the margin drops a little bit from the prior quarter. Gabriel Willhite: And keep in mind, Trilogy is Midwestern concentrated, right? So the winter months come with higher expenses just related to the weather and things like that. But to Danny's point, I think it's spot on. We're not sacrificing margin to go into 2 different Q mix here. We do expect that to result in higher margin. Operator: Your next question comes from the line of Michael Carroll with RBC Capital Markets. Michael Carroll: I wanted to touch back on Gabe's earlier comments in his prepared remarks about leveraging Trilogy's revenue management system with your existing SHOP tenants. I mean how much of the portfolio of that traditional SHOP portfolio is currently utilizing Trilogy software here? And can you provide some examples on how that's driving better results? I mean, are we seeing that in the numbers today? Gabriel Willhite: Mike, it's a great question. I think we're uniquely positioned, like I said, I think it's a differentiator for us to have the type of alignment we do with a platform like Trilogy, who does it at a really high level. For those that don't know, we've got a really unique incentive plan with Trilogy, where they have -- we have the first of its kind manager equity plan where we issue their incentive compensation using the currency that's AHR stock. So we've completely aligned their incentives to support our other SHOP operators in a way that's pretty unique to us. What that does is gives Trilogy a financial incentive to meet with our operators to let them know what their best practices are, and that's been going on for years. We took it this year to the next level where we've got assessment tools and also dashboard capabilities that we can roll out from Trilogy's platform to our shop operators as they desire to participate in it. I don't want to overstate where we're at right now. I don't think the numbers today are fully reflective of the benefit of that Trilogy platform. We're still in pilot phases with operators on that. I think what you'll see is over the next year and 24 months, probably an outsized input from Trilogy's platform as we really start to lean into it and optimize for it, and it's not going to be just limited to revenue management, it's going to be sales, marketing and search engine optimization. It's going to be employee training, employee retention strategies. It's going to be potentially IT solutions. And even today, we're leveraging Trilogy's development capabilities because they've got internal development, to identify opportunities within our existing SHOP portfolio where we can basically copy the expansion strategy that Trilogy has been using effectively to expand very highly occupied buildings on land that we already own and derisk the development with really high IRRs. Unfortunately, not a ton of dollars available in that way, but we're just incrementally growing in every way we can and really leaning into Trilogy's platform in any way we can. Danny Prosky: Yes. So we've already identified the first non-Trilogy campuses. We'll be utilizing Trilogy's development arm to do expansions and add builds. Gabriel Willhite: And to be clear, to get out in front of maybe your follow-up question, Mike, we're not planning to do ground-up development with other operators through Trilogy at this point. That's not what -- that's not the strategy. It's really to take opportunities that currently exist within the portfolio to expand on buildings that we already own. Michael Carroll: How receptive are these operators to having the system kind of rolled out into their platform? And I guess, how difficult is it to actually implement? I mean, are we talking about a few quarters here to kind of get it implemented? Or is it a longer-term process? Gabriel Willhite: It's a great question. I think the reason why we're partnered with the operators that we are is because they're very good. With being very good, certainly comes a reluctance to have somebody else tell you what to do. They certainly are reluctant to having REITs tell them how to run their businesses, and I completely understand why. They want to run them the way they do. It's, I think, far easier when you see somebody like Trilogy, who's also an operator who's gone through the same things that they have, who has the same issues that they have, but can demonstrate that they've executed at a high level on certain things. I don't expect Trilogy to be de facto operating for other operators and using every one of these different verticals and strategies to push through to them to force them what to do. What I do expect is for us to be able to identify certain soft points in certain operators and be dynamic in it and suggest, hey, if Trilogy can help you in this particular issue, please utilize them and do it. It also, I think, will be really helpful for operators that need to scale. So we prioritize regional operators because we think it provides better quality outcomes for our residents and you can control the culture better, provide upward mobility for your employees. There's a lot of benefits that come from it. What you sacrifice is a little bit of scale and resources. If we can augment what they already do well with just some back-office support and more resources to help them scale, I think it's a benefit for both and people are more willing to partner with Trilogy on those initiatives as well. Brian Peay: And by the way, I would just add to that, that this is really a lifelong journey. I mean Trilogy was a great operator when we bought into them 10 years ago. They're a much better operator today. And I would anticipate that they will continue to learn and grow and change and evolve. And all of those things would be available to our operator base. Danny Prosky: And some are more receptive than others. Operator: Your next question comes from the line of Farrell Granath with Bank of America. Farrell Granath: My first question is about your pipeline. So I know this last quarter and then this quarter, we've been seeing an acceleration from the $300 million to $450 million. So I was wondering if you could add a few comments about that momentum and how to think about that going forward. Stefan K. Oh: Yes. Thanks for the question. So I think if you think back to where we were a year ago, we were basically doing acquisitions where we had the inside track and then the opportunity for us to start doing external growth came about, and we were really just ramping up our pipeline at that point. So I think I think what you're seeing now is the fruits of that and also the fact that we have added 2 new operators to the mix. So it's been a very, I'd say, linear progression in terms of how we've gotten here. But I think what we're seeing now is kind of where we expect it to be, and it's giving us, I'd say, a strong end to 2026 -- 2025 and then a good start for 2026. Danny Prosky: Yes. So Farrell, I can't tell you what we're going to do in 2026. But I can tell you that we're going into 2026 with a much more robust pipeline than when we entered 2025 simply because our stock didn't reprice until late 2024 to the point where external growth became very attractive. But I feel pretty good about 2026. Farrell Granath: Okay. And I also just wanted to get any updated thoughts on your MOB portfolio, seen an improvement in performance also with the guidance bump, but we've also seen peers selling large chunks of MOBs. I was curious if your thoughts around reinvesting yields for the sale of MOBs or if you're content with the current performance. Danny Prosky: So this is Danny, Farrell. So we started selling MOBs 4, maybe 5 years ago, and we've sold about 1/3 of them. I believe at the peak, we had about 112. And I think today, we're somewhere in the 70 range, give or take. Now we've sold 1/3 as far as number of buildings. It's less than 1/3 as far as NOI because we sold the worst 1/3, right? We sold the smaller ones, the ones that had less growth. I think you're seeing a little bit of benefit there in our growth within MOB. It's actually ticked up. And back during COVID, we were about 35% MOB from an NOI perspective. Last quarter, we were under 17%. And I expect that number will continue to go down. Number one, we're divesting MOBs, although we've divested -- we're always going to be selling a few. We sold most of them, but I think there's a few more that we'll be selling probably this year and next. And of course, we're growing our RIDEA side of the business, both Trilogy and SHOP at a much faster clip. So it's not -- we've already been selling MOBs and redirecting that cash into seniors housing. I expect we'll continue that. Now the MOBs that are remaining are ones we like. They tend to be more institutional, larger, better buildings. And I think we'll see more growth out of those than we would have seen from the ones we sold. So we're not necessarily looking to just get out of the business, but it's certainly not where we see the best risk-adjusted returns today. We haven't bought an MOB in years. Operator: Your next question comes from the line of Michael Stroyeck with Green Street. Michael Stroyeck: So we touched on this a bit already, but within the Trilogy business, the percentage of resident days coming from Medicare, Medicare Advantage has declined modestly as the year has progressed. I guess, is there a seasonality component to that? Or has it become, I guess, incrementally more difficult to push occupancy from those payer sources in recent months? Gabriel Willhite: You're exactly right, Mike. There's a seasonality component to it. So typically, the trough of occupancy for skilled nursing is in September each year. You see through the summer months, kind of occupancy declines a little bit and then ramps and peaks in Q1 of the year kind of in the colder seasonal months. What we're seeing, though, this year is less seasonality than what we typically do, and that's what's driving Trilogy's 270 basis point plus occupancy increase year-over-year. Michael Stroyeck: All right. And that same, I guess, seasonality applies to like the payer sources. Is that fair? Gabriel Willhite: Yes. Michael Stroyeck: Okay. And then I guess, sticking with Trilogy, with the higher acuity versus last year, how much have they had to increase headcount in recent quarters? And how quickly would Trilogy be able to pull back on expenses if there is a scenario where it does become harder to achieve additional increases in acuity? Danny Prosky: Honestly, I couldn't tell you exactly how much headcount they've added. I can tell you that when they have to flex their staffing, they typically do it with their flex force or with additional hours as opposed to additional staff. So they have -- they set up their own travel nurse organization right around during COVID. And basically, if they need more or less staffing, they utilize those Trilogy travel nurses to flex the force up or down. It's not so much that they hire and let people go. It's more that they flex their existing staff. Brian Peay: Yes. And keep in mind, Trilogy's turnover is industry-leading, which is to say it's less. So it's around -- it's in the 40% range. Traditionally, for their peers, you're going to see a 100% turnover rate. And it's strictly because Trilogy is such a great operator that they're able to retain their people. But I bring that up to say that essentially, hiring is a perpetual process at Trilogy. They are constantly replacing those 40% that are leaving and constantly trying to improve the workforce. And part of that is census driven, but it's more just a perpetual way of life there. Operator: [Operator Instructions] Your next question comes from Alec Feygin with Baird. Alec Feygin: Maybe to speak for the first one, can you speak about the deal volume and the competition for the newer senior housing that you have identified? And how often are you likely to compete with the other public REITs for deals in your market? Danny Prosky: It doesn't feel -- I mean, Stefan, you're closer to it than I am. It doesn't feel like it's all that often. We tend to do smaller transactions, 1 building, 2 building as opposed to $0.5 billion or $1 billion deals. It doesn't mean we haven't done those, and we wouldn't do those in the future. But it's -- with the deals that we're competing on, a lot of them are brought to us through our operating partners. I mean, a significant percentage are brought to us through our operating partners. So when I look at who's bidding, yes, there are some of the other REITs out there, but more often than not, it's going to be a non-REIT competitor. I don't know, Stefan, what would you add? Stefan K. Oh: Yes. I mean, I would echo that. About half of what we're -- what we have in the pipeline closed have been deals that have been off market. And that's one of the advantages that we have certainly had with the addition of WellQuest and Great Lakes to our operator pool is that not only are we diversifying into new markets and opening ourselves up to finding other locations and markets that we like that we can buy, but we've also been able to partner with them on a number of deals where they are just -- they're bringing them to us directly. As far as other marketed deals that we're competing on, I mean, it is really a mixed bag. I mean we're seeing -- we are occasionally seeing the REITs. We're occasionally seeing other PE that have been in the space for a while. And sometimes we're seeing local investors or local operators as well. Alec Feygin: Nice. Thanks for the color. Second one, maybe to invert an earlier question, but are there any best practices from regional operators that could help Trilogy, especially in new markets like Wisconsin? Is the -- can it be a 2-way street? Has it been a 2-way street? Danny Prosky: That's a good question. I mean I'm sure they have. I mean we have an operator summit every year where a big chunk of it is talking about best practices. I'm trying to think of some of the specific things. Gabe, if you give any color or Stefan? Stefan K. Oh: Yes. I mean the operator summit is very well attended. And I think regardless of who is in the audience, whatever operators up there talking about their best practices, they're getting good attention. I mean we have definitely seen some cooperation and partnering with -- between some of the operators and how to work on specific parts of the operations or when it comes to maybe bundling versus unbundling pricing and things like that. So there have definitely been several occasions where we've seen our operators benefiting from each other's knowledge and experience. Operator: Your next question comes from the line of Michael Goldsmith with UBS. Michael Goldsmith: Now that we're seeing more SHOP deals come in, can you talk a little bit in more detail around the acquisition strategy? Do you have a view of independent living versus assisted living versus memory care? And then are you targeting unstabilized deals or stabilized deals or you just more agnostic? Just trying to get more understanding of the strategy going forward. Danny Prosky: I would say all of the above. Our acuity probably is -- I think certainly in comparison to Welltower and Ventas, I would say we probably have a higher acuity portfolio, more AL and memory care, although we have IL and we acquire IL, it's not that it's all AL and memory care. We're really looking for quality buildings that will continue to provide good earnings growth for the next 5 years, not just what can we buy today at a 7.5% or 8% cap that will be immediately accretive. And it's a mix. I mean most of what we bought last year and this year tends to be newer product. A lot of it built in the last 10 years. Not all of it, we prefer newer buildings, but there hasn't been a whole lot of development over the last 5 years. So there's not as much new product as there has been in years past. We've got some stabilized stuff that is in the 90s that we are at a more stabilized cap rate. And there's a lot of newer assets, some stuff that just -- if you look at the 5-building portfolio we did with Trilogy, 4 of those buildings only opened within the last year. So they're all new, but they're not yet stabilized. And with the stabilized buildings, you're getting a lower in-place cap rate. You're getting more growth opportunity. You're getting a situation where once it's stabilized, you're going to get a higher yield than something that's already stabilized, and a lower price per unit. You're going to get more of a discount to replacement cost on something that's unstable versus something that's stable. So it's a mix, but we're always trying to find assets that will continue to provide good organic earnings growth in '26, '27, '28, '29, et cetera. Michael Goldsmith: Got it. And maybe just as a related follow-up. Just maybe can you talk a little bit more about the process and what you're focused on? Are you focused on the operator? Are you building a data platform to analyze acquisitions in micro markets on certain demographics or incomes or home values? Just trying to get an understanding of where the focus is. Danny Prosky: So I'll start off, and then I'll let Stefan finish. I'll give him the hard part. But what I would say is that we tend to identify the operator before the building. We are more likely to work with our existing operators and say, look, here's an opportunity in your market. And by the way, when we go see it, they'll be with us. What do you think of this building? Oftentimes, they know it, maybe they've managed it in the past. Or hey, what's in your market that you think we can go out there and try to buy before it goes to market? It's -- we typically don't find a building and then put it under contract and then say, okay, now let's figure out who's going to operate it. So we tend to go after the operator before the building. And in the case of Great Lakes and WellQuest, we identified them way before we went out and found buildings. We worked with them to help build the portfolio, and that's why we've already got a substantial number with each operator. But I don't know -- and I know the processes are different, Stefan, but maybe you can give us a little bit more light on that. Stefan K. Oh: Yes. I mean that is the main point. And that's exactly what we've been doing in terms of going to the operator, identifying the operator, and that's why we've had that strategy. It is really to find the operator who has the expertise in certain markets and regions. And then from that point, identify potential communities that we might want to acquire. And we are doing that hand-in-hand with our operators. We -- if something comes to us on a marketed basis, literally, the first thing that we do is we go and we talk to our operator in that market, and we ask them what they think about it. And if it's interesting enough, we'll underwrite it together. We'll go out and tour the property together and really go from beginning to end through the process all the way through transition to make sure that we're fully aligned on every community that we're acquiring. And we feel much better conviction when we can do it in this manner than if we were just trying to do it on our own and identifying properties and then going out and trying to find the right operator. To us, that it needed to be reversed. We had to be working with the operator first. Operator: Your next question comes from Seth Bergey with Citi. Seth Bergey: I guess I just wanted to follow up a little bit on the pipeline. Of the kind of existing pipeline, is that primarily with existing operators in Trilogy? Or is that -- are there any kind of other new operators that we should be thinking about that you're looking to kind of add to the mix? Danny Prosky: I think it's all existing operators in Trilogy. There's nothing in our pipeline that is -- that would be an operator outside of our existing grocer. Stefan K. Oh: Including WellQuest and Great Lakes, of course, now considering them existing operators. Seth Bergey: Yes. And then I guess just following up a little bit around the kind of competition just as senior housing continues to perform well. Are you seeing any changes kind of with asset pricing as you kind of look at the opportunity set? Stefan K. Oh: I think, as I mentioned earlier, really, we have not seen much of a shift. Perhaps there's been maybe a moderate uptick. But quite frankly, it's been very stable. I think buyers are -- they're still being very efficient in how they're underwriting. We haven't seen any kind of fervor in terms of driving up pricing on a consistent basis. Operator: And with no further questions in queue, I'd like to turn the conference back over to Danny Prosky, President and CEO, for closing remarks. Danny Prosky: All right. Well, thanks, everybody, for joining. We really appreciate your interest. And obviously, if there's any follow-up questions, feel free to reach out via myself, Brian, Alan, and we're always available. Thanks a lot. Have a great weekend. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Rapid Micro Biosystems Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Mike Beaulieu of Investor Relations. Please go ahead. Michael Beaulieu: Good morning, and thank you for joining the Rapid Micro Biosystems Third Quarter 2025 Earnings Call. Joining me on the call are Rob Spignesi, President and Chief Executive Officer; and Sean Wirtjes, Chief Financial Officer. Earlier today, we issued a press release announcing our third quarter 2025 financial results. A copy of the release is available on the company's website at rapidmicrobio.com under Investors in the News and Events section. Before we begin, I'd like to remind you that many statements made during this call may be considered forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements, including, but not limited to, statements relating to Rapid Micro's financial condition, assumptions regarding future financial performance, anticipated future cash usage, statements relating to the company's term loan facility, guidance for 2025, including revenue, expenses, gross margins, system placements and validation activities, expectations for and planned activities related to Rapid Micro's business development and growth, including the expected benefits from our distribution and collaboration agreement with MilliporeSigma, customer interest and adoption of the Growth Direct System, and the impact of the Growth Direct System on their businesses and operations, and statements regarding the potential impact of general macroeconomic conditions on our business and that of our customers. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors, including our ability to meet publicly announced guidance, the impact of our existing and any future indebtedness on our ability to operate our business, our ability to access any future tranches under our debt facility and to comply with all its obligations thereunder, our ability to deliver products to customers and recognize revenue and market and macroeconomic conditions. For a more detailed list and description of the risks and uncertainties associated with Rapid Micro's business, please refer to the Risk Factors section of our most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission as updated from time to time in our subsequent filings with the SEC. We urge you to consider these factors, and you should be aware that these statements should be considered estimates only and are not a guarantee of future performance. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 7, 2025. Rapid Micro disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. And with that, I'll turn the call over to Rob. Robert Spignesi: Thank you, Mike. Good morning, everyone, and thank you for joining us. I'll begin this morning's call with a brief overview of our third quarter performance. Next, I will discuss the record multi-system order we announced this morning and then review our MilliporeSigma partnership. I'll conclude my prepared remarks with a few comments on our updated 2025 outlook and then turn the call over to Sean for a more detailed review of our financial results and outlook. This morning, we reported total third quarter revenue of $7.8 million, above the midpoint of our guidance range, representing our 12th consecutive quarter of meeting or beating revenue guidance. Within product revenue, consumables, which are a key indicator of customer demand and usage, increased 40% to a quarterly record. This strong performance helped offset a difficult comparison in system revenue, which included 5 Growth Direct placements versus 7 in the prior year. Service revenue grew 12% compared to Q3 2024. Recurring revenue, which is comprised of consumables and annual service contracts, increased more than 30% year-over-year. Third quarter gross margins were 9%, reflecting a 70 basis point improvement from the prior year quarter. Higher revenue and productivity gains drove service margins to 40% in the quarter. While product margins were slightly negative, we expect progress on our product cost reduction and manufacturing efficiency initiatives to deliver positive product margins in Q4. Looking forward, we expect continued meaningful gross margin improvement in 2026. Now I'd like to turn to the significant commercial win we announced earlier this morning. In October, we secured a record multi-system order from an existing top 20 global biopharma customer, with contributions beginning in the fourth quarter and extending into 2026 and beyond. This customer is deploying Growth Direct Systems across multiple sites in North America, Europe and Asia Pacific. Additionally, the customer will utilize the Growth Direct platform across several manufacturing modalities and fully leverage all of our applications, including environmental monitoring, water and bioburden. This milestone underscores the Growth Direct platform's position as the leading fully automated solution capable of meeting the demands of increasingly complex, large-scale and global biopharmaceutical manufacturing. It also reflects the trust and strong partnerships we've built with our customers, and illustrates how customers have and will continue to adopt the Growth Direct platform. Importantly, we expect this customer to make additional purchases as they continue to expand and standardize across their network. This achievement is a testament to the outstanding work of our commercial team, and we are now focused on timely and efficient execution as our operations and service team support this global deployment. In addition to this multi-system order, broader customer engagement remains strong. Last week, we attended the annual PDA Pharmaceutical Microbiology Conference, the largest global industry event focused on microbiology and pharmaceutical manufacturing. Our key takeaways were twofold. Confirmation of the accelerating industry trend towards automation and validation from existing and prospective customers that the Growth Direct platform is the right product for modernizing pharmaceutical manufacturing and quality control. Now turning to our collaboration with MilliporeSigma. We remain closely engaged with our commercial team as they develop their global sales funnel. In the third quarter, they began to order Growth Direct Systems. Though as previously indicated, their purchase commitments will remain modest in 2025 and become more meaningful in 2026. Next week, Daiichi Sankyo will support our annual Growth Direct Day near their facility outside Munich, Germany. As you'll recall, this event will feature existing and prospective customers discussing the benefits and sharing best practices of the Growth Direct platform. And this year, we're pleased to welcome colleagues from MilliporeSigma and several of their prospective customers, making it our largest Growth Direct Day ever. In addition, later in November, our sales and marketing colleagues will work alongside the MilliporeSigma team in the Jason Booth's at the Pharma Lab Congress, also taking place in Germany. This will be a valuable opportunity to jointly engage customers and further accelerate commercial momentum for both organizations. Turning to the second component of our MilliporeSigma collaboration. We are nearing completion of an initial product supply agreement. We are currently conducting material validation studies and assessing additional areas to potentially expand the scope of the agreement. This agreement is a meaningful step towards driving margin improvement as these programs are expected to lower our direct product costs and improve gross margins, with financial benefits starting in the second half of 2026. In summary, we're pleased with our execution and very encouraged by the momentum building as we exit 2025. With strong year-to-date performance across the business and initial contributions from the recent multi-system order, we are raising our full year total revenue guidance to at least $33 million, which includes at least 27 Growth Direct System placements. As we look ahead to 2026, there will be 3 core drivers of revenue growth. First, a robust pipeline. Our sales funnel remains strong with multiple customers planning multi-system global rollouts. These opportunities are similar to our recent record order motivated by a compelling ROI and a drive to standardize and automate global manufacturing networks. Second, our business model is anchored by an expanding global installed base of over 150 fully validated Growth Direct Systems, generating durable recurring revenue from consumable and service contracts. And third, our collaboration with MilliporeSigma continues to progress well. They have begun to order Growth Direct Systems, and are building a global funnel of opportunities that we expect to contribute meaningfully to system placements in 2026. In addition to these revenue growth drivers, we remain equally focused on improving profitability. Margin expansion will accelerate in 2026, driven by internal product cost reductions and manufacturing efficiency initiatives, as well as anticipated benefits from the MilliporeSigma supply collaboration. Finally, we are well positioned to capitalize on industry tailwinds, including the accelerating use of automation technology and increased investments in the onshoring of U.S. pharmaceutical manufacturing. The Growth Direct strong customer value proposition, combined with our growing global top-tier customer base, optimally positions us for future pharma industry investment and growth. And with that, I'll turn the call over to Sean. Sean Wirtjes: Thanks, Rob, and good morning, everyone. Third quarter revenue of $7.8 million increased 3% compared to the $7.6 million we reported in Q3 2024. We placed 5 Growth Direct Systems and completed 4 validations in the quarter, and now stand at 174 cumulative systems placed globally, including 152 fully validated systems. Product revenue was essentially flat at $5.2 million in Q3, with record consumable revenue offsetting the impact of 2 fewer system placements compared to Q3 2024. Service revenue was $2.6 million, an increase of 12% compared to Q3 last year, driven by higher service contract revenue resulting from an increase in the cumulative number of validated systems on a year-over-year basis. Third quarter recurring revenue, which consists of consumables and service contracts increased 32% to $4.8 million with consumables growing 40% in the period. Nonrecurring revenue, which is comprised mainly of systems and validation revenue, was $3 million. Third quarter gross margin was 9%, marking our fifth consecutive quarter of positive gross margins and a sequential improvement of over 500 basis points compared to Q2. Product margins were negative 7% in the quarter, compared to negative 1% in Q3 2024. While consumable margins improved meaningfully compared to Q3 last year as we continue to make good progress on our product cost and manufacturing efficiency initiatives, overall product margins were slightly lower due to a short-term shift in the mix of revenue from systems to consumables. On a sequential basis, Q3 product margins improved by 4 percentage points compared to Q2. Service margins were 40% in the third quarter compared to 29% in Q3 last year. The improvement was driven by higher revenue and productivity as well as lower service headcount. Total operating expenses were $12.1 million in the third quarter, representing a decrease of 5% from the $12.7 million we reported in Q3 2024, due largely to benefits from the operational efficiency program we announced in August last year. Within OpEx, R&D expenses were $3.5 million, sales and marketing expenses were $2.9 million and G&A expenses were $5.6 million. Interest income was $0.3 million and interest expense was $0.4 million in the third quarter. Net loss was $11.5 million in Q3 compared to a net loss of $11.3 million in Q3 last year. Net loss per share was $0.26, both in Q3 this year and last year. With respect to noncash expenses and capital expenditures, depreciation and amortization expenses were $0.8 million. Stock compensation expense was $1.1 million and capital expenditures were $0.1 million in the third quarter. We ended the quarter with approximately $42 million in cash and investments. Now I'll turn to our outlook. As Rob highlighted earlier, we are raising our full year 2025 revenue guidance to at least $33 million, which includes at least 27 Growth Direct System placements. This guidance reflects the initial contribution from the large multisystem customer order we recently received. We expect this order to contribute meaningfully to system placements and system revenue in Q4 with related installation and validation service revenue recognized in the first half of 2026. These new systems are also expected to begin generating consumable revenue as they ramp to routine use in the second half of 2026. Turning to consumables. We expect Q4 revenue to step down sequentially and be consistent with Q2 levels with variability driven by the timing of customer orders and shipments. With respect to service revenue, we expect to temporarily step down to roughly $2 million in Q4 due to the timing of validation activities. Specifically, most validations of recently placed systems were either completed by the end of Q3 or are planned for 2026, including the validation of systems under the multisystem order we received this quarter. We continue to expect to complete at least 18 validations in the full year 2025 with at least 3 in the fourth quarter. Turning to gross margins. We expect our gross margin percentage to be in the mid-single digits in Q4. Breaking this down, we expect positive product margins for the first time, driven by higher system placements and continued progress on our product cost reduction and manufacturing efficiency initiatives. Conversely, we expect service margins to step down both sequentially and year-over-year. This reflects lower service revenue and a challenging comparison to last year's Q4, which remains our highest service revenue quarter on record. For the full year, we expect our overall gross margin percentage to be in the mid- to high single digits. We expect further meaningful gross margin improvement in 2026, driven by our ongoing product cost reduction and manufacturing efficiency initiatives, as well as increasing volume leverage and anticipated benefits from the MilliporeSigma supply collaboration as we progress through the year. We expect operating expenses to step down from Q3 to Q4, and to now be around $48 million for the full year, with full year depreciation and amortization expense of approximately $3 million, stock compensation expense of $4 million and CapEx of $2 million. For the fourth quarter, we expect interest income of $0.5 million and interest expense of $0.6 million to largely offset each other. Finally, we continue to expect to end the year with roughly $40 million in cash and investments. That concludes my comments. So at this point, we'll open the call up for questions. Operator? Operator: [Operator Instructions] And our first question will be coming from Thomas Flaten of Lake Street Capital Markets. Thomas Flaten: Congrats on the quarter. Sean, I just want to make sure I understand. In the last call, you indicated that you would be at the low end of the 21 to 25 system placement and now you're going to be at least 27, which leads me to believe there might be more than $1 million in terms of the guidance raise. Can you just square that circle for me? Sean Wirtjes: Yes. I think there's a couple of moving pieces here, Thomas. So we talked about -- so on the large multi-system order, I think when we talked last quarter, we have said consistently that we have a number of these kind of in the background where we have not been assuming them in the guide. So the transaction that we're talking about today is not something that was considered back then. So it is additive. We've got some things going the other way in Q4 in terms of the guide. So for example, service because of mainly timing, I think it's good news for 2026 service revenue. It does have a short-term impact on Q4 service revenue, will actually be lower than we expected it to be going back a quarter. So you've got some puts and takes here that are kind of netting out to that increase in the overall increase in the revenue guide. Thomas Flaten: Got it. And then kind of at a broader level, I know the multi-system order is across 3 geographies, and you said that you're going to benefit from onshoring. I'm curious, though, if you look more broadly, the demand you're seeing from a geographical distribution, what does that look like? Robert Spignesi: Yes, Thomas, it's Rob. So it's generally consistent with where it has been. So we -- as you know, we operate in North America, Europe and Asia. I think this most recent multi-system orders is a pretty good example, is a good proxy of end market conditions that we're seeing. Things are -- I wouldn't say they're more robust in one region than another. And many times, it's really dependent on the specific company that we're working with. So we anticipate -- it depends quarter-to-quarter and timing is always an issue depending on where in the world things are coming from. But I think the takeaways from this -- from our announcement is that our value proposition is resonating. Customers are trusting us to deploy globally, and we're seeing generally broad-based demand from our customer base to deploy globally. And notably, this particular win was not due to U.S. onshoring. So we expect that to be a potential benefit in 2026 and beyond. Operator: And our next question will be coming from Paul Knight of KeyBanc. Paul Knight: Rob, congratulations on the order in the quarter. This is what? You're going to have 6 delivered in Q4 on this order. What -- did you say total order size? Robert Spignesi: I didn't say total order size, nor do we say how many we're going to deliver this quarter specifically out of the order, Paul. But we're not going to disclose the exact order size, but you can think of it as a double-digit order. Paul Knight: Okay. And then the next question is in the world with analytical instruments, it's kind of an instrument becomes ubiquitous across the world within each major biopharma. So the question is how many multiple -- how many multiple orders are you looking at? How many customers are saying, I've got to have this in all 3 continents? Robert Spignesi: Yes, we -- certainly, we're striving for ubiquity, Paul. So that of course, is the ultimate goal. So we've had historically customers purchase multi-system orders and deploy globally. This is a notable example of a large single order, and we anticipate more of these going forward. As we said, we've got multiple multi-system orders in our funnel, and we -- our plan is to continue to develop those and close those, and get our customers going. Moreover, we also expect over time, that Merck Millipore relationship to build upon this momentum and success. And that's how we look at the next -- certainly into '26 and beyond. Paul Knight: And there's 2 aspects to Merck Millipore, right? A, you expect them to sell some units in their own channel and the other, more cost efficiencies. Where do you think you're on the cost efficiency journey with them? Are you just getting started and we really see that in '26? Sean Wirtjes: Yes, I think that's right, Paul. This is Sean. We are working through -- I think Rob mentioned some of this in his remarks, the process of looking at materials specifically right now. Some of the key materials that go into our consumables are things that we can procure from Merck. But as you do that, you've got to work through testing, validation, make sure it's all going to work and the performance is where you want it to be. And then there's a process of kind of moving that over to manufacturing, working through your existing inventory and transitioning over to the new inventory with that material in it. So I would think about the benefits from that kind of as we're looking at right now is probably second half of next year is when we'll start to see some benefits from that activity. Operator: And our next question will be coming from Brendan Smith of TD Cowen. Brendan Smith: Congrats on the [indiscernible]. Just wanted to get a sense of how you all are thinking actually about this momentum against the current backdrop. I guess we've heard broadly that pharma biotech spending has been, again, kind of broadly hitting instruments and services maybe more than other segments. Obviously, you all are still seeing some pretty steady demand, maybe with some nuances. But I guess my question is really as folks are getting their '26 budgets together and maybe start feeling more comfortable with revisiting some of that spend. Do you guys expect that could potentially be an outsized growth tailwind like in the first half of next year? Or is kind of the steady sequential growth we've been seeing how we should think about it in the next couple of quarters? Robert Spignesi: Yes, Brendan, it's Rob. I would say that it's -- we don't -- we're not seeing a demonstrable -- we haven't seen a demonstrable change. It's a little hard to prognosticate at this point about 2026, although it seems to be getting, I would say, maybe a click or 2 better. As we said in several -- what we are seeing though, the 80-20, if you will, is at least over the past several quarters, it's been fairly consistent where, to your point, yes, the CapEx budgets have been more scrutinized and things are going through more diligence, if you will. But as we've said several times, high ROI compelling investments are getting through. And I think we've been able to continue to be a beneficiary of that. And I think this most recent announcement is a clear and present example that pharma will continue to invest in high ROI projects. And also, as I've mentioned on previous calls, in some cases, in this most recent one, I think, is a good example where there's a strategic impact across an enterprise in multiple sites, we have seen growth direct projects be a bit more resilient to the vagaries of the budget tightening. Brendan Smith: Got it. Yes, makes sense. And then really quickly, just maybe piggybacking off of the onshoring conversation a little bit. Is also something we get asked about quite a bit. I guess it's feeling like most people are assuming it's not going to be a huge factor in '26, but could maybe start to hit in '27. Does that kind of gel with how you're thinking about it or what you're hearing? Or should we think maybe more '28 plus? Just kind of... Sean Wirtjes: I think -- yes. I think that's -- Listen, I don't think it's going to be a floodgate from what we can tell. And just we've been involved over the years in a lot of construction projects with new labs. So what you'll see is it won't be uniform. In some cases, entire sites are being built from a greenfield. In other cases, other sites are being expanded, which can move a little faster. In other cases, even labs are being expanded. So you'll have this maybe uneven mix. As we talked about last time, there might be a log jam with some of the design and A&E firms out there. So that may play a factor. But I think you could start to see potentially the leading edge. More broadly, I won't speak for RMB specifically, but more broadly in 2026. And then I would generally agree, '27 could be certainly feature more and then '28 and beyond, absolutely. Operator: And our next question will be coming from Dan Arias of Stifel, Nicolaus & Company Inc. Unknown Analyst: This is [ Rowan ] on for Dan. Maybe a quick one. Regarding the large multi-system order in October, how long does it typically take to plays validate and start seeing a ramp on consumable pull-through from these systems? Just trying to get a better view on the time line there. Or maybe just in general, as you alluded to having other, I guess, orders in the pipeline there, or potential orders in the pipeline? Sean Wirtjes: [ Rowan ], it's Sean. I think as we look at this particular deal, I think we expect it to kind of follow the following path. I think the placements, they're going to have a meaningful impact in Q4. And moving into the first half of next year, we expect to get those systems installed and validated. I think we have a motivated customer, and we are ready to go with them in that time frame to get that work done, which I think is a tailwind as we think about services in that time period. And then as we get into the second half of the year, what typically happens and what we expect in this case is that they'll -- we'll get the validations done. They'll kind of work through their internal process and start to ramp up into GMP use, and we expect to see at least the front end of that in the second half of next year from a consumable standpoint. So that's the kind of time frame we typically expect to see. I think different customers can move with different speed depending on resourcing and things like that. But I think this one we feel good is there's good alignment between us and the customer to work along that time line. Unknown Analyst: Okay. And maybe just one more quickly. In the past, Rapid has alluded to wanting to penetrate adjacent markets such as personal care. How much traction are you all seeing in that market? What has become of those efforts? Robert Spignesi: Yes. Thanks, [ Rowan ]. It's Rob again. So as we have mentioned, there are sizable adjacent markets. Personal care, as you mentioned, is certainly one of them. Our current strategy from a Rapid Micro direct sales commercial effort is principally focused on global pharmaceutical and biopharma. Our strategy to develop those adjacent markets, personal care, med device and others is generally focused on our collaboration with Merck MilliporeSigma. Some of those markets, they're large or can be large. They tend to be a bit more fragmented, a little bit different sales cycle. So having a larger sales force that Merck MilliporeSigma has focused on those markets and more uniformly spread globally is really our strategy to go after those markets. And our collaboration agreement allows for that, and encourages that, frankly. Great. And I think that's the last question. So thank you all for the question. We'll conclude the call at this time. Appreciate everyone's time and attention, and we look forward to speaking with many of you soon. Thank you. Operator: And this concludes today's program. Thank you for participating. You may now disconnect.
Operator: Good day, everyone, and welcome to the Open Lending Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this call is being recorded and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Ryan Gardella, Investor Relations. Please go ahead. Ryan Gardella: Thank you. I appreciate you joining us. Prior to the start of this call, the company posted their third quarter 2025 earnings release and supplemental slides to its Investor Relations website. In the release, you will find reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures discussed on this call. Before we begin, I would like to remind you that this call may contain estimates or other forward-looking statements that represent the company's view as of today, November 6, 2025. Open Lending disclaims any obligation to update these statements to reflect future events or circumstances. Please refer to today's earnings release and our filings with the SEC for more information concerning factors that could cause actual results to differ from those expressed or implied in such statements. And now I will pass the call over to Jessica to give an update on the business and financial results for the third quarter of 2025. Jessica Buss: Thank you. Good afternoon, everyone, and thank you for joining us today. We are pleased to announce our results for the third quarter of 2025, which we believe reflects the transition we are making from a company stabilizing their business to what I would consider the new norm of running and operating Open Lending. When I assumed the role of CEO, 2 of my key objectives were to promote earnings stability and to guide the company towards predictable results for our shareholders. We have sought to achieve these objectives by fostering less volatile profit share unit economics and more segmented and sophisticated pricing changes. We have executed on both of these objectives with positive outcomes, as I will discuss today. In addition to the work we have done on our core Lenders Protection platform, we have recognized the need to diversify Open Lending's current offering to meet the evolving needs of our lender customers. Based on customer feedback, our first new product initiative was to deliver a pricing, underwriting and decisioning tool for our lender customers to use for their prime auto borrowers. Therefore, we are excited to announce the introduction of ApexOne Auto, our new prime credit automated decisioning platform. ApexOne Auto not only diversifies Open Lending's revenue by product, but also adds a reoccurring revenue stream driven by subscription-based minimum application volumes. ApexOne Auto will address the approximately $500 million per year opportunity to serve segments of the automotive credit market that our current decisioning engine does not. Built on our core LPP offering, ApexOne Auto extends our analytics into the prime auto lending segment, a strategic expansion that addresses the industry's shift towards higher-rated credit, where our customers and their borrowers demand faster, more efficient and more accurate loan decisioning and pricing. Over the years, we have received strong interest from our customers for products addressing the prime auto loan segment. To date, we've already launched with 2 customers with additional interest in the pipeline. There is strong applicability within our existing client base as the industry gravitates towards comprehensive solutions for the entire credit spectrum. Unlike our traditional LPP offering, ApexOne Auto Decision loans are priced and placed without the insurance wrapper or profit-sharing component, focusing purely on an automated advanced decisioning process that many financial institutions aren't equipped to handle internally. It is also worth noting that ApexOne Auto and LPP are complementary products with loans not approved in ApexOne Auto being seamlessly directed to LPP for review. As a result, we believe the use of ApexOne Auto by our customers may result in additional revenue from our core lenders protection platform over time. We believe ApexOne Auto is a logical expansion of our brand, helping to protect ourselves from competitive intrusion, while also giving financial institutions one vendor to provide them with decisioning support over the entire auto credit spectrum, which we anticipate will help us with customer retention. From an expense and investment perspective, ApexOne Auto was developed internally and no large outside capital investments have been made. ApexOne Auto gives Open Lending a new revenue opportunity that utilizes our existing expertise and, in the future, may contribute positively to our growth. We will continue to update our investors on our progress. While we recognize it is still early days as we begin the rollout of ApexOne Auto with our current LPP customers, we are committed to the future of Open Lending, and we are here to stay. Now I wanted to talk through our ongoing efforts to improve profitability and produce less volatile profit share unit economics in our core Lenders Protection platform. We are proud to say that we have delivered 3 consecutive quarters of positive adjusted EBITDA and reduced volatility in back book performance, including a positive CIE adjustment of $1.1 million. Further, we continue to apply conservative profit share unit economics to our current period originations, which we believe enhances the quality and sustainability of our earnings. Third quarter results also benefited from an 8% year-over-year increase in program fee unit economics, reflecting a more favorable mix of lenders. We facilitated 23,880 certified loans in the third quarter of 2025, down from 27,435 in the third quarter of 2024. This decrease primarily reflects our deliberate tightening of lending standards and targeted rate adjustments in lower-margin credit segments, particularly within SuperThin and credit builder profiles. We believe these tightening and repricing actions have positioned our book for more sustainable profitability in future vintages. Moreover, and just as importantly, we believe we have a higher quality book than we have had in the past in terms of having more loans with the characteristics that we believe drive profitability. We will continue to monitor and measure our progress to promote our desired outcomes. To that extent, I wanted to highlight 3 incremental pieces of data from our earnings supplement that I think deserve to be recognized on our call today. First, our certain mix by channel for the quarter was 89.8% through credit union and banks with the remaining 10.2% coming from OEMs, with a drop in the OEM production, primarily driven by our tighter underwriting requirements on lower credit debt files. As we have flagged in the past, we expect OEM 3 to perform more like a credit union, and we are now seeing them begin to steadily ramp up volume on our platform. There may be a dynamic of steadily or slightly increasing OEM share due to this ramping up. We expect these loans, however, to have similar loss ratio performance to those of our credit union customers and believe these loans will contribute positively to the overall quality of our book. Additionally, across the credit union landscape, we have seen financial health continue to improve with another quarter of strong credit union share growth. While we're mindful of ongoing challenges such as rising delinquencies, affordability pressures and moderating wage growth, these dynamics also create opportunities, and we're taking a proactive approach to capture them. Second, while flat compared to the second quarter of 2025, we are continuing to see refinance volumes recover and believe that this could be a positive tailwind for certain volume in 2026. And third, we're dedicated to continuously enhancing and validating our disciplined underwriting standards. Our current credit builder exposure has been reduced and SuperThin files now comprise a negligible amount of new originations. For the most recent quarter, our credit depth concentration in SuperThin and credit builder loans was 6%, down from 24% in the third quarter of 2024. On the pricing and predictive modeling front, we've partnered with a leading third-party expert to execute a series of onetime efforts aimed at reconfiguring and strengthening our pricing models. However, on the whole, this is not a onetime event. This will be regularly fine-tuning our pricing models with new data and new variables that reflect current and anticipated changes to macroeconomic conditions to stay ahead of the curve. This is a muscle memory that we will look to continue to build given our desire to be a best-in-class pricing and risk decisioner in the auto space. As further evidence of our commitment to making tough decisions and investing in the right places, we've also engaged with a third party to help our lender partners improve their performance with repossessions. We believe the servicing of claims is one of the driving factors of performance and severity once a loss occurs. Next, I wanted to walk through our progress on driving customer retention with enhanced service and technology. We've now rolled out the first phase of our lender profitability dashboards to customers, which have been well received thus far. These dashboards provide real-time data on the full life cycle value of our Lenders Protection platform, ensuring that customers see tangible value in our product before defaults start to happen. Since rollout, we have received early positive feedback from customers. I also wanted to mention that in the quarter, we added 10 new logos and had no customers cancel, which we believe is a testament to the changes we have made to improve customer retention. In the third quarter, we also hosted our 12th Annual Executive Lending Roundtable with 264 attendees, including credit union and bank partners. This was a fantastic and successful event that gave us an opportunity to hear directly from our customers and solicit feedback and ideas to help us increase the value of our products and relationships. We're thrilled to have had the opportunity to connect with our customers and are grateful they dedicated the time to identify and execute on the action items that we jointly feel are necessary to enable more opportunities to grow and to be better partners. Our industry has always been a relationship business, and there is no better return we get than on strengthening these relationships to ensure we continue to add value for our customers, their customers and our joint mission. We hold this event annually and look forward to next year's event. In addition, I'm pleased to announce the amendment to our reseller agreement with Allied Solutions, which has been a strong and loyal partner to Open Lending for over 12 years. This revised agreement demonstrates the strengthening of our partnership with Allied and their belief in our product. Allied has been instrumental to our growth since the early days of Open Lending. This updated agreement builds upon our original partnership, which has enabled us to expand our reach within the credit union ecosystem through Allied's valuable introductions and endorsements. Recognizing the evolution of our business, we've thoughtfully realigned the terms to better support mutual incentives and long-term sustainability, ensuring both parties are positioned for continued success. The new terms align very well with the behaviors and outcomes we are trying to build into our culture to retain and grow both current customers and new logos. This amendment also brings us future cost savings, which Massimo will speak more about shortly. We've also made continued progress on reducing costs and improving the accountability of our employee base. We continue to execute towards our committed operating expense reductions and now have clear line of sight to achieving our cost-saving goals. On the talent front, we continue to focus on retaining and attracting top talent to further our mission. We're actively looking to bolster our team in certain areas where we feel there is room for improvement, including actively recruiting for a new Chief Revenue or Growth Officer. We also look forward to a refresh to our go-to-market strategy once we have identified and appointed a new Chief Revenue Officer. We are also pleased to announce Ben Massey, who has been with us since 2022 and our Assistant General Counsel since January 2024, has been named General Counsel and Corporate Secretary effective November 7. Lastly, I would like to formally introduce and welcome Massimo Monaco, our newly appointed CFO, to his first Open Lending earnings call. Mas has been with us for just over 2 months, and he has already made a tremendous impact on the organization in many areas. Before I pass it over to Mas for a review of the numbers, I wanted to address some of the macroeconomic movements we have all observed in data recently. We have seen a lot of headlines about the K-shaped economy, highlighting vulnerabilities in near and non-prime borrowers. As of mid-October, over 6% of below prime auto loans in the industry were over 60 days delinquent, which is the highest currently on record. However, as you all know, we have been strengthening our book and tightening our credit box for over 8 months already. We believe we have taken steps to account for the conditions that are affecting others in our market segment right now, which we believe is why we have seen minimal impact to our profit share revenue in Q3 from the current credit environment on our prior vintages. As I mentioned earlier, we are constantly adding new information to our pricing and decisioning models to ensure we are ahead of the curve. And right now, we believe our changes starting in the first quarter of 2025 have positioned us well. The bottom line is that there is a lot of good news and insights within what appears to be another consistent quarter. And now I'd like to pass the call over to Mass for a more detailed review of the numbers. Massimo Monaco: Thanks, Jessica. I'm pleased to join you all on my first earnings call as Open Lending's CFO. As Jessica mentioned, I joined in August after more than 2 decades in financial leadership roles across the residential mortgage and financial services industry. I'm excited to bring that experience to Open Lending as we continue to strengthen our financial discipline and pursuing our growth strategy. It's a privilege to be part of such a talented team, and I look forward to connecting more with our investors and analysts soon. After spending a few months in the seat, I firmly believe that Open Lending has a bright future with significant potential and growth opportunities ahead. I look forward to building on the strong foundation already in place, driving renewed growth and value creation to our stakeholders, while advancing the company's mission to serve the underserved. Now let me walk through the numbers for the quarter and guidance before Jessica and I open up the line for Q&A. During the third quarter of 2025, we facilitated 23,880 certified loans compared to 27,435 certified loans in the third quarter of '24. Total certified loan volumes reflect typical seasonal patterns, and our strategic tightening of underwriting standards aimed at building a higher quality loan portfolio. To add on what Jessica mentioned earlier, when we exclude SuperThin and credit builder certs, our cert volume for the quarter were up approximately 7% year-over-year, highlighting continued momentum in our core higher-quality segment. While we anticipate volumes to remain relatively stable through the remainder of ' 25 on a seasonally adjusted basis, we believe we are well positioned for renewed growth in 2026 with improved underwriting and pricing actions. Our credit union and bank channel loans typically have higher program fees compared to our OEM loans, which leads to more favorable economics. Total revenue for the third quarter of 2025 was $24.2 million, up 3% from the prior year period and includes a positive $1.1 million change in estimate profit share revenue associated with historical vintages compared to a $7 million reduction during the prior year quarter. To break down total revenue in the third quarter of 2025, program fee revenues were $13.3 million, profit share revenues were $8.5 million and claims administration fees and other revenues were $2.4 million. As a reminder, profit share revenue comprises the expected earned premiums less the expected claims to be paid over the life of the contracts and less expenses attributable to the program. The net profit share to Open Lending is 72%. When cash constraints previously received is in excess of the expected profit share revenue, the amount of excess funds and the projected future losses are recorded as an excess profit share receipt liability. Profit share revenue in the third quarter of 2025 associated with new originations was $7.4 million or $310 per certified loan, as compared to $13.8 million or $502 per certified loan in the third quarter of 2024. As Jessica mentioned previously, one of the steps we've taken to reduce future volatility in profit share revenue related to the change in estimate is to book more conservative unit economics at the time of originations. At these levels, the unit economics equates to 72.5% loss ratio. And with the pricing actions now in place, we expect newer vintages to ultimately perform closer to a mid-60s loss ratio. We plan to continue booking at conservative unit economics going forward. Additionally, we do not anticipate recording future positive change in estimates to these newer vintages until the vintages are more seasoned. As Jessica mentioned, in the third quarter, we amended our contract with Allied, which we anticipate will generate over $2.5 million in annual cost savings once the changes are fully implemented in 2027. As part of this contract amendment, we've made a onetime payment to Allied of $11 million, which will generate ROI by eliminating a portion of future commission fees from businesses that is referred to us by Allied. This evolution to our relationship with Allied reinforces our mutual commitment, extending the term through 2029 and underscoring our commitment to prudent partner management. We believe this will contribute positively to our financial outlook. Overall, this revised agreement positions Open Lending for sustained growth while supporting valued partners like Allied. Operating expenses were $26.6 million in the third quarter of 2025 compared to $15.5 million in the third quarter of 2024, representing an increase of 71% year-over-year. Excluding the aforementioned onetime payment to Allied of $11 million, operating expenses were relatively flat to the third quarter of 2024. One of my priorities moving forward will be to closely monitor and control operating expenses and find efficiencies in our spending. The reduction the team already made will have a full financial benefit in 2026. Net losses for the third quarter of 2025 was $7.6 million compared to net income of $1.4 million in the third quarter of 2024. Diluted net loss per share was $0.06 in the third quarter of 2025 as compared to a net income per share of $0.01 in the third quarter of 2024. Adjusted EBITDA for the third quarter of 2025 was $5.6 million as compared to $4.5 million in the third quarter of 2024. Our third quarter '25 adjusted EBITDA excludes the onetime payment of $11 million made in connection to the amendment to the reseller agreement with Allied. We exited the third quarter with $287.7 million in total assets, of which $222.1 million was in unrestricted cash. We had $214.8 million in total liabilities, of which $134.4 million was an outstanding debt. Moving on to our capital allocation priorities. We have $21 million remaining on our share repurchase program, which expires in May of '26. Our intent is to utilize our balance sheet to invest in our organic business in a controlled and measured manner to fuel profitable growth. Further, the cash interest expense on our debt continues to be about equal to the amount of interest income being generated on our cash and cash equivalents on a quarterly basis. We remain in compliance with all of our covenants under our credit agreement and expect to remain in compliance based on our projected performance. Finally, I wanted to address our guidance. For the fourth quarter, we are expecting total certified loans to be between 21,500 and 23,500. With that, I will open it up for questions. Operator? Operator: [Operator Instructions] I will take our first question from Peter Heckmann with D.A. Davidson. Peter Heckmann: It's good to hear about ApexOne Auto, the new credit decisioning tool. Jessica, I think you mentioned it was going to be on a subscription basis. But I think you said something about some -- like a volume component. Can you talk a little bit more about how that might work? How much of the payment might be fixed versus volume-based? Jessica Buss: Yes. Nice to hear from you, Peter. Thank you for the question today. Yes, ApexOne Auto will be a completely subscription-based product with -- we're looking to do 3-year contracts, which will have monthly minimums and then any overage per loan will be charged based -- that is over the minimum amount. So it will equate to like a per loan fee. None of it will be variable, meaning that we will have a minimum. So the only variable amount would be if there was an overage. And then anything that is -- and I think I mentioned this during the script, anything that is not then decisioned in ApexOne would be eligible to go into the LP (sic) [ LPP ] product, so they would be complementary to each other. But anything related strictly to ApexOne would be with a noninsurance wrapper and would not be subject to any change in the revenue once booked, it would be on the subscription basis. Peter Heckmann: Okay. That makes sense. That makes sense. And then Mass, just a follow-up on the Allied change in terms. I think you said you would approximate about a $2.5 million annual savings. Did you say that, that was going to start phasing in next year? Or it was just going to be for the full year 2027? Massimo Monaco: A small amount we expect to phase in, in 2026, the second half of 2026, but the lion's share of it will be realized in 2027. Jessica Buss: And Peter, it will have applicability then sort of going forward in perpetuity, right? It will have a benefit. Peter Heckmann: Right. It's an ongoing benefit. Jessica Buss: Yes, correct. Operator: Our next question comes from Joseph Vafi with Canaccord. Will Johnson: This is Will Johnson on for Joe. Maybe just one kind of high level on the macro environment. Just curious kind of any more color you can share on when you think things could kind of stabilize and trends, you're seeing in the Manheim Index? And just any thoughts on conversations with customers? Jessica Buss: Yes. As we've sort of weave through our script, we feel like 2025 was a transition year. There was lots of tightening and changes we needed to make to our pricing models that we felt, and we do feel have proven to put us in a much better and less volatile financial position. We feel like we're very well positioned for sort of growth in 2026. There's a few things we can point to. We obviously aren't giving guidance into '26. We're seeing a lot more flow coming in from the refi channel. We believe OEM is starting to build some very positive momentum now live in 32 states with a few of the larger states coming live towards the end of the year. We are bringing in a new CRO, which we believe will also bring more of a strategic lens to how we approach our credit union. And of course, we are seeing an improvement in retention of our credit unions. If you were to actually look at year-over-year, our cert growth our cert volume, excluding credit builders and SuperThin's, which is where we took most of our underwriting action, our cert growth is actually up 7% year-over-year. So I think that gives us a good starting pad as we move into 2026. Operator: We will move next with John Davis with Raymond James. Taylor DeBey: This is Taylor on for JD. Maybe just to start on the 4Q certified loan assumptions. It looks like certs are supposed to be down about 14% year-over-year at the midpoint. So just curious what you're expecting from a refi versus purchase volume perspective, and then just also the contribution expected from your FIs, credit unions and OEMs. Jessica Buss: Yes. So seasonality, fourth quarter is one of our lowest volume quarters. So we did take that into consideration. And then again, we will still have some of the impact of the OEM strengthening that we put into place as that works through sort of its full year effect. There could be some uplift from refi. We are doing 3 different things right now to become more refi ready at working with active refi partners and our current credit union base, whether we see that uplift in the fourth quarter or we see that more going into 2026. And then, of course, again, there's still some uncertainty as to when we'll get some of the full benefits from OEM 3. I don't know -- and about 90% of our business is coming from the CU and the bank. So we would expect that to sort of stabilize as we move into the fourth quarter and into 2026. I think kind of our goal with, I'll say, OEM 1 and 2 is to -- that, that volume will remain below 10% of our overall sort of volume. I don't know, Mass, if you have anything else to add to that? Massimo Monaco: No, I agree. And we're comfortable with that OEM 3 or OEMs 1 and 2 at less than 10% of our volume or around 10%, but they could still grow as we grow the overall portfolio, the OEMs 1 and 2 could grow along with it. But the mix has been our focus. Taylor DeBey: Got it. Makes sense. And then maybe just one more on ApexOne. It's obviously very early days with 2 customers launched, but just curious longer term, what you're expecting from an uptake perspective and then a growth contribution perspective as well? And then does this make sense for all of your lenders to use or just a certain subset, just love to hear some detail on that. Jessica Buss: Sure. We would love to share. We're very excited about its launch and a product that we've been working on for the last couple of years as we've gotten feedback from our credit unions. And again, really wanted to diversify into the full credit spectrum. If we sort of look at the credit unions, we do business with today, we estimate that about 25% of the apps that we see are the subprime apps. And if we were able to capture what we -- and which is what is required, ApexOne, sort of look at all the applications, and we were to get about a 50% adoption rate, we're looking at revenues somewhere between $30 million and $40 million, which we consider to be significant. But again, early days, and that will take time as we start to sign credit unions up. We have seen a lot of interest from our credit union clients. Again, there's been sort of the flight to quality on paper as the macroeconomic environment is what it is. And so this also, I think, protects us from sort of being more resilient to different market cycles. So again, we're excited about this product for many different reasons. And we also think it has applicability outside of our credit union customers, right? So there's other institutions, financial institutions that are interested in getting into and learning about and participating in auto decisioning that don't have those tools that we may be able to partner with. Operator: [Operator Instructions] And we show no further questions at this time. I will now turn the call over to Chief Executive Officer, Jessica Buss, for closing remarks. Jessica Buss: Thanks, everyone, for your participation and support today. The third quarter represented tangible progress against the initiatives I laid out in my first quarter as CEO and believe that Open Lending is now in a stronger position today than it was just 6 months ago. We believe we are well positioned for growth in 2026, and I look forward to updating to you on our next call. Thank you. Operator: Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.
Operator: Good morning, and welcome to the Palomar Holdings, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Chris Uchida, Chief Financial Officer. Please go ahead, sir. T. Uchida: Thank you, operator, and good morning, everyone. We appreciate your participation in our earnings call. With me here today is Mac Armstrong, our Chairman and Chief Executive Officer. Additionally, Jon Christianson, our President, is here to answer questions during the Q&A portion of the call. As a reminder, a telephonic replay of this call will be available on the Investor Relations section of our website through 11:59 p.m. Eastern Time on November 14, 2025. Before we begin, let me remind everyone this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about management's future expectations, beliefs, estimates, plans and prospects. Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in our quarterly report on Form 10-Q filed with the Securities and Exchange Commission. We do not undertake any duty to update such forward-looking statements. Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe are useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute to results prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to their most comparable GAAP measure can be found in our earnings release. At this point, I'll turn the call over to Mac. D. Armstrong: Thank you, Chris, and good morning. Today, I'm pleased to walk through our exceptional third quarter results. It was another outstanding quarter for Palomar, highlighted by record gross written premium, record adjusted net income, the 12th consecutive earnings beat and our fourth adjusted net income guidance increase in calendar 2025. These results underscore the strength of our distinct franchise and the effectiveness of our disciplined underwriting, diversified portfolio and consistent execution. We've intentionally constructed a portfolio of specialty products designed to perform through all parts of the insurance market cycle. Our portfolio consists of a unique mix of admitted and E&S residential and commercial property and casualty risk that provide balance and earnings consistency. Additionally, our newer businesses like crop and surety are scaling nicely and enhance the diversification of the book given their lack of correlation to the broader P&C market. Even when -- with the increasing balance of our book, we are not standing still. The Palomar team remains not only entrepreneurial, but also steadfastly committed to profitable growth. We continue to strengthen our franchise, entering select specialty markets that offer compelling risk-adjusted returns. As part of this effort, last week, we announced the acquisition of the Gray Casualty and Surety Company, a leading surety carrier with a strong national presence and an exceptional management team. This transaction meaningfully enhances Palomar's surety platform, bolstering our market position and complementing our existing operations. The acquisition immediately adds scale and provides access to attractive markets such as Texas, Florida and California. Gray only enhances the sustained execution of our Palomar 2X initiative of doubling adjusted net income over a 3- to 5-year time frame. We're thrilled to welcome the Gray team to Palomar. Returning to the third quarter, we delivered another quarter of strong financial results, highlighted by 44% gross written premium growth and 70% adjusted net income growth. Our operating metrics were equally as strong with an adjusted combined ratio of 75% and adjusted return on equity of 26%, demonstrating the strength of our underwriting discipline and the earnings power of our model. Our strong top line growth was not driven by a single line of business as all our product groups, say, for fronting experienced double digits growth in the third quarter. The balance in our mix of business, commercial and personal lines products written on an admitted and excess and surplus basis allows us to navigate property and casualty market cyclicality definitely. The balance book, combined with the numerous growth vectors across all our lines of business allowed us to outperform industry growth and profitability benchmarks in the third quarter and emboldens us to do so for the indefinite future. Turning to our business segments. Our Earthquake franchise is a great example of the balanced approach we take to constructing our portfolio. Our book of admitted and E&S residential and commercial earthquake products grew 11% year-over-year in the third quarter. A sequential improvement from the second quarter. Growth was driven by the sound performance in the residential earthquake market as we continue to see healthy new business production and strong policy retention, a robust 88% for our Flagship Residential Earthquake business. We continue to benefit from our 10% inflation guard, which affords our residential earthquake book meaningful operating leverage in a softening property catastrophe reinsurance market. Additionally, we have a robust pipeline of high-quality residential earthquake partnerships that we believe will provide incremental growth as we move into 2026. In our Commercial Earthquake business, the rate pressure experienced in the first half of the year persisted into the third quarter. During the quarter, the average commercial risk price decreased approximately 18% on a risk-adjusted basis, with large commercial accounts seeing more pressure than small commercial risks. Despite the rate pressure in the market, our commercial earthquake book grew during the third quarter, which reflects the strength and breadth of our franchise. We do not believe the rate pressure in commercial earthquake will ease over the near term, but we still expect to see growth for the remainder of the year and in 2026. We expect that the earthquake book will experience single-digit growth in the fourth quarter, although that is somewhat exacerbated by a onetime unearned premium transfer received in the fourth quarter of 2024. Overall, we remain convicted in our long-term ability to profitably grow our Earthquake business. The underlying profitability remains at a very high level with our earthquake average annual loss at a level considerably below that of 2023 and 2022. The stature of our residential earthquake book, which was 61% of the total earthquake book in the third quarter, combined with the expected further softening of the property cat reinsurance market will enable us to grow net earned premium even if primary commercial rate decline in 2026. As we have said time and time again, we have purposely built the earthquake book of business to navigate any market cycle. Our Inland Marine and Other Property category grew 50% year-over-year, which was a strong acceleration from the 28% growth in the second quarter. The quarter's performance was driven primarily by our admitted and residential property products, including but not limited to Hawaii hurricane, E&S flood and admitted builders risk. The Hawaii book grew close to 20%, and Laulima has emerged as the second largest rider of stand-alone hurricane coverage in Hawaii. Our residential flood product, while still a modest contributor to premium today, has experienced strong steady growth. We also believe our partnership with Neptune Flood will serve as a key catalyst accelerating the product's growth over the next 3 years. The Neptune partnership commenced writing new business on October 1, and we are encouraged with the initial production, which has been amplified by the temporary closure of the National Flood Insurance Program. Our Builders Risk franchise continues to stand out, growing 53% in the quarter. Like our Earthquake business, our suite of builders' risk products includes commercial and residential products written on both an admitted and E&S basis. Builders Risk is a national product with no geographical boundaries, and we are investing in talent where building activity remains robust. During the quarter, we added experienced underwriters in the high-growth markets of Boston and Dallas to sustain our growth and extend our reach. Importantly, we are achieving this growth in our Inland Marine and Other Property group despite the challenging commercial property market that has impacted our excess national property and commercial all-risk lines, again, underscoring the value of our differentiated and balanced mix across residential and commercial, admitted and E&S products. Our Casualty business delivered 170% year-over-year gross written premium growth, representing a nice sequential improvement from the 119% growth in the second quarter. We remain focused on segments of the casualty market where there is sustained rate adequacy. We are maintaining a disciplined approach to attachment points and net limits, leveraging quota share reinsurance to manage volatility and allow the portfolio to season appropriately. Through the third quarter, our average net line across casualty remained below $1 million with our largest line of business, E&S General Casualty, averaging roughly $750,000. In the quarter, we saw strong performance from the excess and primary general casualty, which grew more than 110% year-over-year in our Environmental Liability business that was up 119%. Real estate E&O, which is our longest tenure casualty line grew 65%. This quarter, we also wrote our first healthcare liability premiums, providing capacity to a segment amidst a hard market with technical rate increases exceeding 20%. Our casualty reserving philosophy also remains conservative and consistent. It is informed by ongoing analysis of loss emergence trends, attachment points and portfolio composition. As we've discussed in prior quarters, we continue to carry more than 80% of our casualty reserves at IBNR, well above industry standards. Maintaining this conservative position reinforces the strength of our balance sheet and provides confidence in the durability and predictability of our future results. Fronting premium declined 32% year-over-year, a function of the last quarter of impact from the termination of the Omaha National partnership. Fourth quarter results will better reflect the underlying performance in the Fronting business. We remain selective in choosing our counterparties. And while we expect to add new partners in the coming quarters, fronting is not our highest strategic priority. Our crop franchise delivered $120 million of gross written premium in the third quarter, doubling the $60 million produced in the same period last year. This strong year-over-year growth puts us well ahead of the pace to exceed our full year guidance of $200 million. Beyond the production during the quarter, we added talent focusing on the Kansas and Oklahoma markets that will help drive seasonal production in the first and fourth quarters of each year. These additions inform our revised premium expectation of $230 million for 2025. We remain confident in building the business to $500 million over the intermediate term. Additionally, the crop market conditions have been favorable so far this season with strong planting activity and growing conditions that appear to be better than historical averages. Based on what we are seeing today, we expect results to outperform the 15-year average industry loss ratio. These dynamics are an encouraging indicator for the remainder of the year. The third quarter is generally not considered a major reinsurance renewal period. However, it was active for Palomar as we placed seven treaties. Importantly, all treaties renewed on terms equal to or better than expiring. We also had successful first-time placements for our new flood and healthcare liability programs. Market conditions remain conducive to reinsurance buyers. And at this point, we are confident that we will see further decreases in property cat treaty pricing. Before I hand it over to Chris, I want to provide a little more color on Gray Surety. The $300 million acquisition is expected to close in the first quarter of 2026, and it should be accretive to earnings in its first year of incorporation into our organization. We intend to finance the transaction with a new term loan and excess cash on hand. Gray's terrific leadership team of Cullen Piske and Michael Pitre— will continue to lead Gray Surety, which we will rebrand as Palomar Surety. They will join forces with our team in New Jersey to build a top 30 national surety carrier. Adding Gray to our portfolio further diversifies our book and when combined with crop results in approximately 15% of our premium base being not subject to property and casualty market cyclicality. To conclude, I'm very proud of our third quarter results and moreover the team that delivered them. We generated strong top and bottom line growth, a top-tier return on equity and our 12th consecutive earnings beat. We are raising our 2025 adjusted net income guidance to $210 million to $215 million from $198 million to $208 million, the midpoint implying an adjusted ROE of 24%. The revised guidance implies the achievement of the Palomar 2X tenet of doubling adjusted net income in an intermediate time frame, in the case of our 2022 cohort, a 3-year time frame and our 2023 cohort 2 years. We continue to believe this is an attainable target for the foreseeable future. With that, I'll turn the call over to Chris to discuss our financial results and guidance assumptions in more detail. T. Uchida: Thank you, Mac. Please note that during my portion, referring to any per share figure, I'm referring to per diluted common share as calculated using the treasury stock method. This methodology requires us to include common share equivalents such as outstanding stock options during profitable periods and exclude them in periods when we incur a net loss. For the third quarter of 2025, our adjusted net income grew 70% to $55.2 million or $2.01 per share compared to adjusted net income of $32.4 million or $1.23 per share for the same quarter of 2024. Our third quarter adjusted underwriting income was $56.7 million compared to $31 million for the same quarter last year. Our adjusted combined ratio was 74.8% for the third quarter of 2025 as compared to 77.1% for the year ago third quarter. For the third quarter of 2025, our annualized adjusted return on equity was 25.6% compared to 21% for the same period last year. As Mac discussed, our third quarter results continue to demonstrate our ability to achieve our Palomar 2X objectives of doubling adjusted net income within an intermediate time frame of 3 to 5 years while maintaining an ROE above 20%. Gross written premiums for the third quarter were $597.2 million, an increase of 44% compared to the prior year's third quarter or 56% growth when excluding runoff business. Looking at the fourth quarter, this headwind is now fully behind us. Gross earned premiums for the third quarter were $518.8 million compared to $395.9 million in last year's third quarter and sequentially to $408.8 million in the second quarter of 2025. Year-over-year growth is driven by the overall performance of all lines of business, while sequential growth is significantly influenced by the crop earning pattern. Net earned premiums for the third quarter were $225.1 million, an increase of 66% compared to the prior year's third quarter. Our ratio of net earned premiums as a percentage of gross earned premiums was 43.4% as compared to 34.3% in the third quarter of 2024 and compared sequentially to 44% in the second quarter of 2025. With the timing of our core excess of loss reinsurance program renewal and the majority of our crop premiums written and earned during the third quarter, we continue to expect the third quarter to be a low point of our net earned premium ratio, increasing throughout the remainder of the reinsurance treaty year in a similar pattern to last year. While we expect quarterly seasonality in our net earned premium ratio, we expect net earned premium growth over a 12-month period of time. Our net earned premium ratio was 43.7% for the first 3 quarters of the year. Based on our performance through the first 9 months of the year, we expect our net earned premium ratio to be in the low to mid-40s for the full year, a slight improvement from our view after the second quarter. Losses and loss adjustment expenses for the third quarter were $72.8 million, which were predominantly attritional losses. The loss ratio for the quarter was 32.3%, comprised of an attritional loss ratio of 31.5% and a catastrophe loss ratio of 0.8%. Additionally, our third quarter results include $6.1 million of favorable prior year development, primarily from our short tail Inland Marine and Other Property business. We continue to hold conservative positions on our reserves. Favorable development is a result of our conservative approach to reserving upfront, allowing us to release reserves later. Our year-to-date loss ratio was 27.7%. With the strong results so far, we expect our loss ratio to be around 30% for the year, slightly more favorable than after the second quarter. Our acquisition expense as a percentage of gross earned premium for the third quarter was 10.8% compared to 10.5% in last year's third quarter and 12.6% in the second quarter of 2025. The percentage -- this percentage decreased sequentially from the higher gross earned premium for the quarter. Year-to-date acquisition expense was 11.8%. For the year, we expect this ratio to be around 11% to 12%, in line with previous expectations. The ratio of other underwriting expenses, including adjustments to gross earned premiums for the third quarter was 7.9% compared to 5.9% in the third quarter last year and compared to 8.7% in the second quarter of 2025. As demonstrated by our hires over the last year and in the third quarter, we remain committed to investing across our organization as we continue to grow profitably. As we have discussed on prior calls and today, we have continued to invest across our company as we work to further expand our reach and drive profitable growth given the attractive risk-adjusted returns that we continue to generate. We expect long-term scale in this ratio, although we may see periods of sequential flatness or increases due to investments in scaling the organization within our Palomar 2X framework. Year-to-date, this ratio was 8%. We continue to expect this ratio to be around 8% for the full year. Our investment income for the third quarter was $14.6 million, an increase of 55% compared to the prior year's third quarter. The year-over-year increase was primarily due to higher yields on invested assets and a higher average balance of investments held due to cash generated from operations and the August 2024 capital raise. Our yield in the third quarter was 4.7% compared to 4.6% in the third quarter last year. The average yield on investments made in the third quarter continues to be above 5%, accretive levels compared to the most maturing securities. We continue to conservatively allocate our positions to asset classes that generate attractive risk-adjusted returns. During the quarter, we repurchased approximately 308,000 shares for $37.3 million under the $150 million share repurchase authorization. At the end of the quarter, our net written premium to equity ratio was 1:1. Stockholders' equity has reached $878 million, a testament to consistent profitable growth. Our strong capital position allows us to continue to profitably invest in and grow our lines of business and to acquire Gray Surety with a combination of debt and cash. I would like to make some brief comments on our business from a modeling perspective in addition to the expectations mentioned earlier in my remarks. As we have previously indicated, the third quarter will continue to stand out from other quarters because of the crop book and its seasonal written and earning patterns in addition to the first full quarter of our excess of loss reinsurance placed June 1. Taking all of this into consideration and focusing on the dollars as we spoke about ratios earlier, we expect the third quarter of each year will have the highest gross written premium, gross earned premium, net earned premium, losses and acquisition expense. Looking to 2026, our third quarter and full year 2025 results should provide a good framework to model our business. Reflecting our strong operating results for the first 9 months of the year, we are raising our full year 2025 adjusted net income guidance range to $210 million to $215 million. Importantly, the midpoint of our full year guidance range implies adjusted net income growth of greater than 59%, a full year adjusted ROE above 20% and doubling our 2022 adjusted net income in 3 years and doubling our 2023 adjusted net income in just 2 years. Our Palomar 2X objective remains in focus, and we plan on doubling adjusted net income every 3 to 5 years. With that, I'd like to ask the operator to open the line for any questions. Operator? Operator: [Operator Instructions] And your first question comes from Paul Newsome with Piper Sandler. Jon Paul Newsome: I was hoping you could talk a little bit more about the market opportunity in Surety and maybe a little bit more specifically about exactly who you may or may not be competing with and it is an ordinarily pretty broad class of the business. D. Armstrong: Sure, Paul. Thanks for the question. We are really excited to bring Gray Surety into the organization. They are a very nice complement to what we have in New Jersey, which is Palomar Surety, the company known as First Indemnity of America. It's really writing contract Surety, kind of mid to small limit bonds. On average, you're talking about bonds that are less than $2 million. The combination of the two affords us greater regional expense. As I said in my prepared remarks, Gray Surety is very strong in kind of high-growth Sunbelt regions, Texas, Florida, California. FIA is the Northeast. Bringing them together gives us over $100 million of kind of in-force bonds and premium and writing say, nationwide presence, but really strong in like 15 markets. I think the opportunity for us is to take this from approximately a top 30 Surety on a combined basis to a top 20 in the not-so-distant future. And that's going to be driven by a few things. One, continuing to extend our reach. The Gray team has a terrific market entry model that's replicable where they understand what it takes from an underwriting investment and a system investment standpoint to enter into a market, the premium that must be generated to cover the cost and generate the requisite margin. So we will do a lot of that. I think there's an opportunity to cross-sell distribution between the two entities in FIA and Gray Surety. And then thirdly, our balance sheet will afford us more to do. Putting us together, I am going to have an entity that's approaching book value in excess of $1 billion. And moreover, our intention is to have Palomar Specialty T-listed, which will give them the ability to write larger bonds and participate in larger T-listed bonds. Right now, the combined entity can do around a $12 million T-list -- has a $12 million T-listing approximately. So I think the combination of going deeper in existing markets, expanding into new markets, writing some larger limit business and a cross-selling distribution will allow us to get to that top 20 status. But again, the footprint that we have, just once they come together, gives us a meaningful position in the market and really strong expertise helping us build a franchise that we think can be an even bigger leader. Jon Paul Newsome: And then for my second question, maybe you could talk as well about the potential future of the Crop business. Obviously, this year has the effect of the acquisition. I don't think of crop as being a growth business in general, but it's also fairly competitive. I don't know if that's a business that can grow a lot organically, prospectively and maybe it can. If you can just direct us into where that may go as well. D. Armstrong: Yes. So well, I think, first off, I want to applaud our team, Benson Latham and [ Jon Scheets, ] Jay Rushing and others for what they've done this year. This is our second full year of operation, but the first full year of where we've had that leadership team as well as AAP inside our four walls. So they are executing very well. And I think the strength of their execution has been, a, leveraging their historical experience and relationships in the market. I mean these are professionals that have been in the crop space for decades. And then secondly, there's been their ability to attract talent. I highlighted on the call some new additions that we brought in, in the Oklahoma and Kansas market that's going to extend not only our geographic reach, but also our product offering and allowing us to write more kind of off-season winter wheat-type business, stuff that's written more in the fourth and first quarters of the year. But overarchingly, Paul, we do think we're going to continue to growing crop. We've said that we plan on getting this to $0.5 billion of premium in the next several years, next couple of years. And then the ultimate goal is to get this to a $1 billion of premium. And the way we're going to do it is really on service and technology. And so we're making the investments right now to get to $0.5 billion and to get to $1 billion, and particularly on the technology side, while attracting best-in-class talent. So this is going to be a growth driver for us for the next few years, and we are very confident in our ability to execute. Operator: Your next question comes from Andrew Andersen with Jefferies. Andrew Andersen: Just on the net income guidance, I didn't hear anything about cat. Is there anything embedded within that? T. Uchida: Yes. No. So we obviously had about $1.9 million of cats in the quarter. From our viewpoint, we do include mini cats in our loss ratio expectations of -- now we've kind of updated to be a little more favorable around 30% for the year. In our view, that includes everything that we would expect to happen for the year. Knock on wood, there are no major cats at the end of the year or in this quarter. D. Armstrong: Okay, and -- sorry, go ahead. Andrew Andersen: Just on the commercial quick, yes, I think it was down 20% in 2Q in terms of rate, down 18% this quarter. Do you think we're kind of past the peak deceleration of rate where maybe it will still be soft minus 10%, minus 5%, but it's not going to get much worse from here? Or how are you kind of thinking about the next 12 months? D. Armstrong: Yes, Andrew, it's a good question. And I do think we have seen a deceleration but we are not hanging our hats on a reversal. So I would say that you're going to continue to see a softening. But what I would like to point out is if you just look at the expense of our earthquake book, residential quake now is 61% of the book at the end of the third quarter. The area where we're seeing the most pressure from a rate standpoint is about 1/4 of the book and frankly, is around 8% of our book in totality. So we think we are very well hedged against softening rate on the primary side in commercial quake by the softening P&C -- or excuse me, property cat reinsurance market plus the inherent leverage that we have in residential quake. So yes, I think, you're going to continue to see large account pressure, probably not to the degree that you saw in the second and third quarter, but we're not going to make a call that it's going to recede. But we will make the call that the health of our residential earthquake book and the softening property cat reinsurance market is going to allow us to grow book top gross written premium in '26 as well as have scale from a net earned premium perspective on the earthquake book prospectively. Operator: Your next question comes from Mark Hughes with Truist Securities. Mark Hughes: Chris, did I hear you properly the ratio of net -- yes, net to gross should continue to increase. It should step up in the fourth quarter and then step up further in the first half of next year. Is that correct? T. Uchida: Yes, that's the correct way to think about it. We think of the third quarter as our low point for the net earned premium ratio. A couple of factors now, obviously, before and currently, it still has a lot of impact from the XOL and this being the first full quarter of any new XOL placement, even though there was rate savings on that, we still buy for growth. So the dollar spend on that does increase to support that growth. And then now this year and a little bit last year, but obviously, with the growth in crop this year and still ceding 70% of that, we expect the net earned premium ratio to be at the low point in the third quarter of every year and then going up incrementally from there all the way until, call it, Q3 of next year. Mark Hughes: Yes. I appreciate that. The impact from the Omaha National in 3Q, did you give that specifically? You mentioned that 4Q should show the underlying trend in fronting. And I'm just sort of curious what that underlying trend looks like at this point? T. Uchida: Yes. No. So the third quarter, I want to say it was about $30 million last year in our written premium. And so at this stage, that, call it, headwind has been pushed aside or beaten, I guess, is the right phrase for that, yes. D. Armstrong: Yes, run its course. Mark Hughes: Yes. You pushed the headwind. Mac, you had mentioned a pipeline of quake relationships. Was that -- is there something -- some new developments there? Or is that just ongoing course of business? D. Armstrong: Yes, Mark, and I'll let, Jon Christianson, chime in, too. It's -- I would say it's ongoing course of business. We have over 20 carrier partnerships for earthquake, where we are their dedicated partner to providing earthquake, whether it's to satisfy mandatory obligations or to bundle it with other products. And sometimes they come over lumpy, sometimes they are a bit of a hunting license and they grow. And so we have seen good execution and good conversion from partnerships over the course of '25, but we also do have a pipeline. But Jon, feel free to chime in. Jon Christianson: Yes. No, I agree with all that. And I'd add that we're always searching for new strategic opportunities. And what we're finding now is that because we have been known as a strong strategic partner for earthquake, we're also taking inbounds, inquiries from others that are looking to better address the earthquake exposure that they may have or add value to their customers by adding earthquake. As Mac mentioned, some of the more higher profile household name type of partnerships that have come on over the last few years, they don't all come on at once in certain cases. And so as time has gone on and we've been working together for a longer period, we have seen increased traction with a number of large partners, and that's paid off so far this year. D. Armstrong: Yes. And so sometimes, it can be in a relationship where we are working with them in all states, but California and then California has opened up to us or it's vice versa. We're the California partner and then all of a sudden, they think about us handling Pacific Northwestern, New Madrid. So Jon and his team do an excellent job of chasing down these partnerships and then executing and implementing them. So we feel that '26 should provide one or two other new deals. Operator: [Operator Instructions] Your next question comes from Meyer Shields with KBW. Meyer Shields: Chris, I can push a little more on the guidance. I'm trying to get a sense as the expectations for the underlying loss ratio, excluding reserve development and excluding the major catastrophe losses so far this year. Is there any -- can you help us think about that? T. Uchida: Yes. So I think from our standpoint, when you look at the book of business and the maturity and the lines of business that are growing, whether it be Crop, Casualty, Inland Marine and Other Property are growing at a very strong rate, not to say that Earthquake growth is still very good, but those lines that are growing at a higher rate do have attritional losses with them. So overall, Earthquake still has a nice 0% loss ratio, but these other lines that are growing at a higher rate do have attritional losses with them. So I expect the loss ratio to continue to move up. I think the one thing that we were saying at the end of last quarter is that we expected our loss ratio to be about, call it, low 30s for the year. I think now based on some of the favorable results that we've seen so far, we expect that to kind of be around 30%. So that could be plus or minus 1 or 2 points on either side of that. But overall, we feel a little bit more favorable about where we did before. But overall, nothing has really changed that we still expect it to move up. It's still moving up in line with those attritional results. But there's been no, call it, underlying unfavorability in any of the results. It's kind of just a natural change in our book of business and portfolio and diversification that is having that loss ratio move up a little bit. But again, like I said before, it's not jumping. It didn't jump from 10 points like anyone was thinking before. But overall, we felt that it was going to just move up incrementally and it's kind of doing exactly what we expected. Meyer Shields: Okay. That is very helpful. Can you talk a little bit more about the healthcare liability, I guess, book that you're writing? The specific question is whether there's like sexual abuse and molestation exclusions, but more broadly, what you're looking for? D. Armstrong: Yes, Meyer. So we launched that [ 71. ] We hired a gentleman named Frank Castro, 30-year-plus underwriter, spent time at RLI, access -- and actually have worked as a risk manager for a large hospital system too. So great experience, launched [ 71 ] with a nice reinsurance program. It's like we've done with other casualty. It's a walk before we run. Our gross limits are about $5 million. Net limit is going to be inside of $2 million. His book, what we're targeting is about 60% hospital liability, 25% managed care E&O and then 15% kind of Allied Health. And his timing is good as it pertains to hospital liability because you are seeing the SME or sexual molestation liability exclusions more frequently or sublimited. And as I mentioned on the call, again, the timing is good in the sense that there is meaningful rate to be grabbed here. So this is another example to walk before you run, but it's led -- and it's also another example of a great underwriter overseeing a market that's a bit dislocated. Meyer Shields: Okay. Yes. The timing certainly makes a lot of sense. And one last question, if I can. How should we think about the stickiness of flood policies that you're writing while the federal program is shut down? Jon Christianson: Yes. Happy to take that, Meyer. This is Jon Christianson. So I think what we found historically, both pre-shutdown and what we're seeing now is strong stickiness of policy renewals. And I think more importantly, in the last couple of months, we've seen a greater interest in new business and greater confidence in the private market delivering relative to the uncertainty around the NFIP. So strong product, a great partner, strong distribution. And I think as every day passes, there's greater validation and credibility in how the private market can deliver a better product than what has traditionally been in the market. Operator: Your next question comes from Pablo Singzon with JPMorgan. Pablo Singzon: The question of loss ratio deterioration versus accelerating premium growth always comes up for you, right, because of your changing mix and that's before thinking about things like reinsurance retentions and ceding commissions and the like, right? But just given your Palomar 2X aspiration to double earnings in 3 to 5 years, would it be fair to simplify the discussion here and assume that you're also planning for a similar growth trajectory in your net underwriting income, right? So I don't know, something like 20% to 30% growth a year in the medium term. Is that a fair way to think about your portfolio in a very simple way? D. Armstrong: It is, Pablo. Yes, and thanks for bringing that up. I mean I think we feel that Chris has talked about it, that we have levers to pull from retentions and that's going to potentially amplify net earned premium growth over net premium growth and similarly on the investment side. But to answer your question simplistically, yes, I think that is an accurate way to categorize it. Pablo Singzon: Okay. And then second question also, I guess, on growth, Mac. So clearly, good growth you're experiencing right now. I'd be curious to hear at what point do you think you'll have to reload, whether it's with respect to new hires or even M&A as you did with Gray in order to sustain the current pace as opposed to sort of like past hires ramping up and growing in adjacent lines or sort of like low-hanging fruit that what you have now can achieve versus incremental hires or stretching for M&A. D. Armstrong: Yes. I mean I think, obviously, Gray was unique in that it was an acquisition. We've been really an organic growth story up until the last year or so. But I think Gray afforded us the ability to really kind of supercharge our entry into the Surety market and give us the scale that we wanted. We said our goal was to get to $100 million, bringing Gray in fold allows us to do it a lot quicker. But I think having Gray, and that's going to give us another organic growth vector, and that's because they can enter into new markets. And so Pablo, I think we're going to continue to grow organically by investing in talent, expanding geographic reach, entering into adjacencies. And then we'll be opportunistic if there is some inorganic growth driver that allows us to bring in an expertise or a competence that we don't think we can build in-house as effectively. So I don't want to say that we're going to -- well, I definitely want to say that we're not going to stop hiring talent that complements what we're doing or can help enhance our growth trajectory because we will continue to do that. But I do want to say that we -- all of our lines of business, earthquake included have growth vectors. Some lines of business have headwinds in them, commercial property. But if you really peel it back, commercial property is less than 9% of our book. So when you look at crop, casualty, now the Surety franchise, the builders' risk franchise, residential quake, there are growth vectors across the board. So 44% growth is very strong, and that's not going to be ad infinitum, but we remain very confident in our ability to achieve the Palomar 2X goals. And so that's going to have to come from gross written premium to some degree and then the net earned premium, which you highlighted earlier. So we just think that we are well positioned and -- to attain Palomar 2X and also just to grow organically. Operator: There are no further questions at this time. So I will turn the call over to Mac Armstrong for closing remarks. D. Armstrong: Thanks, operator, and thank you all for joining the call today. I'm very proud of our third quarter results. They demonstrate the strength of our business and the diversity of our unique specialty insurance portfolio. It's a balanced book of E&S and admitted residential, commercial property and casualty products. That's being supplemented now by the newer lines of business like crop and Surety that are uncorrelated to the P&C market cycle. So we think we are very poised to deliver consistent growth, and we're confident in our plan to do so. And the third quarter only gives us more conviction of what we have in front of us. So I'll conclude this with welcoming our new teammates at Gray Surety. And as always, I want to thank our employees for their commitment to Palomar. Thanks again. Enjoy the rest of your day. Operator: Thank you. All parties may now disconnect.
Operator: Good day, and welcome to the CarGurus earnings call. Please note that this event is being recorded. I would now like to turn the conference over to Kirndeep Singh, Vice President and Head of Investor Relations. Please go ahead. Kirndeep Singh: Thank you, operator. Good afternoon. I'm delighted to welcome you to CarGurus' Third Quarter 2025 Earnings Call. With me on the call today are Jason Trevisan, Chief Executive Officer; and Sam Zales, President and Chief Operating Officer. During the call, we will be making forward-looking statements, which are based on our current expectations and beliefs. These statements are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in such statements. Information concerning those risks and uncertainties is discussed in our SEC filings, which can be found on the SEC's website and in the Investor Relations section of our website. We undertake no obligation to update or revise forward-looking statements, except as required by law. Further, during the course of our call today, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to comparable non-GAAP measures is included in our press release issued today as well as in our updated investor presentation, which can be found on the Investor Relations section of our website. We believe that these non-GAAP financial measures and other business metrics provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency as it relates to metrics used by our management in its financial and operational decision-making. With that, I'll now turn the call over to Jason. Jason Trevisan: Thank you, Kirndeep, and thanks to everyone joining us today. In the third quarter, we delivered double-digit year-over-year Marketplace revenue growth while also expanding profitability across our U.S. and international businesses. Marketplace revenue and Marketplace EBITDA both finished above the midpoint of our guidance range, reflecting focused investment to drive sustainable top line growth and disciplined execution of our strategic priorities. Marketplace revenue grew approximately 14% year-over-year or $28 million, and Marketplace adjusted EBITDA was up 18% during the same period. Growth was driven by continued expansion in [ CarSID ], led by dealer upgrades to higher tiers, broader adoption of our add-on products, like-for-like price increases and higher lead quantity and quality. We also added 1,989 net new dealers globally year-over-year, supported by stronger retention. Our international operations contributed meaningfully with revenue up 27% year-over-year, driven by momentum in both Canada and the U.K. [ CarSID ] grew 15%, and we added 807 net new dealers year-over-year. At the foundation of these results is the strength of our market-leading 2-sided Marketplace. Built on trust and transparency, CarGurus connects the largest audience of car shoppers with the broadest network of dealers, giving consumers confidence and dealers high-quality demand and intelligence, both of which bolster Marketplace liquidity through rising engagement and adoption. As our Marketplace continues to scale, it generates vast proprietary data and machine learning signals that fuel a uniquely advantaged analytics and intelligence platform for dealers. With this expanding data set and our accelerating AI capabilities, we turn data into intelligence, delivering predictive tools and insights that help dealers make faster, smarter decisions and achieve stronger outcomes. These dynamics reinforce 2 durable advantages, scale and data intelligence. Scale delivers reach and liquidity. With the broadest dealer network and deepest inventory, our marketplace offers car shoppers unmatched selection and transparency, attracting the largest consumer audience and in turn, more dealers. That flywheel has supported faster growth and share gains from our primary competitors. Data intelligence transforms that scale into smarter products. We believe our growing size generates the most comprehensive retail demand and pricing signals in the markets where we operate, which we productize into solutions that improve dealer profitability. For example, our retail demand analysis recommends vehicles aligned with local shopper interest. And when dealers follow those recommendations, we've proven their inventory turns faster. Our pricing models enable dealers to price with precision, improve margins and outperform competitors, while behavioral and intent data enriches leads to improve conversion and ROI. This creates a virtuous cycle in which scale drives richer data and intelligence derived from that data improves dealer performance and the consumer experience, which in turn, we believe drives ever-increasing adoption and engagement. Building on our position as the #1 most visited automotive marketplace, we've continued to expand our platform with software and data products that help dealers make more intelligent decisions across 4 key workflows: inventory, marketing, conversion and data. We've already introduced a variety of offerings in each of these 4 pillars. In inventory, products like Sell My Car, Acquisition Insights and Next Best Deal Rating help dealers source the right vehicles, merchandise and price each inventory unit with precision. In marketing, solutions such as our core listings packages, Highlight, RPM and New Car Exposure connect dealers with high-quality, ready-to-purchase shoppers efficiently and generate significant dealer awareness and walk-in traffic. In conversion, offerings like Lead AI, our in-person engagement team and Digital Deal help dealers convert leads into sales, driving better attribution and higher close rates. And in data, our dealer data insights suite delivers local market intelligence that powers smarter, more profitable decisions. Over the past few years, we have built a strong foundation and garnered dealer engagement across these pillars and are now advancing from add-in features in these areas to differentiated software and data products, each with a clear value proposition and measurable ROI. We believe these products will expand our addressable market from the current $3.5 billion spent by U.S. dealers on marketplaces by roughly an additional $4 billion U.S. dealers spend on software and data products in these segments. We believe that our growing product suite positions CarGurus as an intelligence-driven partner that helps dealers optimize every stage of their workflow beyond simply marketplaces. We plan to deepen monetization across these pillars through scalable software and data solutions, and we're excited to share that we've begun that this quarter with our newly launched PriceVantage, which I will cover shortly. Much like we've done for our dealer partners, we're expanding our offerings along the consumer journey, continuing to lead the market in trust and transparency while broadening our role more upstream with research and downstream to purchase. With the largest selection and a seamless online to offline experience, shoppers can research with confidence, connect with dealers and complete the transaction on our platform or at the dealership in the way that works best for them. We believe this expansion of our product suite on top of our market-leading marketplace will continue to reinforce our scale and data intelligence flywheels and result in us capturing more dealer wallet share and deepening consumer engagement to support long-term growth. With that context, I'll now walk through our progress across our 3 drivers of value creation. Driver number one, expanding our suite of data-driven solutions across dealers' workflows to help them drive more profitable businesses. Core to our mission of helping dealers make more profitable decisions, we recently launched PriceVantage, a major machine learning-based evolution of our pricing tool. It is the only used vehicle pricing solution powered by real-time consumer demand from the #1 most visited car shopping Marketplace, giving dealers an edge to predict the market rather than just react to it, enabling smarter pricing, faster turns and improved profitability. Built on the industry's largest data set of shopper behavior and market supply, PriceVantage leverages AI to deliver VIN level activity, turn time predictions, lead potential, market day supply and visibility into comparable listings, all within a single unified workflow that directly syndicates into dealers' inventory management systems. It translates live market dynamics into data-driven pricing recommendations aligned with each dealer's goals, giving dealers greater speed, control and confidence in every pricing decision. Early beta results demonstrate the power of the software. The most engaged dealers using PriceVantage saw a 5x improvement in turn time compared to their top 5 competitors on CarGurus. Taking price drop recommendations drove a 68% median increase in daily VDP views and 77% of recommendations met or exceeded predicted sales velocity outcomes. We launched a Chrome-based browser extension that embeds these insights into the platforms where dealers already operate, such as their IMS or auction sites. Dealers can access real-time price recommendations without leaving their workflow with future releases planned to extend into sourcing and merchandising. PriceVantage is the latest and most substantial addition to CarGurus' expanding suite of dealer intelligence software solutions. Other offerings continue to grow, especially our dealer data insights suite, which strengthens dealers' predictive capabilities, delivering greater efficiency and faster sales. Next Best Deal Rating is now used by nearly 20,000 dealers, growing over 70% year-over-year. Merchandising insights adoption grew to 9,791 dealers, while Max margin insights adoption rose to 5,032 dealers. In the third quarter alone, dealers made over 700,000 price changes through Next Best Deal Rating. We've seen a median 48% increase in VDP views and faster turn times for vehicles using our recommendations. Engagement remains high with Next Best Deal Rating driving nearly 50 price changes per dealer in Q3 and dealer data insights reports overall driving 75 price and inventory changes per dealer. Over 2/3 of recommendations we send to dealers are being opened and red, indicating the value of these insights. Last quarter, we also introduced New Car Exposure to give dealers more sophisticated control of their new vehicle marketing. New Car Exposure continues its rollout across markets, now reaching 94 DMAs and brand combinations. To date, it has driven 31% of new car VDP views and 13% of new car leads with participating dealers capturing a greater share of new car leads than those relying solely on organic placements. Innovations like this are deepening dealer engagement by enabling smarter decisions across inventory, marketing, conversion and data. Dealers are upgrading into premium tiers more frequently. They're adopting our products and solutions at higher rates, and they're signing long-term contracts. Together, we believe these factors support our ability to grow [ CarSID ]. [ CarSID ] growth has been manifesting in 3 trends. First, customers who remain on our platform consistently increase their spend over time. Second, new customers are joining at higher average order sizes than in prior years. Third, newer customers are ramping their spend faster than prior new customers did. On all these observable dimensions, we're seeing clear evidence that the growing quality and breadth of our products have been driving measurable [ CarSID ] growth. Driver number two, meeting the evolving needs of car shoppers by powering a more intelligent and seamless journey. As I said earlier, we're expanding the CarGurus experience across the full car buying journey from research through consideration and purchase. This quarter, we advanced 2 key innovations that bring that vision to life. First, consideration. We expanded CG Discover, our Gen AI-powered shopping assistant. Unlike others that use Gen AI to repackage traditional filters, Discover uses conversational understanding and real-time reasoning to interpret a shopper's intent and curate the best fit vehicles for millions of listings. It helps consumers refine choices and explore inventory with greater speed and clarity while giving CarGurus richer demand signals and pricing insights to strengthen the data intelligence flywheel. Early engagement has been strong, and we have since expanded Discover to our homepage and app, creating more prominent entry points that have driven higher traffic into the experience. Research shows 80% of consumers are open to using AI in their car buying journey, underscoring the scale of this opportunity. Traffic to CG Discover has nearly tripled quarter-over-quarter and leads have grown 3.3x. Discover VDP to lead conversion is 6,000 basis points higher than standard VDP to lead conversion. As Discover scales, every interaction generates signals and insights, making the platform smarter and strengthening both dealer and consumer experiences. Next, purchase. Car shoppers want confidence at every step from discovery to purchase. Research shows consumers feel the hardest part of car buying happens in the dealership when shoppers feel anxious about pricing, alternatives and making a rush decision. Our goal is to reduce that anxiety with transparent dealership ratings and reviews and by extending the CarGurus experience into the dealership where support matters most. We're excited to introduce Dealership Mode, a major innovation in the purchase step designed to deliver real-time support at the exact moment shoppers need it. When a CarGurus user visits a participating dealer lot, the app activates through geofencing and push notifications to provide VIN level pricing and ratings, reduce payment anxiety with a financing calculator, compare cars on the lot or highlight alternatives at the dealership and surface reviews to validate quality. Dealership Mode gives consumers clarity and confidence at the most stressful point in the process. For dealers, Dealership Mode strengthens attribution and ROI. While we already maintain significant attribution on closed sales data through DMS integrations and third-party data providers, Dealership Mode now enables us to close the purchase loop more fully, connecting online engagement to in-store activity, which we believe demonstrates clear ROI and higher quality leads. With millions of monthly app users making hundreds of thousands of lot visits, we believe the opportunity is significant. Based on an early analysis, 56% of consumers who see Dealership Mode in the app navigation have clicked into the experience and over half of our users have opted in for push notifications. Over time, we expect Dealership Mode will drive even greater app adoption, build consumer trust and help dealers convert more sales. By improving the consumer experience and extending our brand awareness, we are giving shoppers more reasons to start and end with CarGurus. This deeper engagement is translating into higher intent activity with CarGurus-led sales growing year-over-year in the past 2 years. Separately, as we implement changes to comply with cookie consent regulations across markets, reported uniques and sessions are expected to decline as some users do not opt into tracking. This represents a change in how traffic is measured rather than an indication of an underlying change in site traffic or in the leads and connections we believe we're delivering to our dealer partners. Driver number three, enabling dealers and consumers to complete more of the transaction online, streamlining the final steps of the deal. In the third quarter, we advanced our transaction capabilities through continued progress across Digital Deal and Sell My Car. These offerings are delivering a seamless online to off-line journey for shoppers. Digital Deal adoption surpassed 12,500 dealers this quarter with over 1 million listings digitally enabled. With more Digital Deal listings and improved user experience, we have driven 45% year-over-year growth in high-value actions such as financing applications, appointment scheduling and deposits. Users who complete these high-value actions close at up to a 3x higher rate than standard e-mail leads. In fact, our strongest close rate comes from reservations. Reservations closed at nearly 16x the rate of standard leads for out-of-market shoppers and 9x for in-market shoppers. Appointments are up approximately 20% year-over-year. Financing adoption is also strengthening, supported by direct credit applications, prequalification and SRP filters that surface vehicles consumers are already approved to finance. Digital Deal leads with a financing element have grown 77% year-over-year. We also embedded high-value actions into the core site experience. This quarter, we introduced a post-lead high-value action menu that surfaces additional steps such as scheduling an appointment or submitting a deposit immediately after a shopper submits a core lead. This creates a natural ramp for consumers and provides dealers with even stronger intent signals. Alongside a broader redesign of the Digital Deal experience, initial testing shows several hundred thousand incremental leads from the new experience. We now expect that by year-end, nearly 30% of a Digital Deal enabled dealers' e-mail leads will come through Digital Deal. These leads include verified contact information, full name, e-mail and phone number and around 45% of them historically carry at least one high-value action. Beyond enabling more of the transaction online, we're helping dealers source inventory with greater efficiency. Sell My Car adoption has continued to grow and is now live in 115 markets, reaching roughly 75% of our eligible traffic. Lead quality and conversion have continued to strengthen. A growing share of Sell My Car acquired vehicles are listed on our Marketplace soon after purchase, demonstrating that these are high-quality retail-ready leads. Collectively, these advancements are streamlining the transaction for both dealers and consumers, improving lead quality, accelerating conversions and reinforcing our ability to meet customers wherever they are in their journey. Across all of our value creation levers, I'd like to discuss the accelerating use of agentic AI. AI has been foundational to CarGurus since our inception and continues to power innovation across the platform. We're embedding agentic AI in numerous places throughout our products and systems to create smarter, faster and more intuitive experiences for both consumers and dealers. CarGurus Discover, our conversational Gen AI-powered shopping assistant uses large language models to help consumers refine choices and explore inventory with greater speed and clarity. In our mobile app, Dealership Mode activates when a shopper visits a participating dealership lot, providing AI-generated comparisons and summaries of vehicles. In our dealer dashboard, PriceVantage extends these capabilities to dealers by using predictive AI and real-time demand data to deliver VIN level pricing insights, turn time forecasts and competitive benchmarking directly into their workflows. We also continue to scale AI-driven content and quality improvements across the platform to drive consumer traffic and reduce operational overhead across internal teams. SEO content generation powered by generative AI and guided by our editorial expertise has expanded high-quality content roughly tenfold across CarGurus and our core channels, driving a 60% increase in top and mid-funnel sessions year-to-date. Pricing compliance monitoring now also uses AI to identify inconsistencies and ensure data integrity across millions of listings. Internally, AI is transforming how teams work. Over the past year, we've deployed numerous solutions that have improved speed, precision and efficiency across nearly every function. Our Gen AI sales tools have provided account summaries, tailored recommendations and predictive insights that have helped teams identify opportunities to strengthen retention and deepen dealer relationships. Nearly 80% of managed leads in October, chat and text were handled and closed by AI. This automation has enabled us to reduce the outsourced team by over 40%, driving meaningful efficiency gains and cost reduction. Engineering productivity has risen by nearly 25% in the past year through the use of AI coding tools and code review agents. Our LLM gateway democratizes LLM integration, allowing teams to embed new use cases directly into workflows and bring ideas to market faster, while our enterprise LLM-based search platform enhances knowledge retrieval and workflow automation. AI also strengthens fraud detection and prevention, enhancing data integrity and platform trust. Adoption is broad and disciplined. 91% of employees report using AI weekly, driving faster execution, sharper insights and greater collaboration across the company. Looking ahead, we believe that the combination of proprietary data, machine learning, predictive analytics and agentic AI positions CarGurus to deliver new levels of intelligence, automation and efficiency to both dealers and consumers. AI remains central to how we innovate, operate and lead in automotive technology. In Q3, we delivered strong revenue growth, healthy margins and disciplined execution. We advanced products that give dealers greater control, efficiency and intelligence while creating more confidence and clarity for consumers. These innovations are expanding our reach beyond the $3.5 billion U.S. Marketplace segment into an additional $4 billion dealer software and data products TAM, which we believe broadens our long-term growth opportunity. Innovation remains at the center of this progress. We're extending our platform across each of our 4 pillars: inventory, marketing, conversion and data with scalable software and intelligence solutions that address more of the dealer workflow and consumer journey. These advancements reinforce our leadership as a data and technology-driven company, which we believe unlocks new sources of growth and value creation. Across every initiative, our focus remains on measurable value, capturing more dealer wallet share, deepening consumer engagement and strengthening our platform's foundation. With that momentum, we believe that we're scaling solutions that reinforce our leadership, support durable growth and create long-term value for our customers and stockholders. Now let me walk through our third quarter financial results, followed by our guidance for the fourth quarter and full year 2025. Third quarter consolidated revenue was $239 million, up 3% year-over-year. Marketplace revenue was $232 million for the third quarter, up 14% year-over-year toward the high end of our guidance range. Marketplace revenue growth was driven by strength in our subscription-based listings revenue. In the third quarter, U.S. [ CarSID ] grew 8% year-over-year, and we added 1,182 paying U.S. dealers year-over-year, marking our seventh consecutive quarter with positive net dealer adds and our fourth straight quarter of accelerating year-over-year dealer count growth. We continue to expand our footprint while taking greater wallet share in our growing base, driven by upgrades, broader adoption of add-on products, like-for-like price increases and higher lead quantity and quality. Our international business had yet another strong quarter with revenue up 27% year-over-year and international [ CarSID ] up 15% year-over-year, the ninth consecutive quarter of double-digit year-over-year international [ CarSID ] growth. Wholesale revenue was approximately $2 million for the third quarter and product revenue was roughly $5 million for the third quarter as we ceased facilitating transactions in the quarter as a result of our decision in August to wind down the CarOffer transactions business. As a reminder, we expect to account for the wind down of CarOffer as a discontinued operation in the fourth quarter. As such, we do not expect there to be revenue associated with digital wholesale going forward. I'll now discuss our profitability and expenses on a non-GAAP basis. Third quarter non-GAAP gross profit was $214 million, up 11% year-over-year. Non-GAAP gross margin was 90%, up about 650 basis points year-over-year. Marketplace non-GAAP gross profit was up 13% year-over-year and non-GAAP gross margin was stable at 93%. On a consolidated basis, adjusted EBITDA was approximately $79 million, up 21% year-over-year. Adjusted EBITDA margin was 33%, up about 490 basis points year-over-year. Marketplace adjusted EBITDA grew 18% year-over-year to approximately $82 million, above the midpoint of our guidance range. As a reminder, we guided to Marketplace EBITDA only this quarter as we sunset the CarOffer transactions business. Margin rose about 120 basis points year-over-year to 36%, but declined slightly quarter-over-quarter due to investments in new product innovation and sequentially higher sales and marketing expense. Digital wholesale adjusted EBITDA loss of approximately $4 million was modestly higher quarter-over-quarter as expected. The sequentially larger loss was driven by lower volumes due to the cessation of transactions in the third quarter as a result of our decision to wind down the CarOffer transactions business. Moving to OpEx. Our third quarter consolidated non-GAAP operating expenses totaled $142 million, up 7% year-over-year and 4% quarter-over-quarter, reflecting sequentially higher sales and marketing expense and investment in new product innovation, as I mentioned earlier. During the third quarter, we incurred $3.8 million in onetime cash restructuring charges, and we expect remaining cash restructuring charges of $2 million in the fourth quarter. Accordingly, we have narrowed our previously estimated range from $5 million to $7 million to $5 million to $6 million. We still expect to substantially complete the CarOffer wind down by year-end, with total wind-down related charges expected to be in the range of $13 million to $15 million, which is lower than the original range of $14 million to $19 million. Non-GAAP diluted earnings per share attributable to common stockholders was $0.57 for the third quarter, up $0.13 or 30% year-over-year, reflecting primarily the increase in adjusted EBITDA and lower diluted share count. We continue to generate strong free cash flow, and we ended the quarter with $179 million in cash and cash equivalents, a decrease of $52 million from the end of the second quarter, primarily driven by $111 million in share repurchases in the quarter, partly offset by higher adjusted EBITDA. As of September 30, we have approximately $55 million remaining on our share repurchase authorization. I will now close my prepared remarks with our guidance and outlook for the fourth quarter and full year 2025. As a reminder, due to the wind down of CarOffer, last quarter, we stopped guiding to consolidated revenue and consolidated adjusted EBITDA and instead, we'll guide to Marketplace revenue and Marketplace adjusted EBITDA as that is representative of our go-forward operations. We expect our fourth quarter Marketplace revenue to be in the range of $236 million to $241 million, up between 12% and 15% year-over-year, respectively. And we expect full year Marketplace revenue to be in the range of $902 million to $907 million, up between 13% and 14% year-over-year, respectively. For the fourth quarter, we expect our non-GAAP Marketplace adjusted EBITDA to be in the range of $83 million to $91 million, up between 5% and 15% year-over-year, respectively. And we expect full year Marketplace adjusted EBITDA to be in the range of $313 million to $321 million, up between 18% and 21% year-over-year, respectively. We expect to meet the discontinued operations criteria in the fourth quarter. As a result, we expect our full year guidance, similar to the third and fourth quarters to reflect Marketplace absorbing approximately $1 million in ongoing quarterly CarOffer expenses as a result of the wind down. Accordingly, we've included about $2 million of first half costs that we expect to be recast to continuing operations once the criteria are met. These estimates are preliminary and subject to change. The midpoint of our Q4 guidance implies a full year Marketplace EBITDA margin of approximately 35%. We're pleased with the strength and growth of our Marketplace and excited by the early results of our various new product investments. That innovation has delivered growing adoption across more dealer pillars and deeper consumer engagement across their shopping journey. That success reinforces our confidence to continue growing our investments in new, primarily AI-centric innovation across our dealer and consumer product suites that we believe will drive long-term growth. We expect fourth quarter non-GAAP consolidated earnings per share to be in the range of $0.61 to $0.67, up between 13% and 24% year-over-year, respectively, and full year consolidated earnings per share to be in the range of $2.19 to $2.25, up between 29% and 32% year-over-year, respectively. And we expect fourth quarter and full year diluted weighted average common shares outstanding to be approximately 97 million and 101 million, respectively. With that, let's open the call for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Chris Pierce with Needham & Company. Christopher Pierce: If I'm looking at the deck on Slide 5, I think you have a stat that you shared for the first time that may or may not be right, but it says 25% of CarGurus dealers only pay for CarGurus. Is there a way to think about where that stat was a year ago, 2 years ago and some sort of upper bound as maybe you guys drive separation versus peers? Jason Trevisan: Chris, it's Jason. Thanks for the question. I don't think we've given a trend on that stat. But what we have seen is that in surveying dealers, the dealers use fewer and fewer marketplaces -- marketplace partners. In fact, over the last few years, I don't remember the exact years, but it's gone from about an average of using 3 to using under 2, around 1.8. So there's consolidation and concentration with those that typically offer the best ROI. So that's the sort of macro trend on that dynamic, but we haven't given a trend number on the 25%. Christopher Pierce: Okay. And then on the ROI that you were talking about, specifically on digital deals, are you seeing dealers more willing to engage here given there seems to be an acceptance that fully digital transactions are growing within the industry? And like I guess what will be the right time to flex pricing power here given the conversion metrics you cited and sort of -- the dealers need to do something specifically on their end to accept these leads? Or is it sort of just kind of easy housekeeping on their end and a customer can walk in, have their loan in place, take their test drive and leave the dealership within, call it, an hour, something like that? Samuel Zales: Chris, it's Sam here. Thanks so much. We have constantly spoken about the research we've done showing 80% of consumers want to do more online, but still want to touch and feel the car and come in for a test drive. So we think we've got a perfect product in that regard. You've seen that we've got 12,500 customers now on the program. It is packaged into one of our premium tiers. So the dealers who get access to Digital Deal have to pay more. I see your point that as that trend continues to move, that's an opportunity for us. But I think the thing we're most excited about is more and more of our consumers doing highly -- what we call high-value actions. So taking a process to either put -- set an appointment to put a deposit down to look at financing and try to provide some information on their credit ability. That we think is driving a higher quality lead, a further down funnel lead, and we believe that's driving further and further ROI for our dealers. So long term, it gives us the opportunity, as you said, to say, how much more will that continue to grow? That gives you an opportunity for pricing power, and we'll consider that as we go forward. Operator: Our next question comes from Marvin Fong with BTIG. Marvin Fong: I had a question just on the international [ CarSID ] and international in general is doing so well, very good growth there across the board. I just wanted your thoughts on how much faster and higher you think [ CarSID ] can grow? Obviously, we can look at in the U.K., the dominant player there and generating revenue per dealer is much higher than... Operator: Sorry to interrupt you there, Marvin. Marvin, we are unable to hear you clearly. Could you please use your handset? Marvin Fong: Is this better? Operator: Yes, please go ahead. Marvin Fong: Sorry about that. Yes, I just wanted to ask about [ CarSID ], particularly in the international segment. I believe the incumbents in the U.K. in Canada charge a lot more than you are right now, and we're seeing very nice [ CarSID ] growth in international. So just wanted your thoughts there and how quickly you can pull that lever and close that gap. Samuel Zales: Thanks, Marvin. It's Sam Zales. We're really, really proud of the international markets and what we're doing there. You'll recall that we're competing against 2 big players who had monopoly power in those markets. But I think what we're showing is 2 things. When you drive lead quality and lead quantity in an aggressive amount, it makes dealers stand up to say and you price at a lower price point, it makes dealers stand up and say the ROI is better, and we've shown you the research in the markets to show that our ROI is advantaged versus our competitors. I think though, we're still in a market zone of adoption right now. We're keeping our prices at a lower level because we are winning more and more customers. As you saw, we added 800-plus customers in the international market. So our goal there is to say, let's be smart about pricing. Let's price to the value that we're offering to our dealers. And we know we can always grow that over time, but we're looking to build more market share. So you may have read in Canada that one of the largest dealers in a press release that was out AutoCanada converted by saying, I'm no longer going to be on the auto trader program, and I want CarGurus as my preferred partner in that regard. Those are the kinds of things that will give us that opportunity to continue growing not only dealers, and that leads to other dealers picking up their heads and saying, I might do the same thing. It allows us to keep growing our customer base, but also growing [ CarSID ]. The 15% growth, we're really proud of. We'll continue to push in that direction, but we don't want to get too aggressive on that front at a time we're still signing more dealers in both Canada and the U.K. And that will replicate if we can, the market experience we had here in the U.S. We started with lower pricing. We got the largest base of dealers to our franchise and joined us, and then we raised prices over time, and we think that's a good model to try to take on in that arena. So thank you for recognizing 27% growth in international. We're really proud of it and excited to try to push forward. Jason Trevisan: And if I may, I'd just add to that and echo something that was said in the call. So international [ CarSID ] is about 1/3 of the U.S. And the levers that drive [ CarSID ] in the U.S., upsell, cross-sell, lead growth, lead quality, pricing, those are all available to us in international, and they're all much earlier and less mature. And so they all have more runway in international. But the other thing I'd point to from the script is to just call out some of the trends we're seeing in U.S. [ CarSID ], which I think we have every reason to believe will exist in international. And that's among our -- it was 3 themes from the script. Among our paying dealers, they increase their spend the longer they stay with us. The second trend is new dealers are joining at higher AOS than old dealers. And the third is that despite joining at a higher AOS, they're actually ramping their spend faster than prior cohorts ramp their own spend. And so we're seeing that in the U.S., which is a much more mature market, and we're incredibly proud of that. And international has all of those available and earlier stage. Marvin Fong: Those are terrific insights. And maybe a follow-up question, just maybe, Sam, this is up your alley. But Jason referenced that you're really attacking, I believe you said $4 billion solutions market. Is that how you're presenting it to dealers? I know that dealers like to think about things in a cost per sale. But are you actually kind of talking to them about these new analytics in the sense that now you don't have to pay for vendor A or vendor Z. Is that how dealers are thinking about it? And is it kind of clear to them that you're presenting both a listing service as well as a solution -- software solution? Samuel Zales: Marvin, I'll jump in and then let Jason add color. I think what we're doing every day is talking to customers about driving profit maximization. And that can come from our marketplace business that as we spoke about in the call, you start to build solutions like DDI that we've talked about previously, which helps dealers convert more of the leads that they're getting today, helps them increase their profitability. And then you -- from product-led growth, you're seeing customers adopt those products -- so our pricing tool led us to build this software product called PriceVantage. So what we're doing for dealers with that product is simply helping them grow their profitability by reducing their turn times and allowing them to price as most effectively to manage their inventory. So it all comes out of the Marketplace business that then leads to other products, as we said, inventory, marketing, conversion and data. They all work together with the value proposition that says, we're going to help you, Mr. or Mrs. dealer, to grow your profitability by utilizing our marketing tools, our data and now software that lets you run your business more efficiently, that leads to [ CarSID ] growth, that leads to retention of our customers long term. Jason, anything you'd add? Jason Trevisan: Just that it is -- they are all connected. The dealer historically has thought of them as steps in the workflow and as such, has allocated different wallets to those different steps. And these products are allowing us to start to tap into those new wallets. But what makes them particularly compelling is we're not selling a stand-alone product here and a stand-alone product there. When Sam talks about them being tied together for something like PriceVantage, it's saying, if you do this to a price, this is exactly -- or this is what will happen from a leads perspective, from a turn time perspective. So it's giving them recommendations and the ability to act on those with a strong forecast of the results because the results are what occur on our Marketplace. Operator: Our next question comes from John Colantuoni with Jefferies. Vincent Kardos: This is Vincent on for John. Just one with a few parts for me. So it looks like some of the investments you've talked about in recent quarters is really paying off, given both U.S. and international dealer rooftops saw accelerated growth during the quarter. At the same time, [ CarSID ] growth slowed a little bit across both geographic segments despite the traction you called out for the product suite. Maybe talk a bit about what the growth algorithm between rooftops and [ CarSID ] ought to look like going forward, touching a bit on the drivers of slightly slowed [ CarSID ] growth as well as the relative contributions of improved dealer retention versus net new adds to rooftop growth? Jason Trevisan: Sure. Vincent, it's Jason. So the relationship between -- so thank you for acknowledging the investments paying off. We are incredibly excited about a bunch of the things that we shared with you all tonight in terms of new launches. The relationship between rooftops and [ CarSID ] is math in so much as [ CarSID ] is revenue divided by the average active rooftops. And so what happens is when we grow rooftops much faster, that's a natural math-based headwind or depressant to [ CarSID ]. And so this past quarter, [ CarSID ] was up about 8% year-over-year. Rooftops were up about 5% year-over-year. And if you add those 2 together, you actually get something close to our total marketplace revenue growth for year-over-year, around 13%. And so if you look at the last several quarters, you'll see that type of relationship. It's not perfect, but I think it illustrates the math pretty well and how the math works. In terms of retention versus adding, we've talked about our retention has been improving nicely over the last set of quarters, even a couple of years. And that's a function of a number of things. We've invested in account management, as you've heard, but I would say a lot of it is through the investment in product and a lot of that product is in dealer data insights and things that we're adding to our core Marketplace and thus far haven't really been charging for a good portion of them. And so between better account management, between more feature functionality, between more insights that help them perform better on our marketplace, our in-dealer partnership team that helps them perform better. So much of what we build here is to just help them perform better on CarGurus. And when they do that, they tend to stay. So -- and some of the cohort information I just gave shows that they're, in fact, ramping even faster. And then as you heard about some of the adoption numbers from the script, we're getting really broad adoption of a lot of these things. Operator: Our next question comes from Ron Josey with Citigroup. Jamesmichael Sherman-Lewis: This is Jamesmichael Sherman-Lewis on for Ron. First here, on CG Discover, now more deeply embedded, can you help us understand how this new car buying journey and purchase funnel differs from traditional car buying? Clearly, we're seeing traffic and conversion ramp, but curious how you see user engagement in this channel's contribution evolve longer term? Jason Trevisan: Happy to. This is Jason again. So Discover is definitely a new experience and one that is getting great traction as we talked about, sort of explosive growth, granted it's early, but explosive growth. So I mean, the key thing to recognize is that it's outside of the structure of the SRP or search results page. And so think of it more as a conversation versus a filter-driven onetime query. And so you -- and I'm sure I encourage you to use it and try it if you haven't. But you can ask questions naturally. You'll get explanations and follow-ups, and you can then continue those follow-ups and ask questions that build on prior questions. And so the discovery goes beyond listings. It actually reasons with the shopper. It explains why cars are ranked the way they are. It offers side-by-side comparisons. It offers contextual intelligence, market value ownership costs, confidence scores, YouTube videos, side-by-side comparisons of different makes and models that we offer. And so -- it also offers things that would be outside of a search. So whereas a typical search might offer just sedans, this may offer based on your inputs, some small or midsized SUVs that would solve some of the things you're looking to solve that aren't a sedan. And so it's actually making recommendations outside of what you're specifically prompting. It creates a ton of opportunities for us on our platform. It also offers opportunities, though, for dealers because they're going to learn a lot more about the consumer and what they're looking for through the information that we share on the dialogue. And so it really is a 2-way conversation. What it's leading to is shoppers who use it do almost 3 follow-up prompts. And so it is a conversation. It's converting from a vehicle detail page to a lead at much, much higher rates. And then those leads are much richer to the dealer because we're passing along a lot of that information. So it really does -- it helps the consumer, it helps the dealer and it helps us. And it's built for agentic expansion. And so the architecture of it allows very easily things like personalized deal alerts, watch lists, comparison across trims and markets as new cars come out. And so it's beginning to and will easily act on behalf of the consumer for future opportunities created by what the consumer has given to the agent. So we're really excited about it. It is not, by any means, a glorified filter, which some other folks are doing. And so we think that it's going to be a really big opportunity for us that can scale nicely. Jamesmichael Sherman-Lewis: That's helpful color. Follow-up, if I may. As we look out to 2026, can you unpack the key investment areas across product, international brand or other areas? And any changes to relative investment intensity versus 2025's investment year? Jason Trevisan: I wouldn't say there's change to relative intensity. I think what we're really excited about, we had said a couple of quarters ago that we were going to increase investment. And I think this quarter in particular, is showing a lot of the benefits of that. We have shown a really quick speed to market with a lot of our introductions. We're showing much deeper engagement, PriceVantage, New Car Exposure, Dealership Mode, Discover. And so we're going to continue to invest in, as you said, product, go-to-market, international and focus on getting adoption of those across the 4 dealer pillars and across deeper consumer engagement. And so I would say, if anything, this sort of reinforces our confidence to continue growing our investments in mostly AI-centric innovation across both dealer and consumer, but we're going to be smart about it. I mean I think we've proven the ability to be really disciplined and to prove execution has to follow innovation and that we're -- we pride ourselves on being a company that balances long-term sustainable growth, high-quality revenue with margin. Operator: Our next question comes from Ryan Powell with B. Riley Securities. Ryan James Powell: It's Ryan on for Naved. I wanted to ask on Dealership Mode. Obviously, you mentioned some good metrics on initial adoption. What kind of consumer insights are you able to generate from users engaging with Dealership Mode? Does this have anything to do with improving recommendations for users? And then I have a follow-up. Jason Trevisan: Sure. So well, number one, to maybe state the obvious, it's giving us a lot of information about who actually goes to the dealership, which may seem like a basic thing. But prior to this, that was oftentimes something that we had to triangulate into. And so this gives us a lot more fidelity on that. Number two is it helps us and it helps the dealer, frankly, probably more than us, understand what other cars a consumer is interested in to compare, and it helps the dealer cross-sell. I mean a good percentage, I think a lot of times, a surprisingly high percentage of consumers who buy a car through our platform at a dealer end up buying a car that is different from the one that they submitted a lead on. And so this helps the dealer in that regard. It helps us -- and again, the dealer understand financing needs, having a calculator there looking at financing options is really valuable because the dealer wants to get them in the right loan. And it just allows them to -- we have -- that's primarily AI built tool and the consumer can engage with that. And all of the things that I just talked about with Discover are happening in Dealership Mode. And so again, it's -- we call it lead enrichment here, but it keeps enriching and enhancing our leads. And so we just capture more and more data on the consumer. So consumers often cite the in-dealership experience as a time when they're trying to comprehend a lot of data, understand a lot of different things thrown at them, and this helps them do that, but it also helps the dealers, and you need to be a paying dealer to be part of this. It helps the dealers understand their customers much, much better. Ryan James Powell: Great. That's very helpful. And then secondly, on CG Discover. So it was also live in the second quarter. What do you think led to the pretty significant increase in adoption amongst users? Jason Trevisan: I mean the biggest thing is we made it more available. It was in testing mode, an earlier form of testing mode as we gain more confidence and saw the increased engagement of consumers saw all the stats that we shared on improved conversion rate, all the rich data that we were getting, we made it more available and realized pretty quickly that it was helping both consumers and dealers. And so I would say that's the primary one. It's definitely improved. We continue to work on it. It's gotten better. But I would say the biggest thing is just exposure to our audience. Like this quarter, we released it in the app. It had not been in the app before. And app is our fastest-growing channel. And so putting it on that really accelerated things. Operator: Our next question comes from Rajat Gupta with JPMorgan. Rajat Gupta: I wanted to ask a little bit zooming out on the industry backdrop. Clearly, there have been some signs of stress on profitability at some large used car dealers, some stress at like smaller independents as well. And we're also seeing some of the -- at least the publicly listed franchise dealers seeing some profit pressure in the near term. But cyclically, it looks like inventory is going up, which should be supportive for your business. I'm just curious what are you hearing from customers in terms of budgets? In response to an earlier question from Chris, you mentioned maybe they're consolidating their vendors. I'm just curious like what's the latest that you're hearing on their planning as we head into '26? And I have a quick follow-up. Jason Trevisan: Yes, I can start, and Rajat and Sam may add to it. So we oftentimes will try to distill down macro factors into just a few key points. And we've also said that our business as a subscription business and dealers need to sell cars in good times and bad is pretty resilient to a lot of the cyclical trends that exist, even seasonal trends. And furthermore, as the largest marketplace with dealers consolidating spend, we're, I think, even more immune and sound. And then lastly, I would say used cars tend to fluctuate far, far less than new cars. And so we're in a bit of a sheltered harbor in that respect, too. So we do, though, try to acknowledge macro factors. So number one, retail sales for used cars are up mildly. Number two, days on market and -- days on market are down a little bit, but frankly, call them flat, and they're actually rising sequentially right now, but they're pretty steady year-over-year, rising a little bit right now. And pricing is up a little bit, not very much. Inventory, as you just said, is up significantly. It's up double digits. Year-over-year, it's up 10%. I think, though, the biggest thing in all of that is that consumer sentiment is down. And interest rates, I mean, granted, they dropped recently, but they still remain pretty high on a relative basis. And so consumer sentiment down, interest rates still elevated, pricing not having come down and inventory up. And you've got dealers that need to move cars and need to sell cars. And oftentimes, it's better for them to market smarter than it is for them to drop prices. And we are the largest scale and typically surveyed or frequently surveyed as the best ROI. So they may have some profit pressure. Their advertising spend has steadily climbed year-over-year based on the publics anyway. And we tend to be gaining -- we are gaining share every quarter. So we don't face a lot of pressure despite what dealers may be facing as margin pressure. Samuel Zales: Rajat, sorry, I'll just add that the other immunity to short-term pressures that Jason mentioned is the breadth of our dealer base. We appeal to the small independent to the multisized independent and franchise dealer and those national accounts you speak to. Our consumer base will buy from all of those types of dealers. And so our breadth, and we're not tied to one particular segment. We have the largest base of dealers that continues to grow. And I'd just add, again, the New Car Exposure product that we launched just in the last quarter was a relevance to dealers saying, hey, there's a high price point for new cars. Can you help us be more profitable selling those new cars? So giving them an opportunity to win their make in a local market, convert consumers who are coming in saying, I might want a used car, I might want a new car. Oh, my payments might be similar on both. I'm going to buy that new car. We're helping them create the profitability in a market trend that we saw coming very quickly and built a product to get there and make them more profitable. So I think it's that breadth of dealer base that also adds to the immunity of short-term impacts and our constant growth through those cycles in the macro environment. Rajat Gupta: Understood. That makes a lot of sense. And just one quick follow-up. I hear a reiteration of the double-digit revenue growth exit rate unless it was meant to be just a fourth quarter number when you mentioned that last call. Could you just give us an update on that? And then how should we think about as we head into '26, the trade-off between growth and margins like you had in the last 2, 3 quarters? Jason Trevisan: Rajat, can you -- I got the second part of the question, relationship growth and margins in '26. Can you repeat the first part of the question about Q4? Rajat Gupta: It was on a Q4 question. I think you mentioned on the last 2 earnings calls that you expect to exit the year at double-digit revenue growth for Marketplace. I wasn't sure if that was an implied fourth quarter number or you meant exiting the year into '26 with double-digit revenue. I did not hear an update on that today. So I'm just curious if that is still on track. Jason Trevisan: Yes. I think that -- my hunch is that the comment made was in reference to Q4 being a Q4 year-over-year revenue growth rate. And -- but then if you look at what that implies for a full year, you would -- the math would illustrate that, I think, is also a year-over-year or a full year year-over-year double-digit growth rate. So I think the Q4 guide sort of answers both of those questions. And we obviously haven't commented on '26. And so from a growth and margin standpoint, I would probably cite back to comments we've made in the past couple of quarters and this quarter around our enthusiasm around the investments, the growth they're driving, the [ CarSID ] trends we talked about and the speed with which we're introducing new products. Operator: We move to our next question from Andrew Boone with Citizens. Unknown Analyst: This is [ Briana ] on for Andrew Boone. You mentioned that 80% of managed leads in October chat and text were handled by AI and that 91% of employees are using AI internally, which has reduced reliance on outsourced teams. Where do you see still the biggest friction points either internally or across dealer workflows where AI can further improve efficiency within the business? And how should we see that coming through on the margin? Jason Trevisan: And is your question related to friction in our business or at dealers' businesses? Unknown Analyst: Within dealer businesses. Jason Trevisan: Within dealer businesses. Well, I think one of the biggest areas of opportunity in the dealers business, two dimensions. One is how all of their different steps of their workflow tie together. So -- and you've heard us talk about that, and that's what we're focused on is how can they source smarter, price smarter based on retail signals that they're seeing. Dealers have, for a long time, been making purchase and appraisal decisions on wholesale data, and that's just not as useful to them. They're more interested in retail data, what can they sell the car for, how much demand does that car have today. Same with conversion. And so how all of the steps of their workflow tie together is one area. The second area is around predictability. It's -- I can use the same example, which is not only were they using wholesale data, they were using wholesale data for appraisal that was 30 days or 60 days old. And so using AI, a lot of our insights and our PriceVantage tool and other things that we're providing them now are about predicting what the environment will be, what the implications will be 30 days from now once they have the car and once they price the car and merchandise it, et cetera. So those would be the 2 dimensions. Internally, it's about speed of development and execution and quality of product. And so I think that shows up in a lot of different ways in product and engineering, but also in other parts of our company. It shows up in how well we serve our customers with our sales team and account management teams, knowing exactly what they should be talking about with our customers. And so I don't think it's friction internally. I think it's just how quickly we can build the internal agents and the internal products to be faster. At the dealer, I think it's those 2 vectors and how quickly they can change behavior to capitalize on those vectors. And so that's what we're trying to help them do with account management. We are -- and how that translates -- you asked how that translates into the results. I mean, I think that's about growth and speed of growth for us, and that's how we're thinking about it more so than a margin enhancer in the near term. Operator: Ladies and gentlemen, that concludes our question-and-answer session for today. I would now like to hand the conference over to Jason Trevisan for closing comments. Jason Trevisan: Thanks. I would just like to thank all of our colleagues certainly here at the company, all of our customers and everyone who joined us on this call tonight. Have a great evening. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Welcome to Chesapeake Utilities Corporation's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Lucia Dempsey, Head of Investor Relations. Lucia Dempsey: Thank you, and good morning, everyone. Today's presentation can be accessed on our website under the Investors page and Events and Presentations subsection. After our prepared remarks, we will open up the call for questions. On Slide 2, we show our typical disclaimers, while I remind you that matters discussed on this conference call may include forward-looking statements that involve risks and uncertainties. Forward-looking statements and projections could differ materially from our actual results. The safe harbor for forward-looking statements section of our 2024 annual report on Form 10-K and in our third quarter Form 10-Q provide further information on the factors that could cause such statements to differ from our actual results. Additionally, the company evaluates its performance based on certain non-GAAP measures, including adjusted gross margin, adjusted net income and adjusted earnings per share, and the information presented today includes the appropriate disclosures in accordance with the SEC's Regulation G. A reconciliation of these non-GAAP measures to the related GAAP measures has been provided in the appendix of this presentation, our earnings release and our third quarter Form 10-Q. Here at Chesapeake Utilities, safety is our first priority. We start all meetings with a safety moment, and we'll do so here with a moment on kitchen and fire safety as highlighted on Slide 3. The holidays are coming up, which often means more time gathering together and cooking with friends and family. This makes it a great time to remember safe kitchen practices, particularly as Thanksgiving is the leading day for home cooking fires. Be extra vigilant and aware to keep kids, pets and flammable materials away from heat and open flames, ensure any burned food or materials are completely saturated with water before throwing away and remember to use a metal lid, sheet pan, baking soda, salt or a fire blanket to extinguish grease fires. I'll now introduce our presenters today. Jeff Householder, Chair of the Board, President and Chief Executive Officer, will provide an update on this quarter's key accomplishments and highlights, our full year guidance metrics and our capital growth program. Jim Moriarty, Executive Vice President, General Counsel, Corporate Secretary and Chief Policy and Risk Officer, will provide updates on our regulatory activity, our ongoing business transformation efforts and our stakeholder engagement. And Beth Cooper, Executive Vice President, Chief Financial Officer, Treasurer and Assistant Corporate Secretary, will discuss our financial results, financing updates and investment highlights. With that, it's my pleasure to turn the call over to Jeff. Jeffrey Householder: Thank you, Lucia, and good morning. We appreciate you joining our discussion today. The highlights on Slide 5 demonstrate how we've continued to deliver with purpose over the last few months. Our growth trajectory continues, and we've expanded our capital investment program. A number of our 2025 projects are already in service and producing significant margin. We've finalized multiple positive regulatory filings and strengthened our balance sheet in support of future growth. As shown on Slide 6, we reported adjusted earnings per share of $0.82 for the third quarter of 2025 and $4.06 year-to-date, an 8% increase over the same period last year. As you know, the third quarter always contributes the smallest percentage of our full year earnings, so my remarks will focus on our performance in the first 9 months of 2025. Year-to-date, we've achieved double-digit growth in adjusted gross margin, operating income and adjusted net income relative to the same period in 2024. That performance is a testament to our focus on driving growth, effectively working with our regulators and operating efficiently to meet our customers' needs. Our results continue to align with our expectations. So we are reaffirming our full year 2025 EPS guidance of $6.15 to $6.35 per share, as shown on Slide 7. As we've previously indicated, this EPS range does assume we reach a successful outcome for 2025 in the FCG depreciation study proceeding, which Jim will discuss further on today's call. On the capital investment side, we continue to invest capital at a run rate of over $1 million a day with $336 million already invested in the first 9 months of this year, including $123 million invested in the third quarter. Given this pace, we are again increasing our 2025 full year capital expenditure guidance to $425 million to $450 million, a $25 million increase over the top end of our prior range. I'll now shift to Slide 8 to discuss the increase in customer demand for natural gas that's driving our strategic investment in some of the fastest-growing regions of the country. Both of our core service areas generated another quarter of above-average residential customer growth, 4.3% in Delmarva, 3.9% for Florida Public Utilities and 2.1% for Florida City Gas. I'll mention just a couple of examples to illustrate the demand for natural gas across our service areas. We're in the early stages of building out natural gas distribution for an underserved area in Southern Delaware that includes 2,000 new homes in Ellendale, Delaware. We also recently became the natural gas provider for a new community development in Port St. Lucie, Florida, which has begun to construct the first of 6 phases of what will ultimately be a community with hundreds of new homes. Last month, we also expanded propane distribution to a fleet of Greensboro school district buses, which confirms our broader propane growth strategy in North Carolina. We also see additional growth opportunities in Ohio, which has become fifth in the nation for data center potential as ranked by Ohio's Economic Development Corporation. The Ohio opportunity is supported by significant natural gas production in the state and constructive governmental and regulatory frameworks. The opportunities we have to serve increasing customer demand, improve system reliability and operate efficiently are the basis for our overall growth strategy, which in turn drives sustainable earnings. We remain committed to increasing shareholder value by focusing on the 3 pillars of our growth strategy, as shown on Slide 9, prudently deploying capital, proactively managing our regulatory agenda and continually transforming our business operations to enhance safety and customer service and support future growth. Successful execution of these 3 pillars will enable us to maintain top quartile growth and total shareholder return. Slide 10 provides some highlights of our 2025 capital program. Construction projects overall remain on track and on budget and more than 400 gas distribution projects have been placed in service through the first 9 months of this year. Most importantly, this capital investment is generating significant gross margin, $14 million in the third quarter, nearly $34 million in the first 9 months of this year and $50 million expected for full year 2025. Given our pace of investment thus far and our additional opportunities ahead, we are again increasing our full year 2025 capital expenditure guidance, adding $25 million to the top end of our prior range for an updated range of $425 million to $450 million. Approximately $15 million of the increase is related to initial spending on our multiyear enterprise resource planning process and about $10 million is related to recently approved Eastern Shore natural gas system improvements. This updated range reflects capital investment of approximately $800 million between last year and this year, a significant increase that reflects the many growth opportunities across all our businesses. I'll now provide an update on WRU, our LNG storage facility in Bishopville, Maryland, as shown on Slide 11. Construction is well underway. Tanks are in place. We've been pouring a lot of concrete. The system control building has been erected and the majority of the equipment needed to complete the facility is now on site. Last month, we also successfully completed our first PHMSA inspection. This project remains the lowest cost infrastructure option to deliver affordable energy and protect against weather-related disruptions in the southernmost portion of our Delmarva service area. We continue to target bringing the project online in mid-2026, dependent on construction completion and final FERC approval. As shown in detail on Slide 12, all of our major transmission capital projects are advancing as expected with more than half now in service. We forecast these projects to contribute approximately $23 million of gross margin in 2025 and double that amount or $46 million in 2026. Shifting to Slide 13. The capital projects included on this slide support our 5-year capital investment plan of $1.5 billion to $1.8 billion through 2028. At this point, we've identified at least $1.4 billion of the capital plan with a number of projects already in service or under construction. Most importantly, approximately 70% of that investment requires no additional regulatory approval or support. Not yet included in this forecast is the investment in our full ERP project as well as a number of projects that are still under exploration and development, as shown on Slide 14. We continue to explore a number of additional potential expansion opportunities, including serving the space industries in Virginia and Florida, expanding our systems in the southern part of Delmarva and Florida and meeting incremental demand for our Marlin virtual pipeline services to transport RNG, CNG and LNG. In just the last 2 weeks, I met with Florida Governor DeSantis and members of our leadership and external affairs teams have met with the Maryland and Delaware governors and their teams. We continue to partner with local state and federal electric representatives to advance the design and construction of much needed energy infrastructure in those states. Maintaining strong relationships with all stakeholders and actively participating in energy coalitions advocating for a resilient and affordable energy future is key to driving these expansion projects forward to meet growing energy demand for years to come. With that, I'll turn to Jim to discuss our regulatory strategy and business transformation initiatives. James Moriarty: Thank you, Jeff, and good to be with you all this morning. I'll start with Slide 15 as I provide some updates on our regulatory activity. After a great deal of effort, we now have permanent rates in effect for our Delaware, Maryland and Florida electric jurisdictions following successful conclusion of the 3 rate cases that we filed last year. Last month, we also reached settlement on the rate design and tariff-related elements of the Delaware rate case. And on October 15, the Delaware Commission approved that settlement. Altogether, updated rates are driving $13.1 million of margin this year and $18.2 million of margin in 2026, a testament to our proactive strategy, constructive relationships with regulators and our highly diligent and dedicated internal regulatory team. Slide 16 provides an update on the one remaining regulatory filing still outstanding, our traditional depreciation study filing for Florida City Gas. Following unexpected regulatory delays, we agreed to amend the filing from a proposed agency action or PAA proceeding to a standard hearing process. This transition provides for a more structured and traditional process for consideration of the filing and an updated schedule. Under the new schedule, the company submitted testimony in early October, restating our request for a 2-year amortization of the excess depreciation reserve retroactive to January 1, 2025. Per the filing we made earlier this week alongside updated testimony, the excess reserve is now $19 million, primarily reflecting updates to expected useful lives for certain asset classes. On Wednesday, the State of Florida Office of Public Counsel filed testimony objecting to the company's proposal and recommending that the existing depreciation rates remain in effect until the company files a new depreciation study as part of a rate case at a future date. The company will be filing rebuttal testimony later this month to address these arguments. Staff testimony will follow next week, and the hearing is scheduled for December 11. The process is expected to conclude no later than February 2026, but could be completed earlier if all parties are able to reach a settlement. We are focused on securing successful recovery of the excess depreciation to support our 2025 full year results and will provide future updates as available. I'll now turn to Slide 17 to provide an update on our business transformation efforts, which is the third pillar in our growth strategy for a reason. Transformation is the engine that enables technology, systems and processes to evolve in order to maintain our track record of growth as we become a much larger organization. In the last few months, we've continued to make strides with upskilling our team, including attracting additional talent in finance, strategic planning, information technology, change management and human resources. We are completing the final preparation stages of our enterprise resource critical project that will have significant transformational impacts across the organization as we implement improvements in asset management, supply chain, human resources, accounting and finance. We expect to invest approximately $15 million in this project this year, and we'll provide total capital spend for this multiyear project on our next call. Slide 18 provides a couple of updates on our engagement with stakeholders. In September, we were pleased to welcome Lisa Eden as our newest member of the Board of Directors. Lisa brings extensive experience in finance, strategic planning, talent management and information technology, having recently retired as Senior Vice President and Chief Financial Officer at TXNM Energy, Inc. We look forward to Lisa's valuable insights and contributions in the years to come. We were also honored to receive several recognitions in the last few months. First, our Delmarva natural gas distribution business and our Sharp Energy propane distribution business were recognized as Stars of Delaware as voted by the Delaware Daily State News readers. Second, Chesapeake Utilities was also named a 2025 Champion of Board Diversity for the third consecutive year by the Forum of Executive Women. And finally, we were named Employer Champion of the Year for Kent County by the Delaware Department of Labor State Rehabilitation Council. These awards reflect our unbroken commitment to excellence and inclusion of all members of our communities as we provide reliable and affordable energy solutions that enable families, businesses and the communities we serve the opportunity to flourish. Our colleagues also continue to support the communities in which they live and work through the contribution of their time and resources. Through September, our teammates have volunteered over 1,500 hours and have contributed over $488,000 in charitable donations and corporate sponsorships, supporting organizations that align with our 4 focus areas of giving: safety and health, community development, education and environmental stewardship. With that, I will turn the call to Beth for a more detailed discussion of our financial results. Beth Cooper: Thanks, Jim, and good morning, everyone. As shown on Slide 19, our financial results for the third quarter of 2025 continue to demonstrate steady growth that supports our full year growth targets. Adjusted gross margin was approximately $137 million, up 12% and adjusted net income was approximately $20 million, up 8% from the third quarter of 2024. We also sustained growth in adjusted earnings per share of $0.82, a 3% increase over the third quarter of last year, which includes an increase of 1 million more shares outstanding compared with a year ago. I'll now provide some additional detail on the key drivers of our third quarter performance as shown on the adjusted EPS bridge on Slide 20. Continued demand for natural gas drove $0.22 of incremental adjusted EPS, including $0.17 related to transmission capital projects and $0.05 of distribution growth across our service areas. Margin from our infrastructure program investments contributed an additional $0.12 per share this quarter and permanent rates from our 3 rate cases added $0.11 in third quarter 2025 adjusted EPS. Our unregulated businesses generated net incremental earnings of $0.09 per share, largely driven by continued growth in our Marlin Virtual Pipeline transportation business. These gains were partially offset by a few factors, including $0.14 per share of increased depreciation and amortization expense, driven by growth in total assets as we actively deploy capital and $0.10 again from the absence of an RSAM benefit recorded in the third quarter of 2024. We also incurred additional operating expenses of $0.12 per share this quarter, driven by incremental facilities, maintenance, insurance and employee-related expenses. However, we continue to drive operational efficiencies, leading to operational expenses at only 34% of adjusted gross margin in the third quarter of 2025 relative to 37% in the same period last year. Our results were also impacted by 15% fewer cooling degree days this quarter relative to the third quarter a year ago, which drove slightly lower consumption in our Florida electric business. Financing activity, including our debt and equity issuances over the last 12 months, reduced adjusted EPS by $0.07 per share. And finally, some changes in our billing accruals also impacted the third quarter of this year from a timing perspective, but will not impact full year results. Shifting to Slide 21. Adjusted gross margin for our Regulated segment was approximately $115 million this quarter, up 12% from the third quarter of last year. This growth continues to be driven by strength in our core business operations, organic natural gas transmission expansions, which are a direct result of distribution growth as well as increased rates following the conclusion of our 3 rate cases. Our focus on cost management enabled similar growth in our regulated operating income, up 11% to approximately $49 million in the third quarter of 2025. Our unregulated Energy segment also demonstrated strong growth relative to the third quarter of last year, as shown on Slide 22, with adjusted gross margin up 13% to approximately $22.5 million. Our Marlin Gas Services business continues to meet the rapid growth in demand for virtual pipeline transportation, driving $3.1 million of additional gross margin when combined with the incremental contribution from Full Circle Dairy in the third quarter of this year. This growth was supported by increased performance from Aspire Energy, but tempered by changes in margins and service fees within our propane operations for the third quarter, leading to an overall gross margin increase of $2.6 million. While higher than the same period a year ago, margins did not fully cover the normal operating costs in the quarter as is typical during the least weather-sensitive quarter of the year. I'll now move to Slide 23 to review our capital structure and financing activities. At September 30, our equity capitalization was 49% with $83.1 million of equity issued through the first 9 months of the year. In the third quarter alone, we issued approximately 126,000 shares with an additional 105,000 shares issued in October 2025. We also completed the previously announced $200 million issuance of new long-term unsecured senior notes in the private placement debt market with $150 million funded in August and $50 million funded in September of this year at a blended 5.04% coupon. These capital raises support our overall financing strategy, which ensures we are committed to superior balance sheet strength. We also continue to maintain strong liquidity and sufficient capacity to support growth with availability of 87% of our total capacity of $755 million between our revolving credit facility and private placement shelf facilities at the end of September 2025. Moving to Slide 24. Alongside our equity and debt plans, our dividend policy continues to be a key component of our capital allocation strategy as we fund growth capital investment to drive earnings growth and overall total shareholder return. Our Board has approved a dividend payout target range of 45% to 50%, allowing us to retain 50% to 55% of earnings, which has been a meaningful part of our financing plan. We also remain committed to consistent dividend growth. Our annualized dividend per share of $2.74 reflects a 7% annual increase from 2024 and supports a long-term dividend CAGR of 9% while still facilitating significant earnings reinvestment. We will continue to support long-term dividend growth while reinvesting significant earnings back into the company, enabling our investors to benefit from both long-term top quartile earnings and strong dividend growth. As we've discussed many times, we are committed to a long-term earnings per share compounded annual growth rate of 8% through 2028 to drive top quartile shareholder returns, as shown on Slide 25. Our third quarter results align with our full year 2025 adjusted EPS guidance range of $6.15 to $6.35 per share, inclusive of a successful outcome on the Florida City Gas depreciation study as both Jeff and Jim have previously discussed. This range represents an EPS growth rate of 14% to 16% over 2024 or on average, approximately 8% to 10% annually over the last 2 years. Before we shift to Q&A, let's review the unique differentiators as shown on Slide 26, that enable us to drive significant shareholder value in 2025 and for years to come. We remain committed to delivering on our promises. We recognize that our consistent track record has driven expectations for continued strong growth, both in terms of performance and valuation. We will continue to execute on our 3 pillars of growth, enabled by continued infrastructure reliability improvements and growing demand for natural gas throughout our service areas and supported by our increased 2025 capital guidance range of $425 million to $450 million. Our disciplined approach to financing, including ensuring balance sheet strength, upholding investment-grade credit metrics and sustaining our target capital structure keep us well positioned to address market volatility as we fund our growth plan. All of these elements drive our ability to reach new heights, both in 2025 and beyond. We look forward to delivering with purpose and driving long-term value for all stakeholders. We sincerely appreciate your continued interest, support and investment in the company. Thank you for joining our call today. With that, we'll take your questions. Operator? Operator: [Operator Instructions] We'll take our first question from Barclays. Nicholas Campanella: This is Nick Campanella. So I wanted to ask on the depreciation study. Just you kind of show in slides that the decision could be anywhere from December to February. I think you're very clear that this is included in guidance. Just ability to kind of overcome that if you do get a decision, let's say, in January or February? Are you still able to kind of hit the range? Or is it fully predicated on that outcome? And then how would you kind of quantify what's in fiscal '25? Beth Cooper: So we have -- Nick, as we've talked about previously, achieving the guidance range would assume that we do get a successful outcome from that rate -- from that proceeding. And where we actually fall within the range will ultimately be based on where that outcome is, meaning when you look at -- we have filed for a 2-year amortization period. The standard is 5 years. So that will come into play. But as long as there is an outcome from the proceeding from the hearing in December, and we get a final order in time to be able to record it for 2025, that will determine ultimately the timing of the period as well as the amount that would enable us to achieve the guidance range. Nicholas Campanella: And if it doesn't, is it just that you're at the lower end? Or I was just trying to parse through what you were saying there. And just to be completely clear, it's the $19 million that's kind of shown in slides, and I would just take half of that. Beth Cooper: Yes, that is correct. And so achievement of that would enable us to be within the range and enable -- so there's some other factors certainly that we have to -- the reason why we're not saying exactly where it will depend on, again, the period of time, the ultimate conclusion of what gets approved in terms of amount. And then certainly, there's other factors that could impact our results, but that is the clear differentiator to us being within the range or not being within the range. And I would add if for some reason, right, it's much lower than expected, we would anticipate that we're going to be filing a rate case next year anyway. So we see dollars there that need to be part of the final outcome. We're very confident in the numbers that we've filed as being the excess reserve. And so we believe we're well positioned, whether it's through a depreciation study or ultimately, if we have to come back in some form of rate proceeding as well next year. Nicholas Campanella: That's great. Really appreciate that clarity. And then I know Jim just kind of talked about the process overall in the prepared remarks and just brought up the prospects of settlement. But just as you've seen kind of testimonies roll in, just how would you kind of frame the prospects to -- for parties to kind of come to a settlement before December? And are you really trying to achieve an all-party settlement? Or could this be more partial? Beth Cooper: Yes, Jim, please go ahead. James Moriarty: Nick, this is Jim. As you know, it's very difficult to predict the process trying to land a case like this or if the parties will even entertain a potential settlement. We're working very hard if there were to be one. Our preference, of course, would be that it'd be unanimous. So I really can't say more than that, Nick, other than our historical approach would be try and resolve something, if at all possible. Operator: Our next question comes from Tate Sullivan with Maxim Group. Tate Sullivan: First to follow up on a comment from earlier in the call. Jeff, did you say that you had 400 new distribution projects in service in the last 9 months? Or did I mishear that? And if I did not, what does that -- what qualifies as an individual project, please? Jeffrey Householder: Yes, that's sure. Those are of a variety of different sizes. It is 400, just to give you some idea of the significant number of projects that we are moving forward on. Those range from distribution level subdivision projects up into some of the transmission work that we do. So it really is just a compilation of the construction activity that's going on throughout the company. And it's a substantial increase over what we would typically see. And so some of that's reflective of the fact that we now have Florida City Gas in the fold and are doing construction activity on that system. And some of it continues to reflect the very substantial growth, especially in residential projects that we see both in Delmarva and in Florida. So yes, I didn't mean to -- that's not all $1 billion transmission projects, but it's a lot of things that add up to a significant amount of work and a substantial amount of customer growth. Tate Sullivan: Yes. I mean the scale of organizing all that. I mean, the previous year's period of 9 months, I mean, I imagine what, roughly 200 to 300 projects. Would that be fair? I mean just... Jeffrey Householder: Yes, maybe even less. Yes, it's a significant amount of work, and our guys have done a really great job. We've spent a fair amount of time over the last couple of years in that particular area, trying to consolidate our construction teams, trying to make sure that we had different tools and systems that would allow us to track those projects in a better way, improving some of the supply chain issues. I mean all of that has kind of come together intentionally to allow us to be able to actually move through that level of project. Tate Sullivan: And separately, you called out the Ohio data center growth in one of the slides. And just to refresh on the business, your Ohio business is an unregulated business -- energy segment, I believe. And -- can you talk about the type of infrastructure? Is it pipelines to backup generators, pipelines to isolated power plants? Or can you talk about that opportunity? Jeffrey Householder: On the data center side? Tate Sullivan: Yes. Jeffrey Householder: Yes. What we actually have one announced project with AEP in Ohio right now to build a pipeline to serve a data center that AEP is building the project itself. We have a number of other possibilities out there that we're looking at. And I mean, we're in the same boat, I think, with a lot of people across the country. As you well know, there are a lot of data center possibilities out there. Everybody is trying to understand where these things might actually land. We've seen, as we mentioned in the remarks, significant activity in Ohio. It seems to be one of those places where folks like the political regulatory climate. They like the fact that there are in-state gas supplies that are possible and there are transmission opportunities there that can bring that gas to the projects as well as some large electric utilities that seem to be eager to pursue them. So we hope to continue to do business in Ohio with the possibility of adding additional transmission assets there. Tate Sullivan: And that's all of Ohio has been unregulated. Is that correct? Jeffrey Householder: That's correct. I guess we have -- I should probably clarify that -- we have a small transmission pipeline that's sort of quasi-regulated in Ohio. But we don't have regulated distribution assets there in the sense that we do on Delmarva, Florida. Tate Sullivan: Okay. I asked this question because I saw an acquisition in Ohio territory as well recently in the industry and thank you for all the comments. Operator: Our next question comes from Paul Fremont with Ladenburg. Paul Fremont: I guess my first question, Beth, just to clarify, is the cutoff date for a Retroactive treatment of the amortization of the depreciation reserve, is that December 31? Or is that -- is it a different date? Beth Cooper: So basically, Paul, as long as we would have an order that would be in the first week or 2 in February, we would be able -- because it would be a subsequent event and the magnitude of that subsequent event, it could be factored into our 2025 earnings. Paul Fremont: Great. So it could be as late as the second week of February? Beth Cooper: It could be as late as that. When it gets beyond that, it would be very challenging for us at that point. So yes, as long as an order is received, we can go back and we have worked through and evaluated that on the accounting side. Mike Galtman and his team have researched that. We've talked to experts around that. And so yes, it could go back and be included because of the magnitude of that event. Paul Fremont: Great. And then my second question is, can you help us split between the 22 that you had initially filed for and the 19 amended request? Beth Cooper: Yes. So the process, Paul, as we started, and it actually -- it happens for all the parties. When you file that -- when you're filing that initial filing, you are certainly filing that with the thought that it is comprehensive. But as you continue to go through and look at the data, and we're scrubbing the data as we're moving through the process, ultimately, there are positive adjustments or things that you may find and sometimes there are updates that can be downward. And in this particular case, the net effect of the adjustments that we found among the various different asset categories or classes ultimately resulted in a decline. We have had our work papers reviewed by some of the experts that we utilize -- but it happens. And so as we continue to scrub the data within our systems, we feel very good about that $19 million. But it is us just constantly going through and validating the data. Operator: [Operator Instructions] We'll go next to Alex Kania with BTIG. Alexis Kania: Maybe just a question just thinking about the -- maybe the year-end earnings call. Has there been just any kind of change in thinking about what the roll forward, what updates you may end up giving on the CapEx plan? I know there's some discussion just about rolling in some of the projects that were talked a little bit about earlier on the call as well as the, I guess, the ERP or business transformation investments. But do you still consider planning on just keeping kind of the '28 long-term target? Or is there a sense maybe you want to do a more kind of full roll forward? Beth Cooper: Thank you. Great question, Alex. So number one, I think right now, we happen to be in the process where we're working on and finalizing our 2026 budget. And that certainly, that is inclusive of our capital projects. And as we start the year, we have a really good sense and even years prior to that as we're moving through looking at the 5 years, it's a constant updating of CapEx guidance as we're looking at it. So as I think about February, what you will definitely see is you will see us come out with our projection of our capital spend for the year that will be reflective of an updated estimate for our ERP process and plan. And so I think that will be something new that we will include. Our expectation right now is that we will continue to hold to the $1.5 billion to $1.8 billion through 2028. And there is some likelihood in February of 2027 that we will revisit that and decide whether there's just an update or whether there's an extension of guidance from there. But most likely, we don't think it will be next year, but it will likely be the following year. Alexis Kania: Great. And then just a follow-up on kind of the underlying growth of the businesses. It's just very notable that the Delmarva growth is even trending ahead of Florida. year-to-date. Do you -- what's kind of the view about how long that maybe could persist? I mean it's obviously a good thing to see. I'm just kind of curious about what the kind of current views are just in terms of trajectory of, let's say, in the Mid-Atlantic versus the Florida franchises. Beth Cooper: Well, thank you. Great question. I happen to be -- and I'm certainly not saying this statistic is in true. I can't confirm it or deny it, but I happened to be in an event not long ago where the speaker at this particular setting was talking about Sussex County, which is really the county in Delaware where we're seeing the most growth because it's at our resort and beach areas. And they were talking about some of the statistics they had seen, right, show that, that county is one of the fastest-growing counties in the entire country. And I think we're continuing to see that. That's reflected in our numbers. There's a substantial build-out that's occurring that for right now, we continue to see occurring into the foreseeable future. You had Jeff talk about on the call today, actually what I would call more of a bedroom community to the beach areas. We're seeing growth actually start up in some of these small communities that I, as a lifetime resident of the state would not have expected some of these areas to be kind of natural extensions necessarily of the beach area, but the quality of life in the area that's around here, I think, is continuing to bring more people in. So I think for right now, Alex, we're continuing to expect strong growth in that area. I don't think that takes away at all from the strong growth, though that we're also seeing in Florida. And one of the things that you saw us do in this particular release, and we're trying to make sure it stands out is that the areas that our Florida legacy business actually serves have tremendous growth that's also significantly above the industry average. And we're seeing growth with even in Florida City Gas also pick up as well. So we're excited about the growth prospects and continue to be. And hopefully, those, as always, will continue to also result in some additional pipeline -- upstream pipeline capacity needs as well. Operator: This does conclude today's question-and-answer session. I would now like to turn the program back over to Jeff Householder for any additional or closing remarks. Jeffrey Householder: Well, thank you for joining our call this morning. We, as always, appreciate your continued interest in Chesapeake Utilities. I have to say that I like where we are this year, less than 2 years from the transformational FCG acquisition, double-digit growth in earnings. We've more than doubled our pre-FCG capital investment, positive results in 3 rate cases, significant progress in our modernization business transformation efforts and really excellent outlooks for 2026. So we look forward to seeing many of you at the EEI Financial Forum in Florida in a couple of days and safe travels if you're headed to Florida. Goodbye. Operator: Thank you. This concludes Chesapeake Utilities Corporation's Third Quarter 2025 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.
Operator: Good day, and welcome to the Prospect Capital First Fiscal Quarter 2026 Earnings Release and Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to John Barry, Chairman and CEO. Please go ahead. John Barry: Thank you, Danielle. Joining me on the call this morning are Grier Eliasek, our President and Chief Operating Officer; and Kristin Van Dask, our Chief Financial Officer. Kristin? Kristin Van Dask: Thanks, John. This call contains forward-looking statements that are intended to be subject to safe harbor protection. Future results are highly likely to vary materially. We do not undertake to update our forward-looking statements. For additional disclosure, see our earnings press release and 10-Q filed previously and available on our website, prospectstreet.com. Now I'll turn the call back over to John. John Barry: Thank you, Kristin. In the September quarter, our net investment income or NII, was $79.4 million or $0.17 per common share. Our net asset value was $3 billion or $6.45 per common share. At September 30, our net debt to total assets ratio was 28.2%. Unsecured debt plus unsecured perpetual preferred was 80.8% of total debt plus preferred. We are announcing monthly common shareholder distributions of $0.045 per share for each of November, December and January. Since our IPO 20 years ago through our January 2026 declared distribution, we will have distributed over $4.6 billion or $21.79 per share. Our preferred shareholder cash distributions continue at their contracted rates. We continue to make progress repositioning our business, including rotation of assets into an increased focus on our core business of first-lien senior secured middle market loans with our first lien mix increasing 701 basis points to 71.1% from June 2024. We are focusing on new investments in companies with less than $50 million of EBITDA, including companies with smaller funded private equity sponsors, independent sponsors and no third-party financial sponsors where we see less competition, better returns and more protection. Reduction in our second lien senior secured middle market loans with our second lien mix decreasing 292 basis points to 13.5% from June 2024. Exit of our subordinated structured notes with our subordinated structured notes mix decreasing 808 basis points to 0.3% from June 2024. Exit of targeted equity-linked securities, including real estate with 3 additional properties sold since July 1, 2025, and certain corporate investments, including the sale of significant assets within Echelon Transportation in July 2025. And with remaining assets expected to be sold in the December 2025 quarter with other exits targeted. Enhancement of portfolio company operations and greater utilization of our cost-efficient floating rate revolver, which largely matches our floating rate assets. Thank you. I will now turn the call over to Grier. Michael Eliasek: Thank you, John. Over the past 2 decades, Prospect Capital Corporation has invested approximately $13 billion in nearly 400 exited investments out of over $22 billion in nearly 500 total investments that have earned a 12% unlevered investment level gross cash internal rate of return or IRR to Prospect Capital Corporation. This multi-decade time period includes the GFC and has been dominated in general by low prevailing market interest rates. As of September 2025, we held 92 portfolio companies across 32 different industries with an aggregate fair value of $6.5 billion. We primarily focus on senior and secured debt which was 85% of our portfolio at cost as of September. Our middle market lending strategy is the primary focus of our company. With such strategy as of September 2025, representing 85% of our investments at cost, an increase of 864 basis points from June of 2024. In our middle market lending strategy, we've continued our focus on first lien senior secured loans during the quarter, with such investments totaling 81% of originations during the quarter. Investments during the quarter included a new investments in the Ridge, also known as Healthcare Venture Partners, a provider of health care services and other follow-on investments in existing portfolio companies to support acquisitions, working capital needs, organic growth initiatives and other objectives. We've substantially completed the exit of our subordinated structured notes portfolio as of September 2025. With such portfolio representing only 0.3% of our investment portfolio at cost, which represents a reduction of 808 basis points from 8.4% as of June 2024. In our real estate property portfolio at National Property REIT Corp, or NPRC, which represented 14% of our investments at cost as of September 2025 and which is focused on developed and occupied cash-flowing multifamily investments. Since the inception of this strategy in 2012 and through October 31, 2025. We have now exited 55 property investments that have earned an unlevered investment level, gross cash IRR of 24% and cash-on-cash multiple of 2.4x. We exited three property investments since June 2025, for approximately $59 million of net proceeds to Prospect Capital Corp. and then earned an unlevered investment level gross cash IRR of 23% and cash-on-cash multiple of 2.3x. The remaining real estate property portfolio includes 55 properties, and paid us an income yield of 5.1% for the September quarter. Prospect's aggregate investments in NPRC included a $320 million unrealized gain as of September. We expect to continue to redeploy future asset sale proceeds primarily into more first lien senior secured loans with selected equity-linked investments. Prospect's approach is one that generates attractive risk-adjusted yields and our performing interest-bearing investments, we're generating an annualized yield of 11.8% for the quarter ended September. Our interest income in the September quarter was 97% of total investment income, reflecting a strong and high-quality recurring revenue profile for our business. Payment in kind income for the quarter ended September 2025 was reduced by over 50% from the quarter ended September 2024. Non-accruals as a percentage of total assets as of September stood at approximately 0.7% based on fair market value. Investment originations in the September quarter aggregated $92 million and were comprised of 72% middle market investments with a significant majority of first lien senior secured loans. We also experienced $235 million of repayments and exits as a validation of our capital preservation objective, resulting in net repayments of $143 million. Thank you. And I'll now turn the call over to Kristin. Kristin? Kristin Van Dask: Thanks, Grier. We believe our prudent leverage, diversified access to matched book funding, substantial majority of unencumbered assets, weighting toward unsecured fixed rate debt and avoidance of unfunded asset commitments all demonstrate balance sheet strength as well as substantial liquidity to capitalize on attractive opportunities. Our company has locked in a ladder of liabilities extending 26 years into future. On October 30, 2025, we successfully completed the institutional issuance of approximately $168 million in aggregate principal amount of senior unsecured 5.5% Notes due 2030, which mature on December 31, 2030. We expect to use the net proceeds of the offering, primarily for the refinancing of existing indebtedness. Our unfunded eligible commitments to portfolio companies totaled approximately $36 million, of which $15 million are considered at our sole discretion, representing approximately 0.5% and 0.2% of our total assets as of September, respectively. Our combined balance sheet cash and undrawn revolving credit facility commitments stood at $1.5 billion as of September, and we held $4.2 billion of our assets as unencumbered assets, representing approximately 63% of our portfolio. The remaining assets are pledged to Prospect Capital Funding, a nonrecourse SPV. We currently have $2.12 billion of commitments from 48 banks, demonstrating strong support of our company from the lender community with the diversity unmatched by any other company in our industry. The facility does not mature until June 2029. And and revolves until June 2028. Our drawn pricing continues to be SOFR plus 2.05%. Outside of our revolver, we have access to diversified funding sources across multiple investor types and have successfully issued securities in an array of markets. Prospect has issued multiple types of unsecured debt institutional nonconvertible bonds, institutional convertible bonds, retail baby bonds and retail program notes. All of these types of unsecured debt have no financial covenants, no asset restrictions and no cross-defaults with our revolver. We have tapped the unsecured term debt market on multiple occasions to ladder our maturities and to extend our liability duration out 26 years with our debt maturities extending through 2052. With so many banks and debt investors across so many unsecured and nonrecourse debt tranches, we have substantially reduced our counterparty risk. At September 30, 2025, our weighted average cost of unsecured debt financing was 4.54%. Now I'll turn the call back over to John. John Barry: Thank you, Kristin. We can take calls now, questions now. Operator: [Operator Instructions] The first question comes from Finian O'Shea from Wells Fargo. Finian O'Shea: I want to ask about the equity linked rotation. You've made some good progress there as you sort of embark on that. But seeing if you can give us color on how far it goes and what are maybe the sacred cows within a lot of that's in the control book, particularly one area, consumer finance, you're still putting money in. Those companies are doing well. But are there -- is that sort of what's supposed to remain? And/or how much or how much of the rest is sort of a candidate to move versus what you view as a strategic holding? Michael Eliasek: Sure. I'll take that. Go ahead, John. John Barry: No, no, please take it Grier. Michael Eliasek: Okay. So Finian, yes, we do like to make first lien and senior and secured loans to companies. And we do really increasing percentage of time like to have some portion of our paper as equity linked. Ideally without a trade-off involved, the best type, of course, is penny warrants, the free type. And then the next best is convertible debt that is still senior and secured, has the cash pay coupon pledgeable to our facility, but then has ups as well and then various types of convertible preferred that have coupons and liquidation preferences on top of third-party capital all the way to a some heads up capital. So our strategy is one of evaluating each investment in the book and looking at it on a foregone yield and foregone IRR. Including giving effect to accretion through our roughly S200 secured credit facility for those foregone returns at a price that we think is actionable with a third-party purchaser in the market that's the guidepost we use to make decisions to optimize the portfolio. And what that leads us to is to look to divest over time generally when you've had appreciated equity-linked assets and we're looking forward and maybe there's upside in the future, but not quite as much as we're not foregoing as much. And we're also paying careful attention to foregone yield as well, wanting to rotate and drive and optimize increase revenue, increase income for our business. The best candidate for that in our portfolio is real estate. I mentioned we've sold 55 properties. We have another 50 or so to go. Returns on recent exits sort of backward looking are fairly similar to the overall returns we've generated on the other 50 or so exits with IRRs in the low 20s and a multiple of invested capital generally above 2x cash on cash. But the extant book after giving effect within real estate to appreciation of value is generating about a 5% income yield. That, of course, is much lower than what we can achieve in the market for new originations. We are focused on smaller companies increasingly sub-$50 million EBITDA and really sub-$25 million to $35 million because there's so much competition in the upper middle market that is bid away spreads, that is bid away floors, that is bid away covenants, that is bid away earnings quality, that is bid away on strong documents, so many problems there that we intensely dislike. And so we're focused on the harder to originate but well worth it when you do smaller end. Our last dozen or so deals closed have had an average spread in the 700s compared to the upper middle market, which is decided with a 4 handle by comparison. We're getting much higher floors, generally above 300 basis points on those deals and look at what's happening with short-term rates were down to about 375 and folks are cutting distributions out there experiencing lower yields. What went up can and almost certainly will go down again from a floating rate perspective. So we can put money out at, call it, 10% to 12% unlevered in the lower middle market then we lever that in our S200 facility at a 50%, 60% advance rate. And we're talking about a 15% plus income yield return before giving effect to any equity-linked benefit. That 15% of course, is vastly superior on an income yield perspective, to the 5% I was quoting on real estate. So we view that as an earnings powerhouse that we're unleashing through that rotation that we're pursuing that doesn't mean we're going to dispose of the real estate portfolio liquidity split. We're doing so on a thoughtful, value maximizing basis on a bottoms-up look at different geographies, different properties, we concluded you maximize value by selling individual assets or smaller groups of assets as opposed to the whole. There's just a lot more buyers who can transact with individual assets as opposed to cut a multibillion dollar check. Usually, those guys look for significant bargains that were not too interested in parting with. So that's what's going on with real estate. We're seeing solid NOI growth. We've had about 7% NOI growth. And we're seeing tailwinds there as supply has diminished and look for us to continue to monetize assets in coming quarters. Then you have other assets on the corporate side, I'll divide that into non-financials and financials that you mentioned. We have a number of very successful nonfinancial deals where you have some equity-linked positions that have appreciated significantly. And again, when you look at on a foregone yield and IRR basis, we say, okay, we think it could make sense at the right price, the deal business is dynamic, and you never know exactly what the outcome will be. But at the right price, there's a potential transaction there. So we've got various processes that are ongoing there and we'll disclose that at the appropriate point should we find interesting exit points. And again, an unleashing of earnings power by rotating those appreciated assets into more in a diversified way of income-producing properties. In the financial book that you talked about, those are really, for the most part, long-term holds for multiple reasons. I mean, that doesn't mean we would say no. if some huge outlier bid came along. But we have substantial tax advantages that aren't enjoyed by other public companies because we're a BDC, we're a RIC, we pay no corporate taxes as long as, of course, we meet the regulatory requirements, which we have for our 20-plus year history and intend on continuing to do and we hold these financials as tax partnerships. So there's no taxes at the underlying portfolio company level. If these companies say, First Tower, for example, were to become its own public company, and it's large enough business that perhaps it could or could some day, it would need to be a corporate taxpayer under the regs, and that would be an erosion of value in any potential buyer would keep that in mind for their eventual exit. So we enjoy a very low cost of capital as the natural resting ground for financials. And just more important than that, we've had terrific success focusing on areas that are highly recurring and recession resilience. And I'm talking about installment lending, which is what First Tower and Credit Central and our latest deal, which is QCHI, all transacting. We do have a small auto book very small. That's been a tougher business. That's a scale business. It's less of a customer loyalty recurring cash flow business because in automobile purchase is episodic. But for these installment lenders, they're doing 50% to 75% plus of their business with current customers, and there's a substantial loyalty element that grounds the business and really creates low volatility. And as short-term rates are starting now to subside, that's a further tailwind for those businesses that utilize third-party ABL that's floating rate in nature. I think with Tower something like every 100 basis point reduction in SOFR increases pretax net income by somewhere in the range of $5 million to $10 million. And then, of course, there's a valuation benefit from that as well. So that's what we're after. We've made a lot of progress in the last year, Finian, exiting our structured credit book was a big part of that process. That book could become low yielding on a GAAP basis as well. And we're rotating and having great success with deals like the Ridge, deals like Verify Diagnostics, deals like Druid City, a Discovery Point, Taos and QC as equity link deals have had substantial write-ups year-to-date since we closed each of them. So the strategy is working well, and we're going to continue to execute on that game plan. Finian O'Shea: No, I appreciate that. A lot of color there. And just as a follow-up, progress as well on the liability front, can you talk about the Israeli bond, if that is that sort of a one-off or a new channel? And if you anticipate or are planning more meaningful movement on the unsecured front? Michael Eliasek: Sure. It's a new channel. It's not a one-off. It's something we've evaluated for a very long time. And we thought the timing made sense for us. We've been utilizing our revolver to retire liabilities. We utilized our 48 bank strong $2.1 billion revolver a few months ago to take out our first half of 2026, original issue $400 million bond and could utilize that as well for our next maturity, which isn't until the tail end of 2026. But I thought this was an interesting and strategic place to issue. We have strong relationships there. We've had institutional support from that market on other types of issuance and Prospect. And so it just made a lot of sense and something like 40-plus institutional investors come into that bond and that's a decent-sized market. And I think you'll see us on a thoughtful basis, continue to expand our presence there. And -- but that doesn't mean that's going to be our only source of financing. We're big, big believers in diversified financing. The fact that we have almost 50 banks in our facility shows we're not taking substantial counterparty risk, which can be problematic, especially in downturns. We saw that happen in the GFC with folks. While that's a big reason why we're able to buy Patriot Capital for example, and what happened to that business when we did the first BDC acquisition history. But prospect, of course, created the bond market for BDCs. We're the first issue convertible bonds going back to 2010 and then straight institutional bonds in 2012 and first and only to issue medium-term notes. So we've been doing this for a very long time and are big believers in diversified access to funding and we think that creates a strong credit profile for all, including, of course, equity investors that benefit from that diversified funding. Finian O'Shea: Awesome. Thank you, everybody. Congrats on the quarter. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to John Barry for closing remarks. John Barry: Okay. Thank you, everyone. Have a wonderful day. Bye now. Michael Eliasek: Thanks all. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Curis Third Quarter 2025 Business Update Conference Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to Diantha Duvall, Chief Financial Officer. Please go ahead. Diantha Duvall: Thank you, and welcome to the Curis Third Quarter 2025 Business Update Call. Before we begin, I would like to encourage everyone to go to the Investors section of our website at www.curis.com to find our third quarter 2025 business update press release and related financial tables. I'd also like to remind everyone that during the call, we will be making forward-looking statements, which are based on current expectations and beliefs. These statements are subject to certain risks and uncertainties, and actual results may differ materially. For additional details, please see our SEC filings. Joining me on today's call are Jim Dentzer, President and Chief Executive Officer; Dr. Jonathan Zung, Chief Development Officer; and Dr. Ahmed Hamdy, Chief Medical Officer. We will also be available for a question-and-answer period at the end of the call. I'd like to now turn the call over to Jim. James Dentzer: Thank you, Diantha. Good afternoon, everyone, and welcome to Curis' third quarter business update call. We continue to make steady progress in our TakeAim Lymphoma study, which is evaluating emavusertib in combination with ibrutinib in patients with primary CNS lymphoma, one of the most rare and most difficult to treat of the NHL subtypes. As a reminder, the TakeAim Lymphoma study is a single-arm study with an ORR endpoint that adds emavusertib to a patient's BTKi regimen after they have progressed on BTKi monotherapy. And after collaborative discussions with the FDA and EMA, we expect the study to support accelerated submissions in both the U.S. and Europe. Over the next 12 to 18 months, we'll be focused on enrolling the additional patients we'll need to support those submissions. If you recall, last quarter, we engaged with a number of KOLs who are excited and highly supportive of expanding our emavusertib studies into additional NHL subtypes. They were especially interested in exploring emavusertib's potential to fundamentally change the treatment paradigm for CLL patients where the current standard of care is BTKi monotherapy. BTK inhibitors have become the standard of care in CLL and NHL because of their ability to help patients achieve objective responses. However, these responses are typically partial responses, not complete remission. The unsurprising result is that patients who are treated with a BTK inhibitor end up having to stay on it in chronic treatment for the rest of their lives. Additionally, since patients never achieve complete remission, many of these patients develop BTKi resistant mutations and ultimately, their disease progresses. At Curis, we're looking to improve upon the current standard of care by adding emavusertib to a patient's BTKi regimen, enabling patients to achieve deeper responses and potentially come off treatment, reducing the risk of developing BTKi resistant mutations and improving a patient's overall quality of life. The first step in testing this hypothesis in CLL is to initiate a proof-of-concept study in patients currently on BTKi monotherapy who have achieved a PR, but have been unable to achieve complete remission or UMRD. We have submitted the study protocol to the FDA. We're working to activate clinical sites, and we expect to enroll our first patient in late Q4 or early Q1 with initial data expected at the ASH Annual Meeting in December 2026. Now let's turn to AML. Abstracts for the December ASH meeting were released on Tuesday, including the abstract for our ongoing AML triplet study, which is evaluating the triple combination of emavusertib with azacitidine and venetoclax in AML patients who have achieved complete remission on aza-ven but remain MRD positive. The data in the abstract are for the first 2 cohorts, patients who received emavusertib for 7 or 14 days in a 28-day cycle in addition to their aza-ven treatment. As of July 2, 2025, 10 patients with a median age of 71 were enrolled, 4 in the 7-day cohort and 6 in the 14-day cohort. MRD conversion to undetectable levels occurred in 4 of 8 evaluable patients within 5 to 8 weeks of adding emavusertib. Among the patients who remained MRD positive, 1 patient achieved a 40% MRD reduction and none showed disease progression. Two dose-limiting toxicities, CPK increase and neutropenia occurred in the 14-day cohort, but both resolved. We're very encouraged by the initial readout from these first 2 cohorts and the exciting potential of combining emavusertib with aza-ven in frontline AML to enable more patients to achieve undetectable MRD. We continue to explore different dosing regimens for this triplet combination, and we look forward to reporting our progress. As you can see, we've had a very exciting and productive quarter and have a lot of exciting updates coming at the SNO and ASH conferences over the next few weeks. With that, I'll turn the call back over to Diantha for the financial update. Diantha? Diantha Duvall: Thank you, Jim. Curis reported a net loss of $7.7 million or $0.49 per share for the third quarter of 2025 as compared to a net loss of $10.1 million or $1.70 per share for the same period in 2024. Curis reported a net loss of $26.9 million or $2.19 per share for the 9 months ended September 30, 2025, as compared to a net loss of $33.8 million or $5.77 per share for the same period in 2024. Research and development expenses were $6.4 million for the third quarter of 2025 as compared to $9.7 million for the same period in 2024. The decrease was primarily attributable to lower employee-related clinical consulting, research, manufacturing and facility costs. Research and development expenses were $22.4 million for the 9 months ended September 30, 2025, as compared to $29.6 million for the same period in 2024. General and administrative expenses were $3.7 million for the third quarter of 2025 as compared to $3.8 million for the same period in 2024. The decrease was primarily attributable to lower employee-related costs. General and administrative expenses were $11.2 million for the 9 months ended September 30, 2025, as compared to $13.4 million for the same period in 2024. Curis' cash and cash equivalents were $9.1 million as of the end -- as of September 30, 2025, and the company had approximately 12.7 million shares of common stock outstanding. Based on our current operating plan, we believe that our existing cash and cash equivalents should enable us to fund our existing operations into 2026. With that, I'd like to open the call for questions. Operator? Operator: [Operator Instructions] Your first question comes from Sara Nik with H.C. Wainwright. Sara Nik: Congrats on the ongoing progress. My question was regarding your CLL program. And if you -- any color you could provide on the FDA discussions and protocol you submitted. Were you mostly aligned with primary endpoints and study design? Any granularity you can provide as of now would be helpful. James Dentzer: Thank you, Sara. Thanks for the question. I'll start, and I'll ask Dr. Hamdy to chime in as well. So we're very excited about that study. So as you know, we did have a dose escalation study where we tested across different subtypes in NHL. Our first expansion was in PCNSL and the second one is going into CLL. Obviously, as we move into CLL, it's a much larger indication. And of course, there's a much wider circle of interest among the KOLs. Ahmed, do you want to talk a little bit more about the CLL study in particular? Ahmed Hamdy: Sure. Sara, it's Ahmed. So basically, we're trying to address the unmet medical need in the CLL community, which is basically getting patients to a time-limited treatment with the combination of emavusertib plus a BTK inhibitor in patients who are currently on a BTK and have only achieved a PR with MRD positive. So -- and we're aligned with the FDA there, and we intend to have a small dose escalation at 100 milligram and expanding into our 200-milligram Phase II dose. Operator: Your next question comes from Li Watsek with Cantor. Li Wang Watsek: And I guess just for the Phase II CLL trial, can you maybe just talk a little bit about the size of the study and in terms of the delta you want to achieve in terms of the CR rate? And then second is just how you're thinking about resource prioritization at this point, especially as you think about the resources that you might need to move forward with the CLL study versus the frontline AML study? James Dentzer: Sure. So again, why don't I start on CLL, I'll ask Dr. Hamdy to talk a little more detail and then maybe have Diantha talk a little bit about resources. So first, on CLL, we are anticipating a study design at this point in time that anticipates 40 patients. But of course, as we saw in PCNSL, the unmet need is so clear, we're hoping to be able to see a signal long before we get to that point. As a reminder, patients on BTKi monotherapy in CLL, they get PRs. They don't get CRs. They certainly aren't getting MRD either. So what we're looking to do in that population is demonstrate simply that by adding emavusertib, by blocking both pathways, not just one, but both pathways that are driving disease that we can end up seeing deeper responses. So that's deeper PRs, and we hope also that we'll see CRs and MRD. Ahmed, do you want to chime in a little bit more on that? Ahmed Hamdy: I think you said it all, Jim. The whole concept here that you don't see CRs in -- with BTK. And obviously, you don't see MRD negative. So getting patients to a CR, and I think anything north of 20% would be very exciting. But obviously, we're going to have to wait until we see a treatment effect in our trial and plan accordingly. But we are very hopeful that the dual blockade of inhibiting the TLR pathway along with the BCR pathway would have a much more profound effect on the NF-kappaB and therefore, getting patients to a deeper response in MRD negative. James Dentzer: Yes. Thank you. And Diantha, would you mind spending a moment talking about the resources? Diantha Duvall: Absolutely. So Li, as you can appreciate, our current priorities are clearly to continue the PCNSL trial and obviously launch the newly initiated CLL trial. And also, as you can appreciate, we'll be looking to bring in additional capital prior to the end of the year. We've been pretty clear about that over the last 6 months. So neither of those things should be a surprise. So that's sort of where we're thinking about our resource allocations. James Dentzer: Yes. And in overall messaging, Li, we continue to move forward with great progress in PCNSL. And I think the investor interest, not just in PCNSL with the [indiscernible] approval, but the ability to move the needle in CLL. It seems to be a very reachable goal and because of the market opportunity, a very exciting goal. So look forward to hearing from us more about that over the next 8 weeks. Operator: Your next question comes from Yale Jen with Laidlaw & Company. Yale Jen: I've got 2 here. First of all, in terms of the CLL study, what would you think about the safety side? In other words, in the combination, was there any sort of speculated AE may happen? And how would you think about the mitigation for that? And then I have a follow-up. James Dentzer: Okay. Again, let me start, and I'll ask Dr. Hamdy to add to it. So I think the critical issue for us is going to be, do we see any DDI with the BTK inhibitors. And as you know, we have a great deal of confidence given that we've already tested a number of patients in NHL with ibrutinib, and we aren't seeing DDI. In fact, at the doses that we're testing 100 and 200 milligrams with [indiscernible], it seems to be a very clean profile. Ahmed, would you like to add to that? Ahmed Hamdy: Yes. I mean, again, you said it all, Jim. But yes, I mean, we have approximately 25 patients, if not more, combined with ibrutinib. And as you know, ibrutinib is probably would be the most unselective of all approved BTKs, and we have not seen any additive toxicities and we expect not to see any additive toxicity with the other BTK inhibitors. Of course, we're going to be doing some PK work in GDI following any potential toxicities, but I don't think there's any additive toxicities that we expect. Yale Jen: Okay. Great. That's very helpful. And maybe just one more question here. In terms of the SNO meeting in a few days, what should be the investor sort of expectation to talk about? James Dentzer: Yes. So obviously, we're going to have to be a little careful not to front run the conference. But thank you, Yale, for your interest in that. Yes, we're going to have several posters, 3 of them available at the SNO conference in PCNSL, but also SCNSL. Dr. Grommes and Dr. Nayak, in particular, will be talking about PCNSL. So I think what you can expect to see there is learn a little bit more about what we've seen over the last 6 months in that study. And of course, the secondary CNS lymphoma even harder to treat, that will be brand new. So I think on both fronts, it should be a really exciting conference for us. Thank you. Operator: There are no further questions at this time. I will now turn the call over to Jim Dentzer for closing remarks. James Dentzer: Thank you, operator, and thank you, everyone, for joining today's call. And as always, thank you to the patients and the families participating in our clinical trials, to our team at Curis for their hard work and commitment and to our partners at Aurigene, the NCI and the academic community for their ongoing collaboration and support. We look forward to updating you again soon. Operator? Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Good day, everyone. My name is Sabrina, and I will be your conference operator today. I would like to welcome you to the First Advantage Third Quarter 2025 Earnings Conference Call and Webcast. Hosting the call today from First Advantage is Stephanie Gorman, Vice President of Investor Relations. [Operator Instructions] Please note, today's event is being recorded. It is now my pleasure to turn the call over to Stephanie Gorman. You may begin. Stephanie Gorman: Thank you, Sabrina. Good morning, everyone, and welcome to First Advantage's Third Quarter 2025 Earnings Conference Call. In the Investors Section of our website, you will find the earnings press release and slide presentation to accompany today's discussion. This webcast is being recorded and will be available for replay on our Investor Relations website. Before we begin our prepared remarks, I would like to remind everyone that our discussion today will include forward-looking statements. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are discussed in more detail in our filings with the SEC, including our 2024 Form 10-K and our Form 10-Q for the third quarter of 2025 to be filed with the SEC. Such factors may be updated from time to time in our periodic filings with the SEC, and we do not undertake any obligation to update forward-looking statements. Throughout this conference call, we will also present and discuss non-GAAP financial measures. Reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures to the extent available without unreasonable effort appear in today's earnings press release and presentation, which are available on our Investor Relations website. To facilitate comparability, we will also discuss pro forma combined company results consisting of First Advantage and Sterling Check Corp historical results and certain pro forma adjustments as if the acquisition of Sterling had occurred on January 1, 2023. The pro forma information does not constitute Article 11 pro forma information. I'm joined on our call today by Scott Staples, our Chief Executive Officer; and Steven Marks, our Chief Financial Officer. After our prepared remarks, we will take your questions. I will now hand the call over to Scott. Scott Staples: Thank you, Stephanie, and good morning, everyone. Thank you for joining our call. We have 4 key messages for today. First, we delivered another quarter of profitable growth, meeting and exceeding our expectations with revenues up approximately 4% year-over-year on a pro forma basis and achieving adjusted EBITDA margins of 29%. Our performance was driven by continued go-to-market success in new logo and upsell, cross-sell. This demonstrates our ability to generate solid results amid the current macroeconomic environment in which hiring growth has been consistently flat while maintaining our relentless focus on cost discipline. Second, just last week, we celebrated the 1-year anniversary of closing on our Sterling acquisition. I am extremely pleased with the performance of our entire team as our integration is progressing ahead of schedule, and we are delivering strategic and financial benefits as promised. Third, we are continuing to execute on our FA 5.0 strategy, actioning our best-of-breed product and platform approach to accelerate growth through new logos, upsell, cross-sell and improve client retention. Today, we will highlight how our technologies and products are enhancing our value proposition and solving customers' critical needs. And fourth, today, we are narrowing our full year 2025 guidance ranges with refined midpoints at or above our original guidance midpoint. Now turning to Slide 5 and a closer look at our performance in the third quarter. We generated solid results across revenue, adjusted EBITDA and margin, cash flow and EPS. For Q3, combined upsell, cross-sell and new logo rates continued to perform in line with our long-term growth algorithm targets. Retention improved to 97%, an increase from 96% in Q2, demonstrating the success of our customer-centric approach and that our best-of-breed technology and deep vertical expertise are resonating with the market. We are pleased to share that we recently signed an exclusive 5-year contract renewal with a top customer that is expected to generate over $100 million in total revenues, of which a significant portion is guaranteed through minimum annual commitments. Base revenue performance again improved sequentially, remaining just below neutral and consistent with our expectations. In Q3, our large new logo win in health care went live and is the last of the 3 large wins we have discussed with you on past earnings calls to do so. Combined with the 2 wins that went live last quarter, one in the retail gig economy and the other in international win in Australia, all are now live and generating revenue, providing solid momentum going into Q4. We are experiencing tremendous success with our go-to-market teams as further supported by our 17 enterprise bookings in the third quarter and 75 in the last 12 months, each with $500,000 or more of expected annual contract value. These wins give us confidence in our ability to generate new logo and upsell/cross-sell revenue and are an encouraging sign of our sustained go-to-market momentum since closing the Sterling acquisition 1 year ago. Additionally, we are encouraged by the strength of our late-stage pipeline with many large potential new contracts in the works, including several that are incorporating our Digital Identity product for the first time. Looking at our verticals in the third quarter, our balanced and resilient vertical strategy supported our performance with nearly all of our verticals seeing revenue growth in the quarter on a pro forma year-over-year basis. We saw strength in retail and e-commerce, driven by upsell, cross-sell and fueled by a good start to the holiday season. Transportation and logistics also grew, driven by our upsell, cross-sell initiatives with particular demand from last mile and home delivery customers. In addition to serving onboarding needs for new hires within transportation, our broad range of solutions also supports our customers' ongoing compliance requirements, enhancing our results with balance and consistency across the solutions we provide. Health care was slightly down, driven by uncertainty with Medicare and Medicaid funding, particularly with the nonprofit hospital networks, but this was offset, in part, as health care staffing companies stepped in to fill the hiring needs. We remain optimistic about the long-term industry dynamics and fundamentals in health care as the U.S. population ages and requires more health care services. Our other verticals, including general staffing, manufacturing and industrial financial services showed positive growth in Q3, partially powered by the success in our new logo and upsell, cross-sell programs. October order volumes show similar directional trends to what we saw in Q3 continuing. In international, for the sixth quarter in a row, we achieved year-over-year revenue growth with the U.K. as a bright spot and also improving trends in APAC. Looking at the macro environment, we are still seeing a trend where hiring is remaining consistently flat. Macro uncertainty as well as policy changes, including the recent government shutdown, immigration, tariffs and tax policy have resulted in many of our customers remaining in a wait-and-see posture as it relates to their hiring plans. However, as you can see from our results, our customers are still hiring at consistent levels. Our expectation for the fourth quarter and likely into 2026 is for base growth to remain slightly negative as the overall labor market conditions persist. We continue to be confident in our ability to deliver overall revenue growth through upsell, cross-sell and new logos. Our enterprise customers, diverse vertical mix, global reach, mix of hourly and salaried focused customers and diligent focus on controlling the controllables make our business resilient and able to perform well across a variety of macroeconomic scenarios. With regards to the impact of the government shutdown, our view is that the hiring markets have remained stable and active with our core verticals continuing to perform well. The absence of BLS jobs and employment data has not impacted our ability to run our business. I want to take a few minutes to touch on AI's potential impact on our business, building upon what we shared during our May Investor Day. We are taking a proactive and strategic approach to understanding both the benefits and the risks of AI, and we are optimizing our long-term strategy based on the future of work. We recognize the pace at which AI is evolving and can see how it is currently impacting and how some are expecting it to impact the way certain types of jobs and labor are performed. Of note, the World Economic Forum's 2025 Future of Jobs report predicts net positive growth through 2030, even after accounting for the impacts of AI. Specifically, the WEF notes that while AI and automation are leading factors expected to displace; an estimated 92 million jobs, these technologies and other market conditions are also expected to create 170 million new roles as companies and economies adapt to technological change, resulting in an expected global increase of 78 million jobs over the next 5 years. Again, we are confident that our diversified mix of verticals, customer segments and geographies provides a meaningful degree of resiliency to AI impacts and will allow us to capitalize on the future growth opportunities. We are also strategically reviewing where and how we invest in terms of our products and verticals to ensure we are well positioned to lead in a world increasingly influenced by AI with a focus on continuing to generate long-term shareholder value. For example, we are building tools such as our Digital Identity product, which enables our customers to address the increasing dangers of AI-driven identity fraud. At the same time, we are leveraging AI internally to enhance quality and customer experience. As we like to say, we are building good AI to fight bad AI. Additionally, I want to address some of the recent news headlines on corporate headcount reductions as companies claim to gain efficiencies from AI. In some instances, the news you read happens to relate to customers of ours. And what we have observed is that while those companies are reportedly making job cuts motivated by AI, we are seeing stable, if not growing, overall screening volumes from them. This is because many of these news-making reductions are in administrative-type roles, which have a lesser impact on our business as typically a majority of our screening volume comes from normal churn and core hiring in our customers' operations. Additionally, as customers reinvest in their businesses to build out their internal AI and other capabilities, they should also be driving screening demand as they will require roles to manage these changes. This sentiment is further supported by feedback directly from our customers who have told us that while they are currently investing in and leveraging AI in their businesses, they do not expect to meaningfully change their approach to core hiring over the next several years. Now turning to Slide 6. On October 31, we were thrilled to celebrate the 1-year anniversary of the closing on our Sterling acquisition. Over the past year, we have made significant progress on our integration of this strategic acquisition, which has been outperforming our expectations on customer retention, synergy capture and realization, cultural alignment and complementary technologies and products. Importantly, we have delivered a very seamless, nondisruptive customer experience throughout the integration process. This has enabled us to maintain excellent customer satisfaction as evidenced by our high retention levels and the feedback we are receiving from customers. We have also continued to deepen our customer relationships through our growing Collaborate International user conference series, which reflects our expansive global footprint. In 2025, we've hosted events across the U.S., India, Singapore and EMEA with upcoming user conferences in Hong Kong and Australia. These events provide us with direct insight into our customers' needs and emerging industry risks, showcase our subject matter expertise, uncover upsell and cross-sell opportunities and help cement our position as a category leader. Recently, many of our European customers joined us at our London Collaborate to discuss key topics such as identity fraud, AI-driven screening and global compliance. The strong turnout, high-value content and customer engagement underscore the relevance of our solutions and the trust we are building across markets. Feedback confirms that our customers are looking to us for guidance as they plan for 2026, and we're proud to be a strategic partner in helping them navigate evolving workforce risk. Our back-end automation strategy has also been a key driver of operational efficiency throughout the integration process. By consolidating fulfillment into a single global engine, we are leveraging years of investment, engineering and development in robotic process automation, APIs and AI. We have kept 2 front-end platforms for customer continuity, but behind the scenes, we have been able to streamline workflows, cut redundancies and drive efficiency. These efficiencies not only enhance speed and customer satisfaction, but are also expected to create meaningful margin improvement as we grow. Additionally, since announcing the Sterling acquisition, we have increased our synergy target from our original $50 million plus to a range of $65 million to $80 million. We have also made solid progress on deleveraging our balance sheet as we work towards our target net level range of 2 to 3x. Steven will provide additional details shortly on both our synergy progress and deleveraging. Turning to Slide 7. Throughout the integration process, we have been focused on enhancing our customer value proposition to unlock new logo, upsell and cross-sell opportunities while continuing to drive innovation and foster the high-performance culture we are known for. We are consistently leveraging our best-of-breed approach to provide optimal solutions and technology to solve our customers' challenges. Last quarter, we discussed how the expansion of our award-winning Click.Chat.Call. customer care solution and our high-margin First Advantage work opportunity tax credit product has benefited our customers. We have continued this progress, achieving a milestone in Q3 with the increased usage of the millions of records in our proprietary national criminal record fire database across both platforms, something we have been rolling out since Q1 of this year. With our proprietary data and in-house data science teams, we deliver faster insights and a superior experience for everyone from recruiters to HR teams to candidates. This powers our ability to reduce turnaround time while increasing the speed, coverage and effectiveness of our criminal screenings, facilitating comprehensive and timely results for our customers. In October, we made available our criminal and motor vehicle records monitoring solutions to the entire customer base, offering another best-of-breed experience to all of our customers. We are also underway in leveraging our best-of-breed approach to enhance the user experience. Over the past 18 months, we have been rolling out a new applicant portal. Now approximately half of our order volume on the First Advantage front end runs through this portal with customer adoption continuing to grow. This represents the most secure and user-friendly experience we've ever built, featuring device-agnostic design for a seamless experience across devices, customer-specific branding for a familiar and consistent look and AI-powered features that continuously learn from the candidate interactions to deliver a best-in-class rage click-free experience. In November, we are extending the same modern look and feel to the Sterling front end, bringing the benefits to even more customers. This initiative reflects our commitment to delivering an outstanding user experience backed by rigorous data, feedback, sentiment analysis and continuous improvement. It's a win for our customers and their candidates and a key differentiator for First Advantage. On top of this, we are continuing to see solid momentum and interest in our Digital Identity products. Negative use of AI and other technologies are creating new risks for companies and organizations and are driving rapid evolution in the Digital Identity space. Knowing who you're hiring and confirming who they actually are is critical. Our Digital Identity solution is fully linked in the hiring life cycle with some customers using it multiple times through the recruiting, screening and onboarding process, which is creating a competitive advantage for First Advantage. As an early market leader with Digital Identity solutions, we are able to deepen our strategic dialogue with customers, strengthening our relationships and stickiness of our products. We are highly focused on this attractive opportunity, which has a total addressable market of over $10 billion and an expected growth rate in the mid- to high teens. Our Digital Identity products is continuing to build a strong pipeline as customers navigate the early adoption and pilot phase. Digital Identity is a powerful competitive differentiator for First Advantage and indicative of the direction in which our industry is growing. Overall, our customers continue to be excited about the benefits of our best-of-breed platforms, products, data and AI-enabled technologies. This is evident by our strong customer retention and consistent new logo and upsell, cross-sell performance. With that, I will now turn the call over to Steven. Steven Marks: Thank you, Scott, and good morning, everyone. Today, I will provide color on our third quarter results, synergy progress, deleveraging trends and our narrowed 2025 guidance. I'll start with third quarter results on Slide 9. Our third quarter revenues were $409 million, up 3.8% versus last year on a pro forma basis, with our year-over-year revenue growth rate increasing sequentially from Q2 as expected. Our go-to-market success was in line with our long-term growth algorithm targets as the combined contribution of new logo and upsell and cross-sell revenues delivered 9% growth in the quarter, and our retention rate reached 97%. The trends in our base performance continued to moderate on par with how we had forecast the quarter with base remaining negative on a year-over-year basis. Our solid results were supported by consistent execution on our integration and synergy plans, which remain ahead of schedule. Adjusted EBITDA for the third quarter was $118.5 million. Our adjusted EBITDA margin of 29% exceeded our expectations, representing an improvement of 130 basis points versus the prior year on a pro forma basis despite being slightly lower sequentially from Q2 due to mix. Our results were enabled by our continued focus on accelerating synergies, our disciplined approach to cost management and the scalable nature of our business. As part of the integration process, we are applying best-of-breed fulfillment execution, which is helping improve the combined company's operating margins in line with our historical expectations of the business. Adjusted diluted EPS was $0.30, a 15.4% increase over our expectations. The benefits of our greater scale, expense and capital management and lower interest expense as a result of our debt repricing and voluntary debt payments to date have supported our per share earnings. These have more than offset the impact of the incremental interest on the transaction financing and the dilutive impact of the new shares issued for the Sterling acquisition. On Slide 10, you can see how we are making great progress on our synergy program. This quarter, we crossed the original $50 million threshold of action synergies, now having actioned $52 million and exceeding our initial total synergy program goal within only 1 year. We benefited from the realization of $12 million of synergies in the third quarter, bringing our in-year realization to $30 million. We remain committed to and confident that we will achieve our goal of $65 million to $80 million of action synergies within 2 years and are pleased to see the consistent success of our integration and synergy execution. Looking forward, we are focused on scaling, automating and applying AI as we continue to execute on our integration priorities. Moving to Slide 11. You can see our historical revenue growth algorithm results with combined company data beginning in 2025. As previously mentioned, in the third quarter, our results were driven by strong upsell, cross-sell as well as new logos, supported by consistent solid retention. Base results came in as expected with sequential improvement from Q2 despite remaining negative for Q3. Now turning to cash flow, net leverage and our debt paydown progress on Slide 12. During the quarter, we generated adjusted operating cash flows of nearly $81 million, an increase of $35 million or 78% on a year-over-year basis. This was driven by the larger scale of our business, our tight management of our working capital, including collections on receivables, the benefit of the OBBBA, which has reduced our required cash tax payments and our overall focus on cash flow. Our cash balance at September 30, 2025, was $217 million. With this ample liquidity and cash flow, subsequent to the end of the quarter in November, we made a $25 million voluntary repayment on our debt principal, bringing our total year-to-date principal repayment to over $70 million, most of which has been voluntary using excess cash flow. Our synergized pro forma adjusted EBITDA net leverage ratio at quarter end was 4.2x and represents about [ 0.25 ] of a churn decrease from a year ago when we closed the Sterling acquisition. We remain focused on reducing our net leverage towards approximately 3x synergized pro forma adjusted EBITDA within 24 months post close, and our long-term net leverage target remains 2x to 3x. Moving to Slide 13 and our updated 2025 guidance. As a reminder, year-over-year comparisons are on a pro forma basis to allow for easier comparability. Today, we are narrowing our full year 2025 guidance ranges with refined midpoints at or above the midpoint from our original guidance. Our year-to-date results as well as the momentum we have seen heading into the fourth quarter give us confidence in our revised guidance ranges with revenues now in the range of $1.535 billion to $1.570 billion supported by strong synergy execution and our continued focus on efficiently managing our business, we now expect to achieve full year adjusted EBITDA margins of approximately 28%, a meaningful expansion from pro forma 2024. Looking at the fourth quarter as implied in our updated full year guidance today, our revenue outlook for Q4 of around 6% year-over-year growth at the midpoint continues to assume a certain degree of macro stability while keeping in mind that our customers remain in a wait-and-see mode. The impacts of increased tariffs and other policies remain key areas of uncertainty across the global economy, but our customers continue to hire at consistent volumes. We expect Q4 base growth to remain slightly negative, consistent with Q3, with this trend likely to continue into 2026. As Scott mentioned, we saw very consistent volumes in October, which aligns to our updated Q4 expectations. We anticipate continued productivity of combined upsell, cross-sell and new logo growth, consistent with, if not better than, historical trends. Additionally, the go-lives of our recent large wins and robust new contract pipeline support our expectations for the fourth quarter. We also expect customer retention to remain in line with our historical performance of at least 96%. In the fourth quarter, we expect adjusted EBITDA margins to expand versus the prior year period by more than 100 basis points. This is similar to the expansion we saw in Q3 and results in fourth quarter adjusted EBITDA margins of approximately 28%. While this represents a small sequential decline from Q3 2025, it is in line with the historical trends in our business, reflecting the mix shifts driven by seasonally lower December revenues and some movements in verticals and some movements in volumes between our verticals and products. This year, we also anticipate the mix shifts we saw in Q3 towards products with relatively higher out-of-pocket fees will continue to impact adjusted EBITDA margins into Q4, though over time, we expect these impacts to normalize. Even with these trends in mind, we remain confident in our ability to drive year-over-year margin improvements in Q4. We anticipate that our adjusted diluted EPS growth momentum will continue as revenue ramps and synergies are realized. Despite the mix trend previously mentioned, we expect that quarterly adjusted diluted EPS will remain in the mid-$0.20 range in the final quarter of the year, representing meaningful expansion on a year-over-year basis. On a similar note, we now anticipate free cash flow for the year of $110 million to $120 million. This represents a notable increase from our previous commentary as we have been able to generate incremental cash flow from better working capital management and have successfully managed our integration-related costs. As previously noted, the passing of the OBBBA tax law in July doesn't notably impact our effective tax rate. However, we will be able to utilize certain provisions within the new law to materially reduce our 2025 required cash tax payments. We have provided a full chart in the appendix to the earnings presentation with FX, CapEx, interest and other modeling assumptions. Additionally, we do not expect the government shutdown to materially impact our results. While the shutdown itself has affected some operational items such as the government run E-Verify platform resulting in some delayed I-9 verification, we expect any delays in processing I-9 will be resolved in the quarter as soon as the government shutdown concludes, and this is a very small component of our business. Overall, and taking a step back, we are pleased with our refined 2025 guidance ranges we are providing today, particularly amid our ever-changing world. We are expecting to deliver full year revenue growth, a high single to low double-digit adjusted EBITDA growth rate and an even higher adjusted diluted EPS growth rate and meaningful free cash flow generation, all just 1 year after closing our strategic acquisition of Sterling. With that, let me turn it back to Scott for closing remarks before we open the line for questions. Scott Staples: Thank you, Steven. In closing, I would like to reemphasize First Advantage's position as an investment of choice. We are a market leader offering proprietary technology and data in a large and growing market. We have significant organic revenue growth potential, accelerated by the Sterling acquisition. We are resilient with a flexible cost structure and high revenue diversity that comes from our balanced vertical strategy. We have industry-leading operating margins, leading to strong and consistent free cash flow generation, and we have a track record of value-accretive capital deployment and balance sheet management. All of this supports our confidence in our ability to achieve consistently strong results, including delivering on the 4-year financial targets we established during our Investor Day in May. Looking ahead, we remain focused on executing on our strategy to increase share across our target verticals, accelerate international growth and deliver on our best-of-breed product and platform strategy. Thank you to the entire First Advantage team for the great work you do to support our customers every day. With that, we will open the line for questions. Operator: [Operator Instructions] Our first question is coming from Ashish Sabadra with RBC Capital Markets. Ashish Sabadra: So maybe a 2-part question. As we think about this strong new win momentum that you talked about and as you're ramping up these new clients, how should we think about the upsell, cross-sell as well as new logos going into fourth quarter, but also into 2026? And then the second question would be just the pipeline for new logos. Have you seen any changes in the sales cycle? Any elongation in the sales cycle? Also any early conversations with your clients around new win momentum? Steven Marks: Yes, Ashish, I'll start with your comments on the new logo and kind of that impact going forward. I'll let Scott take the pipeline. I think you're right. As I mentioned in the prepared remarks, we're expecting our Q4, the contribution of new logo and upsell, cross-sell to be in line, if not better, than our historical. So we did 9% in Q3 with very consistent so far this year. Assuming those deals ramp according to schedule, there's some room to do a little better than our historical averages. We're seeing some good initial order demand from those bigger contracts. A little early to comment on '26 just overall. But I mean, obviously, the deals that are just going live in the second half would have some rollover, still have to fill out the rest of the pipeline funnel and still have to execute. But it gives us a lot of confidence, certainly in Q4 being able to achieve, if not exceed, the historical norms for upsell, cross-sell and new logo. Scott Staples: Yes, Ashish, on the pipeline, we are extremely happy where the pipeline is right now. It's at the highest value it's ever been at. The late-stage pipeline for large deals is the best we've really ever seen as a company. That doesn't mean it translates into whatever it translates into, but it's a great pipeline. We've obviously got very good win rates historically. So we're feeling pretty bullish heading into 2026 in terms of the things we can control and our ability to grow organically. So very happy with the pipeline. And I think it all comes back to -- again, look at that increase in improvement in client retention, especially after doing a large merger. We are very happy with client retention actually going up. It means that clients have really resonated with the combination of the Sterling and the First Advantage technology platforms. And I think a big shout out to our tech teams who have done a great job of eloquently putting together the back end to the front ends of both the Sterling and First Advantage customer base. And in this industry, it's very simple. Clients love to partner with a company who understands their vertical deeply, which we obviously do and have invested in the key verticals that we're in and have a great technology platform to back it up, that's clearly why the pipeline is growing, while the deal flow has been solid. We've got a great tech story, and we back it up with subject matter experts. Operator: Our next question is coming from Andrew Steinerman with JPMorgan. Andrew Steinerman: Obviously, I've observed over the years that FA is very tech forward, including AI. With that in mind, do you feel that traditional employment background checks has a risk of being disintermediated by AI innovation and how? Scott Staples: Yes. Thanks, Andrew. As you know, we have a very strong tech story. We've got a great team. And I thank you for your question because I don't think we get enough credit in the market for our tech prowess. I mean I feel that we're basically a Silicon Valley tech shop that just happens to be headquartered in Atlanta, Georgia. We've got great architects. We've got great engineering prowess. And I think when you look at where AI can help or influence or impact the industry, I only see it or we only see it in beneficial ways. We don't see it as a competitive threat because it's going to have to be so integrated into the many things that we do. I think the big change is the dramatic rise of the risk of identity fraud in the recruiting process and how that maps into the traditional background screen. So when you think about running criminal checks or verifications or whatever it might be, the future of this industry is really going to be how that flows from a digital identity check. And that's where a lot of the AI is going to sit because you're going to be leveraging AI to make sure that our customers feel comfortable that they are onboarding the same person that they interviewed. So going from a recruitment to interview to onboarding and to finally I-9, all that has to be tied together with technology and consistent databases. And we are really the glue behind the scenes that can do that for our customers. And that's where a lot of our customer dialogue is going right now. And I think a lot of that's going to be AI-driven. There's going to be a lot of good AI that are used in that solution to offset the bad AI that people are using for deepfakes and other identity -- digital identity hacks. So we want to make sure that we help our customers avoid hiring imposters which, as we told you on our last call, is an extremely increasing risk for them. So that's also driving client stickiness. It's driving upsell, cross-sell. And again, it goes back to the fact that our customers see us as a tech powerhouse that can pull this all together for them. Operator: Our next question is coming from Andrew Nicholas with William Blair. Andrew Nicholas: Scott, I think you mentioned as part of the comment on your 5-year contract renewal that a portion of that $100 million is guaranteed. So I was just hoping to kind of figure out maybe a little bit more background on that contract, what led to that particular structure? I think that's relatively unique within your broader business. And whether or not that's a one-off or something you'd expect to pursue more regularly going forward? Scott Staples: Andrew, I love the question because this has been a really big focus for us in 2025 and will continue in years to come. Now the caveat here is that this will be a little bit of a long road, but this is not a one-off. This was the first of what we think will be the future contract status in this industry where we do get more stickiness with contracts with guaranteed minimums in our contracts. Again, the caveat is it will take a long time for this to kind of flow and run out because we're not going to go to existing customers and ask them to change existing contracts. We are trying to put this new clause into all new logo wins and renewals with existing customers. To date, we have had very little pushback on this concept. And I think it's -- there's other things that we're working on to put more teeth into the contracts, but this is clearly where the industry is now going. And we even think things like Digital Identity and some of our other solutions can actually lead to subscription revenue, and that would then also be included in contracts going forward. So I'm glad you picked up on it because it's definitely a change that we're seeing in the industry, and we're kind of leading the charge here. Andrew Nicholas: Understood. And just for a follow-up, kind of back to the digital identity piece. Is that something -- I don't think you've sized it recently, but is that something that can move the needle on upsell, cross-sell next year? Or is it still too early to be adding percentages of growth to the algo? Scott Staples: Yes. First of all, it is the hottest, hottest, hottest topic with our customers right now. We've -- as you know, we've had Digital Identity products out in the market now for 2, almost 3 years. In the early stages, it was us educating our customers as to the risks associated with imposters and deepfakes and all the things that come with identity fraud. But something has changed. Over the last, I'd say, roughly 6 months, our customers are now showing us actual instances of where they've either stopped a fraudster from entering their company or that they've actually hired an imposter and don't want it to happen ever again. So this is completely dominating the conversation right now, and we've got a fantastic product. And I would call it products because it literally is a series of 6, 7-plus offerings that are all under the umbrella of digital identity. So the -- a couple of things then. One, at some point in 2026, we do plan on quantifying this for you. As soon as we get -- we're still in early sales stages, and we're doing pilots and customers are now ramping up on that product. So I think at some point in 2026, we'll be able to quantify it. There's going to be 3 major impacts to digital identity. One, yes, it will drive upsell, cross-sell revenue. And again, we'll quantify that in the future. Two, it makes us really sticky with the customers because now we're actually in different workflows. When you do digital identity, you're now up in the front of their recruiting workflow and you're really then sticky throughout the whole process. Three, so the byproduct of that is increases in customer retention, which, as Steven said, we -- the bare minimum is 96%. But as you can see, we're now at 97% and hopefully stick there going forward and maybe even higher through the stickiness of this. And the last thing is it also helps sell other products. For example, customers are worried about the person that they are interviewing is the same person that they actually run the background screen on is the same person they actually onboard and do the I-9 with. So Digital Identity is actually giving us a boost to our I-9 sales because we're sitting behind the scenes, and we can triangulate all that data for them if we're the service provider for them. If we're not the service provider for their I-9 product, they have to figure out if it's the same person that filled out the I-9. And the customers don't want to do this. They want us to do that. So this is real stickiness. This is driving multiple levels of upsell, cross-sell. And it's a huge issue with clients right now. This is, again, the hottest, hottest, hottest topic in this industry. That was a long answer, but great question. Operator: Our next question is coming from Manav Patnaik with Barclays. Ronan Kennedy: This is Ronan Kennedy on for Manav. Can I just ask that you unpacked the commentary around October order volumes continuing the directional trends that you experienced for the quarter. It sounds like that reconciles to this week's ADP jobs report, which showed a swing into positive territory, I think, after some back-to-back months of job losses. But also had a question in relation to -- there was a report released earlier this morning that showed October had the highest increase in layoffs since '23. And I think year-to-date, layoffs are up 65%. Just wanted to know if you're seeing that as well. I think AI and the macro factors you referenced were given as drivers. But I know you said with your diversification and resiliency, you're not actually seeing AI impacts and highlighted specific clients as well. So I just want to understand those dynamics as you see them and potential impacts of that for base and the other components of your growth into '26. Scott Staples: Yes, Ronan. So obviously, the macro is on everyone's mind. And I'm going to answer your question, but I'm going to put in a couple of other things to give you the picture that we see. So a couple of things. Specifically to October, yes, we are -- we had a very good October. The order volume trends were similar to what we saw in Q3, meaning that they were above our expectations. Now that doesn't mean November, December will be. It just is a snapshot that October was. We're still in a wait-and-see mode for November and December, but off to a great start in Q4 with the things that we mentioned. We're seeing a good holiday season. We're seeing our key customers driving a lot of volume growth. I think the world is starved for data right now or better data right now on this. And I will remind people that -- I'll remind the market that we are enterprise focused. So a lot of what you hear maybe SMB focused, but we're not experiencing at the enterprise level what is being portrayed in the media. And I think we've got a unique advantage on the data side. And the fact that we can actually see our own order volume, so we know exactly who's being hired and when. And obviously, with the government shutdown, there's no BLS data being reported. And we've talked in the past about how unreliable the BLS data is anyway. It had gotten to a point where there was only about 35% participation rate from companies in the BLS data, and it was primarily from SMB. So it wasn't a very accurate depiction of what we see from the macro standpoint. So one, we've got the ability and the uniqueness of seeing actual hiring data real time. We know exactly when -- what companies in what industries and what geographies are hiring people. And the BLS data was always a few months behind, and every 6 months did a major revision of the numbers because they didn't get it right. But I think our Q3 results and what we're saying on forward thinking about the pipeline and where we are with order volumes is actually showing a very consistent labor market, not a declining labor market. It doesn't mean that there's huge job growth or -- and it doesn't mean that there's huge job losses. It just means that it's consistent. And as we get into 2026, and we'll talk more about this in our next earnings call next quarter, but we're basically thinking that 2026 is going to be very similar to 2025. Consistent hiring, not big decreases, not big increases, just more of the same. And Ronan, one more point. So I gave you -- we obviously have the ability to do qualitative analysis of order volumes and other data sources that we look at. But we also have -- we've also speak to our customers on a regular basis. And I think we've made this point many, many times. Just this year alone, we've had over 1,500 formal business reviews with our customers. Now that may be the same customer 2 or 3 times. But it just shows you that we are formally sitting down with our customers to review their programs, to optimize their screening, to talk about upsell, cross-sell opportunities and to get their views on their hiring. And what we're hearing doesn't necessarily jive with what is being reported in the media. So that's what we're basing our business on. Ronan Kennedy: And then if I may, just to shift gears a little bit. Can you help with how we should think about the cadence of synergy realization in '26? And just a reminder on timing for Sterling EPS accretion and also deleveraging? Steven Marks: Yes, Ronan, great question. So as we mentioned, we're at $52 million. Our target is $65 million to $80 million. We obviously lapped the anniversary as of this week. That remaining, somewhere between $15 million and $25 million, will come fairly ratably over the next year. It's a lot of operational and fulfillment and then data projects that have some of a little bit just more plumbing, more prerequisites that need to be checked off. But we still are very confident that we'll achieve it. And it should hit fairly ratably over the next 12 months or so as we just complete one optimization, one efficiency project after another. In terms of EPS accretion, I mean, you're starting to already see some of that flow through pretty strongly, right? We've got certainly relative to the pre-acquisition period, really strong EPS numbers in the second half of the year. Some of that is just the operational scale. The fact that we've got to consecutive quarters of revenue growth, we've got the synergies flowing through, and then we also have all the work we're doing on the cash flow and debt side of house. So the repricing, obviously, lower interest rates helps a little bit and just working capital management. So we're driving really strong cash flow. So that's going to obviously support your interest expense and help flow things down to EPS. And then I think to your last point on deleveraging, I think we're seeing those trends already kick in. As I mentioned, strong free cash flow, strong EBITDA accretion. As we build more cash and -- which ultimately reduces net leverage, we'll continue to see that number start to accelerate. And we still feel like we'll be getting towards that 3x synergized net leverage ratio by the end of next year, effectively at the 2-year anniversary of the deal. So I think we're on schedule on all 3 fronts there, Ronan. Operator: Our next question is coming from Scott Wurtzel with Wolfe Research. Scott Wurtzel: I just wanted to go back to some of the commentary around base growth for 2026 and your expectations for it to continue to remain negative. Is that right now sort of an expectation that it will remain negative throughout 2026? Or given we are obviously comping a lot of years of negative growth, could we potentially see an inflection as we get sort of into the second half of the year? Steven Marks: Yes, Scott, it's a good question. I mean we're not -- we're not at the point yet where we can kind of give very specific 2026 commentary. I think really, our main focus now is kind of looking at the exit velocity, if you will, of our order volumes in '25 and what that implies for at least the start to '26. I just wanted to make sure that people understand that, to Scott's point, it's been a consistently flat hiring environment now for a period of time. And we expect that dynamic to continue. I mean base has improved dramatically already through the year. It was negative 5.5% Q1, negative 3.7% last quarter, now only negative 1.8%. Negative 1.8% is that slightly negative that we've been talking about the last couple of quarters, and that's kind of that ballpark that our current expectation that persists for the next few quarters. We'll obviously give out a little bit more refined view as we get into our next earnings call for the '26 guide. But you also have to remember at a slightly negative base with the new logo and upsell, cross-sell consistency and the momentum we have, and where we're hitting all cylinders on retention, even with a slightly negative base, you're set up for a pretty good overall growth. But we do see just kind of this macro environment persisting. There's not really any kind of formal outlook on where tariffs are going to take us on immigration policy and all these other things that are kind of impacting just that wait-and-see mode that customers are in. So a little too early to get specific, but certainly, for the foreseeable future, we kind of see that wait and see consistently flat overarching hiring environment. Scott Wurtzel: And then just as a follow-up, going back to the kind of the identity market opportunity, and you mentioned mid- to high teens market growth rate. I mean, given your position in the screening market and everything, do you think you guys can outgrow that sort of market growth rate over the near to medium term as you sort of bring these solutions into your customer base? Scott Staples: Yes. Well, I mean, I think the short answer is we don't know because it's so new. I think we're really well positioned. Our customers can go out and buy point solutions to fix some of this. But we're in a really unique position about being -- we feel one of the only that can sit behind the scenes and help them triangulate all of these things into one solution. So the discussions with customers have been phenomenal. And obviously, we're very happy about the wins and the pilots and the launches that we've done recently. But it's just so early. It's hard for us to sit back and quantify that it will be a certain number and a certain growth rate. But as I said, when we get into 2026 a little bit and these numbers become clearer and we start looking at win rates and pipeline and start doing some math behind the scenes, we will report that out to you because we know it's an important piece of our growth algorithm. Operator: [Operator Instructions] Our next question is coming from Jeff Silber with BMO. Jeffrey Silber: You noted the retention improvement sequentially. I think you cited a few factors that are kind of buried in the Q&A. But if I had to focus on a few things, why do you think you saw that retention improve? And is that something you think is sustainable? Scott Staples: I think there's a lot that goes into it. I mean, first thing, we're a very, very, very customer-focused, customer-centric, customer-inspired company. We spend a lot of time with our customers, as I mentioned with our formal business reviews, and those are only the formal ones. We're talking to our customers daily, weekly, monthly. The Collaborate sessions that we talked about in the script have been phenomenally attended. We've got lots, if not most of our large customers attending these Collaborate events around the world. So we're spending a lot of time with our customers. And I think there's a couple of things that are driving retention. One is we are considered thought leaders in their industry. We pick certain industry verticals to focus on, and we go deep, deep, deep into those so that we know what they're dealing with from a compliance standpoint, from an onboarding standpoint, from a cost pressure standpoint, whatever it might be. We know their industry well. And in most cases, we have most of their peers as customers, so we can help them benchmark. So we can help them say, okay, here's what the industry is doing, and here's where you're best-in-class and here's where there's gaps. And those gaps are great to point out because what that means is upsell, cross-sell opportunity. And that's why package density has been such a great driver of growth for us. So vertical knowledge, industry expertise is clearly one of the drivers of retention. The other one is tech. I mean, as I mentioned earlier, we're a great tech company. We've got agile pods all around the world. We've got solution engineers. I mean we're really good at tech. Our products demo really well, which leads to a lot of new logo wins. And customers are very happy with the products. And also, we've really nailed the Sterling integration from a product and platform standpoint. Our vision, our theory from the very beginning of the acquisition was single back end, leveraging all of the great First Advantage automation that's been out there for literally 9, 10 years now. Single back end, but the front ends don't change for the customers. So that kept customers from attritting. Usually, when you do an M&A, that's the biggest thing that they worry about is, are you going to force migrate me onto a new platform? And the answer was no. And it was even better than no. It was like not only are we not going to force migrate you, but you're actually going to get a series of upgrades because we're taking best-of-breed from both platforms and giving it to the other platform. So there were some things that the Sterling platform did really well that are now becoming available to the First Advantage installed base. And there are some of the things that First Advantage did really well that are now becoming available to the Sterling installed base. And those are things that are visible. So we're talking about functionality. We're talking about best-of-breed user experiences, et cetera. And the things that are invisible to them are the things that we're leveraging on that First Advantage back end. So it's the First Advantage back end with all that great automation, which is driving faster turnaround times. If you look at our turnaround times, which is a key KPI for our customers, our turnaround times are coming down with customers because of the automation. So we're enabling them to onboard faster. And onboarding faster is critical for them, especially in high-volume hires because they need the people to do the job. So I think it's the combination of our vertical expertise and the fact that we actually nailed the technology and the future promises of technology, like how we're rolling out digital ID, how you can integrate your I-9, all that stuff is being eloquently explained to our customers, and I think they like the story. Operator: Our next question is coming from Harold Antor with Jefferies. Harold Antor: Harold Antor on for Stephanie Moore. I guess real quick one for me. Just in terms of international growth, I know international growth has seen several quarters of robust growth. If you could just provide any more color on, I guess, how that's shaping up. It seems as though the U.K. has been a bright spot even though we've heard that the U.K. still is -- in some areas is still weak. So just I guess, anything you're doing there? And then I guess on your verticals, I think you called out weaker health care trends, but I believe you see some seasonal pickup in transportation. So is the seasonal pickup in transportation in line with what you saw historically or just anything there that would be helpful. Scott Staples: Harold.... okay, Steven, go ahead. Steven Marks: Yes, Harold. On international, I mean, look, we're still seeing the momentum we've seen in the last few quarters sustained, if not accelerate a little bit. International was up a little over 11% in total. So again, like the trend we had last quarter, outpacing the consolidated business. And you're right, the U.K. market has been certainly a strong point there, and some of the underlying verticals are still [Audio Gap] some government regulation that's also helping us out. But honestly, we saw growth across all 3 of our international regions. And you remember, we've had that larger financial services win in Australia. We've had some other go-to-market success over the course of the year as well. So really strong base, really strong upsell, cross-sell, new logo type winning there in international. I'll let Scott fill on the verticals, but I think international has been kind of ahead of the curve and continued showing that growth and that accelerate a little bit in the third quarter. Scott Staples: Yes, Harold, on the verticals, so you mentioned health care. I think it's important to note, health care for us is really 4 sub-businesses. So it's acute care, think of hospital networks; post-acute care; life sciences; and health care staffing. Post-acute care, life sciences and especially health care staffing really did well in the quarter. It was really just the hospital networks, and it's completely 100% tied to what's going on in Washington, D.C. with Medicare and Medicaid. It's not like there's less demand for their services. In fact, there's more demand. You've got an aging U.S. population, and you probably know from your own experiences that there's a tremendous demand in health care. It's just that a lot of these smaller regional, even rural hospital networks are dependent upon Medicare and Medicaid funding. And there's a lot of uncertainty in that right now. So they've cut back their hiring just because they don't know where the funding is going to come from. Now health care staffers have filled in the gap because they still need the services. So I think this is just an aberration. I think this is something that will play out over the next couple of quarters, will stabilize. We're very bullish on health care because of the aging population, the incredible need for services. And even though it's slightly down, I would say our strategy is actually to double down in this industry because it could be a tremendous growth industry long term. It's just having a little bit of an aberration right now, and it's completely tied to the smaller and midsized hospital networks. It doesn't really affect the larger hospital networks and affects mostly the nonprofits. Operator: Our next question is coming from Pete Christiansen with Citi. Peter Christiansen: Nice execution here, some nice trends. Scott, a quick question. I want to double tap on the AI disruption kind of concern, which I think you laid out really well. I think there is a slight nuance to the argument though that at least on the fringe and maybe in certain pockets of your base with AI, then maybe those employers can actually in-house some of their onboarding or screening type of duties there. How would you respond to that? What's your opinion there? And then as a quick follow-up, great to see that you combine the databases here and building up your proprietary database. Can you just talk us through how that's delivering on data cost savings? And is there a point where -- of mass criticality where you really could see an inflection in your data cost because of the years that you've built up your proprietary database? Scott Staples: Steven, I'll take the first part, if you take the second part. So on the AI disruption, Pete, I mean, my short answer is no chance. Customers do not want to do this. This is not where they want to spend their engineering dollars and resources, and it's extremely complicated. It's loaded with compliance. There's not a lot that they're going to do internally with AI through the screening process. Now that's not true with recruiting. I think AI is fully in play with recruiting, and it's having great results. So using AI-driven recruiting tools in the front end of the recruiting process makes a lot of sense. But that only feeds then better information to us. We see AI as a real lift in quality because AI should improve the intake of data at the very front end of the recruiting process so that when it then comes to us, to then run a digital identity, to then kick off a background screen to then onboard an I-9, we have better data because AI has helped with the quality of that data. So whether it's a picture capture, whether it's a biometric capture that the AI is doing, whether AI is helping the candidate fill out the application to make sure that they're putting in their address correctly, their name is -- all instances of their name are captured, first name, middle initial or -- and last name and capturing maiden names, all that kind of stuff, it only helps us. But it doesn't infringe any way on our business model. In fact, it's an improvement in quality, which actually also could help with an improvement in turnaround times because the better data we get from an ATS or from an AI-enhanced recruiting engine, it makes our job that much easier. But I think with all of the FCRA compliance laws, with all of the unique thousands and thousands of data sources that need to be hit, I don't see customers doing this themselves in any scenario. Steven Marks: Yes. And then, Pete, on your data question, I think there are 2 things there. One, I mean, leveraging the data assets and resources of the 2 combined companies has been a core part of our cost of sales component of our synergy program. And as you can see, where we're at on that time line, we're already above and beyond the original $50 million target. So we're doing well there and leveraging those in many places in the business. But to Scott's earlier point on the Q&A, we're a tech company at heart and tech companies love data. And we'll continue to invest in ways to grow our databases. And when we give out the full year numbers at the end of the year on the Q4 call. You'll see growth in our NCRS, you'll see growth in our verified databases. And then it's not just growing the databases, it's leveraging them in as many ways as possible, but that will continue to be a storyline in a way that we improve the quality of our products, improve the quality of our P&L and cash flow, but it's always going to be a part of our story here. Scott Staples: Pete, yes, one other thing I'll add to it is -- and again, this kind of ties back to retention. I know I didn't mention this when I got the retention question earlier. But we have literally been automating internal processes and automating our APIs to data sources literally for 10 years now. And for some reason, over the last year or so, we are starting to get amazing accelerated payback on this. So clients are actually feeling our fast turnaround times. And we've also particularly solved some of the sticky data source -- known data source issues in our industry, certain counties or certain states or whatever it might be. And so when you sit down and do these business reviews with customers and you show them that their turnaround times are coming down and they feel that their turnaround times are coming down because of our investments in automation. And again, that's all in the First Advantage back end that we talked about. And now Sterling customers, our legacy customers are starting to feel this now too because we're using our fulfillment engine on the back end for them. That helps with customer retention. And that is just -- the power of that is showing up in the retention numbers. And again, this is something that our competitors just don't have. We are light years ahead of them. And this is a big competitive moat for us. Operator: Thank you. I see no further questions in the queue. Thank you all for joining us today and for your participation. This concludes the First Advantage Third Quarter 2025 Earnings Conference Call and Webcast. At this time, you may now disconnect your line. Have a wonderful day.
Operator: Good morning, and welcome to the Perella Weinberg Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. I will now turn the call over to Taylor Reinhardt, Head of Communications and Marketing. You may begin. Taylor Reinhardt: Thank you, operator, and welcome, all. Joining me today are Andrew Bednar, Chief Executive Officer; and Alex Gottschalk, Chief Financial Officer. Before we begin, I'd like to note that this call may contain forward-looking statements, including Perella Weinberg's expectations of future financial and business performance and conditions and industry outlook. Forward-looking statements are inherently subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those discussed in the forward-looking statements and are not guarantees of future events or performance. Please refer to Perella Weinberg's most recent SEC filings for a discussion of certain of these risks and uncertainties. The forward-looking statements are based on our current beliefs and expectations, and the firm undertakes no obligation to update any forward-looking statements. During the call, there will also be a discussion of some metrics which are non-GAAP financial measures which management believes are relevant in assessing the financial performance of the business. Perella Weinberg has reconciled these items to the most comparable GAAP measures in the press release filed with today's Form 8-K, which can be found on the company's website. I will now turn the call over to Andrew Bednar to discuss our results. Andrew Bednar: Thank you, Taylor, and good morning. Today, we reported third quarter revenues of $165 million and year-to-date revenues of $532 million. While not records as we reported last year at this time, the underlying fundamentals of our business remain strong and continue to strengthen. The number of active engagements is at a record, our overall pipeline is at a record and our European business is up over 50% from last year. In addition, the number of fees above our target has increased meaningfully, and both our average fee and median fee across engagements are up as well. We've been deliberate in pursuing clients and assignments where we can add the most value, focusing our teams on complex, consequential transactions where our advice to clients matters the most. Year-to-date, we have made the most significant annual investment in our firm's history, adding 25 senior bankers across sectors and regions. The partners who joined us in 2025 alone represent 18% of our total partner base, a clear signal of our commitment to scale and a large source of potential future revenue. On October 1, we closed our acquisition of Devon Park, and the impact has been both immediate and notable. This transaction brought us a new capability, new capital relationships and new sponsor clients overnight, meaningfully expanding our addressable market and revenue potential. The timing of our acquisition could not have been better, with the secondaries market expected to exceed $200 billion this year as sponsors increasingly turn to continuation vehicles and other creative solutions to manage liquidity needs. Additionally, we are seeing private equity moving off the sidelines with a substantial exit backlog building for 2026. The business building we've done this year is significant, expanding our client coverage and capabilities in strategically active industries for both corporates and private equity. We remain confident in our scaling strategy and believe these investments will drive significant revenue growth for our firm and create value for our shareholders. With that, I'll now turn the call over to Alex to review our financial results and capital management in more detail. Alexandra Gottschalk: Thank you, Andrew. Our third quarter revenues of $165 million included $8.5 million related to a closing that occurred within the first few days of the fourth quarter, in which in accordance with relevant accounting principles, was recorded in the third quarter. Consistent with the first 2 quarters, our adjusted compensation margin remained at 67% of revenues. Our adjusted noncompensation expense of $37 million for the quarter was down from last year and roughly flat with Q2. For the 9-month period, noncompensation expenses totaled $122 million, up 5% from last year. Given our continued expense discipline, we are lowering our guidance further to a low single-digit increase for the full year 2025. Our adjusted tax rate for the first 9 months was 4%. Excluding the benefit from stock-based compensation vesting at a higher price than the grant date, the adjusted tax rate would have been 32%. Turning to capital management. In the third quarter, we returned an additional $12 million to equity holders, primarily through the net settlement of RSUs and through dividends. Share repurchase activity during this quarter was limited as we prioritize deploying capital towards strategic investments, including the Devon Park acquisition. Year-to-date, we have returned more than $157 million to equity holders through dividends, the net settlement of RSUs, open market repurchases and unit exchanges. In 2025, we have retired more than 6 million shares, and our commitment to proactively managing our share count remains unchanged. At the end of the third quarter, we had 65 million shares of Class A common stock and 23.5 million partnership units outstanding. Finally, we closed the quarter with $186 million in cash and no debt. And this morning, we declared a quarterly dividend of $0.07 per share. With that, operator, please open the line for questions. Operator: [Operator Instructions] We'll take our first question from Devin Ryan of Citizens Bank. Devin Ryan: First question, kind of a two-parter here. Just on -- Andrew, some of the pipeline commentary, so obviously heard kind of the record point. We're seeing a lot of non-M&A activity that doesn't seem to be getting picked up in the public data sources like debt advisory, et cetera. Can you talk about the mix of the pipeline? Is it more geared toward non-M&A right now? Or maybe it's just the M&A is less visible? And that's kind of the point -- part 1 of the question. And part 2 is on the timing of the pipeline, should we expect normal fourth quarter seasonality, positive? Or is it more geared toward 2026? Andrew Bednar: Yes. Thanks, Devin. I think on the look back, the mix is a bit more in the nontraditional M&A. So if you look back in the last 3 quarters, our liability management business, our capital raising business, Rx business are all showing very good growth through the course of the year. The pipeline, however, continues to show a significant increase in traditional M&A business. And as you know, it's really challenging to predict when transactions will get announced and closed. And as you also know, we are very much still early innings in scaling our business. But when I look at those indicators that you guys don't see in terms of new business reviews, engagement letters, the mandates, the announcements that we expect in the course of the next several weeks and months, those all look very positive. And they're all much more weighted to traditional M&A versus our other products and services that we provide. Devin Ryan: Okay. Great. And then just a follow-up on the recruiting environment, but then also the success you've had today, both external recruiting in 2025, but then also the acquisition as well. So 25 bankers, obviously, is a lot to digest in a year, but great for kind of forward momentum. Can you just talk about how these bankers are ramping on the platform? Are they going to be additive to 2026? Or is it further out than that? And then just more broadly, kind of the momentum in recruiting, can you do another kind of big year in 2026? Is that the expectation? Andrew Bednar: Yes. Of the 25 senior banker adds, 9 are already on the platform. So they will just continue to grow and expand their client base and hopefully contribute to revenue more near term. The external hires are the remainder, so we've got 16, including Devon Park. And we're very excited about those adds. They're in terrific industries and in areas where we have a right to win. And we think that they will be contributing to our business during the course of '26. I think with 7 weeks left of '25, it will be a bit of a high bar to have them announce and close transactions by the end of the year. But again, looking at the forward indicators, these new partners where we have about now, 25% of our partners are here less than 2 years, that cohort seems to be hitting the ground running. And with the addition of Devon Park, as I said, that's different because that provides us with a new product category and a new group of clients that we didn't have prior to the acquisition. So that, for us, is a game changer because you get nonlinear growth and synergy out of that type of transaction where that product capability now is across 75 partners. So we're really excited about Devon Park and that capability. Our clients have been very excited that we have that capability. And that's, as I said in my upfront comments, Devin, that the timing of that feels quite good. Operator: Our next question is from Alex Bond of KBW. Alexander Bond: I just wanted to ask on the restructuring backdrop. Can you just maybe update us on what you're seeing in terms of the broader backdrop here in overall client engagement levels? Some of your peers have sounded a little bit more upbeat around restructuring volumes, while others have noted they've seen somewhat of a slowdown in new activity recently. Maybe have you seen any slowdown in recent weeks? And also, has there been any shift in terms of the mix between in-quarter, more traditional restructurings versus LME activity? Andrew Bednar: Yes. Thanks, Alex. We're seeing just a very steady pace of activity in our broad liability management business. I know there's been a lot of press reported about some cracks in credit markets and a couple of high-profile bankruptcies. We don't see that as something that's systemic. Those feel more isolated. But there are still a large amount of clients, a large number of clients that need assistance with managing balance sheet, in some cases, managing liquidity, and in some cases, going through a traditional workout or bankruptcy. So for us, that business continues to grow. That will be a higher contributing business this year than last year, and that team continues to generate increasing revenue. We feel very, very good about our setup for '26. Alexander Bond: Okay. Great. That's helpful. And then maybe just on the private capital side, now that the Devon Park deal has closed and those folks are on the platform, just trying to think about how soon or maybe how quickly we should expect that area of the business to meaningfully contribute to the revenue base? And maybe if there's any way to size up the potential contribution from that team relative to the M&A and restructuring sides once that team is fully up and running? Andrew Bednar: Yes. So we're doing our planning in terms of looking at targets and what our expectations will be for our groups heading into 2026, and we are going to treat the Devon Park business now, fully part of Perella Weinberg as a group in terms of the expectations we have. And we think this will be a significant contributor, much like our other groups. We have 6 groups that are across our platform, plus our restructuring business. So we're expecting that we just do the simple math on our revenue, and we expect Devon Park business to be that kind of contributor to our overall franchise. And as I said earlier, we have 75 partners, all of whom have private equity relationships and relationships with private credit, infrastructure and real estate, which is where we really cover in the Devon Park business. So we're very excited about the product capability, which, again, a couple of months ago, we didn't have. And last year, we had 0 revenue in this area. So we're very excited about the setup there. Operator: This concludes the Q&A portion of today's call. I would now like to turn the call back over to Andrew Bednar for any additional or closing remarks. Andrew Bednar: Okay. Thank you, Leo, and thanks, everyone, for joining us today. I also want to specifically thank our exceptional team. They have been working tirelessly, both in recruiting top talent for our firm this year, but also of course, in covering our clients and their unwavering and very enthusiastic dedication and commitment to our mission, as these are the things that make our firm great. So we look forward to updating you on our progress next quarter, and thank you for your continued support. Operator: This concludes the Perella Weinberg Third Quarter 2025 Earnings Call and Webcast. You may now disconnect your line at this time, and have a wonderful day.
Operator: Good morning, ladies and gentlemen, and welcome to the Emera Third Quarter 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Friday, November 7, 2025. I would now like to turn the conference over to Dave Bezanson. Please go ahead. David Bezanson: Thank you, Joanna, and thank you all for joining us this morning for Emera's Third Quarter 2025 Conference Call and Live Webcast. Emera's third quarter earnings release was distributed this morning via Newswire and the financial statements, management's discussion and analysis and the presentation being referenced on this call are available on our website at emera.com. Joining me for this morning's call are Scott Balfour, Emera's President and Chief Executive Officer; Greg Blunden, Emera's Chief Financial Officer; and other members of Emera's management team. Before we begin, I'd like to advise you that this morning's discussion will include forward-looking information, which is subject to the cautionary statement contained in the supporting slide. Today's discussion and presentation will also include reference to non-GAAP financial measures. You should refer to the appendix for a reconciliation of historical non-GAAP measures to the closest GAAP financial measure. And now I will turn things over to Scott. Scott Balfour: Thank you, Dave, and good morning, everyone. Emera enters these last months of 2025 with solid momentum. Our third quarter marked our fifth consecutive quarter of strong adjusted earnings growth, which has been underpinned by disciplined execution and customer-focused investments and reflects both the strength of our strategy and the quality of our portfolio. With a record $3.6 billion in capital investment this year and a newly extended 7% to 8% rate base growth profile, and a $20 billion capital plan through 2030, we're confident in our ability to continue to deliver sustainable value for customers and shareholders alike. This morning, we reported third quarter adjusted earnings per share of $0.88, a nearly 9% increase over the same period in 2024. Year-to-date, adjusted earnings per share of $2.94 represents a 14% increase over the same period in 2024. The progress this year sets us up well to deliver on our 5% to 7% adjusted earnings per share growth guidance through 2027. In September, our Board of Directors approved a 1% dividend increase, our 19th consecutive year of annual increases. This continued growth in our dividend reflects our confidence in the strength of our premium asset portfolio and our ability to deliver consistent earnings and cash flow growth. We remain focused on delivering value to all stakeholders and we're delivering. We're on track to deliver our largest annual capital spend of $3.6 billion in 2025, with more than $2.6 billion already deployed across key projects, including solar and reliability investments at Tampa Electric, energy storage and transmission upgrades in Nova Scotia, and gas infrastructure at Peoples Gas, and we remain on track to fully execute on our full year plan. Looking forward, our 2026 to 2030 capital plan adds $20 billion of essential investment across our portfolio, enabling us to continue to deliver the reliable energy our customers expect. Like many across the sector, we see increased demand for core investments in reliability, resilience, modernization and generation capacity driven by key market conditions, such as accelerating demand growth, changing grid configuration, renewables integration and of course, electrification. Put simply, there is no shortage of investment opportunity across our portfolio. Our capital plan thoughtfully maintains our 7% to 8% rate base growth trajectory as we remain focused on pacing our capital investment in a way that best delivers value and manages cost impacts for customers while also delivering solid and sustainable growth for investors. Affordability for customers is an important consideration that we must balance with the need to invest in our systems to ensure we were able to reliably deliver the energy our customers need. Since our acquisition of Tampa Electric in 2016, Tampa Electric's rate base has grown by more than 8% annually, driven by investments to support the delivery of essential service to our customers. Over the same period, Tampa Electric's bill increases have remained below the national average. Our success in managing customer cost impacts is driven by prudent cost management, smart investments and a focus on strategic initiatives that deliver value for customers. For example, our solar investments in Florida have saved customers more than USD 350 million in avoided fuel costs. In Nova Scotia, investments required to meet growth in the province to maintain reliability in the face of increasing severe weather and to support government policies of closing coal plants are also driving rate base investment and growth. And we're working to find creative solutions to minimize the impact on customer rates. Last year, Nova Scotia Power is supported by both federal and provincial governments, we securitized more than $600 million in fuel costs and the recently filed consensus general rate application proposes an additional $700 million of securitization related to a portion of Nova Scotia Power's thermal generation assets. These steps are helping to minimize near-term customer cost impacts and demonstrate the thoughtful approach we continue to take in managing rates for customers. Florida continues to be a powerful engine of growth, with robust population and economic expansion driving increased demand for electricity and natural gas. In the last 5 years, Florida has experienced nearly 38% GDP growth. And in 2024, it was the #1 state for net migration and experienced the second highest population growth in the country. To support that growth, more than 80% of our capital plan will be deployed here. The influx of new customers has translated into increased demand for both electricity and natural gas across both residential and commercial sectors. At Tampa Electric's capacity needs grow as a result of economic development, our 2026 to 2030 capital plan includes approximately $1.2 billion of transmission expansion and capacity improvements, averaging approximately $240 million of investment per year. This is in addition to the more than $2 billion of anticipated ongoing spend on solar and complementary energy storage projects, which will result in 2,100 megawatts of solar to be in service by the end of 2028. At Peoples Gas, our investments will be targeted at bringing new customers online as we see continued growth in natural gas demand. In addition, our investments will continue to focus on hardening the system and increasing reliability for customers. As a direct result of the growth we continue to see in Florida, we expect rate base growth from our local utilities to outpace the average of our consolidated plan with these investments driving 8% to 9% rate base growth through 2030. And with the recently approved settlement of Peoples Gas and last year's Tampa Electric rate case, both of which include subsequent year adjustments, we are pleased to have regulatory clarity in support of our investment in rate base over the next 3 years. I'd like to acknowledge that a capital plan of this size is not just numbers on a page. It requires a team of dedicated professionals to execute on. I'm very proud of our teams across all our companies that year after year developed thoughtful plans to take our customers' current and future needs and government regulations and policies into consideration, anticipate what it will take to execute and then go out and deliver on these plans, safely and efficiently. We made a meaningful regulatory process in 2025. The Florida Public Service Commission approved the Peoples Gas settlement with USD 67 million of new rates to go into effect in 2026 and subsequent year adjustments of USD 25 million and USD 5 million in 2027 and 2028, respectively. The settlement agreement also reflects a 15 basis point increase in return on equity, bringing it to 10.3%. This agreement helps to manage regulatory lag and the recovery of investments and important reliability and distribution expansion needs across the state. Earlier this week, the FPSC formalized Tampa Electric's 2026 base rate increase of USD 88 million, which was approved as part of their 2024 decision. In Nova Scotia, the utility filed a consensus general rate application with the Nova Scotia Energy Board in September, requesting new rates for 2026 and 2027. This consensus GRA reflects agreement reached with all customer representatives following extensive engagement and constructive collaboration with key stakeholders across the province. The hearing has been scheduled for January 2026, and we expect a decision and new rates early next year. The GRA enables critical reliability and infrastructure investments necessary to support the needs of Nova Scotians, which are reflected in our updated capital plan. If approved as filed, the settlement provides Nova Scotia Power with a path to return to earning its approved ROE in 2026 and 2027. Finally, at New Mexico Gas, the sales process is proceeding. The regulatory hearing began earlier this week, and we remain confident in obtaining regulatory approval in early 2026. Before turning the call over to Greg, I wanted to highlight that while we extended our rate base growth forecast today through 2030, we've maintained our 5% to 7% adjusted earnings per share growth guidance through 2027. We plan to roll forward our EPS guidance on our fourth quarter call in February of 2026. And with that, I'll turn the call over to Greg. Gregory Blunden: Thank you, Scott and all of you for joining us this morning. Turning to our financial highlights. This morning, we reported third quarter adjusted earnings of $263 million and adjusted earnings per share of $0.88, compared to $236 million and $0.81 in the third quarter of 2024. This represents a 9% increase in our Q3 earnings per share. Year-to-date, we reported adjusted earnings of $878 million and adjusted earnings per share of $2.94, compared to $603 million and $2.10 per share in 2024, representing a 40% increase in earnings per share over the same period in 2024. The robust earnings growth the business has delivered so far has translated into a 23% increase in operating cash flow compared to the same period last year when normalized for fuel and storm deferrals. In addition, recently, we issued USD 750 million in hybrids, effectively replacing the expected proceeds from the sale of New Mexico Gas this year and derisking our hybrid maturity in 2026. This quarter's cash flow growth, in addition to the hybrid offering in late September has delivered an over 150 basis point improvement in our key credit metrics since this time last year, bringing us to 11.9% on a trailing 12-month basis for the must-watch Moody's metric. Turning to the drivers of our third quarter results. Adjusted earnings per share increased $0.07 to $0.88 compared to $0.81 in Q3 2024. At Tampa Electric, new rates in 2025, reflecting the level of capital we've invested on behalf of customers and continued customer growth increased contributions by $0.16 compared to the third quarter of 2024. Contributions from our other electric utilities modestly increased due to lower operating costs and a slightly stronger U.S. dollar increased adjusted earnings by $0.01 during the quarter, while a higher share count decreased adjusted earnings per share by $0.03 compared to 2024. Contributions from our Canadian Electric Utilities decreased $0.04 compared to the third quarter of 2024, primarily driven by higher operating costs and higher depreciation expense. Timing differences in the valuation of long-term compensation and related hedges primarily related to a large gain recognized in 2024 drove a $0.02 increase in corporate costs compared to the third quarter of 2024. And at Emera Energy, favorable weather conditions that led to higher natural gas prices and increased volatility, modestly increased contributions from marketing and trading, but this was offset by lower earnings at Bear Swamp due to an outage. And at our Gas Utilities, lower contributions from New Mexico Gas and Peoples Gas decreased earnings by $0.02 compared to the third quarter of last year. Year-to-date adjusted earnings per share is up $0.84 compared to the same period in 2024, many of the drivers for the quarter are the same as for the year, but there are a few items I'd like to highlight. In addition to new rates at Tampa Electric in 2025, driving increased earnings year-to-date, favorable weather conditions in Florida contributed $0.07 year-over-year. The timing differences in the valuation of long-term compensation related hedges and the reversal of a valuation allowance on deferred tax assets, also drove lower corporate costs. The weakening Canadian dollar increased the earnings contribution from our U.S. operations by $25 million for the year, contributing $0.09 year-to-date. Emera Energy's year-to-date performance reflects the record first quarter where cold weather in the Northeast early this year brought higher pricing and market volatility that the business was able to capitalize on. As a result, in the first quarter of this year, we adjusted Emera Energy's earnings guidance up to a range of USD 35 million to USD 45 million. And contributions from Canadian Electric Utilities benefit from the recognition of investment tax credits related to the ongoing energy storage projects and favorable weather in Nova Scotia in the first quarter of 2025. This was partially offset by the sale of our equity interest in Labrador Island Link in June of 2024. Our capital plan for 2026 to 2030 is similar in size to our previous capital plan, and that is true for our funding plan as well. The only change in our funding plan this year is the inclusion of the proposed asset securitization at Nova Scotia Power that Scott mentioned earlier. The largest source of funding for our new $20 billion capital plan will continue to be reinvested cash flows from our operations. We expect organic cash flow generation to provide 45% to 50% of our funding needs. We expect debt to be issued by our operating companies to support staying in line with the regulated capital structures. And at the holding company, we expect to maintain our holding company debt at 30% to 35% of total debt. As Scott mentioned in his regulatory update, a final decision on the sale of New Mexico Gas is expected in early 2026, and we remain confident in a constructive outcome. Proceeds from the sale will be used to fund approximately USD 700 million of our capital plan. And in addition, Nova Scotia, the expected securitization of thermal assets will contribute an additional CAD 700 million for our funding needs. We continue to expect to access equity markets through our DRIP and ATM programs for up to 10% of our funding needs, supporting the strong profile of organic growth reflected in our $20 billion capital plan. On average, this represents approximately $400 million of equity annually. And we believe hybrid capital has an important role to play in meeting our funding requirements and are pleased with the competitive rates we accessed in the hybrid market a few weeks ago. The 50-50 debt equity treatment by rating agencies makes them attractive tools that we will strategically access to fund up to 5% of our funding plan. And with that, I'll now turn it back over to Scott. Scott Balfour: Thanks, Greg. Before I move into my closing remarks, I want to take a moment to acknowledge that after nearly 10 years, this will be Greg's last earnings call as CFO. On behalf of all of us at Emera, I'd like to thank Greg for his significant contributions over the last decade. Over his tenure, Greg helped the company to navigate a challenging macro environment, unexpected headwinds driven by policy changes and help to absorb our transformative acquisition of TECO. Thanks to Greg's leadership today, Emera is on solid financial footing and well positioned to execute on the organic growth we see ahead. And importantly, I'm pleased that Greg will continue to be part of the team in his new role of Executive Vice President, Finance for our U.S. Utilities supporting our largest and fastest-growing businesses. We also look forward to welcoming Jared Green to the Emera team as our CFO as of December 1. Greg will, of course, work closely with him to ensure a smooth and seamless transition of finance responsibilities, as Jared steps into his new leadership role at Emera. More broadly, for everyone in our industry, this is a critical time to invest in meeting growing demand while strengthening resilience and improving efficiency and, of course, being focused on affordability for customers. Emera will continue to build on our strong momentum, executing our customer-focused $20 billion capital plan at a pace that best manages cost impact for customers. With a strong foundation, premium portfolio of assets and expert teams, we will continue to deliver value for customers and shareholders alike and achieve our targeted adjusted per earnings per share growth. This concludes our formal presentation, and we now open the call for questions from our analysts. Operator: [Operator Instructions] The first question comes from Rob Hope at Scotiabank. Robert Hope: And Greg, all the best. Thanks for all the years. Okay. Maybe just taking a look at the capital forecast. So if we compare the capital forecast that you put forward today versus your prior one, there seems to be a little bit of a different shape specifically a little bit less capital here in the next couple of years, looks like across the board and maybe a little bit more in kind of that '29, 2030 time frame. Can you maybe speak to kind of how some of the capital has been shifted as well as kind of what the key drivers are there? Gregory Blunden: Yes. Rob, it's Greg. I think there's a couple of things. One of the things that you may notice is that some of the planned capital at Tampa Electric for the '26 and '27 period. Some of that has been accelerated into 2025, in particular, around some of our solar investments and getting in front of some of the uncertainty that we see from a policy perspective a couple of years out. And secondly, as part of the rate settlement at Peoples Gas, there was an agreement with intervenors that some of the capital we had planned to spend, it would be better to profile that out over a little bit longer period of time. So that would be an example of a couple of things. Robert Hope: All right. Appreciate that. And then maybe once again on the capital forecast. What -- how do you think about your credit metrics as being a governor or maybe to ask us a different way, are you seeing potential upside to the forecast? And would you be willing to go there if it did require some incremental equity? Gregory Blunden: I think as Scott said, Rob, there's no shortage of opportunities to deploy capital in our business. I think it's a question of pace. And when we look at that, we look through all lenses in terms of the ability to execute the lead times on certain equipment, the impact on customer rates and whether there's any kind of regulatory lag associated with large capital projects and, of course, funding and credit metrics are part of that as well. But like I think many companies in our sector, we're not going to shy away from issuing equity if we need to, to fund accretive capital projects in our businesses. Operator: Next question comes from John Mould at TD Cowen. John Mould: First, best wishes to Greg on the next step, and thanks very much for your assistance. I'd like to just start appreciating it's early days here, but starting with Wind West. It continues to be topical across political levels came up in the federal budget. I appreciate any involvement by yourselves would be on the transmission side. But wondering what conversations have you been a part of on this initiative? How are you thinking about potential scale and timing? And maybe just higher level comments on the broader opportunity for Emera that could come from this push on projects of national importance. Scott Balfour: Yes, John, thanks for the question. And I may get Peter to add on to perspective you hear from me here. So first of all, obviously, it's still very early days on all of these projects of national interest that are all at various stages of planning activity, some -- as you know, the SMR program in Ontario is already under construction. And I think from a broad perspective, from Emera's perspective, we're here, we're interested in seeing how this progresses. We're cheering the premier on certainly for his bold vision as it relates to the Wind West initiative. I'm pleased that the federal government seems to have been captured with that vision and enthusiasm. But of course, it is still very early days, we'll be looking to support the premier's initiative in any way that we can. You're right, we would not naturally look to be participating in offshore wind development. That's not our game. But if we can be assisting those developers with subsea connection into Mainland Nova Scotia, we can be assisting and participate in the transmission build requiring to bring that energy to broader markets beyond Nova Scotia. Of course, we're interested to be doing that. We'll be paying attention, of course, to the Budget Implementation Act, which is expected in the coming weeks. It will increasingly provide more clarity. We will support the office of the -- that is organizing these projects of national interest led by Dan Farrell in any way we can. So at this point, we're early days. We're trying to be helpful to the parties that are there, and there's still a lot of questions to answer as to where this project sits and its timing. But overall, I think it's exciting to see that the focus of the federal government and many premiers is on enhancing and building national infrastructure in Canada, and we'll be pleased to play any part in that, that we can. Peter, anything you want to sort of add a little more Nova Scotia perspective within that? Peter Gregg: I think you covered it really well, Scott. But I'd just say, I think the potential for that East-West transmission is real. We've looked at that in the past. I think it's an exciting opportunity getting a lot of attention at both the provincial and federal level. I think the opportunity to start optimizing generation resources through transmission links in the region is something we should look at. I think it's good for Nova Scotia, and I think it's good for Atlantic Canada. So we'll continue to stay close to the conversation and see what happens. John Mould: Okay. Great. And then just going back to the capital plan and the generation aspect in Florida, you commented earlier about the magnitude of customer savings that solar investments in Florida have brought through avoided fuel costs. Just curious, as you work through your capital plan, how did all the moving pieces with the federal tax credits and some of the [ FEEAC ] concerns or uncertainty effect where you landed in terms of the timing of generation spend and whether there's potential for further customer saving investments there if you do get further clarity on some pieces of that puzzle. Gregory Blunden: Yes, John, it's Greg. Yes, the fuel savings that Scott referred to, obviously, is related to the build of the solar in our service territory that is obviously economic for customers, and part of that is the availability of tax credits. And if I go back to my comments in response to Rob, that's one of the reasons why we've accelerated some of the otherwise planned solar investments for the next couple of years is to advance those projects, realize the savings for customers earlier and also just get in front of what could be some policy uncertainty in the next couple of years. So it hasn't changed our overall plans, but on solar, in particular, a little bit more sooner rather than later. Operator: The next question comes from Maurice Choy at RBC Capital Markets. Maurice Choy: Can I just start with the Nova Scotia rate case? I wanted to specifically ask about your engagement with the Nova Scotia government proceeding up to the settlement and even after the filing with the regulator, particularly given the government's public comments about the rate impact, and with that, what can be done to avoid the outcome that we saw in 2022? Peter Gregg: Thanks, Maurice. It's Peter again. I think obviously, affordability is on a lot of people's minds, including our premier. I won't speak for the premier. But when we look at how we came to this filing, and I think it's important to underline that it's a consensus filing, as Scott mentioned, with all of the customer representatives. So we spent several months working with them. I think we found the path to balancing reliability and affordability through this rate case. So I think it's significant that it is a consensus agreement that was filed. And we're on a path to that hearing in early January. Obviously, you would imagine there have been ongoing discussions with provincial officials for months, those continue. We do have a productive relationship with officials inside the government, and we continue those discussions. I think it's important, too, that the premier statements, while he's concerned about affordability and I understand that, his statements have also been that they will become intervenors in the process, the regulatory process, which is normal, that the government does have a lawyer that participates in that. So that's our expectation. We'll continue to prepare for the hearing in January. Maurice Choy: Maybe as a quick follow-up. Are you detecting any differences in, say, body language or engagement that would avoid the legislative intervention? Peter Gregg: No, no. We continue to have those discussions with, I'd say, partners in government on a number of files, a number of issues. We'll stay close to that. But again, I think the strength of the filing in front of the regulator because we spent all of that time with all the customer representatives. I think, has struck that right balance between reliability and affordability. Maurice Choy: That's great. And if I could just finish up with a discussion about credit metrics and payout ratio, I wasn't much mentioned here about credit metrics. And I remember, Greg, that previously, you mentioned that the funding plan supports about a 50 bps improvement annually in your cash flow to debt metrics as well as payout ratio towards 80% by 2027. Just thoughts on what the funding plan and CapEx plan today... Gregory Blunden: Yes, I think -- thanks for the question, Maurice. Yes, nothing has changed from our view with the funding plan is consistent with what we had before and with the soon to be closing of the sale of New Mexico and the securitization of the thermal plants or assets at Nova Scotia Power. We fully expect to continue to have that level of improvement in our credit metrics over the next couple of years. So we're very pleased about that. On a trailing 12-month basis, we are at our downgrade threshold or a threshold with Fitch now who has us at stable. We've got about 150-plus basis point cushion on our downgrade threshold at S&P, they have us at stable. And as I mentioned in my remarks, we are effectively at the 12% with Moody's as well. So albeit we're still on negative outlook. So all to say is we've accomplished what we needed to do and the path for further improvement over the next couple of years has not changed. Operator: The next question comes from Eli Jossen at JPMorgan. Elias Jossen: Just wanted to kind of start on the strategic leadership changes. Congrats to Greg on next steps and Jared and the rest of the team just top priorities going forward. I think the release highlighted a lot of the strategic goals for the business, but just from a very high level, how should we think about this leadership transition moving forward? Scott Balfour: Yes. Eli, thanks for the question, and welcome to Emera. So yes, I mean, this is really just about continuing to strengthen the bench as we've shared with others in the past, Greg and I are within months of the same age and looking to bring Jared in and just continue to strengthen the bench. We're blessed with -- I'm blessed with working with a great team. And as I say, pleased that Greg can continue to contribute to the team and adding Jared on just continues to bring some fresh talent and fresh perspective and position us well for the future. And we've got great talent those that are on this call and their teams underneath them. We're, as I say, blessed with a team of really terrific people. We don't -- I don't use that term in the call script, expert teams lately, I really believe that we've got a deep bench and a strong team and just continue to think about ensuring that succession planning in the years ahead, continues to be thoughtful as we've navigated in the past with a number of executives retiring and not missing a beat and keeping the momentum that we've got a strong performance through the piece. So just looking to continue to do that. Elias Jossen: Great. And then maybe just pivoting to some of the attractive growth that's been discussed on this call in Florida. So I guess, can we just talk a little bit about potential pockets of upside beyond the plan that you see, whether that's in the near or longer term? What do those look like from a mix shift industrial possible data center opportunities across your service territory? Scott Balfour: Yes. I think Eli, I would say, first of all, I'd anchor back to the point that Greg made, which is there is no shortage of capital for us to invest. We could easily put forward a capital plan that saw significant more CapEx over the next couple of years. But we're working really hard to balance that capital investment profile with the impact on affordability for customers. And at the same time to make sure that we can execute it both safely, but also cost effectively and construction capacity and supply chains in this market are constrained. And so there's risk that in the ability to execute with excellence as I think we have over the years in our capital programs. And so that is sort of home base for us. Now as you mentioned, data centers, data centers have not yet been a part of our story. But I would say that we continue to see active interest in and by the data center side of things in our service territories, of course, particularly in Florida. And there's nothing material that we're in a place to share now, but it continue to be encouraged by the conversations. And I would like to think that we may see some opportunity to grow at the very least to make sure that we're sustaining that 7% to 8% rate base growth for durable time, which I continue to believe. But over time, we may see some opportunity to upside that. But as we sit today, we've continued to believe that 7% to 8% rate base growth profile is kind of the sweet spot, and data center growth may help to support the affordability impacts on broader customers if we can use some of that revenue generation from data centers to mitigate cost impacts for the broader system. This is all part of the equation that every utility I know is dealing with. And as we sit today, as I say, that 7% to 8% growth is home base for us, and we see that as durable for a long time. Operator: The next question comes from Mark Jarvi at CIBC Capital Markets. Mark Jarvi: Scott, when you guys gave EPS guidance, I think you said you wanted walk before you run and weren't comfortable going out to sort of 5 years. As you think about rolling over guidance next year, is the plan to stay with that 3-year guidance? Or would you line that up with the capital plan to 5 years? Scott Balfour: I mean, we haven't fully landed on that yet, Mark, but I would reasonably expect that we'll stick with the 3-year forecast for now. Mark Jarvi: Got it. And then just one question on Maritime Link. It's depreciating asset kind of a bit of a drag on the rate base CAGR. It doesn't require capital. But what's your view on that asset? Are you wedded to it? Is there a lot of strategic value when you think about potentially some of the transmission opportunities in the Atlantic provinces, just sort of long-term view on that asset? Scott Balfour: Yes. It's a pretty strategic asset, I think. I mean it really is just an extension of Nova Scotia Power. It's regulated by the same regulator as Nova Scotia Power, all of that cost profile effectively it is, in a way, a generation source for Nova Scotia Power through import through the Maritime Link. So it really is tagged with Nova Scotia Power. And the only reason really it was separated into its own distinct entity was for financing purposes, and being able to secure the federal loan guarantee. The federal government was looking to ensure that, that asset was physically separated -- legally structurally separated from Nova Scotia Power. So I'd really think of it as an extension of Nova Scotia Power. Mark Jarvi: Would there be an opportunity to maybe do like a minority sale if you saw some other opportunities to continue to push rate base investments across your portfolio? Scott Balfour: We've always got options like that, Mark, but not something that we're thinking of or pursuing at the current time. Operator: [Operator Instructions] The next question comes from Ben Pham at BMO. Benjamin Pham: I have a follow-up question on the Mark's query on the EPS CAGR. I'm wondering from the Emera perspective, when you think about setting the CAGRs and that starting year, you roll forward. How do you guys thinking about '25 as a base just because you had the marketing trading benefit and Tampa rates going up, like it's a high starting point that it's tough to get a CAGR that looks similar to the last or the current CAGR that you have right now? Scott Balfour: And I think -- sorry, go ahead Greg, if you want it. Gregory Blunden: Yes, Ben, I think if you think back to when we first established it, there was a couple of, I'd call it, baseline assumptions that was embedded on the 5% to 7%, and that was that Emera Energy would earn kind of their midpoint of their earnings range of $15 million to $30 million, and it was also based off a consistent foreign exchange rate over the period. So again, I don't want to get over our skis in terms of what we're thinking about for February. But I think it's fair to assume that when we talk about going forward, EPS guidance, it would be normalizing for some of those things that were a bit of a tailwind in 2025. Benjamin Pham: Okay. That makes sense. And what we're seeing from other companies as well. Can you talk about -- I'm not sure if on Nova Scotia Power, the rate base CAGR you have here, it's been quietly creeping up over the years in a good way. What's in that rate case? What's driving that? And I assume you note here, you're normalizing for the thermal securitization, it's apples-to-apples? Gregory Blunden: Yes. We are, Ben. The rate base investments going forward in Nova Scotia Power are really focused on reliability investments. And predominantly, if I take even a step back, transmission and distribution investments. And what I would include in that also is like battery projects, battery storage. So transmission upgrades between Nova Scotia and New Brunswick, strengthening the backbone of the transmission system in the province, more vegetation management and other distribution things all the things to support the transition to an ISO in New England and ultimately getting to our 2030 renewable energy targets in Nova Scotia. Benjamin Pham: Okay. Maybe just one last cleanup question. I know there's a -- I think I saw a positive contribution from BlockEnergy, which I thought your Emera shutdown a while back, is that different now in terms of where that business is? Gregory Blunden: No, we had a settlement on a contract that we had accrued last year as part of the wind up and the settlement was more favorable than we would have anticipated. So basically, just adjusting for an over accrual from 2024. Operator: We have no further questions. I will turn the call back over for closing comments. David Bezanson: That concludes our call for today. Thank you all for joining us. Please reach out to the Investor Relations team if you have any further questions. Have a great weekend. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. My name is Christa, and I will be your conference operator today. At this time, I would like to welcome you to The Hain Celestial Group First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Alexis Tessier, Head of Investor Relations. Alexis, you may begin. Alexis Tessier: Good morning, and thank you for joining us for a review of our fiscal first quarter 2026 results. I am joined this morning by Alison Lewis, our Interim President and Chief Executive Officer; and Lee Boyce, our Chief Financial Officer. Slide 2 shows our forward-looking statements disclaimer. As you are aware, during the course of this call, we may make forward-looking statements within the meaning of federal securities laws. These include expectations and assumptions regarding the company's future operations and financial performance. These statements are based on our current expectations and involve risks and uncertainties that could cause actual results to differ materially from our expectations. Please refer to our annual report on Form 10-K, quarterly reports on Form 10-Q and other reports filed from time to time with the SEC as well as the press release issued this morning for a detailed discussion of the risks. We have also prepared a presentation inclusive of additional supplemental financial information, which is posted on our website at hain.com under the Investors heading. As we discuss our results today, unless noted as reported, our remarks will focus on non-GAAP or adjusted financial measures. Reconciliations of non-GAAP financial measures to GAAP results are available in the earnings release and the slide presentation accompanying the call. This call is being webcast, and an archive will be made available on the website. And now, I'd like to turn the call over to Alison. Alison Lewis: Good morning, everyone, and thank you for joining today's call. I will start by providing commentary on Q1 results and will then discuss the progress we are making on our turnaround journey. Then Lee will provide a more detailed review of our quarterly results along with our outlook. First quarter results were in line with our expectations on the top and bottom line, and we have building blocks in place to drive improved trends in the back half. In the quarter, we demonstrated sequential improvement in organic net sales trends in both of our segments. In North America, Beverages, Baby and Kids and Meal Prep all turned to growth, partially offsetting the continued year-over-year decline in Snacks. The Snacks relaunch entered its execution phase in the quarter, which included the first launch of our revamped Garden Veggie platform with upgrades to oil ingredients and taste profiles, which I'll discuss more in a minute. And in International, growth in the Meal Prep category partially offset the impact from continued industry-wide softness in wet baby food following recent media coverage, which created temporary noise across the category. Ella's Kitchen remains the #1 baby food brand in the U.K. market, reinforcing the importance of our continued leadership in transparency, trust and nutritional quality through accelerated marketing and innovation. Throughout the quarter, we made tangible progress laying the operational and financial foundations necessary to drive improved performance. Our near-term priorities remain clear: stabilizing sales, improving profitability, optimizing cash and deleveraging our balance sheet. Cost discipline and the decisive actions we have taken to streamline our cost structure drove a reduction in SG&A in the quarter, and we are seeing early results from the execution against our '5 actions to win', including benefits from pricing initiatives beginning to build. As we discussed last quarter, we are committed to improving our financial flexibility through resetting our cost structure to better align with our current business. We have unwound much of our global infrastructure and have implemented an operating model designed to empower the regions and prioritize speed, simplicity and impact across the organization. We are already beginning to see results with an improvement in forecast accuracy, a reduction in inventory in North America and an acceleration in the innovation pipeline across the business. The changes to work design have been actioned and should benefit SG&A going forward, particularly in the back half. As previously mentioned, we expect these cost initiatives to drive over 12% cost reduction in people-related SG&A expenses. We expect to have additional opportunities to refine the operating model based on the outcome of the previously announced strategic review work. Further, every dollar spend across the P&L is being scrutinized to eliminate waste and ensure greater return on investments. In the quarter, we drove improvement in rate and trade by eliminating poor ROI events and inefficient spend, and we continue to see positive return on ad spend as we shift to a digital-first marketing model. Our turnaround strategy is focused on five key actions to win in the marketplace: streamlining our portfolio; accelerating brand renovation and innovation; implementing strategic revenue growth management and pricing; driving productivity and working capital efficiency; and strengthening our digital capabilities. Complexity has hampered our ability to move with speed and efficiency. We remain committed to building a winning simpler portfolio by exiting unprofitable or low-margin tail SKUs, refocusing resources on brands and categories with the highest growth and margin potential and managing product life cycles for improved long-term value. During the quarter, we executed the previously announced exit of the meat-free category in North America. Looking ahead, we are targeting the elimination of approximately 30% of our SKUs in North America through fiscal 2027, representing low value in our portfolio and enabling us to improve supply chain efficiency and shelf productivity. This includes the SKU reduction in tea we discussed last quarter. We have implemented a disciplined portfolio management review process designed to continuously assess, add or retire SKUs, maintaining an optimized winning portfolio and eliminating reliance on large episodic rationalization efforts. These actions enable us to sharpen our focus and resources to accelerate growth in our highest potential brands and categories. This year, we have accelerated our innovation pipeline and have new products launching in every category in our portfolio. Let me give you several examples. We recently relaunched Garden Veggie Snacks with the boldest renovation in its history, elevating attributes of high importance to consumers. Our new straws and puffs are made with avocado oil. We introduced a fourth straw made from sweet potato, which was the most requested new vegetable. And our cheddar recipes are now crafted with real cheese. In consumer testing, our new Garden Veggie Straws were significantly preferred compared to a leading competitor. We debuted the new items in breakthrough new packaging in late September at a key national retail partner and will expand to additional national retailers this winter and into the new year. In Greek Gods, momentum is accelerating and the brand pivoted to share growth in the quarter. Contributing to the acceleration was expanded regional availability of a larger 48-ounce format in a key club partner in the quarter. More recently, we started shipping our new single-serve offering to a key retailer and are supporting the launch with expanded digital advertising. Single-serve represents nearly 30% of the category, so the potential opportunity is large. In Earth's Best, we are continuing to build upon our strength in Snacks with the launch of the big kids snacks platform in the second half. We are expanding into new backpack territory with snacks designed to bridge the gap between toddlerhood and big kid independents. With organic power bites, organic veggie waves, organic crispy sticks, we deliver protein and fiber for high-density nutrition while balancing portability, taste and fun. In formula, we will be sponsoring a leading retailer's baby registry, the #1 registry destination in the second quarter, and we are leaning into the brand's commitment to quality. Earth's Best recently received the discerning Clean Label Project Purity Award across its full line, underscoring trust with parents and caregivers. Additionally, the brand was highlighted by Consumer Reports in August as one of the most transparent baby food brands. These accolades are important claims for our marketing to parents and caregivers. In International, Hartley's Juicy Jelly on-the-go pouches launched in the first quarter with strong retailer support helping to drive share growth in the first full 4 weeks of launch. In addition, we launched new Covent Garden 1-kilogram value pack designed to recruit larger families and rolled out flavor refreshes across the soup brands. We've extended our successful soup and the Rosseto innovation into more retailers, delivering sales growth over 25% for Cully & Sully along with share gains. Innovation planned for the back half in International include Ella's Kitchen Nutty Blends, a range of three fruit and vegetable blends with a touch of nuts, perfect to stretch taste or provide a more filling snack for 6 months and up. In addition, we're launching Ella's Kitchen Kids aimed at older kids from 18 months up. The range extends the brand into new occasions with strong nutritional standards for better-for-you alternatives. A 10-SKU range of Oaty Bars, Wild Crackers and Crispy Sticks will hit the shelves in the back half of the year. We also have two exciting nondairy beverage launches for Joya Protein. We are upgrading our existing protein range to include even more protein per serving, and we are launching ready-to-drink protein in two delicious flavors. With accelerated pipelines and launches, innovation will be a much larger part of our story going forward. We will support these launches with marketing funded by margin improvements from our revenue growth management and productivity cost savings initiatives. We are encouraged that we have one of the strongest innovation pipelines in our recent history as we aim to significantly increase our contribution from innovation to growth. As discussed, this year, we have pricing actions planned across every category in our portfolio, following a long period where our pricing did not keep pace with inflation, particularly in North America. Our International price increases implemented in late Q4 are overall delivering on plan. While there are some puts and takes by subcategory and SKU, elasticities are generally in line with expectations. In North America, as noted in our last earnings call, we are actively accelerating pricing and revenue growth management as critical levers to cover inflation, a meaningful shift from prior years. We are beginning to see the benefits contributing to Tea and Baby and Kids turning to growth in the quarter. While we executed our Tea and Baby and Kids pricing in Q1, we have accelerated revenue growth management activities for Meal Prep and Snacks through a combination of pricing, price pack architecture and premiumization. We expect the benefit from pricing to ramp up throughout the fiscal year. Further, we are making headway in optimizing trade spending. In the quarter, we reduced trade spend as a percentage of gross revenue by 40 basis points year-over-year. We expect to deliver improvement in our trade for the rest of the year as we actively analyze gross to net opportunities to maximize the efficiency and effectiveness of our trade investments. Generating operational productivity and improving working capital management have been bright spots for Hain. Last year, we delivered operational productivity savings of approximately $67 million. We have a strong productivity pipeline and are targeting more than $60 million in fiscal 2026. In addition to that operational productivity, we expect to realize substantial future cost savings from our realignment of our overhead structure that we began to implement during the quarter. From a working capital perspective, we have been deliberate in our focus on inventory reduction for the fiscal year, resetting weeks of coverage for both raw and pack and finished goods. In North America, we reduced net inventory by nearly 10% from Q4 as a result of our improved internal forecast accuracy. Further, we continue to make progress on extending terms with strategic suppliers. As I mentioned earlier, our shift to a digital-first marketing model is delivering positive return on advertising spend overall. We are engaging in new digital partnerships to drive community relationships and household penetration. New this quarter are programs like Earth's Besties, a digital CRM community marketing program, leveraging best practices from the successful Ella's Kitchen program and providing advice, support and resources to parents. And we are piloting an Ibotta partnership, utilizing performance marketing and incentives with promising early results in driving new users and incremental sales across key snack brands and soon in formula. We are heightening our e-commerce focus and continue to expect sales growth at or above category rates in fiscal 2026. In the International segment, we are growing Hartley's Jelly Pot and Sun-Pat with overall performance and momentum accelerating in September behind back-to-school execution. And in North America, tea and yogurt are growing double digits at key online retailers. We are encouraged by the early progress we are making. We have taken decisive action to strengthen our financial health, streamline operations and energize our brands, balancing near-term financial flexibility with future growth. We are focused on consistent delivery and building momentum. Our near-term priorities remain clear: stabilizing sales, improving profitability, optimizing cash and deleveraging the balance sheet. We will achieve this by creating greater financial flexibility, enabling us to invest in our brands and by executing our turnaround strategy anchored in the '5 actions to win' in the marketplace. In parallel, we continue to make good progress on our previously announced strategic review work with Goldman Sachs. We have completed our analysis and evaluation of the portfolio. We have a large number of brands with strong value where we have a right to win, and we have other areas that we are actively addressing that could further streamline our portfolio. We look forward to updating you when we are in a position to provide further detail. Now I'll hand the call over to Lee to discuss our first quarter financial results and outlook in more detail. Lee Boyce: Thank you, Alison, and good morning, everyone. As Alison mentioned earlier, our first quarter net sales of $368 million and adjusted EBITDA of $20 million were consistent with our expectations of a quarter that would be similar in absolute dollars to Q4 2025, as discussed on our last earnings call. For the first quarter, we saw an organic net sales decline of 6% year-over-year, driven by lower sales in both the North America and International segments. While not yet where we want to be, results were in line with our expectations and represented a sequential improvement from the 11% decline in Q4. The decline in organic net sales growth reflects a 7-point decrease in volume mix and a 1-point increase in price. Adjusted gross margin was 19.5% in the first quarter, a decrease of approximately 120 basis points year-over-year. The decrease was driven by lower volume mix and cost inflation, partially offset by productivity and pricing and trade efficiencies. SG&A decreased 8% year-over-year to $66 million in the first quarter, driven by a reduction in employee-related and nonpeople cost discipline as we began to implement overhead reduction actions. SG&A represented 17.8% of net sales for the quarter as compared to 18.1% in the year ago period. During the quarter, we took charges totaling $14 million associated with actions under the restructuring program, including employee-related costs, contract termination costs, asset write-downs and other transformation-related expenses. To date, we have taken $103 million in charges associated with the transformation program, which is comprised of $100 million of restructuring charges and $3 million of expenses associated with inventory write-downs. Of these charges, $35 million were noncash. Restructuring charges, excluding inventory write-downs, are expected to be $100 million to $110 million by fiscal 2027. These charges are excluded from adjusted operating results. Interest expense rose 13% year-over-year to $15 million in the quarter, primarily due to higher financing fees related to the amendment of our credit agreement. We have hedged our rate exposure on more than 50% of our loan facility with fixed rates at 7.1%. We continue to prioritize reducing net debt over time. Adjusted net loss, which excludes the effect of restructuring charges amongst other items, was $7 million in the quarter or $0.08 per diluted share as compared to adjusted net loss of $4 million or $0.04 per diluted share in the prior year period. We delivered adjusted EBITDA of $20 million in the first quarter compared to $22 million a year ago. The decline was driven by a decline in volume mix and cost inflation, partially offset by productivity, a reduction in SG&A and pricing and trade efficiencies. Adjusted EBITDA margin was 5.4%. Turning now to our individual reporting segments. In North America, organic net sales declined 7% year-over-year. The decrease was primarily driven by lower volume in Snacks, partially offset by growth in Beverages, Baby and Kids, and Meal Prep. First quarter adjusted gross margin in North America was 22.7%, a 200 basis point increase versus the prior year period. This improvement was driven primarily by productivity savings and pricing and trade efficiencies, partially offset by lower volume mix and cost inflation. Adjusted EBITDA in North America was $17 million, an increase of 37% from the year ago period. The increase resulted primarily from productivity savings, a reduction in SG&A expenses and pricing and trade efficiencies, partially offset by the impact of lower volume mix and cost inflation. Adjusted EBITDA margin was 8.3%. In our International business, organic net sales declined 4% in the quarter, primarily driven by lower sales in Baby and Kids, partially offset by growth in Meal Prep. International adjusted gross margin was 15.7%, approximately 530 basis points below the prior year period. And adjusted EBITDA was $13 million or 7.7% of net sales, reflecting a decrease of 38% compared to the prior year period. These decreases were primarily driven by lower volume mix and cost inflation, partially offset by productivity savings and pricing and trade efficiencies. We expect our margin in International to improve, particularly in the second half behind three key drivers: one, improved performance of our higher-margin Ella's business with accelerated marketing and innovation to drive improvement in the category behind our trusted, high-quality and nutritious products; two, operational efficiency initiatives in our manufacturing network; and three, the full realization of benefits from our focus on revenue growth management. Now turning to category performance. Organic net sales growth in Snacks was down 17% year-over-year, driven by velocity challenges and distribution losses in North America. As Alison mentioned, we have entered the execution phase of our Snacks turnaround plan with the relaunch of Garden Veggie, which will be rolling out to additional retailers throughout the fiscal year. Additionally, our price pack architecture work on Garden Veggie multipacks is driving early velocity improvements at key retailers. And we've seen strong performance from our Garden Veggie seasonal offering, particularly Ghost and Bats. Lastly, Garden Veggie is seeing encouraging momentum in the convenience channel, where sales are up 24% as distribution expands. In Baby and Kids, organic net sales growth was down 10% year-over-year, driven primarily by industry-wide softness in purees in the U.K. that Alison mentioned. In North America, we have continued to see strength in Earth's Best snacks and cereal with dollar sales growth of high single-digit and low double-digit percent, respectively. In the Beverages category, organic net sales growth was 2% year-over-year, driven by Tea in North America. Celestial Seasonings bag tea gained distribution in the quarter, in part due to the recent launch of wellness innovation. In Meal Prep, organic net sales growth was flat year-over-year as strength in yogurt in North America was offset by softness in meat-free products in the U.K. and soup in North America. Greek Gods grew dollar sales in the quarter by mid-teens percent. Shifting to cash flow and the balance sheet. Free cash flow for the quarter was an outflow of $14 million compared to an outflow of $17 million in the year ago period. The improvement was primarily driven by improved inventory delivery, partially offset by lower recovery of accounts receivable and a decline in cash earnings. We continue to be pleased with the progress we have made improving our days payable outstanding. Days payable outstanding was 57 days in the quarter, down from 65 days in Q4 2025, but an improvement from 55 days in the year ago period. We have made significant progress towards our goal of 70-plus days payable outstanding by fiscal year 2027. Inventory is an opportunity for improvement and an area of focus for fiscal 2026. Days inventory outstanding improved to 83 days in the quarter from 88 days in Q4 2025, though it is up from 80 days in the year ago period. CapEx of $5 million in the quarter was down from $6 million in the prior year period. We continue to expect capital expenditures to be approximately $30 million for fiscal 2026. Finally, we closed the quarter with cash on hand of $48 million and net debt of $668 million as compared to $650 million in the beginning of the fiscal year. The increase in net debt was driven by seasonal funding of working capital and capital expenditures. Paying down debt and strategically investing in the business continue to be our priorities for cash. Our net leverage ratio as calculated under our credit agreement, increased slightly to 4.8x, comfortably below the 5.5x maximum. Our long-term goal is to reduce balance sheet leverage to 3x adjusted EBITDA or less as calculated under our credit agreement. Turning now to the outlook. As stated last quarter, we are not providing numeric guidance on fiscal 2026 operating results at this time, given the uncertainty around the outcome and timing of the completion of our strategic review other than to say we expect free cash flow to be positive. With respect to the shape of the year, we continue to expect aggressive cost cutting and execution against our '5 actions to win' in the marketplace to drive stronger top and bottom line performance in the second half of the year as compared to the first half. To put a finer point on it, I want to call out some of the dynamics that are driving the shape of the year. First, we are stepping up our marketing investment in the second quarter of 2026 compared to the first quarter of this fiscal year, and by approximately $2 million from the year ago period. This will support the accelerated innovation across the portfolio throughout the year that Alison discussed. Investment in our brands is a critical element for improved performance as we move into the second half. Second, we have an approximately $3 million headwind in the second quarter from our bonus accrual this year that was zeroed out last year. Third, the benefits from both the SG&A work we have actioned and pricing we have taken should build throughout the year. And lastly, Ella's Kitchen, one of our highest margin businesses, has been under pressure driven by industry-wide category softness. We expect our accelerated marketing efforts and innovation to drive improvement in Ella's in the second half. Now I'll turn it back to Alison for some closing remarks. Alison Lewis: Thanks, Lee. Our first quarter results were consistent with our prior indication that Q1 performance would be broadly comparable to Q4 in absolute dollars. In North America, we delivered margin and profit growth despite top line headwinds in our largest category in the region, Snacks, which we are relaunching to restore both growth and profitability over time. Internationally, the baby food category remained soft industry-wide. However, as category leader, we have accelerated marketing and innovation to drive category momentum over the balance of the year. Across the portfolio, we are seeing encouraging contribution to revenue and margin as we take disciplined RGM and pricing actions. And we continue to execute strongly on productivity, delivering consistent savings that will build as the year progresses. In addition, we have implemented a step change in our overhead cost reduction, ensuring our organization is rightsized for the current business. We are moving with speed and determination to strengthen our financial flexibility and lay the groundwork for improved performance as we move from the first half of the fiscal year to the second half. We remain focused on executing our '5 actions to win'. Streamlining our portfolio; accelerating brand renovation and innovation; implementing strategic revenue growth management and pricing; driving productivity and working capital efficiency; and strengthening our digital capabilities. We are executing with focus and discipline, placing Hain firmly on the path towards sustainable growth. Before I close, I want to thank the entire Hain team for their commitment to our mission, our brands, our consumers and our customers and for driving meaningful progress against our five actions to win. That concludes our prepared remarks, and we are now happy to take your questions. Operator, please open the line. Operator: [Operator Instructions] And your first question comes from the line of Andrew Lazar with Barclays. Andrew Lazar: I think, Lee, you laid out some discrete dynamics to keep in mind that impact EBITDA for the most part in 2Q. As you think about organic sales in 2Q, would you anticipate, just given the incremental investment and such that the year-over-year, rate of -- the year-over-year rate of decline in organic sales can continue to moderate sequentially in 2Q versus what you saw in the first quarter, even though I realize there are some discrete issues around EBITDA? Lee Boyce: Yes. I mean I think you can see some moderation. I would say the biggest focus is on the second half versus the first half, and we kind of outlined that. But you would see, especially as you go into the second half, an improvement in areas such as in snacks, or a moderation of declines there. The other thing we kind of outlined in the call is in Baby and Kids, particularly in Ella's. So we would -- based on the programming we put in, we would expect to see an improvement in Baby and Kids, moderation in Earth's Best. And then also looking at Beverages, we would expect an improvement in tea and then private label, nondairy beverage. I'd say Meal Prep overall has been stable. So our big focus is really on the second half versus the first half. That's where you'll see that improvement. Andrew Lazar: Okay. And then, Alison, you talked about elasticities so far with the pricing you've taken in International being, again, broadly on average, sort of in line with your expectations. I know it's still early around some of the pricing actions you're taking in North America, but where you've gotten some of the pricing in? What are you seeing around elasticity as a starting point? I think you mentioned last quarter, you would anticipate elasticities in North America being around 1% and around, I think, 0.5% in international. So I guess, what are you seeing in North America so far? And maybe how have those announced price increases gone over with respect to your key retail partners? Alison Lewis: Yes, I mean the pricing on tea and baby flowed through in North America in the quarter. And on tea, we're pretty much flowed through with all retailers and the price points that are on the shelf are in line with what we expected. Baby has been a little bit slower to roll through only because we have multiple categories. But again, pricing that we've seen so far flow through on baby is in line with the category. You're right, it's early days on elasticity, but we are able to get an early read. On tea, we're seeing that it's generally in line with the 1% elasticity expectation that we set. I mean, obviously, you know that elasticity is a dynamic thing because it depends a lot on sort of the overall competitive dynamic, the marketing and innovation that you do, et cetera. So we'll continue to monitor, but so far in line with what we expected. On baby, it's a little harder to read right now, again, because it hasn't flowed through quite as quickly. But what we are seeing, again, early data is it looks like it is in line. We are seeing more competitive dynamics in the baby category. So again, we're going to be monitoring both closely. And as you know, you need to sort of be dynamic in the marketplace, and we'll be dynamic as we need to in order to protect what we have in terms of our expectations on the growth of those businesses. Operator: Your next question comes from the line of Kaumil Gajrawala with Jefferies. Kaumil Gajrawala: If we could just talk a little bit about the consumer seems to be getting increasingly challenged period to period to period. And because so many -- because the bulk of your portfolio is in health and wellness, it often can also have a price premium to maybe the non-health and wellness items. So how do you think through that calculus in today's consumer environment, especially in the context of what you just talked about related to taking additional pricing? Alison Lewis: Yes. So I would say, overall, you're right, the consumer dynamic is one where we have more value-seeking behavior as consumer pocket books are a little tighter than usual. I think what we're seeing in the market is broadly what we've always seen when we hit these kind of speed bumps where we see a movement in terms of shopping patterns, so fewer -- more trips, less dollars per trip. We see a shift to some of the more value channels, whether that is club, mass, dollar. We see a shift in terms of the packages that they're buying, again, looking at kind of lower overall price point. But the thing that I would say about our portfolio is that it brings value to the consumer in terms of those better-for-you credentials. So the other thing that we're seeing in terms of the behavior is that when a consumer is putting a $1 down, they want to make sure that they're getting something that has value to them. And because our better-for-you brands have value to them because they taste great, they've got better nutritional profile, they're willing to stay in those brands. And so that's probably why we see sort of relatively low private label development across our categories. And then as you look at the private label where there is private label, there is some growth in private label, but it's not -- you're not seeing substantial shifts in private label. It's small increases or in some categories, actually, you're seeing decreases. So again, I think the most important thing that we can do is continue to deliver value to the consumer, value that consumers are willing to pay for and then ensure that our price pack architecture has price points across various sizing that allows for everyone to participate no matter what the disposable income level is. Operator: [Operator Instructions] We have no further questions in our queue at this time. I will now turn the conference back over to Alison Lewis for closing comments. Alison Lewis: So thank you for joining us today. I'll just reiterate a few things we said in our overall messages. But overall, as an organization and company, we're moving with speed and determination to strengthen our financial flexibility and lay the groundwork for improved performance as we move from the first half to the second half. We remain focused on our '5 actions to win', and we're executing with focus and discipline to put Hain firmly on the path to sustainable growth. So thank you, everyone, for joining today. Operator: And ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Welcome to the Avino Silver & Gold Mines Third Quarter 2025 Financial Results Conference Call and Webcast. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Jennifer North, Head of Investor Relations. Please go ahead. Jennifer North: Thank you, operator. Good morning, everyone, and welcome to our Q3 earnings call and webcast. To join this webcast and conference call, there is a link in our news release of yesterday's date, which can be found on our website under News 2025. In addition, a link can be found on the homepage of the Avino website. The full financial statements and MD&A are now available on our website under the Investors tab and then click on Financial Statements. In addition, the full statements are available on Avino's profile on SEDAR+ and on EDGAR. Before we get started, I remind you to view our precautionary language regarding forward-looking statements and the risk factors pertaining to these statements. And note that certain statements made today on this call by the management team may include forward-looking information within the meaning of applicable securities laws. Forward-looking statements are subject to known and unknown risks, uncertainties and other facts that may cause the actual results to be materially different than those expressed by or implied by such forward-looking statements. For additional information, we refer you to the detailed cautionary note in this presentation for this call or on our press release of yesterday's date. On the call today, we have the company's President and CEO, David Wolfin; our Chief Financial Officer, Nathan Harte; and our VP of Technical Services, Peter Latta. I would like to remind everyone that this conference call is being recorded and will be available for replay later today. Replay information and the presentation slides from this conference call and webcast will be available on our website. Also, please note that all figures stated are in U.S. dollars unless otherwise noted. Thank you. I will now hand over the call to Avino's President and CEO, David Wolfin. David? David Wolfin: Thanks, Jen. Good morning, everyone, and welcome to Avino's Third Quarter 2025 Financial Results Conference Call and Webcast. We will cover the highlights of our financial and operating performance, and then we will go over the work that we are currently doing, followed by a Q&A. I will start with a discussion on operations and overall performance and then I will turn it over to Nathan Harte, Avino's CFO, to discuss the financial performance for the period. And then Jennifer North, our Head of Investor Relations, will present an overview of the Q3 CSR/ESG initiatives. Please turn to Slide 5. Our strategic vision for transformational growth remains focused on transitioning from a single production operation to a multi-asset Mexican mid-tier producer. We have had eventful third quarter, and our performance was guided by 5 key drivers: number one, operational excellence; number two, portfolio optimization; number three, a disciplined approach to financial management and capital allocation; number four, strategic exploration and drilling to unlock further resource potential; number five, continued growth and strengthened market recognition. The first driver is operational excellence. Our team at site advanced automation and process upgrades, which has been reflected in our strong mill performance and sustained throughput. In addition, the progress at La Preciosa has been exceptional. Operations management have expanded the workforce with ongoing equipment training to support operational efficiency. Subsequent to the end of the quarter, we had started processing La Preciosa's material through Circuit #1, which is well ahead of expectations. Portfolio optimization, our second key driver, is reflected in the August announcement where we reported the acquisition of the outstanding royalties and contingent payments on La Preciosa. Acquiring these consolidates ownership, improving project economics and enhancing operational flexibility at La Preciosa. By removing third-party obligations, this reduces financial and operational complexity, strengthening Avino's overall asset portfolio. We believe that this enhances shareholder value by optimizing our portfolio and positioning Avino for sustained growth. Our third driver focuses on our disciplined approach to financial management and capital allocation. Avino achieved another quarter of strong financial performance, which is reflective of improved mill availability and consistent operational discipline demonstrated by our team. With record cash of $57 million and working capital of $51 million, our balance sheet continues to build strength. Nathan will provide a detailed overview of the financials later in the call. Fourth, we remain committed to strategic exploration and drilling to unlock additional resource potential. In August, we reported results of 4 drill holes from La Preciosa, which were drilled to twin previous drilling. The assay results from the intercepts of La Gloria and Abundancia were very positive. Highlights include from hole 2503, 1,638 grams of silver and 1.92 grams of gold over 7.9 meters of true width. Included in that is 15,352 grams of silver and 1.55 grams of gold over 0.37 meters of true width. The intercept grades are significantly higher than the average grades outlined in our current resource, highlighting the potential we aim to capture by using underground mining methods. In addition, the larger widths encountered at both La Gloria and Abundancia were a welcome surprise, underscoring that there is still much to learn about the deposit despite the 1,500 drill holes and substantial exploration investment performed by previous operators. We just released a further 4 holes on October 27, which have also returned excellent grades. The full results for both news releases are on our website under the News Release tab. Our final driver for the quarter reflects continued growth and strengthened market recognition. Avino was proud to be included in the Toronto Stock Exchange 2025 TSX30, distinguishing itself by ranking fifth among top-performing companies. For the 3 years ended June 30, 2025, Avino's share price performance increased 610% and market capitalization increased 778%. In addition to this, Avino was added to the Market Vectors Junior Gold Miners Index and VanEck Junior Gold Miners ETF, GDXJ, effective market close on September 19, 2025. These achievements underscore the decisive steps we've taken to advance Avino's transformational growth strategy and reinforce the investment case for Avino. Moving to Slide 6. We turn to Avino's Q2 2025 production results, which were released in mid-October, reflecting steady operational performance. Overall results continue to support the company's original production estimate of 2.5 million to 2.8 million silver equivalent ounces. On Slide 7, we put together various photos of recent development activity at La Preciosa. We are very pleased with the progress we are making. At this time, I will now hand it over to Nathan Harte, Avino's CFO, to present our record financial performance for Q3 2025. Nathan? Nathan Harte: Thank you, David. It is my pleasure to be presenting another quarter of strong financial and operating results to everyone who has joined us and is viewing our presentation today. Here on Slide 8, we have an overview of our financial and operating highlights and improved balance sheet with the full table on the next slide. Our third quarter results demonstrated -- continue to demonstrate profitability and the ability to grow. We generated $21 million in revenues, up 44% from Q3 of last year and consistent with the last quarter, despite lower sliver equivalent ounces sold. Gross profit was just shy of $10 million and on a cash basis was $11.1 million after removing noncash expenses. Gross profit margin was 47%, inclusive of the noncash items. This was significantly improved from the 39% we saw in Q3 of last year; and on a cash basis, this margin was 53% compared to 45% in Q3 of last year. Avino earned its highest ever quarterly profit with $7.7 million in net income after taxes or $0.05 per share in the third quarter. This was up significantly compared to Q3 of last year, where we earned $1.2 million or $0.01 per share. Adjusted earnings were $11.6 million or $0.07 per share compared to $5 million or $0.04 per share in Q3 of last year, representing a significant improvement. Cash flow from operating activities and free cash flow both improved from Q3 of last year as well. We generated $8.3 million from operating activities or $0.05 per share, and free cash flow after all capital expenditures came in at $4.5 million. Included in these capital expenditures were some development costs at La Preciosa for the third quarter. And on a stand-alone basis, free cash flow from Avino was $5.4 million. Our cash cost per silver equivalent ounce was $17.06, up 14% from Q3 last year. On an all-in basis, we came in at $24 per silver equivalent ounce sold, 9% higher than the third quarter of last year. I will discuss the increase in per ounce cost in an upcoming slide and explain how the movement in silver price in relation to gold and copper prices during the third quarter did impact our silver equivalent ounces sold calculations and added to our cost per ounce figures. Now on to the balance sheet. Our cash position was a record $57.3 million at the end of the quarter, it was up $20 million from last quarter and $30 million from the end of the year. Working capital increased by over $10 million in the quarter as a result of the increased cash offset by the deferred consideration on the royalty retirement transaction. Subsequent to the quarter end and as of today, our cash position is approximately $65 million. With our improved balance sheet and La Preciosa moving forward, Avino is in its most stable financial position in its 57-year history. With no debt, excluding operating equipment and the deferred consideration payable, we continue to be well positioned to execute on our 5-year organic growth plan and are continuing with the reviews for accelerating the time line of these plans. With La Preciosa now processing in our Mill Circuit 1 at between 200 tonnes and 250 tonnes per day, we're excited for 2026, as we embark on the transition to being a multi-asset producer with the synergies of one centralized milling location. Turning over to Slide 9, we see some other financial metrics and the significant increases compared to Q3 and year-to-date amounts in 2024. Just wanted to highlight again the per share metrics where we see $0.05 earned on a cash flow basis, $0.07 earned on an adjusted earnings basis and free cash flow generated again was $5.4 million, excluding just under $1 million spent on La Preciosa. Here on Slide 10, you can see our cost per ounce figures did increase when compared to Q3 of last year as well as last quarter, coming in again at $17.09 per silver equivalent payable ounce. For the year-to-date cash costs were $14.95, 3% lower than the first 9 months of last year. As I mentioned before, I do want to highlight that the movement in silver price did have an impact on our silver equivalent payable ounces calculation and that did also impact our cost per ounce figures. Using the prices from our forecast at the beginning of 2025 of $30 per ounce silver, $2,700 per ounce gold and $9,200 per ounce -- per tonne copper, our cash cost per ounce for the third quarter and year-to-date would have been $15.88 and $14.56, respectively, which is in line with our expectations that we set out at the beginning of the year. On an all-in sustaining cost basis, our third quarter costs were $24.06 per silver equivalent ounce, up 9% from Q3 of last year. Year-to-date, the costs were $21.64 per ounce, which were very similar to the first 9 months of 2024. Again, highlighting the silver price impact on these figures. Using the same method, our all-in sustaining cost per silver equivalent payable ounce was $22.36 for the third quarter and is fairly consistent with Q3 of last year. The year-to-date figure would be $21.08, which would have been 2% lower than last year. As we manage the first stage of growth, we are pleased that our cost structure continues to remain intact even with the increased activity arising from bringing a second mine online. We look forward to further economies of scale, as La Preciosa is now in production and it continues to contribute to our overall production profile. Coming to Slide 11, you can see our cost per tonne processed for the quarter and year-to-date continue to remain consistent, further reinforcing the points made on the last slide. Cost per tonne processed on a cash basis was $53.18, down 2% compared to Q3 of last year. On the year-to-date figures, we came in 8% lower than the comparable period as a result of better mill availability and solid mining rates. On the all-in side for the quarter, a very similar story with a 3% reduction per tonne processed for the quarter and 7% reduction overall on the year-to-date figure. Our cost per tonne remains extremely competitive for an underground operation. As shown by our profit margins, our cost structure continues to remain intact. We are poised to take advantage of the increased metal price environment, as we make the transition to being a multi-asset producer. As we touched on last quarter, tariff discussions continue to put uncertainty in the currencies in which we operate in and reducing our risk associated with costs has been top of mind over the year. There are no direct significant impacts to our operations from these tariffs. However, we are subject to movements between the U.S. dollar and the Mexican peso. Our hedging program for the Mexican peso impacted the bottom line positively by about $1 million, as we had made USD to Mexican peso hedges earlier in the year and at the end of 2024 to protect our budget. We also currently have a $1 million, $1.5 million derivative asset on our balance sheet, which represents the mark-to-market balance at the end of the quarter, as most of our hedges are still well in the money even after realizing $1 million in foreign exchange gain in the quarter. And with that, I'll turn it over to Jennifer North, Head of Investor Relations, for an overview of our recent ESG and CSR initiatives. Jennifer North: Thank you, Nathan. Please follow along to Slide 12 for an update of our ESG/CSR initiatives. Avino follows the ESG standards and aligns with the United Nations sustainable development goals, or the SDGs. Avino's efforts throughout the quarter contributed to progress on multiple SDGs, reflecting our ongoing commitment to responsible and sustainable development. During the third quarter, the CSR teams led the following strategic projects in the communities: Several school graduation sponsorships, donations of scrap material for further use in the communities, road maintenance and rehabilitation, delivery of low-cost water tanks and cisterns, organized and sponsored a second health fair that was held in the communities offering free access to specialized medical services and preventative care. This event was coordinated with the state government, civil associations, medical units and volunteers providing much needed care and services. This initiative reaffirms Avino's commitment to health equity as a fundamental right, particularly in rural areas where access to medical services is limited. Mining and historic -- sorry, mining and history museum project in Durango, a promotional video was produced and historical photographs were selected to be exhibited as part of Avino's display in the museum. This project is approaching the final delivery stage of materials for the exhibition. A new subsidized access program for construction materials, cement, mortar, roofing sheets and school footwear was introduced, facilitating access for interested families. Avino participated in an employment fair, providing 50 individual consultations to share information about the company and receive job applications from interested people. Avino continued developing activities focused on strengthening community ties, improving basic infrastructure, facilitating access to social support programs and supporting long-term institutional and strategic projects. Our CSR teams continue to do phenomenal work, and we're excited to share these initiatives with our shareholders as a reflection of how we're creating meaningful impact beyond our operations. I will now turn it back over to David to continue with the presentation providing our activities for the coming quarter. David? David Wolfin: Thanks, Jen. Moving to Slide 13. Summarizing our current and upcoming activities, I mentioned earlier, our focus on strategic exploration and drilling to realize the full potential of our resource base. This includes our recent commitment to AI integration, which is designed to improve data analysis, target generation and overall exploration efficiency. With the support of VRIFY's AI software, almost 6 gigabytes of data was compiled for analysis. Using the data, VRIFY generated 211 additional feature engineered data layers, including rock and soil geochemistry maps, vein and fault distant grids, strike field maps, lineaments, density and complexity maps. This is exciting technology, and we are looking forward to the implementation of future drill programs at Avino and La Preciosa. Over to Slide 14. At Avino, the 2025 drilling commenced in April with the program consisting of 9 planned holes from surface with 6 now completed. The objective of the ET area drill program is twofold: one, to test the down dip extension of the system below the current lowest mining level and as well as to test the extension of the system along strike to the west. The Avino vein remains open at depth and along strike and earlier results have shown comparable grades and widths to those currently being mined. Drilling continues with over 3,500 meters drilled to date. The latest results will be publicized when the assays have been received and all data has been verified. At Avino, we are currently mining and hauling from level 12.5 at Elena Tolosa; and as just mentioned, exploration drilling is ongoing on the Avino vein below the ET mine. Over at La Preciosa, a second surface drill was deployed at La Preciosa to confirm prior drill results from previous operators to improve the understanding of grade zonation close to the scheduled mining areas near the ramp. Earlier drill core from previous operators were extensively utilized to provide sample data for earlier technical reports, so remaining samples were limited. Drilling information will be utilized in underground mine planning, 3D modeling as well as an update to the resource estimate that is due Q1 2026. In addition, Avino is planning on releasing its first mineral reserve estimate at the same time. As outlined on Slide 15, I'd like to highlight the company's growth strategy. Within a 20-kilometer footprint, we have 3 key assets, including our operating mill complex, which currently processes material from Avino mine. We also have access to water, power and tailing storage, critical infrastructure that supports our ability to expand production efficiently. Collectively, our assets host 277 million silver equivalent ounces in measured and indicated mineral resources and an additional 94 million silver equivalent ounces in inferred mineral resources, providing a strong foundation for future production growth. As you can see on this slide, our goal is to scale up by 2029 through production from these 3 assets. Leveraging our existing assets and resources, we are well positioned to execute our growth plans efficiently and effectively. We concluded the quarter with more record-breaking financial metrics, which reflect the strength of our strategy and dedication of our team, both which drive our success as we pursue the next phase of growth. On behalf of leadership, thank you to our entire team for your efforts and contributions. We appreciate the continued confidence of our shareholders. With a clear vision and disciplined approach, we are confident that long-term shareholders will be well positioned to share in the success we are working hard to achieve. We'd now like to move the call to the question-and-answer portion. Operator? Operator: [Operator Instructions] Your first question for today is from Jake Sekelsky with Alliance Global Partners. Jacob Sekelsky: So just at La Preciosa, you mentioned that fresh ore is now being processed at Circuit 1. Can you just remind us what the targeted throughput rate is there from La Preciosa over the next few quarters and what that ramp looks like? Peter Latta: Yes, Jake, this is Peter here. So we're starting at 1 circuit, Circuit 1. If you recall, we have 4 independent circuits there at site and we are just filling 1 circuit and we'll be ramping up to filling 2 circuits, the 2 smaller circuits next year. Jacob Sekelsky: Got it. Okay. And I guess, are there any specific levers you think you might be able to pull here over the next quarter or 2 that might accelerate those plans? Nathan Harte: Yes, Jake, Nathan here. I think we've been messaging to the market kind of all year and before is that we want to start with Circuit 1, make sure we've got enough tonnage to get ahead of the mill for a little while to make sure we don't have to do any start and stopping and then try and run -- with the goal of running Circuit 1 and Circuit 2 for pretty much the entirety of 2026. So for now, we're just going to start with Circuit 1, and then we're continuing a lot of development, which I think we've alluded to a few times, we're developing in 4 different areas right now. So yes, the goal is really just 1 circuit for the rest of the quarter and then into 2026 will be 2 circuits. Operator: Your next question is from Heiko Ihle with H.C. Wainwright. Heiko Ihle: Excited to hear at La Preciosa ore getting processed. And obviously, I was at the site last week, it was really nice to be there. But given the strong potential of La Preciosa, can you give a bit of color on what you're seeing with the drilling there versus your prior expectations? I think it'd be helpful to just see like not just as it pertains to grades, but also how you're advancing versus your expectations, rock stability, all that kind of stuff? Peter Latta: Yes. Sure, Heiko. Obviously, we put out those drill results, those 8 holes and some of those are very significant and high grade. So what we're seeing is kind of that -- and there's a great slide in it, but we really see some hotspots in the deposit. And that's kind of what we knew or kind of what we expected, and that's exactly what we're seeing. Also, when it comes to the width, this deposit does pinch and swell. So we're seeing some significant improvements in width in some areas, but that is going to be quite variable. So intervals of beyond 5 meters, which are a typical mining width is what we've seen in some of those drill holes. So that's really positive news. With regards to ground support. This is -- we're still pretty high up in the system. So there is some oxidation, which does require a little bit more ground support, but that's something, once again, that we kind of expected, and we do expect that to decrease as we go further and deeper into the mine. Heiko Ihle: Cool. Nate, hey, earlier on this call, you mentioned accelerating some longer-term plans. I mean this got me a bit curious, what exactly could be accelerated? You have obviously the balance sheet to do it right now, but how much would it all cost? Nathan Harte: Yes. I mean hard to put a number on it right now because the plan -- there's no final plans or anything. Obviously, judging by our balance sheet, you can tell that we have a lot of flexibility moving forward. So we're just undertaking some internal studies that if we get into a position where they get a little more further down the path, we will go public with. But for now, it's -- we're just entertaining on a number of expansion opportunities either at the Avino Mill or potentially some other opportunities on both sides. That's essentially it for now. I can't really put a number on it. Heiko Ihle: I'll phrase the question differently then. What kind of number would you be willing to spend given your current balance sheet? Nathan Harte: We've been pretty disciplined, and it's nice to be in the position we're in. And we do expect to continue to generate pretty solid cash flow quarter-over-quarter, especially as La Preciosa ramps up. So I think we're going to continue to be disciplined in that approach. But if the right expansion opportunity is there and the IRR is there, then we will definitely go forward with it. Again, I don't want to put a number, again, on the call, but we can chat about it later, if you want, Heiko. Peter Latta: Heiko, just to reiterate, we've been laser-focused on developing La Preciosa and bringing it into production. So that's where we're focusing the majority of our energies as far as execution is concerned. And as Nathan mentioned, there is in the background doing some additional optimization studies. Heiko Ihle: Fair enough. Cool. And then one really quick one for Nate. You had a nice FX gain in the past quarter. What are you seeing in Q4 so far that given in a week we'll be halfway through the Q4? Nathan Harte: Sorry, can you repeat the first part, Heiko, I think I just missed that. Heiko Ihle: Yes, no worries. Yes, you had a really good FX gain in Q3, what were you seeing in Q4 so far? Nathan Harte: Sorry, again, I'm not quite sure I understand X, I can't hear it maybe. Heiko Ihle: Foreign exchange, foreign exchange, you made like $1 million... Nathan Harte: Yes. So that's -- thanks for highlighting that. And we did try and highlight that a little bit on the call. But we did -- when we put together a 2025 budget, we did some hedging on a portion between the peso and USD just to protect our cost structure. But yes, we got about $1 million in income from that. And as well, we still have a fairly sizable derivative asset on the balance sheet that will start getting realized in the fourth quarter and into Q1 of next year as well. But we've got a lot of hedges that are in the money that now we started to top up, and we're getting closer to where spot is over the last few months. But yes, moving forward, we should continue to see some more benefits from those over the next 6 months. Operator: Your next question for today is from Joseph Reagor with ROTH Capital Partners. Joseph Reagor: I guess on La Preciosa, 2 questions there. One, Nate, this is probably one for you. From an accounting standpoint, at what point or what factors will make you reach this point where you'll begin to report it as commercial production as opposed to like a CapEx offset? Nathan Harte: Yes. So that's a pretty good question. So that -- the standard of that's kind of changed, like you will -- under IFRS, so which we report on based on the Canadian standards, international standards, I guess. So we will be reporting revenue offset with costs of sales as soon as we start selling, so you don't really -- not like previously, I know with the Avino Mine, probably about 8 or 9 years back. So no, that will be -- we'll be presenting that separately in the MD&A as well to -- as soon as we can and then everything will be attributable to cost of sales. Joseph Reagor: Okay. So immediately. And then on the actual mine plan there, when will we get kind of an official either financial study or guidance or both from you guys as far as tonnes, grade, recovery rate expectations, et cetera? Nathan Harte: So I'll let Peter probably handle the study part of that. But yes, we are moving forward with that. And on the financial side, we will be putting out guidance for 2026 that includes both. And then on public studies, I'll pass it over to Peter. Peter Latta: Yes. No, we'll be looking at putting out reserves next year, I think David mentioned that in the call. That's something we're focused on, so we will have an idea of grades and recoveries and that sort of thing in that study. We won't require, just being a producing issuer, to issue any sort of financial results. That's one of the requirements from Section 22 of the technical report that's not required to issue, but we will have everything else in that report. Operator: Your next question is from Chen Lin with Lin Asset Management. Chen Lin: A great year, guys, congratulations for this; job well done. David Wolfin: Thank you. Chen Lin: Yes. Many of my questions has been answered. I just want to just drill down on La Preciosa. What is the limiting factor, the development or the mill or to limit -- and what do you see the maximum tonnage per day, you can go through process -- mine and process from La Preciosa for the next [indiscernible]? Peter Latta: Yes. Thanks, Chen. Thanks for your question. This is Peter here. So the mill is limited to 2,500 tonnes per day within those 4 circuits, those 2 smaller circuits of 250 tonnes each and then 2 larger circuits of 1,000 tonnes each. And so we are contemplating an expansion of the mill as well. But we're trying to match, obviously, the mining rate and the milling rate. And as we've just gotten into La Preciosa in the last couple of months here, this is -- we've done -- we're ahead of schedule as far as development is concerned. But it's understanding how the rock behaves and the mining rate that we can achieve on a consistent basis before we ramp that up. So that's really what we're doing and keeping in mind that we want to match that mining throughput and mill throughput. Chen Lin: Right. Do you have any -- well, what's the mining limit? Do you have some idea now with 2 circuits supposedly? Peter Latta: Yes. I mean the goal is to ramp to the -- using the 2 small circuits as of next year, as I think Nathan mentioned earlier with the question. And then there are plans that we could potentially fill the entire circuit with La Preciosa. David Wolfin: It's in our long-term mine plan, but we're going to look to shrink that. Chen Lin: Okay. Entire circuit, so I mean entire 1,000 tonnes per day, you are talking about. Nathan Harte: No, 2,500 tonnes. So we're looking -- yes, long term, there is the ability to get up to 2,500 tonnes just at La Preciosa, but as we've all kind of been alluding to, we're looking at expansion plans where we can produce from both assets at a higher rate. Chen Lin: Right. And it seems to be La Preciosa the grade is, it seems to be much higher... David Wolfin: Yes, I can speak to that. So the previous operators drilled approximately 0.5 million meters, 1,500 drill holes, but most of that was on Martha. So there's a lot of potential infill drilling and expansion drilling on La Gloria and Abundancia and some other near surface veins that we're going to go after next year. Chen Lin: Okay. Great. Finally, what's like the permit you have on La Preciosa? What's the maximum you can pull the ore out of La Preciosa from... Peter Latta: The permit isn't restricted by the throughput to pull out of the mine. David Wolfin: And we've tasked our engineers to look at further expansion, underground development for next year. So we're heading to site in a few weeks for budgeting season. I'm sure we're going to be dealing with that. And so we'll make that public once we have it. Chen Lin: Congratulations, again. David Wolfin: Thank you. Peter Latta: Thanks, Chen. Operator: [Operator Instructions] We have reached the end of the question-and-answer session, and I will now turn the call over to David Wolfin for closing remarks. David Wolfin: Thank you. With another strong quarter behind us, which included excellent operational performance, a very healthy cash position, an additional quarter of cash of over $57 million and working capital of $51 million, Avino is well positioned to capitalize on the positive market trends in the precious metals sector. We are focused and on track to deliver sustainable growth and long-term value for all stakeholders and shareholders. Thank you for joining the Avino Q3 call today. Have a nice day. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.